All properties carry a purchase tax, which must
be paid upon conveyance. This is in the region of 1-2%.
Properties with the exception of land also carry a rate
tax of approximately 1% per year.
Currently you pay 16% capital gains on a property that
you sell within 3 years of purchase that is why we advise
purchasers to look at least 3 years for investment. A
company is taxed at a flat rate of 16%; with dividends
being taxed a further 10%.
Both Ireland & United Kingdom have double taxation
agreements with Romania so any tax paid in Romania is
credited on dues in either jurisdiction
Reduction in Both Income Tax and Profit Tax
Individuals investing in real estate are
subject to individual income tax on the net rental income
- the rent less a deemed expenses deduction. Since 1st
January 2005 the individual income tax rate was reduced
to 16 per cent and the deemed expenses percentage has
been reduced to 25 per cent. Thus the effective tax rate
on the rental fees has been reduced from 20 per cent
to 12 per cent, increasing the return for investors.
If the property is owned by a real estate
investment company, the rental income and expenses incurred
are part of the total profit of the company. Since 1
January 2005 the profit tax rate was reduced from 25
per cent to 16 per cent, which has a positive impact
on the effective return on real estate investments. Dividends
increased from 5 per cent to 10 per cent for natural
individuals, however for residents of a country with
which Romania has signed a Double Tax Agreement (DTA),
the domestic withholding taxes can be overridden by the
Capital Gains on Property Sales
At the sale of real estate by a local company
16 per cent profit tax is due on the difference between
the sale price and the fiscal book value. The capital
gain from the sale of shares in a Romanian company is
also subject to 16 per cent profit tax. Please note that
DTAs do not always allocate the right to tax the capital
gain derived from the sale of shares in a Romanian company
to the country of residence of the shareholder if the
assets of the company principally consist of real estate.
Any profit, including capital gains, obtained by non-resident
companies directly from Romanian real estate is subject
to 16 per cent profit tax. Under the majority of applicable
DTAs, the right to tax this income is allocated to Romania.
A 10 per cent profit tax rate may apply
to capital gains from the sale of Romanian real estate
as well as from the sale of shares held in Romanian companies,
provided the transaction does not involve related parties
and the property or shares were held for more than two
Until now, capital gains on the sale of
real estate by individuals were tax exempt in Romania
(provided that such transactions were not frequent).
Capital gains on the sale of the shares in companies
owning real estate by individuals were taxed at 1 per
But in mid-February the Ministry of Finance
issued a release on the taxation of capital gains, announcing
that individual income tax due on capital gains on shares
will be increased from 1 per cent to 10 per cent as of
1 April 2005. The ministry announced that the 1 per cent
individual income tax would still be applicable for shares
that were held for a period of at least one year prior
to 1 April 2005. The individual income tax on capital
gains from shares acquired less than one year prior to
1 April 2005 should be calculated as the sum of (a) 1
per cent of the difference between the value of shares
on 31 March 2005 and the acquisition price and (b) 10
per cent on the difference between the sale price of
the shares and their value on 31 March 2005.
The reduced 10 per cent rate for capital
gains of companies is expected to be abolished in the
future, implying that these capital gains will be taxed
at the standard profit tax rate of 16 per cent.
The statement also indicated that a tax
may be introduced for capital gains from the sale of
real estate by individuals if made for speculative purposes.
It is expected that there will either be a 10 per cent
tax on capital gains for sale of real estate held for
less than a certain period (probably two to four years),
or a 2 per cent tax on the transaction value if the real
estate is held for less than two years.