Taxation


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 DTA.

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 years.

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 cent.

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.