By Government Ordinance no. 16/2022 for amending and supplementing Law no. 227/2015 regarding the Fiscal Code, the abrogation of some normative acts and other financial-fiscal measures, published in the Official Gazette no. 716 of July 15, 2022 (Ordinance 16/2022), a series of amendments and additions to the fiscal regime have been made that concern, among others, the regime of micro-enterprises, excise duties, hospitality sector, part-time labour agreements, VAT etc.
Below we briefly present some of the most important changes with impact on the Romanian real estate market, most of these entering into force starting January 1, 2023.
1. VAT rate of 5% for real estate transactions
a) The threshold up to which a reduced VAT of 5% can be applied for the delivery of residence (with a usable area of a maximum 120 sqm, excluding household annexes but including the supporting land, acquired by individuals independently or jointly) has been decreased to Lei 600,000.
b) Individuals will be able to acquire, starting January 1, 2023, independently or jointly, a single residence whose value does not exceed Lei 600,000, with a reduced rate of 5%.
c) The terms concerning the "Register of residential units purchases with a reduced VAT rate of 5% beginning with January 1, 2023" were updated to include references to its organizing procedure through an Order of the National Fiscal Administration Agency (ANAF), issued with the consultation of the Romanian National Union of Public Notaries.
d) As an exception from the newly introduced provisions regarding the criteria for applying the reduced VAT rate of 5% for the delivery of residential units, transitional measures have been introduced for agreements concluded before January 1, 2023 and which have as their object the advance payment for the purchase of such residential units (i.e., pre-sale-purchase agreements). Thus, based on the transitional measures, in 2023, the reduced VAT rate of 5% will also apply to:
- The delivery of residential units with values up to the amount of Lei 450,000, acquired by individuals, if they have concluded by January 1, 2023 agreements having as object the advance payment for the purchase of such units. In this case, the purchase will not be taken into account when evaluating the acquisition limit mentioned above.
- The delivery of residential units whose value exceeds Lei 600,000 but does not exceed the amount of Lei 700,000, acquired by individuals, if they have concluded agreements inter vivos until January 1, 2023, having as object the advance payment for the purchase of such units. The public notaries will be obliged to verify and register these transactions in the "Register of residential units purchases with a reduced VAT rate of 5% beginning with January 1, 2023". If the conditions are not met, the public notaries will be able to authenticate the documents only if the delivery is made with the standard VAT rate.
e) For a better understanding of the changes, the current VAT conditions valid for the year 2022 should be observed:
- The threshold for the acquisition of a residential units with 5% VAT is Lei 700,000;
- 5% VAT regime applies only to the acquisition (by one or more individuals jointly) of one residential unit valued within the range of Lei 450.001 – 700,000;
- There are no restrictions on the number of transactions that can be concluded with 5% VAT for residential units valued up to Lei 450,000;
- The Register of individuals who have purchased residential units with a reduced VAT rate of 5%, priced within the range of Lei 450,001 - 700,000, shall be set up as of January 1, 2022.
2. Tax on buidlings
a) Tax rate for residential buildings will be a minimum of 0.1% applied to the taxable value of the building, and for non-residential buildings it will be a minimum of 0.5% applied to the taxable value of the building. By way of exception, buildings used for agricultural activities are taxed at a rate of 0.4% applied to the taxable value of the building. Current tax rates are between 0.08% - 0.2% for residential buildings and between 0.2% - 1.3% for non-residential buildings, applied to the taxable value of the building and the local authorities establish different rates from this range for individuals or legal entities.
b) The tax rate for buildings is determined by the decision of the local council. In Bucharest, this attribution belongs to the General Council of Bucharest Municipality. For the year 2023 the local councils/General Council of Bucharest Municipality will adopt decisions regarding the levels of local taxes within 60 days from the date when the Fiscal Code is republished in the Official Gazette.
c) Simultaneously with the removal of the phrase "mixed used building", Ordinance 16/2022 provides new rules regarding the way of calculating the buildings’ tax for units having both residential and non-residential spaces. Respectively, for these buildings, the tax is determined in consideration of the intended use for areas measuring more than 50% of the building, with the corresponding quota applying to the entire building.
d) Changes are also introduced in terms of the taxable value of the building. Thus, the taxable value of the building will be determined by adding up the value of the building, the annex buildings, if the case, and the value of the land covered by these buildings, as included in the Market Studies regarding the indicative values for real estate properties in Romania, administered by the Romanian National Union of Public Notaries.
e) Where the value from the Market Studies is lower than the taxable value recorded on December 31, 2022 according to the regulations in force on this date, the minimum rates of 0.1% (for residential buildings), respectively minimum 0.5% (for non-residential buildings) will be applied to the value recorded on December 31, 2022.
f) At the same time, the differences in taxation depending on the quality of the owner (individual or legal entity) are eliminated and the tax will continue to be calculated separately for buildings and land. The current tax system for land plots has been maintained.
g) The local tax authorities will send notifications to taxpayers indicating the taxable value and the related tax. Absence of any objections from the taxpayers within 30 days from receiving the notification will be deemed as tacit consent.
3. Taxation of real estate transactions
a) The non-taxable threshold of Lei 450,000 is removed and the tax rate is changed as follows:
3% for buildings owned for a period of up to 3 years;
1% for buildings owned for more than 3 years.
b) Under the current regulations, no tax is paid for properties with values below Lei 450,000; 3% tax is due for the amount that exceeds Lei 450,000.
4. Tax on rental income
a) For income made since January 1, 2023 from lease agreements (other than agricultural leases and tourism leases), the tax will be calculated on the gross income. Thus, the flat rate of 40% which is currently deducted when calculating taxable income is eliminated.
b) In case of lease agreements concluded starting from January 1, 2023, the obligation to register with the fiscal authority the agreement concluded between the parties, as well as the subsequent amendments, within no more than 30 days of its completion or of its amendment has been reintroduced.
5. Social health insurance contribution for individuals
a) The contribution (10%) due for any income such as rental income, income from independent activities, income from investments, earned starting from January 1, 2023, will be calculated against three reference values, namely 6, 12 or 24 minimum gross country salaries (currently, the computation base is 12 salaries). The applicable reference value shall be determined in accordance with the income level.
b) For the rental income the relevant value shall be the gross income and not the net income (gross income reduced by the flat rate of expenses of 40%) as stipulated by the Fiscal Code until the changes introduced by Ordinance 16/2022.
6. Income from dividends
a) The dividend tax rate is increased from 5% to 8% for all dividend beneficiaries (individuals and legal entities, Romanian and foreign) starting with the dividends distributed after January 1, 2023.
7. Changes to the tax incentives in the construction sector
a) The income tax exemption for individuals who obtain income from salaries or assimilated to salaries in the construction sector applies only for a gross income of up to (and including) Lei 10,000 (former value was Lei 30,000). This amendment entered into force on August 1, 2022.
b) Starting with the incomes obtained in January 2023, the tax incentives will apply only to the income obtained under an individual employment agreement, eliminating the possibility to grant the income obtained from other contractual relationships (e.g., administration agreement, management, apprenticeship, internship, etc.);
c) As of 18 July 2022, the reference turnover for the application of the construction-specific tax incentives will be calculated only for the current year, eliminating the provision that the tax incentives could also be applied if the turnover condition was met in the previous year, no further validation being required during the current year.
By Oana Albota, Partner, Diana Badea, Senior Associate, and Bogdan Roscaniuc, Senior Associate, Albota Law Firm
