Contents
Romania is currently undergoing a profound period of change, marked by economic, social, and political transitions. In this context, the country faces a series of challenges, but also significant opportunities. On one hand, the dynamic nature of fiscal legislation and rapid changes in regulations require companies to continuously adapt and deeply understand new rules. On the other hand, Romania benefits from sustained economic growth and an expanding mergers and acquisitions market, opening new perspectives for investment and development. Additionally, the integration of emerging technologies and the adoption of generative artificial intelligence offer opportunities for innovation and efficiency across various sectors. However, managing risks and maintaining fiscal compliance remain essential aspects to ensure long-term stability and prosperity.
Footnotes:
1) In certain situations (i.e., participation exemption regime or tax treaties), sale of shares held in Romanian companies may be exempt from tax in Romania.
2) This rate could be reduced based on tax treaties or EU Parent-Subsidiary Directive.
3) A reduced capital gain tax of 1% or 3% (depending on the securities’ holding period – i.e., above or up to 365 days, respectively) applies for transactions made through Romanian intermediaries; the capital losses from such transactions cannot be offset or carried forward. Where 10% regular income tax applies, as of 2024 capital losses a carryover period of 5 years applies and it is used to offset up to 70% of the capital gains in each subsequent year (instead of full offset before).
4) The applicable income tax rate is assessed on the value of the transaction, as follows:
• 3% for properties held for up to and including 3 years;
• 1% for those owned for a period longer than 3 years.
5) A 10% health fund contribution is due on the calculation bases of 6, 12 or 24 national minimum gross salaries, depending on the annual income level earned by the natural person.
6) Rental of immovable property is VAT exempt with option to tax. With the option, 19% VAT is due.
7) The VAT exemption can be applied in case of old buildings or non-buildable land (potentially subject to VAT adjustments).
Deductibility of financing costs
A corporate income taxpayer’s exceeding borrowing costs (i.e., the amount by which deductible borrowing costs exceed taxable interest revenues) in relation to various types of financing (including bank loans) may be deducted for CIT purposes up to 30% of the company’s EBITDA, adjusted for tax purposes. This EBITDA limitation is normally applied to those exceeding borrowing costs which are above an annual threshold of EUR 1,000,000 (i.e., the first EUR 1,000,000 would not be subject to the limitation). However, if such costs are with related parties that do not finance the acquisition/ production of certain assets in progress, they will be subject to an additional limitation in amount of EUR 500,000 prior to computing the 30% deduction based on the company’s adjusted EBITDA. This threshold does not apply to credit institutions.
Tax losses
The tax loss realized starting with 2024, will be recovered at a rate of 70% (not in full as before) of taxable profits obtained, over the next 5 consecutive years. The tax losses related to the years prior to 2024, remaining to be recovered, will be recovered within a limit of 70% of the related taxable profits, over a period representing the remaining available period out of the 7 years.
Minimum tax on turnover (MTT)
Starting 1 January 2024, a 1% minimum tax on turnover was introduced for taxpayers with revenues over 50,000,000 EUR during the previous year (N.B., credit institutions and oil & gas players are not subject to MTT, but to a special additional tax on turnover, computed similar with MTT). Taxpayers that, for the reporting year, compute a cumulated CIT lower than MTT (which is established according to a specific formula) are obliged to pay the profit tax at the level of the MTT. For large multinationals such tax may count for BEPS 2.0 purposes (a different global minimum tax requirement).
Micro-enterprise tax (MET) regime
Under the current Romanian tax legislation, a company may fall under the microenterprise tax regime (MET) in case it cumulatively meets the following conditions as of December 31 of the previous fiscal year: (i) has achieved revenues that did not exceed the equivalent in lei of 250,000 euros, or 100,000 euros starting from January 1, 2026. (ii) its share capital is owned by persons other than the state and territorial-administrative units; (iii) it is not in dissolution followed by liquidation, registered in the trade register or at the courts, according to the law; (iv) it has at least one employee; (v) has associates/shareholders who hold, directly or indirectly, more than 25% of the value/number of participation titles or voting rights and is the only legal entity established by the associates/shareholders to apply the provisions of this title; (vi) it has submitted its annual financial statements on time, if it has this obligation according to the law. This system is optional and the MET rates are as follows:
- 1% for micro-enterprises realizing revenues that do not exceed 60,000 EUR inclusively and do not realize revenues according to some specific NACE codes;
- 3% for micro-enterprises realizing revenues exceeding 60,000 EUR or carrying out activities, primary or secondary, corresponding to NACE codes related to software development / editing, HoReCa, legal assistance, medical and dental assistance.
In terms of the EUR 250,000 revenue threshold, the limit is computed considering the income combined with the income of the “related enterprises” according to Law no. 346/2004. Moreover, micro-enterprises are no longer eligible for the tax credit related to sponsorships starting from 2024.
VAT – a Real (estate) Perspective
Taxable supplies of land and constructions (e.g., buildings, other structures fixed on the ground) are subject to reverse charge, provided that both the supplier and beneficiary are VAT registered in Romania. Thus, such parties do not need to prefinance the VAT.
As a matter of principle, leasing, concession or renting of immovable property, as well as granting of real rights over an immovable property, such as usufruct and surface rights, are subject to VAT exemption (option to apply VAT is possible). For a landlord applying this VAT exemption for rental services, as a principle, the input VAT incurred in relation to such real estate should be adjusted (returned to the state budget and booked as a cost). The adjustment is done yearly for each of the years left of the 20 years VAT adjustment period, and not all at once.
Real estate investments placed on hold for objective reasons should not trigger negative VAT consequences. However, during tax audits the inspection teams require minimum evidence of the intention of the taxable person to carry out economic activity, such as contracts with real estate agencies for the sale/rent of the investment etc. Documenting this intention is essential in order to benefit of VAT deduction right.
The VAT deduction related to the purchase, rental or leasing of buildings/living spaces, regardless of their destination, located in residential areas or in housing blocks, and the VAT related to expenses in connection these buildings shall be limited to 50%, if they are not used exclusively for the business purpose. This provision will enter into force starting from the 1st of the month following the date from which Romania is authorized to apply a special measure derogating from the provisions of the VAT Directive.
VAT deduction related to holding companies
Based on settled case law of the European Court of Justice, pure holding companies are not taxable persons from a VAT perspective. However, as per European Court of Justice jurisprudence in case C-320/17 Marle Participations, a holding company which involves itself in the subsidiaries’ management by letting them a building should be given rise to VAT deduction right. Involving the holding company in economic activity could allow VAT deduction right for costs such as legal fees, due diligence fees etc. at the level of the holding company.
VAT implications for natural persons
Generally, natural persons are not deemed to be carrying out economic activity, from a VAT perspective, when selling personally owned real estate, used for personal purposes, and hence do not need to register for VAT purposes. This changes if such natural person is deemed to carry out economic activity from the exploitation of tangible or intangible assets when acting in an independent manner, for the purpose of obtaining income on a continuing basis. For instance, if such natural person builds immovable property for the purpose of being further on supplied, it shall be deemed that such persons started to perform economic activity when the intention to carry out such activity has materialized i.e., at the moment when costs are incurred, or preparatory investments are carried out. In case a natural person purchases land and/or buildings for the purpose of being further on supplied, the supply of real estate is deemed as continuous activity if the natural person makes more than one transaction during a calendar year.
CBAM
In order to keep its producers competitive and to avoid the relocation of production from the European Union to third countries, the European Commission has introduced a carbon tax applicable to imports of products from largest polluters industries, namely for cement, cast iron, iron and steel, aluminum, fertilizers, electricity and hydrogen (“CBAM products”). This is expected to impact construction and real estate sectors as well.
The CBAM entered into force in a transitional phase as of 1 October 2023. The European Union has adopted detailed reporting rules for the CBAM transitional phase. During the transitional period the importers have only reporting obligation, the first reporting period ending 31 January 2024 and covering the last quarter of 2023.
Rental contract registration by individuals
As of 1 January 2025, for co-owned properties, only one co-owner must register the rental contract or addendum, and the contract/addendum must explicitly indicate which co-owner holds this obligation.
Estimated rental income
As of rental income earned in 2025, individuals will no longer be required to estimate their income tax and health fund contributions.
New obligations for certain rental income payers
Rental income payers are required to issue a document certifying the amount of income tax withheld and paid to the tax authorities upon the owners’ request.
Special provisions for rental income in kind/ guarantee used to offset rent
The income tax reporting and payment obligations stays with the individual earning rental income in kind or who received the guarantee that was used subsequently to offset rent, even if the payer is a legal entity or an entity required to maintain accounting records.
New obligations for certain payers of income from transfer of immovable properties
As of 1 January 2025, several changes have been introduced as regards the taxable value where the contractual transaction price is lower than the minimum market value. Also, the legal entities and other entities required to maintain accounting records must report (via Form 217), withhold and pay income tax on income derived from the transfer of property rights under a suspensive condition.
Property tax reform
Starting 2026, new local property tax rules will take effect (the legislation was adopted in 2022, but its application is deferred until 2026). The tax rates will have no maximum cap anymore and taxable values are expected to be much closer correlated to market values. This will lead to larger costs for most taxpayers and may impact ROI calculations of investors.
Tax on constructions
As of 1 January 2025, the construction tax is reintroduced. This is calculated by applying a rate of 1% to the value of the buildings existing in the taxpayer’s patrimony on 31 December of the previous year, less the value of the buildings for which building tax is due. This also applies to the value of buildings in industrial, scientific and technological parks which, according to the law, are not exempted from the payment of building tax.