Contents
Contents
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 non-taxable ceiling of RON 450,000 was eliminated and 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)As of 1st of January 2024, the 9% (instead of 5%) reduced VAT rate applies for supplies of social housing under the threshold of RON 600,000, exclusive of VAT, having a maximum useful surface of 120 sqm, acquired by natural persons. Any natural person can acquire, as of 1st of January 2024, a single housing under RON 600,000 with 9% VAT. By means of exception, during 2024, the reduced VAT rate of 5% can be still applied for such supplies of housing, if any advances were contracted between 1 January 2023 – 31 December 2023.
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 corporate income tax 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 starting 1 January 2024, if such costs are with related parties that do not finance the acquisition/production of certain assets in progress, they will be subject to a newly introduced 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
Starting 1 January 2024, a 1% minimum tax on turnover is introduced for taxpayers with revenues over 50,000,000 EUR during the previous year (N.B. credit institutions and oil & gas players are subject to special rules/rates). Taxpayers that, for the reporting year, compute a cumulated CIT lower than the tax on turnover established according to a specific formula are obliged to pay the CIT at the level of the minimum tax on turnover. For large multinationals such tax may count for BEPS 2.0 purposes (a different minimum tax requirement).
Micro-enterprise tax regime
Under the current Romanian tax legislation, a company may fall under a corporate income tax regime or a microenterprise tax regime. Starting 1 January 2024, micro-enterprise income tax 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.
Moreover, starting 1 January 2024 in order to be eligible to apply this regime the condition of ownership by associates/shareholders has been limited to 25% direct or indirect ownership in only one company (as opposed to three companies until then). Timely submission of annual financial statements is a new requirement to use this tax regime.
In terms of the EUR 500,000 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 related to 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 is 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.
VAT deferment certificate
As of 1 January 2024, persons who have obtained an authorized economic operator certificate (“AEO”) can no longer access the import VAT deferment facility solely based on AEO. This facility will apply in case of submitting a customs declaration by using centralized customs clearance (procedure for which holding the AEO certificate is mandatory) or the simplified procedure of entry in declarant’s records.
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.
New rules of taxation of rental income for natural persons
Rental income (other than from agricultural land lease/ rental for tourism purposes/ paid by legal persons or other entities having the obligation to keep accounting records) earned starting 1 January 2024 is subject to income tax on the gross income minus a deductible expense quota of 20% and is determined by the individual taxpayer based on the annual tax return. However, rental income paid by legal persons or other entities having the obligation to keep accounting records, is subject to income tax withholding at source, while the same deductible expense quota of 20% applies.
The option to determine the taxable rental income under the “real system” is eliminated.
A new special tax introduced for natural persons. As of 1 January 2024, a special tax of 0.3% is due from natural persons owning high-value residential buildings, i.e. on the taxable value exceeding the threshold of RON 2.5 million.
Property tax reform of 2025
Starting 2025, new local property tax rules will take effect (the legislation was adopted in 2022, but its application is deferred until 2025). 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.