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The legal aspects of buying and owning real estate in Romania have also changed in 2005. Law No. 247/2005 is now the ruling text for any real estate transactions and ownership. It is a deep, comprehensive text of 193 pages and here is a brief outline of it:
Land And Property Acquisition And Ownership
Currently foreigners can directly buy property without any restrictions in Romania, with all the privileges and duties of the locals. Land cannot be bought directly by foreign citizens until at least three years after Romania’s EU entry. However, land can be bought by forming a Romanian company.
Property Transfer Tax
The sale and purchase of real estate located in Romania are subject to stamp duty and notary fees. Stamp duty is charged as a percentage of the value of the transaction (the marginal rate is approximately 0.5%) to which a similar amount in notary fees is generally added.
Value Added Tax
If land is bought using a company as the vehicle it is subject to VAT charged at the standard 19%. However, special VAT simplification measures apply in the acquisition of land and buildings, provided both the seller and the buyer are registered in Romania for VAT purposes. In this case, the seller and the buyer account for both input and output VAT without any VAT cash flow.
Capital Gains Tax
Non-resident legal entities are taxable in Romania at the standard profits tax rate of 16% for the capital gains realised from selling ownership rights over a local company. Profits derived from the direct sale of real estate in Romania used to be also subject to the standard 16% tax. However, starting from 1st January 2007 real estate transactions (land and property) are taxed at 3 - 5% of the declared value of the transaction.
Rental Income Tax
Rental income from immovable property is taxed in Romania at the standard profits tax rate of 16%.
Dividend Tax
Dividends paid abroad by a local company from its profits are subject to a 16% withholding tax in Romania. However, this tax may be reduced (even to zero) under the provisions of some of the double tax treaties signed between Romania and other countries.
Local Taxes
Owners of buildings are required to pay an annual building tax to the local authorities. For companies, such building tax would range between 0.5% and 1% of the book value of the building. Land owners are liable to pay the tax on land, which is established as a fixed amount per square meter, depending on the location, but this is usually a negligible amount.
Lawyers
In a country like Romania, it is imperative to have a good English-speaking lawyer.