Tax on property income in Romania
Taxation Researcher | December 10, 2020
Effective Tax Rate on Rental Income
|Click here to see a worked example|
Nonresidents are taxed on their income from Romanian-sources. Married couples are assessed and taxed separately; joint taxation is not permitted. No allowances are available for nonresident taxpayers.
Nonresidents are not allowed to directly own Romanian immovable properties.
Income from all sources are aggregated and taxed at a flat rate of 16%.A tax rate of 10% will apply for income obtained by individuals who are residents of an EU Member state or in a state with which Romania has concluded a double taxation treaty.
Rental income earned by nonresidents is taxed at a flat rate of 10%. A fixed deduction of 40% of the gross income is allowed to account for income-generating expenses. Taxpayers may also opt for itemized deductions of all expenses.
A landlord in Romania has the legal obligation to pay the taxes levied on income from property, except in the case of a foreign landlord, when the tax is withheld and paid to the state by the person paying the revenue, meaning the tenant.
No tax is levied on the capital gains realized by individuals from selling real property; however transfer tax is levied on the transfer of immovable property in Romania.
Individuals who sell Romanian property are liable to pay transfer tax, levied on the sales proceeds. The applicable tax rate depends on the property value.
Transfer Tax for Property
|PROPERTY VALUE, RON (€)||RATE|
|Up to 450,000 (€100,000)||0%|
|Over 450,000 (€100,000)||3%|
An exemption from paying the transfer tax on the transfer of Romanian immovable property is allowed under the following circumstances:
- The property transfer was made through the state restitution process
- The property transfer was by inheritance, only if the inheritance was processed within two years after the death of the benefactor. If the inheritance was processed over two years, a 1% inheritance tax is payable by the beneficiaries
- The property transfer was by gift from a spouse or a relative up to the third degree of kinship
Property tax is levied on buildings and the applicable tax rate varies, depending on the building´s classification and property value. Property tax on residential buildings ranges from 0.08% to 0.20%, and property tax on nonresidential buildings ranges from 0.20% to 1.30%.
A local tax is levied on land in located in urban areas in Romania, payable by the owner. The tax rate for urban land ranges from RON0.052 (€0.01) and RON89.21 (€20) per square metre for land in urban areas. The tax rate for land outside urban areas ranges from RON0.01 (€0.002) and RON0.48 (€0.11) per square metre.
Nonresidents cannot directly own Romanian real property. Nonresidents can put up a local corporation in Romania in order to purchase real property.
Income and capital gains earned by corporations are taxed at a flat rate of 16%. Expenses incurred that are directly related to obtaining income can be deducted from the gross income.
Capital gains obtained from sale of immovable property by corporations are included in ordinary profits and taxed at the standard rate of 16%. However, a 10% tax rate will be available from the year 2006, provided that:
a) the property was acquired after 31 December 2003;
b) was held for more than 2 years; and
c) the buyer and seller are not related parties.
Tax depreciation for buildings is allowed using the straight line method. The useful life of buildings is estimated at 10 to 50 years.