Foreign buyers of Romanian property bought in the name of a Company...

TVA, Company Ownership and all that jazz

Many foreign investors of Romanian property were given advice that might be considered incorrect by today’s standards. White Mountain Property manages numerous properties that have been put inside a company.

A better option is simply to put only the land in the name of a Romanian SRL company and put the building itself in the name of a physical person, i.e. ‘Persoana Fizica’

Better still, for all EU citizens, is to obtain residency (24-48 hour procedure) and put the land and the property in the name of the owner and discard any SRL holding company.

By placing the property inside a company, when selling, owners might pay TVA on the sale income, plus profit tax on any gains. Not to mention the fact that you need an accountant to manage the non-functioning company, even if frozen in the eyes of the State. Every 3 years, owners MUST revalue the property, using a registered and approved Valuer, and that value must be passed to the accountant to adjust the books so that the annual building tax, which is set at 1% of the buildings booked value is accurate. Failure to update the accounts every 36 months usually results in an automatic State Penalty of 10% of the building value.  Almost every accountant we encounter at White Mountain Property is unaware of this fact and so, the first the owner hears about it is when the State issue a Tax request for 10% of the asset value, usually many months after the deadline and recalculations of value, although feasible and normal, cannot be back claimed.

Example:  Jo Blogs bought a simple apartment or house for 80,000e in October 2007, in the name of his company, SC Jo Blogs SRL. The company has no activity and no rental income. Just a straight forward, empty property and non active holding company.

Each month or quarter, Jo Blog’s accountant will file accounts to declare zero activity and every year, submit a year end balance.

Every 3 years, the owner must organise a revaluation report (around 100e) and pass it to his accountant to update the accounts. Again, many Romanian accountants we have encountered seem unaware of this key event.  

So, for Jo Blogs, he needed to revalue by Oct 2010, Oct 2013, Oct 2016 and so forth.  The owner , Jo Blogs then pays 1% tax each year to the State, of the building value in the accounts, which is often much less than the actual property value, and a token tax payment for the land value.  For an 80,000e property, Jo Blogs might expect the building value to be 35 or 40,000e, and hence his annual tax would be 400e. However, if the 36 month deadline is missed for a revaluation, the tax rises to 10% of the asset value and in Jo Blogs’ case, this 4000e per year!

It is correctable by submitting a revaluation report after the event, but the months that penalties have been paid is not reclaimable.

So, if the issue was discovered in February 2011, 4 months late, Jo Blogs would have paid four 12ths of 4000e, i.e., 1333 for those 4 late months, in penalties.

From the moment is accountant is able to resubmit the revised accounts, the asset tax drops to 1%, or 40e per month.

Our recommendation is, using the help of a tax specialist, consider transferring to the owners name the asset & consider discarding the company by freezing it, rather than closing (which is easier, and dies automatically after 3 years this way) or sell it to someone seeking a trading history. Move the assets into private names. The transaction will incur the usual Notary fees most likely but with the right tax advice, may not incur any TVA or profit tax, in accordance with Romanian Fiscal law. However, this is a specialist subject and you should only make such a transaction with a respected, well recognized tax advisor. They are few and far between, so be careful about working with the first person who sounds confident as you stand as much chance of getting it right, as wrong.

We will be happy to advise clients through this process if required. Please contact us at info@whitemountain.ro