Romania’s taxation system is not noted for its clarity and it does no harm to remind investors of the current position under Romanian law. So this week I thought as prudent Lawyers in Romania we would revisit some tax aspects.
Starting with 2007 the Romanian tax system changed in respect of real estate transactions. The legislators sought to impose a taxation system in Romania applicable to all Romanian real estate transactions irrespective of how long the seller had owned the property. This was to ensure that all the owners would pay a tax when they sold their Romanian properties.
The percentage of tax payable is different depending on the value of the property and for how many years the owner has owned the property before it is sold. The Romanian legislators to clarify the position simplified the calculation and the collection of the tax.
The current method of calculating the tax is based both on the value of the property and how long the seller has held the property. The rules now are that if the property is sold within three years of its original purchase the owner is required to pay a tax of three per cent on the value of the property up to two hundred thousand Lei and thereafter the tax will be six thousand lei plus two per cent of the sale price in excess of two hundred thousand Lei.
If the seller has owned the property for more than three years then the tax is slightly lower. The tax in this case is two per cent of the sale price up to two hundred thousand lei. Above two hundred thousand lei the tax is four thousand lei plus one per cent on the amount exceeding two hundred thousand Lei.
To improve collection of the tax the state provided that the person who collects the tax is the Romanian public notary that prepared the transaction documents, and in front of whom they were executed. At the moment the property is transferred, the notary calculates the amount of tax and then collects the tax due from the seller. The role of the notary in this process resembles the collector of the VAT who is bound to account for it to the financial authorities. It is mandatory that the notary transfers to the Romanian State Budget the taxes collected by the 25th of next month.
One question is what happens when the notary does not transfer the money that they have retained to the State Budget on time, if at all? In practice, there are situations when the taxes are not paid on time. The reasons for the delays may have several explanations.
Sometimes, the Notary who receives these amounts forgets that they actually serve as a tax collector for the State. The money does not belong to them. The imposition of a legal deadline can lead them believe that the only penalty payable would be a penalty for late payment. This is incorrect. In fact, the role that the law gives them for the collection of these taxes is more important.
They retain money by the process of withholding the tax. Not paying the tax within 30 days of the due date can attract a criminal sanction. This is sanctioned by art. 6 of Law no. 241/2005 for preventing and combating tax evasion and are punishable with imprisonment from one year to three years or a fine which is imposed on the Notary.
There is no liability on the tax payer for the non payment of the tax as they have already delivered the tax to the Notary for payment to the State. In practice this means that notaries must be very careful in terms of retaining this money, and assuming the role of a tax collector for the State. If a Notary defaults on the payment there is the possibility to be criminally liable as mentioned above.
Currently to speed up the collection of taxes the Romanian State through specialized inspectors is trying to discover those notaries who fail to transfer in time the amounts withheld at source. As real estate represents an important part of the economy and generates a large amount of money the notaries are in the sights of the fiscal authorities to expedite payments. Whilst the notaries are apparently carrying a burden when it comes to paying these taxes it should be stressed that they collect these taxes on behalf of the Romanian State and they do have a responsibility to ensure that they are collected and paid over according to the law.
The advantage to the seller of property is that he does not have to worry about the payment of these taxes as they have already been collected. He receives the net amount when the property is sold free of all taxes and can then deal with the net proceeds of sale as he wishes. All Romanian lawyers should explain this to the seller so they can plan accordingly.