News › Weekly Alert Article

Real estate companies with investments in Romania need to take stock

Romania

Amendments to the Romanian Fiscal Code have been made through the publication of the Government Emergency Ordinance no.34/2009 on 14 April 2009. These amendments will take effect from 1 May 2009 and will afffect real estate companies investing in Romania.

Introduction of minimum corporate income tax liability
Romanian taxpayers whose corporate income tax liability assessed under the general rules - including those being in a fiscal loss position - is lower than the amount of minimum corporate income tax for the corresponding income level presented in the table below, are compelled to pay the corresponding minimum corporate income tax. The total annual income taken into consideration are those obtained as of 31 December of the previous year, from which certain income, such as: income from change in inventory, income from production of tangible and intangible non-current assets, income from cancellation of provisions previously deemed as non-deductible, etc., are subtracted.

Total annual income

(EUR)*

Minimum CIT

(EUR)*

0 -12,000

500

12,000 - 50,000

1,000

50,000 - 100,000

1,500

100,000 - 1,000,000

2,000

1 mil. - 5 mil.

2,500

5 mil. - 30 mil.

5,000

more than 30 mil.

10,000

* Based on a RON/EUR exchange rate of approximately 4.3

 

 

Taxand's Take

The introduction of the minimum corporate income tax liability may affect Romanian real estate investors during the crucial construction development phase (provided that we are referring to construction of properties available for sale (e.g. residential units) and not as investments (e.g. office buildings envisaged to be rented out to various tenants). Real Estate companies need to assess whether they can afford to pay corporate income tax in this position of fiscal loss.

Change in tax treatment of revaluation reserves
Revaluation reserves related to revaluations of depreciable non-current assets and land performed after 1 January 2004 shall be taxed simultaneously with the deduction of the tax depreciation charges or of the expenses incurred with disposal of and/or write-off of the respective non-current assets, provided that the revaluation is recognised for tax purposes.

Until the publication of this amendment, taxation of such revalution reserves was postponed until their change in destination, by means of distribution to shareholders, swap into share capital, etc., and thus, not simultaneously with their deduction for corporate income tax purposes.

As per the related application Norms approved by Government Decision no. 488 of 28 April 2009, reserves of this type existing as of 30 April 2009 in the closing balance of account 1065 "Reserves representing realised revaluation reserves", that have been deducted for corporate income tax purposes, shall be taxed when their destination is changed.

Thus, only the amounts existing as of 30 April 2009 in the closing balance of account 105 "Revaluation reserves" related to tax revaluation performed after 1 January 2004, representing unrealised revaluation reserves, should be taxed simultaneously with the recognition of the tax depreciation charges or of the expenses incurred with the disposal of and/or write off of non-current assets, respectively.

Due to this change in the tax treatment of revaluation reserves, real estate companies will no longer be allowed to postpone taxation where investments increase their market value. Investors should be assessing the impact of these changes now.

To find out more your global Taxand real estate tax team is here to help. Either contact your nearest Taxand real estate tax advisor or our Romania experts for in-depth local insight:

Angela Rosca
Romania
T. +40 21 316 04 93
E. angela.rosca@taxhouse.ro

Cristian Radulescu
Romania
T. +40 21 316 04 93
E. cristian.radulescu@taxhouse.ru

Emilia Dragu
Romania
T. +40 21 316 04 93
E. emilia.dragu~taxhouse.ru


Taxand's Take Author