Reduced VAT rate of 5% - a solution to encourage the sale and purchasing of new homes in Romania

By: Eli Doron, Adv; Yaron Tikotzky, Adv, (C.P.A); Dr.Slomo Nass, Adv, (C.P.A)

1/1/1900

According to the Emergency Ordinance 200/2008 issued by the Romanian Government, the individuals (unmarried or family) may benefit of a reduced rate of VAT of 5% on the purchase of a single home in such conditions regarding the tax, only if they cumulatively meet the following conditions:

1. Conditions regarding the BUYER:

• the buyer can only be an individual (unmarried or family);
• if the buyer is unmarried, he or she shouldn’t have previousy purchased a house in terms of reduced rate of VAT of 5%; if the buyer is a family, none of the spouses (individually or separately) should have previously purchased a home in terms of reduced rate of VAT of 5%. In both cases, the buyer has to give a statement in front of the Notary Public that he fulfils this condition.

2. Conditions regarding the REAL ESTATE:

• the real estate which is purchased in terms of reduced rate of VAT can only be a new home, respectively it can be an apartment, a house, with or without afferent land;
• the real estate has a value of maximum 380,000 lei (the equivalent of about 92,500 euro);
• the real estate has a useful area of maximum 120 square meters (this useful area does not include the area of the house annexes such as garage, pool etc.);
• in case the real estate consists of building (house) and afferent land, the area of the land on which the house is built, including the footprint of the construction, must not exceed 250 square meters. Also for the buildings with more than two apartments, the joint quota of land afferent to each apartment, must not exceed an area of 250 square meters, including the footprint of each apartment, otherwise reduced VAT rate of 5% cannot be applied, even if the total value of the real estate would not exceed the maximum value of 380,000 lei (about 92,500 euro), as mentioned above. The value of the land also includes the value of the land;
• another condition is that the house should be proper to be inhabited at the moment of purchase. Therefore, it cannot be subject to a reduced VAT rate of 5% a house without finishings, considering that the legal text expressely stipulates the condition that ”the reduced rate of VAT shall be applied only if the houses can be used for effectively living in at the moment of sale”.