Fitting, modernization, expansion, modification or enhancement of a rented space may attract, under certain conditions, the obligation of paying the tax on special constructions. Although many companies are in such a situation, the impact has been underestimated until now. One reason is the rather less explicit legal provisions both of the Tax Code atand its implementing rules. For the same reason, the interpretation of the local authorities may differ and the risk doubles. Many companies may have the surprise not only to pay an additional tax, but also interests and penalties.
As this tax must be paid every year, the attention has to be utmost. Companies have the opportunity to review the accounting treatment of the construction works in order to avoid extra expenses in the future. Contexpert points out the main issues, but underlines the solutions are not generally valid, each case requires a different approach.
The context: Why do the tenants have to pay the tax?
To identify who and in what circumstances is obliged to pay the tax, we have to interpret the provisions of three regulations: OUG 102/2013 (which introduced the tax), HG 421/2014 (applying the tax rules), and HG 670/2012 (implementing rules on declaring the construction works to the owner).
Though the tax for the construction works as fitting, modernization, expansion, modification or enhancement of a rented space depends on two situations.
First case: The tenant pays
If the value of the construction works is less than 25% of the building, the tenant is not required to notify the owner. Therefore, the owner does not pay local tax on buildings for the job. In conclusion, the tenant owes tax of 1.5% of the work.
Second case: The tenant does not pay
If the value of the construction works exceeds 25% of the building, the tenant is obliged to notify the owner for him to declare and pay the appropriate tax on buildings. The tenant does not owe the tax.
Note If there are executes several works during a fiscal year, with an aggregate value of more than 25% of the work, the tenant has to notify the owner in order to pay the buildings tax.
The third case: And yet the tenant pays! ?
Sometimes the tenants did not notify the owners even if the value of the works exceeded 25% of the building. The owners, obviously, did not pay the buildings tax. Consequently, the tenant should pay the construction tax, but ..
Note! The threshold of 25% of the building over which the tenant is obliged to notify the owner was established in 2012. Previously, tenants were obliged notify the owner, no matter the value of the works. In this situation, the tax authorities’ approach could create the most difficult problems. Theoretically, the tenants should not pay the construction tax even if they did not notify the owner. But each case will require a separate analysis as the local or tax authorities are likely to interpret the law abusively.
Tax deduction
These types of works are deducted from the construction tax as long as the documents prove they were notified before. Also, the construction tax is deductible in determining taxable profit.
Attention! The construction tax cannot recalculated within the current year as it applies to construction value at 31 December of the previous year.
Contexpert advice is to review all the above issues and make a reassessment of construction tax obligations. Difficulties in its application, reported since the advent of the provisions in the fall of last year, could put extra pressure on your business. Avoid unpleasant surprises!
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