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The effects of the new Tax Code on rents: Rising prices, renegotiation of contracts

Building taxation will radically change in the new Tax Code, voted by the Parliament and applicable starting January 1st 2016.

The tax rates will remain the same for non-residentail buildings, for commercial purposes, regardless of the nature of the owner: natural or legal person.

As such, natural persons who owns building which they are leasing will owe bigger taxes than in 2015, from 2016.

The value of the increase depends on the decisions of the local councils, which are entitled to raise them as they wish (according to the Tax Code, the tax rates will be between 0.2% and 1.3%) and on the taxable base of the buliding, which will be the market value. It has to be said that, with the changing of the computation system, the taxe rate will apply to the value presented in the valuation report and not to the taxable base computed by the local council (the number of square meters, multiplied by an adjustment coeficient depending on the rank of the zone)

To better understand the scale of the changes, we will present the following example:

A natural person owns a 100 square metter building in Bucharest, in zone A, which it leases to a company.

Taxation in the present time:

The computation gives a tax of 243 lei.

In 2016:

The computation gives a tax of 5.850 lei

The impact of the increase in taxes for the tenants:

Contexpert estimates that the new computation system will cause the rising of rent prices in the case of contracts concluded with natural persons, for non-residential buildings. Because of this, the contracts will be renegociated as to include the value of the higher taxes. However, where the contracts mention that all expenses (including taxes), are paid by the tenants, there will be no other modifications.

Main provisions of the new computation system:

Tax rates will no longer be settled according to the nature of the owner, but according to the destination of the building: 

In the case of non-residential buildings, the tax rate chosen by the local council will be applied to the value given by a valuation report, issued by an authoried evaluator. Attention! If the natural persons do not acquire any valuations, the tax is calculated by applying the 2% tax rate on the taxable base computed for residential buildings.

Buildings with mixed destinations

If the owners are natural persons, the tax is computed by adding the value of the tax calculated for the surface used for a residential purpose with the tax calculated for the surface used for a non-residential purpose

 

Important:  If a taxpayer who does not carry out any economic activities is registered at the premises, the tax is calculated as for a residential building

If the surfaces used for a residential and non-residential purpose cannot be distinctively identified, the tax owed is:

The tax for building owned by legal persons decreases

The new tax rates will be between 0.2%-1.3%, for residential building, compared to 0.25% – 1.5%, which are the current tax rates. For example, for a building with a taxable value of EUR 10 milion, the tax can be smaller by EUR 20.000.

The valuation report for establishing the taxable base has to be concluded once every 3 years. If not, the tax base will be 5%. At the present time, if the valuation is not conclluded for 3 years, the tax rate varies between 10% and 20%, and for building which have not been valuated in the last 5 years, the tax rate is between 30% and 40%.

Attention: The new Tax Code has been voted by the Parliament on June 24th and sent to the president for promulgation on the 1st of July. The law has not yet been published in the Official Gazette.