How much tax will you pay on a real estate investment in Romania
Is real estate investment in Romania the new substitute for investors? Just before deciding on real estate investment, you must consider the taxation in the intended country of investment and its completion in Israel.
Adv. Ilan Leibovitch / 02.03.23
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First things first – residents of Israel are obliged to report to the tax authorities in Israel about ownership of property abroad and also about any income they yield from said property abroad (even if in practice you did not physically withdraw the income from abroad to Israel).
Below are the number of steps you must check
First step
- Study the local taxation laws in the country where you intend to purchase the property.
- Study and understand the system of taxation laws in Israel on real estate investment abroad.
- Check whether there is a tax treaty between the country in which we intend to invest and Israel.
* The Israeli real estate taxation law does not apply to properties abroad, (that is, the purchase of real estate abroad does not affect the taxation of the purchase of an apartment in Israel, there is no significance to the number of apartments an investor has abroad or to the properties he rents out in Israel or to the appreciation tax he must pay in Israel when selling an apartment in Israel).
Second step
It is essential to plan the nature of the investment,which is will I purchase a single property or several properties.
There is a fundamental difference between a private investment (an individual purchasing an apartment) or in the case of a company purchasing properties. For each of the cases there is a different procedure and a different taxation calculation. If you invest in real estate overseas through a company, the company’s maintenance expenses must be taken into consideration.
Taxation on real estate investments in Romania
When purchasing real estate in Romania, the real estate transaction will be carried out before a notary, who is responsible for collecting the taxes from the parties of the transaction and transferring them to the tax authorities, as well as for registering the transfer of rights in the local land registry.
As of the publication date of this article (March 2023) the tax on the purchase of a real estate property (first or second hand) will be between 1% and 3% which also includes the notary’s fees.
When purchasing a firstnew apartment the VAT will be:
- Up to 600,000 lei (local Romanian currency) you will pay VAT at a reduced rate of 5% (Please pay attention to the size of the apartment/house and the size of the lot on which the house is built because they meet the legal requirements for reduced VAT).
- A buyer of an apartment/house with a price exceeding 600,000 lei will pay 19% VAT.
Photo illustration: Photo Bank
Tax treaty between Israel and Romania
For rental income, a private investor will pay a 10% tax in Romania and a company will pay a 16% tax.
In addition, an Israeli investor will also be required to pay tax in Israel. There is a tax treaty between Israel and Romania, within the framework of which it was agreed that a real estate investor will not pay double tax, so that an Israeli who pays tax in Romania on rental income will only pay the difference in Israel.According to the Income Tax Ordinance, there are 2 taxation routes from which the investor will choose in relation to tax liability in Israel:
- Taxation of rental income in Israel according to Section 121 of the Ordinance – in accordance with the applicable marginal tax rate, minus the expenses allowed by law (renovation expenses, maintenance, etc.).
- Taxation of rental income according to section 122a of the Ordinance – the tax on rent is at a uniform rate of 15% minus depreciation expenses only.
Let’s take for example a house for which the paid rent is 1,000 euros per month.
The annual income from rent –1,000 euros X 12 = 12,000
The tax to be paid in Romania at the rate of 10% = 1,200.
The tax to be paid in Israel when choosing to pay according to section 122a of the ordinance – 12,000 X 15% = 1,800 Euros, of which a total of 1,200 euros was paid in Romania.Therefore, a total of 600 euros will be paid as payment of tax in Israel.
Tax payment when selling the property:
When selling the property in Romania the sums to be paid are as follows:
In Romania – if the investor has owned a property for more than 3 years, there will be an exemption from tax on the sale.
If the investor sold the property before the passing of three years, the tax will be at a rate of up to 5% (the tax changes from time to time and according to the profit rate).
In Israel – the investor will pay capital gains tax at the rate in accordance with the law on the difference between the purchase price of the property and the sale price. Currently the investor will pay a total capital gains tax at a rate of 25% of the profit (these percentages include tax paid in Romania for this profit to the extent that it was paid).
for example:
A house purchased for 195,000 euros and sold after a minimum of three years for 250,000 euros.
The profit on the sale of the house – 55,000 euros
The tax to be paid in Israel – 13,750 euros.
The tax issue for real estate investors on income from abroad changes frequentlyand requires specific reference to each private case according to the personal data of each investor or company.
The above does not constitute a recommendation and/or legal advice and/or accounting advice and you should not rely on the above but seek specific advice. It is possible that the said is not up-to-date and it remains on the site only due to its interest.
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