Recent amendment on the Romanian Fiscal Code impacting the real estate sector

Given the actual situation generated by COVID-19 pandemic, life, as we know it, has been substantially transformed. In order to minimize the negative effects of such transformation, the authorities have adopted a set of new measures and regulations. Among these recent measures, the authorities, at national level, have decided to amend the Fiscal Code. Therefore, Law no. 248/2020 on the amendment of article 291 of the Fiscal Code (Law 248/2020) has been published in the Official Gazette on 13 November 2020 and shall enter into force at the beginning of the next year, namely on 1 January 2021.

There are a few key points to be considered.

• On one hand, there have been no amendments regarding the facts that (i) the reduced VAT rate of 5% is applied to the basis of taxation for, amongst others, the delivery of housing units, as part of the social policy, including the land on which they are built and (ii) the land on which the housing unit is built also includes the footprint of the respective housing unit;
• On the other hand, what has been amended is the definition provided by the Fiscal Code for housing units, delivered as part of the social policy. As a consequence, the housing units, delivered as part of the social policy, are housing units (i) purchased by individuals, having (ii) an usable area of maximum 120 sqm, excluding household annexes, and (iii) a value, including the land on which the housing units are built, which does not exceed the equivalent in RON of EUR140,000, excluding VAT;

The usable area of the housing unit is the one defined by the Housing Law no. 114/1996, as subsequently amended and supplemented, and the household annexes are those defined by Law no. 50/1991 on the authorization of the execution of construction works, as subsequently amended and supplemented;

The reduced VAT rate of 5% is, however, applicable only to the housing units which can be inhabited as such, at the time of sale;

• The actual difference brought by Law 248/2020 resides in the value of the aforementioned housing units, since the value has now increased from the amount of RON450,000 (approximately EUR92,335) to EUR140,000, thus allowing buyers to afford more expensive housing units at a lower price;
• In respect of the transactions to which the provisions of Law 248/2020 are applicable, the scope of Law 248/2020 includes all transactions which fulfill the requirements mentioned above, concluded after 1 January 2021, the date when Law 248/2020 enters into force. Moreover, we consider that based on the fact that the VAT rate of 5% is applicable only to the housing units which can be inhabited as such, at the time of sale, the scope of Law 248/2020 should also include the transactions initiated before 1 January 2021, but for which the housing units shall be delivered after this date.

Although Law 248/2020 sets forth only one amendment, this amendment is quite substantial in terms of impact, both on the residential market and the ancillary industries, including, but without being limited to the construction sector and the furniture manufacturing industry.

All in all, considering that Law 248/2020 narrows down the restrictions generated by the pricing of apartments, respectively houses, in relation with the corresponding VAT, the residential market may also withstand a transformation process, as investors are now allowed to have a wider perspective regarding the partitioning and organization of the housing units, as well as their price.