New Fiscal Code provisions regarding tax on buildings to affect individuals, legal entities and local authorities

The new Fiscal Code set to be implemented starting January 2015 will have several consequences for individuals, legal entities but also local authorities when it comes to the new provisions of the tax on buildings. The National Association of Authorised Valuators in Romania (ANEVAR) President Adrian Vascu detailed the situation at a press conference yesterday.

When it comes to individuals, the first impact that the new Fiscal Code will have is an increase of up to 30 percent in the tax on buildings. “The tax will increase with around 30 percent because the tax base has increased from RON 935 to RON 1,000, the coefficient of conversion from usable floor area to gross building area has also increased from 1.2 to 1.4,” stated Vascu. Furthermore, “What is new about this fiscal code is that it aims to no longer tax properties based on the building owners but rather to tax them based on the use of the building,” said the ANEVAR president.

The situation for non-residential proprieties owned by individuals, such as “hotels, malls, commercial spaces, gas stations, etc”, will also change with the new code, said Vascu. For tax purposes, the old code treated these properties as if they were apartments, “and there was a significant difference between, let’s say, individual owners of shopping malls and legal entities owning shopping malls, the latter paying a tax correlated to their net asset value,” explained Vascu, saying also that now that inequality has been eliminated with the new code. In this case, ANEVAR expects the tax to go up next year.

Another problem arose regarding business offices and registered sole traders (PFA), as to how they could be categorised, residential or non-residential. Mixed use appears in that case, said Vascu, but what is important is that there are distinct cadastres and so distinct evaluations can be made. The problem remained for apartments, which “cannot be divided because you can’t have a cadastre for the living room and access to the kitchen and bathroom,” said Vascu. The fiscal code says that the way the utilities are deducted will be the deciding factor in such cases. “If the utilities are paid by you, the individual, it stays a residential property; if the apartment is rented to the registered sole trader but paid through the business, then it becomes non-residential,” he explained.

As for legal entities, the first thing that the code will change is the fact that the tax on buildings will no longer be based on the net asset value from the balance sheet, and the taxable amount will only be used when dealing with local authorities, stated ANEVAR. Furthermore, “in article 400 of the new code it states clearly that the taxable amount for 2016 is the value from 31 December of the year before,” said Vascu, adding that two of the six options available to legal entities are that they “can register with FISC the building keeping the current taxable amount or they can make an evaluation report, which they can present to the local authority”.

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The code remains unclear regarding the implementation of sanctions in the form of higher taxes if legal entities don’t present an evaluation report in three years. “We had a conversation with the Finance Ministry in this sense, asking for a clarification of when from the three years are being counted. From what we understand, it will be from history, and as such if those who had an evaluation made for 31.12.2012 opt to carry on the previous value for tax purposes instead of making a new evaluation, I believe that they will pay a higher tax,” said the ANEVAR president, mentioning that the association is waiting for the fiscal code’s implementing regulations to clarify things.

Finally, as for how the new fiscal code’s provisions for the tax on buildings will affect local authorities, they will have access to the taxable amounts of non-residential buildings belonging to individuals but also the taxable amounts of buildings, both residential and non-residential, belonging to legal entities, said ANEVAR, mentioning that these will be made available by taxpayers. Furthermore, “each local administration will receive an evaluation report for all the buildings owned by taxpayers in their administrative territory”.

BIG and BIF

In July 2015, the National Association of Authorised Valuators in Romania started the Real Estate Collateral Database (BIG) project, and has so far collected over 25,000 valuation reports. “In fact, the database was not thought of as only an information source, but also an instrument of preventing mishaps, because it monitors the activity of our members when it comes to valuations for guaranteeing a loan,” stated Vascu.

The value of collaterals that valuators have estimated for the July-September period is up to EUR 4.116 billion, with most evaluated properties for the awarded credits being the residential ones (73.05 percent), followed by 10.61 percent from lands, states the BIG report for the third quarter of 2015. The most valuable properties, however, says the same report, come from the commercial area with the 2,283 commercial properties evaluated for credits having a value of over 1.2 billion euro in the targeted three months. As for the cities with the most expensive properties, Bucharest comes in front, followed by Cluj, Timisoara, Constanta and Brasov, says the report.

Starting next year, ANEVAR is also planning on launching a second database entitled Fiscal Information Database (BIF). “All valuators will report the results of their evaluation for tax purposes before sending their reports to FISC,” Vascu explained.

Andreea Tint