Dear Stephannie,

Due to the fact that you contacted me previously and I advised you re Tunari area and Sydney development at the time, yet received no news from you, I think it is appropriate to post a for the benefit of other investors what I responded you then.

We don't find Tunari area as a real investment, but rather as a
fashion for developers and real estate agents. However since you've
already bought, here is our advice.

Re the company formation, the developer is asking you this in order to
sell you the plot of land that comes with the house. Please keep in mind
that foreigners can't privately purchase land in Romania UNLESS we are
talking the footprint and that only if you become residents.
We can tell you there are legal ways to avoid the
hassles of company formation and management, however since you've already
signed it's useless to discus these means now.
However setting up company in order to buy a flat in Romania is absurd and
can have negative consequences in terms of investment. Anyone interested should get a pen, a piece of paper and read carefully what I say below.

The formation of a company costs you about 500 EUR. To keep it running you
need to pay an accountant about 100 EUR/month to submit all the necessary
documents to the public institutions and keep the records for you.
Accountancy in Romania is not at all an easy task, as we operate under the
French system which is very different from what you are accustomed with in
Britain and Ireland.

Buying on the company means that when you resell you have to pay VAT 19%
and capital gains (aka income tax) 16%. Both taxes apply to the ENTIRE sum
on which you sell!
Example: you buy a property on the company with 100k and then resell it
for 200k. On the 200k you pay 32,000 EUR capital gains and 31,932.7 VAT.
Developers will tell you that the VAT can be claimed back. It is partially
true: whatever depreciates in between bares also VAT. That VAT can be
claimed back (you're looking into max 6000 EUR if you resell in 2 years or
so)

Due to the fact that you've already went through with the deal and paid a
quite big deposit, we suggest you go on with the deal in this form and
rent the property asap.

david@investmentromania.com

Hi David,

I have read a lot of negative material regarding the setting up of a company to purchase a property in Romania and I am now worried that I have made a huge mistake.

Currently I have signed a contract on a 1 bed off plan in the Rose Garden development, Bucharest, which is due to complete next year. When I first set this company up back in 2007 it was generally accepted that this route would mean that I would avoid paying the VAT. However, I now understand that the law has changed and that the company will now have to pay the VAT anyway (although I may be able to claim the VAT back). So as it appears that the major pro for going the company route has now been removed (i.e. not paying VAT) should I and could I now transfer the contract and therefore the purchase over to myself as an individual?

I presume that I could flip the contract over to myself as an individual as a straight forward sale at the same price as stated in the original contract. Obviously I would lose the amount that it has cost me to date to set up the company, the cost to disolve the company after the sale and the legal fees to transfer the contract, but I am thinking that this may be considerably less than I would lose in the longer term if I continue the purchase through the company.

I would really appreciate any advise that you can offer.

Many thanks,
Ross

Dear Ross

There was never any pro to setting up a company. The only pro was for the agent selling as they could create the illusion of a lesser price. You were either innocentlly or maliciously deceived


Get yourself a good lawyer, pay the VAT on the deposit you have paid reassign the contract into your own name and bin the company.

Reason I say that you need a lawyer as I have saw instances of companies buying and the contracts are ultra vires.

Rose Garden is one of the better off plans in Bucharest so you do not have to worry about your investment. However, I would if I was you take a good look at the agent you purchased from as he or she has does not know this market and you should be reluctant to have any further reliance upon them.

If you have any problems e mail me direct.


David Howe LLB. LLM

INVESTMENT ROMANIA - Investment in Romanaia, Property management, Due diligence, Renting in Romania

I should do exactly as David says because I'll lose lot of money and if you want good legal services for this procedure you can always contact us at office@tarusiasociatii.ro
or +40721959603 or +40213116359
Andrei Taru

Hi there,

I bougght land thru a Romanian person. he holds my land (bare land) . Now I want to transfer the land into my company (to be erected) but the discussion about VAT and income tax seems to be counter productive to the erection of the compnay.

My questions is : if i transfer the land into the company and later resale it(bare land) will I have to pay VAT as well as Income tax on the whole deal?

Can I some how avoid this by creating nother structure that avoid taxes , protect me and my land without opening a company in Romania.

Your answer will e very appreciated


zack

Vat will be applicable to the sale by the company. Company tax will then be applicable followed by divident tax. Conversely, you may be able to sell the shares in the company @ tax of 16%, but not everyone wants this. This would totally depend on the size and potential of land.


David Howe LLB. LLM


INVESTMENT ROMANIA - Investment in Romanaia, Property management, Due diligence, Renting in Romania

Hi David,

Just to clarify :
say I have a land I bought(price is x) and inside the company right now.
the formula for taxes would be :

taxes to be paid = (x+profit)xVat +(x+profit)xcompany taxes....?

Is that true...?

If yes it is anormous tax burden. Can you suggest another way to protect my property without moving it from the Romanian citizen who is currently holding it.

Also , do you know relaiable (english speaking) compnay which can handle sale honestly...?

thank you very much for your time


zack

Is there any legal ways to avoid the creation of the company and still own a land in Romania..?

currently I have some one who is holding the land for me.....but i need control but I am looking at te tax issue (vat plus company tax) and it is not good at all.

I rather have control without a company .... can you help...?

thank you



zack

There are several mechanisms available to you Zack. However, this knowledge comes from professionals who make a living from it in the same way as you receive a salary for your endurances. I think in all fairness it is about as fair for us to disclose this information to you for nothing as it would be for us to expect you to work next week for nothing.

David Howe LLB. LLM

INVESTMENT ROMANIA - Investment in Romanaia, Property management, Due diligence, Renting in Romania