On 1 January 2014, the Romanian Government
introduced a new property tax, namely a tax on constructions. This
tax has proven to be controversial, with many deeming it to
constitute a severe tax burden for any capital intensive businesses
such as energy, telecom, or even retail.
The purpose of the construction tax is to capture under its scope
and tax all types of constructions and assimilated assets other
than buildings, which are subject to another property tax, the
so-called building tax.
The construction tax, which is due yearly, was initially set at
1.5% of the gross book value of qualifying assets at the end of the
previous year.
Following the negative reaction of the business community and the
widespread debate the construction tax has caused, the Romanian
Parliament adopted Law 11/2015 at the beginning of 2015, bringing
about significant amendments to the relevant legal provisions for
the construction tax.
Amongst the most relevant changes brought by the Law 11/2015 is the
decrease of the tax rate from 1.5% to 1.0%. Moreover, the law has
introduced additional exemptions for the following types of
constructions, which are to be deducted from the taxable base:
- Reconstruction, upgrade, consolidation or extension works made by the lessees to rented buildings; this exemption is particularly relevant for businesses with large retail networks (e.g. banks, retail stores), which commonly rent office/retail spaces and make significant improvements to them. Before this exemption was enforced, the improvements made by the lessees also fell under the scope of the special construction tax, thus generating significant recurrent costs and involving potential double taxation.
- Constructions located outside the Romanian borders, including those in the contiguous zone and the exclusive economic zone; this exemption is particularly relevant for oil & gas companies, which have offshore constructions of significant value for exploration and exploitation activities.
- Constructions that are directly or indirectly owned by the state or territorial units, under certain conditions.
- Constructions owned by sport clubs as defined by the law.
The above amendments to the construction tax regime apply as of 2015. Consequently, the next tax return to be submitted by taxpayers by 25 May 2015 for declaring the special construction tax shall account for the more favourable tax regime regulated by Law 11/2015.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.