Do you really need a company when investing in Romania Property Market?
August 31st, 2007
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Vast majority of estate agents will tell you that a company is absolutely necessary when foreign investors buy properties in Romania.
This is not always true!
Why they do that?
First of all because they make some money from that. You’ll be charged between €800 and €2000 for company formation. You will need an office, accountant, manager. The agent will probably arrange for you with the office space for your new company and will find you the accountant. This will mean more commission for him.
Another reason for the agent to advice you to invest using a company is that, in some cases, the property will look 19% cheaper. As a company there won’t be necessary to pay VAT when investing in a real estate property.
A company can be more expensive in long term.
VAT. As mentioned earlier you will not pay VAT when buying, but you will pay VAT when you’ll sell. And you’ll pay 19% from the selling price which will be presumably higher.
Taxes. Taxes on property owned by companies are higher the taxes paid by private persons. Capital gain tax will be 16% of the profit for a company, which can be considerably higher than taxes paid by a private person investor (around 2-3% of the selling price).
Mortgage
If you intend to finance your investment with a Romania mortgage you have to consider that it is hard to obtain one for a company with no business history.
When you need and when you don’t need a company?
General law is that foreign investors can’t buy and own land. This will change for EU citizens in 2012. So in this case a foreign investor need to form a company in order to invest in Romanian land.
Exceptions:
- EU farmers can buy agricultural land with no restriction.
- Foreigners with legal residence in Romania can buy land with no restriction.
There are no restrictions for foreigners to buy or own apartments. But a foreigner will not be allowed to buy the land surface on which the building is standing, having instead the right to use it as long as the building exists. So in this case a company is not absolutely necessary.
Economical point of view
From an economical point of view o company will be more profitable when your virtual exit is rather another investor or a business owner, like in the case of commercial properties. He will buy using a company too, so you will not have to pay VAT on the selling price.
If your exit will much probably be a private person looking for a place to live he will be regarded by the law as final buyer so you will have to charge him 19% VAT diminishing your profit.
Professional legal advice is highly recommended.
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