New VAT rules applied to residential properties: Only 5 percent for multiple transactions

Aurel Dragan 11/01/2019 | 10:01

President Klaus Iohannis has signed the law introducing a 5 percent reduced VAT rate for multiple property transactions. Until now, the facility was granted for a single transaction. The measure is expected to boost the volume of transactions.

The Tax Code states that a buyer can benefit from a reduced VAT rate of 5 percent, which they can use only once if the purchased property has a price of up to RON 450,000 (under EUR 97,000) and an area of ‚Äč‚Äčless than 120 square meters. Also, the land on which the house is build must not exceed 250 square meters.

Ordinance 25/2018 changes the number of transactions from one to multiple and eliminates the limit of 250 square meters for land.

The limit of RON 450,000 means that there will be many transactions with studio apartments and one bedroom apartments. In the main cities like Bucharest or Cluj-Napoca usually this kind of dwelling has a price that comes under the limit, while 2+ bedroom apartments, especially in new buildings, will most likely go over the value limit. This means that developers will again try to build apartments that are under the limit so they can take advantage of the reduced VAT rate.

There is a huge gap between a one-bedroom apartment with the price of EUR 80,000 for a 65 sqm area and a two-bedroom that goes for EUR 100,000 and has 90 sqm. Adding VAT means that the one-bedroom will sell for EUR 84,000, while the bigger one will cost EUR 119,000.

Developers wanted to change the price limit to go up to EUR 150,000, but the government decided to only change the transaction limit and the land area limit.

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