Charles,

The fiscal legislation specifies when a physical person (being foreign or Romanian) is obliged to pay VAT when his/her (property) investments are seen as "economic activities".

Furthermore , the fiscal legislation states , in case you are subject to the catagory as stated above, in case you re-sell your investment (being a property) within one year, as a physical person it seems you will need to pay VAT to the Romanian state.

There have been many discussions on this in Romania, and apart from the Fiscal Code 2008, I've tried to find any clear answers in the "Fiscal Code Addendums 2008" ("norme metodologice al codului fiscal") and it simply does not state the procedure as such how actually to pay VAT as a physical person in case of VAT on property investments ...

When the law does not forsee how to proceed, I reckon that it can legally not be applied unless they enforce a new modification on the fiscal code, therefore a person later on will not be liable retrospectively.

I am not an accountant, but I will ask around to get some clear answers on the issue

Hi

many thanks for the interest and the prompt response.

I think two years is in the Code rather than one...slip of the pen I'm sure and we both seem to agree that at best the legislation is unclear and perhaps ambiguous.

I asked my accountant for clarification last week and I havnt had a reply...which indicates that its a Romanian labyrinth...or perhaps I should make an analogy with certain Romanian roads!

Let's take a classical example. Last year I purchased a property at pre-contract stage and was ahead of the game and had the property element in my physical name but the land element in the name of a company. Under the pre-contract I paid the initial 40% with a further 30% due and paid on december 31st. Completion and final payment is due on March 1st 2008. The seller, a person with the same structure as myself or a Romanian physical person for that matter, is now concerned that she may be liable for VAT. If VAT applies does that apply to the totality of the transaction retrospecively or does it just apply to the final payment? In either case does the seller pay from the originally agreed price and therefore take an unanticipated loss or can the seller add the VAT onto the pre-contract price in whole or in part? Interesting!

What this is actually about is the lobby of construction companies wanting to claim back VAT and their concerns about the perceived unfair advantage that constructors who are physical persons have in the market. There's big money and greed involved in this. Both sides in the game have political leverage as I'm sure you are aware so the chances are that loopholes exist and are intentionally there.

I'll keep my nose to the ground up here but if you see light at the end of the labyrinth do let us know!

Kind regards

Charles

surely as we've already paid VAT to the developer when we bought (as private individuals), then thats it all paid for?

Resales will mostly be to private buyers and the price we sell on to them will reflect the property price plus the VAT that we've already paid, although it will be one total sum.

Regarding the "VAT" issue for physical persons:

I've recieved some information from a Romanian based accountantcy firm that in the fiscal code 2008 it is NOT specified what the authorities consider as "economic activities" being a physical person, therefore this is completely open for discussion.

The actual "entitity" that collects taxes (profit tax on property) on behalf of the state is the notary. In case the notary is of the opinion that a particular person HAS to pay VAT, he or she will communicate this to the seller.

But a notary can not judge if a seller of (multiple) properties is conducting an economic activity as long as the seller declares he is not (since the fiscal legislation does not forsee clear rules regarding when a physicial person should pay VAT)

With other words, foreign (or domestic) investors do not have to worry about this VAT issue as long as the fiscal code 2008 does not forsee any specified (maximum) amounts to what a person can sell on a yearly basis.

In case the law does change ("a physical person has to pay VAT for instance in case multiple property transactions surpassing an X amount per year"), it does not apply to transaction PRIOR to any change in the fiscal legislation.

So for the moment, no worries!

Good one!

So loopholes exist and (probably) are intentionally there. That keeps everybody happy...but let's keep this a secret...not one to shout about.

Many thanks for doing the ground work on this much appreciated.

Regards

Charles