Situation:
A Romanian company, paying VAT, owns a plot of land, purchased in 2008 and a building built in 2011 on this land, properties that it intends to sell to a first degree relative of the administrator (sole partner).
What is the tax treatment of this sale?
Solution:
According to article 7, point 26, letters a) and b) of the Fiscal Code, the Romanian company and the first degree relative of the sole shareholder are the affiliated persons.
For this reason, the delivery must be made at the market price, otherwise the tax authorities have the possibility to adjust the revenues from the sale, according to article 11 of the Fiscal Code.
We mention that the VAT tax base is the market value only in the situations from article 286 paragraph (1) letter e) of the Fiscal Code, respectively for the delivery of goods or services for which the beneficiary is a person affiliated to the supplier / provider according to the provisions Article 7 point 26, the tax base is considered the market value in the following situations:
- when the counterparty is less than the market value and the beneficiary of the supply or service does not have the full right of deduction in accordance with the provisions of Articles 297, 298 and 300;
- where the counterparty is less than the market value and the supplier or provider does not have a full right of deduction in accordance with the provisions of Articles 297 and 300 and the delivery or supply is exempt under Article 292;
- when the counterparty is greater than the market value and the supplier or provider does not have the full right of deduction in accordance with the provisions of Articles 297 and 300.
With regard to the VAT regime of the sale operation, according to article 292 paragraph (2) letter f) of the Fiscal Code, the deliveries of constructions / parts of constructions and of the lands on which they are built are excluded from VAT except for the deliveries of new constructions, of parts of new construction and building land. Therefore, the exemption does not apply to building land.
The qualification of a land as buildable land or land with another destination, at the time of its sale by the owner, results from the urbanism certificate.
Under the conditions in which the delivery of a land on which a construction is located takes place after the delivery of the construction or independently of the delivery of the construction, the delivery being made by the person who also owns the title to the building or by another person who owns only the land the delivery of a buildable plot of land within the meaning of Article 292 paragraph (2) letter f) of the Fiscal Code is considered to take place.
In the conditions in which the delivery of a land on which a construction is located takes place after the delivery of the construction or independently of the delivery of the construction, the delivery being made by the person who also owns the title to the building or by another person who owns only the land. the delivery of a buildable plot of land within the meaning of Article 292 paragraph (2) letter f) of the Fiscal Code is considered to take place.
In the conditions in which a unique land authority is delivered consisting of the construction and the land on which it is built, identified by a single cadastral number, according to the methodological norms given in application of article 292 paragraph (2) letter f) of the Fiscal Code (point 55 paragraphs 1 and 2):
- the land on which the construction was built follows the construction regime, if its value is lower than the value of the construction as it results from the expertise / evaluation report;
- the construction will follow the regime of the land on which it is built, if its value is lower than the value of the land as it results from the expertise / evaluation report;
- if the land and the construction have equal values, as it results from the expertise / evaluation report, the regime of the land authority is established according to the real estate with the largest surface.The developed built surface of the construction will be taken into account.
These provisions do not apply in the event that a plot of land on which a construction whose demolition began before delivery is delivered and has been assumed by the seller is delivered.
It is important to mention that, in the situation when the value of the building is lower than the value of the land, the sale of the building follows the regime of the land. In this case, the exemption from article 292 paragraph (2) of the Fiscal Code does not apply, the sale is taxable and the seller will issue the VAT invoice if the buyer is a natural person (not registered for VAT purposes).
If the value of the building is higher than the value of the land, the sale of the land follows the regime of the building. In this case, in order to determine the applicable VAT regime, it is important to determine whether the construction is a new or old construction, as defined in Article 292 paragraph (2) letter (f) of the Fiscal Code.
According to Article 292 paragraph (2) letter (f) of the Fiscal Code and applicable rules:
- new construction includes any transformed construction or transformed part of a construction, if the cost of transformation, excluding tax, amounts to at least 50% of the value of the construction or part of the construction, excluding the value of land, after transformation, respectively the value recorded in accounting in the case of taxable persons who have the obligation to keep the accounting records and who do not apply the cost-based valuation method in accordance with the International Financial Reporting Standards, or the amount established by an expertise / valuation report, in the case of other taxable persons. If only a part of the construction is alienated, and its value and the related improvements cannot be determined based on the accounting data, they will be determined based on an expertise / evaluation report;
- the delivery of a new construction or part of it means the delivery made no later than December 31 of the year following the year of the first occupation or use of the construction or part of it, as the case may be, following the transformation. In this sense, the following will be taken into account:
- is considered to be the date of the first occupation, in case of a construction or of a part of the construction that has not undergone transformations – the date of the signing by the beneficiary of the final acceptance report of the construction or of a part of the construction. The final acceptance report means the acceptance report at the end of the works, concluded according to the legislation in force. In the case of a self-constructed construction, the date of first occupation is the date of the document on the basis of which the construction or part of the construction is recorded in the accounting records as a fixed tangible asset.
- the date of the first use of a construction refers to constructions that have undergone transformations. The date of first use means the date on which the beneficiary signs the final acceptance report of the works for the transformation of the construction in question or of a part of the construction. The final acceptance report means the acceptance report at the end of the works, concluded according to the legislation in force. In the case of self-directed transformation works of a construction or a part of the construction, the date of the first use of the good after the transformation is the date of the document based on which the value of the construction or part of the construction is increased by the value of the respective transformation.
If the building is old within the meaning of Article 292 paragraph (2) letter f) of the Fiscal Code (it has not undergone modernizations or transformations to turn it into a new building 50% – in the year before the sale), its sale is exempt from VAT without right of deduction.
Under these conditions, the company will sell the property without VAT but will have the obligation to adjust the tax deducted on acquisition (if applicable) or the tax deducted for investments made (if they were considered capital goods exceed 20% of the value of the property), for the period adjustment remaining at the date of delivery under the exemption regime without the right to deduct.
It is important to point out that VAT is also considered deducted in the situation where reverse charge was applied to the purchase of the building or land.
In case of construction or acquisition of a real estate, as well as for the transformation or modernization of a real estate, if the value of each transformation or modernization is at least 20% of the total value of the real estate / part of the real estate after transformation or modernization, the adjustment period is 20 years old.
The period starts on January 1 of the year in which the goods are received / purchased. At the date of the exemption sale, the adjustment is made for the entire remaining period, including the year of sale. In order for the company not to have to make a VAT adjustment (if applicable), it may opt for the delivery tax in accordance with Article 292 para (3).
Under the conditions in which the company submits the notification for the taxation of the operation, the sale becomes taxable by option and the invoice is issued with VAT, applying the standard rate or reduced rate of 5% VAT if the conditions of article 291 of the Fiscal Code are met.
Important mention:
In accordance with Article 291 paragraph (3) letter (c) paragraph (3) and (5), the reduced rate of VAT 5 % for is applicable for:
- the delivery of dwellings with a usable area of maximum 120 sq m, excluding household annexes, whose value, including the land on which they are built, does not exceed the amount of 450,000 lei, excluding value added tax, purchased by individuals. The usable area of the house is the one defined by the Housing Law no. 114/1996, republished, with the subsequent modifications and completions.
The household annexes are those defined by the Law no. 50/1991 regarding the authorization of the execution of the construction works, republished, with the subsequent modifications and completions. The reduced rate applies only to homes that can be inhabited as such at the time of delivery;
(….)
- the delivery of dwellings with a usable area of maximum 120 sq m, excluding household annexes, whose value, including the land on which they are built, exceeds the amount of 450,000 lei, but does not exceed the amount of 700,000 lei, excluding value added tax , purchased by individuals individually or jointly with another individual / other individuals.
The useful surface of the house is the one defined by Law no. 114/1996, republished, with the subsequent modifications and completions.
The household annexes are those defined by Law no. 50/1991, republished, with subsequent amendments and completions.
The reduced rate applies only to homes that can be inhabited as such at the time of delivery.
Any natural person can purchase, starting with January 1, 2022, individually or jointly with another natural person / other natural persons, a single home whose value exceeds the amount of 450,000 lei, but does not exceed the amount of 700,000 lei, exclusively VAT, with a reduced rate of 5%;
Legal basis:
– Fiscal Code (approved by Law no. 227/2015, published in the Official Gazette no. 688 of 10.09.2015), with subsequent amendments and completions;
– Fiscal Procedure Code (approved by Law no. 207/2015, published in the Official Gazette no. 547 of 23.07.2015), with subsequent amendments and completions;
– Methodological Norms for the application of the Fiscal Code (approved by HG no. 1/2016).