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.