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Romania's New Government Delays the 5% VAT on Homes of up to 140,000 EUR

08 January 2021

Romania's real estate industry had a record breaking 2019, with positive momentum spewing into 2020 particularly in the industrial and residential sector, while the office and retail segments are grinding their teeth and preparing for better times.

As 2020 drew to a close, however, the residential sector was hit with a decision from the new government led by Prime Minister Florin Cîțu to postpone by one year the applicability of a 5% VAT charge for homes of up to 140,000 EUR. The 5% VAT will be kept at the 92,000 EUR mark, and 19% for anything surpassing this amount. Local and international developers have been focusing intently on the residential sector, meeting the demand of a growing, more financially stable population base. The new 5% VAT was meant to encourage the construction of larger 3-4 bedroom lodgings, in a country in which nearly half the population is living in overcrowded conditions.

The decision, made public on 31st December, came as a surprise because the VAT reduction law had been approved and promulgated by Romania's president Klaus Iohannis as well as the chamber of deputies several weeks prior. The government justified this delay by claiming that the new VAT would have caused budgetary losses of over 200 million RON (~40 million EUR) during a time of general global economic strain. Buyers and developers alike had to adapt and scramble for solutions, from giving up parking to delaying the transaction until 2022 - the question hovering in the air now though is one of trust and predictability, as there is no guarantee that there will not be a further postponement come January 2022.




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