When trading land and buildings, from a VAT point of view, it is necessary to analyze the situation from the perspective of taxable persons. Transactions carried out by taxable persons may be exempt or taxable, either compulsorily or optionally, depending on a number of specific aspects.
The town planning certificate is the document which classifies a plot of land as buildable or otherwise when it is sold by the owner.
In the case of the sale of buildable land, the transaction will be taxable by operation of law, with VAT being applied differently depending on the status of the buyer. If the purchaser is registered for VAT pursuant to Article 316 of the Tax Code, the simplification measures provided for in Article 331 para. (2) lit. g), the invoice will be issued free of tax, with the mention “reverse charge“. On the other hand, if the recipient is not registered for VAT purposes, the invoice is issued with 19% VAT.
For the sale of non-constructible land, tax exemption without the right to deduct is granted, but the seller has the possibility to opt for taxation by submitting a notification to the territorial tax office. This option is advantageous to avoid the calculation of VAT adjustments and the deduction pro-rata.
VAT LAND SALE – NATURAL PERSON IN ROMANIA
Real estate transactions carried out by individuals involve some particularities and can be classified into three categories: transactions outside the scope of VAT, those for which the individual becomes taxable, but are exempt under Art. 292 para. (2) lit. f) of the Tax Code, and taxable operations, for which VAT registration is required.
The first category includes land used for personal purposes, regardless of its value. Occasional real estate transactions, which are not of a continuous nature, are also not covered by VAT. The economic activity is deemed to have started from the moment the individual incurs preparatory investment expenditure.
If an individual carries out several real estate transactions, other than those with personal property, in a calendar year, he becomes a taxable person, even if they are supplies exempt from VAT pursuant to Article 292 para. (2) f) of the Tax Code. However, if the transactions concern only non-constructible land, there is no obligation to register for VAT.
A natural person becomes liable to VAT if he or she continuously sells building land. In this case, the VAT code has to be applied for even before the first taxable transaction, since the VAT exemption ceiling of 300,000 lei also includes exempt real estate transactions.
As far as the VAT registration of individuals is concerned, this is carried out by submitting specific forms to the competent tax body, depending on the type of activity carried out – self-employed, self-employed profession or other situations.
The context in which the transactions are carried out is decisive in determining the VAT arrangements applicable to real estate transactions and the obligations of individuals. Depending on the context, an individual may fall into one of the three categories mentioned above.
In the case of a joint sale of real estate by spouses, there are some difficulties in determining the VAT liability, as it cannot be decided independently by one of the co-owners. Since the agreement and signatures of both spouses are required, they act jointly, not individually.
Therefore, the exemption ceiling of 300,000 lei is analyzed at the level of the spousal association. It should be noted that the rights and obligations relating to VAT are incumbent on the person who accounts for the income and expenditure, as provided for in the contract between them, if he makes the purchases in his own name and issues the invoices to third parties. If they act individually in their own name, each is treated as a separate taxable person.
In order to determine the correct tax treatment of these transactions and the resulting VAT obligations, the specific context of each transaction must be carefully analyzed, taking into account the provisions of the Tax Code and the particular situation of the persons involved.
The VAT applicable to real estate transactions carried out by natural or legal persons is variable, depending on the context in which the legal transaction is carried out, the use of the land (whether or not it is buildable), the age of the building, the number and frequency of transactions carried out, and the status of the buyer (whether or not a taxable person).
