Country Guides Country Guide: Romania

Date Published:

24/06/2008

Although property in Romania may seem like a good investment, there are some issues that need to be taken into account before you sign on the dotted line.

"At present, a non-Romanian national is not permitted to own land in Romania, says The Right Move Abroad's Michael Johns. "Therefore, for all property purchases it is necessary to form a limited company that can own land and register yourself as a company director. Forming a limited company through a solicitor is straightforward, taking around four weeks and costing €300 (£210). The second reason why all buyers should form a company is for investment purposes: doing so means there is no VAT payable and with a rate of 19% this is a significant saving."

Johns suggests the following process when purchasing in Romania:

Choose and reserve the property of your choice.

Employ a lawyer; the lawyer will then go though the process of setting up a company in the client's name (requiring all the information on the reservation form) as well as three options for the name of the company.

During this time the lawyer will be making and agreeing any changes to the purchase contract requested by the client.

The company set up takes about seven to ten days. Once the company name is reserved, the lawyer is able to set up a bank account in the company's name. This bank account is essential as all payments to the developer and any other costs will need to come out of this account to be considered a cost (and therefore tax deductible for the company) this account cannot be activated until the company is incorporated. A client is not able to pay from a personal account if they are purchasing as a company. If a payment is made from a personal rather than company account they will be liable for VAT.

Once the company setup is complete, the client will need to employ an accountant to manage the company's finances, submit tax returns etc. The accountant will require all the company information: shareholders, company name, fiscal number and a copy of the incorporation document. It is important that the accountant has contact with the client's lawyer to ensure that any further required information can be easily passed on.

Once the accountant and the company has been established and the client is happy with the contract, the next stage is to sign the contract. This needs to be done in one of two ways: the client flying to Romania to sign the contract personally, or a power of attorney can be granted to a contact in Romania, be it a friend, family member or Johns himself. This is a function-specific power to sign the purchase contract in place of the client; it affords no further control. To create such a document, the client will need to ask the lawyer to draw up the paper and inform the lawyer to whom they would like to grant this power.

The final step in the process is to sign the contract (with a notary present sourced by the lawyer of the seller) at the office of the seller or the notary office. Once this is complete, payment of the first instalment is due and paid from the company account as detailed above.

Budget around 5-8 per cent of the purchase price for additional costs and fees, including the notary (1.5-2 per cent) and a transfer tax (0.5-3 per cent). In Romania, as a buyer, you may be expected to contribute towards the estate agent’s fees of 6 per cent, which are often split 50/50 - i.e. buyer pays 3 per cent, vendor pays 3 per cent.

"From receiving the contract to the signing and payment," says Johns, "if the client is organised and motivated the process should take no longer than three to four weeks."