In 2024, Romania enacted a significant tax reform requiring legal entities leasing properties or spaces from individuals to withhold tax on rentals at the source. This measure aims to streamline tax collection processes, enhance fiscal compliance, and mitigate tax evasion risks. Below is an in-depth overview of the process and implications of this withholding tax measure:
Process and Implications of Withholding Tax on Rentals:
Obligations of Legal Entities (Tenants):
Legal entities leasing properties or spaces from individuals are required to adhere to the following steps:
- Tax Calculation:
- Calculate the rental tax for each payment.
- The formula for tax calculation is: Rental tax = (Monthly rent - 20% lump sum expenses) × 10%, equivalent to an effective withholding rate of 8% of the monthly rent.
- Payment of Rent:
- Pay the monthly rent stipulated in the contract, reduced by the calculated tax amount (8%).
- Tax Declaration and Payment:
- Submit the tax declaration (D100) to the National Agency for Fiscal Administration (ANAF) at the end of each month.
- Pay the withheld tax to ANAF by the 25th of the following month.
Management of Foreign Currency Rentals and Multiple Owners:
- If the rent is denominated in a foreign currency, convert the rental value into Romanian lei using the exchange rate provided by the National Bank of Romania.
- In cases where the rented property has multiple owners, calculate and declare the tax proportionally to each owner's share of the rent.
Advantages and Disadvantages:
Advantages:
- Efficient Tax Collection: Ensures the effective collection of taxes and minimizes the risk of tax evasion.
- Simplification for Individual Owners: Relieves individual owners from the burden of tax calculation and payment.
- Enhanced Transparency and Compliance: Facilitates better monitoring of rental income by tax authorities, promoting fiscal transparency.
Disadvantages:
- Administrative Burden: Legal entities face increased administrative tasks related to tax calculation, withholding, and reporting.
- Complexity: The process entails a detailed understanding of tax laws and reporting requirements, posing challenges for compliance.
Practical Calculation Example:
- Let's consider a scenario where a company leases a property for 1,000 lei per month:
- After tax calculation (10% of net income), the company pays the owner 920 lei, withholding 80 lei for tax.
- The company then submits the tax declaration (D100) to ANAF and remits the withheld tax accordingly.
Conclusions:
The implementation of withholding tax on rentals for legal entities in Romania represents a significant regulatory change aimed at bolstering tax compliance and revenue collection. Adherence to these regulations is crucial for legal entities, and seeking guidance from tax professionals is advisable to navigate this process effectively.
