Romanian authorities have finally enacted the rental income tax exemption possibility for tax year 2020. This is a temporary tax exemption that was under draft project for a while, but it is finally enacted. The exemption can be applied by individuals whose rental income significantly decreased due to the COVID pandemic period.

More exactly, individuals who derive income from rent during calendar year 2020 can apply for full tax exemption for the period March – December 2020. The exemption can be applied with the condition to prove that the monthly rental income decreased with at least 30% compared to the income derived in February 2020. More precisely, the income decrease must be due to the COVID pandemic isolation and restriction period in Romania.

The exemption will apply for both income tax and health insurance contribution, which are due by individual taxpayers for such type of income.

How will the tax exemption apply?

The tax exemption will have to be applied by the individual at the moment the rental income is declared. In practice, since the rental income must be declared both in advance during the tax year (i.e. until 30 June 2020), and after end of the tax year for final reconciliation, the individual can apply the exemption in either of the moments.

If one has already submitted his advance declaration for year 2020 and paid the taxes due, then the exemption will have to be applied after the end of the year, when the final annual tax return must be submitted for year 2020. If an over-payment of taxes results, probably the amount overpaid during the year will have to offset tax liabilities for next tax year. If no tax liabilities apply for next tax year, probably each taxpayer will have to apply for reimbursement of the tax amounts paid in excess.

Rental income tax exemption for companies

Companies deriving income from renting out real estate will also be able to benefit of tax exemption for a part of their income.

More precisely, companies whose monthly rental income decreased with at least 20% compared to the income generated in February 2020, can qualify for this exemption. They will be able to exempt from taxation 20% of their total taxable revenue for the period March – December 2020.

The new law providing for the tax exemptions described above (Law no. 62/2020) was published on 21 May 2020.

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