This is due to an increase in notary taxes for such deals, which are driving clients away in search of other financing options
Whereas in the first half of last year the financing granted for real estate witnessed 178% growth compared with the same time in 2006, in the first six months of this year the growth stood at only 23%, almost eight times lower. The real estate leasing business amounted to 192.5 million euros in the first half.
"The notaries interpreted the modification of last year's Fiscal Code in their own way, when the judicial and stamp taxes were replaced by a single cadastral tax.
"They are now charging the same taxes twice on the leasing contract and treat it as two different sale-purchase contracts, instead of treating it as a loan contract," says Adriana Ahciarliu, general secretary of the Association of Financial Companies in Romania.
For instance, for a building that is worth more than 1 million euros, bought through a leasing company, the client pays the cadastral tax and the notary's fee calculated as a percentage of that asset's value at the time of purchase. When the leasing contract ends, the building is sold by the leasing company to the client at a residual value of, for example, 100,000 euros, yet notary taxes charged are not a percentage of this value, but of the initial 1 million euros. Until the beginning of the year, Ahciarliu says, real estate leasing contracts were taxed twice, once at the initial value and once at the residential value, so as clients incurred lower costs.
"The client pays the taxes for the one million euros twice, and the product is much more expensive. This is why some are looking towards other funding sources such as bank loans. Out of the six or seven companies that offer real estate leasing, two or three have notified the Association that they no longer plan to offer such a service, both because of the raise in taxes and of the international financial crisis," Ahciarliu says.
The biggest players on the real estate leasing market include UniCredit Leasing, BCR Leasing, Credit Europe Leasing, Immorent and Raiffeisen Leasing. Gabriel Biris, managing partner of Biris Goran law firm, a taxation expert, says notary taxes for leasing contracts should be paid once.
"The economic owner of the asset is its user right from the beginning, the client of the leasing company, therefore they should not be taxed when buying the asset at the end of the contract.
"The economic substance of real estate leasing is not that an asset is sold and bought twice, because it is used by the same person all the time," Biris says.
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