In brief
For an Israeli investor buying a single property in Romania, a personal purchase is usually preferable to a company, because a company creates a double layer of tax (corporate tax and then dividend tax) and fixed costs. The restriction on foreign ownership of land does not necessarily require a company, because legal solutions exist for the personal registration of rights in land. A company pays off mainly for someone building a property portfolio and reinvesting the profits.
Key takeaways
- 1The land restriction for foreigners who are not EU citizens does not automatically mean “you need a company” - solutions exist for the personal registration of rights in land.
- 2For a single property, a personal purchase is almost always preferable: rental income is taxed in Romania at a relatively low personal rate (currently around 10%), and the tax paid is credited in Israel under the double taxation treaty.
- 3A company creates double tax (corporate and dividend) and fixed costs of bookkeeping and annual reports.
- 4A company may pay off for someone building a property portfolio or planning to reinvest the profits instead of withdrawing them to Israel.
- 5The decision on the structure should be made before signing, with a lawyer and an accountant who know taxation in Romania and in Israel.
One of the first questions of an Israeli investor examining a property purchase in Romania is in what framework to buy: personally or through a company. The first answer, of which most investors are unaware, is that the well-known restriction on foreign ownership of land does not necessarily push you toward a company, and from a tax standpoint it is usually better not to. For most buyers, someone buying a single apartment in a building or a single private house, there are today legal solutions that allow personal registration of the rights in the land and not only of the apartment itself, without going through a company at all.
Does the land restriction for foreigners mean you need to buy through a company?
Not necessarily. Foreign citizens who are not EU citizens, including Israelis, can purchase apartments in buildings personally with almost no restriction. But direct ownership of the land component (the proportionate share in the land on which the building stands, or the entire land in the case of a private house) is subject to restrictions for anyone who is not an EU citizen.
This is the point at which most investors, and sometimes advisers too, jump straight to the conclusion “so you need a Romanian company”. In practice, dedicated legal structures exist that allow an individual Israeli investor to register his or her rights in the land, or in the proportionate share of it, directly in his or her own name and without the wrapper of a company. In our office we have developed several such solutions, tailored to the type of property (an apartment in a building versus a private house) and to the specific circumstances of the buyer. The conditions for foreign ownership of land and the accepted solutions are detailed in the guide to land ownership in Romania on the firm's website.
For a single property, a personal purchase is almost always preferable: rental income is taxed in Romania at a relatively low personal rate (currently around 10%), and the tax paid is credited in Israel under the double taxation treaty.
Why is a personal purchase usually preferable for a single investor?
For an investor buying a single property, for residence or for investment, a personal purchase (including personal registration of the rights in the land through the appropriate legal solution) is usually preferable, and not only because of its simplicity. The reason is taxation.
- Personal purchase: rental income on a personally owned property is taxed in Romania at a relatively low personal tax rate (currently around 10%). In Israel an Israeli resident reports the income and credits the tax paid in Romania against the tax payable in Israel, under the double taxation treaty.
- Holding through a company: a double layer of taxation - corporate tax on the income, and then an additional dividend tax when the profits are withdrawn to the investor's pocket.
For someone buying a single property and planning to draw the ongoing yield rather than reinvest it, the personal purchase (including the solution for registering the land) is almost always preferable to a company, even when a company would have been technically possible.
When does a company pay off after all?
When the scale of the investment grows: a number of units, ongoing rental activity, or an intention to reinvest the profits in further transactions instead of withdrawing them to Israel. Then tax considerations may tip the balance toward a company.
A small Romanian company may be subject to a reduced corporate tax regime (“micro-company” taxation at a rate of a few percent, subject to a turnover ceiling and to conditions that change from time to time). And as long as the profits remain inside the company and are reinvested, the dividend tax layer is not triggered at all. In other words: the company pays off when the investor is building a property portfolio and rolling over profits, not when he or she buys a single property and expects ongoing cash flow into the pocket. How the tax operates at each stage - on purchase, on rental and on sale - is detailed in the guide to real estate taxation in Romania on the firm's website.
What is the hidden price of a company structure?
Beyond the double layer of tax, a Romanian company requires ongoing bookkeeping, annual reports and usually the support of a local accountant. These are fixed costs that run regardless of whether the property yields a high or low return that year.
There is also an aspect of operational complexity: transfers of funds between the investor and the company, cash-flow management and double reporting (in Romania and in Israel) on the company's activity and not only on the income from the property. For an investor with a single property, these fixed costs, in addition to the dividend tax layer, are exactly the reason it is preferable to solve the land registration question personally from the outset, instead of opening a company merely to overcome the land restriction.
What actually determines the decision between an individual and a company?
Two factors are decisive in most cases.
| Factor | Leans toward a personal purchase | Leans toward a company |
|---|---|---|
| Scale of activity | A single property, with an appropriate land registration solution | An expanding property portfolio |
| The investor's intention regarding the profits | Ongoing withdrawal of the profits to Israel | Leaving the profits in the structure and reinvesting them, taking advantage of the company's reduced tax regime without triggering the dividend layer |
The type of property, an apartment or a house with land, is no longer the decisive factor that it used to be, once a solution exists for the personal registration of the land.
Why decide on the structure before signing and not after?
Moving from one purchase structure to another after the property has already been purchased involves significant costs, and sometimes a further transaction for all purposes, with additional purchase tax and VAT. The right check is carried out before signing the purchase transaction, together with an accountant who knows Romanian taxation and Israeli taxation, and not only with the lawyer accompanying the transaction.
A lawyer can verify that the legal structure is sound and that the rights are properly registered. The question of which structure is more worthwhile from a tax standpoint requires accounting and tax support alongside the legal support, especially when two tax systems are involved in parallel.
What is stated in this article is general information only and does not constitute legal advice, tax advice or an investment recommendation. Tax rates and the terms of tax regimes may change. Before any decision or legal action, it is advisable to obtain individual advice tailored to your circumstances.
Frequently asked questions
Must an Israeli buy a property in Romania through a company?
No. Although direct ownership of land is subject to restrictions for anyone who is not an EU citizen, legal solutions exist that allow the personal registration of rights in land without a company. Israelis can purchase apartments in buildings personally with almost no restriction.
How is rental income taxed from a property bought in an individual's name in Romania?
In Romania the income is taxed at a relatively low personal tax rate (currently around 10%). In Israel an Israeli resident reports the income and credits the tax paid in Romania under the double taxation treaty.
When is it worth buying in Romania through a company?
When the scale of the investment grows - several units, ongoing rental or an intention to reinvest the profits instead of withdrawing them to Israel. As long as the profits remain in the company, the dividend tax layer is not triggered, and a micro-company may enjoy a reduced tax regime subject to conditions.
What are the costs of holding through a Romanian company?
Beyond double tax (corporate and dividend), ongoing bookkeeping, annual reports and usually a local accountant are required, as well as double reporting in Romania and in Israel. These are fixed costs that run regardless of the yield.
Can you move from a personal structure to a company after the purchase?
It is possible, but it involves significant costs and sometimes a further transaction with additional purchase tax and VAT. The decision on the structure should therefore be made before signing.
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