The government intends to provide a boost to the local real estate market by reducing the tax on property transactions as of 2015, with the aim of attracting foreign investors by cutting the cost of taxes paid upon signing of contracts.
Sources say that the government’s plan hinges on disassociating the property transfer tax from so-called objective values, i.e. the property rates used for tax purposes. From next year the transfer tax will be based on the actual sale price of each property as detailed on the contract rather than on its estimated value.
Market professionals have for years argued that it is incomprehensible why the transfer tax is calculated on the basis of the objective value while the capital gains tax is based on the actual sale price. At the same time, the recent interest shown by foreign investors in holiday homes is often dulled when they see two different prices on contracts – the actual cost and the objective value – as the practice seems entirely irrational to them.
According to the new regulation, which will be enacted into law, the transfer tax, currently amounting to 3 percent of the objective value, will be brought down to 3 percent of the actual selling price instead. For primary residences only, the taxable amount concerns the cost of the property above the tax-free threshold of 200,000 euros for single taxpayers, rising to 250,000 euros for married ones and growing by another 25,000 euros for every dependent child.
This means that objective values will in essence apply only to the calculation of the single property tax, municipal tax, etc. Once the new, automatic system of objective values is put into place, probably not before July 2016, commercial and objective rates will be aligned into one price, which will serve as the basis for calculating all taxes on property.
Market experts note that any initiative that leads to the reduction of the tax burden and to smoothing out the distortions in the property market will give it a much-needed boost and could gradually lead to an increase in jobs.