LEGISLATIVE BULLETIN: Law no. 62/2020 on some facilities from the payment of rent for the period of the state of emergency

Context

On 21.05.2020, the Law no. 62/2020 on the application of rent facilities for the period related to the state of emergency (hereinafter "Law no. 62/2020") was published in the Official Gazette of Romania no. 425.

Although Law no. 62/2020 was adopted by the Senate on 31.03.2020, it was promulgated only at this time - which is why it presents several inconsistencies that we will present out in this legislative bulletin.

In what follows, we will present the effects and incidence of the above-mentioned legislative act in an applied manner:

Relevant aspects for tenants

1.  The following categories of tenants may benefit from the provisions of Law no. 62/2020:

- any economic operator, whether profit-making or not (including the liberal professions), whose activity has been discontinued or whose income or receipts have decreased by at least 15% in March 2020 compared to the average of the last calendar year;

- any individual directly or indirectly economically affected during the state of emergency;

2. The facility offered by the law to tenants is to be able to defer, on request, without incurring interest and penalties, the payment of rent for buildings intended as a registered office, secondary office, or dwelling.

3. The payment of rents will be carried out in the place of the tenants by the competent territorial tax authority, based on a request submitted by the tenant - including by electronic mail. The application must be accompanied by:

- the tenancy agreement;

- the addendum to the rental contract, concluded under the conditions set out below;

- any document proving the impossibility of paying the rent during the period for which deferment is requested;

4. The abovementioned addendum must include:

- the agreement of the parties concerning the deferment of the payment of the rent, the duration, and the amount of the deferment period;

- the identification details of the tenant and the lessor;

- the details of the lessor’s bank account to which the tax authority is to pay;

- date of signature of the additional act;

5. The tenants benefiting from the above-mentioned facilities shall be obliged to pay the monthly rents whose payment has been deferred in installments to the competent territorial tax authority - starting from the date of termination of the deferment (15 June 2020 at the latest) and until 31 December 2020. Otherwise, the tax authority shall proceed with the enforcement of the tenants.

Relevant aspects for tenants

1. The provisions of Law no. 62/2020 are available to all lessors, regardless of their status (economic operators liable for corporate income tax or microenterprise income tax, persons liable for income tax, taxpayers, individuals, or legal entities).

2. However, the legislator imposes a value threshold for lessors. Specifically, according to the provisions of Article 1 para. (5) of Law no. 62/2020, lessors will be able to make a claim for payment to the tax authorities only if the rent for the rented property does not exceed: (a) 10,000 Lei/tenancy in the case of tenants who are legal entities or who exercise liberal professions or (b) 2,000 Lei in the case of tenants who are individuals. This threshold also indirectly affects tenants, who will not be able to benefit from deferment of rent payments if they are higher than the amounts indicated above.

3. In the case of corporate lessors: if the rent is, according to the addendum, reduced by at least 20% of the rent for February 2020, only 80% of the income obtained under the rental agreement will be considered taxable. This facility is applicable in respect of the period for which the rent has been reduced. In any case, this duration cannot exceed 31 December 2020.

4. In the case of individual lessors: in the event that according to the addendum the rent is reduced by at least 30% compared to the rent for February 2020, the income obtained under the rental agreement:

- will not be considered as taxable income during the period stipulated in the addendum regarding the rent reduction - but not later than 31 December 2020;

- will not be taken into account to set the ceiling for the payment of social security contributions;

The consequences of the above are as follows:

- the tenants will owe a reduced income tax, as the amounts obtained under the rental agreement will be non-taxable income;

- the lessor will be exempt from paying the social security contribution, since payment of this contribution is optional for persons who do not earn at least 12 gross national minimum wages (i.e. RON 26 760) during a tax year;

Temporal scope of the law

1. The facilities for tenants apply for the period of the state of emergency and the month following it - specifically 16 March 2020 - 15 June 2020.

2. On the other hand, the tax facilities for lessor  are applicable from the date of the rent reduction until 31 December 2020 at the latest.

Inconveniences

1. The first major drawback arises from the scope of the rent deferral provisions. In practice, in approximately 4 (four) weeks, the facility will cease ex lege. However, given that the law is not yet fully operational, since according to Article 5 of the Law - "within 15 days of the publication of this law in the Official Gazette of Romania, the relevant ministries shall draw up implementation procedures", it follows that it will not provide effective support to tenants.

2. In order to benefit from the effects of the law, tenants must conclude addendums to their rental contracts and submit them to the tax authorities. However, these addendums can be effective only for the future, so that the benefit to tenants will only be available from the date of conclusion of the additional deeds.

3. In addition to the slowness of adoption, one of the many aspects to be criticized is the difference in treatment between individual and legal lessors. While income obtained by individual lessors under rental contracts could be considered 100% non-taxable, income obtained by legal entities could be considered only 20% non-taxable.

Cluj-Napoca, 22.05.2020
MAXIM /Associates