On 13 October 2020, the Law no. 175/2020 amending and completing the Law No. 17/2014 ("Law 17/2014") on the sale and purchase of agricultural land in Romania located outside a built-up area (in Romanian: extravilan) came into force. The most relevant amendments concern the conditions for selling agricultural land located outside a built-up area in Romania, conditions which become more severe in particular for companies.
The Law No. 17/2014 as previously in force provided that agricultural land can be sold to other people only subject to compliance with the pre-emption right of co-owners, agricultural lessees, owners of neighbouring land, and the Romanian State (through the State Domains Agency), in this specific order, at the same price and on the same contractual conditions. The new amendments extend the category of persons having the above-mentioned pre-emption right, adding new entities and persons entitled to exercise the pre-emption right in case of the sale of agricultural land located outside a built-up area, such as: co-owners, relatives, spouses and in-laws up to (and including) the third degree, owners of agricultural investments in agricultural land for trees, vines, hops, exclusively private irrigation and/or agricultural tenants, young farmers (as provided by EU regulations), the Academy of Agricultural and Forestry Sciences, and research and development units in the fields of agriculture, forestry, and food industry, as well as educational institutions.
One of the most important changes introduced by the amendments to the Law 17/2014 is that no foreign individual is permitted to buy, directly, agricultural land in Romania. According to the amendments, if the pre-emption rights mentioned above are not exercised, agricultural land located outside a built-up area can be sold to:
- individuals who meet the following cumulative conditions:
(i) have had their domicile/residence in Romania for at least 5 years prior to registration of the sale offer;
(ii) have been performing agricultural activities in Romania for at least 5 years prior to registration of the sale offer;
(iii) have been registered with the Romanian fiscal authorities for at least 5 years prior to registration of the sale offer of the agricultural lands.
- companies (subject to even stricter conditions) which:
(i) have had their headquarters/secondary office located in Romania for at least 5 years prior to registration of the sale offer;
(ii) have been performing agricultural activities in Romania for at least 5 years prior to registration of the sale offer;
(iii) furnish proof (based on documentation) that of the total income earned over the last 5 fiscal years a minimum of 75% constitutes income from agricultural activities (as classified by the NACE code);
(iv) the shareholders controlling the company must have had their domicile in Romania for at least 5 years prior to registration of the sale offer.
Consequently, it seems that after the entry into force of the amendments to the Law 17/2014, the only persons entitled to buy agricultural land located outside a built-up area in Romania are the individuals or the companies that have been performing agricultural activities in Romania for at least 5 years. The amendments provide for a prohibition to sell agricultural land located outside a built-up area without first offering it for sale to those entitled to exercise a pre-emption right. Failure to comply will result in the sale being nullified.
Another important amendment to the Law 17/2004 is the indirect obligation not to sell agricultural land for at least 8 years from the date of purchase. Thus, were a landlord sells any part of the agricultural land acquired within the last 8 years, he would have to pay a tax of 80% on the difference between the selling price and the purchase price.
In the case of a direct or indirect sale of a control stake in a company that owns agricultural land located outside a built-up area representing more than 25% of the company’s assets within 8 years of the acquisition (of any agricultural land located outside a built-up area), the seller will have to pay a tax of 80% on the difference in the value of the land in question between the date of acquisition of the land and the date of the sale of the control stake. In such a case, the tax on the profit on the difference between the value of the shares sold will be applied on a reduced basis, in proportion to the percentage of agricultural land as a fixed asset (any double taxation being prohibited).
The other amendments are related to the performance of the procedure regarding the exercise of the pre-emption right indicated above.