BNP PARIBAS REAL ESTATE GUIDE TO INVESTING IN ROMANIA 2014

IN COLLABORATION WITH ABOUT BNP PARIBAS REAL ESTATE...

BNP Paribas Real Estate is the market leader in commercial real estate services across Europe with €716 million of gross turnover, €164 million of gross operating profi t and 3,700 employees.*

More than Close to 35.8 million sqm €18 billion in commercial real estate of assets under management across Europe managed across Europe

Close to 311 million sqm valued 305,000 sqm of commercial property under construction A dedicated team present in 7 Countries 4,200 commercial real estate France, Germany, Gulf, Ireland, transactions completed in 2013. Jersey, Spain, United Kingdom; One transaction every 15 minutes.

* 2013 key fi gures

BNP Paribas Real Estate has local expertise on a global scale through its presence in 40 countries with more than 180 offi ces and 3,700 employees. BNP Paribas Real Estate is a subsidiary of BNP Paribas.

In Romania, BNP Paribas Real Estate has been active since 2008 and provides to its clients the following services: Transaction (letting, sales and investment), Valuation, Consulting and Property Management. We understand the specifi c of each client’s activity; we are using all the knowledge and experience to provide the correct analysis and information, helping them to understand the real estate market and the trends of the moment. We pro- vide our clients with the best options available, selecting the tailor-made solution, the one that best fi ts all the client’s requirements. BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 3

Contents

INTRODUCTION

Romania by numbers 4

Foreword 5

GUIDE TO ROMANIA

Top 10 reasons to invest in Romania 6

Romania: Big Three 8

INVESTOR TOOLKIT

Need to know: Key legal terms 16

Need to know: Tax clinic 24

HOT SPOTS

Selected investment opportunities 26

Investing in Romania is edited by BNP Paribas Real Estate with the contribution of Salans FMC SNR Denton Europe – Todor si Asociatii SCA.

S.C. BNP PARIBAS REAL ESTATE ADVISORY S.A. Registry of Trade Offi ce under no. J40/3890/10.05.2002 Fiscal Code RO 14625999

Headquarters: Bucharest, Union International Center, 11 ,Ion Campineanu Str., 6th Floor, 1st District Tel.: +40 (0)21 312 70 00, Fax: +40 (0)21 312 70 01 www.realestate.bnpparibas.com.ro BNP Paribas Real Estate is part of the BNP Paribas Banking Group

All rights reserved. This Guide is protected in its entirety by copyright. No part of this publication may be reproduced, translated, transmitted, or stored in a retrieval system in any form or by any means, without the prior permission in writing of BNP Paribas Real Estate. Front cover picture: Fotolia 4 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

INTRODUCTION Romania by numbers

Medium-large cities evenly nd divided around the country 2 Largest market in the CEE region th 20m inhabitants 9 Bucharest (1.9m), Cluj-Napoca (0.32m), Largest market Timisoara (0.32m), Iasi (0.29m), in the European Union Constanta (0.28m)

IASI

CLUJ-NAPOCA

TIMISOARA

BUCHAREST CONSTANTA 5.09% Uneployment rate

GDP growth achieved in 2013 Low public debt to GDP 3.5% 38.7% it is the 3rd consecutive year compared to other CEE countries of economic growth and well below the European Union average of 85.3%

Source: IMF, Eurostat, ANOFM, INS BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 5 Foreword

Romania a country to be discovered

With the help of this guide we want in Romania and three of the most active to show that Romania is a land of cities in the country: Bucharest, opportunities when it comes to Cluj-Napoca and Timisoara. investing in real estate, and even if the risk might seem slightly Together with Dentons international law higher, compared to other countries, fi rm we collected practical information the returned benefi t is to match. on navigating the fi scal and legal aspects of investing in Romania. The stable prime rents and yields, the recent lease renewal wave and We hope you fi nd this guide an useful the low vacancy of top quality offi ce insight into the Romanian real estate space in prime areas offer great market, with its current strengths and opportunities for foreign investors. opportunities, and we would be pleased The local real estate market is still in to welcome you in Romania in the near early stages of development and has future. good prospects for a further growth.

This guide outlines the top ten reasons to invest in Romania. Alongside we Olga Melihov present some key statistics, an overview Business Development Director of the infrastructure projects undergoing BNP Paribas Real Estate 6 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

GUIDE TO ROMANIA Top 10 reasons to invest in Romania

Market potential on medium and long term – the local real estate market is still in early stages of development with good prospects for a further growth which naturally tends towards 1 equilibrium between market’s forces similar with that recorded within other more mature European markets.

Improving market fundamentals – the present and prospective demand corroborated with the expected general context of the real estate market and economic environment creates a positive sentiment which further results 2 especially in a qualitative market growth. After a diffi cult period, the real estate segments and economic environment experienced a number of positive signs which indicate a stabilizing process (sustainable economic growth, sustained leasing activity, slight recovery of the development activity).

Less volatile real estate market compared to previous years – yields and rental levels witnessed a stabilizing tendency; remained stable for the third consecutive year. This tendency was 3 noticed on all real estate submarkets. Letting activity remained consistent during 2011 - H1 2014 with an obvious increasing trend on the offi ce segment while the vacancy rates fl uctuate within a narrow range. BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 7

Strong market players already present – the most well-known real estate service companies, banks, investment funds are already present on the local market; their 4 presence is a proof of confi dence in the potential of the market. Local market is expected to offer investment products for various types of investors, considering the total amount to be invested, adversity to risk and targeted market segments. Some 5 of the reluctant owners will be ready to dispose their properties after the expected recovery of the market.

Local market offers attractive returns compared to other regional markets considering the associated risks and the prospects on 6 medium and long term. International agreements – Bilateral agreements between Romania and other countries on investments promotion and protection, double taxation avoidance etc; Acquis Communautaire 7 implementation. Extension and improving of the infrastructure – the extension of the highway routes and improvement of the railways will facilitate the connection of the southern part of Romania towards the western European countries. 8 The industrial segment will be the main benefi ciary of the infrastructure improvement, fact demonstrated by the commencement of projects in the vicinity of new transportation hubs.

European non-refundable funds – Romania has the right to access important co-fi nancing scheme from EU funds to develop the infrastructure, stimulate the economic activity (tourism, 9 agriculture) etc. The stimulation of the economic activity by the European funds creates a good basis for inducing positive on the real estate market.

Romania has a relative competitive advantage over other regional markets generated by availability of well-trained people (especially in IT&C) and level of labor force costs. Multinational companies have set/extended production facilities or offi ce 10 areas becoming a strong presence in the local market in several important cities being active in automotive and production industries, IT&C, BPO’s etc. 8 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

GUIDE TO ROMANIA Romania: Big Three

Romania gathered all the ingredients necessary to make it a long term profi table investment ground Key facts*

Population Bucharest 1.88m Unemployment rate 2.1% Gross average monthly salary 3,258 RON (€738)

New completions added approximately 100,000 sqm of modern offi ce space during 2013, representing The local market currently suffers from a short- an evident increase compared to the entire of last age of quality offi ces with large fl oor plates in the year when only 60,450 sqm were completed. At most sought-after areas of Bucharest. The take- the end of 2013, the offi ce stock reached 2.76m up activity was in decline with approximately sqm, while the available stock was approximately 174,000 sqm secured mainly by IT&C and serv- 400,000 sqm, of which 56% is B-class premises. ice providing companies. After three consecutive Although secondary supply is growing fast due years with virtually fl at leasing activity, the local to relocations of tenants, occupiers looking for A- market recorded a fall of 28.5% in 2013 com- class offi ces had fewer options compared to 2012. pared to 2012. BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 9

tainable demand and slow development activity, which balanced the downward pressure on rents exercised by tenants.

Rents for centrally located B-class offi ces fl uctu- ate between €13-15 sqm/mth, whilst in second- ary areas, rental levels generally range between €10-12 sqm/mth. Although peripheral submar- kets are still recording a high rate of vacancy, the rental levels remained unchanged at €7-9 sqm/ mth, with offi ces located in the western periph- eral submarket at the higher end of the range.

Total investment in the local market in 2013 amounted around €242m, this fi gure exclusively representing the offi ce segment (€220m). Al- Bucharest, Charles de Gaulle plaza Gaulle de Charles Bucharest, though local market sentiment has slightly im- proved and investors are showing an increase in confi dence, the investment amount remained Overall take-up was characterised by small and low. The main reason was the uncertainty cre- medium size transactions (up to 1,500 sqm), ated by the on-going recession and lack of fi - while in terms of geographical pattern, the let- nancing, rather than offi ce market fundamen- ting activity was concentrated in the north- tals. Yields for prime offi ces with strong tenant central and northern submarkets. The main leas ing activity was represented by relocations from 1 non-competitive buildings, with tenants also KEY FACTS ABOUT PROPERTY MARKET

benefi ting from more favourable contractual Current modern stock (sqm) 2.7m terms. The overall vacancy rate fl uctuated around Overall vacancy rate 14.50% 15% throughout 2013, refl ecting the stabilisation Class A vacancy rate 14.25% trend started during the second half of 2011. Take-up (sqm) 174,000 The vacancy rate recorded temporary fl uctua- Asking prime offi ce rent (sqm/mth) €16-18 Prime offi ce yields 8.50% tions as a result of the adjustments induced by the relocation of the tenants, rather than devel- Source: BNP Paribas Real Estate; 1. As at end 2013 opment activity. Headline rents for prime offi ces * Source: National Institute of Statistics still remained stable for the third consecutive Population – at the 2011 headcount; The rate of unemployment – July 2014; year at approximately €18 sqm/mth due to sus- Average salary – May 2014 10 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

GUIDE TO ROMANIA

covenants remained stable at around 8.5%. This stability in yields refl ects the balance between the scarce supply of prime buildings with strong tenant covenants and the lack of fi nance. Yields are not likely to move, at least for the H2 2014 - Q1 2015, particularly if the economic environ- ment remains comparable to 2013 and office fundamentals will not record any signifi cant im- provements (the vacancy rate remains high and relocations are the main source of demand).

Transportation The real estate developments follow the pattern of the main public transportation axes concen- trating in the proximity of underground networks

Bucharest, Euro Tower Euro Bucharest, (offi ce clusters located in the central and north-

Existing and proposed infrastructures

DN1

DN1A

DN7 DN2

A1

DN3 MINICIPIUL BUCURESTI

DN6

DN4 Existing highway DN5 Proposed highway Existing road Proposed road Railway BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 11

Underground networks

9 8 7 10 6 1 1 5 11 1 1 4 12 13 3 14 2

metro lines under construction or planned central areas of Bucharest) or along the Ring The investment projects of the local municipality Road and A1 highway (large logistic schemes include passages (Presei Libere Square, Charles located in the western and northern Bucharest). de Gaulle Square), and street extensions (north- In general terms the transportation systems south axis connecting the central and central- have a good coverage and capacity being sub- northern offi ce cluster with the highly populated ject of continuous improvement. The proposed southern districts; the improvement of the con- projects are likely to improve the accessibility nection between central areas of Bucharest with within the city and between Bucharest and adja- the exit towards A1 highway). cent communities. The industrial market will benefi t of the comple- The strongest positive impact on the local mar- tion of the Bucharest-Ploiesti Highway (last sec- ket will be generated by the extension of the tion between the Ring Road and north-eastern underground network towards the western (Dru- limits of Bucharest), extension/improvement of mul Taberei District) and northern Bucharest the existing Ring Road (excepting the northern (Straulesti District). These projects are planned section that is already completed). The other to be completed in 3 years improving the acces- projects (Bucharest-Craiova Highway) illustrated sibility towards highly populated districts. On by the attached map are planned to be complet- the long term the extension of the underground ed on long term (>5 years) and the probability of networks will continue towards east, south and completion is currently low. Henri Coanda International Airport. 12 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

GUIDE TO ROMANIA

Cluj-Napoca

Key facts*

Population 324,600

Unemployment rate 2.9% Gross average monthly salary 2,446 RON (€552)

Offi ce market of town. The offer is dominated by small class B Local market currently suffers from a shortage of offi ces with areas up to 500 sqm situated within class A offi ces with large fl oor plates in central small and medium buildings. The offer will record a areas and secondary areas along main access signifi cant improvement in 2014 after the comple- ways. During previous years, the development tion of the proposed projects, such as The Offi ce. activity was focused on the small scale projects (up to 2,500 sqm), situated in secondary areas During 2013 - H1 2014, the offi ce letting activity within well-established residential districts; thus recorded an obvious increase compared to previ- limiting the marketability and the scale of de- ous years. The demand is mainly sustained by of- velopments. The estimated modern offi ce stock fi ce enquiries for centrally located class A offi ces. reached approximately 140,000 sqm during 2013, The demand is characterised by small and me- being dominated by class B offi ces. dium size transactions (up to 1,000 sqm) while in terms of geographical pattern the letting activity Although ineffi cient class B offi ces and secondary was concentrated in the central area and second- supply have grown fast due to completion of small ary areas with very good accessibility in terms of developments and relocations/cease of businesses public transportation and vehicular access. of tenants, large occupiers looking for class A of- fi ces have a limited number of options to relocate. Despite the fact that demand was concentrated in the city centre, due to limited options in this Although the overall vacancy rate fl uctuates area and budget restrictions tenants started around 10-11%, this fi gure should be cautiously looking at high standard buildings with good treated as the main contributor is represented by accessibility located in Calea Turzii and Calea offi ce buildings situated in the peripheral areas Baciului areas. The profi le of tenants reveals that BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 13

demand was mainly sustained by fi nancial, BPO’s Transportation and IT&Telecom sectors. Cluj-Napoca is an important cross point for na- tional and international transit being located ap- Although the availability of market information is proximately 160 km from the Hungarian border. very limited, it is likely that one of the trends that The road infrastructure is well developed being have become more obvious is lease renewals. This appropriate for industrial developments. Three is generated by the fact that signifi cant number national and international roads cross the city: of tenants have ended their contractual cycle E60 from Bucharest towards Oradea and the and have now less comparable relocation options Hungarian border, E81 from Sibiu towards Hun- (class A offi ce segment), especially for large areas. gary and Ukraine and E576 towards Ukrainian Relocation is the last option considered by tenants and Moldavian borders. In addition, Cluj-Napoca as they are now able to obtain cost cuttings with- benefi ts of the fi rst section of the “Transylvania out additional relocation costs and disturbances Highway” that will connect Bucharest (via Bras- of their activity. After the completion of new qual- ov) with Hungary. ity buildings, the relocation option will become more and more attractive for tenants. The inner city roads provide good accessibility from highly populated districts towards city cen- Developers anticipated the specifi c of the de- tre where the majority of modern offi ce devel- mand and started new projects, some being sup- opments are located. The public transportation ported by pre-leases. As a result, in 2014-2015 system effi ciently covers the perimeter of the city the development activity will record an improve- as the transportation needs of the local inhab- ment due to the commencement of new projects itants are doubled by demand coming from the such as The Offi ce, Liberty Technology Park, Iulius students (Cluj-Napoca is one of the largest uni- Offi ces. The proposed developments are good versity centre in Romania) and commuters. quality offi ce accommodation providing corporate The International Airport of Cluj-Napoca is locat- image, effi cient layout of the space, amenities ed 10 km east from the city centre and provides high standard fi nishing and equipment. fl ight connections with other internal destination and European cities. Headline rents for prime offi ces still remained stable for the second consecutive year at ap- 1 proximately €11-13 sqm/mth due to sustainable KEY FACTS ABOUT PROPERTY MARKET

demand for quality offi ces and slow develop- Current modern stock (sqm) 140,000 ment activity that balance against the downward Overall vacancy rate 11.00% pressure on rents exercised by the tenants. Rents Class A vacancy rate 2.00% for centrally located class B offi ces fl uctuate be- Asking prime offi ce rent (sqm/mth) €11-13 tween €8-10 sqm/mth while in secondary and Prime offi ce yields 9.25% peripheral areas rental levels generally range Source: BNP Paribas Real Estate; 1. As at end of May 2014 between €6-8 sqm/mth, with lower levels in * Source: National Institute of Statistics former administrative buildings. Population – at the 2011 headcount; The rate of unemployment – December 2013; Average salary – May 2014 (at county level) 14 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

GUIDE TO ROMANIA

Timisoara

Key facts*

Population 319,300

Unemployment rate 1.5% Gross average monthly salary 2,414 RON (€545)

Offi ce market generally offer larger areas, but of lower quality The weak levels of letting activity recorded dur- with ineffi cient fl oor layout and limited facilities. ing 2009-2011, related with the uncertainty The demand for offi ce premises is represented about the evolution of the economy and real es- by international and domestic companies (IT&C tate market, discouraged developers to initiate companies, BPO’s, automotive producers) which large offi ce projects. However, the local market are looking to expand their network in regional witnessed an increase in the availability of of- cities. Another demand segment, but with a re- fi ces as companies reduced the occupied space duced impact on the market, is represented by while successful schemes, such as City Business small local companies which operate either in Centre, extended their areas. converted residential premises or obsolete offi ce accommodation. The existing supply is geographically dispersed however the central submarket (Cetate District) Headline rental levels did show signs of stabiliz- concentrates a high number of spaces, many of ing during 2011-2013. However, the whole pic- them being located within reconverted old resi- ture is not given if considering only the headline dential buildings. quoting or achieved rents without taking into ac- count the costs supported by the owner. Large The market is dominated by small-scale and tenants that conclude longer lease contracts medium sized buildings (including refurbish- benefi t from signifi cant incentives from owners, ments or conversions of residential units or other thus the level of net effective rent is signifi cantly commercial properties) and former state owned lower compared to asking rent. The willingness administrative buildings (decentralized and pe- of landlords to concede to tenants was mainly ripheral areas). The last mentioned properties refl ected in the level of incentives granted (fi t- BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 15

nection with the Western Europe was one of the reasons that stimulate the rapid development of the industrial segment.

The expansion of the multinational companies in the local market was encouraged by the opera- tional international airport that encountered the second largest number of passengers in Romania.

Trends The investment market remains in line with the evolutions recorded during the previous years as large investors are still cautious to enter the Romanian market. Nevertheless, the market fun- damentals offer good prospects for the future evolution of the market, however the level of

City Business Centre Timisoara confi dence remains relatively low.

The interest for offi ce and retail spaces will con- out costs, rent free periods) and less in the re- tinue to increase, taking into account the de- duction of the rents. velopment of these sectors and the appetite for such properties. The key role will be exclusively Asking rents for centrally located quality offi ce played by international investors who will look buildings are ranging between €10.00-12.00 for prime assets in top locations. sqm/mth, depending on size, location and amen- ities offered while for converted offi ce space the rents fl uctuate between €6.00-9.00 sqm/mth KEY FACTS ABOUT PROPERTY MARKET1 including former administrative buildings or re- converted residential units (secondary and pe- Current modern stock (sqm) 115,000 Overall vacancy rate 9.00% ripheral locations). Asking prime offi ce rent (sqm/mth) €10-12 Prime offi ce yields 9.25% Transportation Timisoara will benefi t of an excellent access to- Source: BNP Paribas Real Estate; 1. As at end of May 2014 wards Bucharest and Hungarian highway system * Source: National Institute of Statistics by the completion of the highway Nadlac-Sibiu Population – at the 2011 headcount; The rate of unemployment – December 2013; that was partially completed. The excellent con- Average salary – May 2014 (at county level) 16 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

NEED TO KNOW Key legal terms

Romanian real estate market has started to defreeze in 2013 and the trend is expected to continue in 2014. Investors should be aware that although real estate legislation has improved during the past years, including after the enforcement of the New Civil Code at the end of 2011, certain articles are still subject of interpretation. As in Poland, any investment requires continuous legal assistance. Dentons Bucharest Real Estate Group lawyers Laura Tiuca (Local Partner) and Madalina Trifan (Senior Associate) have prepared a summary of the main legal aspects that have to be considered in view of developing a real estate project in Romania.

REAL PROPERTY RIGHTS UNDER ROMANIAN LAW The current Romanian legal framework regulating the establishment and exercising of rights over real property (i.e., buildings and land) is set forth primary by the Romanian New Civil Code (“RO Civil Code”). In accordance with the RO Civil Code provisions, the real property rights are the following: (i) the ownership right (the full and unlimited title to the land and/or the building) and (ii) the other in rem rights (in Romanian language, “drepturi reale principale”), namely: superfi cies right1, usufruct right, use right, habita- tion right, servitude right, administration right, concession right, other rights recognized as such under the law. Also, the Romanian legislation provides for different legal regimes applicable to the establishment and exercising of real property rights in case of private property versus public property (property of the State). The concept of “private property” covers (i) all assets of private usage and interest, pertaining to individuals or legal entities, and also (ii) the assets which are part of the private domain of the Romanian State and of its territorial-administrative units. Public property right constitutes the right of the State and its administrative units over assets which, either by their nature or by qualifi cation of the law, are of public interest/ usage.

1. One of the most important in rem rights is the superfi cies right, meaning the right of use over the land underlying a building. The RO Civil Code expressly defi nes the superfi cies right as the right to have or to build a building on the land of another person, on top or under such land, the owner of the building having a right of use of the land. Such surface right can be acquired based on a legal deed or long term possession (in Romanian language, “uzucapiune”) and it is limited to 99 year-periods (the initial 99 year-term is renewable). BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 17

ACQUISITION OF REAL ESTATE With certain exceptions, land may be owned, used and transferred freely in Romania. Irrespective of the legal nature of such agreement, certain basic requirements and/or formalities applicable to transfer of land must be ob- served: (i) the notarized form of the agreement (i.e., authentication by a no- tary public), under the sanction of absolute nullity of the alienation/transfer deed; and (ii) the registration with the Land Registry. Fiscal record of land, as well as the Land Registry, must be inquired before notarization. Also, in case of other principal in rem rights, the notarization of the agreements is gener- ally required for constitution/transfer of the above mentioned in rem rights, as well as the registration with the relevant Land Registry.

LAND REGISTER In principle, all real estate property must be registered in the real estate registry (“Land Registry”) kept by the local offi ces of the National Agency for Cadastre and Land Regis- tration. However, to date, cadastral works are still in progress, thus a signifi cant number of immovable properties are not yet subjected to cadastral measurements and are not registered in the Land Registry. Currently, the registration with the Land Registry is performed for opposability to third parties and does not constitute in itself proof of ownership right/other in rem rights. According to RO Civil Code, following the fi nalization of the cadastral works at the level of each territorial-administrative unit, the registration of real estate rights (including registration of ownership right) with the Land Registry will generally have a constitutive effect. In this case, the proof of ownership will be made by the land book excerpt, while the proof of property limits will be made by a cadastral plan excerpt. Such cadastral works are likely to be fi nalized in the following years. 18 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

NEED TO KNOW

ENERGY PERFORMANCE CERTIFICATES According to Romanian legislation, an energy performance certifi cate is to be obtained and presented when selling, leasing or refurbishing a SHARE DEALS building / construction. In case of sale-purchase Acquiring shares in Romanian companies is not agreements, such energy performance certifi cate subject to any transfer tax. Acquisition of assets is to be provided, under the sanction of nullity of depending on circumstances may in certain in- the agreement. stances be subject to 24% VAT (apart from the With respect to the buildings / constructions that real estate transfer tax), however does not entail are under development, the energy performance any liability for seller’s obligations (as it would certifi cate must be obtained and presented to the be the case in case of a share deal). As a rule, the reception commission under the sanction of nul- acquisition of assets as a going concern does not lity of the reception minutes at the termination involve the assumption of liability for the tax debt of works. of the seller.

GREEN BUILDING AND INVESTMENT VEHICLES IN ROMANIA GREEN LEASES Foreign investors may establish a business presence in Ro- In Romania, leases regarding “green mania, among others, (i) by creating a new company; or (ii) buildings” have the same legal by purchasing a shelf company. The main vehicles used by regime as leases with respect to investors in this respect are the limited liability companies, “standard buildings”. In practice and the joint-stock companies. however, the owner of a “green With respect to limited liability companies, while more simply building” could benefi t from cer- to create than joint-stock companies, in case of an envisaged tain grants and state aids with re- transfer of shares, such transfer may operate only upon the spect to the development of such expiry of an opposition term of 30 (thirty) days from the date a building. of publication in the Offi cial Journal of Romania of the decision approving the transfer of social parts. This opposition term is provided in favor of the company’s creditors and is aimed to prevent tax evasion. Such opposition term is not provided in case of transfer of shares in a joint-stock company. BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 19

RESTRICTIONS ON OWNERSHIP • Foreign ownership. Following the Romania’s accession to the European Union, EU cit- izens and legal entities, as well as stateless persons residing in other Member States or in Romania can purchase/acquire land in Romania subject to certain conditions. For example, foreign persons/entities can acquire agricultural or forest land, only af- ter passing 7 (seven) years from the date of Romania’s EU accession (i.e., starting with 1 January 2014). Non-EU foreign persons and legal entities may acquire land in Romania generally in accordance with international treaties based on reciprocity. In any case, EU citizens and other foreign persons may acquire land by way of legal inheritance. All foreign persons, regardless of nationality or residence, may directly own build- ings in full property, although they do not have the ownership right over the land. In practice, in such case a superfi cies right will be constituted over the land that will allow the foreign person to benefi t from the ownership title over the building and of the use of the land. • Preemption rights. In case of forest land, co-owners, neighbors (including the Ro- manian State) have a preemption right in case the current owner decides to transfer such land. In case of agricultural land, the current leaseholders – under agricultural lease agreements – have a preemption right over the land under their agreement. New law regarding sale-purchase of agricultural land located outside the city limit, and establishment of the Authority for Administration and Regulation of the Land Market was promulgated in March 2014. According to its current provisions, the sale of agricultural land located outside the city limits will be made in accordance with the procedure and observance of the preemption right of the following persons (the order is mandatory): (i) co-owners of the land; (ii) lease holders; (iii) neighbors (individuals); (iv) State via Agency of State Estates (ADS). • Public tender requirements. The public property ownership right is inalienable, which means that public property assets cannot be alienated, as they are not part of the civil circuit of assets. The inalienability of such assets operates as long as they are part of the public domain of the State or its administrative units. Once an asset is removed from the public domain and registered in the private domain of the State or its administrative units (in accordance with the law) such asset will become subject to private property rules. Private property assets of the State and administrative units are transferable, following however public tender procedures (with certain exceptions). 20 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

NEED TO KNOW

LEASES The RO Civil Code states that, generally, any movable or immovable asset may be leased. Depending on the category of the leased assets, there are specifi c regulations applicable to different type of leases – e.g., the lease of agricultural land and the lease of dwellings have particular regulations. Land leases, residential leases and commercial leases represent the main types of leases. The RO Civil Code provides mutual regulation in this re- spect, although, in practice, there are differences between them. In case of lease agreements for agricultural land – i.e., leasehold agree- ments – there are specifi c regulations that must be observed in order to have the agreement validly concluded.

FORM OF LEASES TERM In order to be legally and validly concluded, a Generally, the parties to a lease agreement may lease agreement must observe: (i) all general freely establish the duration of the contractual conditions established by law for concluding period. However, in accordance with the Roma- any type of agreement, i.e. capacity and con- nian legal provisions, the maximum duration of sent of the parties, a determined object and a a lease may not exceed 49 years. Leases con- specifi c cause for concluding that agreement, cluded for more than 49 years are automatically as well as (ii) the specifi c terms provided in reduced to 49 years. this respect by law. As such, according to the The term of the lease agreement may be ex- RO Civil Code a lease agreement is consid- tended by way of additional act signed by both ered validly concluded once the parties have parties, if the lease agreement does not provide agreed upon the asset subject to the lease and for an automatic extension. the price of the lease - the rent. For opposabil- Also, a lease agreement is considered renewed if ity towards third parties, lease agreements are after the expiration of its term, the tenant con- registered with the Land Registry. tinues to possess the asset and to fulfi ll its ob- As for the assets pertaining to public or private ligations without any opposition from the owner property of the state or of the towns/com- (in Romanian language, “tacita relocaţiune”), munes, the lease / concession for such assets however, such new lease agreement is consid- is generally subject to performance of a public ered concluded for an undetermined period. auction, in accordance to the law. Further, the RO Civil Code establishes specifi c regulations in case of renewal of lease agree- ments for dwellings or agricultural land. BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 21

SUBLETTING / TRANSFER OF LEASES Under the RO Civil Code, the tenant has the pos- sibility to sublease the asset (partially or totally) or assign the lease agreement to a third party, only if the lease agreement does not provide the contrary. However, in case of a movable asset, its sublease or assignment is allowed only subject to the prior written consent of the owner. MAINTENANCE / REPAIRS A specifi c remark in case of leaseholds agree- The provisions of the RO Civil Code establish that, ments (for agricultural land) – while the as- generally, the owner of the leased asset has the signment of the agreement is allowed subject to obligation to ensure all the necessary repairs in fulfi llment of several conditions, the sublease is order to maintain the leased asset in proper con- prohibited, under the sanction of nullity of the ditions in order to be used according to its deter- agreement. mined destination. However, the tenant is obliged In case the leased asset is mortgaged, the lease to perform also certain repairs resulting from the agreement is opposable to potential future own- ordinary use of the leased asset. ers only if the lease was registered with the Land Also, the owner of the leased asset has the obli- Registry before the mortgage agreement was gation to warrant the tenant against any fl aws / concluded. destruction / damages (generally defi ned as “de- fects”) with respect to the leased asset, in case such defects would prevent the tenant in using the asset in whole or in part. INDEXATION Such warranty is valid even if (i) the owner of the According to the provisions of the RO Civil Code, leased asset had no knowledge of such defects at the rent and the rent adjustments may be freely the date of concluding the lease agreement or (ii) agreed between the parties. such defects existed at the date of concluding the Specifi c regulations are provided in case of lease- lease agreement or turned up after such date. hold agreements where the rent may also be es- However, the owner is not responsible for the de- tablished in equivalent of agricultural goods. fects of the leased asset that were visible at the date of concluding the lease agreement and that were not subject to tenant’s complaint in this respect. An exception to this rule is in case such visible defects are affecting the life, health and corporal integrity of the tenant. In practice, the owner of the leased asset would have in place insurance policies against such risks. 22 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

NEED TO KNOW

Acquisition – specifi cations in Romanian law compared to its European neighbours

How can real estate be held? • Ownership (which may take the form of individual ownership, co-ownership, volume division or time-sharing ownership); • Other in rem rights (usufruct, superfi cies, use habitation, servitude, administration and con- cession).

What rights over real All real estate rights will have to be registered with the Land Registry in order to be validly created. property are required to be This obligation is applicable after the fi nalization of the cadastral works at the level of each registered? territorial-administrative unit.

What property The documentation required for registration comprises of the documents by which the transfer documentation do you need occurred or by which the other in rem rights were created. to register?

Are there nationality Foreign persons/entities can purchase agricultural or forest land, only after passing 7 (seven) restrictions on land years from the date of Romania’s EU accession (i.e., starting with 1 January 2014). Non-EU ownership? foreign persons and legal entities may acquire land in Romania generally in accordance with international treaties based on reciprocity.

Who usually produces the Usually legal counsel of one of the parties prepares the fi rst draft, which is subsequently documentation in real estate negotiated between the parties and notarized by a notary public. transactions?

What are the main usual do- • Confi dentiality agreement, if the case; cuments in real estate acqu- • Heads of terms / LOI; isition? • Due diligence reports (legal analysis, cadastral expertise, technical expertise, tax analysis) done by advisors of the investors; • Pre-sale-purchase agreement, if the case; • Sale – purchase agreement.

This material is purely informative and does not constitute legal advice. Readers are advised to request a lawyer’s advice before concluding any business, taking any decision or acting in any way whatsoever in connection with the matters included in this material. No portion of this material may be reproduced or quoted without the written approval of Dentons. © 2013. All rights reserved. BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 23

Leasing – what’s market standard in Romania vis-à-vis its European neighbours?

What different types of real • Land leases; estate leases exist? • Commercial leases; • Residential / dwelling leases.

Are commercial lease Subject to the mandatory provisions of the RO Civil Code, commercial leases are freely negotiable provisions freely negotiable? between the parties.

Is there a maximum term for The maximum duration of a lease in Romania may not exceed 49 years. Leases concluded for commercial leases? more than 49 years are automatically reduced to 49 years.

Howe are commercial rents The rent and the rent adjustments may be freely agreed between the parties. reviewed?

What are usually the basic • Hand over the leased asset in accordance with the lease agreement provisions; obligations of landlords? • Guarantee the peaceful possession and usage of the leased asset throughout the entire lease term; • Ensure all the necessary repairs in order to maintain the leased asset in proper conditions to be used according to its determined destination; • Insure the premises/property.

What are usually the basic • Pay the rent and service charges in accordance with the provisions of the lease agreement; obligations of tenants? • Use the leased asset with caution and diligence and perform minor repairs; • Render the leaded asset at the expiration of the lease agreement; • Provide relevant collaterals, as agreed in the lease agreement; • Insure its belongings, merchandise and goods, located at the leased premises, as agreed in the lease agreement.

KEY LEGAL TERMS AND TAX CLINIC AUTHORS

Laura Tiuca Delia Dragomir Madalina Trifan Local Partner Managing Counsel Senior Associate Co-Head of Bucharest Head of Tax Tel.: +40 21 312 4950 Real Estate Group Tel.: +40 21 312 4950 [email protected] Tel.: +40 21 312 4950 [email protected] [email protected] 24 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

NEED TO KNOW Tax clinic

Delia Dragomir, Managing Counsel with Dentons Bucharest makes a review of the taxes that may apply to legal entities investing in Romania real estate.

1. INCOME TAX ON RENTAL INCOME 3. TAX ON EXIT PROFIT Companies. Rental income is included in the tax Dividends paid by a Romanian company to an- base for corporate profi ts. The taxable profi t of other Romanian company are subject to 16% a company is determined as the difference be- dividend tax. Double Tax Treaties (“DTT”) are also tween the revenues derived from any source and concluded with a number of states and the rel- the expenses incurred in obtaining taxable rev- evant provisions apply. enues throughout the tax year, adjusted for fi scal purposes by deducting non-taxable revenues and 4. WITHHOLDING TAX adding non-deductible expenses. Any other ele- WHT may be applicable depending on the type of ments similar to revenues and expenses are also revenue that is applies to and the relevant DTT. to be taken into account when determining the taxable profi t. 5. VAT The corporate income tax rate is 16% and it ap- Any operation performed by a taxable person rep- plies to both resident companies, and to those resenting a supply of goods / services for consid- entities operating in Romania via a permanent eration for which the deemed place of supply is in establishment. Romania and which results from economic activi- ties falls within the scope of VAT. The applicable 2. TRANSFER TAXES standard VAT rate is 24%. Leasing of agricultural The sale of a Romanian property by an individual land is VAT exempt. triggers Romanian real estate transfer tax at a Trade between Romanian entities falls within the rate between 1% and 3% of the sale price regard- scope of VAT. The import of goods, intra-commu- less of the location of the property. nity acquisitions of goods and operations deemed Share deals are also deemed real estate deals in as such are also within the scope of VAT. Intra- the event the real estate assets of a company ex- community trade refers to Romanian entities ac- ceed 50% of the total fi xed assets of the company. quiring from and supplying to EU member states. Investors often use various tax structures to cir- As a general rule intra-community supplies from cumvent this provision. Romania (i.e., Romanian entity selling its goods BNP Paribas Real Estate 2014 – INVESTING IN ROMANIA 25

to an entity based in another EU member state) land within certain determined zones, towns are VAT-exempt with deduction right. Intra-com- or villages and depending on land use. Fixed munity acquisitions in Romania (Romanian entity amount per hectare, depending on the location buying goods from a EU-based company) are sub- of the land, listed in Chapter IX of the Fiscal Code. ject to VAT under the reverse charge mechanism. TAX ON CONSTRUCTIONS – The Fiscal Code With respect to territoriality, the rules on estab- regulates a new “tax on constructions” by adding lishing the place of supply for goods and services a new title, TITLE IX3, including articles 29633 – (specifi cally determining whether VAT is appli- 29636. The tax is effective as of January 1st, 2014. cable or not) are in line with the EU 112/2006/ The term “constructions” receives a new defi ni- CEE and 2008/8/CEE VAT Directives. As a rule, VAT tion: “constructions” are those specifi ed in Group 1 becomes due on the date of the supply of goods of the Catalogue on the classifi cation and normal or services. If services rendered on a continuous periods of operation of fi xed assets, as approved basis for a period longer than one year and pro- by the Government Decision no. 2.139/2004, as vided that no payments or settlements are ef- subsequently amended. As result of the new defi - fected during such period, then VAT becomes due nition the “special constructions” previously ex- at the end of each calendar year. empted from tax are now being taxed. Any taxable person has the right to deduct the LIABLE PERSONS – Romanian legal entities, per- VAT related to its acquisitions, provided they are manent establishments of foreign legal entities, destined to be used for its activity of generating legal entities with the registered offi ce in Romania taxable revenues. Collected VAT (input VAT) relat- established according to the European laws. ed to expenses incurred from set-up transactions EXEMPTED PERSONS – Public institutions, na- can be retroactively deducted when all require- tional research and development institutes, as- ments for VAT deductibility are fulfi lled (mainly sociations, foundations and other non-profi t legal the condition above and issuance of regular in- entities according to the laws of organization and voices) within a maximum period of fi ve years. operation. In case of fi nance lease operations the user has the capacity of taxpayer and in case of 6. REAL ESTATE TAX operating lease operations the lessor has the ca- BUILDING TAX – All buildings, regardless of pacity of taxpayer. The rate is 1.5% applied to the their purpose, are taxed according to their value. value of the constructions determined in accord- Tax Rates due by companies legal persons range ance with a specifi c formula. between 0.25% and 1.5% of the building’s tax- able value, and are set by the local councils. The 7. OPEN-ENDED FUNDS building’s taxable value is determined by the area Real estate can also be held by an open-ended used and the building type. real estate fund. Special regulatory and tax rules LAND TAX – It is established as a fi xed amount apply to such funds which are tax transparent for per hectare, depending on the location of the income taxation purposes. 26 INVESTING IN ROMANIA – 2014 BNP Paribas Real Estate

HOT SPOTS Selected investment opportunities

BAIA MARE FALTICENI

SALONTA PIATRA NEAMT LUDUS PECICA BLAJ BRAD

BUZAU

BUCHAREST

PORTFOLIO OF THE LIDL STORES

The portfolio consists of 9 retail properties stra- tegically located across Romania which are fully leased to Lidl discount operator. The schemes offer 10,995 sqm of GLA in total and generate an annual Net Operating Income at the level of EUR 1,174,440. The weighted aver- age unexpired lease term for the whole portfolio exceeds 8 years while the weighted average rent amounts to EUR 9.70/sqm. The properties benefi t from the strategic loca- tions within residential areas of the towns and in close proximity to the major roads ensuring easy access and stable fl ow of customers.

Total GLA 10,995 sqm Parking spaces 528 WAULT 8.77 Occupancy 100% NOI 2013 €1,174,440 Pictures from top: Brad, Piatra Neamt, Falticeni CONTACTS

Patrick Delcol Grzegorz Dudziak Chief Executive Offi cer CEE Director, Property Management CEE [email protected] [email protected]

Olga Melihov Anna Staniszewska Business Development Director Director, Research & Consultancy CEE [email protected] [email protected]

Mihai Dosanu Izabela Mucha Head of Property Management Head of Valuation CEE [email protected] [email protected]

Del Chandler Managing Director Capital Markets CEE [email protected]

DENTONS

Dentons is a global fi rm built on the solid foundations Dentons has over 2,500 lawyers in more than 75 of three highly regarded law fi rms: Salans, FMC locations spanning 50-plus countries across Eu- and SNR Denton. We remain committed to offering rope, the US, Canada, Russia and the CIS, the Mid- all of our clients a competitive edge in an increas- dle East, Central Asia, China and Africa. We are one ingly demanding marketplace, by proposing crea- of the ten largest global law fi rms in the world. tive and practical business solutions.

CONTACT Dentons Bucharest 28-C General Constantin Budisteanu Street 010775 Bucharest

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