New rules in trading agricultural land in Romania applicable as of 13 October 2020
On 14 August 2020 Law no. 175/2020 (“Law 175/2020”) amending and supplementing Law no. 17/2014 (“Law 17/2014”) which regulates the sale and purchase of agricultural land located extra-muros and amending Law no. 268/2001 on the privatisation of companies managing the State’s publicly, and privately, owned agricultural lands and the setting-up of the Agency for the State’s Domain was published in the Romanian Official Gazette, Part I, no. 741.
Law 175/2020 introduces substantial new concepts regarding the transaction procedure for agricultural land located extra-muros, such as:
1. new categories of pre-emption right holders and amendments to their priority ranking;
2. extension of the legal term for exercising pre-emption rights;
3. new conditions to be observed by third-party buyers;
4. mandatory observance of the agricultural destination;
5. new fiscal provisions; and
6. new sanctions.
1. New categories of pre-emption right holders
In addition to the formal and substantive provisions under the Civil Code, the sale of agricultural land located extra-muros must observe the pre-emption right provisions.
New categories of pre-emption right holders have been introduced and their priority ranking has also been changed. The order that must now be observed is:
1st rank: co-owners, 1st degree relatives, their spouses and relatives up to the 3rd degree inclusively;
2nd rank: owners of agricultural investments in fruit trees, vineyards, hop cultures, exclusively private irrigation works and/or agricultural lessees;
3rd rank: owners and/or agricultural lessees of agricultural lands neighbouring the land on sale;
4th rank: young farmers;
5th rank: the Academy of Agricultural and Forestry Sciences “Gheorghe Ionescu-Șișești” and research/development units in the agricultural, forestry and food industry, with the purpose of buying the extra-muros agricultural land strictly for agricultural research and where the land is located in an area near to plots of land already owned;
6th rank: natural persons domiciled/residing in the administrative/territorial units where the land is located or in the neighbouring administrative/territorial units; and
7th rank: the Romanian State through the Agency for the State’s Domain.
2. Legal term for exercising the pre-emption right and other procedural provisions
The term in which the pre-emption right must be exercised has been extended from 30 days to 45 business days from the date on which the sale offer is registered.
Law 175/2020 also introduces a new amendment regulating the situation in which the seller or the holder of the pre-emption right dies before the sale agreement is concluded in authentic form before the public notary or before the court decision of the sale-purchase agreement is rendered. In such cases, the approvals issued by the central structure or by the territorial structures will be cancelled.
3. New provisions to be observed by third party buyers
In cases where none of the beneficiaries exercise their pre-emption right within the legal term the agricultural land located extra-muros can be sold to:
A. Natural persons that satisfy, cumulatively, the following specific requirements:
i. have had their domicile/residence or registered office, as the case may be, located in Romania for at least 5 years prior to the registration of the sale offer;
ii. have conducted agricultural activities in Romania for a period of at least 5 years prior to the registration of the sale offer; and
iii. have been registered with the Romanian tax authorities for at least 5 years prior to the registration of the sale offer.
B. Legal entities that satisfy, cumulatively, the following specific requirements:
i. have had their registered office/secondary office, as the case may be, located in Romania for at least 5 years prior to the registration of the sale offer;
ii. have conducted agricultural activities in Romania for a period of at least 5 years prior to the registration of the sale offer;
iii. have submitted documents attesting that, out of the total income for the last 5 fiscal years, at least 75% represents income from agricultural activities, as stipulated under Law no. 227/2015 on the Fiscal Code;
iv. the controlling shareholder has had their domicile located in Romania for at least 5 years prior to the registration of the sale offer; and
v. have proof that if, in the structure of the relevant legal entity, the controlling shareholders are other legal entities, those controlling shareholders have had their domicile located in Romania for at least 5 years prior to the registration of the sale offer.
The third party buyers identified above must submit the file with the documents attesting they have complied with the legal conditions within 30 days from the expiry of the 45 business days, this being the term in which the pre-emption right holders must express their intention to buy.
If the pre-emption right holders fail to exercise their pre-emption right under the legal provisions, and if none of the potential third-party buyers proves that it fulfils the conditions provided for by the law, the agricultural land located extra-muros may be sold freely to any interested natural or legal entity.
4. Observance of the agricultural destination
Any new owners of agricultural land located extra-muros are required to use it exclusively to carry out the agricultural activities that were carried out at the date of purchase, and if there are agricultural investments in fruit trees, vineyards, hops and exclusively private irrigation works on the purchased agricultural land, the agricultural use of such investments must be continued.
5. New fiscal provisions
As a result of the introduction of new significantly increased taxes, the sale process will be substantially more difficult.
In cases of successive sales of agricultural land located extra-muros, selling the land within 8 years of the acquisition will trigger the obligation to pay tax amounting to 80% of the difference between the sale price and the purchase price, based on the applicable notary grid in force on the relevant date.
A similar rule applies to the indirect sale of land owned by a legal entity when the agricultural land located extra-muros represents more than 25% of the company’s assets.
Therefore, in cases of a direct or indirect sale of the said companies within 8 years of the lands’ acquisition, there will be a tax imposed equal to 80% of the difference between the sale price and the purchase price of the controlling stake, based on the applicable notary grid in force on the relevant date. In such a case, the tax applied to the profit on the shares sold will be on a reduced pro rata basis taking into account the share percentage that such agricultural land represents in the company’s fixed assets, any double taxation being prohibited.
The above-mentioned tax obligations do not apply in cases of a reorganisation, or re-allocation, of assets within the same group of companies.
6. New sanctions
Failure to comply with the pre-emption provisions or with the procedure to obtain the legal approvals required, as well as failure to comply with other relevant provisions under the law will trigger the absolute nullity of the sale-purchase agreement.
In addition, non-compliance with the right of pre-emption and the conditions/procedures provided for under the law are considered to be contraventions which render a fine payable. The applicable fine for such contraventions has been increased and is now between RON 100,000 and RON 200,000 (ie. between approx. EUR 21,000 and EUR 42,000).
Details regarding the applicability of the new provisions will be further established by methodological norms to be published.