Anton Goncharuk
Regarding deductions for personal expenses, Moldova has a personal exemption and a dependency exemption. The spousal exemption has recently been abolished. And from next year, a deduction for children’s education will be introduced. At the same time, in the USA and other countries, experts point out, individuals are entitled to deductions for studies, mortgages, purchase of real estate. In this context, some of them propose to provide in the legislation deductions for repairs made by citizens when buying an apartment (main dwelling) in gray or white.
“In this case, substantial investments are required to bring the housing into a livable condition,” says Anton Goncharuk, auditor at PFBC-Privat SRL. – Often the costs are comparable to the value of the apartment. At the same time, the Tax Code clearly restricts a physical person in the right to deduct such expenses or any other of their impact on taxation. It would be reasonable and fair if the authorities developed and introduced a mechanism for calculating the cost basis of purchased housing, taking into account the repair costs incurred by an individual”.
In Moldova, the law exempts individuals from income tax on the sale of the main dwelling. It should be reminded that a citizen must be registered in it for more than three years. Therefore, it does not matter what its cost basis is. When building a house, it is formed by the costs. On the one hand, this affects the real estate tax, on the other hand, when selling or alienating, the full cost of housing is taken into account.
Questions arise when a physical person is registered in one apartment, but lives in another. In Moldova it is quite a common situation. It is not uncommon when one of the spouses is registered in a house or apartment, and the other – in another real estate object. Then the cost basis for the sale is divided. The individual is obliged to calculate tax on income from the sale, which is the difference between the sale price and the cost basis. Half of the amount received is taxed at the rate of 12%.
“We are often approached by clients for advice,” continues Anton Goncharuk. – Situations in families are different. Some can live in the apartment for a long time, and others have to go for expansion after two years. And it turns out that the funds that were invested in repairs are not counted anywhere. There is a benefit under the Prima casa program, but it is for a rather narrow category of the population”.
According to the expert, the indirect effect for the state in the case of introduction of deductions for repair work is that small firms or construction teams, which now perform unofficial repair work, will be forced to legalize and come out of the shadows.
Some experts believe that the state will not go for such a step, because it will be used by citizens for investment purposes. “But even in this case, the state will not lose,” he continues. – Let’s say a physical person entered into a contractual agreement with a construction firm that performed the work legally. The individual saves 6%, while the legal entity pays VAT, payroll taxes, and profit tax. Even if the contractor is a physical person, he pays 12% income tax or, as a self-employed person, 15%.
– We are talking about the right of individuals to deductions. How the state will limit this is a separate question, but it would be possible not to introduce restrictions to begin with, to see how it will work and to understand how to regulate the process. If you introduce them right away, many people will not want to use the deduction, so as not to violate the restrictions, because it is fraught with penalties. A pilot project in a separate municipality is possible.
