The General Financial Directorate (GFD), together with the Ministry of Finance, has addressed the negative effects of the current legal regulation on the exemption of taxpayers – natural persons from personal income tax in the case of the acquisition of their own housing needs and in this context has issued a new Information addressed to all tax offices for the purpose of a uniform procedure of tax administrators regarding the waiver of tax accessories.

Under Section 4(1)(a) of the Income Tax Act, income from the sale of a family home and related land, or a unit that does not include non-residential space other than a garage, cellar or storage room, and related land is exempt from tax if the seller has resided there for at least 2 years immediately prior to the sale and uses the proceeds to provide for his or her own housing needs.

The income exemption applies if the taxpayer notifies the tax administrator of the acquisition of these funds by the end of the deadline for filing the tax return for the tax year, in which they were acquired (Section 4b(2) of the Income Tax Act).

The GFD states that administrative practice shows that in many cases the tax is assessed only as a result of failure to comply with the statutory obligation to notify the tax exemption, although the material conditions for exemption have been met, which seems problematic and to some extent unfair. Therefore, the forthcoming amendment to the Income Tax Act should no longer link the tax exemption to the act of notification at all.

In the meantime, in accordance with the GFD Information, individuals who have been assessed personal income tax due to their failure to notify the tax administrator that the facts for the exemption of income spent on the acquisition of their own housing needs have occurred, although the factual proof of the use of the acquired funds has not been disputed, may apply to the tax administrator for waiver of accessories of this tax.

If the tax accessory has arisen solely due to the failure to comply with the reporting obligation within the meaning of the aforementioned provisions of the Income Tax Act, this is a justifiable reason beyond the scope of Guideline No. GFD-D-58 (we informed you about the adoption of this guideline in our article). The percentage of this justifiable reason may be up to 100%.

According to the new methodological instruction of the GFD, the tax administrator should informally contact taxpayers and inform them of the possibility to apply for a waiver (both in pending proceedings and in those that have not been completed at the time of the GFD Information).

If you have been assessed additional personal income tax in the above context, you can apply for full waiver of the tax accessory.

The full text of the Information No. 24103/24/7700-50123-711513 can be found here.