Post Overview of Business Taxes in Moldova

There are numerous factors that have an impact on a country’s business and investment climate, such as its geographic location, infrastructure, political and social stability and wage levels. The same time, when looking for a location for doing business, more and more companies base their decision on the tax system of the country in question. The tax system should not constitute an obstacle to companies or individuals for starting and practicing business activities. The attractiveness of Moldovan tax system for local and foreign investors is reflected in the way in which corporate profits are taxed. Therefore, before starting a business in Moldova, it is very important to know the taxation rules, the main tax rates applied and to have a general overview of the taxes to which companies in Moldova are liable.

The Tax System of Republic of Moldova can be divided in two levels:

  • taxes and duties of national level
  • taxes and duties of local level

National level taxes and duties have to be paid to the national budget and include:

  • income tax
  • value added tax (VAT)
  • excise tax
  • private tax
  • customs duties
  • road tax
  • tax on wealth

Local level taxes and duties have to be paid to the budget of administrative territorial Units (called “raion”), and include:

  • real estate tax
  • private tax
  • natural resources tax
  • territory development tax
  • tax for local auctions and lotteries
  • tax for external advertising
  • tax for the use of local symbols
  • tax for shops and / or for social services units
  • market Tax
  • hotel tax
  • resort tax
  • tax for transport services
  • parking tax
  • tax for dogs ownership
  • tax for salubrisation
  • tax for advertising installations
Taxpayers
  • legal business entities (most of LLCs, JSCs, except Individual Enterprises, Peasant Farms and subjects of small and medium enterprises (SMEs)), residents of Moldova
  • permanent establishments of non-resident business entities in Moldova
CIT rate12% from taxable income
Taxable incomeThe taxable income of a company is calculated as the difference between the revenues (incomes) obtained from any source and the expenses related to obtaining taxable revenues, during the fiscal year.
ExpensesFor tax purposes, expenses could be:
  • totally deductible
  • expenses with limited deductibility
  • non-deductible expenses

The general rule for being deductible for the expenses of a business entity, is:

  • the expenses must be necessary and ordinary for performance of entrepreneurial activity
  • the expenses must be confirmed by primary documents

Totally deductible expenses considered to be incurred within business activity are the following:

  • the ordinary and necessary expenses paid out or incurred by the taxpayer during the tax year, exclusively for business purposes
  • amortization of intangible assets (ex. amortization of softwares)
  • interest payments, provided they represent a usual and necessary expense incurred in connection with the business activity, except for certain specific cases
  • amortization of fixed assets calculated depending on the category of property and the established rates, except for certain specific cases
  • other expenses

The deductibility of several expenses is limited, including:

  • business trip expenses, representation expenses, expenses related to insurance of legal entities, within the official limits approved by the Government
  • repairs expenses of fixed assets owned by legal entities and repairs expenses of fixed assets rented according to an operational leasing agreement
  • documentary unconfirmed expenses in limit of 0.2% of taxable income
  • philanthropic and sponsorship expenses in limit of 5% of taxable income
  • other expenses

Following expenses are non-deductible:

  • expenses related to interdependent persons (related parties) where there is no proof that the payment is reasonable
  • expenses incurred by activities generating non-taxable income
  • income tax, penalties and fines relating to income tax, as well as penalties and fines on other taxes (duties)
  • payments for the acquisition of property for which the amortization is calculated
  • payments made in favor of holders of entrepreneurial patents
  • other expenses
Capital gainAs a general rule, shares and real estate are treated as capital assets for tax purposes. The income earned from their sale is therefore deemed as capital gain. The capital gains of the company are taxed according to general CIT rate, but the taxable base is equal to 50% of the difference between the purchase and sale prices.
LossesLosses may be carried forward for five consecutive years and set off against taxable profits in equal parts.

 

Practical example:

The company X specialized in trading of household goods has obtained a total income during the 2016 year in amount of 1.000.000 lei. The cost of sold goods during the 2016 year was determined in amount of 500.000 lei. The total expenses related to commercial and administrative expenses (salaries, accounting services, transport services, communications etc.) were calculated in total amount of 200.000 lei. The company paid 5.000 lei of penalties and fines on other taxes. What corporate income tax the company has to pay?

Taxable income=Total revenues-Deductible expenses

The cost of sold goods and expenses related to commercial and administrative expenses are necessary and ordinary for performance of entrepreneurial activity, therefore these expenses are considered totally deductible for fiscal purposes. Penalties and fines on other taxes are considered non-deductible expenses for fiscal purposes. Thus, only the cost of sold goods and expenses related to commercial and administrative expenses will be taken into consideration in order to calculate the taxable income.

Taxable income=1.000.000 lei – (500.000+200.000)=300.000 lei

CIT=Taxable Income×12%=36.000 lei.

 

There are different CIT rates for several types of legal forms used for practicing entrepreneurial activity:

Subjects of small and medium enterprises (SMEs) which are not registered as VAT payers except Peasant Farms and Individual Enterprises3% from operational income

(income from basic activities)

Peasant Farms7% from taxable income
Individual Enterprises

7% from taxable income not exceeding 31140 lei per year
18% from taxable income exceeding 31140 lei per year
Dividends withholding taxDividends are paid to Moldovan residents:
  • 15% from dividends paid to legal entities or individuals for undistributed profits obtained within 2008-2011
  • 6% from dividends paid to legal entities or individuals except undistributed profits obtained within 2008-2011

Dividends are paid to non-residents:

  • 15% from dividends paid for 2008-2011
  • 6% from dividends paid for other periods
Interest withholding tax
  • 15% for interest paid to individuals
  • No withholding tax is regulated when interest is paid to legal entities
Royalty withholding tax
  • 12% for royalty paid to resident individuals and nonresidents
Withholding tax from other

payments to nonresidents

12%, except salaries
Withholding Tax from most of payments to individuals except salaries and several other payments7%
Withholding Tax from rent payments to individuals except the payments for rent of agricultural lands10%
Withholding Tax from payments to individuals for vegetal and animal products3%

 

Practical example:

The company X has decided to purchase the following goods and services from local individuals:

  • walnuts in total amount of 100.000 lei
  • truck rent services in total amount of 40.000 lei

In February 2017 the general meeting of shareholders have decided to pay dividends in amount of 70.000 lei to shareholders for profits obtained in 2016.

What taxes the company has to pay?

When the company X pay to the individuals for the purchased walnuts, the company has to withhold a tax of 3% from these payments, because the walnuts are vegetal products. Therefore, the withholding tax=100.000 lei×3%=3.000 lei. Finally, the individuals will take home 97.000 lei (100.000-3.000), while the withholding tax (3%) in amount of 3.000 lei have to be transferred by the company to the national budget.

When the company X pay to the individuals for the rent of trucks, the company has to withhold a tax of 10% from these payments. Therefore, the withholding tax=40.000 lei×10%=4.000 lei. Finally, the individuals will take home 36.000 lei (40.000-4.000), while the withholding tax (10%) in amount of 4.000 lei have to be transferred by the company to the national budget.

When the company X pay the dividends to the shareholders, the company has to withhold a tax of 6% from these payments. Therefore, the withholding tax=70.000 lei×6%=4.200 lei. Finally, the shareholders will take home 65.800 lei (70.000-4.200), while the withholding tax (6%) in amount of 4.200 lei have to be transferred by the company to the national budget.

 

Taxable transactionsVAT is levied on the supply of goods, provisions of services and the import of goods and services into Moldova
 RatesThere are the following VAT rates:
  • standard VAT rate of 20% applied for most goods and services
  • reduced rates of 8%, mainly applicable to bakery, dairy products, medicines, sugar, phytotechnical, zootechnical and horticultural products, and to the import and delivery of natural and liquefied gas, biofuel etc.
  • the nil rate applied for:
  • exported goods and services
  • all kind of international transportation of passengers and commodities (including expeditionary services)
  • electrical power, heating, and hot water supplies for housing purposes
  • services rendered by businesses operating in the textile industry on the territory of Moldova under an inward processing relief customs regime
  • goods and services delivered to Free Economic Zones from outside the customs territory of Moldova, delivered from the FEZ outside the customs territory of Moldova, delivered to FEZ from the remaining part of the customs territory of Moldova and delivered between the residents of different FEZ of Moldova, etc.
  • several types of transaction are exempt from VAT:
  • dwellings, land, rental thereof, except for commission fees related to such transactions
  • food and non-food goods for children
  • specific agricultural tractors and agricultural machinery
  • long-term assets, to be used in production and rendering of services, to be included in the share capital
  • financial services (with certain exceptions)
  • insurance and reinsurance operations, including intermediary services thereof etc.
RegistrationThe registration as VAT payer may be mandatory and voluntary.

A legal business entity has the obligation to register as VAT payer if within any 12 consecutive months period the entity has supplied goods and services for a value exceeding 600.000 lei.

A business entity has the voluntary right to register as VAT payer if the entity anticipate to supply VAT taxable goods and services. So, the entity can be registered as VAT payer even after it was registered.

 

VAT payers have to calculate and pay their VAT obligations monthly. The amount of VAT to be paid by company is determined as the difference between the VAT from purchases and VAT from sales.

Practical example:

The company X during February 2017 has purchased goods and services in total amount of 120.000 lei (including VAT 20.000 lei). The same month the company X has delivered goods and services in total amount of 180.000 lei (including VAT 30.000 lei). What amount of VAT the company has to pay?

The VAT to be paid by company X to the budget=20.000 – 30.000= 10.000 lei. This amount of 10.000 lei has to be transferred to the budget by the company X till the 25th of March 2017.

 

VAT related to imported services has to be paid by the company to the budget on the date of the payment for services. VAT related to imported goods has to be paid by the company to the budget before the goods clear customs.

General informationExcise taxes are imposed on certain consumer goods such as caviar, beer, wine, alcohol, petrol, diesel, perfumes, cars etc.
Taxpayers
  • Any legal or individual producing and/or processing excisable goods on the territory of Moldova
  • Any legal or individual importing excisable goods, unless there is specific exemption provided
RatesExcise tax rates are set either as fixed amounts per unit of goods, as a percentage of the customs value of goods or as a combined rate.

 

Before starting producing, processing and / or importing excisable goods, such entities have to obtain excise taxes certificates from Moldovan fiscal authorities. Also certain goods subject to excise tax have to be stamped with excise marks. The exact amount of excise rate to be applied is determined by the Appendix I of the Moldovan Tax Code as fixed amounts per unit of goods, as a percentage of the custom value of goods or as a combined form of rate.

NameRatesDescription
Individual Income Tax (IIT) progressive income tax rates as follows:
  • 7% from annual income not exceeding 31140 lei
  • 18% from annual income exceeding 31140 lei
The Income Tax from employment is withheld from the employees’ gross salary by the employer (the company). The Individual Income Tax shall be paid by the employer (the company) to the tax authorities. So, the IIT from salaries is supported by employee but is withheld and transferred to be state budget by the employer.
Social Security Contributions (SSC)
  • 6% supported by employees
  • 23% supported by employers (the companies)
The employer (the company) shall withhold from employee`s salary the social security contribution of 6% and transfer to the state budget on monthly basis. Also, the employer (the company) pays 23% per month from the payroll for its employees.
Medical Insurance Contributions (MIC)
  • 4,5% supported by employees
  • 4,5% for employers (the companies)
The employer (the company) shall withhold from employee`s salary the medical insurance contribution and transfer to the state budget on monthly basis. Also, the employer (the company) pays 4,5 % per month from the payroll for its employees.

 

Practical example:

The company X has calculated for employee Y a gross salary of 10.000 lei.

Social Security Contributions:

  • employee`s SSC=10.000 lei×6%=600 lei
  • employer`s SSC=10.000 lei×23%=2.300 lei

Medical Insurance Contributions:

  •  employee`s MIC=10.000 lei×4.5%=450 lei
  • employer`s MIC=10.000 lei×4.5%=450 lei

Individual Income Tax (employee)

Taxable basis=gross income – employee`s SSC – employee`s MIC – allowances.

Supposed that the employee Y doesn`t have any allowances and has solicited to apply the maximal rate for Individual Income Tax of 18%.

Taxable basis=10.000 – 600 – 450=8.950 lei

IIT=8.950×18%=1.611 lei

Finally, the employer (the company) will withhold from the employee`s gross salary the employee`s SSC (600 lei), employee`s MIC (450 lei) and employee`s IIT (1.611 lei), and transfer to state budget all these taxes. The employer (the company) will pay to the employee the net salary of 7.339 lei (net salary=gross salary – employee`s SSC – employee`s MIC – employee`s IIT=10.000 – 600 – 450 – 1611=7.339 lei). Also, the employer (the company) will pay to the state budget employer`s SSC (2.300 lei) and employer`s MIC (450 lei). So, the total expenses with the employee X are:

  • net salary 7.339 lei
  • employer`s SSC 2.300 lei
  • employer`s MIC 450 lei.

Note: If the employer agree with the employee on a net salary, all taxes (both employee`s and employer`s) in fact will be supported by the employer (the company). In this case, the taxes related to salary can be approximately calculated by applying a 0.65-0.75 multiplicator to the net salary.

According to the double taxation treaties concluded by the Republic of Moldova with regard to taxation of non-residents’ income are applied the rates foreseen in the tax treaties, which are lower than the rates provided by the internal tax legislation. If, however, the rate in the treaty is higher than rate according to legislation, it is applied the rate foreseen by legislation.

When other rules on withholding taxes are determined by Double Taxation Treaties ratified by Moldova, such rules shall be applied when determining the exact rates to be withheld from the revenue obtained by non-residents in Moldova. As of today the Republic of Moldova applies Double Tax Treaties in force with the following states:

Nr.Name of countryDate and place of concluding Date of effectDate of application
1.Albania06.12.2002, Porto06.06.200301.01.2004
2.Armenia06.10.2002, Chişinău20.06.200501.01.2006
3.Austria29.04.2004, Viena01.01.200501.01.2006
4.Azerbaidjan27.11.1997, Baku28.01.199901.01.2000
5.Belarus23.12.1994, Chişinău28.05.199601.01.1997
6.Belgium17.12.1987, Bruxelles21.05.199601.01.1997
7.Bosnia and Herzegovina08.12.2003, Saraevo17.12.200401.01.2005
8.Bulgaria15.09.1998, Sofia25.03.199901.01.2000
9.Canada04.07.2002, Chişinău13.12.200201.01.2003
10.Czech Republic
Convenţion12.05.1999, Praga26.04.200001.01.2001
Protocol14.10.2004, Praga13.07.200501.01.2006
11.China07.06.2000, Beijing26.05.200101.01.2002
12.Cyprus28.01.2008, Nicosia03.09.200801.01.2009
13.Croaţia30.05.2005, Chişinău10.05.200601.01.2007
14.Greece29.03.2004, Chişinău11.07.200501.01.2006
15.Switzerland13.01.1999, Berna22.08.200001.01.2001
16.Estonia23.02.1998, Tallin21.07.199801.01.1999
17.Finland16.04.2008, Helsinki09.11.200801.01.2009
18.Germany24.11.1981, Bonn11.10.199501.01.1996
19.Ireland28.05.2009, Chişinău22.04.201001.01.2011
20.Israel23.11.2006, Tel Aviv12.04.200701.01.2008
21.Japan18.01.1986, Tokio23.06.199801.01.1999
22.Kazahstan15.07.1999, Astana25.02.200201.01.2003
23.Kyrgyzstan17.04.2004, Bişkek16.05.200601.01.2007
24.Latvia25.02.1998, Riga24.06.199801.01.1999
25.Lithuania18.02.1998, Minsk07.09.199801.01.1999
26.Luxembourg11.07.2007, Chişinău04.12.200901.01.2010
27.Macedonia21.02.2006, Skopje28.12.200601.01.2007
28.United Kingdom08.11.2007, Londra30.11.200801.01.2009
29.Montenegro09.06.2005, Chişinău23.05.200601.01.2007
30.Oman03.04.2007, Muscat13.08.200701.01.2008
31.Poland15.11.1994, Varşovia27.10.199501.01.1996
32.Portugal11.12.2009, Lisabona18.10.201001.01.2011
33.Romania21.02.1995, Chişinău10.04.199601.01.1997
34.Russian Federation12.04.1996, Moscova06.06.199701.01.1998
35.Serbia09.06.2005, Chişinău23.05.200601.01.2007
36.Slovakia25.11.2003, Chisinau17.09.200601.01.2007
37.Slovenia31.05.2006, Ljubljana14.11.200601.01.2007
38.Spain08.10.2007, Chişinău30.03.200901.01.2010
39.Tadjikistan15.11.2002, Dusanbe25.02.200401.01.2005
40.Turkey25.06.1998, Chisinau28.07.200001.01.2001
41.Netherlands03.07.2000, Chişinău01.06.200101.01.2002
42.Ukraine29.08.1995, Chişinău27.05.199601.01.1997
43.Hungary19.04.1995, Budapesta16.08.199601.01.1997
44.Uzbekistan30.03.1995, Chişinău28.11.199501.01.1996
45.Italy (Convenţion, Protocol)03.07.2002, Roma14.07.201101.01.2012
46.Kuweit
Convenţion15.03.2010, Chişinău21.06.201301.01.2014
Protocol15.03.2010, Chişinău21.06.201301.01.2014
47.Turkmenistan24.07.2013, Chişinău31.12.201301.01.2014
48.Malta10.04.2014,Valletta17.06.201501.01.2016