CIBR Blog

1. Create a business in Moldova       
 
The “Law on Enterprise and Entrepreneurship” is the principal legal instrument in the establishment of a business in Moldova.
 
The Law determines the persons who are authorised to carry out entrepreneurial activity and establishes the juridical, organisational and economic basis for doing this.
 
The Law provides for foreign investors to establish enterprises under exactly the same conditions as Moldovan citizens and that the enterprises so formed have the rights of a juridical or physical person.
 
The enterprises have the right to purchase property and to use this property to pursue their economic activities, to use any forms of resources, to determine the types of activities to be undertaken, to independently determine prices and tariffs on products, to open accounts for banking operations, to hire and dismiss employees, to manage income or profit accrued and to lodge complaints against actions of state or other bodies which limit their legal rights and interests.
 
The duties of the enterprises include respecting the rules of the market under conditions of free competition, the rights and legal interests of the consumers, provide good quality products, obtain government licenses, sign labour contracts, pay current liabilities, pay the employees (not less than the minimal salary), provide proper labour conditions, minimise environmental pollution and provide protection for its employees.
 
The Government of Moldova creates equal legal and economic conditions for all enterprises and guarantees the observation of their rights and legal interests.
 
Enterprises may undertake any sort of activity except those which are prohibited by legislation after obtaining a state license for the stipulated activity.
 
Foreign citizens are entitled to enjoy the same rights as Moldovan citizens in carrying out entrepreneurial activities.
 
The Law defines the main organisational-legal forms that can be taken by enterprises as follows:
 

• Joint stock companies
• Limited liability companies

 
There are other forms of organisational-legal establishment but these are less relevant for foreign investors.
 
Joint Stock Companies
 
A joint stock company is a company whose founding capital is divided into equal shares and is distributed among the founding members in relation to their contribution. There are two forms of joint stock company, an open joint stock company and a closed joint stock company.
 
The founding capital may be subscribed in the form of money, securities or other forms of assets.
 
Limited Liability Companies
 
Founding members of limited liability companies do not own shares in the company. Instead the founding member’s contribution is defined in the company’s foundation documents.
 
The Law defines the form of investment available to enterprises founded with foreign capital. Foreign investors can establish enterprises as joint venture companies or as a company only with foreign capital.
 
A foreign company is able to establish a subsidiary or representative office. A subsidiary or representative office established in the Republic of Moldova by a non-resident company or by a resident company with foreign investments is not a legal entity.
 
Registration
 
Every enterprise, subsidiary or representative office has to be officially registered before it can commence its activities.
 
Registration requires the submission of a set of original or notarised documents to the State Registration Chamber of the Ministry of Information Developments.
 
Foreign investors must translate all documents into Romanian, signed by all founders and signatures have to be notarised by public notary (if signatures are notarised abroad, then documents must be translated and legalised).
 
Licensing
 
Certain activities require enterprises to apply for licenses. The type of activities for which a license is required is established by the “Law on Licensing”.
 
Foreign Investments
 
The “Law on Investments in Entrepreneurial Activity” provides that foreign investments can be created in the form of joint ventures and enterprises with the participation of foreign capital.
 
The “Law on Investments in Entrepreneurial Activity” defines a joint venture as an enterprise created in compliance with legislation whose founding capital is partially formed with foreign investments. Enterprises with participation of foreign capital are defined as enterprises whose foundation capital is entirely formed by foreign investments.
 
The procedures of registration, operation, dissolution of enterprises with foreign investments are identical to that for domestic enterprises.
 
Branch Office and Agencies
 
Non-resident enterprises have the right to establish branch offices and trade and economic agencies.
 
Branch offices of non-resident enterprises acquire the status of enterprises entirely owned by the foreign investors. Agencies of non-resident enterprises acquire the status as unincorporated companies and do not have the right to carry out business activity.
 
Enterprises with foreign investments have the right to establish branch offices and trade and economic agencies both inside and outside Moldova. Branch offices and economic agencies created in Moldova by resident enterprises with foreign investment are not regarded as legal entities.
 
 
2. Investment incentives
      
General Tax Incentives
 
In accordance with Moldovan legislation, enterprises registered in Moldova benefit from tax incentives towards investments:
 
enterprises whose registered capital exceeds USD 250,000 are entitled to 50% exemption of corporate tax payment for a period of 5 consecutive years.
enterprises whose registered capital exceeds USD 2,000,000 are entitled to 100% exemption of corporate tax payment for a period of 3 consecutive years.
At least 80% of the exempted corporate tax must be invested each year in the development of the enterprises’ own production or government programs for economic development
 
Enterprises, including those with foreign participation, whose corporate tax exemptions have expired are entitled to a reduction in their taxable income of 50% of the initial value of purchased long-term material assets including those acquired under lease agreements.
 
Additional Incentives
 
GiurgiulestiPort
 
Enterprises that are resident in the international port of Giurgiulesti Port that make capital investment of over USD 5,000,000 are exempt from income tax for 5 consecutive years.
 
Enterprises that make additional capital investments of over USD 5,000,000 are exempt from income tax for a further 2 consecutive years.
 
IT Companies
 
Enterprises whose income is over 50% derived from the sale of their own developed software are exempt from income tax for a period of 5 years.
 
Corporate taxes       
 
Enterprises operating in Moldova are subject to two groups of taxes.
 
The main direct taxes include corporate tax, privatization tax, road tax, tax on property and tax on the use of natural resources.
The main indirect taxes include value added tax and excise and customs duties.
 

Direct Taxes

 
From 1st January 2006 the standard rate of corporate tax in Moldova is 15% of taxable income.
 
Resident legal entities are taxed on their world-wide taxable income. Foreign legal entities are taxed only on income derived from Moldovan sources or on income derived through activity performed by their permanent establishment.
 
The tax on property is a local tax levied on the owner of the property. The tax applies to both resident and non-resident enterprises.
 
The tax on the use of natural resources is levied on enterprises which make use of the natural resources in undertaking their commercial activities. The main natural resources include water, minerals geological exploration and forest resources.
 

Indirect Taxes

 
Value Added Tax
 
The standard rate of VAT is 20% of the value of the goods whose ownership is transferred.
Bakery and dairy products produced in Moldovan are subject to VAT at 8%. The export of goods and services are subject to VAT at 0%.
 
VAT on imported goods is levied at the instant the good are subject to customs clearance.
 
Excise Duties
 
Excise duties are levied on specific consumer items. Excise duties on imported items are calculated at the time of customs clearance.
 
The rate of excise duties which is applied to each item is established either as a fixed amount or as a percentage of the value of the item. A list of the excise duties for imported and domestic products is available.
 
Customs Duties
 
The principal legislation affecting the establishment of customs duties is the “Law on Customs Tariff”. This establishes the items to which the customs duties will apply and the rate of the duties.
 
Customs duties are not levied on good produced in countries with which Moldova has concluded a free trade agreement subject to the production of a certificate of origin.
 
Tax year     
 
Taxpayers are liable to pay income tax on their taxable income at the end of the fiscal year in which the income is made. The fiscal year is the calendar year.
 
The annual tax return must be prepared on the basis of the annual income statement and submitted to the Tax Office by 31st March of the following year.
 
Free Enterprise Zones       
 
Free Economic Zones (FEZ) are territories where domestic and foreign investors can carry out entrepreneurial activities on preferential terms.
 
FEZs have the status of an independent customs territory and benefit from favourable tax, customs, currency, visa, labour and other regimes.
 
Currently in Moldova there are 6 FEZs:
 

• "Expo-Business-Chisinau" (located in the capital Chisinau) 
• ”Ungheni” – 107 km out of Chisinau
• "Tvardita" – 115 km out of Chisinau
• "Otaci-Business" – 220 km out of Chisinau
• "Vulkanesti" – 200 km out of Chisinau
• “Taraclia" – 153 km out of Chisinau

 
The following types of activities may be carried out in a FEZ:
 

• Production of goods for export
• Sorting, packing, marking and other similar operations of goods undertaken on the customs territory of Moldova
• Other supportive activities, such as utility services, warehousing, construction, catering and others needed to fulfil the activities indicated above.

 
The legislation provides incentives, guarantees and privileges for enterprises in the FEZ. Residents enjoy a special customs and tax regime. In particular, they benefit from the following incentives:
 

• 50% reduction in corporate tax on income derived from export of goods from the FEZ out of Moldova
• 75% reduction in corporate tax for income derived from sources other than the export of goods
• 100% corporate tax reduction for 3 years following a USD 1,000,000 investment within the FEZ
• 100% corporate tax reduction for 5 years following a USD 5,000,000 investment within the FEZ
• Investors into the FEZ are guaranteed and protected from changes in legislation for a period of up to 10 years.

 
Double taxation treaties       
 
Moldova currently has double taxation agreements with the following countries:
 
Albania
Armenia
Austria
Azerbaijan
Byelorussia
Belgium
Bosnia & Herzegovina
Bulgaria
Canada
China
Czech Republic
Estonia
Germany
Greece
Hungary
Japan
Kazakhstan
Latvia
Netherlands
Poland
Romania
Russian Federation
Switzerland
Turkey
Tajikistan
Ukraine
Uzbekistan
 

ir. Freddy M.E. Jacobs
PBS Worldwide
frjacobs@pandora.be
0032478/331.799
WWW.PBSWORLDWIDE.COM