Investment in Moldova_ 2010_KPMG

Investment in Moldova

KPMG IN MOLDOVA

AU D I T

© 2010 limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.



T AX



AD V I S O R Y

Preface This booklet has been prepared by KPMG as an introduction to topics of interest to those contemplating investment or doing business in Moldova. Care has been taken that the information presented in the following pages is accurate at 1 June 2010. While the publication covers a number of relevant areas, it cannot be exhaustive due to the broad nature of the subject matter. In addition, the legal and economic environment in Moldova is continually changing. Consequently, it is essential that the information contained in this booklet should not be acted upon without consulting qualified professional advisers. KPMG has extensive experience in assisting foreign investors in establishing and developing business in Moldova and will be pleased to provide further information on matters discussed in this publication. KPMG can be contacted in Moldova as follows: Serban Toader

Alexandra Depoire

Senior Partner

Partner

stoader@kpmg.com

alexandradepoire@kpmg.com

KPMG in Moldova 202 Stefan Cel Mare Ave., 9th floor MD-2004 Chisinau Republic of Moldova Tel: +373 (22) 580580 Fax: +373 (22) 540499

E-mail: kpmg@kpmg.md Internet: www.kpmg.md

ÂŠ 2010 limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Why invest in Moldova? 

Preferential access to EU and CIS markets



Strong government support for foreign investors



A globally competitive 0% corporate income tax rate



An extensive network of double taxation treaties



Multinational, trilingual environment



A qualified workforce



Logistics made simple by the country’s convenient geographical position in Europe



Moldova is a member of several major international organizations, such as the WTO, IMF, EBRD, and CIS



__________________________________________________

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Fill in your own reason to invest in Moldova

Contents Chapter 1 ………………………………………………………….………………………………….8 Reasons to Invest …………….………………………………......…………….………………...8

Access to key markets …………….……………………………….….…………….………….……8 Attractive tax rates …………….……………………………….…...…………….………….………...8 A developing pro-business environment ……..……………………….…….…………….…………9 Highly talented people …………….…………….…………….……………………………………….9 The economy …………….…………….…………….…………………………………….…………..9 Key elements of economic strategy …………….…………….…………………….……………….9 Economic situation …………….…………….…………….………………………….……………….9 Trade …………….……………….…………….…………….………………………………….……….11 Foreign investment …………….…………….…………….………………………………….……….15 National currency …………….…………….…………….…………………………………….……….16

Chapter 2 …………….…………….…………….………………………………….….…..……….18 Legal aspects …………….…………….…………….……………………………………...…….18

Sectors open to foreign investment …………….………………………………….….…..……….18 Establishment of companies …………….…………….…………………………………………….18 Legal forms …………….…………….…………….……….………………………..…….………….18 Foreign ownership …………….…………….…………….………………………………………….18 Number of shareholders …………….…………….……...……………………………….………….19 Minimum share capital …………….…………….….…………………………………….………….19 Forms of foreign capital …………….……………….……………………………..…….………….19 Registration …………….…………….…………….……………………………….…….………….19 Licensing …………….…………….……………….…………………………………….………….20 Authorizations …………….…………….………….……………………………….…….………….20 Bookkeeping and audit requirements ….……………………………………………….………….21 Bookkeeping ….………………………….………………………………………….…………..…….21 Audit ….………………………….……………………………………………………..……………...21 Employment …………….…………….…………….………………………………..…….………….21 Hiring …………….…………….…………….………….……………………………………………...21 Work and rest time …………….…………….…………….………………………………….………22 Remuneration ………………….…………….…………….………………………….……….………22 Dismissal ……………..……….…………….…………….…………………………..……….………23 Foreign personnel ………………….…………….…………………………………..……….………23 Investment in real estate …………….…………….…..…………………………..…….………….24 Restrictions applicable to foreign investors ………….……………………………...….………….24 Privatization of land …………….…………….……………………………….……..…….………….25 Right of acquisition …………….…………….……………………………….……..…….………….25 Price …………….…………….………………………………………………..……..…….………….25 Servitudes …………….…………….………………………………………………..…….………….25 Registration of rights …………….…………….……………………………….……....….………….25 Trading …………….…………….…………….………………………………...….……….………….26 Import/export …………….…………….……………...……………………….………….………….26

Licensing …………….……………………………………….….……………....………….………….26 Pre-shipment inspection …………….……………………..….……………....………….………….26 Certification …………….……………………………………….……………....………….………….27 Marking …………….…………………………………………….……………....………….………….27 Customs clearance …………….……………………………….……………....………….………….27 Pricing …………….…………….………….………………..………….…………….…….………….28 Currency controls …………….…………………………………….…………….……….………….28 Bank accounts …………….………………………………..……….…………….……….………….28 Transfers …………….……………………………………………….…………….……….………….28 Acquisition of foreign currency …………………………..….…….…………….……….………….29 Repatriation of transaction proceeds ……………………..……….…………….……….………….29 Cash transactions …………………………………………..……….…………….……….………….30 Competition …………….…………………………………..….…………….….………….………….30 Privatization …………….…………………………………..….……………..…………….………….31 Definition …………….……………………………………...…………….…….………….………….31 Objects of privatization …………………………………….…………….…….………….………….31 Subjects of privatization ……………………………………..…………….…...………….………….31 Payment …………….…………….……………………….…………….……..………….………….31 Authority …………….…………….………………………..…………….……..………….………….31 Methods of privatization …………………………………….…………….………...…….………….31 Tenders ………………………………………………………….………….………...…….………….31 Remedy for breach of contract by the state ……………………………….……...…….………….33 Privatization without disclosing a starting price and privatization for free …..….……………….34 Individual privatization plans ………………………………………………….…….……………….34 Concession …………….…………….……………...………………………….………….………….34 Definition …………….…………….…………….…….………………………...…………………….34 Sectors open for concession …………….…………….…………………………………………….35 Eligibility …………….…………….…………….…………………………………..……….………….35 Term of concession …………….…………….…………………………………….….….………….35 Compensation …………….…………….…………….………………………..………….………….35 Procedure …………….…………….…………….……………………………..………….………….35 Termination …………….…………….…………….….………………………..………….………….36 Intellectual property rights …………….…………….………………………...………….………….36 Franchising …………….…………….…………….…..………………………..………….………….36 Protection of intellectual property rights …………….………………………………….………….36 Customs protection …………….……………………………………………..………….………….38 Protection of foreign investment ………...………….………………………..………….………….38 Repatriation of profits ………...……….…………….…………………………………….………….38 Investment guarantees …………….….…………….…………………………………….………….39 Expropriation …………….….…………….…………………………………….………….………….39 Resolution of disputes …………….……..………….……………………….………….………….39 Forum …………….……..………….……………………………………………………….………….39 Choice of law …………….……..………….…………………………………..………….………….40 Investment treaties …………….…………..……….…………………………………….………….41 Visa requirements and conditions of stay ….…………………………………..……….………….42

Chapter 3 …………….…………….……..……….…………………………….……….………….43 Taxation …………….…………….………………………………….…….……………………….43

Income tax …………….…………….…………………………………..….…………….…………...44 Taxation of legal entities …………….………………………………..….…………….……………44 Withholding tax …………….………………………………………….….…………….……………47 Final withholding tax …………….……………………………………….…………….……………48 Tax credits …………….………………………………………………...….…………….……………48 Taxation of liquidation proceeds …………….……………………..….…………….……………49 Taxation of individuals …………….…………………………………….…………….……………...49 Administration …………….…………….…………………………………….…….…….………….50 Reliefs …………….…………….…………….…………………………..….…………….………….51 Taxation of non-residents ………………..………………………………….…………….………….54 Tax treaties …………….…….……….………………………………….….…………….………….58 VAT …………….………..…………….…………………………………..….…………….………….61 Subjects of taxation …….……………..…………………………………….………………….…….61 Objects of taxation …………….……...………………………………….….…………….………….61 Taxable value …………...…………….…….……………………………….…………….………….61 Tax rates …………..…….…………….…………………………………….…………….………….62 VAT recovery …………....…………….…………………………………….…………….………….63 Exempted supplies ……..…………….…………………………………….…………….………….64 Administration …………..…………….…………………………………….…………….………….65 Excise duties ….…………….…..…….…………………………………….…………….………….66 Subjects of taxation …………..……….…………………………………….…………….………….66 Objects of taxation …………….…………….………………………………………....…………….66 Excise duties payment …………….…………….…………………………………….….………….66 Excise duties recovery …………….…………….………………………..…………….………….67 Exempted goods …………….…….….…………………………………….…………….………….68 Stamping …………….….…………….…………………………………….…………….………….69 Administration …………..…………….…………………………………….…………….………….69 Special provisions ……….…………….…………………………………….…………….………….70 Customs duties ………….…………….…………………………………….…………….………….70 Customs duty ……………….…………….……………………………….…………….………..….70 Customs clearance levy …………….…………….………………………………….…………….72 Social insurance contributions …………….……..……………………….………………….…….72 Subjects of taxation …………….…………….…………………………………….………….……..72 Objects of taxation …………….…………….………………………………….………………….73 Tax rates …………….…………….…………………………………….…………….…..………….73 Reporting and payment …………….………………………………….……………….………….73 Medical insurance contributions ……….………………………………….…………….………….73 Subjects of taxation …………….…………….…………………………………….……..………….73 Objects of taxation …………….…………….…………………………………….…..….………….74 Tax rates …………….…………….…………………………………….…..…………….………….74 Reporting and payment …………….………………………………….……….……….………….74 Free economic zones …………….………………………………………….…………….………….74 Definition …………….…………….….…………………………………….…………….………….74 Permitted activities …………….……………...…………………………….…………….………….74 Customs regime …………….……..….…………………………………….…………….………….75

Tax regime ……………...…………….…………………………………….…………….………….75 Registration ………………………….……………………………………...…………….………….76 Guarantees …………….…………………………………………………….…………….………….76 Chapter 4 …………….…………….…………………………………….…………..….………….77 Our services in Moldova …………….…...……………………………….…………….………….77 Audit …………….…………….…………………………………………….…………….………….77 Tax …………….………..…………….……………………………………….…………….………….77 Advisory ………...……….…………….…………………………………….…………….………….78

Chapter 1

Reasons to Invest In the past few years, Moldova has developed into a stable, growing economy by pursuing incremental reforms and strengthening partnerships. Government incentives, such as free economic zones, tax facilities for exporters, as well as growing internal consumer markets created a unique combination of advantages and attracted multinational companies operating in such areas as Financial Services, Building and Construction, Engineering, Processing Industries, Energy, Wholesale and Retail Trade, Information Technologies, Telecommunications and Media.

Access to key markets Due to its geographic location and cultural and historical ties with Central and Eastern European countries as well as with the Russian Federation, Moldova has already become a place of choice for a significant number of foreign companies – the total value of foreign direct investment reached a total of $708 million in 2008. In 2008, Moldova obtained unlimited and duty free access to the EU market for most products originating in this country, according to Council of Europe Regulation (EC) No 55/2008, making it a convenient place for companies willing to gain access to EU markets. Exports of both goods and services from Moldova to the EU have been steadily increasing over the past few years, reaching €748 million in 2008. This has been further helped by the entry on to the Moldovan market of two important EU banking groups which purchased major shares in local credit institutions. Moldova, being a former USSR republic, still maintains close economic contacts with other postsoviet states, the main destination for exports being Russia (€411 million in 2008). Another important factor in facilitating exports from Moldova is the existence of a comprehensive network of land and air routes, as well as the completion of the Giurgiulesti port, which provides fast and efficient access to companies operating in Moldova to the rest of Europe and points further afield.

Attractive tax rates Moldova has developed a highly attractive tax system designed to support continued economic development whilst providing investors with significant advantages. Moldova’s Corporate Income Tax rate is 0% and is expected to remain at this level in 2011 increasing to 10% in 2012. This,

combined with a wide network of over 40 treaties for avoidance of double taxation has already made Moldova a place of choice for a number of foreign investors.

A developing pro-business environment In the past few decades Moldova has been transformed into a modern, outward looking and dynamic economy. There is increasing cooperation between business and government to provide fast and efficient support to those looking for a winning European investment location. Once established, companies operating in Moldova continue to benefit from a commitment from government and other stakeholders to help ensure that Moldova continues to deliver exceptional returns.

Highly talented people A flexible, committed and highly educated workforce has been a feature of Moldovaâ&#x20AC;&#x2122;s success as a modern, attractive and open economy. With Moldovan (Romanian) or Russian as the mother tongues and a wide pool of multilingual skills readily available, the Moldovan workforce is characterized by high skills, innovation and flexibility. Given our success in attracting inward investment, Moldova has a wealth of management talent with a depth of multinational experience across a range of sectors, providing a readymade resource of expertise and leadership.

The economy Key elements of economic strategy Geographically, Moldova is located in a strategic position, at the crossroads of traditional commercial routes, establishing a link between Central and Eastern Europe and other regions, targeting over 80 million consumers in a 1,000 km area and providing access to developing markets. Moldova has significant industrial potential and fertile agricultural land. Salary costs are relatively low.

Economic situation The table below presents the main indicators of the Moldovan economy from 2005 to 2009:

2006

2007

2008

2009 (est.)

3,408

4.402

6.055

5.403

GDP per capita, USD

949

1.229

1.695

1.514

GDP growth rate, %

4.7

3.0

7.2

-7.7

Annual inflation rate (medium), %

14.1

13.1

7.3

0.4

Annual unemployment rate, %

7.4

5.1

4.0

6.4

Interest rate on loans, %

18.18

18.85

20.96

20.31

Interest rate on deposits, %,

11.93

15.13

18.09

14.66

Indicators

GDP, USD mln

Source: National Bank of Moldova, National Bureau of Statistics, International Monetary Fund, World Bank, Central Intelligence Agency. Following the emergence of Moldova as an independent state in 1991, the economy contracted dramatically until 1997, when modest growth (1.6%) was achieved. In 1998 and 1999 the economy contracted again, by 6.5% and 3.4% respectively, as a result of the 1998 financial crisis in Russia. In 2000, GDP growth returned at 2.1%, rising steadily to 7.5% in 2005, but falling to 4.7% in 2006 because of the embargo on Moldovan wines and spirits imposed by Russia in the spring of that year. Drought that affected the Republic of Moldova in 2007, eroded economic growth by reducing the gross value added both in agriculture and in several important sectors of the processing industry. In 2008, GDP growth was sustained by positive results mainly in the agricultural sector and the considerable increase of net taxes on imports. In 2009, due to the influence of the global economic downturn, GDP growth rate has been negative. The table below presents the evolution of Moldovaâ&#x20AC;&#x2122;s industrial and agricultural output from 2006 through 2009:

2006

2007

2008

2009 (est.)

Industrial output growth (%)

-4.8

-1.3

1.5

-22.2

Agricultural output growth (%)

-1.1

-23.1

32.1

-9.9

Indicators

Source: National Bureau of Statistics In 2008, industrial output increased by 1.5% compared to the previous year and accounted for USD 2,854.3 million in current prices. The volume of production in 2008 grew by 44.4% as compared to 2005. In 2009 industrial output decreased by 22.2% due to the global economic downturn. In 2008 Gross Domestic Product (GDP) has reached a real increase rate of 7,2% if compared to 3% from 2007. The consumption was the main source of economic increase. Moreover, favorable climate conditions and reestablishment of wine products export have influenced positively the development of the national economy. However, recent analysis shows that, due to the influence of the world economic downturn, GDP will register only a modest increase in 2010. However, structural reforms (post privatization measures for agriculture, public administration reform, strengthening of the legal framework) and an expected improvement in the international environment leave room for optimism. The foreign trade liberalization measures adopted in 2000 and the relative stability of the Moldovan currency have helped keep inflation in check (0.4% as at 31 December 2009, compared to 13.1% two years earlier- see chart no. 12). Broken down by sector, the highest price increases were for non-food products, (2.5%) followed by services (2.2%) and food registered a decrease of 3.8%). Despite some improvements, Moldova continues to have one of the lowest incomes per capita in Europe and ranks the fourth lowest (before Uzbekistan, Kyrgyzstan and Turkmenistan) among all East European and Newly Independent States economies in the UNDPâ&#x20AC;&#x2122;s human development index (117th out of 182 countries listed). The Moldovan authorities, in cooperation with international financial institutions, have been working on a strategy aimed at achieving rapid and sustainable growth and at addressing the acute problems of poverty and income inequality.

Trade Goods

Trade balance The table below presents Moldova’s balance of trade from 2006 through 2009:

2006

2007

2008

2009 (est.)

Balance of trade (USD mln)

-1,641.6

-2,347.8

-3,307.6

-1,990.8

Exports

1,051.6

1,341.7

1,591.2

1,287.5

Imports

2,693.2

3,689.5

4,898.8

3,278.3

Indicators

Source: National Bureau of Statistics Moldova’s negative trade balance continued to rise in 2007- 2008 and decreased in 2009 to USD 1,990.8 million because of the global economic downturn.

Exports The distribution of exports by regions from 2008 through 2009 was as follows:

2008

2009 (est.)

USD million

1,591.2

100

1,287.5

100

to CIS countries

623.0

39.2

490.5

38.1

to EU countries

820.1

51.5

668.4

51.9

to other countries

148.1

9.3

128.6

10.0

Exports – total of which:

Source: National Bureau of Statistics The top 10 export destinations for Moldova in 2009 were: Russia (22.3%), Romania (18.6%), Italy (10.5%), Ukraine (6.3%), Belarus (6.3%), Germany (5.9%), UK (4.7%), Poland (2.6%), Turkey (2.6%) and Kazakhstan (2.1%). More than 51% of Moldova’s exports went to the European Union (EU). Moldova’s main exports to the EU are textiles and textile articles (30.7%), mechanical appliances and electrical equipment (16.6%), vegetable products (16.2%), followed by agricultural and food products (10%).

Imports The distribution of imports by country from 2008 through 2009 was as follows:

2008

2009 (est.)

USD million

4,898.8

100

3,278.3

100

from CIS countries

1,736.8

35.5

1,140.4

35.0

from EU countries

2,105.3

43.0

1,422.5

43.4

from other countries

1,056.7

21.5

715.4

21.6

Imports – total of which:

Source: National Bureau of Statistics The top 10 countries from which Moldovan imports originated in 2009 were: Ukraine (14%), Russia (11.4%), Romania (9.5%), Germany (7.7%), China (7.5%), Italy (7.0%), Turkey (5.3%), Belarus (4.2%), Poland (2.6%) and France (1.8%). Moldova’s main imports are mineral products (21.9%), machinery and equipment (14.3%), chemical products (11.2%), food, beverages and tobacco products (8.8%), textiles (7.4%), followed by plastics (5.7%). Moldova’s main imports from the EU are machinery and electrical goods, agricultural produce and textiles.

Services The trade statistics for services are presented in the tables below (in USD million):

2006

2007

2008

2009 (est.)

4.20

-6.08

12.48

-28.76

Exports

488.55

625.08

837.20

675.19

Imports

484.35

631.16

824.72

703.95

Balance of services

2007

2008

2009 (est.)

Export

Import

Export

Import

Export

Import

Transport

263.76

245.28

357.04

324.92

253.48

256.77

Travel

167.30

213.62

211.88

-273.77

168.22

228.35

Communications

85.67

37.55

114.56

-47.37

105.21

39.15

Other services

108.35

134.71

153.72

178.66

148.28

179.68

Source: National Bank of Moldova The value of exports grew by USD 212.12 million, or 34% in 2008, mainly due to an increase in transport services – by USD 93.28 million; and travel services – by USD 44.58 million.

Foreign investment Foreign Direct Investment was in 2009 USD 79.45 million net, of which USD 155.08 million represented equity capital.

The statistics for Foreign Direct Investment in Moldova are presented in the table below (in USD million):

2008

2009 (est.)

inflow

outflow

net

inflow

outflow

net

868.31

176.82

691.49

350.67

271.22

79.45

7.10

23.18

-16.08

3.09

10.07

-6.98

In Moldova

861.21

153.64

707.57

347.58

261.15

86.43

Equity capital

481.21

39.51

441.70

201.83

46.75

155.08

Reinvested earnings

99.48

-24.91

Other capital

280.52

114.13

166.39

170.66

214.40

-43.74

Direct investment

Abroad

Source: National Bank of Moldova Telecommunications and public transport are likely to attract future investment as a result of privatization, along with the agricultural sector and the wine industry.

National currency The national currency is the Leu (plural Lei), with the subdivision Ban (plural Bani). The official rate as at 1 June 2010 was MDL 12.88 to the US Dollar and MDL 15.84 to the Euro. The table below sets out the evolution of exchange rates of the Moldovan Leu (MDL) against the Euro and U.S. Dollar from 2005 to 2009.

2005

2006

2007

2008

2009

Euro

15.69

16.49

16.60

15.30

15.52

U.S. Dollar

12.60

13.13

12.14

10.39

11.11

Source: National Bank of Moldova

Chapter 2

Legal aspects Sectors open to foreign investment Foreign investment is allowed in almost all branches of the Moldovan economy. Certain activities may be conducted only by Moldovan state owned companies, including production and sale of narcotics and poisonous substances, production of weapons, production and sale of military equipment and explosives, as well as certain types of medical assistance.

Establishment of companies Foreign investors may establish new companies or acquire shares in existing companies.

Legal forms Companies may be organized in the following legal forms:



Sole ownership



General partnership



Limited partnership



Limited liability company



Joint stock company



Business cooperative



Production cooperative.

Foreign legal entities may also establish representative offices.

Foreign ownership Generally, a company may be wholly foreign owned or a joint venture. Wholly foreign owned companies are not permitted to be involved in gambling, television, radio and the press.

Number of shareholders A limited liability company or a joint stock company may have one shareholder, although a joint stock company may not have one shareholder if that shareholder is another company made up of one shareholder.

Minimum share capital The minimum share capital is as follows:



For a limited liability company

MDL 5,400 (about EUR 348);



For a joint stock company

MDL 20,000 (about EUR 1,289).

However, certain types of entity (e.g. banks, insurance companies and investment funds) are subject to significantly higher capital requirements.

Forms of foreign capital Foreign investment in share capital may consist of:



Freely convertible currency or other foreign currency that may be purchased by local banks;



Machinery, equipment, raw materials or other material;



Tangible and intangible rights, including intellectual property rights.

Foreign investors may reinvest their profits, and in this case these profits are also deemed to be foreign investment.

Registration A company (representative office) established by foreign investors must be registered with the State Registration Chamber of the Ministry of Justice. A wholly Moldovan owned company acquired (in whole or in part) by foreign investors must be reregistered with this authority. To do this, foreign legal entities must submit an extract from the register of companies (trade register) of their home country, a resolution regarding the establishment (acquisition) of the company (representative office), a copy of their certificate of registration (incorporation) as well as constitutive documents.

These documents must be certified in accordance with the law of the foreign investorâ&#x20AC;&#x2122;s home country and legalized by the appropriate Moldovan consulate, subject to the treaties entered into by the Republic of Moldova. Note that Moldova is a member of the Hague Convention for Abolishing the Requirement of Legalization for Foreign Public Documents. Such documents must also be accompanied by a certified translation into Romanian. To register a newly established company, the founders must provide proof of payment of its share capital (as well as complying with other requirements). Registration takes up to 5 days (standard procedure) or one day (urgent procedure).

Licensing There are 51 types of activity that require a license. Most licenses are granted for 5 years, except for licenses for gambling and activities related to alcoholic beverages and/or beer and tobacco, which are granted for 1 year (a license for manufacturing and wholesaling of domestic alcohol is granted for 3 years), and licenses for production and supply of electricity and natural gas, which are granted for 25 years. A decision whether or not to grant a license must be made within 5 working days of the application being received. The license fee for most activities is MDL 2,500 (about EUR 161). The license fee for rural pharmaceutical institutions is MDL 1,800 (about EUR 116). License fees for gambling and activities related to alcoholic beverages, tobacco and car fuel are stipulated in the law on licensing and vary according to the size of the business. The license fee for mobile phone services (GSM 900/1800 standard) is set by the Moldovan Government and must be USD 8 million.

Authorizations In addition to licenses, business entities may be required to obtain various authorizations, permissions, consents and certificates, depending on their type of activity or products, e.g., for certification of products, environmental, health, fire prevention and safety compliance and setting up of business facilities.

Bookkeeping and audit requirements Bookkeeping There are bookkeeping requirements for each legal entity for fiscal and statistical purposes. The Moldovan accounting system closely follows that of International Accounting Standards (IAS). Reporting is required every year, except for public interest entities and public institutions which are required to provide both half-yearly and annual reports. Reporting must be in Moldovan although an entity can keep its books in more than one language for internal purposes. Starting from 1 January 2011, public interest entities wil be required to keep their accounting records and prepare financial statements in accordance with International Financial Reporting Standards (IFRS).

Audit Companies are generally not required to have their accounts audited, although this requirement does exist for certain specific types of entities, such as banks, investment funds etc. These audits are performed in accordance with National Standards on Auditing, which closely follow International Standards on Auditing. Since 1 January 2008, an audit has been compulsory for all public interest entities.

Employment Employment relationships in companies which are wholly or partly owned by foreign investors are governed by Moldovan labor law, collective bargaining agreements (if these exist), internal regulations and individual employment contracts. Employers are only required to initiate negotiations concerning collective bargaining agreements if trade unions request this.

Hiring An individual employment contract must be in writing and must always be accompanied by a written hiring order. In addition, the employee must present his/her workbook (for the principal job), which must be completed and kept by the employer. The employer is also required to draw up and keep the employeeâ&#x20AC;&#x2122;s personal card. An individual employment contract may be for a fixed term (not more than 5 years) or permanent. However, the law restricts the instances in which a contract may be concluded for a fixed term.

An employer may also hire “temporary employees” (for up to two months) and “seasonal employees” (for up to six months). The sectors of the Moldovan economy in which seasonal employment is allowed are set out in law. Upon hiring, a trial period may be set of up to three months (fifteen days for non-qualified workers and six months for management positions). With some exceptions, an employee may not be required to perform work not provided for in his/her individual employment contract without his/her consent.

Work and rest time With certain exceptions, work time may not exceed 40 hours per week. Generally, employees are required to work five days during a working week. However, depending on the nature of the work, an employer may set a six day working week, subject to the consent of trade unions (if these exist) and the local administration. Certain employees may have a reduced working day or working week, or work in shifts. The law allows overtime work only for certain categories of employees and in certain instances. Overtime work must not exceed four hours during two consecutive working days and 120 hours per year (240 hours in exceptional cases subject to the consent of the employees’ representatives). Employees may be required to work on days off only in exceptional cases set out in law, subject to the consent of trade unions (if these exist). Employees, except for temporary and seasonal employees, are entitled to 28 calendar days annual paid vacation.

Remuneration An employee may be paid by piece, by time or by other methods. Remuneration may be in the form of wages, premiums, allowances, bonuses or other kinds of benefit. The law stipulates a minimum wage for specific professional groups and qualification categories. The minimum salary is MDL 6.51 per hour or MDL 1100 (about EUR 71) per month. The law also provides for mandatory allowances for specific types of work, including work in difficult conditions, night work, overtime work, work on days off or holidays, combining jobs and/or

substituting for temporarily absent employees, performing services requiring various qualifications and handling multiple tool machines. Companies may increase the mandatory allowances above the minimum and apply other kinds of compensatory or incentive allowances and premiums. Employees must be paid at least once a month. Some categories of employees must be paid twice a month. Employees must be paid in Moldovan lei, foreign nationals have the right to convert and export their salaries in foreign currency. Employees are entitled to compensation for expenses related to business trips, paid holidays, paid sick leave and paid maternity leave.

Dismissal An employee may be dismissed only on the grounds of and in accordance with the procedure set out by law. The dismissal of some categories of employees, such as women and minors, is subject to certain restrictions.

Foreign personnel Moldovan companies are allowed to hire foreign nationals. Foreign employees are required to obtain an immigration certificate and work permit from the Moldovan Migration Office and the Employment Agency and a residence permit from the Moldovan Ministry of Information Development. Temporary immigration certificates and work permits are generally granted for one year, with the possibility of an extension for additional one-year terms. Founders of Moldovan companies who have invested more than USD 250,000 in the enterprise, as well as the companyâ&#x20AC;&#x2122;s managers are granted these documents for up to five years, with the possibility of extension. Foreign nationals who possess a skill particularly needed in Moldova or highly qualified specialists, invited by the Moldovan Government on request from the central Government authorities, may be granted permanent immigration certificates and work permits. The total fee for issuance of these documents is MDL 756 (about EUR49). The decision whether or not to grant immigration certificates and work permits must be made within 30 days of the submission of the application and accompanying documents. However,

founders of Moldovan companies who have invested at least USD 10,000 in the enterprise, as well as the companyâ&#x20AC;&#x2122;s managers must be granted these permits within 15 days. Residence permits are granted for a term of 1 year. Moldovan citizens may be employed outside Moldova subject to registration of their labor contracts with the Moldovan National Cashier of Social Insurance and the National Office of Migration.

Investment in real estate Restrictions applicable to foreign investors Foreign investors and companies wholly or partly owned by foreign investors may freely acquire, own and dispose of immovable property and rights to such property, subject to the following exceptions: Agricultural land and forestland may not be sold to foreign individuals and legal entities, nor to resident legal entities with foreign capital; Foreign individuals who became owners of agricultural land and forestland by inheritance may dispose of such land through legal acts coming into force during their lives only to Moldovan citizens. Foreign investors and companies wholly or partly owned by foreign investors may grant or take on lease land and other real estate for a period up to 99 years.

Privatization of land Right of acquisition As a rule, the land on which the real estate, including engineering communications and multi-annual plantations, is located is sold concurrently with the disposal of such real estate. As an exception, Moldovan state owned land occupied by Moldovan state owned entities must be sold after privatization of such entities to the individuals or legal entities which acquired the title to such entities.

Price Moldovan state owned land occupied by privatized or state owned entities is sold at a price calculated according to formulae fixed by law. Moldovan state owned land sold for construction is sold by tender or auction. Private investors buying Moldovan state-owned land may pay a lump sum, or equal quarterly installments over 3 years, subject to a down payment of 50%.

Servitudes The law provides for certain restrictions (servitudes) for privatized Moldovan state-owned land, e.g., free use of objects of common use (roads, infrastructure). Certain additional restrictions (servitudes) may be set by the local administration.

Registration of rights Real estate and rights to it must be registered in the real estate register kept by the appropriate land register authority. The title to land is also registered in the register of landowners kept by the local administration.

Trading Import/export Any Moldovan company (including those wholly or partly owned by foreign investors) may engage in foreign economic activity.

Licensing The export (re-export) and import of certain categories of goods (including strategic goods), e.g., pharmaceutical and medical products and equipment, chemical and biological material for stimulation of plant growth, gasoline and diesel, textile products (for export to the European Union only), walnut, scrap and waste from ferrous and non-ferrous metals requires a license (permission). This license may be granted for transactions with a specific country (or group of countries) within a specific quota (general license) or for a specific transaction (ordinary license). Both licenses are granted for a specific term. As a rule, this license must be granted within 5 days of the date of presentation of all the necessary documents (30 days in the case of strategic goods).

Pre-shipment inspection International financial organizations have made the introduction of pre-shipment inspection of imported goods a condition for providing financial assistance, and the Moldovan Government has made, several attempts to implement such a system. Each time, however, such regulations have been rejected by the Moldovan Constitutional Court on the grounds that only the Moldovan Parliament may approve such regulations. In 2003 the Moldovan Parliament adopted a law on preshipment inspection of imported goods. However, the legislation has not yet been implemented because the Government has failed to reach an agreement with Societe Generale de Surveillance (the company which previously performed pre-shipment inspection of imported goods. The fee for this inspection was set at 0.8% of the CIP value of the goods, but not less than USD 235 and not more than USD 15,000. Different rates were set for oil products under this legislation).

Certification Before entering into contracts for the export of certain categories of products to Moldova, importers must obtain certification for these products or recognition of their certificate of conformity with the Moldovan certification system.

Marking Imported consumer products sold by retail (or their label, packaging or accompanying documents) must contain certain information about them stated in Moldovan.

Customs clearance Goods and vehicles entering Moldovan territory must be declared to the Moldovan customs authorities, as must be any change in the customs regime of goods or vehicles already in the country. Moldovan individuals or legal entities, as well as foreign individuals or legal entities may declare such goods through licensed customs brokers. There are 13 customs regimes in which goods may be declared, including import, export, transit, temporary import, tolling, duty free shop and customs warehouse. The choice of the regime will determine the applicable taxes and duties and the amount and timing of their payment. The maximum term for temporary import (export) of goods is fixed by the Moldovan customs authorities depending on the purposes and circumstances of their import (export) and contract terms, but it may not exceed three years. The Customs Department may extend the term upon justified request. The term of temporary import under leasing contracts should be equal to the term of the leasing contract, but may not exceed 7 years. Temporary import of goods for processing within Moldovan customs territory requires the permission of the Moldovan Customs Department, which may fix the time of export and quantity of finished products to be exported. The import of passenger cars more than seven years old is prohibited.

Pricing Moldovan companies may independently fix prices for goods and services, with some exceptions (e.g., electricity, utilities, some telecommunications services, some passenger transport, as well as locally produced medicines). In addition, for certain socially important goods (e.g., bread, flour) the maximum profit margin for sale in Moldova is 20%. A list of monopolies and the goods and services produced or provided by them has been issued by the Moldovan Ministry of Finance, which regulates prices or profits which can be made on the sale of these items.

Currency controls Bank accounts Both residents and non-residents may freely open bank accounts in any currency with Moldovan authorized banks. There are no restrictions on the number of bank accounts which may be held. Resident companies (except for Moldovan authorized banks) may open bank accounts in foreign banks only with the permission of the National Bank of Moldova.

Transfers Residents may not transfer money from their foreign exchange accounts to the foreign exchange accounts of other residents (except to accounts of Moldovan authorized banks). Resident companies (other than authorized Moldovan banks) may transfer money from their foreign exchange accounts to accounts of non-residents only where permitted by law, e.g., current account operations, settlement of debts registered with the National Bank of Moldova, repatriation of foreign investment as well as transfers for which the resident has obtained the permission of the National Bank of Moldova. Debts that require notification to the National Bank of Moldova include foreign trade loans (except for factoring operations), and financial loans (except for interbank loans for up to one year, loans

granted by non-residents through credit cards and external guarantees issued by non-residents for transactions between two residents). Permission of the National Bank of Moldova is required for financial loans granted by residents to non-residents (except for interbank loans for up to one year and financial leases) and for guarantees issued by resident guarantors other than banks for transactions between two non-residents. Resident companies can make payments in foreign currency only by bank transfer. Non-residents can pay resident companies in foreign currency in cash only under contracts for international sale (lease) of goods (services) and for payment of share capital contributions (subject to presentation of a customs declaration for import of the relevant amount into Moldova and a power of attorney).

Acquisition of foreign currency Resident companies may buy or sell foreign currency only from or to authorized dealers and only for making permissible foreign currency payments.

Repatriation of transaction proceeds With some exceptions, resident companies are required to:

 

Pay the profits from their exports into an account at a Moldovan authorized bank; Import the goods and services for which they have paid or (if the import has not been made) ensure that advance payments are paid into an account at a Moldovan authorized bank;



Repatriate funds and/or goods received as a result of other international business transactions.

The term within which the money (goods, services) must be repatriated depends on the type of transaction, e.g., for sale, barter and export commission contracts – 1 year from the date of shipment or the date of payment, or for purchase contracts involving import of planting materials – 18 months. In the event of a failure to repatriate, the company must pay a penalty of 0.1% of the nonrepatriated value of money, goods or services per calendar day, up to the full value of the nonrepatriated funds, goods or services. In addition, Moldovan commercial banks and customs authorities must suspend the company’s export-import operations. If the paid penalty is equal to the value of the non-repatriated funds, goods or services, the company is exonerated from the obligation to repatriate the relevant funds or goods.

In certain cases this penalty is not imposed, e.g., claims regarding the quality and quantity of goods (confirmed by the relevant authorities), court proceedings (for the duration of the proceedings), supply of spare parts pursuant to a warranty and force majeure events.

Cash transactions Cash, foreign currency and travelers’ cheques in foreign currency can be withdrawn from bank accounts only for business travel and related expenses set out in the law and only up to EUR 10,000 per month per person. The release of a higher amount requires the permission of the National Bank of Moldova. There are no limits on the import of foreign currency into Moldova. On exiting Moldova, individuals may freely export foreign currency in cash up to the equivalent of EUR 10,000 per person, without the need to provide documentation. They may freely export up to EUR 50,000 per person if the funds are indicated in the currency declaration they made on entry, or if they have received authorization from a Moldovan bank (for foreign currency transferred to their accounts at this bank). Amounts exceeding EUR 50,000 may be exported only by bank transfer.

Competition Moldovan competition legislation prohibits the following types of anti-competitive activity:



Monopolistic activity, including: abuse of dominant position in the market and anti-competition agreements between companies;



Bad faith competition; and



Activity by the authorities limiting competition.

A company (or group of companies) has a dominant position in the market if its share in the market for a certain item exceeds 35%. Companies are required to obtain the consent of the Moldovan National Agency for Protection of Competition for certain transactions, such as the merger or absorption of companies if this leads to the creation of a company that has a dominant position on the market, acquisition by a company (or group of companies) that has a dominant position on the market for a particular product of shares in a company that operates in the same market, or purchase by a person (group of persons) of a controlling stake (more than 50% of the votes at the general meeting of shareholders) in the share capital of a company that has a dominant position on the market.

As stated above, the prices (tariffs) for certain products (services) of certain monopolies are subject to regulation by the Moldovan Ministry of Finance, through registration of such prices (or limits to their variation) or limitation of trade margin or profitability.

Privatization Definition Privatization means the transfer of state assets into private ownership through methods provided by law.

Objects of privatization Objects of privatization include enterprises, tangible property and securities (shares) of companies set out in the annex to the relevant privatization program, as approved by the Moldovan Parliament. Objects of privatization also include land, unfinished facilities whose construction has been financed by the state, commercial and residential facilities, agricultural enterprises, property and securities (shares) of companies transferred by private parties to the state in settlement of their debts as well as property returned to the state as a result of cancellation of privatization contracts.

Subjects of privatization Both Moldovan and foreign individuals and legal entities may participate in privatization.

Payment Objects of privatization may be acquired only for Moldovan currency or freely convertible foreign currency accepted by the National Bank of Moldova.

Authority The authority responsible for privatization of Moldovan state owned companies is the Moldovan Ministry of Economy.

Methods of privatization The methods of privatization include:

ď&#x201A;ˇ

Disposal of property through commercial or investment tenders or public auctions;



Sale of securities on the stock exchange;



Free transfer of property;



Transfer of property in settlement of the state’s debts;



Individual plans approved by the Government.

Tenders Terms The tender notice (including the terms of the tender) is published in Moldovan newspapers and may be distributed abroad through the Moldovan Chamber of Commerce and Industry and foreign embassies. Upon privatization of companies through a commercial or investment tender, the Moldovan authorities may provide for certain minimum obligations that the participants must include in their proposals, e.g., obligation to pay debts, maintain the lines of business, protect jobs, increase sales (exports), or use trademarks. A participant in an investment tender is also required to present an investment plan, setting out the amounts, form and timing of the investment in the privatized company. The Moldovan authorities also calculate the minimum price for the property put up for privatization. The participants in a tender must pay a guarantee of participation, which is credited against the purchase price or refunded (if the participant does not win). In addition, the participants may be required to provide a bank guarantee for their obligation to pay the price of the property subject to privatization and perform their investment program. After the signing of the privatization contract, the Moldovan authorities may extend the timing of performance of the purchaser’s obligations, except for its obligations to pay the purchase price and the privatized company’s debts. Payment Before signing the privatization contract, the winner of a tender must pay a fee of 0.1% of the purchase price. The purchase price may be paid as a lump sum or in equal quarterly installments within 3 years. Foreign entities may pay for the privatized property only with a lump sum payment.

If the purchase price is to be paid as a lump sum payment, the winner of the tender must pay the purchase price in full before signing the privatization contract. If the purchase price is to be paid in installments, the winner of the tender must pay an advance of 50% of the purchase price before signing the privatization contract. Restrictions Up to the payment of the purchase price and performance of investment obligations in full, a purchaser may not pledge or otherwise dispose of the privatized property, nor, without the sellerâ&#x20AC;&#x2122;s consent, pledge or otherwise dispose of the privatized companyâ&#x20AC;&#x2122;s property or issue additional shares.

Remedy for breach of contract by the state If the state is found to have provided inaccurate information about the privatized property, the privatization contract may be cancelled by the parties or declared invalid by a court.

Privatization without disclosing a starting price and privatization for free Privatization without disclosing a starting price is permitted only in those cases set out by the Government. When privatization takes place without disclosure of a starting price of shareholdings or interests in share capital exceeding 50% of the share capital of commercial companies, of real estate and of construction in progress, the main criteria for determining the winner is the volume of investment required to restore the lot at sale. Shareholdings offered for privatization at least six times, but not sold, are transferred at the decision of the seller to the issuer without consideration as shares subject to redemption, on condition that such shares do not exceed 10% of the issuer’s share capital. If the size of the shareholding is higher, the share can only be transferred to the issuer without consideration based on a decision by the Government.

Individual privatization plans Infrastructure

companies

national

importance

(energy,

fuel

supply,

transport,

telecommunications, utilities, water supply) can only be privatized by investment tenders under individual plans approved by the Moldovan Government.

Concession Definition Moldovan law defines the term “concession” as an agreement whereby in return for compensation and undertaking the management of the object of the concession, as well as assuming risk and civil liability, the state conveys to an investor the right to conduct exploration, development, exploitation or replenishment of natural resources, provide public services, operate state or municipal property wholly or partly excluded from commercial exchange or carry out certain types of activity, including a state monopoly. Under a concession agreement, the state yields to a concessionaire its rights to possess and use the object of the concession and retains the right to dispose of it.

The output and income received from using the object of the concession is the property of the concessionaire, unless otherwise provided by the concession agreement.

Sectors open for concession Concessions are allowed in all branches of the Moldovan economy. A concessionaire is exempt from the obligation to obtain a license for conducting the relevant activities (where this would normally be required).

Eligibility Both Moldovan and foreign investors are eligible to receive concessions. Transfer of concession rights to third parties is prohibited.

Term of concession The maximum term for a concession is 50 years. However, a concessionaire has the right of first refusal to enter into a new concession agreement, provided that it has adequately performed the previous concession agreement.

Compensation Compensation includes a lump sum payment, lease payments and royalties. The lump sum payment is equal to the estimated value of the object of the concession and must be paid after registration of the concession company but before the commencement of the investment activity. Unless otherwise provided by the concession agreement, this payment is not refundable. Lease payments may be fixed for a limited period, for instance, before the commencement of the extraction of natural resources or export of the output. A royalty is a payment for the right to explore natural resources and is calculated as a percentage of the proceeds (income, profit) from the sale of output or a duty per output unit. Compensation for concession may be in cash, in kind, or mixed.

Procedure The authorities responsible for the relevant branch of the Moldovan economy (or local authorities) prepare and submit concession proposals (including a list of objects of concession, a feasibility study and mandatory terms of the concession agreement) to the Moldovan Government for approval.

After the proposals have been approved by the Moldovan Government, they must then be submitted to the Moldovan Parliament for approval. The concessionaire is selected by international tender. The list of objects of concession and mandatory concession terms must be published in the local and foreign press at least three months before the review of tender applications. The winner of the tender signs a concession agreement with the relevant authority.

Termination Upon liquidation of a concession company, a concessionaire may receive compensation for its expenses incurred during the concession that have not been depreciated. A concessionaire owns the assets acquired at its expense and improvements made to the object of the concession which are separable without damage to the object. Upon termination of a concession agreement, the concessionaire may also receive compensation for these improvements, if these were made with the stateâ&#x20AC;&#x2122;s consent.

Intellectual property rights Franchising Foreign companies may enter into franchising contracts with Moldovan companies whereby the former grant to the latter the right to produce and/or sell certain types of product or provide a certain type of service on behalf of and under the trademark of the former in exchange for a fee including an initial one time payment and royalty. Franchising contracts must be registered with the Moldovan State Agency for Intellectual Property.

Protection of intellectual property rights Moldovan law The Moldovan Parliament has approved a number of laws designed to ensure protection of various intellectual property rights, including copyright and related rights, inventions (patents), industrial designs, trademarks, geographic indications of source, appellations of origin, topographies of integrated circuits, and trade secrets.

The authority responsible for protection of industrial property rights is the Moldovan State Agency for Intellectual Property. International conventions and organizations Moldova has signed a number of international treaties and is a member of several organizations for the protection of intellectual property rights, including:



Stockholm Convention for Establishing the World Intellectual Property Organization (1967);



Paris Convention for the Protection of Industrial Property (1883);



Madrid Agreement Concerning the International Registration of Marks (1891);



Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods (1891);



Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (1957);



Vienna Agreement Establishing the International Classification of the Figurative Elements of Marks (1973);



Madrid Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989);



Geneva Trademark Law Treaty (1996);



Patent Cooperation Treaty (1970);



Strasbourg Agreement Concerning International Patent Classification (1971);



Geneva Patent Law Treaty (2000);



Locarno Agreement Establishing an International Classification for Industrial Designs (1968);



Geneva Act (1999) of the Hague Agreement Concerning the International Deposit of Industrial Designs (1925);



Lisbon Agreement for the Protection of Appellations of Origin and their International Registration (1958);



Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure (1977):



Nairobi Treaty on the Protection of the Olympic Symbol (1981);



International Agreement for the Protection of New Varieties of Plants (1961);



Agreement on Trade-Related Aspects of Intellectual Property Rights (2000);



Agreement on collaboration for the prevention of the violation of rights in the field of intellectual property (1998);



Agreement on Mutual Securing of Interstate Secrets in the Field of the Legal Protection of Inventions (CIS, 2002);



Agreement on Cooperation for the Prevention of the use of False Trademarks and Geographical Indications (CIS, 2002);



TRIPS Agreement.

Customs protection At the request of a holder of intellectual property rights, the Moldovan customs authorities may suspend customs clearance of goods suspected of being pirate products or counterfeited. Within 15 days of the date of receipt of the notice regarding the retention of goods, the holder of intellectual property rights must provide a security deposit equal to the value of the retained goods. Within 30 days of the date of receipt of the notice regarding the retention of goods, the holder of intellectual property rights must inform the customs authorities if they intend to initiate legal proceedings for the resolution of the relevant dispute. Based on a relevant court decree, the counterfeited or pirate goods must be destroyed or confiscated (without the right to be placed back into commercial exchange).

Protection of foreign investment Repatriation of profits Foreign investors may transfer abroad foreign currency received from their investments, including:



Profits, dividends, interest, and other current income;



Royalties;



Amounts received from litigation;



Compensation of damage;



Amounts received upon liquidation of companies or sale or expropriation of investment or

objects of investment. Foreign citizens may transfer abroad their wages and other employment income in foreign currency.

Investment guarantees Expropriation Foreign investment in Moldova enjoys full protection and guarantee and may not be expropriated or nationalized or be subjected to other restrictive measures, except in accordance with the law and for just compensation. The compensation shall be paid in the currency of investment and can be freely transferred abroad. An investor may challenge in court the legality of the expropriation and the amount of compensation to be paid. Moldova’s bilateral investment treaties may provide additional protection from expropriation.

Resolution of disputes Forum Disputes between foreign investors and the authorities regarding the application of Moldovan laws, disputes between the founders of companies wholly or partly owned by foreign investors and disputes between such companies and other individuals and legal entities and the authorities in civil and commercial matters are settled in Moldovan courts. The parties may, however, agree to submit a dispute, before or after legal proceedings have been initiated, to arbitration in Moldova or abroad. Moldova’s bilateral investment treaties may provide for additional forms for resolution of investment disputes.

Moldova has also signed the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States, but has not yet ratified it. Labor disputes between companies wholly or partly owned by foreign investors and their employees are settled in accordance with Moldovan law. Individual employment contracts, for foreign staff may provide alternative mechanisms for dispute resolution. Disputes between foreign parties and Moldovan parties in commercial matters must be settled in Moldovan courts, unless otherwise provided by the international contract. Moldova is a party to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. However, in the absence of a treaty signed with the relevant country, Moldova does not recognize and enforce foreign judgments in civil and commercial matters. Moldova is also a WTO member and, accordingly, is subject to WTO procedures for dispute resolution. Individuals and companies may appeal to the European Court of Human Rights (whose decisions are enforceable in Moldova) if they believe their rights have been violated or that national laws are not in accordance with the European Convention on Human Rights.

Choice of law Moldovan law allows the parties to choose the governing law only in respect of their rights and obligations arising from an “external trade transaction.” Foreign law, however, will not apply if it contravenes Moldovan public policy. Moldova’s treaties with other countries generally have priority over its civil and commercial legislation.

Investment treaties Moldova has signed bilateral investment protection treaties with the following countries: Albania

Kuwait

Azerbaijan

Kyrgyzstan

Austria

Latvia

Belarus

Lithuania

Belgium/Luxembourg

Netherlands

Bosnia & Herzegovina

Poland

Bulgaria

Romania

China

Russia

Croatia

Slovenia

Cyprus

Slovac Republic

Czech Republic

Spain

Finland

Switzerland

France

Tajikistan

Georgia

Turkey

Germany

Ukraine

Greece

United Kingdom

Hungary

United States of America

Israel

Uzbekistan

Italy

Visa requirements and conditions of stay Subject to the treaties entered into by Moldova with foreign countries, foreign citizens entering Moldova need to have a valid passport, a Moldovan visa and a return ticket or ticket for travel to another country. Nationals of the following states are exempt from visa requirements: member states of the European Union, the USA, Canada, the Swiss Confederation, Norway, Iceland and Japan. Visas are granted by Moldovan embassies and consulates or at the Moldovan border (if Moldova does not have an embassy or consulate in the relevant country). To obtain visas, foreign citizens arriving in Moldova on business trips must present an authorized invitation from a Moldovan individual or legal entity. Visas are generally issued for a stay of 90 days. Foreign citizens who make business trips to Moldova may obtain multiple entry visas valid for one-year at the request of the host enterprise. Persons who hold diplomatic or service passports issued by certain countries do not need a visa to enter Moldova for up to 90 days. Foreign citizens who arrive in Moldova without an invitation must provide a customs declaration for an amount equivalent to MDL 390 (about EUR 25) per day of intended stay in Moldova. Visas may be extended by the Moldovan Ministry of Foreign Affairs and European Integration (for diplomatic passports only) or the Ministry of Internal Affairs.

Chapter 3

Taxation Moldovan law provides for the following types of taxes and duties:



State taxes: Income tax; Value added tax (VAT); Excise duties; Privatization tax (payable upon privatization of state property); Customs duty; Road fund levies.



Local taxes: Immovable property tax; Tax for use of natural resources; Territory accomplishment tax; Tax for the right to hold local auctions and lotteries; Hotel levy; Advertising tax; Tax for use of local symbols; Levy for placement of trade units (including units for provision of services); Market levy; Hotel housing levy; Resort levy;

Tax for the right to provide passenger transportation services; Vehicle parking tax; Levy from owners of dogs and Tax for health protection measures in localities with border crossing points.

Income tax Taxation of legal entities Objects of taxation Taxable income Resident legal entities are subject to income tax in Moldova on their worldwide income. Taxable income includes, among other sources:



Business income



Capital gains



Interest



Royalties



Rent income



Government subsidies and awards (which are not specifically declared as non-taxable).

Exempt income Exempted sources of income include:



Income from insurance payments



Gifts received from charity organizations



Income from using income tax relief



Interest on state securities (until 1 January 2015).

Tax rate The standard tax rate for legal entities is 0%. Deductions Deductible expenses Legal entities are allowed to deduct their ordinary and necessary business expenses from their taxable income. Deductible expenses include:



Representation expenses



Business travel expenses



Interest



Insurance premiums



Depreciation of fixed assets



Repairs, maintenance and improvements



Depreciation of intangibles



Taxes (other than income tax)



Investment expenses



Bad debts



Net operating losses



Charitable contributions



Research and development expenditures



Depletion of natural resources



Deduction of remains, waste and natural losses within the limits approved annually by the company manager.

The deduction of some of these expenses is limited by category or amount or is subject to various conditions.

Disallowed expenses Disallowed expenses include:



Expenses for acquisition of land or depreciable property



Payments to related parties where there is no proof that the payment is reasonable



Losses on the sale or exchange of property between related parties



In the case of a taxpayer which uses the accrual method of accounting, expenses involving an obligation to a related person which uses the cash method of accounting, before the payment is made



Expenses related to obtaining tax exempt income



Expenses for which there is no documentary proof (above 0.1% of taxable income)



Income tax, penalties and fines relating to income tax, as well as penalties and fines on other taxes (duties), levies and compulsory payments to the budget, as well as penalties and fines for legal infringements



Taxes paid on behalf of third parties



Deductions to the reserve fund



Expenses for research and development relating to land or depreciable property or exploration of any natural deposit



Payments made to patent-holders.

Interest The deduction for interest paid or incurred by a legal entity for individuals or legal entities (other than financial institutions) is allowed within the limit of the refinancing rate of the National Bank of Moldova for November of the year prior to the current fiscal year.

Depreciation Depreciable property means tangible property used in a business of a kind that is likely to lose value because of wear and tear or obsolescence, that has an expected life of over 1 year and which exceeds a cost of MDL 3,000 (about EUR 193). There are five categories of depreciable property with percentages for annual depreciation of 5, 8, 10, 20, and 30. Business loss carry-forward If the taxpayer’s business deductions for the taxable year exceed its gross income for that year, the amount of the loss is carried over to each of the five consecutive years in equal amounts.

Withholding tax Payments made by a person engaged in a business or other organization are subject to withholding tax at the following rates:



Payment of dividends, except for dividends paid to resident legal entities – 15%;



Amounts withdrawn from share capital related to share capital increase from the net profit sharing and/or other sources found in capital between the shareholders (partners) in accordance with their participation share in the share capital – 15%;



Payment of income to the founders of sole proprietorships or farmer households, except for those whose annual sales income does not exceed MDL 3 million (about EUR 193,300) and whose average number of employees does not exceed nine – 15%;



Other income of non-residents not mentioned above (except for permanent establishments) – 15%;



Payments (monetary or non-monetary) to individuals which are not deductible for fiscal purposes and are not considered as taxable income for these individuals – 15%;



Wages (including bonuses and fringe benefits) – at tax rates applicable to individuals.

Final withholding tax Advertising campaign winnings are subject to a 10% withholding tax except for winnings below MDL 810 (approximately EUR 52). Income obtained by individuals from granting in possession and/or use (rent, lease, usufruct, leasing etc.) of movable and immovable property, except for rent of agricultural land is subject to a 10% final withholding tax. Amounts won from gambling are subject to an 18% withholding tax. Payment of final withholding tax exempts the recipients of winnings and other income subject to withholding tax from including it in their gross income and declaring it.

Tax credits Taxpayers may credit the following amounts against income tax:



Tax withheld during the same tax year from the taxpayer’s income;



Tax withheld during the same tax year from dividends paid by the taxpayer;



Advance tax payments made during the same tax year;



Taxes paid abroad, which are permitted for credit for the amounts paid or accrued and relating to the same tax year.

If for any tax year the credit allowable for tax withheld on dividends exceeds the distributing entity’s income tax for that year, this excess shall be carried forward and shall be credited for the year following that in which it arose. Credit for taxes paid abroad Taxpayers may obtain credit for income tax paid abroad if this income is subject to taxation in Moldova too. The credit is permitted on condition that a document is provided confirming payment (withholding) of income tax abroad certified by the relevant authorities of the foreign state and translated into Moldovan. The amount of this type of credit for any tax year cannot exceed the amount which would have been calculated from such income at the rates applicable in Moldova. Credit for taxes paid abroad should be made in the year when the relevant income is subject to taxation in Moldova.

Taxation of liquidation proceeds In the case of the complete liquidation of an entity, this entity must take into account gain or loss as if it had sold the distributed property at its market value. The recipients of the distributed property are treated as if they have exchanged their equity interest in the liquidated entity for an amount equal to the market value of this property. In the case of the complete liquidation of a subsidiary, no gain or loss shall be recognized by the parent on receipt of the property from the subsidiary. In the case of the liquidation of an entity, if the State Tax Service finds that one or more parties to the transaction is a non-resident, then the complete liquidation may be recognized as a transaction that produces no gain or loss.

Taxation of individuals Objects of taxation Resident individuals are subject to income tax in Moldova with respect to all their income received from sources within Moldova and their investment and finance income received from sources outside Moldova. The taxable income of individuals includes:



Wages



Bonuses



Fees, commissions and other similar items



Employee’s reimbursed personal expenses



Payments to other persons for the employee’s benefit, except for social insurance contributions



Employee’s cancelled debts



Benefits to employees resulting from loans from their employer for which interest is set at a more favorable rate for the employee than the basic rate set by the National Bank of Moldova in November of the previous tax year for such loans



Expenses for granting use of property to employees



Contributions to pension funds, except for private qualified funds.

Tax rates The tax rates for individuals are graded as follows:



Annual taxable income up to MDL 25,200 (about EUR 1,624) – 7%;



Annual taxable income above MDL 25,200 (about EUR 1,624) – 18%.

Allowances Resident individuals are entitled to the following annual allowances:



Personal allowance – MDL 8,100 or about EUR 522 (for certain categories of disabled persons – MDL 12,000 or about EUR 773);



Spouse’s allowance – MDL 8,100 or MDL 12,000 for certain categories of disabled spouses (if the spouse does not use his or her own personal allowance);



Dependents’ exemption – MDL 1,800 (about EUR 116) per dependent (if the dependent is a person disabled from childhood – MDL 8,100).

On or before the date of commencement of employment, the employee must provide the employer with a signed withholding tax exemption certificate relating to the number of withholding tax exemptions to which he/she is entitled, which must be accompanied by the documents confirming such rights.

Administration Reporting The following must file tax declarations by 31 March of the year following the tax year they relate to:



Resident legal entities, partnerships and sole proprietorships



Resident individuals who have tax liabilities



Resident individuals who do not have tax obligations o

Whose annual income exceeds MDL 25,200 (except for a person whose only income is wages received from a single employer)

Whose annual income from sources other than wages exceeds the annual personal allowance of MDL 8,100.



Resident business entities with the status of individuals



Permanent establishments of non-residents in Moldova, regardless of tax liabilities.

Any person which is required to withhold tax on any payment (other than a dividend) must file the relevant information with the Moldovan State Tax Service within one month of the end of the month of payment, except for withholding tax from certain payments for which annual reporting is required. Payment Taxpayers who receive non-employment income or are not subject to withholding tax on interest or royalties payable to residents and had a tax liability greater than MDL 400 (about EUR 26) in the previous tax year must pay on or before March 31 st, June 30th, September 30th, and December 30th of the tax year an amount equal to 1/4 of:



The amount calculated as tax payable for the given year, or



The tax payable for the previous year.

The tax on employment income is withheld at the moment of payment to employees. Any person who is required to withhold tax on any payment (other than a dividend) must pay the taxes withheld within one month of the end of the month when payments have been made. Tax may be paid only in Moldovan Lei.

Reliefs Generally applicable exemptions The main exemptions from income tax are as follows:



Business entities engaged in certain activities may deduct from their taxable income the average annual wage in Moldova for the preceding tax year multiplied by the increase in the average number of employees in the current year compared to the preceding year up to the total of their taxable income.



Commercial banks and microfinance organizations are exempt from tax on their income received from provision of loans for a term greater than 3 years and are taxed at the rate of 50% of the standard tax rate on their income received from provision of loans for a term

between two and three years. This exemption applies to the income related to financing of acquisition of fixed assets for use in the company’s business activity and for certain other purposes.



A business entity engaged in software development may be exempted from income tax for five tax years on condition that the following requirements are met simultaneously: o

It does not have outstanding liabilities to the budget at the moment of granting the exemption, and its payments to the budget are not delayed by more than 30 calendar days during the whole period of using the tax relief;

It has not and/or does not benefit from other tax exemptions;

Its income from software development amounts to more than 50% of its income from sales.



Employees of business entities engaged in software development which meet the above requirements obtain a five-year income tax exemption for their salaries received at such entities (subject to certain conditions and formalities).

Exemptions for companies with substantial share capital or capital investments (expenses) Companies whose share capital exceeds the equivalent of USD 250,000 or which make capital investments (expenses) equivalent to USD 250,000 are entitled to a 50% reduction of income tax for five years from the fiscal year when they enter into a relevant agreement with the Moldovan tax authorities, provided that such companies invest at least 80% of the exempted amounts into development of their production base (works, services) or into state or branch programs for the development of the Moldovan economy. Companies whose share capital exceeds the equivalent of USD 2 million or which make capital investments (expenses) equivalent to USD 2 million are exempt from income tax for three years from the fiscal year when they enter into a relevant agreement with the Moldovan tax authorities, provided that these companies invest at least 80% of the unpaid income tax into development of their production base (works, services) or into state or branch programs for the development of the Moldovan economy. Companies whose share capital exceeds the equivalent of USD 5 million or which make capital investments (expenses) equivalent to USD 5 million are exempt from income tax for three years from the fiscal year when they enter into a relevant agreement with the Moldovan tax authorities,

provided that these companies invest at least 50% of the unpaid income tax into development of their production base (works, services) or into state or branch programs for the development of the Moldovan economy. Companies whose share capital exceeds the equivalent of USD 10 million or which make capital investments (expenses) equivalent to USD 10 million are exempt from income tax for three years from the fiscal year when they enter into a relevant agreement with the Moldovan tax authorities, provided that these companies invest at least 25% of the unpaid income tax amounts into development of their production base (works, services) or into state or branch programs for the development of the Moldovan economy. Companies whose share capital exceeds the equivalent of USD 20 million or which make capital investments (expenses) equivalent to USD 20 million are exempt from income tax for four years from the fiscal year when they enter into a relevant agreement with the Moldovan tax authorities, provided that such companies invest at least 10% of the unpaid income tax into development of their production base (works, services) or into state or branch programs for the development of the Moldovan economy. Companies whose share capital exceeds the equivalent of USD 50 million or which make capital investments (expenses) equivalent to USD 50 million are exempt from income tax for four years from the fiscal year when they enter into a relevant agreement with the Moldovan tax authorities. To benefit from these exemptions, companies must not have benefited nor benefit from similar exemptions provided for the formation or increase of share capital. Exemptions for companies engaged in agriculture Companies engaged in agriculture were granted a 5-year exemption from income tax from. 1 January 2006. The exemption applies only to profits generated from certain agricultural activities listed in law.

Taxation of non-residents Definition A non-resident person includes:



Any individual who is not a resident



Any individual who, even if he or she satisfies the requirements for a resident, lives in Moldova: o

with diplomatic or consular status, or as a family member of such a person

as an employee of an international organization in Moldova, or as a family member of such an employee

to obtain medical treatment, for vocational and education purposes, or on a business trip, provided that it is the sole reason for living in Moldova



for the purpose of traveling to another state through Moldova (transit traveling).

Any legal entity (including entities with the status of an individual) which is not a resident.

A resident includes:



Any individual who has permanent residence in Moldova



Any individual who spends at least 183 days in Moldova during a tax year



Any legal entity with the status of an individual is a resident if its activity is organized or managed in Moldova or if its principal place of business is Moldova.

The term legal entity includes any business partnership, company, enterprise, cooperative, institution, fund, or association, including those with foreign shareholders (except for structural divisions of the listed organization which do not have their own property), as well as legal entities with the status of individuals. Taxable income Subject to Moldova’s double tax treaties and to some exemptions, non-resident individuals and legal entities are subject to tax solely on income from sources within Moldova. Moldovan income of a non-resident person includes:



Income from the sale of goods and provision of services on the territory of Moldova



Income from the provision of management, financial, consulting, audit, marketing, legal, agency (intermediary) and IT services to a resident or to a non-resident with a permanent establishment in Moldova if this income is an expense for the permanent establishment



Income from the sale of immovable property located in Moldova



Income from the sale of movable property (other than inventory) to a resident



Dividends paid by a resident company



Interest earned from debt obligations by the state, or from a resident or a non-resident with a permanent establishment in Moldova if this interest is an expense for the permanent establishment



Royalties earned from a resident or a non-resident with a permanent establishment in Moldova if these royalties are an expense for the permanent establishment



Income from granting the use of property located in Moldova, including income from leasing, rent and usufruct



Other types of income listed in law (the list is not exhaustive and includes any income obtained in Moldova and not exempted from taxation).

Permanent establishment The permanent establishment of a non-resident in Moldova is defined as a fixed place of business through which the business of a non-resident enterprise is wholly or partly carried out in Moldova, directly or through an agent with dependent status, including:



A place of management, a branch, a representative office, a department, an office, a factory, a plant, a shop, a workshop, as well as a mine, an oil or gas well, a quarry or any other place of extraction of natural resources or cultivation of agricultural products



A building site or construction or installation or assembly project, or activities involving technical supervision, maintenance and exploitation of equipment in connection therewith but only if these last for a period more than six months



Sale of goods from deposits located in Moldova and owned or rented by the non-resident



Provision of other services, carrying out of other activities, except for those qualified as an establishment, as well as works under labor contract or independent professional activity for a period of more than three months



Carrying out any activity in Moldova meeting at least one of the above provisions through an agent with dependent status, or maintenance by this agent of a stock of goods or merchandise for the purpose of delivery of goods or merchandise on behalf of the non-resident.

For the non-resident with a permanent establishment in Moldova, this permanent establishment will be treated as a resident Moldovan company for tax purposes but only in respect of the income received in Moldova, as well as



Management and general administrative expenses according to National Accounting Standards supported by the non-resident and accounted for by the permanent establishment, which are subject to deduction within the limits of 10 per cent of the salaries of the staff of this permanent establishment



Expenses confirmed by documentary evidence relating directly to this income according to the Moldovan Tax Code.

A permanent establishment of a non-resident entity in Moldova will not be allowed to deduct amounts charged by the non-resident in respect of:



Royalties, premiums and other similar payments for the use of intellectual property owned by the non-resident



Payments for services provided by the non-resident



Interest and other premiums on loans granted by the non-resident



Expenses not incurred in generating income which is taxable for the permanent establishment in Moldova



Expenses incurred without appropriate documentation.

Notwithstanding the preceding provisions, works under labor contract performed by non-resident individuals shall not constitute a permanent establishment of such individuals in Moldova.

Establishment The Moldovan concept of establishment refers to non-residents carrying out activities in Moldova of a preparatory or auxiliary character, but not meeting the criteria of a permanent establishment. Activities of a preparatory or auxiliary character may include:



The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the non-resident



The maintenance of a stock of goods or merchandise belonging to the non-resident solely for the purpose of storage or display



The maintenance of a stock of goods or merchandise belonging to the non-resident solely for the purpose of processing by another enterprise



The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise by the non-resident



The maintenance of a fixed place of business solely for the purpose of collection and/or distribution of information, marketing, advertising or research into the market for goods (or services) sold by the non-resident (provided that this is not the basic activity of the non-resident entity)



The maintenance of a fixed place of business for the purpose of signing contracts on behalf of the non-resident if the signing of contracts is carried out in accordance with the detailed written instructions of the non-resident



A building site or construction or installation or assembly project, or the technical supervision, maintenance and exploitation of equipment in connection therewith but only if the activity lasts for a period of less than six months.

If a non-resident has a permanent establishment in Moldova they may be required to:



Obtain a fiscal code in Moldova



Apply Moldovan withholding tax on payments to Moldovan residents and non-residents in accordance with the Tax Code



Apply Moldovan payroll tax on salaries paid to local staff (if any)



Pay social insurance contributions (when applicable) and withhold employees’ contributions to the state pension fund



Pay medical contributions (when applicable), and withhold employees’ medical insurance contributions



Pay applicable local taxes



In the case of import of goods/services - pay applicable VAT, excise tax, customs duties and customs levies



Maintain bookkeeping in Moldova in accordance with Moldovan Accounting Standards



Provide annual returns to the tax authorities.

Withholding tax Income of a non-resident not connected with a permanent establishment in Moldova is subject to withholding tax (without deduction) at the following rates:



Payments (monetary or non-monetary) which are not deductible for corporate tax purposes for the taxpayer – 15%



Other income obtained in Moldova – 15%



Employment income – at the standard rates applicable to individuals.

Tax treaties Moldova has a broad tax treaty network. The withholding tax on dividends, interest and royalties paid to nonresidents may be reduced in accordance with a treaty upon presentation of a certificate of residence. The table below contains the withholding tax rates that apply to dividend, interest and royalty payments by Moldovan companies to nonresidents under the Moldovan tax treaties that are in effect.

Withholding tax rates under Moldovaâ&#x20AC;&#x2122;s tax treaties (%) Treaty Partner

Dividends

Interest

Royalties

Albania

5/10

Armenia

5/15

Austria

5/15

Azerbaijan

8/15

0/10

Belarus

Belgium1

Bosnia-Herzegovina

5/10

Bulgaria

5/15

Canada

5/15

China

5/10

Croatia

5/10

Cyprus

5/10

Czech Republic

5/15

Estonia

Finland

5/15

3/7

Greece

5/15

Hungary

5/15

Israel

5/10

Germany1

Japan1

0/10

Kazakhstan

10/15

Kyrgyzstan

5/15

Latvia

Lithuania

Luxemburg

5/10

Macedonia

5/10

Montenegro

5/15

Netherlands

0/5/15

Oman

Poland

5/15

Romania

10/15

Russia

Serbia

5/15

Slovakia

5/15

Slovenia

5/10

0/5/10

Switzerland

5/15

0/10

Turkey

10/15

Tajikistan

5/10

Ukraine

5/15

0/5/10

Spain

United Kingdom

Uzbekistan

5/15

Moldova continues to apply the former USSR treaties with Belgium, Germany and Japan. In each

case the legal continuation has been confirmed by special diplomatic notes.

VAT Subjects of taxation The subjects of taxation include:



Individuals and legal entities which are or are required to be registered for VAT;



Individuals and legal entities which import goods into Moldova (except for individuals who import goods for personal use or consumption, the value of which does not exceed the limit fixed by Moldovan law)



Individuals and legal entities which import services treated as taxable supplies.

Objects of taxation The objects of taxation include:



Supplies of goods (or services) by a subject of taxation in the course of business in Moldova



Imports of goods (or services) into Moldova (except for goods imported by individuals for personal use or consumption the value of which does not exceed the limit fixed by the Moldovan Budget Law for the relevant year).

Taxable value The taxable value of a taxable supply is the total amount paid or payable for that supply, including all taxes, levies and duties payable on the supply, except for VAT. The taxable value of a taxable supply of goods (or services) may not be lower than the cost of production (acquisition) of such goods (cost of such services), except when the goods have become unsalable as confirmed by the relevant authorities.

Where a supply is made for less than the market value as a result of a special relationship between the supplier and its customer, the supply shall be taxable and the taxable value of the supply is the market value. The taxable value of a taxable supply of depreciable property is the higher of the book value or the market value. The taxable value of a taxable import of goods is the customs value of the goods under Moldovan customs legislation plus any taxes, duties or levies payable on the goods, except for VAT. The taxable value of a taxable supply paid in kind is its market value.

Tax rates The standard VAT rate in Moldova is 20% of the taxable value of the taxable supply. Certain supplies are subject to a reduced tax rate:



8% for bread and bakery products, milk and dairy products supplied in Moldova (except for exempted food for children)



8% for certain types of pharmaceuticals imported or sold in Moldova



8% for beet sugar, production of plant growing and horticulture and production of livestock imported or produced in the country



6% for natural and liquefied gas imported or supplied in Moldova.

Supplies taxed at the zero rate include:



Exports of goods (services)



International freight and passenger transportation, airport services, services related to the sale of airplane tickets, ground maintenance of airplanes, air security and air traffic control



Electric power, thermal energy and hot water supplied for the population



Import and/or supply to Moldova of goods and services for the official and personal use of diplomatic missions



Import and/or supply in Moldova of goods and services for technical assistance projects, implemented by international organizations and donor countries (the list of these projects is approved by Government)



Import and/or supply to Moldova of goods or services for investment assistance projects, financed from the loans and grants given to or guaranteed by the Government (the list of these projects is approved by Government)



Goods and services supplied to/from Free Economic Zones



Services provided by light industry companies in Moldova under contracts for processing under a customs regime of inward processing (The list of these companies, as well as the method of managing these services is established by the Government, while the types of services is established by the Ministry of Economy)

VAT recovery Credit The amount of VAT payable to the budget represents the difference between the tax paid or payable on supplies of goods (or services) made and the tax paid or payable on supplies of goods (or services) received (including the tax payable on imported goods and services) for the purpose of conducting business activity during the relevant tax period. Taxable persons are allowed to credit the amount of VAT paid or payable only on taxable supplies received for the purpose of making taxable supplies. Except for certain cases, a taxpayer may claim credit for input VAT only on supplies received after its registration for VAT. When claiming credit for input VAT, a taxpayer must be in possession of a VAT invoice for the supply that gives rise to input VAT or (in the case of imported goods) a document issued by customs certifying that VAT has been paid for the goods. Except in certain cases, surpluses of input tax over output tax may be carried forward to the next tax period. A taxpayer is also entitled to credit for VAT charged in respect of a supply for which all or part of the consideration is treated as a bad debt. Refund of input credits If surpluses of input tax arise due to the taxpayer making zero-rate supplies, the taxpaying entity may recover the surpluses of input tax paid or payable through its bank accounts up to the standard VAT rate multiplied by the value of the zero-rated supply.

Based on various criteria, taxpayers are divided into three groups based on trustworthiness. The group with the higher trustworthiness is subject to less stringent requirements for recovering VAT. In the case of export of goods (services) or international carriage of goods or passengers, a taxpayer (when claiming input credits) must be in possession of a document issued by customs certifying that the goods have been exported (or a document issued by the foreign recipient certifying that the services have been supplied). The recovery must be made within 45 days. The surplus is set off against the debts of the taxpayer (or its creditors) to various state budgets, with the rest being repaid to the taxpayer.

Exempted supplies The Moldovan Tax Code contains an extensive list of exempted supplies, including



Residential real estate, land, rent



Some goods for children



Assets valued at over MDL 3,000 (about EUR 195) with useful life exceeding one year contributed to share capital



Goods (except for excisable goods and a number of other goods) upon import for inward processing



Electricity imported and supplied to distribution networks or imported by distribution networks



Some financial services



Insurance services



Carriage of passengers within Moldova



Securities transactions



Cars



Goods under a transit customs regime, customs warehouses, temporary imports, as well as reimport or processing outside of customs territory



Services imported by scientific and research organizations



Goods placed and sold in duty-free shops



Other supplies listed in law (the list is extensive).

Except as provided above, a taxpayer which has paid VAT upon bringing goods into Moldova under the customs regime of inward processing (or re-export) may recover this VAT within 30 days of taking the products of processing (re-exported goods) out of Moldova.

Administration Registration A sole trader is entitled to register as a VAT-payer if he/she supplies goods or services (except for imported goods and services) the total value of which exceeds MDL 100,000 (about EUR 6,445) in any period of 12 consecutive months.

A person conducting business activity is required to register for VAT if he/she supplies goods or services (or imports services) the total value of which exceeds MDL 300,000 (about EUR 19,355) in any period of 12 consecutive months. These persons shall register not later than the last day of the month in which the limit has been exceeded and the registration shall take effect on the first day of the following month. Tax period A VAT tax period is the period of one calendar month starting on the first day of the month. VAT return Every taxpayer is required to file a VAT return for each VAT tax period. The return must be made on an official form, which is to be submitted to the Moldovan State Tax Service on or before the last day of the month following the end of the tax period. VAT payment The tax due in respect of each tax period shall be paid on or before the date on which the return for this period is due. A taxpayer importing goods for the purpose of conducting business activity must pay VAT when the customs declaration is submitted or before. For certain materials and spare parts, however, the Moldovan Customs Department may extend the term for payment of VAT by up to 90 days. A taxpayer importing services for the purpose of conducting business activity must pay VAT at the date of service provision, indicated in the document attesting the service.

VAT records Every taxpayer must keep records of all supplies made and received. These records must be completed not later than one month after the end of the tax period to which they relate, except for records of retail supplies of services or goods paid for in cash, which must be completed on a daily basis.

Excise duties Subjects of taxation Individuals and legal entities subject to excise duty are:



Legal entities and individuals processing and/or manufacturing excisable goods in Moldova



Legal entities and individuals importing excisable goods (excluding certain goods stipulated in art. 124 of the Tax Code).

Objects of taxation Excise duties are levied on caviar, spirits and liqueurs, beer, wine and tobacco products, fuels and lubricants, perfumes, vehicles, electronic devices and jewellery. The Tax Code provides for flat and ad valorem rates. The amount of the excise duty depends on the nature and quantity of goods. The full list of goods which are subject to excise duties and the applicable rates are provided in the law.

Excise duties payment Excise duties must be paid:



On goods processed and/or produced in Moldova – upon shipment (removal) of excisable goods from the excise facility



On imported goods – at the time of payment of customs duty.

Excise duties recovery Credit A taxpayer is allowed to credit the amount of excise duties paid on excisable goods used for processing and/or production of other excisable goods, at the time of shipment of the finished excisable goods from the taxpayerâ&#x20AC;&#x2122;s excise facility. Credit is allowed within the quantity of excisable goods used for processing and/or production of other excisable goods, upon their shipment, provided that the taxpayer is in possession of a document confirming the payment of excise duties for the used excisable goods. If excisable goods are stored for maturation, credit is allowed within the quantity of excisable goods used for production of similar excisable goods. Surpluses of input excise duties must be included as expenses in the tax period in which the excisable goods have been shipped out of the excise facility. Refund of excise duties Taxpayers exporting excisable goods independently or under an agency agreement may recover the excise duties paid for the excisable goods used for processing and/or production of the shipped excisable goods. This refund is credited against the taxes, duties and levies due from the taxpayer first. The remainder must be refunded to the taxpayer within 45 days of the submission of the confirmation documents. A person which is not a taxpayer may export excisable goods, but may not recover the excise duties paid for exported excisable goods. A taxpayer which has paid excise duties when introducing excisable goods into Moldova for inward processing (or re-export) may recover these excise duties when taking the products of processing (re-exported goods) out of Moldova. A taxpayer which has paid excise duty upon introducing excisable goods into Moldova under a reexport customs regime may recover this excise duty when taking the foreign excisable goods out of Moldova.

Exempted goods Excisable goods exported by a taxpayer independently or under an agency agreement are exempt from excise duties. However, if the taxpayer fails to repatriate its foreign currency export proceeds and present the documents confirming the export as required by law, the taxpayer will have to pay the applicable excise duties together with the applicable penalties and fines for delayed payment. The following goods are also exempt from excise duties:



Goods imported by individuals for personal use or consumption the value of which does not exceed the limit stipulated by law



Goods imported as humanitarian aid according to the procedure set by the Government



Goods intended for technical assistance projects implemented in Moldova by international organizations and donor states approved by the Government



Goods intended for official use by diplomatic missions, and for personal use by diplomatic staff



Goods financed from loans and grants provided to the Government, or provided under state guarantees on account of loans granted by international financial organizations, intended for implementation of specific projects, as well as on account of grants provided to institutions financed from the state budget



Exported excisable goods



Goods brought into Moldova for sale in duty free shops (except for imported cigarettes with filter) as well as those brought in under customs regimes for temporary import, temporary export, transit, processing under customs control, customs warehouses, destruction or refusal in the favor of the state



Goods brought into Moldova under a customs regime for inward processing (excise duty paid on entry into the country is reimbursed upon export of the processed goods)



Imported domestic excisable goods, which have been previously exported and returned within three years in the same condition, and import of processed goods after processing outside customs territory in accordance with customs rules



Goods imported to free economic zones from abroad, from other free economic zones, from other parts of the customs territory of Moldova, as well as goods originating from the government free economic zone and exported abroad



Goods imported by legal entities, but not intended for commercial activities, with a customs value below EUR 50.

Stamping Most alcoholic products and tobacco products which have been sold, transported or stored in Moldova, or imported for sale in Moldova, or acquired from Transnistrian companies, must be stamped with excise stamps in the production process before their import, or, if produced in Moldova, before shipment from the excise facility. The stamping requirement does not apply to:



Excisable goods produced in Moldova and exported by their producer



Sparkling and fizzy wines, divines (cognacs) bottled in souvenir bottles with volume of up to 0.25 l, and with volume of 1.5 l, 3 l and 6 l

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Alcoholic drinks containing ethyl alcohol of up to 7% vol.

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Excisable goods placed under a temporary import, transit, customs warehouse or duty-free customs regime.

Administration Registration A person which intends to engage or is engaged in processing and/or production of excisable goods must obtain an excise certificate from the Moldovan State Tax Service before engaging in this activity. Excise duty reporting Every taxpayer must keep records of the goods shipped for each excise facility. The entries into these records must be made before the shipment of the goods from the excise facility. Each person processing and/or producing excisable goods in Moldova is also required to file a return on payment of excise duties not later than the last day of the month following that in which the excisable goods were shipped.

Special provisions Excisable goods shipped and supplied by Transnistrian legal entities and individuals to Moldovan legal entities and individuals are subject to excise duty at the standard rates which are payable either before or at the time of crossing internal customs points. Taxpayers manufacturing non-excisable goods which use as raw material self-manufactured excisable goods, for which they do not have the documents confirming payment of excise duties, must calculate and pay excise duties for the excisable goods used in the production process at the moment of shipment of the non-excisable goods from the excise facility.

Customs duties Customs duty Objects of taxation Unless otherwise provided by Moldova’s free trade agreements, goods imported into Moldova are subject to customs duty. Customs duty must be paid before or at the moment of presentation of the customs declaration. Rates The standard rates vary from 0% to 25% of the customs value, depending on the category of goods. Some agricultural goods are subject to special protectionist rates. Exemptions Goods exempted from customs duty include:

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Vehicles used for international cargo and passenger transportation, as well as parts, fuel, equipment and food necessary for use of such vehicles

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Goods imported or exported by foreign nationals for official use in accordance with national legislation and international agreements

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National and foreign currency (except for coins), and securities

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Goods imported or exported as humanitarian aid

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Goods imported or exported as free aid (donations) or for state charity purposes

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Temporarily imported or temporarily exported goods

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Goods placed under a customs regime for transit, customs warehouses, destruction or refusal in favor of the state

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Goods imported by individuals for personal use or consumption within the limits of value and quantity set by law

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Domestic goods previously exported and returned within three years in the same condition, as well as processed goods after processing outside customs territory in accordance with customs rules

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Educational, scientific and cultural periodicals and books

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Goods imported for sale in duty free shops

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Goods imported to free economic zones from abroad, from other free economic zones, from other parts of the customs territory of Moldova, goods originating from free economic zones and exported abroad, as well as goods originating from free economic zones and imported to the remaining part of the customs territory of Moldova

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Goods placed under a customs regime of inward processing (except for excisable goods and a number of other goods listed in law)

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Goods imported into Moldova on account of loans and grants provided to the Government, or provided under state guarantees on account of loans granted by international financial organizations, designed for implementation of specific projects, as well as on account of grants provided to institutions financed from the budget

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Certain assets donated by the International Olympic Committee, and international sport federations to the National Olympic Committee and national sport federations

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Excise stamps

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Assets valued over MDL 3,000 (about EUR 195) with useful life exceeding one year brought for the purpose of contribution to share capital

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Technological equipment, devices and working capital imported by accredited scientific and research organizations within the limits and nomenclature approved by Parliament annually

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Goods imported under an Investment Agreement to the International Free Port of Giurgiulesti

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Goods imported by legal entities not designed for commercial activity and valued below EUR 50

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Movable goods valued over MDL 3,000 with a useful life exceeding one year imported by leasing companies under leasing contracts concluded with resident legal entities or individuals.

Free trade agreements Moldova has signed free trade agreements with the following countries:

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Albania

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Kyrgyzstan

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Armenia

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Macedonia

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Azerbaijan

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Russia

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Belarus

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Serbia and Montenegro

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Bosnia and Herzegovina

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Turkmenistan

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Croatia

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Ukraine

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Georgia

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Uzbekistan

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Kazakhstan

Customs clearance levy Goods imported into or exported from Moldova are subject to customs clearance levies (with some exceptions). These charges vary from 0.05% to 0.4% of the customs value of the goods (subject to maximum ceilings varying from EUR 100 to EUR 1,800).

Social insurance contributions Subjects of taxation The subjects of taxation include (among other persons) persons who have permanent residence in Moldova and are employed under individual labor contracts (or management contracts).

Foreign nationals without a permanent residence permit in the Republic of Moldova are not subject to social insurance contributions unless they wish to enjoy the benefits provided by the Moldovan social security scheme.

Objects of taxation A company is required to pay its mandatory state social insurance contributions and withhold from the pay of the individuals the mandatory state social insurance contributions of its employees. These contributions are calculated from the wages and other income paid to all categories of employees. The income from which the contribution is calculated includes all kinds of work remuneration and income (before tax), whether monetary or in kind, except for certain payments listed in law.

Tax rates In 2010, the mandatory state social insurance contributions for a company are 23% of its work remuneration fund and other payments, and the individual mandatory state social insurance contributions are 6% of wages and other payments.

Reporting and payment The mandatory state social insurance contributions must be paid monthly not later than the last day of the month following the reporting month. A company may deduct from the gross sum of the contributions due to the state social insurance budget certain expenses incurred by the company on account of its social insurance contributions, e.g., compensation for medical leave. Not later than the 15th day of the month following a quarter, the company must submit reports to the authorities setting out the amount of the contributions calculated and paid during that quarter.

Medical insurance contributions Subjects of taxation The subjects of taxation include (among other persons) persons with permanent residence in Moldova and those employed under individual labor contracts (or management contracts). Foreign nationals and persons without nationality must purchase accredited medical insurance policies when crossing the border of Moldova, or when applying for a Moldovan visa.

Objects of taxation A company is required to pay its mandatory state medical insurance contributions and withhold from the pay of the individuals the mandatory state medical insurance contributions of its employees. These contributions are calculated from the wages and other income paid to all categories of employees. The income from which the contribution is calculated includes all kinds of work remuneration and income (before tax), whether monetary or in kind, except for certain payments listed in law.

Tax rates In 2010, the mandatory state medical insurance contributions for a company are 3.5% of its work remuneration fund and other payments, and the individual mandatory state medical insurance contributions are 3.5% of wages and other payments.

Reporting and payment The mandatory state social insurance contributions must be paid monthly, at the same time as the payment of wages or other payments. Reports on the medical contributions calculated and paid must be submitted quarterly not later than the 10th day of the month following a quarter.

Free economic zones Definition A free economic zone is a specific part of Moldovan territory in which Moldovan and foreign investors may conduct certain types of activity enjoying certain tax exemptions. Moldova has seven free economic zones: Expo Business Chisinau, Balti, Otaci-Business, Valcanesti, Taraclia, Tvardita and Ungheni-Business. The investment and business regime in free economic zones may not be less favorable than for companies operating in Moldova outside such zones.

Permitted activities The following activities may be conducted in free economic zones:

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Industrial production of goods for export (except for ethyl alcohol and alcoholic products)

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Sorting, packing, marking and other similar operations in respect of transited goods

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Other types of activities like warehousing, construction, catering and related activities.

The value of the goods (services) sold in Moldova by a resident of the zone may not exceed 30% of the resident’s total annual sales. This rule does not apply to alcoholic products. The import of tobacco and tobacco products into a zone and production of tobacco products in a zone are prohibited.

Customs regime Goods (services) imported or exported into or from free economic zones must be declared to customs. Exports and imports from Moldova into a free economic zone are not subject to licensing and quotas. Moldovan Law on Free Economic Zones and the Tax Code also state that the goods (services) imported into a zone (except for cars) are exempt from customs duty (except for customs clearance tax).

Tax regime Income tax The Moldovan Law on Free Economic Zones and the Tax Code provide for the following income tax exemptions:

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Income of residents received from exports from Moldova of goods (services) originating from a Free Economic Zone is taxed at half the standard tax rate applicable in Moldova

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Income received by residents from their activity in a zone is subject to income tax at 75% of the standard rate

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Residents which have invested the equivalent of at least USD 1 million in the fixed assets of their companies or development of the infrastructure of the zone are exempt from tax on income received from exports from Moldova of goods (services) originating from the zone for three years, starting in the quarter following that in which this threshold was reached. Those who have invested at least USD 5 million obtain a five year exemption.

VAT and excise tax The Moldovan Law on Free Economic Zones and the Tax Code provide for the following VAT and excise tax exemptions:

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Goods (services) imported into a zone from outside Moldova are subject to VAT at the zero rate

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Excisable goods brought into a zone from other zones or imported from outside Moldova are exempt from excise tax

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Supplies of goods (services) within one economic zone as well as supplies between residents of different zones are subject to VAT at the zero rate and are exempt from excise tax.

Other taxes The administration of free economic zones may impose zonal fees and levies. The size of these fees and levies is stipulated in the contracts concluded between the administration and the residents.

Registration A resident of a zone may be any individual or legal entity registered for business in Moldova. Residents of a zone are selected through a tender conducted by the zone administration. The procedure for holding the tenders is set by the Government. The selection criteria are set by the main administrator and coordinated with the Moldovan Ministry of the Economy. A selected person must register as a resident by entering into a contract with the zone administration and obtain permission from the zone administration to conduct specific activities in the zone. Foreign investors and residents’ employees, as well as persons invited by the main administrator are exempted from consular fees payable for Moldovan business visas.

Guarantees If an investment in a free economic zone takes place and laws are subsequently adopted which make the taxation regime in that zone less favorable, the investor continues to benefit from the same facilities which existed at the time of the initial investment for at least ten years after the new law takes effect.

Chapter 4

Our services in Moldova Audit

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Audit and reviews of financial statements in accordance with International Standards on Auditing and National Standards on Auditing

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Preparation/compilation of financial statements in accordance with US GAAP, International Financial Reporting Standards or National Accounting Standards

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Agreed upon procedures engagements

Tax

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Calculation of taxes and tax compliance

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Tax audit

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Tax planning

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Tax consulting

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Advice on potential tax savings

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Tax due diligence

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Assistance in preparation of tax returns

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Bookkeeping

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Payroll services

Advisory

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IFRS transition advisory services

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Legal advisory services

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Drafting of contracts and other legal documents

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Legal due diligence

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Incorporation services

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Legal compliance services

kpmg.md Contacts: Alexandra Depoire Audit, Partner E-mail: alexandradepoire@kpmg.com Raymond Breden Tax, Director E-mail: rbreden@kpmg.com Stela Corpacean Audit, Manager E-mail: scorpacean@kpmg.com Stela Alexa Tax & Legal, Manager E-mail: salexa@kpmg.com KPMG in Moldova 202 Stefan cel Mare Ave., 9th floor MD-2004 Chisinau Republic of Moldova Tel.: +373 22 580 580 Fax: +373 22 540 499 E-mail: kpmg@kpmg.md

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.