Moldova Corporate Tax Guide

Moldova

Chisinau

EY

Str. Alexandru cel Bun, 51

2012 Chisinau

Moldova

Business Tax Services

 Alexander Milcev

ey.com/GlobalTaxGuides

GMT +2

+373 (22) 214-040

Fax: +373 (22) 214-044

+40 (21) 402-4000 (resident in Bucharest, Romania) Mobile: +40 0722-434-524

Fax: +40 (21) 410-7052

Email: alexander.milcev@ro.ey.com

Business Tax Advisory, Tax Policy and Controversy, and Global Compliance and Reporting

Alexander Milcev

+40 (21) 402-4000 (resident in Bucharest, Romania)

Mobile: +40 0722-434-524

Fax: +40 (21) 410-7052

Email: alexander.milcev@ro.ey.com

Alexandru Sipitca

A. At a glance

+373 (22) 214-040

Mobile: +373 692-31-409

Fax: +373 (22) 214-044

Email: alexandru.sipitca@md.ey.com

Corporate Income Tax Rate (%) 12 (a)

Capital Gains Tax Rate (%) 12 (a)

Branch Tax Rate (%) 12 (a)

Withholding Tax (%)

Dividends 6/15 (b)

Interest Payments to Resident Individuals

3/12 (c) Payments to Nonresidents 12 (c) Royalties 12 (d)

Services 12 (e)

Goods Acquired from Resident Individuals 6/12 (f) Insurance Premiums 12 (g)

Winnings from Gambling, Advertising Campaigns and Lotteries

0/12/18 (h)

Branch Remittance Tax 0

Net Operating Losses

Carryback

Carryforward

(a) See Section B.

(b) In general, a 6% withholding tax applies to dividends paid to nonresidents and residents. A 15% rate applies to dividends related to the 2008 through 2011 fiscal years.

(c) A 3% withholding tax rate is applied to interest from deposits and securities paid to resident individuals by banks, savings and loan associations, and issu ers of corporate securities.

(d) A 12% withholding tax rate applies to royalties paid to nonresidents and to resident individuals.

(e) This withholding tax applies to services rendered by nonresidents and to certain payments made to resident individuals.

(f) The 6% rate applies to a list of agricultural products. The 12% rate applies to other types of goods acquired from resident individuals (with certain excep tions).

(g) This withholding tax applies to insurance premiums paid to nonresidents.

(h) The 18% rate applies to winnings from gambling. A 12% rate applies to win nings from advertising campaigns paid to nonresidents. The amount that exceeds MDL27,000 of winnings from advertising campaigns paid to resi dents is also subject to a 12% withholding tax. A 0% rate applies to the amount of winnings from lotteries paid to residents up to MDL270 per win ning.

B. Taxes on corporate income and gains

Corporate income tax. Resident companies are subject to tax on their worldwide income. Resident companies are companies with activities managed or organized in Moldova (an activity is organized in Moldova if it is carried out by a company that is regis tered in Moldova as a legal entity) and companies that carry out their business activities primarily in Moldova.

Permanent establishments of nonresident companies in Moldova are subject to tax on their income from Moldovan sources. For tax purposes, permanent establishments are considered to be resident entities.

Rates of corporate income tax. The rates of corporate income tax in Moldova are described below.

Standard corporate income tax rate. The standard corporate in come tax rate in Moldova is 12%.

Small and medium-sized companies (except for farmers and indi vidual entrepreneurs) that are not registered as value-added taxpayers. The following are the tax rates applicable to small and medium-sized companies (except for farmers and individual en trepreneurs):

• If the company is not registered as a value-added tax (VAT) payer, it can choose to be taxed at a 4% tax rate applied to the income established according to the statutory books in the cur rent reporting period or at the standard corporate income tax rate of 12% in the following cases:

In the previous fiscal reporting period (ending 31 December), the company obtained income from VATexempt supplies or income both exempt from VAT and taxable in an amount up to MDL1,200,000, provided that the supplies exempt from VAT exceeded 50% of the tax able supplies.

In the previous fiscal reporting period (ending 31 December), the company did not obtain any income. The company is registered during the current fiscal reporting period.

The 4% tax rate applies to the total amount of income registered in the statutory books during the current reporting period, ex cept for certain items of income that are exempt from tax in accordance with local tax legislation.

• If the company becomes a VAT payer, it must apply the stan dard corporate income tax rate of 12%.

Farmers. The income tax rate for farmers is 7%.

Individual entrepreneurs. For individual entrepreneurs, the income tax rate is 12% of annual taxable income.

Tax incentives. The main tax incentives available in Moldova are described below.

Free-economic zones. Residents of free-economic zones benefit from the following incentives:

• A 50% reduction of the standard corporate profits tax rate on income derived from the exportation outside Moldova of goods originating in the free-economic zone

• A 25% reduction of the standard corporate profits tax rate on income other than the income indicated in the preceding bullet

• A three-year exemption from corporate profits tax on income derived from the exportation of goods originating in a freeeconomic zone, beginning with the quarter following the quarter in which investments made in fixed assets or in the development of the free-economic zone infrastructure are at least of USD1 million

• A five-year exemption from corporate profits tax on income derived from the exportation of goods originating in a freeeconomic zone, beginning with the quarter following the quarter in which investments made in fixed assets or in the development of the free-economic zone infrastructure are at least of USD5 million

Residents that benefited from exemptions mentioned in the third and fourth bullets above and that make additional investments in fixed assets or in the development of the free-economic zone infrastructure are entitled to benefit repeatedly from a corporate profits tax exemption on income derived from the exportation of goods originating in a free-economic zone beginning with the quarter following the quarter in which the required amount of additional investments is reached, if the average number of em ployees registered in the calendar year following the year in which the required amount of additional investments is reached exceeds by 20% the average number of employees registered in the previous calendar year. The length of the exemption depends on the amount of invested capital. The following are the required amounts of the investments and the corresponding exemptions:

• Invested capital of least USD1 million: exemption for a oneyear period

• Invested capital of at least USD3 million: exemption for a three-year period

• Invested capital at least USD5 million: exemption for a fiveyear period

IT parks. Companies that are residents of IT parks benefit from incentives.

A single tax in the amount of 7% is the only charge applied to sales revenue, which includes the following taxes and contributions:

• Corporate income tax

• Personal income tax (applied on salaries)

• Social security contributions due from employees and employers

• Health insurance contributions due from employees and employers

• Local taxes on real estate

• Tax on roads for vehicles registered in Moldova

The park residents pay the other taxes under the existing general rules.

The single tax of 7% must be declared and paid monthly, and it cannot be lower than 30% of the “average salary per economy forecasted” for the respective fiscal year multiplied by the num ber of employees hired by the company. The “average salary per economy forecasted” is an annual amount established by the government. For 2022, the average salary per economy forecast ed is MDL9,900.

Business entities that create new jobs. Business entities can ben efit from a reduction of taxable income if they increase annually the number of employees. The amount of taxable income subject to reduction is determined by multiplying the prior-year average national monthly salary with the increase in the average number of employees on payroll compared with the prior year.

Capital gains. Capital gains are taxed under the same general rules as business income.

Administration. In general, the tax year is the calendar year. A company may elect a different tax year. In particular, if, in accor dance with the local accounting legislation, a company elects a financial reporting period that is different from the calendar year, the company’s tax year should correspond to the company’s financial reporting period.

The corporate income tax return must be filed by 25 March of the year following the tax year.

An amended tax return can be filed to correct errors contained in the original tax return if no tax audit was announced or performed by the tax authorities for the respective fiscal period.

Under the Moldovan Tax Code, companies may either obtain a refund of an overpayment of tax or offset the overpayment against existing or future tax liabilities.

All taxes in Moldova must be paid in Moldovan lei (MDL). To calculate the tax on income realized in foreign currency, the income must be converted into lei using the official exchange rate on the payment date.

Dividends. In general, a 6% withholding tax is imposed on divi dends paid to nonresidents and residents. A 15% withholding tax continues to be imposed on dividends related to the 2008 through 2011 fiscal years.

Foreign tax relief. Companies may claim a credit against corpo rate income tax for foreign tax paid on income that is subject to tax in Moldova. The foreign tax credit is granted for the year in which the relevant income is subject to tax in Moldova.

C. Determination of trading income

General. Taxable income includes income earned from all sources, less deductible expenses and allowances provided for by the tax law. In general, companies may deduct ordinary and necessary expenses accrued during the tax year with respect to its business activities. However, they may not deduct the following items:

• Personal and family expenses of the company founders and employees

• Amounts paid for the acquisition of depreciable property

• Losses resulting from sales or exchanges of property, perfor mance of works and provisions of services between related parties

• Unjustified expenses paid to related parties, including compen sation, interest and rent

• Amounts paid to the holders of business patents

• Expenses related to exempt income

• Provisions for bad debts

Inventories. Assets valuation income is non-taxable. Assets valu ation and impairment losses are nondeductible.

Provisions. If a court decision confirms that a debt owed to a company will not be recovered, the company may deduct for tax purposes the amount of the debt. Provisions for bad debts are not deductible for tax purposes.

Tax depreciation. Starting in 2021, taxpayers are required to use the straight-line depreciation method to calculate the tax depre ciation of fixed assets used in business activities instead of the declining-balance depreciation method.

For the use of the straight-line depreciation method, records on fixed assets’ depreciation must be maintained for each item sepa rately. The depreciation rate for each fixed asset is determined as a ratio between 100% and its useful life set in the Catalogue of Fixed Assets approved by the Moldovan government. The transition from the declining-balance depreciation method to the new mandatory straight-line depreciation method will be performed under specific rules established by the government. For the 2018, 2019 and/or 2020 tax years, taxpayers may choose between the declining-balance depreciation method and the straight-line depreciation method to calculate the tax depreciation of fixed assets used in business activities.

Relief for losses. Companies incurring a tax loss may deduct the loss in the following five tax years. Losses may not be carried back.

Groups of companies. The Moldovan tax law does not contain any measures regarding groups of companies in Moldova. Consequently, the filing of consolidated returns or the granting of relief for losses on a group basis is not permitted.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

Value-added tax, on goods and services delivered in or imported into Moldova

Standard rate 20

Bread and bread products, milk and dairy products, medicines, natural and liquefied gases, beet sugar and agricultural products 8

Exports of goods and services, international cargo and passenger transport, certain distributions of electric power, thermic energy and hot water, and other specified goods and services relating to diplomatic missions and international organizations

Nature of tax Rate (%)

Food and non-alcoholic beverages supplied by the hotel, restaurant and catering (HORECA) sector; a reduced VAT rate of 6% applies for HORECA during the state of emergency period declared in Moldova by the parliament or by the National Extraordinary Public Health Commission 6/12 Excise taxes, on certain consumption goods; tax is imposed at a fixed amount per unit of the good or by applying an ad valorem rate to the market value of the good Various Social security contributions, on remuneration; paid by employer 24

Medical insurance contributions, on remuneration; paid by employee 9 Customs duties; rates set by Customs Tariff Law Various Local taxes on real estate (other than real estate used for agricultural or dwelling purposes) 0.3

E. Foreign-exchange controls

The Moldovan leu (MDL) is the only currency that may be used to make payments in Moldova. The National Bank of Moldova (NBM) establishes the official exchange rate for the leu in relation to other foreign currencies. Both resident and nonresident com panies may open leu or foreign currency accounts in authorized banks of Moldova.

Resident companies are not required to convert proceeds received in foreign currency into lei (plural of leu). However, they may not transfer foreign currency from their accounts to the accounts of other residents of Moldova, except for authorized banks.

Nonresidents may transfer abroad currency if the currency was registered in their account or if the funds were previously held in a leu deposit account with a Moldovan authorized bank.

Payments in currency by resident companies to nonresidents may be made only from foreign-currency accounts at authorized Moldovan banks (or at foreign banks that are authorized by NBM), and these payments may be made by bank transfer only.

For a distribution of profits during the year, a company should be ready to present to interested bodies the statutory act of the com pany that indicates the amount of the distribution. For a distribu tion of profits at the end of the fiscal year, the company should have ready for inspection a copy of the filed annual tax return and the statutory act of the company that indicates the amount of the distribution.

F. Treaty withholding tax rates

The following

Dividends

A B Interest Royalties % % % %

Austria 15 5 5 5

Azerbaijan 15 8 (a) 10 10

Belarus 15 15 10 15

Belgium 15 15 15 0

Bosnia and

Herzegovina 10 5 10 10

Bulgaria 15 5 10 10

Canada 15 5 (b) 10 10

China Mainland 10 5 10 10

Croatia 10 5 5 10

Cyprus 10 5 5 5

Czech Republic 15 5 5 10

Estonia 10 10 10 10

Finland 15 5 5 3/7 (c)

France (e) 15 5 (d) 5 2

Georgia 5 5 5 5

Germany 15 15 5 0

Greece 15 5 10 8

Hungary 15 5 10 0

Ireland 10 5 5 (g) 5

Israel 10 5 5 5

Italy 15 5 5 5

Japan 15 15 10 0/10 (f)

Kazakhstan 15 10 10 10

Kuwait 5 5 2 10

Kyrgyzstan 15 5 10 10

Latvia 10 10 10 10

Lithuania 10 10 10 10

Luxembourg 10 5 5 (g) 5

Malta 5 5 5 5

Montenegro 15 5 10 10

Netherlands 15 0/5 (h) 5 2

North Macedonia 10 5 5 10

Oman 5 5 5 10

Poland 15 5 10 10

Portugal 10 5 10 8

Romania 10 10 10 10/15 (i)

Russian Federation 10 10 0 10

Serbia 15 5 10 10

Slovak Republic 15 5 10 10

Slovenia 10 5 5 5

Spain 10 5 (j) 5 8

Switzerland 15 5 10 (k) 0

Tajikistan 10 5 5 10

Turkey 15 10 10 10

Turkmenistan 10 10 10 10

Ukraine 15 5 10 10

United Arab Emirates 5 5 6 6

United Kingdom 10 5 (l) 5 5

Uzbekistan 15 5 10 15

Non-treaty

jurisdictions 6/15 (m) 6/15 (m) 12 12

A These are the general dividend withholding tax rates.

B In general, the rates apply if the beneficiary of the dividends is a company that holds directly at least 25% of the share capital of the payer.

(a) This rate applies if the effective beneficiary of the dividends is a company that has invested foreign capital of at least USD250,000 in the payer of the dividends.

(b) This rate applies if the beneficiary of the dividends is a company holding directly at least 25% of the capital of the payer.

(c) The 3% rate applies to royalties paid for the use of, or the right to use, patents, computer software, designs or models, plans, and secret formulas or pro cesses, or for information concerning industrial, commercial or scientific experience. The 7% rate applies to other royalties.

(d) This rate applies if the beneficiary of the dividends is a company holding directly at least 10% of the payer of the dividends.

(e) This treaty has been signed, but it is not yet in effect.

(f) Royalties received for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films and films or tapes for radio or television broadcasting, are exempt from tax.

(g) No tax is withheld if the effective beneficiary of the interest is a financial institution.

(h) No tax is withheld if the effective beneficiary of the dividends is a company that directly holds at least 50% of the capital of the payer of the dividends and that has invested USD300,000 or an equivalent amount of national currency of a European Union (EU) member state in the capital of the payer of the dividends.

(i) The 10% rate applies to royalties paid for the use of patents, trademarks, drawings or patterns, plans, secret formulas or manufacturing procedures as well as for industrial, commercial or scientific information. The 15% rate applies to other royalties.

(j) No tax is withheld if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 50% of the capital of the payer of the dividends.

(k) No withholding tax is imposed on interest paid on bank loans or on interest paid with respect to the following:

• Sales on credit of industrial, commercial or scientific equipment

• Sales of goods between enterprises

(l) No tax is withheld if either of the following conditions is satisfied:

• The beneficial owner of the dividends is a company that holds directly or indirectly at least 50% of the capital of the company paying the dividends and that has invested at least GBP1 million (or the equivalent amount in another currency) in the capital of the company paying the dividends at the date of payment of the dividends.

• The beneficial owner of the dividends is a pension scheme.

(m) In general, the withholding tax rate for dividends is 6%. For dividends related to the 2008 through 2011 fiscal years, the withholding tax rate is 15%.