- Tax System Intro
- Corporate Income Tax (CIT)
- Withholding Taxes (WHT)
- Value Added Tax (VAT)
- Excise Tax
- Taxes related to employment
- Double Taxation Treaties
There are numerous factors that have an impact on a country’s business and investment climate, such as its geographic location, infrastructure, political and social stability and wage levels. The same time, when looking for a location for doing business, more and more companies base their decision on the tax system of the country in question. The tax system should not constitute an obstacle to companies or individuals for starting and practicing business activities. The attractiveness of Moldovan tax system for local and foreign investors is reflected in the way in which corporate profits are taxed. Therefore, before starting a business in Moldova, it is very important to know the taxation rules, the main tax rates applied and to have a general overview of the taxes to which companies in Moldova are liable.
The Tax System of Republic of Moldova can be divided in two levels:
- taxes and duties of national level
- taxes and duties of local level
National level taxes and duties have to be paid to the national budget and include:
- income tax
- value added tax (VAT)
- excise tax
- private tax
- customs duties
- road tax
- tax on wealth
Local level taxes and duties have to be paid to the budget of administrative territorial Units (called “raion”), and include:
- real estate tax
- private tax
- natural resources tax
- territory development tax
- tax for local auctions and lotteries
- tax for external advertising
- tax for the use of local symbols
- tax for shops and / or for social services units
- market Tax
- hotel tax
- resort tax
- tax for transport services
- parking tax
- tax for dogs ownership
- tax for salubrisation
- tax for advertising installations
|CIT rate||12% from taxable income|
|Taxable income||The taxable income of a company is calculated as the difference between the revenues (incomes) obtained from any source and the expenses related to obtaining taxable revenues, during the fiscal year.|
|Expenses||For tax purposes, expenses could be:|
The general rule for being deductible for the expenses of a business entity, is:
Totally deductible expenses considered to be incurred within business activity are the following:
The deductibility of several expenses is limited, including:
Following expenses are non-deductible:
|Capital gain||As a general rule, shares and real estate are treated as capital assets for tax purposes. The income earned from their sale is therefore deemed as capital gain. The capital gains of the company are taxed according to general CIT rate, but the taxable base is equal to 50% of the difference between the purchase and sale prices.|
|Losses||Losses may be carried forward for five consecutive years and set off against taxable profits in equal parts.|
The company X specialized in trading of household goods has obtained a total income during the 2016 year in amount of 1.000.000 lei. The cost of sold goods during the 2016 year was determined in amount of 500.000 lei. The total expenses related to commercial and administrative expenses (salaries, accounting services, transport services, communications etc.) were calculated in total amount of 200.000 lei. The company paid 5.000 lei of penalties and fines on other taxes. What corporate income tax the company has to pay?
Taxable income=Total revenues-Deductible expenses
The cost of sold goods and expenses related to commercial and administrative expenses are necessary and ordinary for performance of entrepreneurial activity, therefore these expenses are considered totally deductible for fiscal purposes. Penalties and fines on other taxes are considered non-deductible expenses for fiscal purposes. Thus, only the cost of sold goods and expenses related to commercial and administrative expenses will be taken into consideration in order to calculate the taxable income.
Taxable income=1.000.000 lei – (500.000+200.000)=300.000 lei
CIT=Taxable Income×12%=36.000 lei.
There are different CIT rates for several types of legal forms used for practicing entrepreneurial activity:
|Subjects of small and medium enterprises (SMEs) which are not registered as VAT payers except Peasant Farms and Individual Enterprises||3% from operational income|
(income from basic activities)
|Peasant Farms||7% from taxable income|
|7% from taxable income not exceeding 31140 lei per year|
|18% from taxable income exceeding 31140 lei per year|
|Dividends withholding tax||Dividends are paid to Moldovan residents:|
Dividends are paid to non-residents:
|Interest withholding tax|
|Royalty withholding tax|
|Withholding tax from other|
payments to nonresidents
|12%, except salaries|
|Withholding Tax from most of payments to individuals except salaries and several other payments||7%|
|Withholding Tax from rent payments to individuals except the payments for rent of agricultural lands||10%|
|Withholding Tax from payments to individuals for vegetal and animal products||3%|
The company X has decided to purchase the following goods and services from local individuals:
- walnuts in total amount of 100.000 lei
- truck rent services in total amount of 40.000 lei
In February 2017 the general meeting of shareholders have decided to pay dividends in amount of 70.000 lei to shareholders for profits obtained in 2016.
What taxes the company has to pay?
When the company X pay to the individuals for the purchased walnuts, the company has to withhold a tax of 3% from these payments, because the walnuts are vegetal products. Therefore, the withholding tax=100.000 lei×3%=3.000 lei. Finally, the individuals will take home 97.000 lei (100.000-3.000), while the withholding tax (3%) in amount of 3.000 lei have to be transferred by the company to the national budget.
When the company X pay to the individuals for the rent of trucks, the company has to withhold a tax of 10% from these payments. Therefore, the withholding tax=40.000 lei×10%=4.000 lei. Finally, the individuals will take home 36.000 lei (40.000-4.000), while the withholding tax (10%) in amount of 4.000 lei have to be transferred by the company to the national budget.
When the company X pay the dividends to the shareholders, the company has to withhold a tax of 6% from these payments. Therefore, the withholding tax=70.000 lei×6%=4.200 lei. Finally, the shareholders will take home 65.800 lei (70.000-4.200), while the withholding tax (6%) in amount of 4.200 lei have to be transferred by the company to the national budget.
|Taxable transactions||VAT is levied on the supply of goods, provisions of services and the import of goods and services into Moldova|
|Rates||There are the following VAT rates:|
|Registration||The registration as VAT payer may be mandatory and voluntary.|
A legal business entity has the obligation to register as VAT payer if within any 12 consecutive months period the entity has supplied goods and services for a value exceeding 600.000 lei.
A business entity has the voluntary right to register as VAT payer if the entity anticipate to supply VAT taxable goods and services. So, the entity can be registered as VAT payer even after it was registered.
VAT payers have to calculate and pay their VAT obligations monthly. The amount of VAT to be paid by company is determined as the difference between the VAT from purchases and VAT from sales.
The company X during February 2017 has purchased goods and services in total amount of 120.000 lei (including VAT 20.000 lei). The same month the company X has delivered goods and services in total amount of 180.000 lei (including VAT 30.000 lei). What amount of VAT the company has to pay?
The VAT to be paid by company X to the budget=20.000 – 30.000= 10.000 lei. This amount of 10.000 lei has to be transferred to the budget by the company X till the 25th of March 2017.
VAT related to imported services has to be paid by the company to the budget on the date of the payment for services. VAT related to imported goods has to be paid by the company to the budget before the goods clear customs.
|General information||Excise taxes are imposed on certain consumer goods such as caviar, beer, wine, alcohol, petrol, diesel, perfumes, cars etc.|
|Rates||Excise tax rates are set either as fixed amounts per unit of goods, as a percentage of the customs value of goods or as a combined rate.|
Before starting producing, processing and / or importing excisable goods, such entities have to obtain excise taxes certificates from Moldovan fiscal authorities. Also certain goods subject to excise tax have to be stamped with excise marks. The exact amount of excise rate to be applied is determined by the Appendix I of the Moldovan Tax Code as fixed amounts per unit of goods, as a percentage of the custom value of goods or as a combined form of rate.
|Individual Income Tax (IIT)||progressive income tax rates as follows:||The Income Tax from employment is withheld from the employees’ gross salary by the employer (the company). The Individual Income Tax shall be paid by the employer (the company) to the tax authorities. So, the IIT from salaries is supported by employee but is withheld and transferred to be state budget by the employer.|
|Social Security Contributions (SSC)||The employer (the company) shall withhold from employee`s salary the social security contribution of 6% and transfer to the state budget on monthly basis. Also, the employer (the company) pays 23% per month from the payroll for its employees.|
|Medical Insurance Contributions (MIC)||The employer (the company) shall withhold from employee`s salary the medical insurance contribution and transfer to the state budget on monthly basis. Also, the employer (the company) pays 4,5 % per month from the payroll for its employees.|
The company X has calculated for employee Y a gross salary of 10.000 lei.
Social Security Contributions:
- employee`s SSC=10.000 lei×6%=600 lei
- employer`s SSC=10.000 lei×23%=2.300 lei
Medical Insurance Contributions:
- employee`s MIC=10.000 lei×4.5%=450 lei
- employer`s MIC=10.000 lei×4.5%=450 lei
Individual Income Tax (employee)
Taxable basis=gross income – employee`s SSC – employee`s MIC – allowances.
Supposed that the employee Y doesn`t have any allowances and has solicited to apply the maximal rate for Individual Income Tax of 18%.
Taxable basis=10.000 – 600 – 450=8.950 lei
Finally, the employer (the company) will withhold from the employee`s gross salary the employee`s SSC (600 lei), employee`s MIC (450 lei) and employee`s IIT (1.611 lei), and transfer to state budget all these taxes. The employer (the company) will pay to the employee the net salary of 7.339 lei (net salary=gross salary – employee`s SSC – employee`s MIC – employee`s IIT=10.000 – 600 – 450 – 1611=7.339 lei). Also, the employer (the company) will pay to the state budget employer`s SSC (2.300 lei) and employer`s MIC (450 lei). So, the total expenses with the employee X are:
- net salary 7.339 lei
- employer`s SSC 2.300 lei
- employer`s MIC 450 lei.
Note: If the employer agree with the employee on a net salary, all taxes (both employee`s and employer`s) in fact will be supported by the employer (the company). In this case, the taxes related to salary can be approximately calculated by applying a 0.65-0.75 multiplicator to the net salary.
According to the double taxation treaties concluded by the Republic of Moldova with regard to taxation of non-residents’ income are applied the rates foreseen in the tax treaties, which are lower than the rates provided by the internal tax legislation. If, however, the rate in the treaty is higher than rate according to legislation, it is applied the rate foreseen by legislation.
When other rules on withholding taxes are determined by Double Taxation Treaties ratified by Moldova, such rules shall be applied when determining the exact rates to be withheld from the revenue obtained by non-residents in Moldova. As of today the Republic of Moldova applies Double Tax Treaties in force with the following states:
|Nr.||Name of country||Date and place of concluding||Date of effect||Date of application|
|7.||Bosnia and Herzegovina||08.12.2003, Saraevo||17.12.2004||01.01.2005|
|20.||Israel||23.11.2006, Tel Aviv||12.04.2007||01.01.2008|
|28.||United Kingdom||08.11.2007, Londra||30.11.2008||01.01.2009|
|34.||Russian Federation||12.04.1996, Moscova||06.06.1997||01.01.1998|
|45.||Italy (Convenţion, Protocol)||03.07.2002, Roma||14.07.2011||01.01.2012|