Doing Business in Moldova

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1 Doing Business in Moldova

2 Preface This guide has been prepared by Baker Tilly, an independent member of Baker Tilly International. It is designed to provide information on a number of subjects important to those considering investing or doing business in Moldova. Baker Tilly International is the world s 8 th largest network of independent accounting and business advisory firms by combined fee income, and is represented by 165 firms in 141 countries and 28,000 people worldwide. Its members provide high quality accounting, assurance, tax and specialist business advice to privately held businesses and public interest entities. This guide is one of a series of country profiles compiled for use by Baker Tilly International member firms clients and professional staff. Copies may be downloaded from Doing Business in Moldova has been designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this guide may not be comprehensive and recipients should not act upon it without seeking professional advice. Facts and figures as presented are correct at the time of writing. Up-to-date advice and general assistance on Moldovan matters can be obtained from Baker Tilly, contact details can be found at the end of this guide. March 2016 Baker Tilly is the trading name of Baker Tilly Klitou and Partners SRL.

Contents 1 Fact Sheet 2 2 Business Entities and Accounting 4 2.1 Companies 4 2.2 Partnerships 5 2.3 Branches and Representative Offices 5 2.4 Individual Enterprise 6 2.

3 Investment Incentives and Restrictions 9 4 Employment Regulations 10 4.1 General Employment Matters 10 4.2 Visas 11 4.3 Trade Unions 11 5 Taxation 12 5.

3 Contents 1 Fact Sheet 2 2 Business Entities and Accounting Companies Partnerships Branches and Representative Offices Individual Enterprise Audit and Accounting Requirements Filing Requirements 7 3 Finance and Investment Exchange Control Banking and Sources of Finance Investment Incentives and Restrictions 9 4 Employment Regulations General Employment Matters Visas Trade Unions 11 5 Taxation Corporate Income Taxes Personal Taxes Employment Related Costs and Taxes Withholding Taxes on Payments Abroad Value Added Tax (VAT) Other Taxes Tax Incentives for Businesses 15

4 2 1 Fact Sheet Facts and figures as presented in sections 1 through 4 are correct as at 18 February Geography Location: Area: Land boundaries: Coastline: Climate: Terrain: Time zone: Eastern Europe 33,851km² Romania and Ukraine None Warm summers and moderate winters Rolling steppe with a gradual slope south to the Black Sea GMT +2 (GMT +3 during daylight saving time) People Population: 3.56 million (December 2014) Religion: Orthodox 93.3%, Baptist 1%, other Christian 1.2%, other 0.9%, atheist 0.4%, none 1%, unspecified 2.2% Language: Moldovan is the official language (similar to Romanian) Government Country name: Government type: Capital: Administrative divisions: Republic of Moldova Republic Chisinau 32 raions, three municipalities, one autonomous territorial unit, and one territorial unit Political situation The unicameral Parliament (Parlamentul) has 101 seats. The Head of State is the President, who is elected by Parliament for a four-year term. The Head of Government is the Prime Minister, who is designated by the President upon consultation with Parliament. The Cabinet is selected by the President with the approval of Parliament.

5 Doing Business in Moldova 3 Economy GDP per capita: US$2,239 (2014) GDP real growth rate: 4.6% (2014) Labour force: 1.24 million (2014) Unemployment: 3.3% (Q3 2015) Currency (code): Moldovan leu (MDL)

6 4 2 Business Entities and Accounting The main company forms in Moldova are the limited liability company and the joint stock company. Other business forms include partnerships, branches and individual enterprises. 2.1 Companies Limited liability companies A limited liability company may be formed by one or more individuals and/ or legal entities. The maximum number of members is 50. The capital of the company is determined by the company s founding document and is divided into shares. The liability of members is generally limited to the amount of their capital contribution. Limited liability companies are administered by the general meeting of the members. If there is a sole member, the rights and obligations of the general meeting are exercised by the sole member. A limited liability company is managed and represented by one or more directors. The articles of incorporation may also provide for the establishment of a company s board comprised of at least three members. One or more auditors may also be appointed. The appointment of an auditor is compulsory if there are more than 15 members Joint stock companies A joint stock company may be formed by one or more individuals and/or legal entities. The minimum share capital requirement is generally MDL20,000, which is divided into shares. The liability of shareholders is generally limited to the value of their shares. A joint stock company is required to publicly disclose information in accordance with legislation if it meets at least one of the following criteria: Registered capital of at least MDL500,000 and 50 or more shareholders Securities are listed on the stock market The company is a commercial bank, insurance company, investment fund, state pension fund, is in the process of privatisation or has placed public securities, or The company qualifies as a public interest entity.

7 Doing Business in Moldova 5 Joint stock companies are administered by the general meeting of the shareholders. If there is a sole shareholder, the rights and obligations of the general meeting are exercised by the sole shareholder. The company is managed by a company s board with at least three members (at least five members if there are 50 or more shareholders). The powers of the company s board may be exercised by the general meeting of the shareholders if there are less than 50 shareholders. An executive body must also be appointed, which may be comprised of a board or a sole person. Joint stock companies are also required to appoint an auditing committee with an odd number of members. Joint stock companies that are required to publicly disclose information (see above) are subject to external audits Company names and registration The company name must include its organisational form or relevant abbreviation. Companies are required to be registered in the State Register of Legal Entities and become separate legal entities from the date of registration. 2.2 Partnerships General partnerships A general partnership may be formed by a minimum of two and a maximum of 20 individuals and/or legal entities. The partners are jointly and severally liable to an unlimited extent for the debts and obligations of the partnership Limited partnerships A limited partnership is comprised of general partners and limited partners. General partners are jointly and severally liable to an unlimited extent for the debts and obligations of the partnership. The liability of limited partners is generally limited to the amount of their contribution. Limited partners may not take part in the administration of the partnership. 2.3 Branches and Representative Offices Foreign companies may generally establish a branch or representative office in Moldova.

8 6 2.4 Individual Enterprise An individual may undertake business activities as an individual enterprise. The owner is liable for the debts and obligations of the business with all of their assets. An individual enterprise is required to be registered in the State Register of Legal Entities. 2.5 Audit and Accounting Requirements Entities, which are businesses and individuals engaged in entrepreneurial activities, and certain other persons and entities, are required to keep accounting records and prepare financial statements. Public interest entities are required to prepare annual and semi-annual financial statements. Other entities are required to prepare annual financial statements, including complete and condensed financial statements. Complete financial statements include the balance sheet, statement of profit and loss, statement of changes in equity, cash flow statement, and notes to the financial statements. Condensed financial statements include the balance sheet, statement of profit and loss, and the explanatory note. Entities are also required to prepare an annual management report and an auditor s report (if an audit is required). Parent companies are generally required to additionally prepare consolidated financial statements, a consolidated management report, and the auditor s report on the consolidated statements (if applicable). Public interest entities (as defined) are required to prepare their financial statements in accordance with the International Financial Reporting Standards (IFRS). Other entities may use IFRS or Moldovan National Accounting Standards. Accounts are required to be kept in the Moldovan language and currency.

9 Doing Business in Moldova Filing Requirements Public interest entities are required to submit their annual financial statements (including consolidated statements where applicable) to the relevant authority within 120 days following the end of the financial year. Other entities are required to submit their annual financial statements (including consolidated statements where applicable) to the relevant authority within 90 days following the end of the financial year.

10 8 3 Finance and Investment 3.1 Exchange Control There are generally no foreign exchange controls. However, certain transactions need to be reported to the National Bank of Moldova or require prior approval. Anti-money laundering legislation requires reporting entities, including financial institutions, non-bank foreign exchange offices, casinos, real estate agents, auditors, precious metal/stone dealers, and lawyers, notaries and accountants in respect of certain transactions, to undertake customer due diligence and to report suspicious transactions to the National Anticorruption Centre (Centrul Național Anticorupție (CNA)). 3.2 Banking and Sources of Finance The National Bank of Moldova (Banca Naţională a Moldovei (BNM)) is responsible for (amongst others) price stability, monetary and foreign exchange policies, issuing national currency, and the supervision and regulation of financial institutions. Commercial banks operating in Moldova provide the majority of financial services. There are generally no restrictions on foreigners opening bank accounts in Moldova (certain documentation and a minimum deposit may be required), or on accounts containing foreign currency. The Moldova Stock Exchange (Bursa de Valori a Moldovei (BVM)) provides a marketplace for listing and exchanging securities. Private equity and venture capital investors provide investment in Moldova.

11 Doing Business in Moldova Investment Incentives and Restrictions For business related incentives, see 5.7. There are generally no restrictions on foreign business investment in Moldova.

12 10 4 Employment Regulations For employment tax considerations, see General Employment Matters National employment standards Legislation provides minimum rights and conditions of employment in Moldova, including maximum daily and weekly working hours, rest periods, paid annual leave entitlement, paid sick leave entitlement, and maternity leave rights. A contract of employment may be indefinite or for a fixed term not exceeding five years. The contract must generally be concluded in writing and include: Full name of the employee Identification of the employer Duration of the contract Date on which the contract has effect Speciality, profession or qualification of the position Duties to be carried out and related risks Rights and obligations of the employee and the employer Remuneration Compensation and allowances, including for working in difficult, harmful and/ or dangerous conditions Working hours and rest periods Probationary period (if applicable) Annual leave and conditions for granting it Collective agreement provisions and the internal regulation of working conditions, and Social and health insurance conditions.

Doing Business in Moldova 11 A contract of employment may be terminated by either party or due to circumstances beyond the control of the parties.

13 Doing Business in Moldova 11 A contract of employment may be terminated by either party or due to circumstances beyond the control of the parties. Circumstances beyond the control of the parties include the death of the employee or individual employer, the end of a seasonal contract, fixed term contract or contract for a particular task, where the employee has reached retirement age, or force majeure. An employee may terminate a contract of employment by providing the relevant notice period. An employer may terminate a contract of employment in certain circumstances, including unsatisfactory performance during the probationary period, liquidation of the employer, or repeated violations of work obligations by the employee Pensions and other benefits Social security contributions (see 5.3.2) generally provide associated benefits. 4.2 Visas Citizens of certain countries (including EU member states, Schengen area countries and the United States) do not generally require a visa for short term visits to Moldova. Visas available for entry into Moldova include: Visa A airport transit visa Visa B transit visa Visa C short stay visa, and Visa D long stay visa. For further information on Moldovan visa requirements, visit visit Foreigners may generally own real property in Moldova; however, agricultural land and forests may be leased, but not owned, by foreigners. 4.3 Trade Unions Trade unions may negotiate and conclude collective labour agreements with employers.

14 12 5 Taxation Facts and figures as presented in section 5 are correct as at 1 February Corporate Income Taxes Resident legal persons, which are legal persons whose business is organised or managed in Moldova, or legal persons whose main place of business is in Moldova, are generally subject to tax on their worldwide income. Non-resident legal persons are generally subject to tax on their Moldovan source income, subject to the terms of any relevant tax treaty. The standard corporate income tax rate is 12%. The rate is 7% for farms. In certain circumstances, a 15% rate is applied to income that exceeds declared gross income. Small and medium-sized enterprises that are not registered for VAT (excluding farms and individual entrepreneurs) whose operating income in the previous year did not exceed MDL100,000 are subject to tax on their operating income at the rate of 3%. Qualifying small and medium-sized enterprises whose operating income was between MDL100,000 and MDL600,000 in the previous year may opt to be subject to tax on their operating income at the rate of 3%. Taxable income must generally include any taxable capital gains. Capital losses may only be offset against capital gains. Unutilised capital losses may be carried forward for offset against capital gains made in the following year. Unutilised operating losses may generally be deducted in equal instalments during the following three years. If losses are incurred over more than one year, the loss carry forward provisions apply in the order in which the losses are incurred. There are no provisions for the carry back of losses. Group tax consolidation is not available in Moldova; consequently losses cannot be offset against the profits of another company in the same group. The tax year is the calendar year. The corporate income tax return is generally due for filing by 25 March following the tax year end. Corporate income tax is generally payable in advance in four instalments during the year, payable by 25 March, 25 June, 25 September and 25 December. Each advance payment should be equal to one quarter of estimated current year tax liability or one quarter of the previous year s tax liability. Farming enterprises may choose to make advance payments in two instalments: one quarter payable by 25 September and three quarters payable by 25 December. Any remaining corporate income tax due is payable by the same deadline as for filing the

15 Doing Business in Moldova 13 corporate income tax return. Small and medium-sized enterprises that apply the 3% tax rate are required to pay corporate income tax in quarterly instalments by the 25th day of the month following each quarter. 5.2 Personal Taxes Resident individuals are generally subject to tax on their worldwide income. Non-resident individuals are generally subject to tax on their Moldovan source income, subject to the terms of any relevant tax treaty. Individuals are generally subject to tax on their taxable income at the following rates: Taxable Income Tax Rate Up to MDL27,852 7% On amounts exceeding MDL27,852 18% Taxable income must generally include any taxable capital gains. Certain types of income are subject to tax at flat rates. Assets received by resident individuals by way of gift or inheritance are not subject to tax. There is no wealth tax. 5.3 Employment Related Costs and Taxes Fringe benefits There is no separate fringe benefits tax. Unless specifically exempt, taxable benefits-in-kind form part of the taxable income of individuals and are subject to income tax Social security costs Employers and employees are generally required to make the following social security contributions (subject to possible salary ceilings): Contribution Category Employer Rate Employee Rate Social security 23% 6% Health insurance 4.5% 4.5%

16 Withholding Taxes on Payments Abroad The rates of withholding tax on the following payments made abroad by companies are generally: Rate Dividends 6% Interest 12%; certain interest payments are exempt Royalties 12% For payments made to recipients in countries with which Moldova has a double tax treaty, the rates of withholding tax may be reduced under the terms of the treaty. 5.5 Value Added Tax (VAT) VAT is generally levied on the supply of goods and services in Moldova, and on the importation of goods and services. The standard VAT rate is 20%. A reduced rate of 8% applies to certain supplies, including certain bread and bakery products, sugar beet, certain pharmaceuticals, and natural gas. A 0% rate applies to certain supplies, including exports, certain transportation services, and supplies of electricity, heating and hot water. Certain supplies are VAT exempt, including certain imports, baby foods, certain medical services, financial services, and postal services. Traders are generally required to register for VAT purposes if taxable supplies (as defined) in a consecutive 12 month period exceed MDL600,000. Traders who do not meet the VAT registration threshold may register for VAT voluntarily. Registered traders can generally recover the VAT with which they themselves are charged on their purchases of goods and services, subject to conditions and possible exceptions.

17 Doing Business in Moldova Other Taxes Stamp duty Stamp duty (known as state tax) is imposed on certain documents and transactions at varying rates Real estate tax An annual local real estate tax is generally levied on the value (as defined) of real estate in Moldova, subject to exemptions. The tax rates range from 0.05% to 0.3% Excise taxes Excise taxes are generally imposed on certain goods, including alcohol, alcoholic beverages, tobacco products, oils and gases, certain motor vehicles, perfumes, fur clothing, precious metals, and jewellery Local taxes Various other local taxes may apply, including natural resource tax, accommodation tax, and advertising tax. 5.7 Tax Incentives for Businesses Free economic zones Qualifying business activities carried out in a free economic zone (FEZ) in Moldova may benefit from incentives, including reductions and/or exemptions from corporate income tax, VAT and customs duties VAT refunds for production investment Companies investing in buildings to be used for production of goods or services may qualify for a VAT refund after production commences.

18 16 Member Firm Contact Details Baker Tilly 65 Stefan cel Mare şi Sfânt Boulevard 5th Floor, Office 507 Chisinau MD-2001 Moldova T: F: Baker Tilly is the trading name of Baker Tilly Klitou and Partners SRL

19 Global Office Juxon House 100 St Paul s Churchyard London EC4M 8BU United Kingdom T: +44 (0) F: +44 (0) info@bakertillyinternational.com Baker Tilly International Limited, all rights reserved Baker Tilly is the trademark of Baker Tilly UK Group LLP, used under licence Baker Tilly International is a worldwide network of independent accounting and business advisory firms united by a commitment to provide exceptional client service. Baker Tilly International provides no professional services to clients but acts as a member services organisation. Baker Tilly International Limited is a company limited by guarantee and is registered in England and Wales.

Doing Business in Moldova

Doing Business in Moldova www.bakertillyinternational.com Preface This guide is one a series of guides designed to provide an overview of the key issues facing those considering doing business outside