Guide to doing business and investing in Moldova 2009 Edition Contents 1. Moldova – A Profile 5 4.4 Investment institutions 1.1 Introduction 4.5 Capital markets 1.2 Government structure 1.3 Legal system 5. Importing and Exporting 16 1.4 People 5.1 Trends in customs policy • Population 5.2 Import restrictions • Language 5.3 Customs duties • Religion • Education • Classification of goods • Living standards • Valuation rules • Customs duty rates 1.5 Economy • Free trade agreements • General description • Excise tax • Transport • VAT • Communications • Processing fee (Customs procedural tax) • Payment 2. Business Environment 8 5.4 Temporary import relief 2.1 Business climate • Inward processing relief (IPR) • Aims of government policy • Outward processing relief (OPR) • Economic Development Plan • Bonded Warehouse (BWH) • Temporary admission (TA) 2.2 Free trade zones • Processing under customs control (PCC) 2.3 International agreements 5.5 Customs duties incentives • European Union, NATO • Contributions in kind to the statutory capital 2.4 Regulations for business • Favourable Tariff Treatment • Toll manufacturing • Competition policy • Consumer protection 5.6 Documentation and procedures • Price controls • Registration of importers and exporters • Patents, trademarks and copyrights • Documentation 2.5 Property market • Declaration of customs value 5.7 Warehousing and storage 3. Foreign Investment and Privatisation 12 5.8 Re-exports 3.1 Foreign investment • Investment climate 6. Business entities 21 • Regulatory legislation • Restrictions on foreign investments 6.1 Legal framework • Investment incentives • Foreign exchange issues 6.2 Forms of business entities • Repatriation of capital and earnings • Guarantees and rights 6.3 Choice of entity 3.2 Privatisation 6.4 Registration procedure • Background • Legacy of privatisation 6.5 Joint stock company • Privatisation calendar 4. Banking, Finance and Insurance 14 6.6 Limited liability company 6.7 General and limited partnership 4.1 Banking system • National Bank of Moldova 6.8 Reorganisation and liquidation of a business • Money laundering entity 4.2 Foreign currency market and foreign currency rules 6.9 Branches and Representative offices 4.3 Specialised financial institutions Guide to doing business and investing in Moldova 1 7. Labour relations and social security 24 • Registration requirements 9.2 Direct and indirect tax burden 7.1 Labour relations • Employer/employee relations 9.3 Principal taxes • Unions • The Labour Code 9.4 Legislative framework 7.2 Working conditions • Statute law • Case law • Salaries and wages • Employment contracts 9.5 Tax treaties • Working hours • Paid holidays 9.6 Tax returns and payments • Equal opportunities • Termination of employment 9.7 Assessments 7.3 Social security system 9.8 Appeals • Coverage • Contributions 9.9 Withholding taxes 7.4 Foreign personnel • WHT on payments to residents • Living conditions • WHT on payments to non-residents • Restrictions on employment 9.10 Tax inspections • Fiscal registration number • Work and Residence Permits 9.11 Penalties 8. Accounting and audit requirements 27 9.12 Advance tax rulings 8.1 Accounting 10. Taxation of Corporations 35 1. Introduction of International Financial Reporting Standards 10.1 Corporate tax system 2. Accounting principles in Moldova 3. Statutory requirements and preparation of • Territoriality financial statements • Consolidation - Legal Accounting Regulations • Representative offices - New Accounting Law effective 1 January • Permanent establishments 2008 10.2 Incentives - Accounting periods covered by the transition to IFRS 10.3 Taxable income 4. Significant accounting differences between NAS and IFRS • Business profits - Several differences between NAS and IFRS for • Capital gains manufacturing and services companies; • Non-taxable revenues - Several differences between NAS and IFRS for 10.4 Deductibility of expenses financial institutions - Several differences between NAS and IFRS for • Business expenses insurance companies. • Deductible expenses 4. Profile of the accounting profession • Fiscal depreciation • Deductibility of interest on borrowings 8.2 Chart of accounts 10.5 Related party transactions 1. Chart of accounts for companies 2. Chart of accounts for Banks 10.6 Other taxes 8.3 Audit requirements 11. Taxation of individuals 38 1. Audit Legal Framework 2. The New Law on Audit activity effective from 1 January 2008 11.1 Territoriality and residence 3. Audit Opinions Issued under Moldovan Law 11.2 Taxable income 9. Tax System and Administration 31 • Income from employment • Income from independent activities 9.1 Tax System • Income from capital • Administration of the tax system • Non-taxable incomes 2 Guide to doing business and investing in Moldova 11.3 Deductions Appendices 49 • Business deductions • Non-business deductions Appendix A – Useful sources of information • Personal allowances • Government websites 11.4 Taxation of non-residents • Business groups • Other useful addresses and websites 11.5 Tax compliance Appendix B – Macroeconomic indicators of Moldova • Tax administration Appendix C – Bilateral Investment Treaties 11.6 Other taxes • Social Security Contributions Appendix D – Banks Operating in Moldova • Health Insurance Contributions • Tax on immobile property Appendix E – Hotels and Restaurants • Road Tax Appendix F – Tax rates 12. Value Added Tax (VAT) 43 • Corporate income tax rates 12.1 Introduction • Tax depreciation rates • Withholding taxes • Individual tax rates 12.2 Scope of VAT • Personal allowances (and/or credits) • Place of supply for goods • Tax on foreign nationals working in Moldova • Place of supply for services • Indirect taxes • Import VAT Appendix G – Withholding taxes 12.3 Zero VAT rating 12.4 VAT exempt supplies • Outside the scope of VAT 12.5 VAT-able amount • General input VAT deduction rule • Non-deductible input VAT • VAT payers with mixed supplies 12.6 Non-deductible input VAT • General input VAT deduction rule • Non-deductible input VAT • VAT payers with mixed supplies 12.7 VAT compliance • VAT registration • Evidence requirements • Information in the VAT invoice • VAT returns and settlement of VAT payable • VAT refunds 13. PricewaterhouseCoopers in Moldova • Assurance Services • Advisory Services • Transaction Services • Crisis Management • Performance Improvement • Tax and Legal Advisory Services (TLS) • Corporate Taxation • Indirect Taxation • Integrated Personnel Solutions • Human Resource Consulting Services • Legal Services Guide to doing business and investing in Moldova 3 4 Guide to doing business and investing in Moldova 1 Moldova – A Profile Investor considerations • Moldova has a population of 3.567 million (without Transnistria and Bender) • GDP decreased by 7.8% between the first semester in 2009 and the same period in 2008 • Legal entities will apply the 0% CIT rate during 2009 organic law. The President of the Republic of Moldova designates 1.1 Introduction a candidate for the Prime Minister through consultation with The Republic of Moldova is a small and densely populated parliamentary fractions. country which gained its independence in 1991. It is situated The President of the Republic of Moldova is legally distanced in South Eastern Europe, north of the Balkan Peninsula. The from all branches of power. Nevertheless he is mostly allied to the total area is 33,843 square km. The distance between the most executive branch. The President is elected by the Parliament for a northerly and southerly points is 350 km. From East to West it is four-year term. 150 km. Moldova shares borders with Romania and Ukraine. The judicial branch encompasses the Supreme Court of Justice, Giurgiulesti International Free Port (GIFP), Moldova’s only port Courts of Appeal (5), ordinary courts and specialist courts accessible to sea-going vessels, is situated at 133.8 km of the (Economic District Court, Economic Court of Appeal, Military River Danube in the South of Moldova. GIFP serves as the only Court). The Supreme Court of Justice is the highest court and has direct sea / river-borne transhipment and distribution point to and the power to review decisions made by lower courts. from Moldova. The Constitutional Court of Moldova is the sole authority of The country’s topography is diverse, ranging from a steppe area constitutional jurisdiction in the Republic of Moldova. The six in the North and South, to forested and mountainous highlands justices are appointed for six-year terms. The Parliament, the up to 400 metres in elevation in the centre of the country. This Government and the Superior Counsel of Magistracy appoint two area retains its ancient name Codru, meaning “old forest”. justices each. Moldova’s climate is generally moderate and classified as being temperate - continental. It is characterised by warm summers and As an alternative form of dispute resolution, the Republic of mild winters. Moldova allows for mediation and arbitration. In 2008 the Parliament of the Republic of Moldova adopted a new Law on Chisinau, the capital of Moldova, is situated in the centre of the arbitration and the Law on international commercial arbitration country and has a population of around 785 thousand people. It that follows the UN Model Law on International Commercial represents the cultural, political and economic hub of the country. Arbitration. The city of Balti, situated in the Northern part of the country is the second city with important cultural and economic assets and has Contact details for all government ministries are listed in Appendix