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Moldova
Moldova – Thinking Beyond Borders
Thinking beyond borders
All information contained in this document is summarized by KPMG Moldova SRL, the Moldovan member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Moldovan Income Tax Code (Law no. 1163-XIII as of 24.04.1997); Law no. 489 as of 08.07.1999 on social security insurance; Law no. 301 as of 30.11.2018 on health insurance.
As a general rule, the tax liability of an individual is determined according to their tax residence status, and also according to the source of the taxable income. The income tax in Moldova is determined by applying the progressive rates between 7 and 18 percent. As of 1 October 2018, a flat income tax rate of 12 percent applies.
Key message
Extended business travelers may be subject to Moldovan income tax on the employment income received for their Moldovan workdays, in accordance with any applicable double tax treaties. Moldovan-source income may also be considered taxable, depending on the residence of the individual.
Moreover, in case of intra-group recharges of the remuneration, transfer pricing and VAT implications should be observed.
Income tax
Liability for income tax
As a general rule, tax residents are liable to income tax on their worldwide income, whereas tax non-residents are liable to income tax only on their Moldovan source income. The salary income received from a non-Moldovan employer for work performed physically in Moldova is also considered Moldovan-source income.
An individual’s obligation to pay Moldovan income tax is determined through its residence status. A resident is defined as an individual who either has his domicile in Moldova (evidenced via a valid Moldovan identity card) or spends in Moldova more than 183 days in the fiscal year concerned. In case the individual does not fulfill any of the above mentioned criteria or has a valid residence certificate issued on the basis of applicable tax treaties, he shall be deemed tax non-resident.An individual’s obligation to pay Moldovan income tax is determined through its residence status, as well as the types of income obtained.
A resident is defined as an individual who either have their domicile in Moldova (evidenced via a valid Moldovan identity card) or spends in Moldova more than 183 days in the fiscal year concerned.
In case the individual does not fulfill any of the above mentioned criteria or has a valid residence certificate issued on the basis of applicable tax treaties, they shall be deemed tax non-resident.
As a general rule, tax residents are liable to income tax on their worldwide income, whereas tax non-residents are liable to income tax only on their Moldovan source income.
The salary income received from a non-Moldovan employer for work performed physically in Moldova is also considered Moldovan-source income.
Tax trigger points
According to current Moldovan legislation, there is no minimum number of days that will exempt the individual from taxation in Moldova. However, special consideration should be taken in case the individual is entitled to benefit from double taxation relief on the basis of a valid double tax treaty.
Types of taxable income
In the case of extended business travelers, the types of income that is generally taxed are employment income (for the Moldovan workdays), as well as personal income such as interest derived from a Moldovan bank account or capital gains derived from the sale of Moldovan immovable properties. Expatriation allowances and benefits in kind provided by the employer are generally assimilated to salary for taxation purposes.
Tax rates
Income tax is applied on a progressive scale, depending on the level of taxable income, as follows:
- 7 percent of taxable income up to 33,000 Moldovan leu (MDL) per year for the period 1 January 2018 – 30 September 2018. The cap of MDL33,000 is valid for the entire year 2018, thus, for income tax purposes for using the progressive tax rates, the cap corresponding to the period 1 January 2018 – 30 September 2018 is actually MDL24,750;
- 18 percent of the taxable income above MDL33,000 per year for the period 1 January 2018 – 30 September 2018. The cap of MDL33,000 is valid for the entire year 2018, thus, for income tax purposes for using the progressive tax rates, the cap corresponding to the period 1 January 2018 – 30 September 2018 is actually MDL24,750;
- As of 1 October 2018, a flat income tax rate of 12 percent applies
Tax residents are entitled to receive specific personal deductions from the salary income. Note, however, that such deductions or any other deductions are not provided by the law for non-residents.
Social security
Liability for social security
As a general rule, even if not clearly stipulated by the law, we are of the opinion that salary income received from a non-Moldovan employer is not subject to Moldovan social security contributions. Social security contributions paid abroad are not considered deductible for income tax purposes.
Salary income received from a Moldovan employer for work performed outside Moldova is subject to Moldovan social security contributions, unless specifically provided otherwise by applicable social security agreements.
Compliance obligations
Employee compliance obligations
For salary income received from abroad, it is the individual’s responsibility to declare and pay the income tax. Employment income, as well as personal income, is declared on an annual basis, by 30 April of the year for the previous year. The income tax is due also by 30 April of the year for the previous year. No extension of the deadline is available.
Employer reporting and withholding requirements
The non-Moldovan employer does not have any withholding obligations in respect of salary income.
Immigration
Work permit / Visa requirements
As a general rule, a visa is required to enter the country/territory. However, there are some unilateral exceptions from the requirement to obtain a visa granted by Moldova to nationals of 69 EU and non-EU countries/territories. In either case, foreign individuals can stay in Moldova for a period not exceeding 90 days during 6 consecutive months.
The stay in Moldova on the basis of a long-term visa can afterwards be extended through a temporary residence permit. A residence permit can be obtained for work, investment, family reunification, and study or volunteering purposes.
Other issues
Double taxation treaties
Moldova has concluded double tax treaties with 50 countries/territories in order to avoid double taxation and enforce co-operation between Moldova and overseas tax authorities in applying their respective tax laws. Provisions of tax treaties in force prevail over the provisions of the Moldovan domestic legislation.
Permanent establishment implications
In the case of extended business travelers, there is a risk that a permanent establishment might be created in Moldova. The aspects to be considered are the nature of the individual’s activity in Moldova, as well as their level of authority within the company. An in-depth review should be performed on a case by case basis.
Indirect taxes
The standard value added tax (VAT) is 20 percent (lower rates of 8 percent are provided for some specific products). A newly established company has the option to apply for a VAT registration of the company irrespective of the estimated turnover. Companies that obtain a turnover larger than MDL1,200,000 should proceed with the registration for VAT purposes being considered as taxpayers from a VAT perspective.
Transfer pricing
Even though currently there are no specific transfer pricing rules implemented under local legislation, some general rules are provided based on which transactions between related parties should be performed at arm’s length. However, a current project is expected to enter into force in the near future, based on which general Organisation for Economic Co-operation and Development (OECD) transfer pricing rules would be implemented also in Moldova together with specific transfer pricing requirements.
Local data privacy requirements
Moldova has specific legislation in the area of data privacy, which regulates the processing of personal data.
Exchange control
According to the current Moldovan legislation, there are several restrictions in what concerns the flow of Moldovan or foreign currency into and outside the country/territory.
As such, the amount of money which can be transported in cash outside Moldova cannot exceed the equivalent of 50,000 Euros (EUR).
Moreover, all amounts above EUR10,000/person that are transported outside Moldova shall be declared to the customs authorities. All amounts over EUR50,000 should be transferred through financial institutions.
Non-deductible costs for assignees
Non-deductible costs for assignees include items such as private pension, voluntary health insurance, alimony or tax return preparation fees.
