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Moldova - Income Tax

Moldova - Income Tax

Taxation of international executives.

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

30 April.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Moldova?

Residents

As a general rule, the compliance requirements depend on whether the salary income is obtained from a Moldovan employer or from a foreign employer. If the salary income is obtained from a Moldovan employer, it is the company’s responsibility to declare and withhold the income tax due. The deadline for declaring and paying the income tax is 25th of the month for the previous month.

In case the salary income is obtained from a foreign employer, it is the employee’s obligation to declare and pay the income tax. In general, income tax is assessed by calendar year after filing an individual tax return. There is no possibility of joint filing. Returns for the preceding calendar year must be filed with the local tax office by 30 April, with no extension possible. The income tax must also be paid by 30 April.

For late submission of the tax return, the authorities may assess fines of 200 Moldovan leu (MDL)/tax return, but no more than MDL2,000 for all late-submitted tax returns. The tax authorities may also assess fines in case the tax return contains false or incomplete information.

If the income tax is not paid on time, the tax authorities may assess penalties which are calculated as the rate established by the National Bank of Moldova for short-term deposits plus 5 percent.

Non-residents

Non-residents are subject to income tax only on Moldovan source income, including salary income obtained from abroad for work physically performed in Moldova. In this case, the rules applicable for residents are also valid.

Tax rates

What are the current income tax rates for residents and non-residents in Moldova?

Residents

Income tax is calculated by applying a progressive tax rate to taxable income as follows:

Income tax table for 1 January 2018 – 30 September 2018

Taxable income bracket Tax rate on income in bracket
From MDL To MDL MDL
0 33,000 7%
33,000 Over 18%

Note that 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 tax rate of 12 percent applies.

The amount of taxable income is reduced by personal deductions. A personal deduction of MDL11,280 per year (against taxable income) is granted to each taxpayer, for the period 1 January 2018 – 30 September 2018. As of 1 October 2018, the personal deduction is increased to MDL24,000 per year. Therefore, for each period mentioned above, the actual deduction that is granted to the individual has to be pro-rated accordingly. Certain listed individuals are entitled to a personal deduction amounting to MDL-16,800 per year during 1 January 2018 – 30 September 2018. These individuals include disabled veterans, parents and spouses of war veteran, and individuals disabled in childhood. As of 1 October 2018, the personal deduction for this category of persons is increased to MDL30,000 per year. The amounts of the personal deduction has to be pro-rated accordingly when this is granting.

An individual may also benefit from an additional deduction of MDL11,280 or MDL-18,000 per year, if the individual’s spouse does not benefit from the individual personal deduction. A deduction of MDL2,520 per year during 1 January 2018 – 30 September 2018 which is increased to MDL3,000 as of 1 October 2018 also applies for each child which is supported by the employee, whereas a deduction of MDL11,280 per year during 1 January 2018 – 30 September 2018 which is increased to MDL18,000 as of 1 October 2018 is granted to support kids with a permanent disability. The amounts of the personal deduction has to be pro-rated accordingly when this is granting.

Non-residents

Resident tax rates also apply to non-residents, however no personal deductions are available for non-residents.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Moldova?

Under current Moldovan tax law, an individual is deemed as a Moldovan tax resident provided at least one of the following conditions is met:

  • The individual has the domicile in Moldova;
  • The individual spends more than 183 days in Moldova in the fiscal year concerned.

According to Moldovan legislation, the domicile represents the main, settled abode, which is usually proved by means of a valid Moldovan identity card (issued for Moldovan citizens). Where a foreign individual obtains a temporary residence permit, they are considered to have a permanent residence address, but not a domicile.

In what concerns the 183-days rule, the period of stay in Moldova is calculated as of the first arrival in Moldova during the calendar year. Fractions of the day count as a whole day spent in Moldova.

Is there a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/territory for more than 10 days after their assignment is over and they repatriate.

No. The residence for the year is determined based on whether the individual has spent, in total, more than 183 days of presence in Moldova in the respective calendar year. Note that the residence is not established by fractions of the year, i.e. if the individual fulfills the physical presence test, they are considered tax resident in Moldova for the entire calendar year.

What if the assignee enters the country/territory before their assignment begins?

In case the assignee enters the country/territory before the start of assignment, those days are also taken into account when counting the 183 days of presence in Moldova.

Termination of residence

Are there any tax compliance requirements when entering or leaving the country/territory1?

Certain tax compliance procedures may have to be fulfilled upon entering or leaving the country/territory.

Departure tax

In case an individual who has become tax resident during their stay in Moldova is leaving the country/territory and ceases to be resident, they are considered to have sold all their personal properties (except real-estate properties). As such, depending on the type of property, they will have to report a capital gain and pay the corresponding income tax.

Moreover, when an individual becomes resident in Moldova, they have the right of determining the value of their property at the fair market value at the moment of gaining the residency. This value may be used as a base value of their property when establishing the income resulted from the sale of the property.

What if the assignee comes back for a trip after residency has terminated?

All days spent in Moldova during a calendar year are taken into account when counting whether the individual has exceeded 183 days of presence in Moldova during the calendar year.

Communication between immigration and taxation authorities

Do the immigration authorities in Moldova provide information to the local taxation authorities regarding when a person enters or leaves Moldova?

In case the individual spends more than 183 days in Moldova during a calendar year, the immigration authorities communicate the individual’s identification number to the tax authorities, for registration in the authorities’ database.

Filing requirements

Will an assignee have a filing requirement in the host country/territory after they leave the country/territory and repatriate?

As mentioned under section “Departure tax”, in case the individual has capital gains from sale of personal property, they have the obligation to declare and pay the corresponding income tax. Also, a tax return corresponding to the year of departure may have to be submitted to the tax authorities.

Economic employer approach

Do the taxation authorities in Moldova adopt the economic employer approach2 to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Moldova considering the adoption of this interpretation of economic employer in the future?

Yes.

De minimus number of days

Are there a de minimus number of days3 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a general rule, all remuneration or benefits in kind received by the employee are considered taxable, unless specifically provided otherwise. Also, any type of personal income is considered taxable. Please see below the most common examples of taxable income:

  • Reimbursement by the employer of personal expenses ;  
  • Non-reimbursable loans granted by the employer;
  • Expatriate allowances and incentives;
  • Reimbursement of school fees;
  • Transportation costs for personal purposes;
  • Cost-of-living allowances.

Intra-group statutory directors

Will a non-resident of Moldova who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Moldova trigger a personal tax liability in Moldova, even though no separate director's fee/remuneration is paid for their duties as a board member?

A personal tax liability may arise depending on the activity of the non-resident in Moldova, period of presence in Moldova, recharge of costs.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Moldova?

If the board member is not physically present at the board meetings in Moldova, no taxation will be triggered. If the board member is physically present at the board meetings in Moldova, in order to determine whether taxation will be triggered the provisions of the applicable DTT will need to be observed.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Moldova (i.e. as a general management fee where the duties rendered as a board member is included)?

Please see above.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

The taxable income is determined on a pro-rata temporis basis, depending on the number of days physically spent in Moldova

Tax-exempt income

Are there any areas of income that are exempt from taxation in your country/territory? If so, please provide a general definition of these areas.

For inbound expatriates, there are no types of exempt income. For outbound expatriates, the following benefits are considered non-taxable if borne by the employer: transportation costs, per-diem visa fees and accommodation, if granted in accordance with the law and if supporting documents are available. These expenses are considered non-taxable only if they are incurred for business purposes.

Expatriate concessions

Are there any concessions made for expatriates in your country/territory?

Moldovan income tax law does not provide special deductions or tax-free expatriate premiums. Moreover, note that non-resident individuals are not entitled to the same deductions available for resident individuals.

Salary earned from working abroad

Is salary earned from working abroad taxed in Moldova? If so, how?

If the salary is paid by a Moldovan company or by a permanent establishment in Moldova of a foreign company, the salary is taxable in Moldova following the same rules described above, even if the work is performed outside Moldova.

In case the salary is paid by a foreign company for work performed outside Moldova, generally no income tax is due in Moldova.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in your country/territory? If so, how?

Dividends, interest, and rental income

Interest income obtained by resident individuals from bank deposits or corporate bonds from Moldova is exempt from tax until 1 January 2020.

Dividends and rental income are subject to income tax in Moldova if they are obtained from a Moldovan source or if they are obtained from a foreign source by a resident individual.

Dividends obtained from a Moldovan company are taxed at source with a final income tax of 6 percent. Dividends obtained from a non-Moldovan company are declared by the individual through an annual tax return and are taxed with 7 percent/18 percent for the period 1 January 2018 – 30 September 2018 and 12 percent starting 1 October 2018, depending on the amount of taxable income.

Rental income derived from Moldova is taxed with an income tax of 10 percent from the income derived. Rental income derived from abroad Moldova is taxed with 7 percent/18 percent for the period 1 January 2018 – 30 September 2018 and 12 percent starting 1 October 2018.

Gains from employee stock option exercises

Generally, sale of shares is considered capital gain and it is taxed at the moment when the shares are sold. The taxable basis represents 20 percent of the amount determined as the sale price minus the base value of the shares. The income tax is 7 percent/18 percent for the period 1 January 2018 – 30 September 2018 and 12 percent starting 1 October 2018, depending on the amount of taxable income.

Foreign exchange gains and losses

There are no specific rules under Moldovan legislation in what concerns foreign exchange gains or losses. However, this kind of income could be included under “other types of income”, as defined in the Tax Code and becomes taxable following the general rules.

Principal residence gains and losses

Income obtained from sale of immovable property is calculated as the sale price, minus the acquisition price. The amount such obtained is considered capital gain. The taxable basis for the capital gain is 20 percent of the income determined as sale price minus base value and it is taxed under the general rules, applying the tax rates of 7 percent/18 percent for the period 1 January 2018 – 30 September 2018 and 12 percent starting 1 October 2018.

There are favorable provisions in case of sale of the principal residence. An immovable property is considered to be principal residence of the individual if it has been in their property for the preceding 3 years and if during this period it was the individual’s principal abode/domicile. The amount of capital gain obtained from the sale of the principal residence established as described above is not considered taxable income.

Capital losses

Capital losses cannot be carried forward in the following years.

Personal use items

As a general rule, the sale of private property is considered capital gain and it is taxed following the same rules described under “Gains from employee stock option exercises”.

Gifts

Depending on the nature of the gift, they may fall into the category of capital gains and be taxed accordingly. Note, however, that any property transmitted between spouses (or former spouses in case of divorce) is not considered capital gain.

Foreign property reporting

There are no specific rules under Moldovan tax legislation regarding the reporting of foreign property.

Non-resident trusts

There are no specific rules under Moldovan tax legislation regarding non-resident trusts.

Additional capital gains tax (CGT) issues and exceptions

Are there capital gains tax exceptions in your country/territory? If so, please discuss.

Any property transmitted between spouses (or former spouses in case of divorce) is not considered capital gain. Also, the capital gain obtained from the sale of the principal residence is not considered taxable.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

See “Departure tax”.

General deductions from income

What are the general deductions from income allowed in your country/territory?

The amount of taxable income is reduced by personal deductions. A personal deduction of MDL11,280 per year (against taxable income) is granted to each taxpayer, for the period 1 January 2018 – 30 September 2018. As of 1 October 2018, the personal deduction is increased to MDL24,000 per year. Therefore, for each period mentioned above, the actual deduction that is granted to the individual has to be pro-rated accordingly. Certain listed individuals are entitled to a personal deduction amounting to MDL-16,800 per year during 1 January 2018 – 30 September 2018. These individuals include disabled veterans, parents and spouses of war veteran, and individuals disabled in childhood. As of 1 October 2018, the personal deduction for this category of persons is increased to MDL30,000 per year. The amounts of the personal deduction has to be pro-rated accordingly when this is granting.

An individual may also benefit from an additional deduction of MDL11,280 or MDL-18,000 per year, if the individual’s spouse does not benefit from the individual personal deduction. A deduction of MDL2,520 per year during 1 January 2018 – 30 September 2018 which is increased to MDL3,000 as of 1 October 2018 also applies for each child which is supported by the employee, whereas a deduction of MDL11,280 per year during 1 January 2018 – 30 September 2018 which is increased to MDL18,000 as of 1 October 2018 is granted to support kids with a permanent disability. The amounts of the personal deduction has to be pro-rated accordingly when this is granting.

Note that these deductions do not apply to non-resident individuals.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in your country/territory?

Tax reimbursements are computed using the gross-up method in the year they are reimbursed.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in your country/territory? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Employment income paid by Moldovan employers is subject to monthly withholdings (PAYG withholding). Employment income paid by non-Moldovan employers has to be declared by the individual taxpayer on a yearly basis.

When are estimates/prepayments/withholding of tax due in your country/territory? For example, monthly, annually, both, and so on.

For employment income obtained from Moldovan employers, tax has to be withheld and paid on a monthly basis, by the 25th of each month for the previous month.

For the types of income for which the income payer has withholding obligation, the tax is due upon payment of the income, by 25th of the following month.

For any payments granted to non-resident individuals, income tax in value of 12 percent (6 percent for dividends) must be withheld at source at the moment of payment and transferred to the state budget by 25th of the following month.

For any other types of income, no estimates/prepayments/withholding of tax are due.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country/territory? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Based on the provisions of the double tax treaties concluded by Moldova with other countries/territories, if Moldovan tax residents are liable to income tax in a country/territory with which Moldova has concluded a tax treaty, then a tax credit or a tax exemption will be granted by the Moldovan state to each individual. The credit is granted at the level of the tax paid abroad, but it cannot exceed the tax due in Moldova.

Moreover, the Moldovan legislation provides that income tax paid in any other country/territory on the same income should be recognized up to the limit of the tax that would be imposed in Moldova on the same income. Note, however, that this not 100 percent free of dispute in the case of income tax paid in countries/territories not having a double tax treaty with Moldova. Moreover, note that in Moldova there is not in place a procedure for requesting the foreign tax credit.

General tax credits

What are the general tax credits that may be claimed in your country/territory? Please list below.

Tax credits (relief from double taxation) can be obtained for:

  • Salary income obtained from Moldova for work performed outside Moldova;
  • Personal income obtained from abroad by Moldovan residents (in accordance with applicable double tax treaties).

Note however, that there is not in place a procedure for requesting the foreign tax credit.

Sample tax calculation

This sample tax calculation, in Euros (EUR), assumes an inbound assignee, with an assignment period of 3 continuous years in Moldova.

  2016
GBP
2017
GBP
2018
GBP
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income (capital gains) 6,000 6,000 6,000

Exchange rate used in the calculation: EUR1 = MDL22.0548

Other assumptions

  • The assignee is deemed Moldovan non-resident for the entire period of their assignment;
  • All working days during the assignment are spent in Moldova;
  • The salary, bonuses, allowances and benefits in kind granted during this period relate to the Moldovan activity;
  • The investment income is obtained from a Moldovan source;
  • The assignee does not have a local employment contract and also obtains no other income than those included in the calculation;

Calculation of taxable income

Year-ended 2016
EUR
2017
EUR 
2018
EUR
Days in Jersey during year 365 365 365
Earned income subject to income tax      
Salary 100,000 100,000 100,000
Bonus 20,000
20,000
20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Total earned income 171,000 156,000 171,000
Investment income (capital gains) 6,000 6,000 6,000
Taxable investment income 3,000 3,000 1,200
Total taxable income 174,000
159,000 172,200
Deductions 0 0 0
Total taxable income 174,000 159,000 172,200

Calculation of tax liability

Year-ended 2016 EUR 2017 EUR 2018 EUR
Taxable income as above 174,000 159,000 172,200
Income tax thereon 28,060 25,195 -25,692

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