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?

25 March.

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 25 March, with no extension possible. The income tax must also be paid by 25 March.

For late submission of the tax return, the authorities may assess fines of MDL 200/tax return, but no more than MDL 2,000 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%.

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 2015

Taxable income bracket Tax rate on income in bracket
From MDL To MDL MDL
0 29,640 7%
29,640 Over 18%

The amount of taxable income is reduced by personal deductions and allowances. A personal deduction of MDL 10,128 per year (against taxable income) is granted to each taxpayer. Certain listed individuals are entitled to a personal deduction amounting to MDL 15,060 per year. These individuals include disabled veterans, parents and spouses of war veteran, and individuals disabled in childhood.

An individual may also benefit from a deduction of MDL 10,128 or MDL 15,060 per year, if the individual’s spouse does not benefit from the individual’s personal deduction. A deduction of MDL 2,256 also applies for each child which is supported by the employee, whereas a MDL 10,128 per year deduction is granted to support kids with a permanent disability.

Non-residents

Resident tax rates also apply to non-residents, however no personal deductions or allowances 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, a domicile is proved by means of a valid Moldovan identity card (issued for Moldovan citizens). Where a foreign individual obtains a temporary residence permit, he is 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 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. Note that the residence is not established by fractions of the year, i.e. if the individual fulfills the physical presence test, he is considered tax resident in Moldova for the entire calendar year.

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

In case the assignee enters the country 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?

There are no tax compliance procedures to be fulfilled upon entering or leaving the country.

Departure tax

There is no departure tax imposed by the Moldovan legislation in force. However, note that there are specific rules for resident individuals that cease to be residents. Thus, in the case when an individual has become resident during his stay in Moldova is leaving the country and ceases to be resident, he is considered to have sold all his personal properties (except real-estate properties). As such, depending on the type of property, he will have to report a capital gain and pay the corresponding income tax.

Moreover, when an individual becomes resident in Moldova, he has the right of determining the value of his property at a fair market value available at the moment of gaining the residency. This value is then used as a base value of his property when established 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 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?

No.

Filing requirements

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

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

Economic employer approach

Do the taxation authorities in Moldova adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Moldova considering the adoption of this interpretation of economic employer in the future?

No. There are no discussions at this stage.

De minimus number of days

Are there a de minimus number of days 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.

Tax-exempt income

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

The following benefits granted to employees are considered non-taxable if borne by the employer: transportation costs, meal costs (per-diem) and professional studies of the employees, 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?

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? If so, how?

Dividends, interest, and rental income

Dividends, interest 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 have a special taxation regime in Moldova. The company shall pay 12% income tax on the profit that will be distributed to shareholders as dividends and also has the obligation to withhold 6% of the dividends paid out to individuals.

In what concerns interest income, the financial institution is obliged to withhold at source an income tax in value of 15% of the gross amount of the interest.

Rental income is taxed using the general rules, at a tax rate of 7%/18% with no possible deductions.

There are no special provisions under Moldovan legislation for dividends, interest or rental income obtained by resident individuals from abroad, therefore we consider these are taxable taking into consideration the general rules and also any rules provided by applicable double tax treaties.

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 50% of the amount determined as the sale price or market value of the shares for the shares obtained in non-monetary form, minus the base value of the shares. Capital losses can be offset against capital gains. In case there are any capital losses which cannot be offset during in the tax year concerned, they can be carried forward in the following years.

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 or market value price. The amount such obtained is considered capital gain. The taxable basis for the capital gain is 50% of the income determined as sale price minus base value and it is taxed under the general rules, applying the tax rates of 7%/18%. Capital losses can be offset against capital gains. In case there are any capital losses which cannot be offset during the tax year concerned, they can be carried forward in the following years.

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 his property for the preceding 3 years and if during this period it was the individual’s principal abode. The amount of capital gain obtained from the sale of the principal residence established as described above is diminished with MDL 10,000 for every year (after 1997) during which the principal residence was in the property of the individual. Note, however, that capital losses from sale of the principal residence are not reportable in the following years.

Capital losses

Capital losses which have not been offset during the tax year may be carried forward in the following year.

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? If so, please discuss.

Any property transmitted between spouses (or former spouses in case of divorce) is not considered capital gain.

Pre-CGT assets

No.

Deemed disposal and acquisition

See “Departure tax”.

General deductions from income

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

The amount of taxable income is reduced by personal deductions and allowances. A personal deduction of MDL 10,128 per year (against taxable income) is granted to each taxpayer. Certain listed individuals are entitled to a personal deduction amounting to MDL 15,060 per year. These individuals include disabled veterans, parents and spouses of war veteran, and individuals disabled in childhood.

An individual may also benefit from a deduction of MDL 10,128 or MDL 15,060 per year, if the individual’s spouse does not benefit from the individual’s personal deduction. A deduction of MDL 2,256 also applies for each child which is supported by the employee, whereas a MDL 10,128 per year deduction is granted to support kids with a permanent disability.

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?

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? 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? 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 at the moment the income is paid.

For any payments granted to non-resident individuals, income tax in value of 12% (6% for dividends) must be withheld at source at the moment of payment.

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? 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, if Moldovan tax residents are liable to income tax in a country 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 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% free of dispute in the case of income tax paid in countries not having a double tax treaty with Moldova.

General tax credits

What are the general tax credits that may be claimed in your country? 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).

Sample tax calculation

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

  2013

EUR
2014

EUR
2015

EUR
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 from non-local sources 6,000 6,000 6,000

Exchange rate used in the calculation: EUR 1 = MDL 22.5450

Other assumptions

  • The assignee is deemed Moldovan non-resident for the entire period of his 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 2013

EUR
2014

EUR
2015

EUR
Days in Moldova 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 0 0 0
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Total earned income 151,000 156,000 151,000
Investment income 6,000 6,000 6,000
Taxable investment income 3,000 3,000 3,000
Total income 157,000 162,000 157,000
Deductions 0 0 0
Total taxable income 154,000 159,000 154,000

Calculation of tax liability

  2013

EUR
2014

EUR
2015

EUR
Taxable income as above 154,000 159,000 154,000
Income tax (federal and provincial) thereon 27,590 28,484 27,575

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