The IT sector, which is the most innovative area of the 21st century, requires the most innovative tax approaches. Moldova also considered the specific features that distinguish the IT sector and created a specific incentive tax regime for IT firms. In this regard, Law on Information Technology Parks No. 77 of April 21, 2016, regulates the activity carried out by firms that become IT Park residents and grants them the opportunity to apply for a single tax regime.
An IT Park represents a virtual organizational structure with no perimeter or physical area. It allows IT Park residents to operate remotely (by default), provided that an IT Park resident status is obtained. Any legal or natural person registered in Moldova who intends to carry out one or more activities in the IT sector generating 70% or more of the total sales revenue may become a resident of the IT Park.
The incentive tax regime granted to IT Park residents consists of a single tax of 7% of the monthly turnover, which must not be less than 30% of the average monthly salary per employee forecast by the government for that year. For instance, in 2023, the minimum amount of the monthly single tax is MDL 3,510 (30% of MDL 11,700), or approximately EUR 180 per employee. The single tax covers corporate income tax, personal income tax, compulsory state social security and health insurance contributions, local taxes, real estate tax, and tax for the use of roads by vehicles registered in Moldova.
By paying the single tax, IT Park residents no longer need to separately pay the specified taxes and contributions.
Another incentive is that employees of IT Parks residents have no obligation to declare and pay personal income tax to the Moldovan tax authorities, while they are entitled to benefit from social security and health insurance protection in the Republic of Moldova.
For an existing firm that has decided to obtain the status of IT Park resident, the respective incentives will start the following month.
Other taxes, such as VAT or WHT, will be applied according to the general taxation rules.
A VAT exemption with the right of deduction exists, however, in the case of a supply of IT services for export. The accumulated input VAT on purchases of goods and services can be refunded within 45 calendar days. A WHT exemption may also exist in the case of various payments to non-residents (e.g., services, interest, dividends). Currently, Moldova has signed double taxation treaties with 50 countries, which provide for the possibility of applying lower rates or even a full WHT exemption, and there is the possibility of planning from the outset of this tax, including for firms in the IT sector.
The simplified tax regime applied to IT Park residents also implies simplified bookkeeping. In other words, IT Park residents have no obligation to keep the evidence of the deductible and non-deductible expenses and to follow the tax rules for depreciation deductions, compared to the companies applying the standard tax regime.
It is worth mentioning that the filing of tax returns is exclusively online, secured by signing with an electronic signature, which facilitates reporting to state authorities.
IT Park residents benefit from guarantees in case of changes in legislation. If new taxation laws are adopted, they will not apply to IT Park residents before 2025. However, this guarantee does not extend beyond the term of operation of the respective IT Park. In this case, the residents will continue to operate under the old taxation rules that were in place when they obtained the resident status.
IT Park resident status also offers incentives in the form of financial allocations under state programs and from the fund for supporting digital innovations and technology startups.
The incentive tax regime contributed to the continuous growth and development of the IT sector in Moldova in recent years. For example, in 2022, the turnover of IT Park residents increased by 48% compared to 2021 and amounted to over EUR 500 million, the number of residents increased to 1,343, and the total number of employees of IT Park residents amounted to 18,700 people.
By Daniela Sipitca, Partner, ACI Partners Tax Accounting, and Carolina Parcalab, Legal Manager, ACI Partners
This article was originally published in Issue 10.10 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
