Starting with 1st October 2018, a new set of legislative acts regarding the tax reform in Republic of Moldova will come into force, according to the Official Gazette of Moldova no. 309-320 from 17.08.2018. The most important changes are related and refer to the taxation of income of individuals.
Respectively, the taxation rate of individuals’ income changes from the progressive rate (of 7%/18%) to a single rate of 12% per year.
Also, the amount of exemptions for individuals was increased, and the unused exemption in the previous year at the workplace was repealed, also starting with 01.10.2018.
The Law no. 1164/1997 for the implementation of the Title I and II of the Fiscal Code, was completed with a new chapter (V) that provides ”Special rules on the determination of the income tax for the tax period of 2018 year”, which will extend to resident individuals, foreign citizens and individuals without citizenship operating or working on the territory of the Republic of Moldova, as well as residents of Moldova who do not carry out entrepreneurial activity. The new chapter will divide the 2018 tax period into two stages: Stage I (from the 1st January 2018 to the 30th September 2018) and Stage II (from the 1st October 2018 to the 31st December 2018), with due tax obligations.
Also, according to the articles 44-48 from the Law for the implementation of the Title I and II of Fiscal Code, new special rules are set, related to the application and determination of taxable income, deduction of expenses, application of exemptions and transfers to income tax account.
The new legislation provides an obligation to submit the income tax return, separately for each of the above stages, for the following subjects:
- individuals, who are residents of the Republic of Moldova and have the obligation to pay the tax for Stage I and Stage II above, respectively, for the tax period 2018;
- individuals (citizens of the Republic of Moldova, foreign citizens and individuals without citizenship, including members of companies and shareholders of investment funds), who have no obligations to pay income tax, but have to redirect a percentage of the income tax calculated towards the budget;
- any other legal organizational forms which are legally incorporated as individuals, according to the legislation, regardless of whether they have the obligation to pay the income tax.
Once the single rate of income tax was approved, withholding taxes were also reduced, namely the ones related to Article 89 from Fiscal Code “deduction of interest tax for the benefit of individuals”; Article 901 paragraph (33) from Fiscal Code “winnings from gambling except for winnings from lotteries and / or sports betting; winnings from promotional campaigns”, which are also set at 12% of gross income. Also, Article 88 paragraph (6) from the Fiscal Code has been repealed, which contained provisions regarding the employees’ right to “demand that the employer withhold 18% of the tax on the payments directed towards the employee.”.
Starting with the 1st October 2018, the amount of capital increase in the tax period will be equal to 20% (previously 50%) of the excess of recognized capital appreciation above the level of any capital loss incurred during the tax period, and will be taxed in accordance with general rules, at a 12% rate.
Also, the Fiscal Code will be completed with the new article 881, which provides that the employers from the field of taxi passenger transportation that pay the employees (drivers) wages (including bonuses and benefits in kind) are required to calculate and pay to the budget a fixed income tax of MDL 500/month per employee from the income not exceeding MDL 10,000 per month. Once this ceiling is exceeded, the amount of monthly income will be taxed by applying the general tax regime provided in article 88, starting with the first MDL of overtaking, with the application of the tax rates set out in article 15 of the Fiscal Code.
For a fully report regarding the implications of the legislative changes in the Republic of Moldova, our consultancy department is at your disposal.