Tax Guide for US Expats Living and Working in Moldova
Who Is Liable For Income Taxes in Moldova
The following individuals are subject to income tax in Moldova:
- Moldovan residents on income earned in Moldova, as well as income earned from overseas financial and investment operations
- Any enterprise with the legal status of an individual, including sole ownerships, limited partnerships, general partnerships and farms
- Nonresidents on income earned in Moldova and on income earned overseas for their work in Moldova except for financial and investment income from sources outside Moldova
Moldova does not apply different tax rates based on territoriality.
Residents are individuals who meet either of the following conditions:
- They have a permanent domicile in Moldova (includes individuals studying or traveling abroad and Moldovan officials appointed for missions abroad).
- They stay 183 days or more during any fiscal year in Moldova.
Income subject to tax. Individuals are subject to tax on their gross income earned in Moldova and on income earned from overseas financial and investment operations, less applicable deductions and other allowances.
Gross income includes the following items:
- Income earned from entrepreneurial, professional and other similar activities
- Salaries and fees for services rendered by the individual
- Cash or in-kind compensation, other premiums and facilities paid by the employer
- Interest
- Capital gains except for income obtained as a result of the disposal of agricultural land by Moldovan citizens
- Royalties and annuities
- Dividends
- Rental income
- Revenue earned by lawyers and other professionals, including commissions and other revenues
Gross income does not include the following items:
- Amounts received as compensation from the budget for illness
- Compensation received under insurance agreements
- Damages paid by a third party for accidents and/or permanent disability
- Compensation for dismissal
- Alimony and allowances for children
- Donations and inheritances
- Per diem allowances up to the limit set by the government
- Scholarships
- Welfare received from the government or charitable organizations
- Winnings from promotional gifts that do not exceed MDL 810 per unit
- Income earned from business patent activity
- Income earned from selling of secondary raw materials and agricultural goods produced by individuals (an exception applies to income earned by farms and individual enterprises)
- Compensation for moral damages
Employment income. Taxable compensation includes salaries, cash or in-kind compensation, bonuses, rewards, paid holidays, inflationary allowances and royalties from patents and trademarks. Taxable compensation also includes salaries received by daily/temporary workers, fees and compensation paid to directors and managers of private commercial corporations and fees received by professionals (lawyers, doctors and experts).
The Moldovan tax law does not provide any special rules regarding the taxation of education allowances provided by employers to their employees’ children under 18 years old. Such allowances are included in taxable income.
Self-employment and business income. Income earned by individuals authorized to carry out independent activities (traders, craftsmen and family associations) and income earned from self-employment and business activities are subject to income tax.
Directors’ fees. Moldovan tax laws do not specifically address the taxation of directors’ fees.
Investment income. Interest earned by resident individuals on deposits with Moldovan banks is not subject to income tax until 1 January 2015. Interest earned by individuals on government securities is also not subject to income tax until 1 January 2015.
Taxation of employer-provided stock options. Moldovan tax laws do not specifically address the taxation of employer-provided stock options.
Capital gains and losses. Capital assets for tax purposes include the following:
- Shares and other titles of ownership in entrepreneurial activities
- Bonds
- Private property not used for business purposes
- Land
- Options for selling capital assets
The capital gains tax base for any fiscal year equals 50% of any amount of capital gains earned during that fiscal year.
Capital gains are deductible only against capital losses.
Deductions
Deductible expenses. Individuals may deduct the following expenses:
- Expenses related to entrepreneurial activities (business deductions)
- Capital losses to the extent of capital gains
Personal deductions and allowances. The amount of income from all sources is reduced by personal deductions and allowances. Each taxpayer is granted a personal deduction of MDL 8,100 per year against taxable income. Certain listed individuals are entitled to a personal deduction amounting to MDL 12,000 per year. These individuals include disabled veterans, parents and spouses of war veterans, and individuals disabled in childhood.
An individual may also benefit from an additional deduction of MDL 8,100 or MDL 12,000 per year if the individual’s spouse does not benefit from the individual’s personal deduction. A deduction of MDL 1,800 per year is granted for each dependent, and a deduction of MDL 8,100 per year is granted to support individuals with a permanent disability.
Business deductions. Expenses incurred in business activities may be deducted from revenue earned, excluding personal and family related expenses.
Relief for losses. Forced losses (for example, force majeure ) of property and income resulting from the substitution of such property with another property are exempt from tax.
B. Other taxes
Wealth tax or net worth tax. Moldova does not impose wealth or net worth taxes.
Property tax. Tax is imposed on property, including land, buildings, apartments and other real estate. The rate of property tax on buildings, apartments, constructions and other types of premises ranges from 0.02% to 0.25% of the tax base, depending on the type and location of the real estate.
Inheritance and gift taxes. Moldova does not impose taxes on gifts or inheritances.
C. Social security
The rate of social contributions payable by employers is 23% of the gross payroll of individuals domiciled in Moldova. Employers are not required to pay social contributions with respect to expatriate employees who do not have a permanent domicile in Moldova. Employees domiciled in Moldova must make a pension fund contribution of 6% of their remuneration. Expatriate employees who do not have a permanent domicile in Moldova are not required to make such contribution.
For employers whose principal activity is software development and fulfill certain requirements stated in the Moldovan Tax Code, the social contribution is 23% of two average monthly salaries per employee (for 2011, the average monthly salary per employee is MDL 3,300).
In addition, both employers and employees must pay mandatory medical insurance contributions on salary and other labor remuneration at a rate of 3.5% (that is, a total of 7%).
Double tax relief and tax treaties
Moldova has entered into double tax treaties with the countries listed below. The treaties generally provide for a residency test of 183 days in a fiscal year.
Albania
Georgia*
Poland
Armenia
Germany
Portugal
Austria
Greece
Romania
Azerbaijan
Hungary
Russian
Belarus
Ireland Federation
Belgium
Israel
Serbia
Bosnia
Italy*
Slovak Republic
Herzegovina
Japan
Slovenia
Bulgaria
Kazakhstan
Spain
Canada
Kyrgyzstan
Switzerland
China
Latvia
Tajikistan
Croatia
Lithuania
Turkey
Cyprus
Luxembourg
Turkmenistan*
Czech Republic
Macedonia
Ukraine
Estonia
Montenegro
United Kingdom
Finland
Netherlands
Uzbekistan
France*
Oman
* This treaty has been signed, but it is not yet in force.
To learn more about the history, culture, economy and other information about Moldova
We have been preparing US income tax returns for US Citizens and permanent residents living in Moldova for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Moldova and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Moldova.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email