1. BRIEF COUNTRY OVERVIEW: MOLDOVA CANDIDATE COUNTRY FOR EU FULL MEMBERSHIP. 

In the past two years, the Republic of Moldova (hereinafter Moldova) has taken a decisive step towards reforms, with a clear mandate from its citizens.

Following the 2020 presidential and 2021 parliamentary elections, there is a clear alignment of the presidential, executive and legislative powers on a pro-reform, anti-corruption European path for the first time since independence.

On 3 March 2022, the Republic of Moldova submitted its application for membership in the European Union.

On 7 March, the Council of the European Union invited the Commission to give its Opinion on the application. The EU Heads of State and Government approved this decision at the informal leaders’ meeting in Versailles.

Moldova received questionnaires on 11 April 2022 (on the political and economic criteria) and on 19 April (on the chapters of the EU acquis) and provided replies on 22 April and on 12 May, respectively.

In line with the European Commission’s opinion on Moldova’s application for EU membership:

Moldova has been working since 2016 to implement the EU-Moldova Association Agreement, including a Deep and Comprehensive Free Trade Area (AA/DFCTA).

These agreements already cover a significant part of the EU acquis and Moldova has gradually followed the alignment process in many chapters and has a good track record of implementation, and in some areas the process is more advanced than in others.

Overall, Moldova has established a solid basis for further alignment.

In 2021, Moldova’s economy grew by 13.9%, after a nearly 8% contraction in 2020. Unemployment fell, over-migration slowed, and consumer confidence increased.

On November 1,2022 a new agreement between the Republic of Moldova and the EU will enter into force, aimed at simplifying trade between the parties and increasing trade turnover:

From November 1, both the EU and Moldova will provide mutual advantages to each other’s authorized economic operators: deduction of customs control and customs clearance priority.

This event (agreement) is an important step forward in trade relations between the EU and Moldova.

This will further expand trade opportunities and facilitate the smooth flow of goods between the two parties without compromising high security standards. 

It is stressed that, at a time when businesses need all the support, they can get to overcome the ongoing crisis caused by the war in Ukraine, the agreement will make it easier and cheaper for many EU and Moldovan traders to trade.

Relations between Moldova and the EU are governed by the Association Agreement, including the Deep and Comprehensive Free Trade Area (DCFTA).

2. A NEW LEGAL FRAMEWORK

 2.1 In General:

Moldova’s legislation was completely revised after 1991 and is currently experiencing the third wave of legal reforms. 

In 1998, Moldova acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, In 2011 it ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and following the entry into force of the EU Association Agreement has embarked on a comprehensive process of reforming its legislation to bring it in line with the “acquis communautaire”.

2.2 Bilateral treaties on investment and taxation

Moldova has signed bilateral agreements on protection and promotion of investments with 44 countries. Except for the United States, these include:

Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iran, Israel, Italy, Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Montenegro, the Netherlands, Poland, Qatar, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Tajikistan, Turkey, Ukraine, United Arab Emirates, the United Kingdom, and Uzbekistan.

Moldova has a bilateral treaty with the United States on the Encouragement and Reciprocal Protection of Investment.

Moldova has signed 50 double taxation avoidance treaties with the following countries:

Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia Cyprus, the Czech Republic, Estonia, Finland, Georgia, Germany, Greece, Hungary, Ireland, Israel, Italy, Japan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Montenegro, the Netherlands, Oman, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, Spain, Tajikistan, Turkey, Turkmenistan, Ukraine, United Arab Emirates, the United Kingdom, and Uzbekistan.

Moldova has signed free trade agreements with 43 countries, including members of the Commonwealth of Independent States (CIS) and the Central European Free Trade Agreement (CEFTA), and Turkey. Moldova has also signed FTAs with China, the United Kingdom and the European Free Trade Association (EFTA).

2.3 LEGAL REGIME: TRANSPARENCY OF THE REGULATORY SYSTEM

Laws and regulations are published in the official gazette Monitorul Oficial, and a database of laws and regulations is available on the internet.

The Moldovan government generally publishes important laws in draft form for public comment.

Draft laws are also available online, on the website of the Moldovan Parliament. Consultations with business and trade associations provide other opportunities for comment.

An important exception to these consultations is a mechanism that allows the Parliament to propose draft laws as well.

The Prime Minister chairs an Economic Council, which works with the Moldovan business community to discuss government proposals and gather ideas for improving Moldova’s economy, particularly in response to the COVID-19 crisis.

The Foreign Investors Association (FIA) was established in 2004 with the support of the OECD. The FIA engages in dialogue with the government on issues related to the investment climate and issues an annual publication of concerns and recommendations for improving the investment climate.

Moldova committed to implement International Financial Reporting Standards (IFRS) in 2008.

The use of IFRS is required by law for all public interest entities (financial entities, investment funds, insurance companies, private pension funds and listed entities) and national accounting standards (which approximate IFRS in many ways) are used by other companies, although many use IFRS, as well as due to foreign ownership interests.

2.4 INTERNATIONAL REGULATORY CONSIDERATIONS

The EU Association Agreement (AA), including a Deep and Comprehensive Free Trade Area (DCFTA), has binding regulatory provisions committing Moldova to a reform programme and to the approximation of national legislation to EU standards in various areas, including company law, labour, consumer protection, competition and market surveillance, general product safety, taxation, energy, customs, public procurement, intellectual property rights and other regulatory areas.

Under the DCFTA, Moldova will phase out tariffs and quotas for reciprocal trade in goods and services.

It will also eliminate non-tariff barriers by introducing EU rules on health and safety standards, intellectual property rights and other areas.

Moldova has been a member of the World Trade Organisation (WTO) since 2001 and has therefore signed the General Agreement on Trade in Services (GATS), the Agreement on Trade-Related Investment Measures in Trade (TRIPS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 

These agreements include important investment-related commitments, such as opening up to the establishment of foreign service providers, banning local content, trade balancing, domestic sales (investment) requirements and the protection of intellectual property (TRIPS).

No major WTO TRIMs inconsistencies have been reported.

2.5 LEGAL SYSTEM AND JUDICIAL INDEPENDENCE

Moldova has a civil law legal system with codified legislation governing various aspects of life, including business, commerce and the economy. The country’s legal framework consists of constitutional, organic and customary legislation approved by the Parliament, as well as administrative acts issued by the government and other public authorities. Although the Moldovan courts are constitutionally independent

There is a tripartite judicial system in Moldova – specifically, there are the courts, the courts of appeal and the Supreme Court of Justice.

Moldova has a new judicial reform strategy for the period 2022-2025. The new strategy continues the 2016 parliamentary initiative to “optimize” the country’s judicial system as part of broader justice sector reforms aimed at reducing the number of courts in Moldova from 40 to 15.

Specialised courts such as the Commercial Circumscription Court and Military Court were abolished.

Five Chisinau courts were conceptually merged into one – the Chisinau court – although in 2018 the merged Chisinau court was further reorganised to specialise in five areas (investigation and infringement, criminal, administrative, bankruptcy, and civil, which includes commercial litigation).

The government will review the jurisdictions to ensure that courts are structured in a way that provides access to justice for all citizens and will begin to review the jurisdiction of prosecutors for the same reason.

The 2016 reforms created two specialized quasi-independent prosecution offices 

The Anticorruption Prosecution Office is responsible for investigating and prosecuting corruption, bribery, abuse of power by public officials, and money laundering.

The Prosecution Office on Combating Organized Crime and Special Cases investigates and prosecutes organized, transnational and particular complex crimes, including tax evasion, smuggling, intellectual property offenses, trafficking in persons, and drugs.

In 2017-2019, the Moldovan Prosecution Office continued continued to implement reforms under a law on the Prosecutor’s Office passed in 2016.

The Prosecutor General’s Office (PGO) led the drafting of new regulations for specialized prosecutor’s offices, district, regional and municipal offices.

As of January 1, 2021, the State Tax Service is authorized to investigate economic crimes. The government plans to further restructure the anti-corruption agencies to focus on high-level corruption.

3. LAWS AND REGULATIONS ON FOREIGN DIRECT INVESTMENT: A friendly institutional environment to foreign investors.

3.1 GENERAL OVERVIEW

Except from its international agreements, Moldovan laws affecting FDI include the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities, and the Law on Insolvency.

The current Law on Investment in Entrepreneurship entered into force in 2004. It was designed to be compatible with European standards in the definitions of types of local and foreign investment.

It provides guarantees for investors’ rights, prohibitions against expropriation or similar actions and for the payment of compensation in case of violation of investors’ rights.

The law allows FDI in all sectors of the economy, while certain activities require a business license. The Parliament adopted a new law to establish an investment control mechanism in 2021.

3.2. COMPETITION AND ANTITRUST LEGISLATION

In 2012, the Parliament passed a law on competition in line with EU practice and legislation

Subsequently, the national competition agency was renamed the Competition Council. The Competition Council oversees compliance with competition and state aid provisions and initiates the examination of alleged violations of competition law. The Competition Council can request the cessation of action, impose behavioural or structural remedies and impose fines. 

3.3 EXPROPRIATION AND COMPENSATION

The Law on Investment in Entrepreneurship states that investments may not be subject to expropriation or measures having a similar effect. However, an investment may be expropriated for public benefit purposes if it is non-discriminatory and compensation is simply provided. If a public authority violates the rights of an investor, the investor is entitled to compensation equivalent to the actual loss at the time of the incident, including any lost profits.

The government has given no indication of any intention to discriminate against U.S. investments, companies or agents through expropriation or any intention to expropriate assets owned by citizens of other countries. No particular sector is at greater risk of expropriation or similar actions in Moldova.

Previous governments have a history of depriving investors, both national and foreign, of their businesses in various forms. Many of them have taken the government to the European Court of Human Rights for violation of the right to a fair trial and respect for property, or to international arbitration tribunals.

3.4. DISPUTE SETTLEMENT

ICSID Convention and New York Convention

In 2011, Moldova ratified the Convention on the International Center for the Settlement of Investment Disputes (ICSID – Washington Convention). The country also ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Domestic courts recognize and enforce foreign arbitral awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of April 21, 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of December 17, 1962.

Investor-State Dispute Settlement

Moldova is a signatory to several bilateral investment treaties (see Chapter 3 above), including the US-Moldova Treaty on the Encouragement and Reciprocal Protection of Investments, which includes access to international arbitration for investment disputes.

Local courts recognise and enforce the arbitral award in a foreign country against the government. There are no known cases in which the Moldovan government has refused voluntary payment under an arbitral award rendered against it.

International commercial arbitration and foreign courts

Private parties may opt for alternative dispute resolution mechanisms instead of resorting to courts. Moldovan law provides for mediation and arbitration options. Arbitration legislation is formulated in accordance with UNCITRAL rules. There are several arbitration institutions in Moldova, including the Arbitration Court of the Ministry of Trade and Industry of Moldova. AmCham Moldova has established the Chisinau International Commercial Arbitration Court (CACIC) under its auspices.

The recognition and enforcement of foreign judgments are regulated by a complex framework of documents, including the Code of Civil Procedure, international conventions and bilateral treaties. Therefore, depending on the nationality of the court, Moldovan courts may apply different legal rules when considering the enforcement of foreign judgments. However, as a rule, foreign judgments are enforceable in Moldova on the basis of reciprocity and are subject to the obligations of the New York Convention.

The Moldovan judicial system generally enjoys low public confidence and is perceived to be vulnerable to acts of corruption and judicial procedures lack transparency. The general expectation in court hearings involving representatives of public authorities, including economic entities, is that final judgements will be in favor of state representatives. While arbitration is often seen as a preferable option by the courts, the courts should still enforce the arbitral award. Investors have sometimes been discouraged by the slow pace of enforcement of arbitral awards and the judge’s perception of the arbitral award.

3.5. BANKRUPTCY REGULATIONS

Moldova has an insolvency law that provides for an expeditious insolvency procedure, including by giving priority to protected creditors, restructuring mechanisms, reduced possibilities of appeal, suspension provisions, strict statutory time limits in proceedings and an enhanced role for insolvency administrators.

3.6. INVESTMENT INCENTIVES

Investment incentives apply to all enterprises registered in Moldova, regardless of the country of origin of the investment. Some incentives apply only in specially designated areas, such as free economic zones and industrial parks.

Until 2024, Moldovan legislation allows employees of IT companies to benefit from incentives for personal income tax and social security contributions.

Also, a 2017 law on IT parks introduced a single tax for residents of digital IT parks, calculated as the maximum percentage between 7% from sales and 30% from the average national projected salary, multiplied by the number of employees.

There is also a range of tax incentives applicable if businesses meet certain requirements.

Among these incentives are the following: Value Added Tax (VAT) and customs exemptions on long-term assets included in equity capital; Suspension of VAT obligations on imports of materials used in the manufacture of export-oriented products; Lower VAT rates for hospitality and restaurant businesses; And reduction of social contributions and VAT rates for agricultural businesses. 

The Organization for Development of SMEs (ODIMM) administers several business support programs for underrepresented investors, such as Women in Business, Start for the Youth and attracting remittances to the economy IS 1+1. However, government budget allocations for these programs are limited and ODIMM relies on funding from international donors.

3.7 FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION

Currently, seven free economic zones (FEZs), one international free port – Giurgiulesti – and one international free airport – Marculesti – are registered in Moldova.

Under Moldovan law, these zones support job creation, attract foreign and domestic investment and export-oriented production 

The Law on Free Economic Zones regulates the activity of the FEZ.

Foreigners have the same investment opportunities as local entities.

Commercial entities in the EPZ enjoy the following advantages:

25% income tax exemption; – 25% income tax exemption

50% exemption from export income tax; – 50% exemption from income tax on exports; – 50% exemption from export tax; – 50% exemption from export tax; – 50% exemption from export tax; – 50% exemption from export tax; – 50% exemption from export tax; – 50% exemption from export tax.

For investments over USD 1 million, three-year exemption from export income tax; And for investments over USD 5 million, five-year exemption from export income tax, zero value-added tax, exemption from excise taxes and a fixed guarantee for any new amendment to the law for ten years.

In addition, residents who invest at least US$200 million in the FEZ receive a stand-still guarantee on new regulatory changes for the entire period of operation of the FEZ, but this protection cannot be extended beyond 20 years

The government also passed a 2008 law creating eight industrial parks to attract investment in industrial projects.

Companies operating in these parks do not receive special tax treatment, but usually have access to ready-made production facilities, offices and office leases for 25 to 30 years.

As a rule, these are the properties of old industrial state-owned enterprises.

The government has also recently set up 18 multifunctional industrial platforms across the country.

These platforms represent land with technical and construction infrastructure for economic – mainly manufacturing – activity that exploits regional resources.

Like the EPZs, the Giurgiulesti Free International Port, Moldova’s only port accessible to seagoing vessels, was established in 2005.

Commercial residents of the port enjoy the following advantages:

-25% income tax exemption for the first ten years after the first year in which taxable income is reported;

-50% exemption from income tax for the remaining years; -50% exemption from income tax for the remaining years; -50% exemption from income tax for the first five years after the first taxable year in which the taxable income is reported; -50% exemption from income tax for the first year in which the taxable income is reported.

-Zero value added tax on imports from Moldova and a fixed guarantee for residents of the commercial sector regarding any regulatory changes until 17 February 2030.

The Marculesti International Free Airport, a former military air base, was established in 2008 as a free enterprise zone for a 25-year period to develop cargo air transport.

The airport management is also interested in turning Marculesti into a regional hub for low-cost airlines.

IT parks are another area of special tax treatment with opportunities for virtual residence status, simplified tax payments and tax incentives for IT COMPANIES registered in Moldova.

. The IT Park provides an organizational platform with a number of innovative mechanisms and incentives for the IT industry, as well as a predictable and encouraging regulatory framework to facilitate the management of IT businesses.

The first IT Park “Tekwill” established in Chisinau, includes 100 companies with a turnover of more than 1 billion lei.

This mechanism laid the foundations for a competitive IT industry in the country.

The estimated increase in the number of active IT companies is from 400 to 1000; of IT companies with foreign capital – from 150 to 250; of the number of employees in the IT industry from about 30,000 people.

Information and communication technology (ICT) is one of the most promising economic sectors in Moldova, accounting for over 10% of GDP. (ICT exports 2020: USD 304 million)

 3.8. CITIZENSHIP THROUGH INVESTMENT

The Moldova Citizenship-by-Investment (MCBI) program is the latest European citizenship-by-investment opportunity.

Citizenship provides access to 121 destinations, including the countries of the European Schengen Area as well as Turkey.

The MCBI program, which was launched in the second half of 2018, was developed by the Government of the Republic of Moldova in cooperation with service provider Henley & Partners and the Moldovan Investment Company.

The program requires applicants to make a defined contribution to the country through the Moldovan Public Sustainable Development Fund (Public Investment Fund).

In return, and subject to a rigorous vetting and due diligence process, applicants and their families are granted citizenship.

Final Remarks:

Moldova is the right “destination” for large-scale foreign investment in the sectors:

• Energy (including Renewable Energy)
• Transportation
• Infrastructure projects
• ICT
• Agriculture
• Automotive

The right time for business activities in Moldova is now and during the current phase for the country’s accession to the EU as a full member state.

Opportunities are significant in this country, and they are looking for foreign investors who have vision and skills.