Brief Overview Of Free Enterprise Zones In Moldova

General Remarks

The 2001 Law on Free Enterprise Zones stipulates that a free enterprise zone (hereafter “FEZ”) is a strictly defined and separate from the economic viewpoint part(s) of the Moldovan customs territory with special legal characteristics and a beneficial regime for local and foreign investors. FEZs are established to boost social and economic development of certain regions and the country in general by way of:

• attraction of local and foreign investments;
• introduction of modern machinery and technologies;
• development of export-oriented productions;
• using advanced production and other experience and management;
• creation of new work places.

To date the following FEZs are created in Moldova: FEZ “UNCHENI-BUSINESS”, FEZ “OTACI-BUSINESS”, FEZ “TVARDITA”, FEZ “VALCANES”, FEZ “EXPO-BUSINESS CHISINAU” and FEZ “TARACLIA”.

Creation of Free Enterprise Zones

In Moldova FEZs are created on the basis of laws passed by the Parliament at the proposal of the Government. FEZs are created for a period of at least 20 years. The term of existence of a particular FEZ is established by the law establishing that zone.

A FEZ may comprise a part or several parts of the Moldovan territory that are not encumbered with real estate. FEZs may also be created on the basis of separate enterprises, institutions or organizations, except for strategic enterprises or enterprises, which operate or may operate efficiently without the creation of a FEZ.

A FEZ is considered to be created from the effective date of the respective law establishing such FEZ.

Applicable Law

Pursuant to the Law on Free Enterprise Zones, Moldovan free enterprise zones are subject to :

• international treaties, to which Moldova is a party;
• Moldovan laws and regulations;
• regulations passed by the Administration of the FEZ with the limits of its competence.

Administration of Free Enterprise Zones

A FEZ is administered by a public authority called “Administration”. The Administration is nominated by the Government and has the status of a legal person operating on principles of self-financing. The Administration is headed by the Principal Administrator appointed by the Government for a period of 5 years.

The powers of the Administration are stipulated by the Law on Free Enterprise Zones and other applicable regulations. The Administration may not intervene in the business activity of its residents, unless such activity contradicts applicable legislation and respective agreements it concluded with residents. The Administration and its personnel, including the Principal Administrator, cannot practise business activity on the territory of the FEZ or participate directly or indirectly in the registered capital of legal persons operating in the FEZ.

Residents of Free Enterprise Zones

The current legislation stipulates that any natural or legal person registered to practise business activity in Moldova may be registered as a resident of a FEZ. Residents are selected on the basis of competition by the Administrations of particular FEZs. Individuals and entities permitted to register as a resident of a FEZ should enter into an agreement with the Administration authorizing their activity in the FEZ. Registration as a resident is subject to a fee established by the Administration after coordination with the Economy Minister.

State Benefits and Guarantees

The Law on Free Enterprise Zones guarantees protection of investments made in FEZs. It provides also that the regime for practising investment and business activities in FEZs may not be less favourable than that stipulated for registered entities operating in other parts of the Moldovan customs territory.

Another guarantee ensures that the assets used in FEZs may not be expropriated, nationalised or subject to any other similar measure other than in cases stipulated by law and by decisions of judicial authorities.

After payment of all taxes, duties and other mandatory charges due residents of FEZ are guaranteed the right to transfer abroad their funds in foreign currency obtained as a result of their operations in a FEZ.

FEZs also enjoy a special tax regime. Profits tax on resident enterprises gained as a result of exports of goods (services) originating from the FEZ abroad shall be taxable at 1/2 of the general corporate income tax rate. Profits generated from supplies of goods and services from the FEZ to the Moldovan customs territory are subject to the general taxation rules. Profits derived as a result of practising other types of activity in the FEZ are subject to taxation at 3/4 of the general corporate income tax rate.

Residents of a FEZ, which have invested at least US $1 million in the fixed assets of their respective enterprise(s) and/or in the infrastructure development of a respective FEZ, shall be exempt for three years from income tax payable in respect of exports of their goods and services abroad. Residents, which have invested at least US $5 million in the FEZ, shall be exempt for five years from income tax payable in respect of exports of their goods and services abroad.

Import of excisable goods to a Moldovan FEZ from abroad or from other Moldovan FEZs are exempt from excise tax. Likewise, export of excisable goods from a FEZ abroad or to another FEZ, as well as supplies within a FEZ are exempt from excise tax and are subject to a zero-rate VAT. Further, goods and services supplied to a Moldovan FEZ from the Moldovan customs territory, exported abroad or to another FEZ as well as supplies among residents of various Moldovan FEZs are also subject to a zero-rate VAT. However, goods and services supplied from Moldovan FEZs to the Moldovan customs territory are taxed at a standard 20-percent VAT rate.

Import of goods and services into FEZs and export of those from Moldova or into other FEZs are exempt from customs duties, import and export taxes, and are not subject to licensing and quotas.

The Administration of FEZs is entitled to introduce special zonal taxes and levies, whose amount shall be indicated in the contract concluded by the Administration with its residents.

The Law provides also that legislation, which worsens the customs, tax and other conditions for residents of FEZs, shall not affect them for a period of 10 years from its effective date.

Cessation of Free Enterprise Zones

The current legislation provides that a FEZ cease to operate:

• upon the expiry of the term, for which it has been created;
• before the expiry of the term of the FEZ, if its operation contradicts applicable laws or economic interests of Moldova.

Iurie Lungu,
Advocate LLP
info@advocate-moldova.com