Israel – Moldova Tax Treaty

Business Activity in Moldova

After its independence in 1991, Moldova has been moving towards a market-oriented economy and has been introducing democratic institutions.

The Free Economic Zones in the country are the ones that grant tax breaks and duty-free import of materials, which are the key elements that encourage the growth of export-focused manufacturing hubs. The availability of raw materials that are derived from the agricultural sector creates numerous food processing opportunities. On the other hand, beneficial agricultural machinery, irrigation systems, cold storage, and processing equipment are the four components that sustain the projected expectations. In collaboration with international sustenance, the government is showing its commitment to lifting the inner value of agriculture, tourism, and wine production.

Additionally, domestic consumers show a growing demand for processed foods, used vehicles, and aftermarket accessories.

Bilateral Agreements Between Moldova and Israel

1. Double Tax Treaty
2. International Investment Agreement

Convention of the Prevention of Double Taxation

The agreement between the Government of Israel and Moldova regarding the avoidance of double taxation was signed on November 22, 2006, and entered into force on December 31, 2007.

To read the agreement in English click here.

Reciprocal Promotion and Protection of Investments

The Agreement on the Promotion and Protection of Investments between Israel and Moldova was signed on June 21, 1997, and became effective on March 15, 1999. The agreement seeks to promote and protect respective investments, stimulate business efforts, and improve prosperity in both states.

Applicability of the MLI

Israel has signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). In contrast, Moldova has not proceeded with the signature of the MLI. Israel signed the agreement on June 7, 2017, and ratified it on September 13, 2018.

Residency for Tax Purposes in Moldova

Residence of an Individual

An individual is considered a resident for tax purposes in Moldova if they meet one of the following conditions:

• They have a permanent address in Moldova
• They stay in Moldova for more than 183 days in a fiscal year.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

Under Moldovan tax law, a legal entity is considered a tax resident if it is organized, managed, or has its main business operations in Moldova. In practice, tax residency is typically based on the place of incorporation.

To read about how an individual is considered a resident of Israel, click here.

The Tax System in Moldova

The Moldavian tax authority is called the State Tax Service.

Income taxation: 12%

Taxation of companies: 12%

VAT: 20%

Capital Gains Tax: Equal to 50% of the difference between the sale price and the purchase price.

Withholding Tax

Inheritance Tax and Estate Tax in Moldova

Moldova does not apply an inheritance or estate tax.

Relocation to Moldova

Moldova has a friendly business environment partially supported by the country’s strategic location in between the trade routes of Eastern and Western Markets, positioning it perfectly for its multiple free trade agreements that bring it closer to both the European Union (EU) and Commonwealth of Independent States (CIS) and other important markets. It boasts one of the most diversified economies with agriculture, IT, automotive, and renewable energy as strong pillars.

Moldova offers lower operational costs, a highly skilled multilingual workforce, and manageable communal expenses. Additionally, rental prices are favorable, ranging from 2 to 4 euros per square meter, and as low as 0.8 euros per square meter in the European Economic Area (EEA).

The tax system in Moldova is quite favorable with a corporate income tax at a rate of 12% and reduced rates for certain industries like 7% farmers, 6% Free Economic Zones (ZEL), The Agricultural Producers Group (PLG) 3%. It has introduced a 20% value-added tax (VAT), including reduced rates of 6% on natural gas, and up to 8% for agro-food products, pharmaceuticals, and international transport. Moreover, Social Security contributions are at 24% whereas the one tax rate for businesses in Moldova IT Park is only 7%.

The Jewish community in Moldova is estimated to be around 20,000 people. Jewish culture and the religion of Judaism have a rich history and strong presence in the country. The Jewish Community of the Republic of Moldova is the Moldovan affiliate of the World Jewish Congress.

Real Estate Taxation in Moldova

Property tax in Moldova applies to property owned by both Moldovan and foreign citizens. It is based on the estimated value of buildings, houses, apartments, and land, with rates depending on the location. The minimum rate is 0.05%, but local authorities set the actual rate each year.

For land, the tax rate for individuals varies depending on its use (e.g., agricultural land), location, cadastral value, and size, but it can’t exceed MDL 30 per 100 square meters.

Agricultural land with buildings has a separate minimum rate of 0.1%, with the final rate also set by local authorities.

Transfer of Funds from Israel to Moldova

According to section 170(a) of the Israeli Income Tax Ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% withholding tax. The tax authority may allow, under certain circumstances, a reduction or dismissal of the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Since both countries have a tax treaty, one can submit a declaration form (statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, it is possible to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our firm handles the requirements of foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries –automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

Banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad click here.

Types of Business Entities in Moldova

The following are the main structures of legal entities that operate in Moldova:

Sole Proprietorship (Întreprindere Individuală)

Sole Proprietorship is a business owned and operated by a single individual who is responsible for all aspects of the business.

Limited Liability Company (Societate cu Răspundere Limitată – SRL)

A common business structure in Moldova that combines the flexibility of a partnership with the limited liability protection of a corporation. Owners (members) are protected from personal liability for business debts. It allows for multiple shareholders and easier capital accumulation. The maximum number of shareholders is set at 50, and there are no longer any minimum share capital requirements.

Joint Stock Company (Societate pe Acțiuni – SA)

A business entity that raises capital by issuing shares to the public or private investors. Ability to raise significant capital through the sale of shares, limited liability for shareholders, and ease of transferring ownership through the sale of shares.

Partnership (Societate în Nome Colectiv)

A business structure where two or more individuals share ownership and operational responsibilities. Easier to set up than a corporation, with shared resources and expertise among partners, and direct access to profits.

Cooperative (Cooperativă)

A member-owned business entity formed to meet the mutual needs of its members, often in sectors like agriculture, retail, or services. Members have a say in decision-making, potential for shared profits, and mutual support among members.

Incentive laws in Moldova

The main incentive laws in Moldova include:

Free Economic Zones (FEZs) in Moldova offer domestic and foreign investors tax, customs, and other benefits. There are seven FEZs, allowing activities like export production, packaging, and external trade. Companies operating in FEZs benefit from reduced corporate income tax (CIT) rates, depending on their level of investment, with exemptions ranging from one to five years for large investments. Goods and services in FEZs are VAT-exempt. Investors are protected from legal changes for up to 10 years, or 20 years under certain conditions.

Since 2017, Moldova’s law on IT parks has offered tax incentives for residents engaged in various IT activities, such as custom software development, game editing, IT consulting, and more.

Starting February 12, 2024, new eligible activities include call centers and labor supply services, both for export only. Residents pay a single tax of 7% on their sales revenue, with a minimum tax per employee based on the national average salary (MDL 13,700 for 2024). This single tax covers corporate income tax, personal income tax, social security, health insurance, and local taxes.

Moldova applies the tax credit instrument during the income declarations. In such a case, the taxpayer is required to present by the operational body in the state language with an accurate translation of the document confirming payment of taxes from another country, attested or certified/template printout, from the particular foreign country. The credit may not exceed the amount of the tax that would be imposed by Moldova on such income. The foreign tax credit is claimed in the same tax year as the income is subject to Moldovan tax.

Moldova Double Tax Treaties