IT Park Moldova (Law No. 77, 21 April 2016)
Description
The Law on Information Technology Parks No. 77 of 21 April 2016 (IT Park Law) is a legislative mechanism intended to facilitate domestic activity among, and generate government revenues from, information and technology industries in the Republic of Moldova.
Discussion
Overview
The IT Park Law of Moldova is not a traditional special economic zone, but it is, at its core, a framework increasing the freedom of businesses to innovate, hire staff and produce valued goods and services to customers.
Instead of being one geographical/territorial area, the IT Park Law applies under registration classification. Registers are set up for the specific purpose of allowing business to benefit from the IT Park Law.
Context
The Republic of Moldova is a landlocked nation between Romania to the west and Ukraine to its north, east and south. It has long had significant emigration, with skilled workers leaving for opportunities in Western Europe. In addition the domestic shadow economy (or, grey market) was expanding, including technology service providers avoiding tax obligations.
In response to both issues, the national government, with the assistance of the governments of the United States and Germany, established a law to reduce the complexity and the extent of tax payments for certain businesses offering goods or services in information, communications and technology (ICT).
The IT Park Law was passed by parliament in 2016, setting a flat rate of 7% tax for registered businesses earning at least 70% of revenue by way of providing goods or services in ICT. This 7% flat tax replaces all other obligations including income tax, social security, local municipality taxes, property tax and mandatory healthcare contributions.
The implementation of the law is through designated "IT Parks" under which individual business may register their activities. The results exceeded expectations with some 600 active businesses operating by 2020, with taxes from the information technology sector overall contributing some 19 million euro to the national government.
In 2023 the parliament extended the IT Park Law to 2035. With Moldova's intended ascension to the European Union in 2028, the IT Park Law likely must be discontinued due to state aid restrictions under the Treaty of the Functioning of the European Union (TFEU). Pursuant to articles 107 and 108 of the TFEU, no member state may grant tax advantages in its domestic market which would distort competition in the common market.
Substantive
Administration
Law on Information Technology Parks No. 77 of 21 April 2016
Article 1.(1) This law regulates the process of establishing information technology parks, as well as their operation...
Article 5. Parks may be established at the request of legal entities or natural persons registered in the Republic of Moldova as subjects of entrepreneurial activity, who have not been/are not in insolvency or liquidation and/or restructuring as a result of insolvency, whose entrepreneurial activity has not been/is not suspended, and who have not been/are not the subject of legal proceedings to be declared in one of these situations.
Article 6.(1) Upon establishment of a park, the Government establishes its Administration, having the status of a legal entity operating on the principles of self-financing. The Regulation on the organization and operation of the Park Administration is approved by the Government...
Article 7.(2) A person registered as a park resident concludes with the Park Administration a contract regarding the carrying out of activity in the park and is entered into the Register of park residents on the date of signing the contract. The contract is concluded for a period of at least 4 years. The term of the contract may not exceed the term of operation of the park...
Scope and tax
Law on Information Technology Parks No. 77 of 21 April 2016
Article 8. Main activities carried out in the park
In an information technology park, the following main activities may be carried out (according to CAEM rev. 2):
a) custom software development activities (client-oriented software) (62.01); b) computer game publishing activities (58.21); c) publishing of other software products (58.29); d) computer facilities management (operation and management of computing equipment) (62.03); e) data processing, web page administration/hosting, and related activities (63.11); f) web portal activities (63.12); g) information technology consultancy activities (62.02); h) other information technology service activities (62.09).
Article 15 Facilities and incentives granted for the establishment and operation of information technology parks
(1) In order to facilitate the establishment and activity of information technology parks, the state grants their residents the following incentives:
a) a single tax collected from residents of information technology parks in the amount of 7% of sales revenue, but not less than the minimum amount set in paragraph (2), which includes the following taxes and fees: income tax from entrepreneurial activity, income tax from wages, mandatory state social insurance contributions owed by employees and employers, mandatory health insurance premiums owed by employees and employers, local taxes, real estate tax, and the road use fee for motor vehicles registered in the Republic of Moldova, owed by park residents in accordance with the applicable legislation. Other taxes and fees shall be paid by park residents under the general regime;...
(2) The minimum amount of the single tax collected from residents of information technology parks shall be determined monthly per employee and shall equal 30% of the amount of the national average monthly wage forecast for the year corresponding to the fiscal period of that tax.
(3) The single tax collected from residents of information technology parks, determined under this article, shall be paid monthly by park residents in accordance with the legislation in force.
(4) If new laws are adopted that change the rate and/or the composition of the single tax collected from residents of information technology parks provided for in paragraph (1)(a) and/or repeal it, park residents have the right, during a period of 5 years from the date of entry into force of this law—but not exceeding the term of operation of the respective park—to operate under the laws in force prior to the entry into force of the new laws. If certain taxes and/or fees included in the single tax provided for in paragraph (1)(a) are replaced under the legislation with other taxes and/or fees, the composition of the single tax shall be adjusted accordingly, without changing its rate...