For a successful development business activity needs freedom which contributes to the economic growth. “Economic freedom” represents a level of non-intervention of the state into the investments, production, distribution and usage of products and services to the extent which is considered by the population as the most efficient for the economy.
Since 1999 international organizations have been funding the implementation of the project “Assessment of the Cost of Doing Business in the Republic of Moldova”. Recently there was finalized the study on entrepreneurship activity for 2005.
Study Objectives: The main objective of the study is to monitor the business environment and to assess the impact of state policies and regulatory requirements on business entities operating in Moldova. The project is providing special support to the Government in conducting a quality analysis of the implementation of decisions required to improve the business and investment environment in the Republic of Moldova.
Time frame: The Business Environment Study in the Republic of Moldova was carried out in July – September 2006 and outlines the situation over the past three years. Data obtained have been compared with the outcome of four similar studies carried out in 2002-2005.
Sample: The sample consists of 630 randomly selected business entities. The sample does not include agricultural enterprises and sole proprietorships. Almost 88% of interviewed companies have up to 50 employees.
General Feedback: Business entities perceive the business environment differently. Approximately, 25% think that the situation has improved, the share slightly increased as compared to the past year (21%). Regulations in constructions and inspections are the areas with most obstacles. Registration is the area with the quickest pace of amelioration.
Registration: During the past three years the registration procedure lasted 18 days, including 10 days at the State Registrar. Average costs of registration have not changed as compared to data of the previous study and are of 82$. It takes less to change registration documentation - 13 days.
Constructions: Over the past three years, interviewed business companies spent 143 days to obtain all the construction permits they needed at a cost of 560$. The duration to obtain all necessary permissions to rehabilitate the buildings was of 67 days and the cost was of 227$. About 27% of all enterprises state that the situation has worsened as compared to the previous year.
Licensing: Approximately 58% of all interviewed business entities hold licenses (1.9 licenses on average). The average validity term of a licence is 3 years. Obtaining a license takes about 20 days and costs 273$. Both the duration and cost of obtaining a license have modestly decreased as compared to the previous year.
Authorizations: Approximately 62% of all interviewed business entities need to get different types of authorizations in order to carry out their activity. An enterprise needs on average 20 days and 169$ to get an authorization.
Certification of equipment: From all interviewed companies, about 51% purchased new equipment during the past three years. Out of these, about 71% held certificates of conformity to the standards of the Republic of Moldova. The procedure lasted on average 15 days and cost 70$. Both the duration and cost of obtaining these certificates did not change during the past year.
Imports: Over the past three years, about 33% of all interviewed business entities carried out import operations. About 72% of them were obliged to obtain certificates in compliance with the standards of the Republic of Moldova. The cost of obtaining certificates of conformity has decreased as compared to 2001 – 2003, and constitutes 95$. It is important to note that customs-related costs are much lower as compared to data of the studies conducted in 2003-2004.
Exports: Approximately 11% of enterprises carried out 19 exports operations per year on average over the past three years. Enterprises needed 1.7 days and 77$ to go through all export customs procedures. In most cases, enterprises prefer to use the amount of VAT to be refunded to pay other taxes and fees.
Certification of goods and services: About 38% of interviewed enterprises certify their goods or services 5.6 times a year. It takes 17 days to certify mass production items and it costs 88$. Certification of individual batches of products requires less input – 11 days and 137$.
Sanitary certification: Around 62% of interviewed enterprises were subject to sanitary certification in 2005, on average 1.6 times a year. The duration of obtaining a sanitary certificate is 13.5 days and the cost is 85$. While the duration of obtaining a sanitary certificate remained unchanged, the costs significantly increased as compared to the previous period
Inspections: During last year, enterprises have been inspected on average 10.3 times, which is little less than during the previous period. The average duration of inspectors’ stay at the enterprise is 15 days, which represents 4 days less than during the previous period. Due to investigations, enterprises had incurred average expenses of 107$ a year. Most of them are penalties (about 93$).
Taxation: About 95% of business entities employ full-time accountants and the average is 1.6 accountants per enterprise. Both indicators registered a slight increase as compared to pervious period.
Price Regulation: About 18% of interviewed enterprises are subject to price regulation. After a steady increase over the past years, this indicator has reached again the level of 2002. Most often the maximum level of the trade mark-up is subject to regulation.
Labor Regulation: 74% of interviewed business entities said that the number of employees they currently have is optimal. Approximately 21% said that they don’t have sufficient employees. In fact, the only problem identified by employers on labor regulation is the obligation to get and return health insurance policies within the established period (2 weeks for people dismissed).
Public authorities promoting their personal interests: About 5% of interviewed business entities said that public officials are getting involved into the activity of their companies to promote their own interests. Almost 76% said the opposite.
Legal System: Over the past two years, about 20% of business entities had to settle some disputes, and this figure has decreased during the past years. In case of disputes, enterprises usually take action in court: about 67% - for disputes with other companies and 77% in case of conflicts with state authorities.
TAXATION
The main document witch defines fiscal system of RM is the Fiscal Code approved on 24 April 1997 and completed few years latter. At this moment Fiscal Code contains 8 Chapters:
1. General information about Fiscal System
2. Income tax
3. Value Added Tax
4. Excises
5. Tax Administration
6. Tax on immovable goods
7. Local taxes
8. Natural resources taxes
DIRECT FOREIGN INVESTMENTS (DFI)
The Strategy for Investments Attraction and Export Development will be implemented alongside the Strategy for Industrialization and the Strategy for Agrarian and Food field of Moldova and their simultaneous implementation will provide a complex approach and consecutivity for the settlement of all the issues.
To improve DFI attraction into Moldova, some fiscal and customs duty facilities for enterprise establishment for the foreign investors have already been proposed. Therefore companies with a chare capital exceeding the equivalent of 250 000 USD are granted a 50% exemption from income tax for 5 years, and companies with a share capital exceeding 2 million USD are exempted of income tax for 3 years.
Legal framework for investments
The investments made in the Republic of Moldova fall under the provisions of the Constitution of the Republic of Moldova, the Law on investments in the entrepreneurship activity No. 81-XV of 18 March 2004, other laws and normative acts, as well as the international treaties to which the Republic of Moldova has adhered.
Should the provisions of the international treaties to which the Republic of Moldova has adhered be different from the ones stipulated in the above Law the provisions of international treaties take precedence.
The Law No. 81-XV of 18 March 2004 does not regulate the relations related to investments made by non-commercial organisations (for nonworking purposes) for social purposes, including for charitable, scientific and religious purposes and sponsorship. These relations are regulated by respective Moldovan Laws in the field.
Registration procedure
The state registration of enterprises/legal entities is carried out in compliance with the Law No. 1265-XIV of 05 October 2000 on State Registration of enterprises and organisations by the State Chamber of Registration.
By organisational and legal form, the enterprises are divided into: Limited Liability Companies, Joint Stock Companies, state or public enterprises.
As of 15 October 2006, 130 622 economic agents were registered into the Registry of enterprises and companies of which:
53 788 - Limited Liability Companies
5 091 - Joint Stock Companies
63 051 - Individual Enterprises (sole proprietorships)
1 557 - State Enterprises
4 380 - Cooperatives
World trade organisation (WTO)
Since 2001 the Republic of Moldova is a full-right member of the WTO. This allowed for an increase in the external trade of the country and the implementation of international standards in the production process.
As a WTO member, the Republic of Moldova has to observe the WTO provisions in various fields, including the trade and tax policy and in Customs Unions activity.
The participation of the Republic of Moldova in multilateral negotiations within WTO, the negotiations held with the UE on a preferential trade regime, encouraging the creation and the participation of the country in the regional free trade exchange zone with state-parties to the Stability Pact for South Eastern Europe will positively impact the promotion of national exports.
The Republic of Moldova has a liberal trade regime. So far Moldova has signed Free Trade Agreements with: CIS member-states, countries of Eastern Europe (Romania, Croatia, Serbia, Macedonia, Bosnia-Herzegovina, Albania, and Bulgaria) and has been granted access to the EU Generalized System of Preferences (GSP+) and trade preferences with USA and Japan.
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