National legislation on direct taxation and excise duty calculation to be aligned with European Union rules

National legislation on direct taxation and excise duty calculation will be aligned with European Union rules. Parliament approved at first reading two draft laws providing for amendments to the Tax Code.

One of the drafts concerns the taxation of interest, royalties and dividends, as well as the introduction of rules on controlled foreign companies and the resolution of tax disputes. The initiative was drafted in the context of accelerating the process of harmonizing national legislation with the legal framework of the European Union.

The Tax Code will be supplemented with a new chapter providing for the elimination of any form of taxation of interest and royalties in the Member State from which these payments originate. Thus, income sourced in the Republic of Moldova will be exempt from withholding income tax only if the beneficial owner is a company from an EU Member State or a permanent establishment of a company from a Member State. Non-taxation will apply only under certain conditions expressly established by law.

The draft law also transposes into national legislation the Directive on the common tax regime applicable to parent companies and subsidiaries in different Member States, which aims to eliminate the double taxation of income distributed between subsidiaries and parent companies in the European Union. Another amendment to the Tax Code concerns the introduction of rules on controlled foreign companies. These rules are intended to tax profits transferred by corporate groups to controlled subsidiaries in low-tax jurisdictions. At the same time, the draft law contains provisions on mechanisms for resolving tax disputes.

The second draft law amending the Tax Code clarifies the mechanisms for calculating excise duties, which will be applied after the Republic of Moldova joins the European Union.

The document partially transposes six European directives concerning the establishment of the general excise duty regime; the harmonization of structures and approximation of excise duty rates on alcohol and alcoholic beverages; the structure and rates of excise duties applied to manufactured tobacco; the restructuring of the Community framework for the taxation of energy products and electricity; and the fiscal marking of gas oils and kerosene.

After the legislative amendments enter into force, the Republic of Moldova will implement a mechanism for deferring the payment of excise duties on products used in processing or manufacturing. Thus, until the production process is completed, no excise duty payment will be required; however, any potential liability that may arise will have to be guaranteed. This mechanism will provide businesses with additional cash flow during the production process.

Both draft laws will be considered by Parliament at second reading and will enter into force on the date the Republic of Moldova joins the European Union.