Attitude Toward Foreign Direct Investment
Moldova, one of the poorest countries in Europe, relies heavily on foreign trade and remittances from its workers abroad for its economic growth. Under Moldovan law foreign companies enjoy national treatment in most respects. In principle, the government views FDI as vital for sustainable economic growth and poverty reduction. However, the amount of FDI received is far below what Moldova needs to create jobs and promote economic growth.
Moldova enjoyed a period of increased FDI with eastward expansion of the EU into Romania on January 1, 2007. However, the 2008 global financial crisis significantly decreased FDI in Moldova, which has yet to return to pre-crisis levels. Remittances have also not regained their 2008 levels and have been falling further in recent years, reflecting slower growth in the region and the falling value of the Russian ruble (most remittances are from workers paid in Russian rubles.)
Moldova’s development path in recent years has been guided by agreements with the EU for reforms in trade policy and the judiciary. Following the expiration of a Moldova-EU Action Plan in 2008, Moldova negotiated its Association Agreement with the EU, which was signed in June 2014. Moldova hopes the Association Agreement will bring closer political association and economic integration with the EU. The DCFTA, a component of the Association Agreement, provides for mutual elimination of customs duties on industrial and most agricultural products and for further liberalization of the services market. It also addresses other barriers to trade and reforms in economic governance, with the goal of strengthening transparency and competition and adopting EU product standards. Moldova hopes to eventually join the common EU market.
As a country with a small economy, Moldova hopes a liberalized trade and investment strategy will increase the export of its goods and services. A member of the WTO since 2001, Moldova has signed free trade agreements with countries of the former Soviet Union. In December 2006, Moldova joined the Central European Free Trade Agreement. In 2008, Moldova moved from the extended generalized system of preferences (GSP-plus) with the EU to autonomous trade preferences, which expanded the duty-free access of Moldovan goods to EU markets. The EU is the country's largest export destination, absorbing about half of all Moldovan exports. The EU extended Autonomous Trade Preferences to Moldova in 2008. In September 2014, the DCFTA supplanted the Autonomous Trade Preferences regime. Since September 2013, Moldova has faced a Russian ban on its alcoholic beverage exports. Furthermore, soon after ratification of the Association Agreement and DCFTA by Moldova, Russia imposed additional trade bans seriously affecting Moldova's exports of fruit, canned products, and fresh and processed meat.
The government has approved an activity program for 2016-2018 that centers on EU integration, with the ultimate goal of applying for EU membership. The program also sets economic development, creation of well-paid jobs, elimination of corruption, and rule of law among key objectives. The government also approved an Action Plan for the implementation of the Moldova-EU Association Agreement and DCFTA in October 2014. The government has identified in its national development strategy "Moldova 2020" seven priority areas for development and reform: education, access to financing, road infrastructure, business regulation, energy efficiency, justice system, and social insurance. The government has made a formal commitment to accelerate the country’s development by making the economy more capital-intensive, sustainable, and knowledge-driven.
Other Investment Policy Reviews
The United Nations Conference on Trade and Development (UNCTAD) conducted an Investment Policy Review of Moldova, published in 2013 and which can be accessed at http://unctad.org/en/Pages/DIAE/Investment%20Policy%20Reviews/Investment-Policy-Reviews.aspx.
Moldova was last subject to a trade policy review published in October 2015 and can be accessed here https://www.wto.org/english/tratop_e/tpr_e/s323_e.pdf.
Laws/Regulations on Foreign Direct Investment
In addition to its international agreements, Moldovan laws affecting FDI include the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities, and the Law on Insolvency.
The current Law on Investment in Entrepreneurship came into effect in 2004. It was designed to be compatible with European standards in its definitions of types of local and foreign investment. It provides guarantees of investors' rights, non-application of expropriation or similar actions, and for payment of damages if investors' rights are violated. The law permits FDI in all sectors of the economy, while certain activities require a business license.
Over the years, the Moldovan government has lowered tax rates, strengthened tax administration, increased transparency, and simplified business regulations. Nevertheless, decision-making remains opaque and the application of laws and regulations inconsistent. Popular perceptions of widespread corruption remain a big concern. The political uncertainties of recent years highlighted fundamental problems with the business environment. In 2013, the controversial concession of the Chisinau International Airport and de facto privatization of one of Moldova’s largest banks, Banca de Economii, raised questions about the transparency, fairness, and legality of government practices. A subsequent massive banking crisis, which erupted in late 2014 and ultimately led to the bankruptcy of three key banks, cast light on apparent institutional corruption and weak financial and banking regulations.
A general description of laws and regulations as they relate to foreign businesses in Moldova can be found at www.miepo.md.
Business registration is overseen by the Moldovan State Registration Chamber, which keeps the State Register of Legal Entities and Individual Entrepreneurs. By law, registration should take five days for a standard procedure or four hours for an expedited procedure and is done in two stages. The first stage involves submission of an application and a set of documents, the range of which may vary depending on the legal form of the business (LLC, joint-stock company, sole proprietorship, etc.). At the second stage, the State Registration Chamber issues a registration certificate and a unique identification number for the business, conferring full legal capacity to the entity. In 2010, the government introduced the “one-stop-shop” principle, under which businesses are relieved of the requirement to register separately with fiscal, statistical, social security, or health insurance authorities. There are currently no procedures for online business registration.
In March 2006, the Moldovan Parliament ratified the 1961 Hague Convention on Abolishing the Requirement for Legalization for Foreign Public Documents. Acceptance of U.S. apostilles applied on official documents simplifies the legalization of official documents issued in the United States that are required in the process of business registration.
Moldova has an investment promotion agency called Moldovan Investment and Export Promotion Organization (MIEPO) to assist prospective investors with information about business registration or industrial sectors, facilitate contact with relevant authorities, and organize study visits. MIEPO has an investment guide available on its website www.miepo.md.
Moldovan law establishes criteria defining businesses as micro, small or medium-sized enterprises. The legal definition of a microenterprise is a business which has nine employees at most, an annual sales figure of not higher than MDL 3 million (USD 150,000) and total balance sheet value of assets not higher than MDL 3 million (USD 150,000). A small business has no more than 49 employees, annual sales of under MDL 25 million (USD 1.3 million) and total of assets under MDL 25 million (USD 1.3 million). A medium-sized business has no more than 249 employees, earns less than MDL 50 million (USD 2.5 million) in annual sales and assets less than MDL 50 million (USD 2.5 million).
In 2007, the Moldovan government set up a special agency called the Organization for Small- and Medium-Size Enterprise (SME) Development (ODIMM), whose mission is to support SME development through government programs and international projects. ODIMM runs consultancy programs, trainings, an investment matching program, and a loan guarantee fund. It also seeks to establish business incubators throughout the country. ODIMM’s programs are generally available to locally-registered SMEs regardless of the country of origin of the investment. Certain programs, however, have eligibility criteria specifically targeting holders of Moldovan citizenship.
The Moldovan Investment and Export Promotion Organization (MIEPO) promotes agriculture, automotive, ICT, medicine, renewable energy and textiles as industries attractive for foreign investment. Information on the sectors can be found on the MIEPO gateway http://miepo.md/sectors.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no formal limits on foreign control, except that foreigners are expressly prohibited from owning agricultural or forestry land. Under Moldovan law, foreign companies enjoy national treatment in most respects. The Law on Investment in Entrepreneurship prohibits discrimination against investments based on citizenship, domicile, residence, place of registration, place of activity, state of origin, or any other grounds. The law provides for equitable and level-field conditions for all investors and rules out discriminatory measures hindering management, operation, maintenance, utilization, acquisition, extension, or disposal of investments. Local companies and foreigners are to be treated equally with regard to licensing, approval, and procurement.
Moldova launched the first of several waves of privatization in 1994. In 2007, Parliament passed a new law governing management and privatization of state-owned assets. Two major privatizations in 2013 – of the then-largest bank, Banca de Economii, and the 49-year concession of the Chisinau Airport – subsequently proved highly controversial. Privatization efforts in 2014 and 2015 emphasized public-private partnerships as means for companies to gain access to state-owned resources in infrastructure-related projects. As of early 2016, the government was floating plans for privatization of additional state assets.
Moldova conducts privatizations through open tenders organized at the stock exchange that are open to any interested investor. However, some investors have complained that the privatizations are unfair and lack transparency.
Screening of FDI
There is no screening of foreign investment in Moldova. Legislation permits 100-percent foreign ownership in companies, except for laws prohibiting companies in questionable tax havens from holding shares in commercial banks and restrictions on foreign ownership of agriculture and forestry lands. By statute, special forms of legal organizations and certain activities require a minimum of capital to be invested (e.g., MDL 20,000 (USD 1,000) for joint stock companies, MDL 15 million (USD 750,000) for insurance companies, and MDL 100 million (USD 5 million) for banks).
The government established a National Competition Agency in 2007. However, foreign investors accused the agency of abuse, lack of experience, and flawed antitrust legislation after they were singled-out for investigations. As a result, in 2012, Parliament passed a new law on competition that was consistent with EU practice and legislation. The National Competition Agency was subsequently renamed the Competition Council. The Competition Council oversees compliance with competition and state-aid provisions and initiates examination of alleged violation of competition laws. The Competition Council may request cessation of action, prescribe behavioral or structural remedies, and apply fines.