How to Pay Fewer
Taxes and Fees?

1. Choosing the Right Legal Form

The first and most important strategy for reducing taxes is to choose the right legal form for your company. There are different legal forms for organizing entrepreneurial activity in Moldova, each having its own tax advantages and disadvantages, for example:

- In the case of a Sole Proprietorship, you cannot hire yourself at the Sole Proprietorship and if you're not employed elsewhere, you'll be obliged to pay the Pension Fund as well as obtain mandatory insurance, however in the case of an LLC you won't be obliged to pay the pension fund if you're not employed elsewhere.

- Under the tax regime for (Sole Proprietorship), taxpayers are obliged to pay a tax of 12% of the company's income. On the other hand, in the case of a limited liability company (LLC), income tax is only 4%, however after deducting all eligible expenses, when distributing dividends, an additional tax of 6% for dividends applies.

- Another significant aspect that differentiates these two legal forms is the level of personal liability of the founder. In the case of a sole proprietorship, the founder assumes liability for the business obligations with their entire personal assets, including properties such as real estate, vehicles, etc., in contrast, within a limited liability company (LLC), the founder's liability is strictly limited to corporate assets and invested share capital.

- If the company's main purpose is not profit generation, but supporting a social, cultural, educational or other cause, then establishing a Non-Governmental Organization (NGO), i.e., a Public Association, is recommended. NGOs aim to accumulate donations and grants for the purpose of contributing to society development and are not subject to income taxation in the same way as LLCs.

This means that for companies whose main objective is profit generation and significant growth, we recommend opting for establishing a Limited Liability Company (LLC). This legal form offers significant tax benefits and flexibility in managing employment and taxes.

Choosing the correct legal form can have a significant impact on the level of taxes and fees paid by the company, as well as on flexibility in business management. By carefully evaluating your objectives and needs, you can optimize your company's legal structure to reduce fiscal expenses and support your business development.

2. Choosing the Right Tax Regime

After choosing the legal form, for example LLC - one of the most common in Moldova, it's essential to determine the appropriate tax regime for your business. You can choose to be a VAT payer or non-payer. Each option has its advantages and disadvantages:

VAT Payer LLC is often advantageous for businesses with large transaction volumes, being particularly suitable for fields such as import and trade, where taxes paid for purchases can be deducted from collected VAT. Also, the taxation regime involves a rate of 12% of (Income - Expenses). This option requires more complex accounting and is subject to more frequent checks by state authorities.

VAT Non-Payer LLC is better suited for companies providing services, especially those with few deductible expenses. The taxation regime for VAT non-payer LLCs involves a fixed rate of 4% of income, without the right to deduct expenses. It's easier to manage, but it should be mentioned that income in the last 12 months must not exceed the threshold of 1,200,000 MDL. If this threshold is exceeded, the company is obliged to submit an application to become a VAT Payer.

3. Take Advantage of Legal Tax Deductions to Reduce Taxes

Moldova offers a series of tax deductions that can be used to significantly reduce the income tax you pay to the state.
Some of the most common tax deductions include:

• Deductions for investments: This refers to modernization and investments in equipment, acquisition, repair and arrangement of real estate and other assets.
• Deductions for business expenses: You can deduct a series of business expenses, such as transportation costs (vehicle rental, fuel purchase, repairs), rent and employee salaries.
• Deductions through staff training: You have the possibility to reduce company taxes through expenses made for training and professional development of your employees. This fiscal policy is designed to encourage companies to invest in training and improving their employees' skills, recognizing these expenses as deductible investments.

We also want to note that there are often certain conditions that must be met for these expenses to be eligible for deduction, such as their direct relevance to the activity conducted within the company, for example, you cannot purchase a Rolex watch from your company account, this being a pastry shop.

4. Reinvestment of Profits

Reinvesting profits in the business can reduce the tax base, especially if these investments are favored by fiscal regulations.

5. Avoiding Penalties and Interest

Ensure that all tax declarations and payments are made on time to avoid penalties and interest that can increase the tax burden.

6. Professional Tax Consultation

Funding your company is like your health: better to prevent than to treat. Hiring a professional in accounting and taxation can help you ensure your business complies with tax laws and regulations and avoid potential problems in the future.

Experts will not only help you navigate the complexities of the tax system, but will also ensure your business benefits from all available deductions and tax advantages, while avoiding penalties and costly audits.

Essentially, by hiring qualified professionals, you protect your business from unexpected tax risks and ensure efficient long-term tax management.

It's important to remember that any strategy for reducing taxes and fees must be completely legal and in compliance with fiscal legislation in Moldova. Tax avoidance can lead to severe sanctions and legal problems.