A Deep Dive into the Proposed 2027 Tax Reform
A major reform proposal hopes to shift the philosophy of the tax system... and in the process has made just about everyone angry
Moldova’s Ministry of Finance announced on June 11 the most ambitious tax reform program in more than a decade. Titled Fiscal Policy 2027 with the subtitle “Moldova works, Moldova invests” and the tags “simplicity • compliance • convenience • competitiveness,” the proposal has set off a firestorm of reactions across the country.
In their press release, the Ministry of Finance stated that the proposal would provide a simpler tax system that would be easier to comply with and to administer. It claims that domestic companies would be made more competitive and that tax evasion would be reduced.
The proposed changes would impact almost every sector of the economy and every household - often in multiple different ways.
Big Picture - What is Being Proposed and Why?
At its core, the Ministry’s proposal identifies the following 3 main problems as important context:
The country has a chronic budget deficit.
The country collects relatively little tax as a percentage of GDP (~20%) when compared to other EU candidate countries (average ~22%) and EU countries (~25%).
Taxes are overly complex and fragmented. This refers to too many legal forms for doing business as well as lots of exemptions and carveouts in the tax code.
Taken together the Ministry argues that the current system hurts both economic competitiveness and the state’s ability to administer the tax system. They set out a reform agenda that they claim will address these problems be reducing the number of taxes while also reducing the number of exemptions. Philosophically, the reform aims to focus on taxing consumption while incentivizing investment.
In order to dig into the reform itself, we’re going to focus on 4 main areas:
Company profit taxes
Salary taxes
Value Added Tax (VAT)
Special Tax Regimes
Property taxes, local taxes and other changes
1) Zero Percent Tax on Reinvested Profits
Currently large companies in Moldova pay a 12% tax on profits and a 6% tax on dividends. This means that even if those initial profits were fully reinvested in the company (hiring new staff, buying new equipment, opening a new location, etc) they are taxed.
The headline announcement is that this reform zeros out taxes on reinvested profits, but things are a bit more complicated than that.
Quick Background:
A separate reform was passed in 2023 to zero the tax for reinvested profits for Small and Medium Sized Enterprises (SMEs). After this reform, the 12%+6% rate was maintained on distributed profits but no taxes are paid by SMEs on profits that are reinvested in the company.
The new reform expands this mechanism to all companies regardless of size but also raises the effective tax rate on distributed profits from ~18% (12%+6%) to ~21% (15%+7%).
Note - the idea of exempting reinvested profits from taxes has been a confounding political issue in the past 3 years for anyone paying attention. I’ll leave those details in a footnote1.
Impact - Mostly Good!
Most business owners will find this to be a positive reform. It encourages investment and growth and will help companies scale. In short…
Pros:
Tax breaks for companies that reinvest in growth
Large companies now benefit from this tax break
SMEs get this tax break codified into permanent law
Cons:
SMEs taxes go up from the current scheme - most SME owners pay themselves in dividends so this hits them personally