Approved by the Ministry of the Republic of Moldova of November 1, 1999 No. 05/1-2-07/586

PROVISION ON APPLICATION OF THE VALUE ADDED TAX

This provision is developed based on the Tax code, the Section III "Value added tax" N1415-XIII of December 17, 1997, taking into account changes and additions made by the Law N112-XIV of 29.07.98 and the Chart of accounts of the financial accounting of financial and economic activities of the companies approved by the Order of the Ministry of Finance N174 of December 25, 1997. The provision establishes procedure for calculation, payment and reflection of the value added tax in financial accounting.

CHAPTER I. Concept of the value added tax (VAT)

1. Consumption tax of goods and services

The VAT represents withdrawal form in the budget of part of cost of the delivered goods, the rendered services, taxable in the territory of the Republic of Moldova, and also part of cost of leviable goods, the services imported to the Republic of Moldova. The VAT is the consumption tax which is paid on wide range of products and services, except for those which according to article 103 of the Tax Code are exempted from the taxation.

The tax can be paid on each of stages of the address of goods before its final consumption. The similar procedure is established also when rendering services if more than one subject of the taxation participates in rendering services to the last consumer.

2. Tax on imported goods, inventory items

Imported goods, inventory items can be intended for direct consumption in the country by the consumer, including their use in production process which leads (or does not bring) to further realization. The VAT is levied when importing as is consumer tax, and is subject to offsetting if goods, inventory items are imported by subjects of the taxation for the entrepreneurial purposes. The VAT for imported goods, inventory items is subject to payment at the time of passing of customs procedures, at the same time the cost from which the tax is calculated and paid, the cost of goods and inventory items, including all accompanying costs on delivery of these goods and inventory items, taxes, duties and charges which are subject to payment when importing is. Actual cost is established on the basis of the supplier invoice, other business documentation, such as contracts, commodity-transport delivery notes, brochures of the prices or according to other procedure established by the legislation. The accompanying costs include the costs connected with the goods delivery, inventory items, insurance and also any other charges which are subject to payment in case of purchase of goods and inventory items.

3. Tax on the exported goods and services

Commodity export and services and all types of the international passenger and freight transportation is performed on zero rate of the VAT with compensation of the tax which is subject to payment on the acquired goods, inventory items and services used in the entrepreneurial purposes.

4. Rates of the value added tax

Two rates are provided in the Section III of the Tax code:

a) the standard rate applied to all leviable deliveries of goods and services (the standard rate is established in the amount of 20% and changes according to the decision of Parliament);

b) the zero rate applied to all exported goods and services, other goods and services according to article 104 of the Tax Code.

5. Subjects of the taxation

The legal entities and physical persons performing business activity and registered as subjects of the taxation according to provisions of article 112 of the Tax Code shall pay the VAT to the budget for each tax period, according to data of the declaration on the VAT which these subjects of the taxation shall represent to territorial State tax authorities.

The legal entities and physical persons performing business activity, obliged to notify territorial State tax authorities on need to be registered as the payer of the VAT, but which did not fulfill this requirement are also subject to the taxation. If such persons perform deliveries of the goods and services which are not exempted from the VAT which cost exceeds the admissible limit set in article 112 of the Tax Code then these deliveries are leviable and territorial State tax authorities shall demand to pay receivable tax.

The legal entities and physical persons importing services (article 93 Item 8 of the Tax code), shall consider these deliveries as if they performed them. If the cost of these deliveries (services) or their cost in case of addition to the cost of leviable deliveries of the goods and services performed in the territory of the Republic of Moldova during the certain period of time exceeds the limit set in article 112 of the Tax Code, then this business entity will shall be registered as the subject of the taxation of the VAT.

The legal entities and physical persons importing goods to the Republic of Moldova are subjects of the taxation and pay tax when importing, except for the physical persons importing goods for private use or consumption within the restrictions set in the law on the budget for the corresponding year.

6. Taxation objects

The taxation objects are determined in article 95 of the Tax Code. Them are all goods and services, except for exempted according to article 103 of the Tax Code, all goods and services (which are not exempted according to the Tax code) delivered by the subject of the taxation for the purpose of implementation of business activity by it in the Republic of Moldova, imported to the Republic of Moldova, except as specified, when the physical person imports goods to the Republic of Moldova for the personal purposes and if their cost does not exceed the limit set in the law on the budget for the corresponding year.

The physical person importing goods for the personal purposes which cost exceeds the limit set in the law on the budget for the corresponding year shall pay the VAT when passing customs procedures. The VAT is paid on effective rate on the cost of goods which exceeds the set limit. The cost of imported goods shall include the excise, customs duties, charges which are subject to payment when importing.

7. Independent determination of tax

Each legal entity or physical person registered as the payer of the VAT shall determine independently the amount of the tax liability or when it is authorized the Section III of the Tax code, to require compensation of tax.

The subjects of the taxation, legal entities and physical persons registered or which are subject to registration as payers of the VAT according to provisions of article 112 of the Tax Code shall fill in declarations on the VAT for each tax period, providing complete and exact information about the tax liabilities. Declarations are submitted within the terms established according to provisions of article 115 of the Tax Code.

For determination of tax it is necessary to keep proper account of all transactions connected with the taxation according to article 118 of the Tax Code. The territorial State tax authorities shall not calculate the tax liabilities for subjects of the taxation, however it is authorized to control correctness of determination of the amount of payable tax and submission of declarations on the VAT at the scheduled time.

If the subject of the taxation does not keep proper account of the performed operations that leads to inclusion of the wrong and incomplete information in declarations, then sanctions can be applied to this subject. The legal entities and physical persons registered as subjects of the taxation shall keep such account which would allow them to calculate precisely afterwards tax amount on acquired goods, inventory items and services, subject to offsetting, and also the tax which is subject to payment on the deliveries of goods and services performed by them.

8. Examples on application of the value added tax

Example 1.

The company A acquires the raw wool at local producer of wool from which makes and further paints woolen thread. If during the certain period to carpet factory the company A realizes thread on the amount of 100000 lei, then the carpet factory will pay to the company A - producer of VAT thread in the amount of 20000 lei (20% from 100000). In the invoice VAT which is written out by the company A the amount (100000 @ 20000 VATes), total 120000 lei shall be specified. If to assume that during the same period of time the company A which is making and painting woolen thread acquired on 25 000 lei the raw wool (raw materials) and other materials and services (fuel, electricity, spare parts, accounting services), then this company A will shall pay the VAT in the amount of 5000 lei (25000х20%) concerning these deliveries to the companies to suppliers. The amount of 30000 lei will be the total cost specified in the invoice, which is subject to payment by the company A (25000 @ 5000).

In the declaration VAT for this period the company A making woolen thread will shall specify cost of the made and delivered goods in the amount of 100000 lei and the cost of acquired inventory items, taxable, in the amount of 25000 lei, and also the VAT amount paid to suppliers in the amount of 5000 lei and the VAT amount received by delivery of goods in the amount of 20000 lei. The tax amount on the made and delivered goods, subject to payment in the budget, constitutes 15000 lei (20000 - 5000). The value added of the company A making woolen thread for this period makes 75000 lei (100 000 - 25 000).

Example 2.

The carpet factory during the same period of time acquired colored woolen thread on the amount of 100000 lei, and she paid 20000 lei in the form of the VAT to the company A making thread. Let's assume that the producer (carpet factory) placed the most part of material on warehouse, and from remaining balance makes and sells carpets at retail for the total amount of 50000 lei in the same period. The carpet factory shall collect 20% of the VAT for the amount of goods delivered them from each retailer that in the amount shall constitute 10000 lei (50000х20%). During the same period the carpet manufacturing factory could acquire other taxable goods and services (energy, repair of the equipment, office furniture) on total cost of 10000 lei, at the same time having paid 2000 lei in the form of the VAT to suppliers of such goods and services.

In the declaration on the VAT for this period the carpet manufacturing factory shall specify the cost of the acquired material values the amount of 110000 lei (100000 @ 10000) and the amount of the made and delivered goods on the amount of 50000 lei. The declared tax on the delivered goods will constitute 10000 lei (20% from 50000), and the tax on goods purchased, inventory items becomes engrossed in reading on the amount of 22000 lei (20000 on account of the acquired wool and 2000 on account of other goods purchased, inventory items). The tax in the budget is not paid for this period, and the carpet factory will shall transfer tax offsetting in the amount of 12000 lei (22000 taxes on acquired material values minus 10000 taxes on the made and delivered goods) to the following tax period.

Example 3.

The retailer during the certain period of time acquired at carpet manufacturing factory carpet products for the total amount of 5000 lei and paid to carpet factory VAT in the amount of 1000 lei. The retailer also acquired tulle for total amount, not including the VAT, 2500 lei also repaired show-window in the shop on the amount of 500 lei, not including the VAT. Thus, the retailer will shall pay for these deliveries to the suppliers the VAT for the total amount of 600 lei (2500x20% @ 500x20%). In case of determination of the prices of carpet products the retailer shall consider that these prices shall include the VAT (20% of goods cost excluding VAT), at the same time the VAT will not be part of its income from business. Let's assume that the retailer realizes to the population household goods (carpets), and its goods turnover, including the VAT, for the same period constituted 18000 lei. The retailer does not issue the invoices VAT to the buyers (in case of lack of the address about it), however shall keep daily account for determination of total sales for the corresponding period and calculate payable tax. In this example of the VAT, subject to payment, constitutes 3000 lei (when the VAT is not allocated in payment documents, its size is determined in the settlement way as the work of cost of goods and services at the settlement size equal to 16,67).

In the declaration on the VAT for the corresponding tax period the retailer specifies the cost of the acquired material values - 8000 lei (5000 @ 2500 @ 500), and also the cost of the delivered goods - 15000 (18000-3000). Thus, the tax on the delivered goods will constitute 3000 lei, and the tax on the acquired material values which is subject to offsetting will constitute 1600 lei (1000 - on carpet products, 500 - on tulle for curtains and 100na repair of show-windows). The tax which is subject to payment by retailer in the budget will constitute 1400 lei (3000-1600). The value added by the retail company will constitute 7000 lei (15000-8000).

Import

Example 4.

If the company in the first example imported the raw wool, then it owed pay the VAT of 20% when importing wool. If according to the invoice VAT the cost of the wool brought by supplier company to the Australian port in dollar equivalent constituted 50000 lei, at the same time loading cost and cargo insurances until its obtaining by the company for production of colored woolen thread in the Republic of Moldova (to the terminal on Danube) made 25000 lei, then the cost of import will constitute 75000 lei. The VAT which is subject to payment at customs will constitute 15000 lei, however, having assumed that the company for production of thread performed leviable delivery of the products in the Republic of Moldova, it will need to include this amount of the declaration on the VAT as offsetting of tax on the acquired inventory items (for offsetting on account of the tax which is subject to payment in case of realization).

Example 5.

If the physical person imports the computer from Germany, then payment of the VAT by it depends on number of circumstances. If this computer is intended for implementation of business activity in the Republic of Moldova, then the VAT is paid irrespective of computer cost. The price paid for these goods (specified in supporting documents or established by other method, stipulated by the legislation), plus costs for loading, the customs duties, other charges which are subject to payment will be the taxation object.

Export

Example 6.

If the producer in example 2 except deliveries on realization of carpets in the republic performed export of carpets to Romania on total cost of 75000 lei, then the amount of the arisen exceeding of the VAT paid on acquisitions over received from realization, possible to compensation on export will constitute 12000 lei. This amount does not exceed the limit determined by application of standard rate of tax to the total amount of cost of the exported deliveries for the corresponding tax period (Article 101 (3) the Tax code) - 15000 lei (75000х20%), and can be requested by the payer to compensation (according to conditions and requirements of the Regulations on compensation of tax amounts of value added approved by the Ministry of Finance).

CHAPTER II. Leviable deliveries

9. Delivery of goods

According to the Section III of the Tax code, "delivery of goods" means transfer of property on goods by means of realization, exchange, transfer without payment, with partial payment, salary payment in kind, other payments. Deliveries become leviable when they, without being exempted from the VAT, are performed by means of or in the course of business activity by the legal entities or physical persons registered or which are subject to registration according to article 112 of the Tax Code. The concept of deliveries of goods is this in Articles 93 (3), (5) and 105 Tax codes. Delivery of goods is transfer of goods to property from one business entity to another. If registration of the subject of the taxation as payer of the VAT is cancelled for one reason or another, then according to the Tax code this subject in which property there are goods, shall for date of cancellation of registration on the remained goods to pay tax, except for those goods which are tax-exempt. Transfer of the right to implementation of business activity according to article 107 of the Tax Code is not leviable delivery.

The delivery of goods performed by the subject of the taxation is considered leviable delivery of goods:

- for money

- in exchange for other goods, services (irrespective of whether money payment is part of all payment or not), or

- instead of certain obligations, such as salary payment or others. If the subject of the taxation appropriates the goods, services acquired by it for use in business activity for personal or non-commercial purposes, then such delivery is considered also delivery of goods, services. Delivery is transfer by the subject of the taxation of the property right to the goods and inventory items acquired and used as pledge or as instrument for ensuring of loan, or other obligation.

According to article 105 of the Tax Code the following deliveries are considered as deliveries of goods:

delivery of electrical and heat energy, and also gas;

the delivery of services integrated to delivery of goods.

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