Moldova France tax treaty: New partnership starting soon

On 15 June 2022, France and Moldova signed a tax treaty. The treaty will come into effect once the legislative processes for approval and ratification in both countries have been finished. This eliminates double taxation for companies and individuals doing cross-border business and strengthens the economy. The Ecovis experts know the details.

France is one of the leading investor countries in Moldova with EUR 124 million of French investments in 2019. This bilateral tax agreement is an important step forward in strengthening French economic and financial ties with Moldova. The bilateral agreement will provide a treaty framework for the elimination of double taxation for both companies carrying out cross-border operations and individuals. It will also strengthen the possibilities for fighting tax abuse, tax evasion and tax fraud.

These are the main features of the bilateral tax treaty

• Taxes concerned:
  • For France: Corporate income tax and additional contributions, personal income tax and social security contributions (CSG and CRDS) – it does not cover wealth tax, inheritance duties and donation duties
  • For Moldova: Income tax
• Permanent establishment (Article 5): A construction or assembly site constitutes a permanent establishment only if its duration exceeds nine months in any twelve-month period.
• Dividends (Article 10): The withholding tax rate is limited to 10% of the dividend gross amount (reduced to 5% if the beneficial owner is a company resident in the other contracting state which holds at least 10% of the capital of the company paying the dividends throughout a period of 365 days including the day of payment of the dividends). The concept of dividends covers disguised or hidden distributions. Specific rules apply when the dividends are derived from income or gains from immovable property by an investment vehicle established in a contracting state.
• Interest (Article 11): The withholding tax rate shall not exceed 5% of the gross amount.
• Royalties (Article 12): Royalties are considered as the remuneration paid concerning a literary, artistic or scientific work, a patent, trademark, design or model, a secret plan, formula or process and for information concerning industrial, commercial or scientific experience. The withholding tax rate shall not exceed 6% of the gross amount.
• Capital gains (Article 13): Capital gains on the sale of immovable property may be taxed in the state where the property is situated. The same applies to capital gains on the disposal of securities of companies (or trusts or any other entity) with a predominance of real estate, such preponderance being assessed over the 365-day period preceding the disposal in question. Capital gains on the sale of securities of other companies are taxable in the state of residence of the seller.
• Elimination of double taxation (Article 21): With regard to France, application of the generalised tax credit method, equal to, depending on the nature of the income, either the amount of tax paid in Moldova up to the limit of the French tax corresponding to the income, or the amount of French tax, provided that the French resident is effectively subject to Moldovan tax on the said income.

The tax treaty between France and Moldova facilitates and strengthens economic relations.

Vanessa Raindre, Tax partner, MD Legal, Paris, France

Unless the relevant authorities specify otherwise, a residency certificate must be provided to benefit from the reduced withholding tax rates (Article 28).

Other provisions of the agreement

The tax treaty also includes provisions for non-discrimination (Article 22), for the exchange of information (Article 24) and for tax recovery assistance (Article 25). A general anti-abuse clause is provided in Article 27 to ensure that the granting of an advantage provided for by the treaty is not one of the main purposes of a scheme or transaction that has made it possible, directly or indirectly, to obtain it.

For further information please contact:

Vanessa Raindre, Tax partner, MD Legal, Paris, France
Email: vanessa.raindre@mdlegal.fr