Moldova - 3-Legal RegimeMoldova - Legal Regime

Transparency of the Regulatory System

The Moldovan government publishes significant laws in draft form for public comment. Draft laws are also available on-line on the website of Moldovan Parliament. Business and trade associations provide other opportunities for comment. The working group of the State Commission for Regulation of Entrepreneurial Activity, which was established as a filter to eliminate excessive business regulations, meets weekly to vet draft governmental regulations dealing with entrepreneurship. The working group's meetings are open to interested businesses. Laws and regulations are published in the official gazette called Monitorul Oficial, while a database of laws and regulations is available online at lex.justice.md.

Bureaucratic procedures are not always transparent, and red tape often makes processing registrations, ownership, etc. unnecessarily long, costly, and burdensome. Discretionary decisions by government officials provide room for abuse and corruption. While the government has adopted a number of laws to improve the business environment and reduce excessive state controls and regulation, effective implementation of these laws is often lacking.

Moldova made a commitment to implement International Financial Reporting Standards (IFRS) in 2008. Since January 1, 2015, Moldova has been applying new national accounting standards based on IFRS and EU directives. Use of IFRS has been required by law for all public interest entities since 2011. Public interest entities are defined as financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities.

The Foreign Investors Association (FIA) was established in 2004 with the support of the OECD. The FIA engages in a dialogue with the government on topics related to the investment climate and produces an annual publication of concerns and recommendations for the improvement of the investment climate. In 2006, the American Chamber of Commerce (AmCham) registered in Moldova, representing another voice for the business community. In 2011, a group of ten large EU investors founded the European Business Association (EBA.) The three largest foreign business associations – AmCham, FIA and EBA – handed the government a list of business constraints and recommendations to improve the investment climate.

Since 2008, the National Business Agenda supported by the U.S. Center for International Private Enterprise (CIPE) has organized 30 domestic business associations, putting forth an annual list of priorities in their dialogue with the authorities. These priorities deal with the general business environment and regulatory framework.

Since 2004, the government has been taking steps to reduce excessive government regulation of business activity. All regulations and governmental decisions related to business activity have been published in a special business registry "Register of Regulations on Business Activity" in order to raise the awareness of business people about their rights, increase the transparency of business regulations and help fight corruption. The Law on Basic Principles Regulating Entrepreneurial Activity was passed in August 2007. The government has started applying a regulatory impact assessment (RIA) to all draft laws and acts bearing on business activity to enhance transparency in the drafting of laws and regulatory acts.

As part of a USAID-backed program, the Ministry of Economy reviewed the number of permits and authorizations issued to businesses as well as the number of authorities issuing such documents. As a result, government approved a list of business permits and authorizations and banned governmental agencies and inspections from issuing or requesting any form of documents not included in the list.

In 2012, parliament passed a law to introduce clear and uniform rules for the release of information and standardized documents through a "one-stop window."

The World Bank Cost of Doing Business 2016 survey shows that the time spent by companies dealing with regulatory authorities decreased in 2016, after a decade of no meaningful change. Despite reported improvements, the survey notes that only 13% of business managers consider that the business climate really improved in 2016. 60% of managers do not see significant change, while 27% believe it has worsened.

In 2016, the government made a decision to merge several agencies – the State Registry, Cadastral Office, the Licensing Chamber, State Registration Chamber and Civil Status Archive – into a Public Service Agency.

International Regulatory Considerations

European integration is a fundamental priority for Moldova’s current government. The Association Agreement (AA) including a Deep Comprehensive Free Trade Area (DCFTA) significantly strengthens Moldova’s political association and economic integration with the European Union. The AA/DCFTA has binding regulatory provisions committing Moldova to a reform agenda and to approximating domestic legislation to EU standards in a range of areas including corporate law, labor, consumer protection, competition and market surveillance, general product safety, tax, energy, customs duties, public procurement, etc. Under the DCFTA, Moldova will gradually abolish duties and quotas in mutual trade in goods and services, and will eliminate non-tariff barriers by adopting EU rules on health and safety standards, as well as intellectual property rights, among others. The agreement contains a timeframe for implementation of provisions with deadlines of up to ten years.

Moldova has been a member of the World Trade Organization (WTO) since 2001 and, as such, is a signatory to the General Agreement on Trade in Services (GATS), the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These agreements contain major investment-related provisions, such as opening to the establishment of foreign service providers, prohibition of local-content, trade-balancing and domestic-sales requirements (TRIMs), and protection of intellectual property of investors (TRIPS). No major inconsistencies with WTO TRIMS have been reported.

As a WTO member, Moldova has to notify draft technical regulations to the WTO Committee on Technical Barriers to Trade.

As a result of negotiations connected with Moldova's accession to the WTO, modern commercial legislation was adopted in accordance with WTO rules. The main challenges to the business climate remain the lack of effective and equitable implementation of laws and regulations, and arbitrary, non-transparent decisions by government officials who may apply measures that put domestic producers at an advantage in relation to foreign competitors in certain areas. For example, an environmental tax is applied on bottles and other packaging of imported goods, while such a tax is not levied on bottles and packaging produced in Moldova. Additionally, the government may cite public security or general social welfare as reasons to intervene in the economy in contravention of its declared respect for market principles.

Legal System and Judicial Independence

Moldova has a civil law legal system with codified laws that govern different aspects of life, including business, trade, and economy. The country’s legal framework consists of its constitution, organic, and ordinary laws passed by the parliament and normative acts issued by the government and other public authorities. Moldovan courts are nominally independent from government and political interference, but suffer from low efficiency and lack of popular trust.

Starting 2003, the court system has undergone several changes that eliminated economic courts, which were seen as fertile soil for corruption, and currently consists of lower courts (i.e. trial courts), four courts of appeal, and the Supreme Court of Justice.

Moldova is preparing a new justice reform strategy while extending the implementation period for a current reform strategy ending in 2016 due to delays during the implementation period.

Parliament passed amendments in 2016 optimizing the country’s court system as part of the larger justice sector reforms, which will reduce the number of trial courts in Moldova. All specialized courts such as the Commercial Circumscription Court and Military Court will cease their activities. Five trial courts from Chisinau will be merged into one court - the Chisinau trial court, while that Chisinau court’s jurisdiction will also include adjudication of commercial disputes.

In 2016, Moldova continued reforms in the prosecution system. Two specialized independent prosecution offices were created. The Anticorruption Prosecution Office is responsible for investigating and prosecuting, corruption, bribery and abuse of power by public officials. The Prosecutor’s Office on Combating Organized Crime and Special Cases will investigate and prosecute organized crime, including tax evasions, smuggling, intellectual property crimes, trafficking in persons, drugs, etc.

The government has also reformed the public integrity system by creating the National Integrity Agency (NIA) – the successor to the National Integrity Commission. The new Integrity Agency will be staffed with 30 investigators who will be in charge of checking public officials’ financial disclosures, properties and conflicts of interests. However due to the lack of funding and burdensome administrative planning, the Agency has yet to start functioning.

Also, in 2016 parliament passed a new law on disclosure of assets and conflicts of interest by public officials. This law, long-awaited by Moldovan civil society, will broaden and improve the competencies of integrity-checking authorities to oversee public officials’ integrity. Parliament has also introduced new statutes in the Criminal Code criminalizing the misuse of international assistance funds. This statute will help identify and investigative any corruption or misuse of international donors’ assistance by Moldovan public officials in public acquisitions, technical assistance programs, and grants.

Laws and 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.

Competition and Anti-Trust Laws

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.

Expropriation and Compensation

The Law on Investment in Entrepreneurship states that investments cannot be subject to expropriation or to measures with a similar effect. However, an investment may be expropriated if the expropriation is done for purposes of public utility, is not discriminatory, and is done with just compensation. If a public authority violates an investor's rights, the investor is entitled to compensation equivalent to the actual damages at the time of occurrence, including any lost profits. Compensation must be paid in the currency in which the original investment was made or in any other convertible currency.

The government has given no indication of intent to discriminate against U.S. investments, companies or representatives by expropriation, or of intent to expropriate property owned by citizens of other countries. No particular sectors are at greater risk of expropriation or similar actions in Moldova.

Since 2001, the government has cancelled several privatizations, citing the failure of investors to meet investment schedules or irregularities committed during privatization. While the government agreed to repay investors in such disputes, investors have had to apply to the European Court of Human Rights (ECHR) to enforce compensation payments. The government has been compliant with the ECHR rulings involving foreign businesses.

In the past, the limit on foreign ownership of agricultural land was reportedly used in lawsuits as an argument against foreign companies.

Dispute Settlement

ICSID Convention and New York Convention

In 2011, Moldova ratified the Convention on the International Center for the Settlement of Investment Disputes (ICSID - Washington Convention). The country also ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of April 21, 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of December 17, 1962.

Investor-State Dispute Settlement

Moldova is signatory to a number of bilateral investment treaties (see chapter 3 above), including the U.S.-Moldovan Treaty Concerning the Encouragement and Reciprocal Protection of Investment, which make binding international arbitration of investment disputes. There have been no known claims made by U.S. investors under the treaty.

Local courts recognize and enforce foreign arbitral awards against the government. There are no known cases when the Moldovan government denied voluntary payment under an arbitral award rendered against it.

The government has had a history of depriving investors, both national and foreign, of their businesses in various forms. Most of them sued the government at the European Court for Human Rights for violation of the right to fair trial and of the respect for property.

International Commercial Arbitration and Foreign Courts

Private parties may choose alternative dispute resolution mechanisms instead of going to courts. Moldovan law provides the options of mediation and arbitration. The arbitration legislation is modeled after UNCITRAL rules. There are a number of arbitration bodies available in Moldova, among them the most popular is the arbitration court of the Moldovan Chamber of Commerce and Industry. The American Chamber of Commerce in Moldova (Amcham Moldova) has recently set up the Chisinau Court of International Commercial Arbitration (CACIC) under its aegis.

Moldova is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Domestic courts recognize and enforce foreign arbitral awards.

Recognition and enforcement of foreign judgments are regulated by a complex framework of documents, including the Code for Civil Procedures, international conventions and bilateral treaties. Therefore, depending on the nationality of the court, Moldovan courts may apply different legal norms in examining the enforcement of foreign judgments. However, as a general rule, foreign judgments are enforceable in Moldova on reciprocity basis.

Moldova’s court system generally enjoys a low level of public trust and is perceived to be vulnerable to acts of corruption, while court processes lack transparency. The overall expectation in court hearings involving representatives of public authorities, including economic entities, is that final court rulings will be in favor of state representatives.

Bankruptcy Regulations

In terms of resolving insolvency, the World Bank ranks Moldova 60th out of 190 economies in 2016. Moldova scores below the regional average and trails EU members in central and eastern Europe. The country has changed its insolvency law to grant priority to secured creditors and to ease insolvency proceedings by introducing new restructuring mechanisms, reducing opportunities for appeals, adding moratorium provisions, establishing strict statutory periods in the proceedings and enhancing the role of insolvency administrators. The law has also introduced expedited insolvency proceedings.