Moldova’s Initiatives to Attract International Businesses

The Eastern European nation of Moldova is continuing its efforts to draw in international companies, as it strives to overcome past political instability. “I went with a backpack, and set up a business,” stated Dutch entrepreneur Luc Vocks, recalling his move to Moldova in 2007. Mr. Vocks had first visited the former Soviet republic three years prior, and he remembers experiencing “the cliché that one would have of Eastern Europe at that time.” He added, “Everything was dirt cheap, and if you were a foreigner you’d get attention.” Today, Mr. Vocks is the proprietor of DevelopmentAid, a Moldovan company. Headquartered in the capital, Chisinau, it employs 180 individuals in the country and operates a website that lists job opportunities within the international development community. Mr. Vocks is among a growing number of foreign entrepreneurs in Moldova. The government aims to attract more individuals like him and anticipates that competitive business tax rates will be beneficial. The country’s standard corporation tax rate—the percentage firms pay on their profits—is merely 12%. This contrasts with 25% in the UK and 25.8% in the Netherlands, where Mr. Vocks initially launched his company before relocating it to Moldova. An even more favorable arrangement is available for technology firms. In 2018, the Moldovan government introduced an initiative to expand the country’s IT sector, known as the Moldova IT Park (MITP). This is not a physical business park; instead, it is a virtual program open to all IT companies in the country, as well as those wishing to move there from overseas. Firms that register are only required to pay a corporation tax rate of 7%. The MITP is part of a broader endeavor by the Moldovan government to modernize and expand its economy in preparation for a bid to join the European Union in 2030. This push is being led by Moldova’s pro-EU President Maia Sandu, who was re-elected for a second term this week. Furthermore, last month, Moldovans voted “yes” on constitutional changes supporting EU integration. However, the vote was exceptionally close, with “Yes” receiving 50.46% and “No” receiving 49.54%. Although Russia denied interfering in the vote, Moldova’s authorities reported attempts to purchase up to 300,000 votes, which Maia Sandu characterized as an “unprecedented assault on freedom and democracy.” Moscow opposes Moldova’s potential EU membership and provides economic, political, and military support to Transnistria, Moldova’s breakaway region. Dumitru Alaiba, Moldova’s deputy prime minister and minister for economic development and digitalization, expresses optimism about Moldova’s future direction. “Moldova in the past 10 to 15 years has really proven that it’s a country that can change very fast,” he told the BBC. “This used to be a highly corrupt country, a country where, exactly 10 years ago, a billion dollars from our central banks just disappeared.” “We are moving very fast towards joining the EU, and we are reforming our economy at top speed. Of course, we have a long way to go.” He highlighted Moldova’s improved position on the global Corruption Perceptions Index, compiled by the anti-corruption watchdog Transparency International. Out of 180 countries—where a lower ranking indicates less corruption—Moldova now stands at 76th place, an improvement from 91st a year earlier. He affirmed, “Now entrepreneurs can breathe freely without fear of repercussion, without fear of corrupt inspectors, without fear of a filthy justice sector that commits crazy abuses.” Mr. Vocks agrees that Moldova is now a considerably easier place to conduct business than when he first established his company there in 2007. “Back then, it was extremely bureaucratic. It was hard to get a residence permit. It was painful to register a company, especially as a foreigner.” He added, “It was painful intersecting with the tax agency. The banks were rough to work with.” Companies that are members of the MITP not only benefit from the 7% corporation tax rate. They are also exempt from employer social security contributions, and their staff do not have to pay income tax. Mr. Vocks enrolled DevelopmentAid almost immediately. The MITP has also streamlined immigration procedures through its IT Visa program. More than 2,000 companies are currently registered with the MITP, 300 of which have relocated from overseas. The most frequent countries of origin for these firms are the US, UK, Germany, Netherlands, and Ukraine. According to official figures, in the first half of 2024, MITP firms collectively generated €365m ($397m; £308m) in revenues. Now employing a total of 22,000 people, they are reported to contribute approximately 6% of the country’s GDP. While the MITP scheme has successfully boosted Moldova’s IT sector, the influx of foreign tech companies has significantly increased salaries in the industry. Sven Wiese, a German expat who founded a small IT services business in the country called Trabia, states that he is now finding himself priced out regarding employee compensation. He noted that the largest firms registered with the MITP can offer IT specialists more than €100,000 a year, “because that is still cheaper than hiring people within a bigger country like the US or Germany.” At the same time, he observed that many Moldovan IT sector workers still wish to leave the country. “Fewer people are now leaving Moldova, but emigration is still high.” Another negative factor is the ongoing conflict in neighboring Ukraine, which is likely causing some Western IT firms to hesitate about investing in Moldova. Mr. Alaiba expresses confidence that Moldova is safe “as long as the free world is supporting Ukraine.” Marina Bzovii, MITP’s administrator and an assistant professor at the Technical University of Moldova, already views Moldova as a regional business hub. “Moldova is connecting even Central Asia, countries like Kyrgyzstan, Tajikistan and Uzbekistan, who are culturally much further from Europe.” She concluded, “However, Moldova understands both of the cultures. So it’s the kind of business hub that Europe needs… and Chisinau is now really vibrant.”