Corporate / M&A

Disbursing Dividends to Foreign Shareholders from Moldovan Limited Liability Companies: Practical Considerations

Statistically, as of 1 September 2012, the Moldovan trade register reflects information on over 162,000 registered entrepreneurs. Approximately 49% are limited liability companies (LLC). By 1 January 2012, the number of companies with foreign capital incorporated in Moldova exceeded 81001, most being limited liability companies. This article looks at what LLC management and shareholders must consider when deciding on dividends.


Under Moldovan legislation, foreign persons can freely incorporate LLCs in Moldova. In contrast with other jurisdictions, two-tier 100% subsidiaries in the form of LLCs are permitted. Further, foreigners may administer LLCs, subject to fulfilling local legislation requirements.

Under the Limited Liability Companies Act No. 135-XVI/2007 (Act No. 135), the decision on dividends is the exclusive competence2 of the general assembly of shareholders or sole shareholder (GAS). But certain formal steps must be observed.

Step 1: Annual reports; convocation of and decisions by the GAS

LLCs must submit income declarations3 and financial reports (other statutory reports) by 31 March of the year following the end of the financial year4. Such reports are the LLC’s management obligation. To this end, the management must convene (not earlier than 30 days and not later than 90 days as of the end of the financial year) an ordinary GAS (OGAS). Under Art.75 of Act No. 135, the management must present the OGAS a report on its activity, the LLC’s annual profit-loss balance and inventory of assets, and other reports. Failure by the LLC’s management to convene an OGAS is a ground for management revocation.

Subject to fulfilling the quorum requirements, the OGAS must decide5 on the following:

    • approving the LLC’s annual reports of management or council, and internal and external auditors6 (if any);
    • approving the profit-loss balance; and
    • approving the disbursement of net profits (dividends).

An OGAS can also decide on any other questions, such as: (i) regularisation of the corporate income tax; (ii) constitution of / contribution to the reserve fund7 (other funds); (iii) payment of bonuses; (iv) instruction to effect the withholding of income tax; (v) use of part of the net profit to pay bank commissions8 in connection with the dividends; and (vi) instruction to obtain certificates attesting tax withholdings.

All above decisions must be taken by 1/2 plus one vote of the LLC’s shareholders and by an open vote, unless otherwise provided in the constitutive documents. Shareholders may alter the mechanism of proportional disbursement of dividends if a unanimous vote of all shareholders is mandatory (Art.39(2), 58(1)1) of Act No. 135).

Payment of dividends is subject to the following requirements:

  • only shareholder(s) can decide on the size of dividends to be paid;
  • dividends can be paid out only upon payment of the pertaining taxes (eg, corporate income tax of 12% of the profit, withholding tax, etc.);
  • dividends are paid to shareholder(s) proportionally to their share stakes, unless otherwise decided by all shareholders;
  • dividends are to be paid within 30 days from the GAS decision, unless otherwise agreed by all shareholders;
  • dividends may not be paid: (i) before all contributions into the share capital are fully wired; (ii) if, after payment, the LLC’s net asset value will decrease under the LLC’s size of share capital plus size of its reserve fund; and (iii) in case of insolvency proceedings or if the payment can cause insolvency.
  • dividends paid in breach of the above are subject to reimbursement.

Should the management fail to convene an OGAS, any shareholder holding more than 10% of the voting rights may demand a convocation of the GAS.

In LLCs with one shareholder, the decisions are to take the form of resolutions of the sole shareholder.

Step 2: Protocol of GAS; withholding; execution

The protocol of the GAS must be signed by all shareholders, except when the LLC’s statute provides that it must be signed by the president of assembly jointly with the person drafting the text (Art.56(4) of Act No.135). Although there is no obligation to legalise signatures on protocols, it is good practice to legalise9. If made outside Moldova, legalisation must be accompanies by an apostille or super-legalisation, except when bilateral treaties on recognition of civil documents are in place (eg, Romania, Ukraine, etc.).

If made in a language other than Romanian, the protocol must be translated and legalised10.

Upon receiving the GAS’ protocol, it must be executed by the LLC’s management.

Foreign shareholders residing in countries with which Moldova has a double taxation treaty (DTT) should produce tax residency certificates before the LLC makes payments. Tax residency certificate presented on time oblige the LLC to apply the reduced withholding under the DTT11.

Should no DTT be in place or in case of failure to produce tax residency certificate, the LLC applies a local withholding tax of 6% on the dividends12. The local tax will likely not be accepted abroad for the purpose of avoiding double taxation.

Upon completing dividend payments, it is recommended the management report this fact to the shareholder(s).

Step 3: Proof of paid income tax

LLCs must report withholding taxes retained on behalf of non-residents.

To prove the paid income tax, either the LLC or foreign shareholder may apply (in the year following the year in which tax was paid) for a certificate13. The certificate is issued by the Main State Tax Inspectorate of Moldova. The certificate can then receive an apostille, if required14.

Should no double taxation treaty be in place or in case of failure to produce tax residency certificate, the LLC applies a local withholding tax of 6% on the dividends. The local tax will likely not be accepted abroad for the purpose of avoiding double taxation.

Art.39, 49 of the Act No. 135.
Moldovan Tax Code.
A financial year in Moldova lasts: 1 January – 31 December.
Art.50(3) of Act No. 135. Please also note such decisions cannot be made by correspondence.
Internal auditor not compulsory if number of shareholders below 15 (Art.77 of Act No. 135).
Art.31 of Act No.135: each LLC must constitute a reserve capital (fund) amounting to not less than 10% of its share capital.
In practice, when dividends in high amounts are involved, to avoid discussions on whether bank commissions pertaining to payments are tax deductible, shareholders often agree to cover such costs from the net profit.
Such approach reduces the risk that local authorities challenge/refuse to recognise GAS decisions.
A Moldovan may refuse to legalise a translation if the original is not an official document.
Eg, 5% on the amount of the gross dividends if the shareholder is a resident of Austria and holds at least 25% of the share capital of the LLC (Art.10 of the Moldova-Austria DTT).
Art.90¹ of Tax Code.
Government Decision no.9/2010.
Government Decision no.163/2007.