Taxes are an important part of our lives, and despite their significance, many people still do not understand how they work and why they need to be paid.
We explain what taxes are, what types of taxes exist, what their rates are, and how to manage them properly without getting confused.
We provide tax consulting services to help you understand the complexities of tax legislation and avoid mistakes in calculations.
What are taxes?
Taxes are mandatory payments that citizens and companies pay to the state.
These funds are used to finance public goods and services, such as:
Simply put, taxes are the way the government collects money for the common good and regulates the activities of individuals and legal entities.
- education
- healthcare
- road construction
- public safety
Simply put, taxes are the way the government collects money for the common good and regulates the activities of individuals and legal entities.
Main functions of taxes
Taxes serve several important functions in the economy:
Fiscal function. The main goal of taxes is to provide the state with funds to finance social programs, infrastructure, healthcare, and education.
Distributive function. Taxes help redistribute income among different segments of the population, reducing inequality and providing social support to those in need.
Regulatory function. Through taxes, the state can stimulate or restrict certain activities. For example, high excise duties on alcohol and tobacco are intended to reduce their consumption.
Control function. Taxes also play a role as a control tool, allowing the state to monitor the income and expenses of citizens and companies, contributing to a more transparent financial system.
Distributive function. Taxes help redistribute income among different segments of the population, reducing inequality and providing social support to those in need.
Regulatory function. Through taxes, the state can stimulate or restrict certain activities. For example, high excise duties on alcohol and tobacco are intended to reduce their consumption.
Control function. Taxes also play a role as a control tool, allowing the state to monitor the income and expenses of citizens and companies, contributing to a more transparent financial system.
Types of taxes
There are two types of taxes: direct and indirect. Direct taxes are paid directly to the budget by individuals or legal entities, while indirect taxes are included in the price of products and paid by buyers.
In Moldova, there are several types of taxes, each with its own characteristics and purposes. Let's look at the main ones:
Income tax. This tax is levied on the income of individuals and legal entities. Anyone who receives a salary or profit is required to pay income tax. The income tax rate may vary depending on the level of income. The standard rate is 12%.
Value-added tax (VAT). VAT is an indirect tax levied on the sale of goods and services. It is added to the price of the product and paid by the end consumer. In Moldova, the VAT rate is 20%, but some goods and services may have exemptions (0% or 8%).
Social contributions and medical insurance. Employers and employees contribute to social funds (24%), which are used to finance pensions and other social benefits. They also pay for medical insurance (9%), which allows access to healthcare.
Property tax. This tax is levied on owners of real estate or vehicles. The amount of the tax depends on the value of the property and its type.
Excise taxes. Excise taxes are applied to certain goods, such as alcohol, tobacco, and fuel. These taxes help limit the consumption of harmful goods while providing additional revenue to the national budget.
Unified tax for IT park residents. Companies registered in Moldova's IT park pay a unified tax of 7% on sales. This tax replaces most other taxes, including income tax, social contributions, and VAT. Such an approach simplifies the tax system for IT companies and stimulates the development of the country's technology sector.
Value-added tax (VAT). VAT is an indirect tax levied on the sale of goods and services. It is added to the price of the product and paid by the end consumer. In Moldova, the VAT rate is 20%, but some goods and services may have exemptions (0% or 8%).
Social contributions and medical insurance. Employers and employees contribute to social funds (24%), which are used to finance pensions and other social benefits. They also pay for medical insurance (9%), which allows access to healthcare.
Property tax. This tax is levied on owners of real estate or vehicles. The amount of the tax depends on the value of the property and its type.
Excise taxes. Excise taxes are applied to certain goods, such as alcohol, tobacco, and fuel. These taxes help limit the consumption of harmful goods while providing additional revenue to the national budget.
Unified tax for IT park residents. Companies registered in Moldova's IT park pay a unified tax of 7% on sales. This tax replaces most other taxes, including income tax, social contributions, and VAT. Such an approach simplifies the tax system for IT companies and stimulates the development of the country's technology sector.
How are taxes calculated and paid?
Each tax has its own specifics of calculation and payment.
For example, income tax is withheld by the employer from the employee's salary and transferred to the budget. VAT is added to the price of the product or service and paid by the consumer upon purchase. Social contributions and medical insurance contributions are also withheld from the salary and paid by the employer. Property tax is calculated based on the value of real estate or vehicles and paid annually. For excise taxes, the tax is included in the price of the product, and the consumer pays it upon purchase.
For example, income tax is withheld by the employer from the employee's salary and transferred to the budget. VAT is added to the price of the product or service and paid by the consumer upon purchase. Social contributions and medical insurance contributions are also withheld from the salary and paid by the employer. Property tax is calculated based on the value of real estate or vehicles and paid annually. For excise taxes, the tax is included in the price of the product, and the consumer pays it upon purchase.
How does the government use taxes?
Collected taxes are used to finance various government needs, such as:
- Social programs. Taxes are directed to support socially vulnerable groups, such as pensions and unemployment benefits.
- Infrastructure. The construction of roads, schools, hospitals, and other facilities is financed from tax revenues.
- Education and healthcare. The state uses collected taxes to fund the healthcare system and educational institutions, ensuring free services for citizens.
- Defense and public safety. A significant part of taxes goes to ensuring the country's defense capabilities and maintaining public order.
How not to get confused with taxes?
To avoid confusion in handling taxes and to avoid penalties for late payments, it's important to follow some simple recommendations:
– Create a tax calendar. Mark all important dates for paying taxes. This will help you avoid missing deadlines and possible penalties.
– Use accounting services. If you have a complex financial situation or are an entrepreneur, an accountant will help you calculate taxes correctly and submit all the necessary returns.
– Automate the process. Use specialized software to track income and expenses. This will significantly simplify tax calculation and reduce the risk of errors.
– Consult experts. Tax legislation can change, and it is important to keep track of these changes. Consulting professionals will help you stay informed.
– Create a tax calendar. Mark all important dates for paying taxes. This will help you avoid missing deadlines and possible penalties.
– Use accounting services. If you have a complex financial situation or are an entrepreneur, an accountant will help you calculate taxes correctly and submit all the necessary returns.
– Automate the process. Use specialized software to track income and expenses. This will significantly simplify tax calculation and reduce the risk of errors.
– Consult experts. Tax legislation can change, and it is important to keep track of these changes. Consulting professionals will help you stay informed.
Taxes – an important part of the financial system
Taxes are a complex but essential part of the financial system. Understanding the types of taxes, how they are calculated, and how to pay them will help you avoid problems and stay organized. By following simple recommendations, you can significantly simplify your life and ensure timely payment of taxes without unnecessary stress.
We offer tax advisory services that will help you calculate and pay taxes correctly and on time, avoiding penalties and errors. We ensure full compliance with tax legislation and help you understand any complex issues.