Tax freedom for large investors in Transdniestria

PMR used to be the most industrialized part of the ex-MSSR and is dotted with factories throughout the length of the country

TIRASPOL (Tiraspol Times) - Will Pridnestrovie become Eastern Europe's answer to the famous Asian Tigers? That might be what some in Parliament are hoping. They are offering tax freedom to large investors who provide jobs and a fresh inflow of capitalism to the unrecognized country between Moldova and Ukraine.

In a move aimed at creating new jobs, legislators are offering tax freedom to foreign investors. For anyone with 5 million euros to invest, Pridnestrovie (unofficially also known as Transdniestria) is Europe's latest tax haven.

Sweeping reforms are bringing capitalism to a place that used to be Communist. Before the fall of the Soviet Union, Pridnestrovie was the most industrialized part of the MSSR, a now-dissolved union republic within the Soviet Union. Factories were run by "red managers" and Communist party bosses, with no room for private industry.

Today, the communist bosses are gone and private capital is welcome. So welcome, in fact, that Parliament is offering tax freedom to anyone who can create 100 jobs and is willing to commit to investing 5 million euros in their own business within a ten year time frame.

No Commie: Local-born Tiraspol MP Victor Guzun, 27, expects more foreign capital as a result of new tax breaks.

" - Introduction of innovations in any branch of the state’s economy requires considerable investments," says Victor Guzun, a member of Parliament. "Unfortunately, Pridnestrovie currently has no enough funds to promote progress in science and technology."

Guzun, 27, is one of the legislators on the Committee for economic policy, budget and finance which on Friday discussed amendments to Pridnestrovie's Corporate Tax Code.

Tax freedom for investment in job creation

Under current legislation, companies are exempt from a tax on revenues provided that they commit to investing 10 million Euros into production and employs at least 150 people within 10 years. In the two years since the law was passed, not a single company has yet qualified for tax relief, leading legislators to propose a lower threshold.

Under the amendments, the requirements for the companies engaged in the innovative activity to be given a tax privilege are to be lowered to half: A producer must invest 5 million Euros instead of 10 million Euros. The minimum requirement for job creation has also been lowered, from 150 to just 100 people.

The changes were proposed by Yevgeny Shevchuk, the reform-oriented Speaker of PMR's Parliament and leader of the pro-business Renewal party.

Fellow party member Mikhail Burla, Chairman of the Committee for economic policy, budget and finance, said: “The Law as amended will create new work places and will update technologies in Pridnestrovie’s economy."

Not everyone in the unrecognized country are as optimistic, with some pointing to neighboring Moldova's 17 year old territorial claim as a potential barrier preventing investor interest.

" - Attracting foreign investors is only thinkable after we become a republic with internationally recognized legal status," believes Alexander Golota, writing in one of Tiraspol's opposition newspapers, Man and His Rights in an article which was published earlier this week.

Export-oriented, industrialized economy

The members of the Committee sent the amendments of the Corporate Tax Code to parliament with the recommendation of approval.

" - In our opinion, the Bill will encourage development of new technologies to raise competitive ability of our companies," said Member of Parliament Victor Guzun.

Victor Guzun is a one of Pridnestrovie's youngest MPs. He was born in Dnestrovsk, outside Tiraspol, and has worked as director of the PMR Chamber of Commerce and Industry since 2002. Elected to Parliament in 2005, he is a member of the Renewal opposition party. Renewal (Obnovleniye, in Russian) is led by Rybnitsa-born Yevgeny Shevchuk, 38, and is in opposition to parliamentarians supporting President Igor Smirnov.

Under an existing law, the State Support of Innovations Law of PMR, encouragement of innovative technologies is a priority of the state’s social and economic policy. The Pridnestrovian Moldavian Republic adopted this law in 2005.

Pridnestrovie has a skilled workforce with the lowest wages in Europe. Thanks to a good transportation infrastructure and a central location in Eastern Europe, it is currently exporting to a total of 99 countries worldwide.

Back in the USSR..?

On the surface, the old USSR is still alive and well in Pridnestrovie: The country's national coat of arms still includes the traditional hammer and sickle and the occasional Lenin statue hasn't yet been pulled down.

But that is one of those quirks of history in a place where the Communist party only got 8% of the vote in the last election, and where real communism has long ago been replaced with free market reform.

Starting in 2001, reformers in Pridnestrovie embarked on a sweeping transition to a European-style market economy. The privatization of industrial companies has been a success in Pridnestrovie, which has some of Europe's most open and liberalized investment laws and even has a small stock market based in Tiraspol.

In the past four years alone, some 120 companies have been privatized according to official government information.

Pridnestrovie, which is also known as Transdniester or Transnistria, declared independence in 1990 in the breakup of the Soviet Union. Although not recognized as an independent country, it meets the requirements for statehood under international law. It has a population equivalent in size to the population of Montenegro, U.N.'s latest member. It has a territory approximately twice the size of Luxembourg, and a government with its own flag, national anthem, passports, stamps, car plates, a Supreme Court, a democratically elected parliament, a Central Bank, and its own freely convertible currency, the PMR Ruble.

See also:
» New, lower income tax: 10% flat tax approved by PMR Parliament
» Tax law thrown out; Court considers it an encroachment on private property