New tax breaks in Pridnestrovie for IT and knowledge industries

Information technology businesses, such as this one in Tiraspol, is among a number of industries eligible for new tax breaks

TIRASPOL (Tiraspol Times) - Two laws seek to attract information technology companies and other knowledge-based businesses to Pridnestrovie, along with manufacturers and entrepreneurs in general who are engaged in what is broadly defined as innovation.

The two laws are the "Tax on Revenues of Companies Law" and the "State Support on Innovations Law of PMR." New amendments to the laws seek to encourage innovations in Pridnestrovie by making it easier for investors to start businesses and get freedom from income taxes.

Under the original Tax on Revenues of Companies Law, manufacturers who develop innovative technologies have already beem exempt from a tax on revenues of companies on the condition that the company invests 10 million Euros into production and manages to employ at least 150 people within 10 years from the date of the company's opening.

" - But no company in the republic has met these requirements yet," said Speaker of Parliament Yevgeny Shevchuk, who arranged to lower the threshold and make it easier for investors to get complete tax freedom.

Investment requirements lowered

With new amendments, the requirements for companies engaged in innovative activity have been slashed in half. In order to be given the tax break, from now and until 1 January 2011 a company only has to invest 5 million Euros instead of the previous 10. The employment requirement has been lowered by a third, from 150 to now just 100 people.

" - Encouragement of innovative technologies is a priority of the state’s social and economic policy of the Pridnestrovian Moldavian Republic," says the press service of PMR's parliament. "The policy is aimed at increasing the competitiveness of goods, promoting economic progress and ensuring the state’s security, raising living standards."

According to parliament, the experience of other states is proof of the importance of having a policy which encourages innovation in business.

Parliament points to other countries which support and encourage innovations. In the case of Russia, the state finances private businesses which undertakes programs that are of strategic importance. Pridnestrovie can not apply a similar program, says parliament, because it requires considerable funds which the new and emerging country does not have.

Instead, Pridnestrovie is learning from countries like France and Japan where the state offers tax credits for knowledge-intensive industries and innovation businesses.

" - Tax relief is a wide-spread method for supporting research, and we’ve chosen this way," explains a note from the Pridnestrovian parliament's press office.

Dark clouds caused by blockade

But not all is optimism in the unrecognized country where some potential investors worry that neighboring Moldova will unilaterally tighten its economic blockade to prevent the economy in Pridnestrovie from growing.

Under rules which Moldova arranged to be imposed against Pridnestrovie on 3 March 2006, businesses must fill out two sets of forms in order to be able to export. An agreement between Moldova and Ukraine prevents companies in Pridnestrovie from exporting without first filling out forms for Chisinau and getting Moldova's approval.

" - This is nuts," says a furniture exporter from Pridnestrovie who asked to remain anonymous. "Imagine if China created the same rule for Taiwan. Imagine if China prevented Taiwan from exporting its products to the rest of the world without China's permission. If that happened, surely the United States would complain."

Taiwan is the world's 18th largest economy and seventh largest investor. Its economy - like Pridnestrovie's - is highly export oriented. Due to an unresolved territorial claim with neighboring China, the small country of Taiwan has a largely unrecognized status and no membership of the United Nations.

Pridnestrovie declared independence on 2 September 1990, one year before Moldova did. Despite a lack of formal recognition, it meets all the requirements for sovereign statehood under international law. It has a territory twice the size of Luxembourg and a population twice the size of Iceland. It also has a Constitution, a democratically elected president, and a parliament which is controlled by the opposition. Its government, albeit small, functions with recognized level of efficiency and it has a viable export-oriented economy. It has its own stamps, passports, car plates, and a freely convertible currency, the PMR Ruble.

On 17 September 2006, more than 95% of its citizens reaffirmed their wish to continue the country's independence course and overwhelmingly turned down a proposal for unification with nearby Moldova.

See also:
» Tax freedom for large investors in Transdniestria
» New, lower income tax: 10% flat tax approved by PMR Parliament