Good news for Moldovan SMEs: the regulatory burden on entrepreneurial activity has been reduced
Small and medium-sized enterprises (SMEs) — the backbone of the national economy — account for 98 percent of all companies in the Republic of Moldova and provide more than 60 percent of jobs.
The activity of Moldovan entrepreneurs has been recently simplified. The Parliament passed a series of legal amendments that eliminate some of the unjustified requirements imposed by the Government, that economic operators were obliged to comply with.
These amendments save time and reduce costs. By lowering the bureaucratic requirements, the legal amendments can save 50 to 100 million MDL annually.
The amendments were drafted by the Ministry of Economic Development and Digitalization with the support of experts of the United Nations Development Programme, funded by the United Kingdom and Sweden, with the support of the Economic Council Secretariat to the Prime Minister of Moldova.
In the context of Micro-, Small and Medium-sized Enterprises Day, marked annually on 27 June, we present an interview with the experts involved in drafting a package of laws designed to significantly simplify the work of entrepreneurs: Ion Lupan, Nicolae Boțan, Victor Ermurachi, Oleg Chelaru, and Roman Laduș.
The Parliament has recently passed a series of legislative amendments designed to improve the business environment, cut bureaucracy and reduce costs for entrepreneurs. Why are these amendments necessary?
The Republic of Moldova has few resources to compete with other countries in the region in order to retain and attract economic activities, such as natural, human and financial resources to facilitate the activity of investors. The most important tool to motivate economic activity in Moldovan context is the regulatory framework. We should therefore be among the most competitive in the region. While harmonizing with the EU legislation, Moldova should make sure that it takes on the regulatory burden accurately, without overdoing it, and should take on the least intrusive and burdensome examples of transposing and implementing the EU legislation from all EU countries.
The recently adopted amendments were in fact made at the request of the business community, which for several years has been pointing out various problems and constraints it faces in its daily work. To identify barriers to business activity, a process has been initiated in 2022 to develop packages of legislative amendments to reduce the regulatory burden. The process is coordinated by the Ministry of Economic Development and Digitalization, with the support of the Economic Council Secretariat to the Prime Minister and UNDP experts, funded by Sweden and the United Kingdom.
Entrepreneurs have been invited to present their views on aspects of legislation that need to be simplified to reduce the regulatory burden. The Economic Council received proposals from several representative business associations.
Could you please point out which amendments were adopted?
Following ongoing consultations and dialogue with business representatives, we are reviewing the legislation from the perspective of outdated, excessive requirements. We have come up with a package of amendments that will facilitate the process of starting a business and make life easier for entrepreneurs, while ensuring that employees’ rights are respected.
Most amendments are in the field of employment relationships:
- Several articles of the Labour Code have been amended, which used to require communication only through information boards with general access to the establishment’s premises. Thus, employees can be informed now by e-mail or other means of communication available to employees.
- The option to sign individual fixed-term employment contracts with ICT employees has been provided.
- The grounds for suspending the individual employment contract (IEC) have been supplemented with a new ground for suspending the IEC for the period of the employee’s absence from work for a maximum of 30 days, if the employer has not been informed of the reason for the absence.
- A rule was established giving the employer the option of keeping records of the hours worked per day by each employee, i.e. based on the method established by the collective agreements or by other methods depending on the nature of the work established by individual written contract with the employees.
- It is foreseen to transform the obligation into a right for the employer as regards the scheduling of annual leave and the drawing up and maintenance of the Internal Regulation of the establishment.
- The employer’s obligation to draw up an employment pre-contract and to notify the employee in writing of the starting date of annual leave has been excluded.
- The burdensome provisions for the business environment, which obliged the employer to pay the holiday pay at least 3 calendar days before the employee goes on leave, have been removed.
- Some laws have also been amended by excluding the obligation for economic operators to keep records and report on recruited and reserve employees.
At the same time, the amendments simplify the legal framework concerning the legal obligations for medical checks at the time of employment and periodic checks of employees and persons to be employed in positions involving work with foodstuff and other activities with the risk of spreading certain diseases. Among other things, they establish the elimination of the individual medical record called “Blue Medical Passport” and its replacement with a confirmatory document issued by public or private medical institutions, and all the costs of the medical examination for HoReCa employees are to be covered by the Mandatory Health Insurance budget.
In the field of construction, with reference to the establishment of commercial units, it was approved to facilitate the change of destination of residential buildings to commercial/service provision by changing the obligation to obtain the authenticated consent of all residents of the building, which is practically impossible, to receiving the consent of the majority of residents and immediate neighbours without notarial authentication.
Regarding state controls, several adjustments have been approved in order to better prevent abuse by inspectors. An obligation of the inspectors was introduced to submit checklists with the inspection delegation to inform the person checked of the requirements to be controlled and to ensure that the inspection authority uses the checklists and carries out the inspection within the limits of these checklists. The law was supplemented with the obligation to record the Reason Note in the State Register of Controls, in order to ensure transparent risk analysis carried out by the inspector and the reasons for initiating the unannounced control, in order to limit the unannounced controls that are not timely or justified. The law has also been supplemented with the express right of the inspected person to document the actions of the inspector during the performance of his/her duties without the obligation to obtain his/her consent for processing the personal data. The amendment will give a viable tool to fight corruption and abuses that may be committed by control authorities.
In the area of bailiffs’ activity, the Enforcement Code was amended with the view to digitalize the relations between bailiffs and commercial banks in order to cut the previously high administrative costs and time-consuming activities for commercial bank employees.
In the area of food safety, the types of activities requiring veterinary authorisation/registration have been unified in a single regulatory act, as there were conflict and uncertain situations.
In the area of e-commerce, the customs export tax for postal consignments up to EUR 1000 has been removed. Combining the customs declaration with the postal form will practically unblock the external e-commerce.
If we are to briefly consider each of them separately, what practical benefits will they bring to the lives of entrepreneurs? How will they make their work easier?
The amendments concerning labour relationship reduce the rigidity and complexity of labour law. The benefits are multiple. For example, by supplementing the Labour Code with a new ground for suspending the individual employment contract, the legal framework in this area will be clearer, potential bottlenecks in ensuring ongoing concern will be removed and the possibility of hiring other people to replace the absent employee will be provided.
Eliminating or making optional several papers/documents to be drawn up and maintained at the establishment will provide benefits in the form of annual savings for economic operators.
The proposed solutions for regular medical examinations of HoReCa employees will make the legislation on medical checks more predictable. Various procedures and paperwork will be eliminated, which will simplify and save money and time for business, and employees will not be subjected to unnecessary and even humiliating medical examinations.
The proposed amendments in the area of constructions will make it easier to open small businesses in urban areas, closer to consumers.
The addenda to the law on state control are designed to prevent and combat abuse by bad faith inspectors.
Thus, according to our estimates, the savings for economic operators, just from the reduction of bureaucratic requirements following the proposed amendments, would range from approx. MDL 50 to over 100 million annually. In addition, major benefits related to compliance costs within companies could be added here, as well as broader economic activity due to removal of barriers to entry and business activity.
When do you think SMEs might feel the effect of these legal provisions?
The project primarily targets the SMEs sector, which in fact accounts for about 98% of the total number of economic operators. The positive impact will be felt once the provisions of this project enter into force, i.e. starting with 2 July 2023. The impact of amendments will be assessed by the Ministry of Economic Development and Digitalization through regular monitoring every half year, in collaboration with the authorities responsible for regulatory areas and business environment.
UNDP, in partnership with the United Kingdom and Sweden, will continue to support the Economic Council platform to develop initiatives that will reduce undue risks and costs to business and create a competitive business environment. What other regulatory amendments are you planning? What amendments will follow?
Together with businesses, we are continuing the exercise of reducing the regulatory burden on entrepreneurial activity.
For the coming period, we plan to discuss more initiatives elaborated based on proposals from the business community, including:
- Introduce modern forms of online declaration of goods brought in and taken out of the territory of the Republic of Moldova by means of international postal consignments or unaccompanied luggage, which are now declared only in writing.
- Apply the digitisation and e-communication requirements already approved in the first legislative package on digitisation for interaction with the State Tax Service, which involves extensive use of electronic documents and remote communication.
- Review the procedure for applying the VAT exemption for re-import in the case of e-commerce.
- It is proposed to strengthen the obligation of tax advisory control, by not applying sanctions (in the amount of the cumulative amount of fines up to MDL 100 thousand) for infringements committed in the first 3 years of activity, except when the same violation is committed repeatedly.
- Cancel the requirement to have a cash register/fiscal printer.
- Increase the amount to be considered as outstanding for tax purposes.
- Establish the right to deduct VAT for purchases of goods and services made by taxpayers on the basis of tax receipts and which have been paid by business card, if the value of the purchases does not exceed MDL 2000 including VAT.
- Include unskilled HORECA and courier workers in the category of day workers.
- Review the methodological rules and classification criteria for tourist accommodation.
- Establish easier conditions for compliance with sanitary, veterinary and food hygiene requirements for SMEs, including tourist and agritourism guest houses and rural houses, thus creating conditions for lowering business costs and increasing competitiveness.
- Extend the category of subjects eligible for subsidy to all tourist accommodation facilities in rural areas, not just agritourism guest houses.
- Eliminate the certificate of conformity for food products, thus excluding unjustified costs and procedures.
- Review the Health Regulation on the health surveillance of persons exposed to the impact of occupational risk factors, the risk factor requiring medical examination on recruitment and periodic medical examination for employees in the ICT sector and other employees who spend more than 50% of their shift using optical devices, monitoring screens and displays of computer technology.
- Remove from the list of compulsory medical check-ups of the “adaptation” ones which is compulsory after 3 months of employment. According to the business environment such medical check-up is unnecessary because in practice in the first 3 months after employment nothing changes in the person’s health, but such check-up involves costs and lost time.
- Allow training in hygiene to be provided by the National Public Health Agency online and free of charge.
- Eliminate the obligation for managers and designated workers to undergo periodic occupational safety and health training, by replacing it with a lifetime validity of such training.
- Grant the exception according to which in rural localities construction works can be authorized in the absence of urban development plans for buildings up to 3 storeys, which will be individual houses or in which entrepreneurial activity will be carried out which will not have a significant impact on the environment and on the health of the population, because currently the law does not allow the authorisation of constructions in the absence of urban development plans, which are however costly and are not approved in a large part of villages and communes, leading to substantial barriers to investment in construction and the opening of new businesses in rural areas.
- Cancel the Complaints Register, given that the contact information of the State Inspectorate for the Supervision of Non-Food Products and Consumer Protection exists on the premises of the trading establishments. Any complaint filed in free form with the trader and the Inspectorate has the same legal value as an entry in the Complaints Register. Procurement, registration with the local public authority and maintenance of the Register involve undue costs and administrative burden.
- Not allow public authorities to use the lowest price criterion as the sole economic criterion for selecting a tender in public procurement. Including the obligation according to which “the price” is only used in combination with at least one other criterion (e.g. quality-price) where “the price” will have a limited maximum share. Similarly, limiting the lowest possible price that can be offered on purchases of goods and services to 20% of the average market price. The intervention addresses abuses and unfair competition practices in public procurement, in particular situations where bidders obtain contracts due to abnormally low prices.
All these amendments will bring the regulatory documents even closer to the needs of the business environment, will simplify the regulatory burden and provide opportunities for SMEs to create added value, which will essentially increase the investment attractiveness of the Republic of Moldova.