No Match Found
With their workforce migrating abroad and a large shadow economy, Moldova’s IT industry was falling behind the rest of the region.
The Ministry of IT and Communications partnered with PwC to build and implement innovative IT park legislation, a taxation regime and virtual space for IT companies to grow, interact and contribute to the country’s economy.
Ministry of IT and Communications (lately absorbed by the Ministry of Economy and Infrastructure)
PwC designed and implemented IT park legislation based on an analysis of regional efforts to stimulate their IT sectors.
While other countries throughout Central and Eastern Europe were actively stimulating their IT industries, in 2016 Moldova was perceived to be lagging behind.
The region was introducing tools such as fiscal incentives, deduction of research and development expenses, and financial subsidies for job creation to encourage growth within the sector. Meanwhile, Moldova’s workforce was increasingly migrating to other countries and a large shadow economy in this sector existed, according to a 2016 Global IT report.
The Ministry of IT and Communications sought an innovative and efficient solution to improve the country’s regional and international competitiveness, create a favorable business climate, minimize the risks of reallocations to other countries, and most importantly, slow down the migration of skilled workforce.
Over four years, PwC worked with the Ministry of IT and Communications to build a virtual IT park model to retain talent and boost the IT sector.
In order to learn from best practices, the PwC team first analysed the region’s experience in stimulating the development of the IT industry, specifically Romania, Poland, Macedonia, Ukraine, Georgia, Russia and Belarus. PwC developed the concept based on this research and an ex-ante analysis that evaluated the impact that the policy proposal would have on the budget revenue and industry.
The final concept, a result of several proposals decided by the Ministry, included a single 7% revenue tax covering the corporate income tax, all payroll taxes due by employer and employees and local, road and property taxes. The IT park model also facilitated the employment of IT specialists from the region and around the world.
To develop the concept, PwC worked with both public and private sector stakeholders to create a legal framework, design the IT park and embed the concept into law.
The park opened in 2018 and welcomed IT companies working in software development, IT consulting services, computer game development, data processing, webpage development, hardware management, computer processor production and more.
The virtual IT park is a unique concept for Central and Eastern Europe. The platform reduces IT organisations’ tax burden, simplifies immigration documentation, and creates a virtual community.
The IT sector is the main driver of qualitative growth for every modern economy, but the existing constraints and lack of stimulating mechanisms in Moldova slowed down the natural evolution of this sector; even if the Telco sector was booming in the country. Public policy intervention was essential, but with limited governmental resources and within a high regional competition it was a very difficult and complex task. We had to target a dedicated policy for the IT sector, revision of the taxation model and of the interaction mechanisms with the authorities. This task was at that time of a special complexity, so a team of PwC highly qualified experts from different sectors was attracted with the support of the World Bank and USAID Moldova.
The two years of Moldova’s IT park’s operations so far have shown a positive impact on the country’s economy, with an increase in salaries, exports and retention. It has created an innovative, new way of working for the IT sector and improved the quality of life for youth in the industry.
The number of active resident companies has grown to 600, with a cumulative forecasted revenue of EUR 200 million in 2020. Of these companies, over 25%are international companies, representing 33 countries, and 44% are newly created companies. This increases Moldova’s visibility abroad and encourages cross-regional collaboration that widens the impact.
The platform also provides stable employment for Moldova’s citizens. Through their organisation’s participation, more than 10,300 employees (more than 50% of the country’s potential IT workforce) have seen a steady salary growth of approximately 30% since the park’s creation. This has helped to keep youth in the country and foster greater participation in the formal economy.
Because of its accessibility, the IT park became a key point of interaction between the sector and the Government of Moldova by facilitating the implementation of policies. For example, the park could help improve the sector’s tax environment, increase its attractiveness and increase the industry’s competitiveness.
As the community grows and extends to other countries, the IT park could help increase the visibility of the Republic of Moldova in at least 10 countries and attract at least three world-renowned IT brands.
CEE Public Sector & Infrastructure Leader
Advisory Services Senior Manager, PwC Moldova