What is VAT: definition, types, and examples

Basics of VAT

VAT stands for Value Added Tax, which is charged at every stage of production and sale of goods or services. It is paid not only by businesses but also by end consumers — as it is already included in the product price.

VAT is applied in most countries, including Moldova, and is one of the main sources of revenue for the state budget.

VAT Rates and Exemptions in Moldova

In Moldova, various VAT rates are applied depending on the type of goods or services. Below is a table detailing the tax categories:

⚠️ To apply exemptions correctly, consult the Fiscal Code of the Republic of Moldova.

What does VAT mean?

The abbreviation “VAT” stands for “Value Added Tax”.

Who pays VAT?

• Companies and sole proprietors registered as VAT payers;
• Importers of goods and services;
• End consumers — through product prices.

What is VAT applied to?

• Sale of goods;
• Provision of services;
• Import of goods from abroad.

Types of VAT-related operations

Within the tax system, there are several forms of interaction with VAT. It is important to distinguish them, especially for entrepreneurs and accountants.

What is a VAT refund?

A VAT refund is the process of recovering the amount of tax previously paid when purchasing goods or services. It is applicable in the following cases:

• export of goods;
• overpaid VAT;
• investment expenses.

The refund procedure requires submitting a tax return and supporting documents. Refunds are available only to registered VAT payers.

What is VAT deduction?

A deduction is a form of refund where the government compensates excess VAT paid by the business. It is especially relevant for investments, large procurements, and exports. Conditions include legal compliance and the presence of a tax credit.

What is VAT compensation?

Compensation is a form of payout or tax recalculation by the state, used against future obligations. It may apply in the following situations:

• business restructuring;
• correction of accounting errors;
• preferential categories of taxpayers.

In everyday usage, the term may be used as a synonym for refund or deduction, although there are legal distinctions.

Example of VAT calculation in practice

Suppose a company purchases materials for 10,000 MDL without VAT. 20% VAT is added — 2,000 MDL. Total cost: 12,000 MDL.

The company sells the products for 20,000 MDL + VAT (4,000 MDL). Total revenue: 24,000 MDL.

VAT payable to the budget is calculated as:

• VAT from sales: 4,000 MDL
• VAT from purchases: 2,000 MDL
• To be paid to the budget: 4,000 – 2,000 = 2,000 MDL

Thus, the tax burden is only the difference between input and output VAT.

VAT and Sole Proprietors (SP)

Sole proprietors in Moldova can operate with or without VAT. Being a VAT payer affects bookkeeping, reporting duties, and taxation.

Who is required to register as a VAT payer

If a company's or sole proprietor's turnover exceeds 1.2 million MDL over the past 12 months, VAT registration becomes mandatory, according to the Fiscal Code.

If turnover is below this threshold, registration is optional. It may be beneficial if you work with VAT-paying companies that can deduct your VAT.

Before registering, it's advisable to evaluate the benefits — use online calculators or consult a tax advisor.

SP with VAT

A VAT-registered entrepreneur must:

• charge VAT on their goods or services;
• issue invoices with VAT details;
• submit VAT returns;
• pay the tax to the state budget.

This status is mandatory if the turnover exceeds the legal threshold (e.g., 1.2 million MDL — as per legislation).

Advantages:

• ability to deduct VAT on purchases;
• access to larger clients and public tenders.

Disadvantages:

• more complex accounting;
• increased administrative burden.

SP without VAT

An entrepreneur may avoid VAT registration if their annual turnover is below the legal limit. In this case, they:

• do not charge VAT to clients;
• do not submit VAT declarations;
• cannot claim VAT refunds.

Pros:

• simplified tax and accounting procedures;
• no need for complex reporting.

Cons:

• cannot recover VAT paid;
• limited cooperation with VAT-dependent companies.

VAT in Receipts: Key Features

When making a purchase, especially in a store or online, the receipt may include a VAT amount. This is important for both consumers and business owners.

How to know if VAT is included in the receipt

Receipts issued by VAT-registered entities usually have a separate line indicating:

• the VAT rate (e.g., 20%);
• the tax amount;
• the total amount including VAT.

If VAT is not shown, it may mean that:

• the seller is not a VAT payer;
• the product or service is VAT-exempt;
• the receipt is issued incorrectly.

How to use a VAT receipt

For individuals:

• it can serve as proof for VAT refund when traveling abroad (tax free);
• the VAT shown may serve as evidence in disputes with the seller.

For sole proprietors and companies:

• a VAT receipt is used in accounting;
• VAT deduction is possible if the document is correctly issued;
• it is important to verify seller details (must be a VAT payer).

Practical Tips for Working with VAT

For businesses and sole proprietors, it’s crucial not only to understand VAT but also to interact properly with the tax system. Here are the main recommendations:

How to prepare documents for VAT refund or deduction

1. Check your VAT payer registration status.
2. Ensure all invoices are correctly filled and include VAT.
3. Keep accurate records of input and output VAT.
4. Prepare the VAT tax declaration form (TVA form).
5. Attach supporting documents (invoices, contracts, payment proofs).
6. Submit the declaration on time and wait for review.

Deadlines for VAT refund and deduction

• By law, the tax authority must process the application and issue a refund within 45 calendar days (subject to regulations).
• Delays may occur during audits or if documents are incomplete.

Common mistakes to avoid

• Working with partners not registered for VAT (for deduction);
• Incorrectly filled VAT declarations;
• Lack of expense documentation;
• Missing reporting deadlines.

Following these rules minimizes risks and helps ensure VAT is refunded on time and in full.

Conclusion

VAT is a key element of the tax system, affecting both businesses and everyday purchases. Understanding how VAT works and how to apply for refunds helps reduce costs and avoid penalties.

If you're unsure whether your company must register for VAT or how to file for a refund — consult Intelcont experts. We'll help clarify the rules and handle the paperwork properly.