While most European countries impose corporate income tax exceeding 20%, Macedonia, as a shining European tax pearl, charges a corporate income tax of 10%.
The corporate income tax in Macedonia is charged on two components, namely, any forms of distribution from the profit (including dividend distribution) as well as certain non-deductible expenses and understated revenues. The non-deductable expenses include, but are not limited to, expenses which are not related to taxpayer’s business activities and employee-related expenses (e.g., holiday allowance, meals for employees, expenses for the organisation of business trips). The understated revenues include, for example, understated revenues for supplies of services and goods between related parties.
Macedonia attracts foreign investors not only with the low rate of corporate income tax, but also with providing a tax exemption to investors in the Macedonian Technological–Industrial Development Zones (TIDZs). The exemption, valid for a period of 10 years, applies to corporate income tax, utility taxes to the local municipality, fees for land building permits, VAT, and customs duties for equipment, goods, machines, and raw materials.
It is worth mentioning that investors in the TIDZs may receive a grant from the Macedonian government of up to EUR 500.000 covering the building costs. The exact amount of the grant depends on the value of the investment and the number of employees. The investors may conclude long-term lease (up to 99 years) for land in the TIDZ.
Investors in the TIDZ have access to an educated, qualified and low-cost workforce. The average monthly gross salary in Macedonia is EUR 491. It should be added that Macedonia is the youngest country in Eastern Europe (45% of population is under the age of 30). The young Macedonians are very well educated (85% of high school graduates are enrolled in university programs).
Finally, it should be noted that Macedonia has signed five important free trade agreements, namely: (1) Stabilization and Association Agreement (SAA) with the EU countries; (2) European Free Trade Association Agreement (EFTA) with Switzerland, Norway, Iceland and Liechtenstein; (3) The Central European Free Trade Agreement (CEFTA) with Albania, Moldova, Serbia, Montenegro, Bosnia and Herzegovina and Kosovo; (4) a bilateral free trade agreement with Turkey; and (5) a bilateral free trade agreement with Ukraine.
Registering a company in Macedonia
In Macedonia, foreign investors are entitled to register and operate all types of Macedonian companies, i.e. limited liability company, joint stock company, general partnership, limited partnership, and limited partnership by shares. Besides, foreign companies are entitled to open branches and representative offices in Macedonia.
In order to facilitate the registration of foreign companies, Macedonia introduced a one-stop-shop system which enables the investors to register their companies within a day. The investors who would like to use the one-stop-shop system need to visit a single office. Thus, the new system reduces administrative barriers related to the incorporation of a company.
Once a company is registered, the Central Register of Macedonia will make publicly available the following information about the company: (1) unique registration number; (2) a code and the title of the registered main activity; (3) a code of the company form; (4) the unique tax number; and (5) information about the bank account of the company.
It should be noted that companies need to obtain working licenses or permits before conducting certain activities in Macedonia. The employees working in the Central Registry of Macedonia are trained to provide the newly registered companies with information on how to obtain the appropriate licenses.
At the end of each calendar year, the registered companies have the obligation to prepare annual accounts in accordance with the local accounting rules. In addition, large and medium-sized companies should prepare and submit financial statements in accordance with the requirements of the International Financial Reporting Standards (IFRS). The Macedonian audit laws state that audit activities should be performed in accordance with the International Standards on Auditing.
Macedonia facilitates not only the registration of companies, but also the resolution of international disputes. More particularly, Macedonia is a party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, the Geneva Convention on Execution of Foreign Arbitral Awards, Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, and the European Convention on International Commercial Arbitration. By virtue of Article 118 of the Macedonian Constitution, the aforementioned international agreements and any other international agreements to which Macedonia is a party have a priority over domestic legislation.
Last but not least, Macedonia has adopted competition laws ensuring a level playing field between all the actors in the Macedonian market as well as environmental laws guaranteeing an unpolluted environment.
VAT in Macedonia
In Macedonia, VAT is levied on import of goods into Macedonia and supply of goods or services in Macedonia. The standard VAT rate is 18%. A reduced VAT rate of 5% applies to certain goods and services, such as agricultural machines, accommodation services, computers, food products, publications, pharmaceutical and medical devices, software, and transportation of persons.
The goods and services which are exempt from Macedonian VAT with a right of deduction of input tax include, but are not limited to, delivery of goods abroad, goods supplied in free trade zones, provision of services outside Macedonia, and services concerning the export, import and transit of goods. The goods and services which are exempt from a Macedonian VAT with no right of deduction of input tax include, but are not limited to, insurance and re-insurance services, healthcare services, education services, trade of postage and revenue stamps at their nominal value.
A VAT registration is mandatory for taxpayers when: (1) they have a turnover higher than 1.000.000 Macedonian denars (approximately EUR 16 168) in a preceding or the current calendar year; or (2) they predict that their company will achieve an annual turnover exceeding 2.000.000 Macedonian denars (approximately EUR 32 337). The companies for which the VAT registration is not compulsory may, at their own discretion, register for VAT. A VAT registration can be done by an authotized company’s representative.
Companies registered for VAT need to submit monthly VAT returns by the 25th of the month following the month to which the VAT return applies. Taxpayers who do not have any taxable turnover in a given tax period should also submit a tax return in which the fields are filled in with 0 (zero). Taxpayers who terminate their activities should submit a tax return within 25 days after the end of the month in which the activity was stopped.
The VAT due should be paid by monthly payers no later than the deadline for submitting the tax return, i.e. no later than 25 days after the expiration of the tax period. Quarterly taxpayers are paying the VAT until 25 April, 25 July, 25 October, and 25 January.
In order to receive a VAT refund, the taxpayer must submit a claim to the Macedonian Revenue and Tax Administration. The claim needs to be accompanied by the invoices for which a refund is requested. If the application is approved, the VAT refund will be issued within 10 days.
Finally, it should be noted that the EU VAT rules do not apply to Macedonia because it is not a member of the European Union.
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