Different corporate structures
A company can establish its corporate presence in North Macedonia by establishing: (i) a company (Macedonian: “трговско друштво”); (ii) a branch office (Macedonian: “подружница”); or (iii) a representative office (Macedonian: “претставништво”). Each of these establishments imply a different level of legal and organizational independence from its founder which reflects the scope of activities that the establishment is authorized to perform. Branch or representative offices are not considered as separate legal entities and therefore the foreign company remains liable for all obligations assumed by branch office or representative office.
Companies can be established by domestic and foreign, natural and legal entities. The legal entity can outlive its founders.
In order to perform business activities, the regulation of North Macedonia also provides legal grounds for individuals to register as sole proprietors, instead of registering a company.
Trade companies can be incorporated in the following forms:
Foreign companies that do not intend to establish a company but want to carry out business activities in North Macedonia have an option to open a branch office. Foreign companies that intend to carry out market research and other similar activities, which do not include commercial activities, could also establish a representative office in North Macedonia. Both branch offices and representative offices are considered as a functional unit of their founder and do not have the status of a separate legal entity.
General and limited partnerships are not that common in North Macedonia due to the unlimited liability of shareholders for the debts of the company. Establishment of a joint stock company is also rare in cases when this type of company is not a precondition for operation in a specific business (e.g. banking and finance sector) considering that the incorporation procedure for a joint stock company is rather complex and time-consuming and requires minimum share capital in the amount of approx. EUR 25,000 or EUR 50,000 (depending whether the company will be established by issuing a public notice for share subscription or not).
The most common type of companies established in North Macedonia is a limited liability company (LLC).
Incorporation requirements differ from the type of company or other corporate presence which is being registered. All documents should be provided in original and should not be older than three months at the moment of submission to the Central Registry of the Republic of North Macedonia (“Central Registry”). Founders are not required to pay any administrative fees at the Central Registry when establishing a company in North Macedonia. Establishment of branch offices and representative offices is subject to low administrative fees, which do not exceed EUR 40.
Companies are established by adoption of adequate articles of association, i.e. Memorandum of Association at LLCs, or Statute at joint stock companies. Articles of association have different compulsory elements depending from the type of entity being registered, including but not limited to determine the company’s name, registered address, prevailing business activity, management, division of loss and profit etc. Branch offices and representation offices are established by adoption of a decision by the foreign founder. Note that the registration of the companies, branch offices and representation offices at the Central Registry has a constitutive effect, and entities are considered as established only after the Central Registry issues the Certificate of Incorporation.
Registration agents – Since the beginning of 2014, the procedure for registration of a new company, branch office or representative office in North Macedonia is carried out by appointed registration agents via the electronic system administered by the Central Registry. The list of authorised registration agents is published on Central Registry’s web site. Authorized accountants and attorneys at law may qualify to act as registration agents. The latest amendments of the relevant law provide that if natural persons fulfil certain conditions, they can submit registration applications through the system for e-registration of the Central Registry, without the assistance of registration agents.
The law prescribes that the required time for incorporation in most cases is up to five business days from the date of submitting of the complete appropriate documentation.
Opening of a non-resident bank account is a pre-condition for establishment of a representative office in North Macedonia. Regarding companies and branch offices, the choice of bank should only be determined during the incorporation procedure, while the activation of the bank account is carried out only after the Central Registry completes the registration of the entity.
In addition, post-registration procedures take approximately a maximum of two weeks. These post- registration procedures include:
The share capital of an LLC may consist of monetary or contributions that are deemed as being "in kind" such as equipment, goods, know-how etc. The minimal value of the basic share capital should be at least EUR 5,000 in MKD counter value. Furthermore, the amount of the share capital has to be expressed in a round number divisible by 100. The monetary share of the share capital does not have to be paid in prior to the registration; rather, it has to be paid in within one year after the registration of the company in the Central Registry.
Minimal value of the basic share capital at a joint stock company should be in amount of EUR 25,000 in cases of establishment without public notice for subscription of shares, and EUR 50,000 in cases of establishment with public notice for subscription of shares. Nominal value of one share cannot drop beyond EUR 1. Joint stock companies which have specific authorizations or carry out particular business activities (e.g. business, insurance and finance sector) have higher thresholds for their basic share capital. Stocks are issued, transferred and kept in a form of an electronic record in the Central Securities Depositary of the Republic of North Macedonia. The stocks are unlimitedly transferable and free to be traded with at the secondary securities market. Each stock must have a nominal amount at which the stock is registered.
Contributions in capital of a general partnership may consist in different amounts in the form of cash, belongings, rights, as well as labour and services. Contribution in labour and services are not allowed in other forms of companies.
There are no capital requirements for the establishment of a branch office or a representative office. The branch office would constitute a permanent establishment for taxation matters.
General partnership - Each partner is authorized to manage the general partnership, unless the partners appoint one or several partners as manager. The same applies to the representation of the company towards third persons.
Limited partnership - The General partners participate with at least one-fifth of the total amount of the contributions and are obliged to personally participate in the operation of the limited partnership and manage it, whereas the Limited partners do not have the right of management. Also, the Limited partner cannot represent the limited partnership.
LLC - Corporate governance can be organised as either (i) one-tier or (ii) two-tier system:
Joint stock companies - The management of the company can be organized either as (i) one-tier system (board of directors) or (ii) two-tier system (management board or manager and supervisory board).
Stockholders under equal conditions, have equal status in the company. Each stockholder registered in the stockholders list has, from the day of entry, the right to participate in the operations of the assembly and the right to vote. Unless the statute determines a greater majority, the assembly can operate (operation quorum), if verified participants holding at least majority of the total number of the voting stocks are present at the session. The decisions of the assembly are adopted with majority of the voting stocks represented at the assembly, unless otherwise provided by law or the statute.
Limited partnership with stocks- The contributions of the General partners cannot be less than 10% of the basic capital. In proportion to their participation in the basic capital, the General partners have a right to vote at the assembly of the limited partnership with stocks. They also manage the company.
The assembly of the limited partnership with stocks elects members of a supervisory board, composed of at least three stockholders. A stockholder from among the General partners cannot be elected in the supervisory board. The General partners cannot participate in the election of the members of the supervisory board.
Branch office of a foreign company – A branch office could have one or several managers, with limited or unlimited authorization appointed by the decision on establishment of a branch office and registered at the Central Registry.
Representative office - A representative office could have one or several authorized representatives, with limited or unlimited authorization appointed by the decision on establishment of representative office and registered at the Central Registry.
Companies and branch offices of foreign companies have an obligation to determine and register a prevailing business activity from the National Classification of Business Activities upon their establishment. However, other than their prevailing activity, a company and a branch office are generally free to perform all other business activities which do not require a specific license. Certain activities can be performed only upon prior consent, license, approval or other act of a state body or other competent authority (e.g. construction, insurance, and health-care). The general partnership can perform a business activity related to a certain profession only if there is a person with the appropriate qualification between the partners or the employees.
Representative offices are prohibited to perform commercial activities. Their activities should be limited to market research, carrying out preliminary and preparatory activities for conclusion of contracts between the founder and its clients, promotional and information activities, as well as self-representation.
Protected investments/investment guarantees
The legislative framework for foreign investments is consisted of the Constitution of North Macedonia (1991), national laws and bilateral and multilateral international treaties. On the institutional level, there is a special state agency named Invest North Macedonia responsible for promotion of investments and assisting investors and exporters.
Foreign investors enjoy two-level protection under the Constitution i.e. (i) guarantee for repatriation of the invested capital and gained profits, and (ii) elimination of the possibility for reduction of the rights which arise from the invested capital by law or other regulation. The goals and obligations for ensuring free movement of capital and protection of investments, stipulated in the Stabilisation and Association Agreement between North Macedonia and the European Union are also in line with the principles guaranteed by the Constitution.
The protection of foreign investments is further strengthen through bilateral and multilateral international treaties. In particular, North Macedonia is a signatory party to the ICSID Convention and has signed around 40 bilateral investment treaties (BITs) which enable ICSID arbitration for the nationals of the counterparties – regional neighbours, European Union member states, countries from Asia and Africa. The BITs foresee transparency, free transfer of all payments relating to investments in some cases, as well as banning expropriation and guaranteeing compensation for losses. In addition, North Macedonia has signed:
In order to further facilitate the free trade and the business operations of foreigners around 49 double taxation treaties are concluded with countries like Russia, Great Britain, Luxembourg, Switzerland, Qatar, etc. These agreements provide a range of taxation reliefs as low as 0% on dividends, depending on the signatory-country, as well as reliefs on interest, royalties from copyright and other income.
The national legislation ensures non-discriminatory and equal treatment with respect to the protection of the rights of the foreigners before the institutions of North Macedonia. Foreigners can seek protection of their contractual and statutory rights before the courts of North Macedonia. Also, eligible disputes can be resolved before international arbitrations. All foreign arbitral decisions can be enforced after being recognized in accordance with the terms of the New York Convention. Within contractual relations, the parties can opt for competence of a foreign court whose decision would be subject to recognition as well.
Incentives for investors
An essential part of the incentives for investors are focused on the companies within the Technological Industrial Development Zones (TIDZs). TIDZs are investment-friendly areas of territory of the Republic of North Macedonia conceived to serve high-tech clean industry. Companies enjoy significant incentives in regards to special customs and tax regimes.
Becoming an entity registered for performing a business activity in North Macedonia is the first step to being a TIDZ user, followed by signing an agreement to perform business activities in the TIDZ with its founder, as well as obtaining a decision for commencement of operations.
Having in mind the environmental precautions necessary, the TIDZs welcome foreign and domestic companies willing to perform activities in the area of (i) manufacturing and service activities; (ii) storage of goods for the purposes of the company user of the TIDZ; (iii) bank and other financial activities; (iv) insurance activities and reinsurance of real estate and people; and (v) other activities exclusively for the purposes of the performance of the working activities in the TIDZs.
The TIDZs have become North Macedonia’s most attractive investment opportunities, due to the generally favourable economic climate, but mostly due to the incentives the Government has provided to attract foreign investors, as follows:
Besides the aforementioned tax reliefs, the user of a TIDZ is also exempt from VAT for trade of goods and services within the TDIZ and import of goods in the TDIZ which are intended for purposes of production. This exemption is not applicable for trade, nor import of goods and services which are intended for end users.
A new Law on the Financial Support of Investments was adopted in 2018, regulating the procedure for granting financial support to investments of the business entities that will invest in the Republic of North Macedonia. The investment project for which the financial support is granted cannot last longer than 5 years from the start of its realization. Beneficiaries of financial support may be business entities that started a productive initial investment, if they fulfil certain conditions. The beneficiary of the financial support participates in the investment with its own funds, with at least 25% of the total eligible investment costs. The total financial support that can be paid cannot exceed 50% of the amount of the eligible costs realized. For large investment projects, the amount of financial support represents a percentage of the justified investment costs.
Financial support cannot be granted to an entity in the TIDZ, as well as to entities outside TIDZ, for the same eligible costs for which state aid has already been granted.
The types of financial support include:
Financial support for investments for the support of:
The competent authorities to which the request for granting financial support (with accompanying documentation) are filed are the state agency Invest North Macedonia and the North Macedonia Free Zones Authority, while support is granted by the Government.
Outside the above, companies incorporated with foreign capital can enjoy the same incentives as the domestic ones (e.g. exemption from certain taxes and contributions when hiring certain categories of the population; grants; etc.).
The Securities Exchange Commission of North Macedonia (“SEC”) has full competence in monitoring the implementation of the applicable capital market laws and the activities on this market. As an independent regulatory body, the SEC carries out the public authorizations deriving from the Law on Securities (2005), the Law on Investment Funds (2009), the Law on Takeover of Joint Stock Companies (2013) and the applicable secondary legislation. A new Law on Financial Instruments is planned to be adopted as a replacement of the Law on Securities, all for the purpose of harmonization of the national legislation with the European capital market regulation.
Insider trading rules
The Law on Securities defines the concept of “inside information” on a very broad manner, as any price sensitive information which is not publicly available through written or electronic media. Persons who have access to inside information are banned from acquiring any direct or indirect material benefit from the usage of such information. Sharing of inside information for third party benefit is also prohibited.
Stockholders, members of the management boards and any other person who has access to an inside information is obliged to notify the concerned company, the SEC and the stock exchange if it is aware that someone is trading with securities based on an inside information. The SEC is entitled to require explanation and information regarding any suspicions for inside trading.
Inside trading can yield a fine in the amount of EUR 5,000, including other fines for the stockholders, members of management boards and other persons acting contrary to the insider trading rules.
During trading with securities, any natural or legal person, as well as the ones included in operations on the securities market (e.g. stock exchange; banks; brokers; etc.) are banned and, among other, can be fined with EUR 5,000 for:
Persons involved in market manipulation activities or inside trading can also face criminal charges and be liable for compensation of damages occurred to the suffering party. The potential imprisonment sanction could last from one to ten years.
Managers have specific reporting obligations with respect to the owned stocks in the joint stock company where they are appointed as authorized persons. More specifically, members of the management or supervisory board have to notify the SEC and the joint stock company for:
For better monitoring of the capital market, different market players are subject to various notification requirements. In particular, the Law on Securities regulates a special category of companies, the so-called “joint stock companies with special reporting obligations” (“Reporting Company”). A Reporting Company is a joint stock company (i) which carried out a public offering of securities, or (ii) has share capital in the amount of EUR 1,000,000 and more than 50 stockholders, excluding listed companies. These type of companies, among other, have to:
Reporting obligations regarding the ownership of stocks are also envisaged for any third party which acquired more than 5% of stocks, alone or together with its affiliated entities.
Within the notification obligations, joint stock companies and other legal entities which issue securities, but are not listed companies and are not considered as Reporting Companies, have to publish the following information:
Foreign investment notification requirements
Residents who invest in companies abroad have to register the investment at the relevant registry administered by the Central Registry of the Republic of North Macedonia. In addition, any investment by non-residents into a domestic company, is also subject to such registration. In both cases, the domestic resident involved in the transaction has to carry out the reporting activities within 60 days from the moment of signing of the transaction documents. Any future change to the registered information should be reported to the registry. Non-compliance with the reporting activities can be sanctioned with a fine in the amount of EUR 6,000.
Eligible investments for reporting obligations are any venture activities intended for establishing long-lasting economic relations between the investor and the company, including involvement in the management of the company. Besides the common activities (such as: incorporation of a legal entity, purchase of shares; etc.) these investments could include long-term loans with maturity of five or more years, provided that:
The takeover rules are determined with the Law on Takeover of Joint Stock Companies (“Takeover Law”) and the accompanying secondary legislation, which regulates the procedure for takeover of (i) listed securities or (ii) securities issued by a Reporting Company. The takeover can be carried out by making a:
In the case of a successful TOB, the acquirer can obtain additional 5% of the voting rights in a period of two years for which has to submit a TOB. The obligation for making mandatory TOBs stops after acquiring 75% of the voting rights. Certain acquisitions are exempted of the requirement for mandatory TOB.
The Takeover Law regulates precisely the mandatory elements of the TOB, including the calculation of the offered price, and the takeover procedure which needs to be followed. The squeeze-out procedure is also regulated with the Takeover Law.
Competitive bids by other acquirers are allowed during a takeover procedure. In addition to the restrictions who can make a competitive bid, such bid cannot be submitted 15 days prior to the expiry of the deadlines for accepting the first TOB. There are not many companies in North Macedonia which fall under the provisions from the Takeover Law. Hence, the applicability of this law is very limited in practice.
The law of North Macedonia regulates agents, but has very little provisions about distributors. Additionally, there are no standardized contracts for both agency and distribution agreements that are used in practice. The only requirement is that they do not violate the provisions of the applicable laws, or they will be considered as null and void. The legal system of North Macedonia has accepted the legal principle that everything which is not prohibited is allowed. The same applies to agents and distributors.
In order to appoint an agent, the agent and the principal conclude an agency agreement in writing. The agent can also request the principal to give him a proxy.
The principal is allowed to hire more agents for the same kind of work on the same territory. However, once the agent enters into an agency agreement with one principal, it cannot represent another principal for the same kind of work on the same territory without the consent of the first principal.
The principal is obliged to pay the agent a fee (commission) for the contracts that were concluded with its mediation during the term of the agency agreement, as well as for the contracts concluded by the agent in the name and on behalf of the principal, if it had authorization to do so. Also, it has to pay the agent a fee for all contracts it concluded directly with clients that were initially found by the agent for the principal. If the parties agreed that the agent will have exclusive right of representation on a certain territory or with a certain group of clients, than the principal must pay the agent a fee for all contracts it concludes without the mediation of the agent on that territory or with a client from that group.
If the principal concludes a contract in a reasonable time after the termination of the agency agreement as a consequence of acts taken by the agent before the termination, the agent has a right to receive compensation.
In exceptional cases, the agent can give a written guarantee that the third party shall fulfil its obligations from the contract concluded between the third party and the agent acting in the name and on behalf of the principal. In that case, the agent has a right to a special fee (del credere commission).
The right of remuneration is gained when the principal fulfils, or had to fulfil its obligation under the contract concluded with the third party.
The agent loses the right to a commission if the contract between the principal and the third party is not fulfilled for reasons that are not on the side of the principal.
Unless otherwise agreed, the agency agreement is concluded for an indefinite term. If it is concluded for a fixed term, then is shall be terminated upon its expiration. If the agreement is for an indefinite term, each party may terminate it by sending a written notice to the other party while respecting the following notice periods:
The parties cannot agree on a shorter notice period, but if they agree on a longer term, it must apply to both parties.
Each party may terminate the agency agreement without a notice period due to serious reasons, in particular because of failure to fulfil the contractual obligations or due to changed circumstances.
The agent may not request or receive a fulfilment of its principal’s claim if it does not have a special authorization for it.
The agent has the flowing obligations:
On the other hand, the principal’s obligations are the following:
The parties can agree in writing that after the termination of the agency agreement the agent cannot perform partially or fully an agency activity on the same territory, with the same clients or regarding the same products that the agency agreement between them referred to. That provision could be valid only for two years after the termination of the agreement.
Distribution agreements fall within the group of so-called ‘unnamed agreements’ i.e. agreements which are not regulated by exclusive provisions. Hence, the general contractual rules apply. The only laws which mentions distribution agreements are the Law on Trade and the Law on Protection of Competition.
The Law on Trade stipulates that distributors can be direct door-to-door salesman, therefore allowing them to be retailers if they have proper identification. Parties are free to negotiate and specify the terms of the distribution agreement in accordance with the general contractual rules.
Non-compete provisions in distribution agreements are generally excluded from the qualification as prohibited agreements that limit the competition, if consumers have proportionate benefit from them, only if they fulfil certain criteria and do not raise any competition concerns. More specifically, they should avoid including restraints which are not allowed by the Block Exemption Regulation of North Macedonia and the applicable competition rules.
Even though there are no statutory minimum notice periods, it is recommendable that the distribution agreement is terminated upon reasonable notice.
Choice of law
The general rule that applies in Macedonia is that the parties are free to choose the governing law to their contract unless it is regulated differently under applicable law or an international agreement. If the parties have not selected a governing law, the closest connection doctrine would apply, i.e. the law of the state with which the contract is in closest relationship shall be applied. Exceptionally, for contracts related to real estate, the law of the state in whose territory the real estate is located is exclusively applicable. Also, there are certain limitations to the party autonomy in case of a consumer agreements.
A connection between the chosen law and the contractual relationship is not required. Therefore, parties can choose a “neutral” law that would not privilege either side. Additionally, the parties can agree on the applicable law at the moment of the conclusion of the contract, or after that moment, for the whole or for part of the agreement.
The law provides that the choice of law can be explicitly or implicitly expressed, i.e. it can derive from the provisions of the contract or other circumstances.
Choice of dispute resolution forum
The parties’ autonomy is also a criteria for determining the dispute resolution forum. The parties can explicitly or implicitly agree that the dispute between them shall be resolved by a competent court (choice of court agreement) or an arbitration tribunal (arbitration agreement). The parties can enter into this type of agreements before the dispute arises in the form of a contractual provision, or after the dispute emerges.
Choice of court agreement
The parties may agree on the jurisdiction of a foreign court only if at least one of them is a foreign citizen or legal person established abroad, and a local court does not have exclusive jurisdiction in that matter. Courts of North Macedonia have exclusive jurisdiction over number of disputes, including bankruptcy proceeding, disputes over changes in status of companies, disputes over real estate located in North Macedonia, or intellectual property registered in North Macedonia etc. Also, parties cannot agree on the jurisdiction of a foreign court in disputes related to consumer relations and disputes on insurance relations if the consumer, i.e., the insured person who is a natural person is domiciled in North Macedonia.
The parties may also agree on the jurisdiction of a local court if at least one of the parties is a citizen of North Macedonia or a legal entity with a registered seat in North Macedonia. Also, it will be considered that the defendant agreed to the jurisdiction of the local court if he engaged in discussing the subject matter of the proceedings and did not challenge the jurisdiction.
The law provides for certain exceptions to the parties’ autonomy in this area by stipulating that specific disputes, such as (i) marriage disputes; (ii) disputes for establishing or challenging paternity or maternity; (iii) disputes for custody and raising of children under parental care; (iv) child support disputes; and (v) parental right disputes, cannot be subject to a choice of court agreement.
According to the applicable law in North Macedonia, the parties to an agreement can agree on the jurisdiction of a foreign arbitration only in cases when (i) one of the parties has a residence or a registered seat outside of North Macedonia, or (ii) the place where substantial part of the obligations under the commercial relationship should be fulfilled, or the place where the subject matter is most closely connected to, is not in North Macedonia. This would not be applicable in cases where the law stipulates that a court in North Macedonia has exclusive jurisdiction on a specific matter. The agreement should be concluded in writing and should refer to a defined legal relationship, whether contractual or not.
The local arbitration law is a verbatim adoption on the 1985 UNCITRAL Model Law and the main arbitration institution in North Macedonia is the Permanent Court of Arbitration within the Economic Chamber of the Republic of North Macedonia. It has authority to administer both domestic and international disputes. North Macedonia is party to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States and the 1961 European Convention on International Commercial Arbitration.
All foreign court and arbitral decisions are subject to a recognition procedure by competent local courts in North Macedonia after which they become equal to the decisions adopted by the local courts. There are several conditions for recognition of a foreign court decision including the following: (i) a Certificate of validity and enforceability should be submitted to the court; (ii) the right of the parties to provide their defence in the dispute should have been respected; (iii) the court which adopted the decision should be competent; (iv) there should not be a previous valid decision between the same parties about the same subject matter; and (v) the public order should not be infringed by the recognition and/or enforcement of the foreign court decision/arbitral award.
Any arbitral award enacted outside of North Macedonia is considered a foreign arbitral award thus its recognition and enforcement is conducted under the conditions set in the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The procedure is conducted before the Basic Courts in North Macedonia.
After its recognition, the decision is considered equal to a decision adopted by the competent local authorities and the enforcement procedure is the same for both. It begins when the creditor requests enforcement of the decision by a competent enforcement agent. Enforcement of a monetary claim can be performed only by selling movable objects, selling real estate, selling securities and shares in trade companies, transferring a monetary claim, converting money into other property rights, and transferring funds that are kept on the account with a payment operations carrier. The subject of enforcement for the purpose of settling a monetary claim may be any debtors’ asset, property right and real estate registered in the real estate cadastre, which is not exempted from enforcement by law, or if the enforcement against them is not restricted by law. The means of enforcement of non-monetary claims are adjusted to the nature of the non-monetary claims.
The manner and procedures for awarding contracts for public procurement are governed by the Law on Public Procurements (2019). Together with the applicable secondary legislation, the intention of this Law is to set up basis for open competition based on equal and non-discriminatory approach towards the participants in the public procurement procedures, all for the purpose of rational and effective usage of public funds.
The Law on Public Procurements regulates explicitly which contracts for public procurement fall under its provisions and which do not. In the applicable situations, the procuring entities (e.g. state bodies; municipalities; public enterprises; certain state-owned companies; etc.) are required to follow the regulated public procurement procedures when awarding procurement contracts for goods, services or works.
The following authorities deal with certain aspects of the system for public procurement:
Currently, most of the public procurement procedures are carried out electronically through the ESPP. However, starting from 1 January 2018, the procuring entities will be obliged to use the ESPP for all open, restricted and procedures with request for proposals.
A procurement contract can be awarded through one of the following procedures:
Generally, awarding criteria during public procurement procedures is the most economically advantageous bid. As an exception, the procurement contract can be awarded to the bidder with the lowest offered price.
The entire privatisation process is/was regulated by several legislation pieces (e.g. the Law on Transformation of the Undertakings with Social Capital (1993); the Law on Privatisation of State Capital (1996); etc.), based on which North Macedonia managed to complete most of the privatisations since there are only few state-owned companies on the market. However, for quite some time the authorities are trying to find interested investors for the former “giants” on the Macedonian economy, the companies EMO from Ohrid and OHIS from Skopje.
With respect to the good standing state-owned companies, the authorities are considering the privatisation of the public enterprise Makedonska Posta, the public operator in the domestic and international postal traffic with more than 2000 employees, and potential “injection” of private capital (49%) in the biggest domestic electricity producer JSC Power Plants of North Macedonia (JSC ESM) Skopje.
Public-private partnerships (PPPs)
The concept of PPPs was presented in the domestic legal system with the previous Law on Concessions and Other Types of Public-Private Partnership (2008). Currently, the main aspects of awarding and implementing a PPP are regulated with the Law on Concessions and Public-Private Partnership (2012), as general law, and the Law on Public Procurements.
At the beginning, public partners were not so keen to use PPPs as an investment model, but this is changing over the last years. According to the Register for Awarded PPP Contracts, there are 30 established PPPs, mostly smaller projects by municipalities and public enterprises.
PPPs / Concessions
PPP is characterized as a contractual long-term cooperation between the public and the private partner, established to facilitate the provision of a public service by one of the partners, through allocation of risks and undertaking specific obligations, mostly by the private partner (e.g. financing, designing, (re constructing, and/or managing/maintaining a public infrastructure). The PPPs are established by an agreement and based on the compensation method and the allocation of risks they can take one of the following forms:
By definition, public partners are the entities which award the PPP agreement (i.e. the Republic of North Macedonia; the local municipalities; public enterprises/institutions and companies owned or controlled by state or local authorities; and other legal entities which perform public authorisations), while a private partner can be any domestic or foreign legal or natural person, including consortia, which enters into a PPP agreement or incorporates a special purpose vehicle (SPV) for that purpose.
As a comparison, the Law regulates so-called Concession for Goods of Common Interest which entitles the concessionaire to use goods such as: waters; mineral resources; public roads; construction land; etc.
Characteristics of a PPP
Term - PPP agreements can be concluded for a period up to 35 years from the moment of signing or entering into force of the agreement. There is a standstill obligation which impose obligation for the public partner not to sign the PPP agreement until the decision for selecting the most favorable bid is final and binding. In a period of six months prior to the expiry of the PPP term, the public partner initiates a procedure for establishing new PPP.
Special purpose vehicle - For the implementation of the PPP project, the private partner or the wining consortia may establish a SPV. Establishing a local SPV can also be a mandatory requirement imposed by the public partner. In such case the tender documentation regulate the requirements regarding the legal form of the SPV, the amount of the capital, the obligations of the selected bidder with respect to the incorporation, etc.
Ownership rights - As a rule, the public partner owns the constructed/re-constructed objects during a PPP, unless if it is otherwise agreed with the PPP agreement. The terms regarding the ownership rights have to be stipulated in the tender documentation, based on the carried analysis in the feasibility study for the project.
Step-in rights - The PPP agreement could regulate transfer of the private partner’s rights and obligations in favour of the lenders, as a security for their claims. Such transfer is possible only without jeopardizing the operations and the provision of the services, the quality of the activities, as well as the price.
Transfer of shares in a SPV is conditioned with prior written consent from the public partner.
Sub-contracting and awarding works to third parties by the private partner - The public partner can require at least 30% of the PPP established as public works/service concession to be performed by the sub-contractors. The bids needs to contain information on the percentage of the value of the PPP agreement which they intend to provide to sub-contractors.
For awarding works worth over EUR 3.000.000 during the PPP established as public work concession, the private partner has to follow certain rules with respect to the publishing of the notice and the deadlines for submission of bids.
The public partner awards the PPP agreement in accordance with the terms from the Law on Public Procurements regarding the following procedures:
However, some of the aspects of the awarding procedure can be regulated by the Law on Concessions and Public-Private Partnership. For example, the content of the public call or the use of electronic auction through the electronic system of the Ministry of Economy as last phase during an open, restricted or negotiated procedure.
The procedure for awarding a PPP agreement is initiated by a decision from the public partner based on the preparatory activities, especially in accordance with the environmental impact assessment for the project. The entire awarding procedure is carried out by a Commission, established on case-by-case basis.
PPPs can be financed by a private partner through a combination of direct investments in capital or through lending, including the structured or project financing, provided by international financial institutions, banks, or other third parties.
With prior consent from the public partner, and subject to the legislation regulating ownership rights and the specific object/service, the private partner may establish security in favour of the lenders.
Consortia and joint ventures are not heavily regulated in North Macedonia. On the contrary, they are basically considered as collaborations between independent market players who join forces into contractual or legal form for achieving specific business purposes. Several legal categories from the local legal system could be considered as consortia or joint venture (e.g. joint participation during bidding procedures; partnership agreements; etc.).
The term consortia is used to define a group of persons who submit a joint bid during an awarding procedure for a PPP/Concession, without being incorporated into a specific legal form. Under the Law on Concessions and Public Private Partnership (2012) there is no explicit requirement for consortia members to enter into an agreement prior or after the submission of the bid. Opposite to this, the Law on Public Procurements (2014) requires from the group of economic operators to provide an agreement by which they will oblige themselves to jointly implement the procurement contract. The members of the group of economic operators have joint and unlimited liability for the undertaken obligations with the bid. In both cases, the authorities could require the PPP/Concession Agreement or the Procurement Contract to be executed by a special purpose vehicle incorporated by the members of the consortia/members of the group of economic operators.
Unlike the consortia, the term joint venture is a generic concept which is not defined and could include collaboration expressed through contractual or legal form. To be more specific, from a legal standpoint a joint venture refers to a company incorporated by independent parties, while from a linguistic aspect the term could encompass any joint business behavior from different parties. In regard to this, the latter could fall under the definition of a partnership agreements regulated by the Law on Obligations (2001). This type of agreements enable the partners to join their property or effort in order to jointly achieve material benefit and share the same among themselves. In cases when joint venture participants form a separate legal entity (i.e. joint vehicle) in order to pursue joint business interests, the mutual rights and obligations of the parties are usually regulated by the Articles of Association of the company or under a special Shareholders Agreement. While the establishment (statutory) document, such as the Articles of Association is registered at the Central Registry of the Republic of North Macedonia and publicly available, the Shareholders Agreement is not publicly available, while also being binding for the parties.
Consortia and joint ventures intended for joint participation on the market could be subject of the rules for protection of competition. Antitrust rules and potential merger clearance implications should be considered when planning a consortia and/or joint ventures.
The tax system in North Macedonia is established so as that each main type of tax is regulated by separate piece of legislation and a number of bylaws issued based on them, including::
These laws primarily deal with substantial issues in their respective tax areas, provided that they also prescribe certain specific procedural rules of importance for that tax.
In addition to the above, there are a number of laws establishing numerous so-called para-fiscal charges, such as court and administrative fees and other local fees.
North Macedonia has a tax system characterized with low tax rates. The profit of resident legal entities is subject to corporate income tax at 10%. Personal income is subject to progressive and flat tax rates depending on the type and amount of the generated income. Rates of social security contributions for employment income are set in aggregate rate of 27.5% from the gross salary.
Certain types of income generated by non-resident legal entities are subject to special tax regime. The incomes from industrial property rights, lease and sub-lease, capital, capital gains, games of chance and from insurance are subject to tax at rate of 15%.
The standard VAT rate is 18%. Certain goods and services (e.g. computers, pharmaceuticals, food products, public transportation etc.) are taxed at a reduced VAT rate of 5%. The Law on VAT provides for a list of exemptions, which include the supply of banking and financial services, insurance, health and education.
A taxpayer must register for VAT purposes if its turnover subject to VAT exceeds MKD 1 million per year. The taxpayer may register for VAT purposes voluntary upon its establishment and upfront if it expect to meet the turnover threshold. The tax period for VAT payment may be on monthly, quarterly or annual basis depending on the turnover.
Personal Income Tax
As of 1 January 2019, North Macedonia applies progressive taxation concerning personal income. In addition to the previous flat 10% tax rate, the system now includes tax rates at 18% and 15%, applicable to different types of income, as follows:
The income tax and social contributions on employees’ salaries are paid on a withholding basis, so that the employer is liable for reporting and payment.
The owner of real estate is subject to a municipal-level tax, at rates ranging from 0.10% to 0.20% of the estimated market value of the property.
The transfer of real-estate is subject to municipal-level property transfer tax ranging between 2% and 4% of the estimated market value of the property depending on the municipality where the property is located.
Tax treaties network
In accordance with Article 118 of the Constitution, ratified international treaties are part of the legal system and have supremacy over national legislation, considering that they cannot be amended by virtue of law.
North Macedonia has a developed network of approx. 50 treaties on avoidance of double taxation („DTT“), including DTTs with almost all EU countries, Russia, all regional countries and number of Asian countries. Most of DTTs applicable in North Macedonia are based on OECD Model Convention. However, North Macedonia has not signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).
North Macedonia also ratified social security conventions with some 20 countries, governing the rights and obligations in relation to social security of citizens of these countries in North Macedonia and vice versa.
Important source of tax law in North Macedonia are also international treaties governing other issues – primarily status of international organizations and financial institutions or development and financing of important infrastructural projects, which provide for specific tax rules in the areas covered by treaties. These rules are primarily related to various tax exemptions on projects financed by international organizations and institutions.
The laws regulating the taxation of the income of legal entities and individuals prescribe various tax exemptions. The supplies exempted from the VAT are mainly the same as exemptions granted in the EU. With respect to special incentives provided to investors in the TIDZs, please refer to Paragraph 2.2 above.
The CIT Law provides that the tax base in a current year may be decreased for the amount of the investments made out of the profit generated in the previous year. In order to deduct the reinvested profit from the tax base the taxpayer should invest into the tangible assets (immovable property, plant and equipment), including in investments tangible assets procured via financial leasing, as well as into the intangible assets (computer software and patents). Investments in passenger cars, furniture, carpets, audio-visual devices, appliances, pieces of fine and applied art and other investments that serve administrative purposes would not qualify as the investment in purpose of deduction of the taxable base. The reinvestment of the generated profit has to be made for purpose of expanding of the business activity of the taxpayer.
Exemption from payment of personal income tax and mandatory social contributions is provided in cases when employers hire specific vulnerable categories of employees (e.g. people under 35 who are unemployed for at least three months, elderly workers over 58 years old who are unemployed for at least two years, single parents, orphans etc.). Incentives include 3-5 years of exemption from payment of personal income tax and mandatory social contributions for the respective employee. Interested employers should apply to the Employment Agency, proving they meet specific criteria. Depending on the category of employees the employer hires which are subject to the incentive, the employer could be obliged to keep the employee for at least one year since the validity of the incentive expires. Furthermore, in order to use the incentive employers are prohibited to decrease their number of employees after they are granted with the incentive.
Employees who are persons with a disability are subject to tax exemption concerning the obligation to pay personal income tax of their salary. Furthermore, their mandatory social contributions are covered by the state.
Tax exemption for important projects
Applicable regulation provides a specific VAT exemption for projects funded by irreversible funds from foreign donors, including international financial institutions, as well as EU – funded projects.
The procedure for direct exemption from VAT on the turnover of goods and services and the imports of goods for the implementation of projects financed with funds obtained by a contract for donation concluded between the Republic of North Macedonia and foreign donors, is applied if the contract stipulates that the taxes will not be paid with the obtained funds.
With respect to projects that are financed within the Instrument for Pre-Accession Assistance (“IPA”) and are implemented under decentralized management, the tax exemption also applies to the portion of funds from the national co-financing provided from the Budget of the Republic of North Macedonia, from its own resources or from other sources of funding.
In order to use the tax exemption, the entity implementing the project should register the project at the Secretariat for European Affairs in the scope of the Government. Once the project is registered by the Government, the entity implementing the project should obtain a special tax number of the project by submitting an application for registration of the project as taxpayer to the competent office of the Public Revenue Office.
For the changes intended for the implementation of projects funded by foreign donors and IPA funds, the taxpayer is obliged to issue an invoice which contains a serial number assigned by the Public Revenue Office. The taxpayer before issuing an invoice for the use of tax exemption must report the turnover electronically to the Public Revenue Office.
Taxation procedure and disputes
General rules governing the tax procedure, including the assessment and collection of tax, rights and obligations in relation to the tax system are governed by Law on Tax Procedure (2006). Since the tax procedures are essentially administrative procedures, they are also governed by the Law on General Administrative Procedure (2015), in parts which are not covered by the Law on Tax Procedure and specific tax laws. Tax procedure is modernized and provides an opportunity and obligation to file tax returns and other reports to the Public Revenue Office online.
Parties have the right to initiate an administrative dispute before the Administrative Court against decisions of the Public Revenue Office as the competent tax authority. Furthermore, they have the right to a legal remedy – appeal before the High Administrative Court with respect to the decision of the Administrative Court.
Foreign workers and entrepreneurs who intend to work and thus reside in North Macedonia should hold both work and residence permits, as well as a visa for the regulation of temporary stay (type D). As a rule, there are no special visa, working and residence rules for foreigners that travel and stay in North Macedonia and work under a contract with the government.
Nations from EU/OECD member countries, who acquire ownership over an apartment or house in North Macedonia in value of at least EUR 40,000, qualify to apply for e temporary residence permit in North Macedonia.
The Government has discretionary right to grant citizenship in North Macedonia for foreign nationals that meet specific criteria, if this is a matter of national interest in areas such as science, economy, culture, sports or others. By using this discretionary right in the past, there have been cases when the Government has granted citizenship to representatives/founders of foreign companies that should invest in North Macedonia.
Temporary residence permit
The request for issuance of a temporary residence permit due to employment is filed together with the visa application before the competent diplomatic or consular office of the Republic of North Macedonia, or an external service provider authorized by the local authorities for processing of such applications. In practice, in case the foreigner does not require visa to enter North Macedonia, the Ministry of Interior Affairs allows that the request for temporary residence permit is filed in the competent office of the Ministry of Interior Affairs where the foreigner should work. Note that as a rule the foreigner should be personally present to submit the request, as well as to receive the decision by the authorities. However, the Ministry of Interior is flexible and it allows that the request is filed by post or by a person holding a valid power of attorney, while the applicant still has to come in person to pick up the temporary residence permit.
A temporary residence permit for the purposes of work shall be issued on the basis of an application submitted (i) by the foreigner, (ii) by the legal entity with which the foreigner is to conclude an employment contract or (iii) by a person authorized by the foreigner. The foreigner has to provide series of documents, such as a passport which is valid for a period of at least three months, education certificates, CV etc. Together with the request for issuance of a temporary residence permit, and visa (if applicable), the applicant should disclose evidence that it meets the following conditions:
The temporary residence permit due to work in North Macedonia is issued upon obtaining a positive opinion by the Employment Agency. Note that the practice in these type of cases is severely unharmonized, thus on case-by-case basis authorities reserve the right to require additional documents from the foreigner for purposes of determining the relevant circumstances for issuance of a temporary residence permit.
As soon as the Ministry of Interior Affairs prepares the decision for granting temporary residence permit to the foreign national, it shall schedule an appointment for the foreigner to take his/her photo and issue an ID for a foreign national holding a temporary residence permit in North Macedonia. Upon receipt of the temporary residence permit, foreigners are granted with a unique identification number which is used in salary calculations, tax payments and in general for identification of the foreigner in North Macedonia.
The number of work permits issued in North Macedonia are envisaged by a quote determined by the Government, upon proposal and consultation with other relevant authorities. The quote cannot exceed 5% of the number of population which is actively employed. The quote does not include specific categories of foreign employees, such as professional athletes, residents of foreign countries which work in North Macedonia based on international agreement concluded with their country; seconded employees from foreign companies to group member companies in North Macedonia who perform managerial or specialized functions etc.
The quote is divided into work permits for four different categories of employees, as follows: (i) employment of foreign nationals in North Macedonia; (ii) foreigners seconded in North Macedonia; (iii) foreign seasonal workers; and (iv) individual services provided by foreigners.
Foreign nationals apply for their work permit together with their application for a visa and temporary residence permit. Since 2016 all applications for issuance of new or extension of existing work permits are submitted to the Ministry of Interior Affairs, which has an obligation to coordinate the procedure for issuance of a work permit with the Employment Agency. As an exception, the request for work permit could be submitted to the Employment Agency directly in cases when the employees have regulated temporary or permanent stay in North Macedonia on other grounds (e.g. marriage). The initial work permit is issued on a six month period, while later it is extended on an annual level.
Only in specifically envisaged cases, foreigners are allowed to provide short-term services or carry out work in North Macedonia based on registration only, without the need to obtain a work permit. These are usually cases when employees are sent to North Macedonia based on an agreement between their employer abroad and the local company for installation on specific equipment purchased from their foreign employer. Also, registration of foreign workers is sufficient in cases when they represent their employer only on a fair organized in North Macedonia and in specific situation of providing creative services in the cultural segment. Foreigners who work in North Macedonia based on registrations under the exceptions provided by law, do not have the right to obtain a temporary residence permit due to employment.
Contract form requirements
Employment contracts have to be concluded in written form and executed by (i) authorized representative of the employer on one side, and (ii) the employee on the other. For purposes of conclusion of an employment contract, the employer may be represented by its manager, or other person appointed by written authorization.
Employment agreements should contain all the compulsory elements required by the Labour Law, such as: information on the parties, description of job, place of work, type of employment (definite/indefinite term), working hours (full time/part time) and their daily/weekly duration, commencement date, monetary amount of basic salary and elements for determining other legal payments (performance part of the salary, allowances, increased salary etc.) etc.
Employment is registered at the Employment Agency, which registers the employee for mandatory social and health insurance automatically with the registration of conclusion of the employment contract. Employers have an obligation to register the employment of their employees at the Employment Agency.
Minimum employment terms and conditions
The employers are bound by the regulations on the minimum salary for workers regulated by a specific law. The current minimal net salary in North Macedonia is in amount of MKD 12,508 (approx. EUR 203), but this amount does not apply to sectors for production of textile, production of clothes, and production of leather and similar leather products where the minimal salary is lower.
Furthermore, employers are also bound by minimum employment terms regarding daily and weekly breaks, annual leave duration, maternity and parental leave, maximum working hours, termination causes and notice periods, working age limitations, overtime payment and limitations, informing procedure and severance payments for redundancies and other issues specifically regulated with the applicable regulation.
Employment may be established for indefinite or fixed term. Fixed term employment contracts may be concluded for a period up to 5 years, with or without interruptions. Upon expiration of this period of time, the fixed term employment agreement is transformed into an employment for indefinite period of time.
Local legislation also acknowledges seasonal work which due to the climate or other natural conditions is not carried out during the whole year, but in particular periods – seasons. Seasonal work does not last more than eight months in a period of 12 consecutive months.
Employees may be hired on full or part-time working hours. In order to work full-time, an employee should be hired for a 40 hour working week, i.e. should have 8 work hours per day. Part-time employment should consist of at least 20 working hours per week, i.e. 4 working hours per day.
Full time employees have the right of a 30 minute break during working hours, while part-time employees have the right of a 15 minute break. The break time is calculated within the working hours of the employee.
As a general rule employees have the right to an annual leave of at least 20 working days. A longer annual leave could be agreed within the employment contract, but no longer than 26 working days. Elderly employees, a disabled employee, an employee with at least 60% of physical impairment, and employees who take care of a physically or mentally handicapped child, are granted the right to additional three working days of annual leave.
Managerial contracts – As an exception, employers may conclude managerial contracts with employees on managerial positions. By concluding a managerial contract, the parties are free to agree on different terms with respect to (i) conditions for fixed-term employment; (ii) working hours; (iii) daily breaks and annual leave: (iv) salary and (v) termination of the employment. Note that persons hired based on managerial contracts do not have to be the appointed managers, i.e. authorized persons at a specific company. This means that employers are allowed to conclude managerial contracts with other employees as well, e.g. heads of departments etc.
The manager or other legal representative of the company can be engaged on the basis of a standard employment agreement, managerial agreement according to the Labour Law (2005) or alternatively through non-employment Management Agreement in accordance with the Company Law (2004).
If a manager is engaged through employment agreement or managerial agreement according to the Labour Law, such agreement may be concluded either for indefinite term or for definite term – for the duration of his/her term of office. A manager engaged through a standard employment agreement is entitled to the same basic employment rights as all other employees – including the salary and all other mandatory payments, vacations and leaves, limited reasons for termination of employment etc.
If a manager is engaged through a managerial agreement under the Labour Law or an out-of-employment Management Agreement, limitations of employment relation do not apply to such agreement. The parties are free to agree the amount of remuneration and any other mutual rights and obligations that they deem adequate.
The employment contract will cease to be valid in case of:
The employment could be terminated by the employer if there is (i) a justified reason for termination related to the conduct of the employee (i.e. termination due to personal reasons), (ii) violation of the work order and discipline, or failing to meet work obligations (i.e. termination due to causes of fault); or (iii) if the worker is no longer needed to perform certain work under the conditions stated in the employment contract due to economic, organizational, technological, structural or similar reasons by the employer (i.e. termination due to business reasons). The worker and employer may terminate the employment contract within the specified statutory or contractual notice period.
If the employer terminates the employment contract with an individual worker or fewer workers, the minimal statutory notice period is one month. The notice period is two months in the case of termination of employment of more than 150 employees or 5% of the total number of workers working for the employer prior to the termination of employment. If the employer terminates the employment contract of seasonal workers, the notice period is seven working days. The notice period starts on the day after the worker received the decision for termination of the employment contract. Parties could agree on longer notice periods within the employment contract. Furthermore, the parties may agree that the employer pays a certain remuneration in order to waive the applicability of the statutory notice period.
Based on the law the following reasons are considered as absolutely ill-founded reasons for termination:
In accordance with the Labour Law, the provisions relating to termination of the employment contract shall apply in the case when the employer terminates the employment contract and, at the same time, the employee is also proposed with a new amended employment contract.
As a general rule, according to the law, the employer is not required to obtain any kind of consent from a third party before the employee’s contract is terminated. However, the employer may terminate the employment contract of a union representative only with prior consent of the union. The union representative is protected against dismissal during the whole period of their term of office and at least two years after expiry of their term of office.
If the employment contract is terminated, the employer is obligated to state the reasons for the termination, defined by law and the collective agreement, and the employer is required to prove the merits of the cause that justifies the termination and to provide an explanation. The employee has the right to a legal remedy against the decision on termination.
Termination due to personal reasons - The employer is entitled to dismiss the employee due to reasons related to the individual worker when the worker, because of his behavior, lack of knowledge or opportunities, or for failure to meet specific conditions set by law, is not capable of performing contractual or other obligations of employment (personal reasons). The employer may terminate the employment contract of a worker for personal reasons only if the worker is provided with the necessary working conditions and is given appropriate instructions and guidelines. Before terminating the employment, the employer is obliged to provide the employee with a written warning confirming that the employer is not satisfied with the manner of the execution of duties and providing a reasonable period of time for the employee to improve its performance. If the worker does not improve the performance by the set deadline, the employer may proceed with the termination.
Termination due to cause of fault – If the employee violates the work order and discipline, it could be dismissed due to cause of fault with or without a notice period. The Labour Law stipulates the cases when an employment could be terminated without a notice period, such as in cases when (i) the employee is under the influence of alcohol or narcotics, (ii) the employee misses work for at least three days in a row without a justified reason; (iii) the employee abuses its right to sick-leave etc.
Based on the court practice in event of violation of the work order and discipline, the employer should implement an internal procedure for determining the facts of the case prior to termination by establishing a disciplinary proceeding. Usually, the disciplinary procedure is regulated by an internal rulebook of the employer.
Termination due to business reasons – In the case of termination of the employment contract for business reasons, the employer is obliged to pay the worker a severance payment. The severance payment is calculated based on the years of employment of the respective employee. For purposes of calculation of the severance payment, the employer takes into consideration the years of employment at the same employer, or the period of employment with the same employer and the period of employment with the previous employer, in cases when the current employer is the legal successor of the previous employer due to so called amendments in status of the companies. The Company Law of North Macedonia considers company restructurings such as mergers, acquisitions and division of companies in accordance with its provisions as amendments in status of a company.
The amount of severance payment could range between one and seven net salaries of the respective employee. As a rule the employee shall receive severance payment in amount of one and a half net salary for every five years of employment. The basis for calculation of the severance payments is the average net salary of the employee in the last six months prior to the termination, but it cannot be lower than 50% of the average net salary paid in North Macedonia in the month prior to the termination.
Collective dismissal due to business reasons - If the employer intends to make a decision on the termination of the employment of a number of workers due to business reasons, or at least 20 employees for a period of 90 days at each termination of employment regardless of the total number of employees by the employer, it shall be considered as a collective dismissal due to business reasons. When the employer intends to carry out collective redundancies, the process is initiated with consultation with the workers’ representatives, at least one month before the collective dismissal. The employer is obligated to provide the representatives with all relevant information before starting consultations to achieve an agreement. The employer has an obligation to issue a written notice to the Employment Agency informing them on the intent for collective dismissal at least 30 days before the dismissal occurs. Upon this notice, employees are free to provide their suggestions to the Employment Agency with respect to the collective dismissal. If the Employment Agency finds that the problems due to the collective dismissal cannot be surpassed in the provided 30 day period, it the right to require that the period since the submission of the written notice till the termination is extended to 60 days. In practice, the Employment Agency exercises this right in all cases for collective dismissal.
The most common restrictive covenant in employment contracts in Macedonia is the non-compete clause. A non-compete clause is usually met in employment contracts in sector specific industries (IT, health-care, auto-motive industry, banking & finance sector etc.).
Non-compete clause is valid during the duration of the employment and usually employees are not allowed to carry out activities that may be deemed as competitive to the employer, unless the employer provides its prior approval. However, the validity of the non-compete clause could continue for a period of up to two years since the termination of the employment and only in cases when the employment is terminated based on employee’s will or fault. The term of validity of the non-compete clause should be determined with the employment contract. The non-compete clause should not exclude the possibility of employment for the employee.
If the observance of the non-compete clause prevents the employee from earning an appropriate living, the employer shall be obliged to pay him monetary compensation during the whole period of validity of the non-compete. The monetary compensation has to be defined in the employment contract and its amount should not be less than 50% of the average salary paid to the employee three months prior to the termination of employment.
The employer and the employee may agree on termination of the validity of the non-compete clause. Also, if the employee terminates the employment contract due to breach of the employment contract by the employer, the non-compete clause shall cease to have effect if the employee notifies his former employer in writing that he is not bound by the non-compete clause within one months since the termination of the employment.
Apart from the non-competition clause, local employment contracts often contain confidentiality clause during employment and following employment termination (usually unlimited), which prohibits disclosure of company’s business secret. The Labour Law of North Macedonia does not regulate the non-solicitation clause, but usually it is seen in practice as part of managerial contracts. However, court practice regarding enforceability of non-solicitation clause is severely underdeveloped.
Competent courts and authorities
There are no specialized courts for labour disputes in North Macedonia, but these cases are handled by regular civil courts. Some courts with bigger capacities have established special departments handling labour disputes. The First Instance Courts initially deal with labour disputes, while parties also have the right to file appeals to the competent Appellate Courts against first instance judgments. The Supreme Court of the Republic of North Macedonia is competent for deciding on extraordinary legal remedies against the final rulings. Depending on the type of disputes different statutes of limitation apply. As a general rule, the employee should first file an objection against the decision of the employer to the competent body within the company in a period of eight days after it receives the decision it would like to challenge. Within eight days since the submission of the objection, if the employee does not receive any feedback from the employer regarding its objection, or its objection is denied, it has the right to initiate a labour dispute within a period of 15 days. Monetary claims deriving from employment have 3 years statute of limitation.
In proceedings of labour disputes, the procedure before the First Instance Court should be completed within six months from the date of filing the claim. In appeal proceedings, the Appellate Court should decide on the appeal filed against the decision of the First Instance Court within 30 days of receipt of the application or within two months if before the Appellate Court to hold a hearing. However, due to overload with cases, courts tend to exceed these deadlines for reaching a decision and labour disputes may take up to two years and longer. Regarding extraordinary legal remedies, the Supreme Court of the Republic of North Macedonia should decide within eight months since its starts working on the case. However, it does not start working on the case upon its receipt, so this period of time could also be delayed.
Although there is an applicable Law on Amicable Resolution of Labour Disputes in force since 2007, this regulation fails to meet its purpose in practice and most of the labour disputes are still handled before competent courts. The regulation on amicable resolution of labour disputes provides an alternative dispute resolution mechanism for collective labour disputes, as well as individual labour disputes. Parties are free to choose and appoint a conciliator or arbiter for amicable resolution of a labour dispute from the registry of competent arbiters administered by the Ministry of Labour and Social Policy.
The Labour Inspectorate is the main authority for monitoring the implementation of the labour and health and safety regulation among employers. Employers have the right to initiate administrative disputes before the Administrative Court against decisions of the Labour Inspectorate.
Depending from the procedure, other public authorities could have specific competences related to employment relations, such as the State Commission for Prevention of Discrimination, in cases of discrimination claims or the Directorate for Personal Data Protection, in cases of violations of privacy or other data protection matters.
Relevant authorities for the protection and enforcement of intellectual property rights arising from trademarks are the following:
In North Macedonia, any natural or legal person is eligible to for the registration of a mark granting them trademark protection. Foreign applicants, except for the representative offices who pursuant to the relevant Company law are not eligible to apply for trademark protection, enjoy the same rights regarding trademark protection as domestic applicants, provided that such rights derive from international treaties or principles of reciprocity. Foreign applicants however need to be represented in proceedings before the SOIP either by a professional representative such as a registered IP representative or a lawyer.
Under the local Law on Industrial Property, any mark that is used to distinguish goods and services in trade and that may be graphically presented can be granted trademark protection. Marks subject to protection may comprise the following: words, slogans, letters, numbers, images, drawings, combinations of colours, three-dimensional shapes, and combinations of such marks and of graphically presentable musical notes.
Trademark application procedure commences by filing of the application for trademark registration to the SOIP, either via post office or directly at the premises. Application, containing duly filled form, valid power of attorney (should it be filed via legal representative), graphic representation of the mark (if the application is for a mark with a figurative element), complete list of relevant goods and services under the Nice Classification of Goods and Services, and proof of payment of administrative fees, will be entered into the register of applications, where the note of a filing number, date and the time of the receipt will be given by the SOIP. The filing date is also a priority date.
Benefits of registering a trademark are multiple, but the main benefit lies in the protection it grants. Thus, the trademark holder has the exclusive right to use the trademark for goods and/or services to which it relates, and to prohibit others from an unauthorised use of an identical or similar mark for marking identical or similar goods or services on the market, should such use be likely to cause confusion in commerce. Additionally, the Law on Industrial Property specifically governs that, in the event of intentional infringement of a trademark, the injured party may, instead of simply being remunerated pecuniary damage, request from the infringing party compensation of up to three times the usual licence fee it would have obtained for the use of the infringed trademark.
The trademark registration procedure, where a mark is not found to be in opposition to any other previously registered trademark, can take up to two years, thereby comprising any potential examination reports rendered by the SOIP leading to the extension of the procedure.
However, should there be a parallel court procedure initiated for the infringement involving a filed mark, the registration procedure might be extended to several years as the registration procedure would be suspended until the decision is rendered in the court proceedings.
The average total cost for the registration proceedings excluding any potential additional costs for responses to the examination report amounts to approximately EUR 111.
The examination report of the registration procedure consists of formal requirements and of material conditions for the trademark registration.
Formal examination consists of verifying the validity of the filed trademark application (consisting of the trademark application form, the mark claimed, list of goods and services to which the mark applies, and power of attorney, should the applicant be represented by someone). Should the examiner find that an application is improper, he/she will notify the applicant by dispatching an examination report to him specifying the irregularities noted and inviting the applicant to remedy the deficiencies within a 60-day time limit. If the applicant fails to remedy the deficiencies in the application within the time limit assigned, or if he/she fails to pay adequate administrative fee for remedying such deficiencies, the examiner will issue a procedural order rejecting the application.
Material examination takes place once the application is found formally to be in order. Such procedure aims at examining the existence of any potential conflicts with other previously registered trademarks. If there are objections, the SOIP will notify the applicant of this in writing, asserting the reasons for which the mark cannot be registered and requesting from the applicant to submit its comments within the specified time limit of 30 days (which may be extended upon a request by the applicant for a period deemed appropriate, provided that prescribed administrative fees have been paid). If the applicant fails to act upon the SOIP’s request, or if it does but the SOIP nevertheless finds that the mark may not be registrable, it will reject the application.
The trademark lasts for 10 years as of the date of filing of the application for registration, and is indefinitely renewable for further 10-year periods upon payment of prescribed administrative fees.
Enforcement of IP rights and particularly trademarks are performed on several different levels.
SOIP has recently appointed a special coordinating body whose function is to act upon infringement claims. The coordinating body is presided by the SOIP’s deputy director and consists of various inspectors and police officers. Coordinating body members act by verifying the variety of infringement allegations and by seizing goods and filing complaints.
As is the case in other jurisdictions of former Yugoslavia, border control mechanisms are available via Customs Administration, allowing for trademark holders, applicants or exclusive licence holders to file a demand for trademark protection at the state borders. Acting upon rights holders’ request, or ex officio, the authorities are empowered to temporally seize all goods that are either the object or means of an IP rights infringement, whenever there is prima facie evidence establishing that an IP right has been infringed. Following the seizures, the customs officers notify without delay the rights holders, the IPO (if it is necessary to obtain relevant information) and any other interested parties (if any such parties are known) about the measures taken.
The notification is crucial as it includes an invitation to the holder of the IP rights to initiate the proceedings for protection of its rights in the court proceedings and to inform the customs authorities about such proceedings or of the preliminary injunction issued by the court.
Court proceedings, as the third means of enforcement, are initiated by filing a complaint with the competent court. The infringement complaint is usually filed with a demand for preliminary injunction. After receiving such a complaint, the court quickly decides on preliminary injunction. Furthermore, before rendering the final decision on the complaint, the court schedules a hearing to receive the statements of the parties. The judge will schedule as many hearings as is deemed necessary before rendering a decision.
Litigation costs depend on the value of the claim, length of the proceedings and number of hearings. In North Macedonia, litigation costs comprise the costs of filing of the complaint, to which are added the costs of rendering the decision of the first instance court, and in case of appeal, for rendering the decision on the appellate level. As the range between cases can be very different, it is impossible to determine a typical range of costs in an infringement action.
The Constitution of North Macedonia (1991) guarantees the right of ownership to all parties and promotes the legal protection of this right as a fundamental value of the legal system. On this basis, the Law on Ownership and Other Property Rights (2001), as a primary law, the special regulations for specific aspects of the ownership right (e.g. Law on Construction Land (2015); the Law on Contractual Pledge (2003); etc.) and other applicable laws create the legal framework for exercising the ownership and the other property rights.
Ownership and other property rights
All domestic and foreign, natural and legal persons can own a real estate, under the terms stipulated by law. In case of several owners over the same property, the ownership right can be in the form of co-ownership (сосопственост), joint ownership (заедничка сопственост) or level-ownership (етажна сопственост).
The ownership right entitles the holder to hold, use and dispose with the real estate, with certain restrictions envisaged by law. Currently, there are ongoing processes for legalisation of unlawfully built structures and conversion of the rights of use over construction land into ownership rights. The deadlines for applying for both procedures are expired.
The other property rights encompass: servitude right, right of pledge, right of real burden, as well as other property rights (e.g. long-term lease of construction land; etc.). Without the need for acquiring ownership, the parties may have a legal possession over a real estate.
Right of foreigners to own a real estate
Residents of the member states of the European Union and the Organisation for Economic Co-operation and Development (“OECD”) have same status as domestic residents with respect to the terms for acquiring residential or business premises, construction land or a long-term lease of construction land. Foreigners from other countries can become owners, only subject to reciprocity.
Foreigners are not allowed to acquire ownership over agricultural land. Instead of that, foreign legal entities can only obtain a long-term lease over agricultural land, subject to reciprocity and prior approval of the competent authorities. Local entities which are established by foreigners are not banned to own an agricultural or construction land.
There can be statutory or contractual pre-emption rights for co-owners, tenants, even for neighbours in certain situations. When a pre-emption rights is on play, the obliged person has to offer the property first to the other co-owner, the seller, etc. under the same terms and conditions as offered to a third party acquirer. Transactions breaching the statutory pre-emption rights are invalid and may be challenged within certain deadlines.
Due to a public interest, the authorities could terminate or restrict the ownership right over a property. The public interest for expropriation can be determined only by law. In case of expropriation, market price compensation is payable to the person whose property is subject of expropriation.
Data on real properties is maintained in the publicly available Real Estate Cadastre administered by the Agency for Real Estate Cadastre. The Real Estate Cadastre contains both “technical” and “legal” data on immovable properties. An excerpt from the Real Estate Cadastre can be obtain not only in the premises of the Agency, but also online, at a notary public, and before other competent entities.
From 2013 within the Real Estate Cadastre there is a separate Cadastre for Infrastructure Structures. This cadastre serves as a register of electro-energy, sewage, telecom, transport and other appropriate grids. By establishing this cadastre, the owners of grids are in a position to place a mortgage over such structures. Previously, this was not available with respect to all infrastructure structures, since in practice there were registrations of pledges only for some of the structures.
Registration of rights
Ownership rights over land or buildings are generally obtained upon registration of the right in the Real Estate Cadastre. Acquirers are deemed to be aware of all matters which are registered.
The ownership transfer document must be in written form, with signatures authenticated before a competent notary public. For transfer of real estate worth over EUR 10,000 it is mandatory to have an attorney at law who will prepare, sign and place its stamp on the relevant document. Documents for registration of other property rights (e.g. right to mortgage; right to long-term lease of construction land; etc.) also need to be executed with the assistance of a notary public.
Buyer and seller liability
Sellers usually guarantee that they are legal owners of the respective real estate and fully entitled to transfer it to the buyer. In case of any third party rights which restrict or exclude the rights of the buyer, the seller is liable if the buyer was not aware of such rights, nor agreed under such terms. If the seller fails to remove the legal obstacles in favour of the buyer, the transfer agreement could be terminated ex lege or upon buyer’s initiative, with a right for compensation for the occurred damage. Sellers are also liable for any material defects of the property.
Most often, buyers are responsible only for paying the agreed price for the real estate. Additional contractual obligations for the buyer, such as contractual pre-emption rights, can also be agreed.
In addition, according to general local contract rules, when a certain pool of assets is being transferred, together with the assets, the buyer also becomes jointly and severally liable alongside the seller for all liabilities in relation to that pool of assets, up to the value of the assets transferred.
Generally, the financing of real estate projects (e.g. construction projects; purchase of buildings or land; etc.) involves establishing a mortgage over the respective property as a security for the person who is financing the project. The mortgage agreement can have a capacity of an enforceable deed which could be beneficial in case of realization of the mortgage. For that purpose, the mortgage agreement must be confirmed or prepared by a notary public and contain a statement from the parties that they agree the agreement to have a capacity of an enforcement deed. Mortgages can be established even during ongoing construction activities.
Using a privately owned real estate (land or buildings) is subject to contractual terms by the involved parties in accordance with the Law on Obligations (2001). On the other hand, the lease of state-owned land is governed by certain statutory rules.
With respect to the construction land, a person can lease state-owned construction land on a short-term (up to 5 years + additional 3 years) or long-term (between 5 and 99 years) basis. On one hand, the short-term lease is used for placing temporary structures, undertaking preparatory activities for construction, etc. On the other hand, the right to long-term lease entitles the holder to develop and own a structure on the respective land.
There are also special rules for lease of agricultural land owned by the state. Such lease could last from 15 to 70 years depending on the purpose of the lease (e.g. establishing long-term plantations with hazelnut; building fishponds; etc.).
For carrying out construction activities, the developer has to obtain a construction permit from the competent authorities. Depending whether the construction concerns a first or a second category structure, competent to issue the permit can be the Ministry of Transport and Communications or the local municipality, respectively.
The procedure for obtaining the permit is initiated by an electronic application, accompanied by certain documents (e.g. designs; proof for the right to construct; infrastructure project; etc.). The project needs to be in line with the adopted urban plans. The most optimistic timeframe for obtaining a construction permit is around one month after the submission of a complete documentation.
Once the building is completed, relevant technical personnel assess if the building has been completed in accordance with the relevant designs and permits. The constructed structure can be put into operation or used after:
Opening and maintaining of bank accounts in North Macedonia is regulated under the provisions of the Law on Payment Operations (2007). Also, relevant rules for this area can be found in the Law on Banks (2007) and relevant bylaws of the National Bank of the Republic of North Macedonia (the “NBRNM”) as the local financial regulatory authority.
Payment operations are carried by the NBRNM, authorised commercial banks and foreign branches with an approval to perform payment operations pursuant to law and foreign bank branches and the Treasury at the Ministry of Finance, as well as the Treasury of the Health Insurance Fund of Macedonia, as a separate carrier of the payment operation of the health institutions.
All domestic or foreign legal entity or natural person performing a registered activity or other natural person paying in Denar currency through the payment operations carriers are deemed as participants in the payment operations in North Macedonia. All legal entities and entrepreneurs are required to open bank current accounts and to perform all their business activities only through bank current accounts opened within the domestic commercial banks.
Foreign exchange accounts of residents and foreign exchange and Denar accounts of non-residents, аs well as the manner of maintaining and closing such accounts is further regulated by a separate rules under the Foreign Exchange Law (2011) (“FX Law”).
In North Macedonia, loans are mostly provided by banks (Macedonian: Банка) or saving houses (Macedonian: Штедилница). Banking activities are regulated under the general provisions of the Law on Banks (2007) and relevant bylaws rendered by the National Bank of the Republic of North Macedonia.
Also, provision of loans and certain banking activities could be provided by non-banking financial institutions, such as financial companies (Macedonian: Финансиски друштва). Operation of financial companies are regulated under the Law on Financial Companies (2010). In addition to providing loans, these companies may issue credit cards, provide factoring services and issue guarantees.
In regard to the loans provided by or to non-residents, provisions of the FX Law and relevant NBRNM decisions regulate the conditions of granting of such cross-border loans. The FX Law also makes difference between financial and commercial loans. Under the FX Law cross-border financial credits and loans include credits and loans granted by a creditor and/or lender to a borrower by crediting the borrower’s account.
The FX Law sets out the obligation for residents of North Macedonia to report to the NBRNM on each cross-border loan (both financial and commercial) within ten (10) working days as of the day of entering into credit/loan agreement. Reporting procedure with the NBRNM is regulated by relevant NBRNM decision and it is usually formal and straight forward procedure which lasts a few business days. The FX Law and relevant NBRNM decision also stipulate the obligation for residents of North Macedonia to report to the NBRNM on each amendment in the loan/credit agreement within five (5) business days as of amendment is made. In case of non-compliance, there are threatened penalties for the residents that fail to duly report to the NBRNM.
Payments and security
Payment operations between residents are regulated under the Law on Payment Operations and the relevant NBRM bylaws, including all means of payment through banks, payment institutions and electronic money institutions without prescribing any specific requirement in that regard.
Payment transactions between residents and non-residents are regulated under the FX Law. Pursuant to the FX Law, cross–border payments can be done as (i) Current transactions (Macedonian: Тековни трансакции) and/or (ii) Capital transactions (Macedonian: Капитални трансакции). Capital transactions are transactions the purpose of which is transfer of capital. Capital transactions include: direct investments, investments in real estate, transactions with securities, credit/loan transactions, etc. Current transaction include: payments based on foreign trade transactions and other current foreign transactions, repatriation of investments, as well as transferring abroad and bringing-in the profits stemming from direct investments, transfers to individuals on the basis of pensions, and other public welfare benefits, transfers based on taxes and fees, transfers on the basis of enforceable and effective decisions, transfers based on lottery winnings, concession fees, etc. The FX Law of North Macedonia explicitly states that the current transactions are free. There are certain exceptions and potential reporting obligations, however as a general rule the FX Law is seen as rather liberal in this regard.
The relevant NBRNM bylaws and respective guideline provide that each cross-border payment transaction should be documented with appropriate evidence of legal ground. The documents specifying ground payment in case of capital transactions may be e.g. contract with a foreign partner, decision or decree of a competent authority on the specific transaction or other transaction-specific documents proving that the transaction is not fictitious or simulated. Also, each cross-border payment transaction has to be booked under one of payments codes the list of which is prescribed by the NBRNM.
Regarding the establishment of security instruments in cross-border transactions, the FX Law is rather liberal as well and provides number of possibilities, as compared to certain more restrictive laws in the region (such as is the case in Serbia). For example, residents in North Macedonia can provide guaranties or security for non-residents. There are certain reporting obligations with the NBRNM for those types of guarantees. Most of these are periodical reporting and do not require specific registration (as is the case in registration of cross-border loans for example).
All payments in the Republic of North Macedonia should be executed in Denars, the official currency of the Republic of North Macedonia. The FX Law stipulates that foreign currency accounts are opened and maintained at the commercial banks in accordance with the relevant Law on Banks and relevant secondary legislation rendered by the NBRNM.
The use of foreign currency and other international valuables is permitted only for evaluation of the value of contracts between residents, while the effective currency for payment under such agreements is mandatory Macedonian Denar. The payments in foreign currency between residents is prohibited. Breach of this prohibition represents a misdemeanor or even criminal offence. Threatened penalties go up to EUR 10,000, while criminal offence in this regard could result in imprisonment of up to three years.
The FX Law and relevant NBRNM decisions regulate the amounts of foreign currency that can be carried by natural persons when crossing the state border. Non-residents can carry up to EUR 10,000 when crossing the border of North Macedonia without reporting; all amounts of cash currency in value greater that EUR 10,000 must be reported. The residents are free to carry up to EUR 2,000, while amounts between EUR 2,000-10,000 must be reported. Residents are prohibited to carry over EUR 10,000 when exiting the territory of North Macedonia.
The efficient one-stop-stop system does not raise many issues concerning registration of companies. The registration procedure, especially concerning registration of LLCs is rather straightforward.
All foreign language documents provided before authorities of North Macedonia have to be accompanied by certified court translation. Companies tend to have more problems in the procedures for opening of a bank account upon their registration at the Central Registry.
Pursuant to the anti-money-laundering regulations, certain additional documents should be submitted to the bank for the purposes of opening of a bank account. These documents primarily relate to the determining of the ultimate ownership of the subsidiary, i.e. shareholders owning at least 25% of shares of the founder or at least 25% of the managing rights. For these purposes, a bank would require an extract from the companies’ registry (notarised and legalised) demonstrating the identity of all of the founders of the subsidiary and the shareholders of each founder, and the same evidence (notarised and legalised) for all direct and indirect shareholders of the founders of the subsidiary, up to the individuals or listed companies being ultimate shareholders. For individuals being ultimate shareholders a notarised and legalised copy of their passport would be required.
Depending on the bank where the bank account should be opened, certain additional documentation will be required (e.g. agreement with the bank, list of authorised signatures, individual applications for all signatories, etc.). Also depending on the chosen bank, the bank account signatories may be required to be personally present in the premises of the bank in order to deposit their signatures
Manager’s rights and obligations, do’s and don’ts
Corporate governance and compliance framework in North Macedonia are mainly regulated with (i) the Company Law; and (ii) the Articles of Association of a company. Specific rights and obligations of the manager may also be regulated with the employment or managerial agreement concluded between the company and the manager.
The manager is obliged to represent the company with the due care of a good businessman, and to keep its business secrets. The manager is obliged to respect the limitations on his/her authorization for representation, which may be imposed by applicable regulation, Articles of Association or a decision by the shareholder’s assembly. Also, the manager has an obligation:
The manager is considered as the authorized person for representation of the company, and could be held liable towards the company, as well as for the misdemeanors conducted by the company.
More precisely the manager could have: (i) civil liability to the company and third parties resulting from breaches of various duties and responsibilities of director imposed by the laws and regulations; and (ii) liability for offences.
A manager who has been aware that he/she has performed activity on behalf of the company beyond the scope of his/her authorizations, shall be held personally and unlimitedly liable to the company for the caused damages by such actions. Furthermore, the manager would be bare personal and unlimited liability in cases when he/she:
If there are several managers, they will be held jointly and severely liable.
With respect to misdemeanors, if it is determined that the company has committed a misdemeanor in general the manager is fined with a fine in amount of 30% of the fine issued to the legal entity. However, depending on the misdemeanor other sanctions may be applicable, such as prohibition to perform certain profession.
Finally, the manager may be held liable for criminal offences carried out in the scope of his/her duty, as well as criminal offences performed by the legal entity during his/her mandate if specific conditions are met (e.g. the manager concealer or failed to stop or report the crime to the authorities). Furthermore, legal entities are also exposed to criminal liability for the conduct of individuals who act on their behalf and to their benefit. Legal entities are sanction with pecuniary fines for criminal offences, as well as with different secondary sanctions (e.g. ban to obtain specific license or approval to carry out business activities, ban to participate in public procurement, temporary or permanent ban to perform business activities, termination of the legal entity etc.). The manager could be sanction with both pecuniary fines and imprisonment depending on the committed crime.
All natural persons who are employed with the company, including managers are subject to the obligation to pay mandatory social security contributions on their salaries. Contributions are calculated on the basis of gross salaries and include contributions for pension insurance, health insurance and unemployment. The employer is required to calculate, withhold and pay the prescribed amount of the social security contributions upon each payment of the salary to its employees. The sum of all mandatory contributions represents 28% of the gross salary.
The import includes the application of formalities for import and entry, trade policy measures and payment of import and other charges, in accordance with the laws and regulations. It may be carried out by the importer himself or his representative, with a power of attorney given by the importer. The import of goods itself is done in accordance with the Customs Law, the Decree on Implementation of the Customs Law and rulebooks adopted by the Customs Administration of the Republic of North Macedonia (“Customs Administration”). The applicable Macedonian customs legislation is to a great extent aligned with the legislation of the European Union.
Foreign goods may be imported into the customs area through customs border crossings at the time when they are open for circulation. Goods brought into the customs territory are subject to customs supervision from the time of their entry. All goods placed under a customs procedure must be covered by a customs declaration for the specific customs procedure.
Representation in customs procedures can be performed by a company or sole proprietor who fulfils the conditions prescribed by law and has authorization for representation in customs procedures, i.e. an authorized customs representative. The Customs Administration issues the license to perform activities of representation in customs procedures within 30 days from the day of receipt of the duly submitted application, accompanied by evidence of fulfilment of the requirements.
Licensed agent is a natural person who has a license to perform representation in customs procedures and who is authorized to sign customs declarations. The Customs Administration issues the license to perform activities of representation within 30 days from the day of receipt of the duly submitted application, to which all the evidence of the fulfilment of the requirements has been attached.
Two main modalities of import regime in North Macedonia are the permanent import and temporary import. The customs duties are calculated by application of the appropriate customs rate on the customs value of the goods.
In order to import goods, the importer should be registered for work in the foreign trade operations and in the Customs Administration Registry. For purposes of import, the importer should provide a set of documents including: (i) customs declaration; (ii) buyer's invoice; (iii) document for the carriage of goods; (iv) bill of lading or manifest of the cargo; (v) certificate of origin of the goods; and (vi) veterinary or phytosanitary certificates (if applicable).
The procedure for transit of goods is performed when it is necessary to carry out transit of non-customs cleared goods from one to another customs office in the customs area of the Republic of North Macedonia. To perform this procedure it is necessary that:
The procedure for re-export of goods is carried out when the non-customs cleared goods which are brought in North Macedonia by a foreign exporter for a company in North Macedonia.
Permanent import – procedure for release of goods for free circulation
The “release for free circulation” procedure includes applying the commercial policy measures and all the formalities with respect to the import of these goods, as well as payment of all applicable custom duties. Importer on record is required to pay the full amount of customs duties and import VAT due on the import of goods under the general rules. After completing this procedure, the imported goods will have status of domestic goods and can be disposed with on the territory of North Macedonia.
For placing goods under the procedure of releasing for free circulation, the importer has to lodge a custom declaration. The official document for custom declaration is the Single Customs Document which can be used for both import and export of goods. When it comes to permanent import, the declarant must be registered in North Macedonia, except if it (i) makes a declaration for transit or temporary import and (ii) declares goods on an occasional basis, provided that the customs authorities consider this to be justified. Therefore, the importer needs to establish a local entity. With respect to any of the custom procedures, the importer may appoint an authorized representative by the Customs Administration who will act on its behalf during the relevant procedure.
The applicable legislation allows temporary import of certain goods. Hence, if the importer has to import certain tools or equipment only for carrying out onshore activities, it can do so through this custom procedure. By temporary importing, the foreign goods can be used in North Macedonia with full or partial exemption from custom duties if the goods are intended to be re-exported in the same state as they were imported, except for the usual reduction of the value due to their utilization. The approval for temporary importation is granted upon request of the person which uses the goods or organizes their utilization. The goods have to be re-exported within the period determined by the customs authorities which cannot exceed 24 months, except if this period is extended upon justifiable request of the concerned person. The applicable regulation stipulates full exemption from customs duties for specific professional equipment, spare parts, utensils and equipment that are subject of temporary importation.
In addition, local manufacturers have to report the technical equipment intended for sale/use on the market of North Macedonia to the State Technical Inspectorate (“Inspectorate”). As a rule, in cases when such equipment is imported in North Macedonia, the importer of the equipment is responsible for performing the reporting obligation to the Inspectorate.
Natural and legal persons may import goods from abroad for storage, that can later be released for free circulation by paying customs and other import duties or re-exported or subjected to other customs approved treatment or use of goods.
The customs warehousing procedure is carried out without payment of import duties, excise duty and VAT. Furthermore, the procedure is carried out without application of commercial policy measures applicable to the release for free circulation procedure, by using trade policy measures relating to the entry of goods into the customs territory of North Macedonia. The goods can stay in this procedure for unlimited time.
Authorized economic operators
Companies which meet certain criteria could obtain the status of Authorized Economic Operator (“AEO”) which is granted by the Customs Administration. The status of AEO is determined by issuing the following types of approvals: (i) AEO for simplifications in the scope of the customs procedures, which gives the holder the benefits of certain simplifications, in accordance with the customs regulations or (ii) the AEO for security and safety, which entitles the holder to simplifications related to security and safety. The economic operator can use both approvals simultaneously. The economic operator should meet the following criteria in order to be approved as an AEO:
The AEO enjoys the following benefits in the customs procedure: (i) easier access to customs simplifications; (ii) prior notice from the Customs Administration that the consignment has been selected for further physical control; (iii) reduced number of data in the summary declaration; (iv) less physical and documentary controls; (iv) giving priority to consignments that have been selected for control; (v) choosing the control place; (vi) recognition as a safe and reliable business partner; (vii) better relations with the custom authorities and other state organs; and (viii) a number of indirect benefits.
Among others, the following goods are exempted from import duties:
Preferential VAT rate
Import and sale of certain products is subject to a preferential VAT rate of 5%, such as: (i) products for human consumption; (ii) publications; (iii) seed and seedlings for the production of agricultural plants; (iv) agricultural machinery; (v) medicines; (vi) medical devices for disabled persons; (vii) thermal solar systems and components; (viii) pellets, pellet stoves and pellet boilers; (ix) computers and computer software; (x) accommodation services; etc.
Technological Industrial Development Zones
Technological Industrial Development Zones (“TIDZs”) in the Republic of North Macedonia have special customs and tax treatment. Investors in TIDZ are exempt from paying income tax and personal income tax for up to 10 years. Investors are exempt from paying value added tax for goods, raw materials and equipment, as well as customs duties on equipment, machinery and spare parts.
Standard customs procedures are followed when importing foreign goods in the TIDZ. All customs formalities when importing/exporting goods to/from TIDZs are carried out within the Zone itself, thus avoiding stopping of vehicles at the border crossing points.
Entrance, movement and exit to and from the TIDZ are controlled by the guard service of the Directorate for TIDZ and the Customs Administration in the TIDZ.
Companies established in North Macedonia and tax residents are required to pay corporate tax. Non-residents should pay corporate income tax only for the part of the income which is attributable to the activity of their permanent business establishment in North Macedonia and on certain types of income deemed generated in North Macedonia (i.e. withholding taxes and taxation of permanent business establishment).
Tax rate and tax base
Under the currently applicable CIT Law, Macedonia has a flat corporate income tax rate of 10%, which is one of the lowest in Europe. The tax base is the profit declared in the annual tax balance sheet. The profit is calculated as the difference between the expressed total revenues and the total expenditures of the taxpayer in the amounts determined in accordance with the accounting regulations and accounting standards. The accounting standards in Macedonia are compliant with the International Accounting Standards (IAS).
The tax base for corporate income tax was amended with the introduction of the new CIT Law in 2015. This new law came into force on 1 January 2015, but it applied to the profits generated during 2014 as well. The most important novelties focus on:
Under the old Law on Corporate Income Tax, there were two separate tax bases for corporate income tax, which were subject to filing of two separate tax returns. In the period between 2009 and 2013, corporate income tax was payable separately on non-deductible expenses (on an annual basis) and on financial profit (only if distributed). By means of the applicable CIT Law, the accumulated profit realised for the period between 2009 and 2013 is subject to taxation at the moment of distribution. Taxpayers are obligated to cover the losses from previous years prior profit distribution.
In general, expenses are recognized for tax purposes if they are documented and incurred for business purposes. Particular expenses are listed as non-deductible, while the deductibility of other expenses is limited up to a specific threshold, usually expressed in percentages of the taxpayer’s annual revenues (e.g. expenses for sponsorships and donations) or of the specific expense (e.g. entertainment and leisure costs). Deductibility of other expenses is also affected by specific rules on transfer pricing, thin capitalization etc.
Amendments to the CIT Law were introduced during 2018, and are applicable since 01 January 2019. The amendments clarify the provisions regulating non-profit organizations and the obligation for the taxation of their income from commercial activities. The CIT Law also regulates tax exemptions for donations to sport and other relevant questions regarding these types of donations. It is expected that the amendments will result with incentives for donations to sport clubs, athletes and sports in general.
The amendments of the CIT Law further specify the definition of the affiliated entities and extend the list of non-deductible expenses. The transfer pricing provisions are additionally regulated, defining the arm's length principle and extending the list of methods used for determining the price in transactions, in accordance with the arm's length principle.
From its adoption, the CIT Law will allow the reduction of the tax base by investing into tangible assets acquired through financial leasing. If the taxpayer (i) alienates the assets acquired through reinvestment of the income in a period of five years after the investment, and (ii) if the financial leasing agreement is terminated, the taxpayer is obliged to pay tax which would have been paid if the tax exemption was not used in the first place.
An asset may be depreciated for tax purposes if it is recognized as a fixed asset under relevant accounting regulations and subject to the condition that (i) its purchase price exceeded EUR 300, and (ii) its useful life is longer than one year. All assets are categorized in six depreciation groups with different rates and methods of depreciation for tax purposes. Tax depreciation rates range from 2.5% (for immovable assets) to 25%. In general assets in Macedonia are depreciated by using the proportional method.
Transfer pricing rules apply to transaction between related entities. Transfer pricing rules are based on applicability of the arm’s length principle, i.e. that the parties of the transaction are independent and the applied prices on the transaction are established in accordance with one of the transfer pricing methods allowed under the CIT Law, which are methods prescribed by the OECD Guidelines for Transfer Pricing.
The new CIT Law significantly broadens the definition of related entities by adding all non-resident legal entities registered in low-tax jurisdictions in the definition together with shareholders holding at least 20% of the company’s capital. The companies from low-tax jurisdictions would be considered as related entities irrespectively whether these entities are having control or significant influence to the taxpayer. Considering that there is no published list of such low-tax jurisdictions yet, the applicability of this provision and its interpretation by the TA in practice still remains unclear.
When submitting annual tax returns, taxpayers are now obliged to attach a report for transactions with affiliated entities. Upon request by the tax authorities, companies should provide enough additional documentation as evidence that the transactions with related parties were in line with the 'arm's-length principle'. Note that the practice of the Public Revenue Office regarding transfer pricing cases is still underdeveloped in North Macedonia.
Deductibility of interest generated from related party loans is subject to limitation on the ground of thin capitalization. Interest expense incurred on loans granted by shareholders holding at least 20% of the capital of the company is non-deductible if the total amount of the loan exceeds three times the capital of the shareholder. Thin capitalization rules apply to loans provided by related parties, as well as loans guaranteed by related parties. The thin capitalization rules do not apply to financial institutions.
Simplified tax procedure
There is a simplified tax regime for small companies providing that companies with annual turnover up to MKD 3 million (approx. EUR 50,000) may be exempted from payment of income tax.
Companies with annual turnover between MKD 3 million and MKD 6 million (approx. EUR 100,000) may opt to pay income tax under the general rules set in the CIT Law by 10% tax rate, or to pay income tax to the taxable base which is their overall turnover under the 1% tax rate.
North Macedonia is party to approx. 50 agreements on avoiding of double taxation, i.e. double tax treaties (“DTT”). The treaties include Vietnam, Egypt and United Arab Emirates, as well as a new DTT with Israel are waiting for exchange of ratifications in order to become applicable.
The DTTs are concluded based on the OSCE model contract and a significant number of the DTTs prescribes equal or lower tax rates for dividends, interest, royalties and other income.
Withholding tax – Withholding tax applies to the specific categories of income paid by a resident to a non-resident, defined in the CIT Law, including incomes generated by: dividends, interest, royalties, technical services fees, management, consulting, financial and research and development fees paid to a non-resident. The applicable withholding tax rate is 10%, unless it is otherwise agreed with a DTT. If the income recipient to which the withholding of tax is applied is a resident of a foreign country that has signed a DTT with Macedonia, the tax rate set out for such income should not exceed the tax rate applied to the income set out in the agreement.
The tax exemption or lower tax rates available under the DTTS apply if the non-resident obtains a certificate of tax residency, confirming that the recipient of income is a resident of a treaty country. The procedure for tax exemption or application of lower tax rates should be initiated and completed before the Public Revenue Office prior to the payment of the income. The withholding tax should be paid in the same moment before the income is transferred to a non-resident entity.
Under applicable foreign exchange operations, cross-border payments are liberalized in Macedonia. Only in cases when domestic legal entities receive loans from abroad, or have foreign investments in their capital, the resident would have an obligation to notify the National Bank of the Republic of Macedonia on the status of its cross-border operations.
When dealing with transactions and clients originating from countries which are considered as high risk under the local anti-money laundering regulation, local banks are required to apply special procedures and request additional information and documentation. After individual assessment the bank may even refuse to open the bank account or reject the transaction. The current list of high risk countries includes countries such as:
Aside the list of countries which is provided by the law, the banks usually have additional internal lists of countries which they consider as jurisdictions with substantial money laundering and terrorist financing risks, in which case further information and documentation may also be requested.
Capital gains derived by companies are treated as ordinary income. Capital losses may be carried forward for up to three subsequent years from the year when the loss was recorded. In addition, losses evidenced in a taxpayer’s income statement, may be carried forward to up to three future tax years after the reporting of the subject loss in the annual financial records. Before the new CIT Law, there was a possibility to carry forward losses to up to 5 future periods.
Generally, a permanent establishment is a fixed place of business through which the company carries out the complete or part of its business. The permanent establishment should be registered as a corporate taxpayer at the beginning of its activity in the country for purposes of obtaining a tax number. This obligation applies when establishing a branch office, as well as when the non-resident has no corporate presence, but carries out specific activities which classify as a permanent establishment.
According to the CIT Law, a permanent establishment may include a place of management, a branch office, an office, a factory, a workshop, mining activities, or any other place of extraction of natural resources. A building site or construction or installation project, as well as related supervision activities, may constitute a permanent establishment for tax purposes if it lasts longer than six months.
Furthermore, the provision of services, including consulting services with regard to one or several related projects, is deemed to give rise to a permanent establishment if such activities last longer than 90 continuous days within any 12-month period. If one or several persons establish a permanent establishment as per above, any other non-related projects on which they are working on become part of the permanent establishment, irrespective of its duration.
Accounting standards: According to the Law on Accounting, IFRS (as issued by IASB) as translated in 2009, and IFRS for SMEs represent the set of accounting standards to be applied by all entities preparing general purpose financial information. The latest translation of IFRS was conducted in December 2009 for application by all medium and large size entities, banks, non-bank financial institutions and insurance companies. IFRS for SMEs were published in August 2011 for mandatory use by all small and micro entities from 2012 onwards. The translations were published without any changes or amendments.
Accounting regulation bodies: Ministry of Finance
Accounting report currency and language: All entities are required to prepare annual statements as at 31st December of each year. The financial statements consist of statements of financial position, comprehensive income, changes in equity and cash flows as well as notes, comprising summary of significant accounting policies and other explanatory information. Companies having a majority holding in subsidiaries must prepare consolidated financial statements. Consolidated financial statements should comprise consolidated statements of financial position, comprehensive income, changes in equity and cash flows as well as notes, comprising a summary of significant accounting policies and other explanatory information.
Reporting periods: Financial Statements must be submitted annually.
Timeline of submission: Annual statements must be prepared and submitted to the Central Register of the Republic of Macedonia not later than the end of February/15th March the following year. Entities whose financial statements are subject to independent audit must submit their audited financial statements to the Central Register of the Republic of Macedonia within 30 days after their approval by the General Meeting of Shareholders of the legal entities, but not later than 30th June of the following year. The consolidated annual statements must be submitted to the Central Register not later than 31st March of the following year.
Professional accountancy bodies: Institute of Certified Auditors of the Republic of Macedonia
Certification and auditing: The Institute of Certified Auditors of the Republic of Macedonia is the only audit certification body. Audit can be performed by an audit firm established as a trade company or by a certified auditor established as a sole proprietor. The Company Law specifies the entities which are obliged to submit financial and accounting statements for a statutory audit:
The Audit Law also enables businesses to undergo voluntary audits.
Classification by size:
Classification by size
Transfer pricing scope: If the taxpayer incurs expenses/realizes revenues from transactions with related parties that are higher/lower than the market level, the difference between the market price and the transfer price shall be considered as a taxable expense or understated revenue. Consequently, this difference would be subject to CIT.
Related party definition: Parties are considered related if:
For the purposes of points 1) and 2), the share, the stocks or the voting rights of a natural person shall be considered together with the ones of the spouse, the relatives of direct line, brothers, sisters, breadwinner, and adoptive parents.
Transfer pricing methods: The CIT Law recognizes that the following methods may be used when applying the arm’s length principle: (i) comparable uncontrolled price method; (ii) pre-sale price method; (iii) production price method; (iv) transactional net margin method; (v) profit distribution method; and (vi) any other method, provided that the application of the previously listed methods is not appropriate.
Transfer pricing study: The report should be submitted in Macedonian language.
Who is obliged to prepare: All entities conducting transactions with related parties, except entities with an annual turnover of up to MKD 60 million (approximately EUR 975,000). Entities which have related party transactions in value up to MKD 10 million, or which have related party transactions only with other residents of North Macedonia, have an option to file a short form report to the Public Revenue Office.
Submission dates: When submitting the annual tax return, taxpayers are now obliged to attach a report for transactions with affiliated entities, i.e. by end of February/15th March, depending on the size of the entity and the way it files its reports.
Advance transfer Pricing Agreements (APA): Rules for transfer pricing in North Macedonia do not explicitly provide for an option to obtain an Advance Pricing Agreement. However, the new Rulebook on the form and content of the transfer pricing report, the methods for determining the transaction value in accordance with the arm’s length principle and the manner of their application, adopted in March 2019, envisage that tax payers have an obligation to provide a list and short description of the concluded APAs in the scope of their report.
Thin capitalization rules: A proportional part of the interest related to a loan received from a non-resident shareholder, who directly holds at least 20% of the capital in the company, that exceeds three times its share in the equity in the company will be taxable during a tax period. Thin capitalization rules do not apply to interest from loans received from banks or other financial organizations. Also, thin capitalization rules do not apply for newly established companies within the first three years of operation.
BEPS Actions – Implementation timeline
No timeline has been announced. In August 2018, North Macedonia has become the 117th jurisdiction to join the Inclusive Framework on BEPS.