The tax system in 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 are.
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.
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 also subject to a flat 10% tax rate. Rates of social security contributions for employment income are set in aggregate rate of 27% from the gross salary.
Certain types of income generated by non-resident legal entities re subject to special tax regime. The interests, royalties, dividends, income from services as well as capital gains are subject to tax at rate of 10%.
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
Macedonia applies the flat rate system concerning personal income tax. However, there are announcements by the new Government to introduce progressive taxation for personal income taxes in the near future. There are no available official details on the expected tax reform yet.
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.
Macedonia has a developed network of 48 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 Macedonia are based on OECD Model Convention. However, Macedonia has not signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).
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 Macedonia and vice versa.
Important source of tax law in 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), 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 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 only to the portion of funds from the national co-financing provided from the Budget of the Republic of 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.