Taxes in Macedonia, Taxation in Macedonia, Taxes system in Macedonia
The recent reforms of the tax system have made Macedonia a tax heaven in Europe. A flat rate tax of 10% was introduced on corporate and personal income. The cut was from 15% on corporate tax rate and from 15%, 18% and 24% on personal income tax. In order to stimulate additional foreign and domestic investment, corporate tax on re-invested profit is set at 0%.
With these reforms Macedonia has one of the most attractive tax packages in Europe. The flat tax rate introduces a simple tax system that stimulates successful companies to further improve operations and increase profitability. Also, companies will use the funds saved from the lower taxes to increase their competitiveness.
Macedonia has signed numerous double taxation agreements in order to avoid double taxation of foreign companies operating in Macedonia.
The profit tax rate currently amounts to 10%. Profit tax is paid by any legal person (entity) - resident of the Republic of Macedonia realizing profit from an activity in the country and abroad.
In 2006, The Profit Tax Law introduced the concept of a Permanent Establishment. Generally, a permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on either directly or through a dependant agent.
The profit tax base is the profit determined in the tax balance, as a difference between the actual total revenues and the total expenditures of the taxpayer. The tax base is determined in accordance with a range of deductable and non-deductable items, which are detailed in the Profit Tax Law.
The dividends realized with participation in the capital of another tax payer-resident of the Republic of Macedonia, including also the revenues from the participation in the limited liability companies’ profit are not included in the tax base on condition they are taxed at the taxpayer when the payment is done.
The capital gains realized from the sale of securities, equipment and real estate are included in the tax base in the amount of 70%. If capital loss is incurred it is recognized to be covered from the expenditures in the tax balance, and as far as the capital loss incurred with the sale of securities is concernced, it is off set with the capital gains realized during the same year.
The taxpayer shall be approved a reduced tax base for the amount of reinvested profits, for
new investments in the Republic of Macedonia in: tangible assets (real estate, facilities and
equipment) and intangible assets (computer software and patents), for expansion of the activities, except for investments in cars, furniture, carpets, audio-visual devices, appliances, pieces of figurative and applied art and other decorative objects used to equip administrative premises.
Reinvested profits mean profits earned under the annual statement, which, via allocation, was set aside from the taxpayer’s capital and invested in the next year. In order for the taxpayer to realize the right to tax exemption they must not alienate or otherwise transfer the assets for a period of three years, starting from the year in which the investment was made.
Furthermore all taxpayers operating in a free economic zone, technological industrial developing zone is exempt from paying profit tax for a period of ten years since the day he began performing his activities in the free economic zone, under conditions and procedure established by the Law on Free Economic Zones.
The Macedonian real estate market is one of Europe’s newest investment markets, but also one with promising potential since Macedonia has a strong economy and rising tourist numbers. Property in Macedonia experienced a 20% annual growth in 2008.
The purchase of Macedonia properties involves a different purchase process from that in many countries and foreigners will find that Macedonia law places certain restrictions on a Macedonian purchase. A Macedonia mortgage may also be a consideration in your investment in Macedonia property and there is also Macedonia tax to take into account. When buying property for sale in Macedonia, it is essential to take independent legal advice on aspects of Macedonia law. A Macedonia lawyer is vital since he is the only person authorised to draw up a sales contract. Macedonia law restricts the purchase of Macedonia land and foreigners may currently only buy and own apartments in Macedonia and buildings. In Macedonia, buying a property also entails paying taxes and fees such as VAT, notary fees and property registration fees.
Property Tax shall be paid on the ownership of real estate, i.e. land and buildings – residential buildings or flats, business buildings and business premises, administrative buildings and premises, buildings and flats for rest and recreations, and other construction facilities, as well as installations constructed on them or below them and permanently attached to them.
Property tax rates are proportional and amount from 0.10% to 0.20%. They can be determined on the basis of the type of property. Thus tax rates of the property tax on agricultural land not used for agricultural production can be increased from three to five times in relations to the basic rates.
The amount of taxes is determined by the Municipal Council of the relevant municipalities. The taxpayer paying property tax for residential building or flat, in which he/she lives with family members, is entitled to reduction of the calculated tax by 50%.
The personal income tax is a tax paid by taxpayers – physical entities on the overall income they earn from various sources, i.e. on all income they earn in the country and abroad during a calendar year. Dividends are subject to 10% advance withholding tax on the amount of the gross dividends, while the interest is subject to 10% tax rate on the amount of the calculated interest. Interest form loans, interest on bonds issued by the Republic of Macedonia and LGUs and interest on savings deposits are not subject to taxation, while interest on time and other deposits will not be taxed until January 1, 2009.
Employers are obliged to play obligatory social contributions on the gross salary as follows:
• 21.2% - pension and disability insurance contribution;
• 9,2% - health insurance contribution;
• 1,6% - employment contribution;
• 0,5% - additional health contribution;
• 0,2% - water contribution.
9.4. Value added tax (VAT)
Subject to value added tax is the sale of goods and services carried out with compensation in the country by the taxpayer within its business activities and import of goods. In the Republic of Macedonia the taxpayer is legal entity or physical person which conducts business on the territory of the country.