North Macedonia Individual Tax Guide

North Macedonia

Skopje GMT +1

EY

bul. 8mi Septemvri 18 Building 3, 4th Floor 1000 Skopje North Macedonia

Executive and immigration contacts

Nevena Kovacheva

+359 (2) 817-7146 (resident in Sofia, Bulgaria)

Maja Veljanova

A. Income tax

Who is liable

Fax: + 359 (2) 817-7111

Email: nevena.kovacheva@bg.ey.com

+389 (2) 311-3310

Fax: +389 (2) 311-3438

Email: maja.veljanova@mk.ey.com

Territoriality. Individuals resident in the Republic of North Macedonia (RNM) are subject to income tax on their worldwide income. Nonresident individuals are subject to income tax on their income earned in the RNM.

Definition of resident. An individual is a resident of the RNM if he or she has a permanent or temporary residence in the RNM. An individual is considered to be resident in the RNM if he or she is present in the RNM either continuously or with interruptions for 183 or more days in any 12-month period.

Income subject to tax. Under the North Macedonian Law on Personal Income Tax, the following types of income are subject to tax:

• Labor income

• Self-employment income

• Income from the sale of own agricultural products

• Income from property and property rights

• Income from copyrights and industrial property rights

• Investment income

• Capital gains

• Insurance income, including insurance premiums

• Gains from games of chance

• Other revenues, including income from e-trading, e-marketing services, income generated from the sale of solid waste, unused financial help intended for medical treatments and costs for inventory shortages that are not a result of vis major or theft and are not on account of the employer

The various types of income are discussed below.

Labor income. Labor income consists of any income earned by an individual on the basis of employment, including income derived from a temporary contract or the temporary rendering of services, with state administrative bodies and domestic and

foreign legal entities and individuals, as well as income derived by domestic and foreign individuals performing an independent activity, unless exempted from taxation. The following items are included in labor income:

• Salaries and allowances (to the extent that the amounts exceed the legal threshold amounts for allowances) arising from employ ment, performance-based remuneration (for example, bonuses) and fringe benefits

• Pensions

• Income realized by members of management and supervisory boards of enterprises

• Income realized by officials, members of parliament, advisors and similar high-level persons

• Income realized by professional sportspersons (for example, premiums and transfers)

• Remuneration for practical work by pupils and practical lessons by students (to the extent that the amounts exceed the legal threshold)

• Sick-leave allowances

• Annual leave allowances

• Allowances for judges and jury members, forensic experts and receivers not employed by the respective institutions or enter prises

• Compensation and remuneration paid to the members of the North Macedonian Academy of Sciences and Arts

• Salaries earned and paid abroad based on employment con tracts with North Macedonian employers

• Pension allowances from a voluntary funded pension insurance

• Contributions to a voluntary funded pension insurance fund paid by legal entity or individual performing an independent activity

• Income derived from rendering services under contracts with entities and individuals on a temporary or occasional basis

• Remuneration for internship work in accordance with the Law on Internship

Self-employment income. Self-employment income includes income from the following types of activities:

• Business activities

• Professional and other intellectual services

• Agricultural activities

• Other activities with the objective of realizing revenues

Self-employed persons must maintain accounting books, except individuals whose total income from agricultural activities does not exceed MKD1 million annually. The tax base for employment income is net income, which is the difference between revenues and expenditures.

Income from sale of own agricultural products. The tax base for income realized from the sale of agricultural products is the dif ference between the total income realized and the recognized normative expenses in the amount of 80% (that is, 80% of the expenses incurred by the taxpayer are recognized as deductible for personal income tax purposes). Taxpayers whose income realized from the sale of agricultural products does not exceed MKD1 million are entitled to claim back the tax paid, provided

that they did not realize any other personal income in the reporting year.

Income from property and property rights. Income from property and property rights includes income earned through the lease or sublease of land, residential or business premises, garages, leisure and recreational premises, equipment, transportation vehicles and other types of property.

Income from copyrights and industrial property rights. Income from royalties is considered to be payments received for the use of, or the right to use, copyrights and industrial property rights.

Investment income. Under the North Macedonian Law on Personal Income Tax, investment income includes the following items:

• Dividends and other income received from participations in the profits of legal entities

• Interest on loans granted to natural persons and legal entities

• Interest on deposits

• Interests on securities

• Other income from securities or financial instruments

The gross amounts of the above items are taxable.

Capital gains. Capital gains consist of income realized through the difference between the sale and the purchase price when sell ing or exchanging immovable property, securities, equity inter ests, and other tangible and intangible assets. If the difference is negative, a capital loss is generated.

Gains from games of chance and other prize games. An amount of gain exceeding MKD5,000 from conventional games of chance is subject to personal income tax. Gains from gambling on sports games is fully subject to tax.

Insurance income. Insurance income includes the following:

• Life insurance premiums paid by legal entities or self-employed individuals

• Voluntary health insurance premiums paid by legal entities or self-employed individuals

• General insurance premiums paid by legal entities or selfemployed individuals, except for premiums that are exempt from tax

• Insured amount, except damage compensation that is exempt from tax under the provision of the law

The following are the tax bases for calculating the tax on income from insurance:

• The amount of the premium for life insurance paid by a legal entity or self-employed individual that exceeds the amount of two average gross salaries paid in the country, per employee

• The amount of the paid voluntary health insurance premium paid by a legal entity or self-employed individual that exceeds the amount of one average gross salary paid in the country

• The amount of the premium for non-life insurance paid by a legal entity or self-employed individual

• The insured amount reduced by the amount of the paid life insurance premiums if the premiums are paid by a natural

person (that is, the insured amount reduced by the amount of the paid life insurance premiums subject to tax)

The following are exempted from tax:

• Paid premiums for the collective insurance of employees borne by the employer and by self-employed individuals for injuries at work

• Paid premiums for life and other insurance for employees and for self-employed individuals, in the amount of two average monthly gross salaries in the country per year

Other income. Any income that is not specifically mentioned in the Law on Personal Income Tax as being exempt from tax is considered to be other income, including income from e-trading, e-marketing services, income generated from the sale of solid waste, unused financial help intended for medical treatments and costs for inventory shortages that are not a result of vis major or theft and are not on account of the employer. The base for calcu lating the income tax on income referred to in the preceding sentence is gross income. However, the base for calculating the tax on the income generated from selling useful solid waste equals the gross income reduced by the tax-deductible costs in the amount of 50% of gross income.

Taxation of employer-provided stock options. No specific measures in the North Macedonian tax law cover the taxation of stock options. Stock options granted are generally regarded as part of employment remuneration.

Deductions

Deductible expenses. Deductible expenses for personal income tax purposes include the following:

• Contributions by an individual for pension, disability and health insurance and for employment

• Contributions by the individual for voluntary pension and dis ability insurance

• Fees and other public duties paid

Nonresident individuals may not claim the above deductions.

Personal deductions and allowances. Resident individuals may claim a deductible personal exemption in the annual income tax calculation. For 2021, the annual personal exemption equals MKD101,256. Nonresident individuals may not claim such exemption.

Rates. Under the most recent amendments to the Law on Personal Income Tax, personal income tax on employment income, selfemployment income, income from the sale of own agricultural products and income from royalties are taxed at a flat rate of 10% until 1 January 2023. As of 1 January 2023, the following pro gressive tax rates will apply:

• Annual tax base up to MKD1,080,000 (approximately EUR17,560): 10%

• Annual tax base exceeding MKD1,080,000: 18%

The following progressive tax rates will apply to monthly payments:

• Monthly tax base up to MKD90,000 (approximately EUR1,464): 10%

• Monthly tax base exceeding MKD90,000: 18%

Income generated from industrial rights, leases and subleases, capital insurance and other income is also taxed at a flat rate of 10% until 1 January 2023. Effective from that date, the income will be subject to tax at a rate of 15%.

Capital gains are subject to tax at a flat rate of 10% until 1 January 2023. Effective from that date, capital gains will be taxed under a new regime in the following manner:

• The general tax rate for capital gains will be 15%.

• The following will be the tax rates for capital gains derived from the sale of securities and shares in investment funds:

— 15% rate for holders of securities and shares for a period of up to 1 year

— 10% rate for holders of securities and shares for a period from 1 to 10 years

— 0% rate (tax exemption) for long-term holders of securities and shares for more than 10 years, as well as securities acquired from an initial public offering

The other types of income are subject to tax at a flat tax rate of 10% until 1 January 2023. Effective from that date, these types of income will be taxed at a rate of 15%.

Tax credit. Individuals donating financial resources to a legal entity under the Law on Donations and Sponsorship of Welfare Activities may claim a credit against personal income tax in their annual tax return. The credit may not exceed an amount equal to the first 20% of the annual tax debt, up to a maximum of MKD24,000.

Relief for losses. Capital losses from sales of shares can be carried forward for three years. Loss carrybacks are not allowed.

B. Other taxes

Property tax. Property tax is imposed on the owners of real estate, non-agricultural land, residential buildings or flats, busi ness areas, administrative buildings, buildings or flats for rest and recreation, garages and other constructions. Property tax rates range between 0.1% and 0.2%, depending on the type and location of the property.

As of 1 January 2022, the property tax rates applicable for property that is not being used by the owner or is not leased for six months in one year will be increased to a range of 0.3% to 0.6%. In addition, property owners who fail to report that they own a property that is not being used, will be under the obligation to pay increased property taxes at rates of 0.5% to 10%, depending on the type and location of the property.

Real estate transfer tax. Transfers of real estate are subject to real estate transfer tax at a rate of 2% to 4% of the market value of the real estate.

Inheritance and gift taxes. Inheritance and gift taxes are imposed on the transfer of certain property by inheritance or gift. Inher itances and gifts are subject to tax if the market value of the inheritance or gift is higher than the amount of the average annual salary in the RNM in the preceding year, according to the

data from the State Statistics Bureau. The following types of property are subject to tax:

• Immovable property

• Money and claims of money

• Securities and other movable property

The inheritance and gift tax rates vary depending on the order of succession of the recipient. The tax rate is 0% for taxpayers in the first line of succession. For taxpayers in the second line of suc cession, the tax rate is between 2% and 3%. For other taxpayers, the rate is between 4% and 5%. The municipal authorities fix the actual rate of tax.

C. Social security

Contributions. Employers are required to withhold the contribu tions listed in the table below from gross salary. No employer contributions are required. The following are the rates for the contributions.

Contribution Rate (%)

Pension insurance 18.8

Health insurance 7.5

Unemployment insurance 1.2

Additional health insurance 0.5

The minimum base for social security contributions equals 50% of the average gross national salary (50% of MKD41,141 [approximately EUR668]). The maximum base for social secu rity contributions equals 16 times the average gross national salary (MKD658,256 [approximately EUR10,703]).

Self-employed individuals must pay the contributions at the above rates. Their minimum base is the same while the maximum base equals 12 times the average gross national salary (MKD493,692 [approximately EUR8,027]).

Totalization agreements. To provide relief from double social security contributions and to assure benefit coverage, North Macedonia has entered into totalization agreements, which usu ally apply for a maximum of two years, with the following juris dictions.

Albania Czech Republic Netherlands Australia Denmark* Poland Austria Germany Romania Belgium Hungary Serbia Bosnia and Herzegovina Italy Slovak Republic Bulgaria Kosovo Slovenia Canada Luxembourg Switzerland Croatia Montenegro Turkey

* This agreement has not yet entered into force.

D. Tax filing and payment procedures

Reporting obligations for individuals. Resident individuals must submit an e-calculation (E-PDD) with the Public Revenue Office (PRO) and report any income received from local individuals and income received from abroad. Nonresident individuals must elec tronically report their North Macedonian-source income received from local individuals.

The submission of the E-PDD must be made by the 10th of the month following the month in which the income is received.

The tax obligation is calculated by the PRO on the submission of the E-PDD and the payment must be made by the 15th of the month following the month in which the income is received.

Reporting obligations for legal entities. Legal entities that pay personal income to resident and nonresident individuals must submit an e-calculation with the PRO and report the income paid to individuals. The tax obligation is calculated by the PRO on the submission of the E-PDD, and the tax should be paid simultane ously with the payment of the income.

Tax returns. The annual tax returns are prepared by the tax authorities based on the data provided by the legal entities that pay personal income and the individuals through the E-PDD system.

The completed tax returns are provided to the individuals by 30 April in the year following the reporting year. Individuals are entitled to review and to correct (if necessary) the tax return no later than 31 May. The annual tax obligation is determined from the tax returns provided by the PRO or from the tax clearance issued by the PRO based on the corrected tax returns.

The deadline for payment of the tax determined with the tax return is 30 June. The deadline for payment of the tax determined with tax clearance is 30 days after receiving the clearance.

Other rules. Tax at a rate of 10% (see Rates) is withheld from the following types of income:

• Employment income

• Income from the sale of agricultural products if the income payer maintains business records

• Income from royalties

• Investment income

• Income from property and property rights

• Income from property and property rights if the income payer maintains business records

• Capital gains

• Income from insurance, including insurance premiums

• Other income, including income from e-trading, e-marketing services, income generated from the sale of solid waste, unused financial help intended for medical treatments and costs for inventory shortages that are not a result of vis major or theft and are not on account of the employer

A fixed tax rate of 15% is withheld from gains from games of chance.

Individuals must pay the difference between the annual tax amount and the advance payments within 15 days after receiving the decision on tax liability based on the submitted annual tax return (PDD-GDP form).

E. Double tax relief and tax treaties

The RNM has entered into double tax treaties with the following jurisdictions.

Albania India Romania

Austria Iran Russian

Azerbaijan Ireland Federation

Belarus Israel Saudi Arabia

Belgium Italy Serbia

Bosnia and Kazakhstan Slovak

Herzegovina Kosovo Republic

Bulgaria Kuwait Slovenia

China Mainland Latvia Spain

Croatia Lithuania Sweden

Czech Republic Luxembourg Switzerland

Denmark Moldova Taiwan

Egypt* Montenegro Turkey

Estonia Morocco Ukraine

Finland Netherlands United Arab

France Norway Emirates

Germany Poland United Kingdom

Hungary Qatar Vietnam*

* These treaties have not yet been ratified and entered into force.

F. Temporary visas

Under North Macedonian law, foreign nationals may request a temporary visa for touristic, business, personal and other pur poses. The duration of the temporary visa is usually up to one year.

G. Work visas and permits

The reciprocity principle in international relations is considered in evaluating applications for work and residence permits. Apart from reciprocity criteria, only domestic economic problems may cause difficulties in the obtaining of work and residence permits. North Macedonian law provides for the following types of working visas:

• Self-employment visas, which are issued for a period of one year or three years or as permanent visas. Permanent visas may be issued to members of families in the RNM, foreign citizens from humanitarian programs or foreign individuals granted asylum.

• Employment visas, which are issued for up to one year.

• Work permits, which have a duration that depends on the nature of the work.

H. Residence visas and permits

North Macedonian law provides for the following three types of residence visas and permits:

• Residence permits, which are issued for six months to one year.

• Temporary visas, which are issued to foreign citizens who intend to stay longer than three months. They are usually issued for a duration of up to one year, depending on the reason for the visit (for example, employment, self-employment, study, scientific research or visiting family members). Temporary visas are renewable.

• Permanent visas, which are issued to foreign nationals who have been residing in the RNM with a temporary visa for 5 years or more and, during this period, the individual has not left the country for a continuous period of 6 months or for a discon tinuous period of 10 months.

I. Family and personal considerations

Family members. After a foreign national obtains a residence permit or visa, the spouse and children may apply for their own residence permits on the basis of a family reunification.

Family members of foreign nationals holding residence permits or visas receive priority in the RNM for the obtaining of work per mits.

Marital property regime. The ordinary marital property regime in the RNM is participation in jointly acquired properties.

Driver’s permits. Foreign or international driver’s licenses may be used in the RNM.

Foreigners that reside in the country for a period longer than six months are required to obtain a local driver’s license.