North Macedonia Corporate Tax Gide

North Macedonia

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+389 (2) 311-3310

Fax: +389 (2) 311-3438

Email: eyskopje@mk.ey.com 1000 Skopje North Macedonia

Building 3, 4th Floor

Principal Tax Contacts

 Milen Raikov

 Viktor Mitev

 Maja Veljanova

+359 (2) 817-7100

Mobile: +359 (886) 183-933

Email: milen.raikov@bg.ey.com

+359 (2) 817-7100

Mobile: +359 (889) 100-425

Email: viktor.mitev@bg.ey.com

+389 (2) 311-3310

Mobile: +389 (76) 302-322

Email: maja.veljanova@mk.ey.com

North Macedonia, which was a republic of the former Yugoslavia, gained its independence in 1991. The country changed its name to North Macedonia in 2019. Because of the rapidly changing economic situation in North Macedonia, readers should obtain updated information before engaging in transactions.

A. At a glance

Corporate Income Tax Rate (%) 10

Capital Gains Tax Rate (%) 10 Branch Tax Rate (%) 10

Withholding Tax (%)

Dividends 10

Interest 10

Royalties from Patents and Know-how 10

Fees for Management, Consulting, Financial, Research and Development Services 10 Rent and Payments under Leases of Immovable Property 10

Insurance Premiums 10

Payments for Telecommunication Services 10

Branch Remittance Tax 0

Net Operating Losses (Years) Carryback 0 Carryforward 3/5

B. Taxes on corporate income and gains

Corporate income tax. North Macedonian companies are subject to corporate tax on their worldwide income. North Macedonian companies are companies incorporated in North Macedonia. Foreign companies are taxed in North Macedonia on their profits generated from activities conducted through a permanent establishment in the country and on income from North Macedonian sources.

Rate of corporate income tax. The corporate income tax rate is 10%.

Tax incentives. Tax incentives available in North Macedonia are described below.

Tax relief for reinvested profits. As of January 2015, companies may claim tax relief for the amount of profits reinvested in business-related tangible and intangible assets, including invest ments in tangible assets procured through financial leasing. No relief is available for profits reinvested in cars, furniture, carpets, audiovisual devices and other decorative objects used to equip administrative premises. Assets acquired or leased under the tax relief may not be sold or otherwise disposed of within the fiveyear period beginning with the year in which the investment is made. If this condition is not satisfied, the company must pay the tax saved.

Technological Industrial Development Zones. Companies are exempt from income tax for the first 10 years of their activities in a Technological Industrial Development Zone, subject to the con ditions and procedures established in the Law on Technological Industrial Development Zones.

Capital gains and losses. Capital gains are included in taxable income and are subject to tax at the regular corporate income tax rate of 10%.

Administration. The tax year is the calendar year.

Companies must make advance monthly payments of corporate income tax by the 15th day of each month. The tax base for the monthly payments equals 1/12 of the tax determined for the pre ceding year adjusted by the percentage of the cumulative growth of retail prices in the country in the preceding year.

Companies must file annual tax returns by 15 March of the year following the tax year. Filing of monthly tax returns is not re quired. If the tax determined in an annual tax return is more than the amount of advance tax paid, the company must pay the differ ence within 30 days after the filing due date. Any overpaid amount must be refunded within 30 days following the request of the taxpayer.

Dividends. Dividends paid to foreign companies are subject to withholding tax at a rate of 10% on the net amount of the distrib uted dividends (that is, after deduction of the 10% corporate tax), unless tax treaty relief applies. Remittances of profits by branch es to their home countries are not subject to withholding tax.

Dividends distributed to resident companies are exempt from corporate tax.

Foreign tax relief. Resident companies may claim a tax credit for foreign income tax paid, but the amount of the credit may not exceed the 10% profit tax imposed in North Macedonia on the foreign-source income.

C. Determination of trading income

General. Companies pay income tax on the profit realized in the year, increased by the amount of the nondeductible expenses.

Inventories. Inventories are valued at cost, but the value for tax purposes may not exceed the sales value on the date when taxable income is determined.

Provisions. Provisions booked for current liabilities are deduct ible for tax purposes. Write-offs of receivables are not taxdeductible, unless such receivables are from companies in liquidation or bankruptcy and are confirmed by the bankruptcy trustee.

Tax depreciation. Tax depreciation is a tax-deductible expense as long as the depreciation is in line with the rates determined by the authorities. Depreciation costs of revaluated assets are deemed a nondeductible expense. Written-off assets with remaining value can be depreciated in full and the relevant costs are deemed deductible, provided that the taxpayer has approval from the tax authorities for treating the depreciation costs as deductible expenses.

Relief for losses. As of 1 January 2015, losses may be carried forward for three years. Losses may not be carried back. As a result of the economic crisis related to the COVID-19 pandemic, losses realized in 2020 and 2021 can be carried forward for a period of five years.

Groups of companies. Group registration is not permitted in North Macedonia.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate

Value-added tax; imposed on goods sold and services rendered in North Macedonia, on sales of real property in North Macedonia and on imports; certain items are exempt, such as banking, insurance and other financial activities Standard rate 18% Reduced rate (for food products for human use, drinking water from public water supply systems, books, brochures and newspapers, certain materials and fixed assets for agriculture, drugs and medicine products for human use, computers, printers and accessories, software, equipment that is used for the production of solar electricity and passenger transport) 5% Reduced rate (for services with respect to on-site consummation of food and beverage, and catering services, excluding alcoholic beverages) 10%

Exports 0%

Excise tax on sales in North Macedonia and on imports of various items; tax is imposed at ad valorem rates, which are applied to the sales or import price, or at specific rates, which are expressed in North Macedonian denars per unit of goods; for petrol, Diesel D-1 and gas, the rates are subject to change every two weeks

Petrol MKD21.692 to MKD24.396 per liter

Nature of tax Rate

Diesel D-1 (petrol for use in motor cars)

MKD18.121 per liter

Heating oil MKD6.301 per liter

Fuel oil

Alcoholic beverages

MKD0.10 per kilogram

MKD340 per liter of pure alcohol

Beer MKD4 per percentage of alcohol in a liter

Cigars and cigarillos

Cigars

Cigarillos

MKD21.37 per piece

MKD10 per piece

Cigarettes MKD2.453 per piece plus 9% of the retail price

Taxes contained in Property Tax Law

Property tax; annual tax on owners of immovable property, including non-rural land, residential buildings or apartments, industrial, business and administrative buildings, and garages and other structures; tax base is the market value of the real estate or movable property; tax return must be filed by 31 January (only if changes have occurred since the previous period)

Tax on sales and other transfers of real estate and rights to real estate; tax base is the market value of the real estate or right at the time of the sale; for exchanges, the tax base is the difference between the market values of the items being exchanged; tax payable by transferor; tax return must be filed within 15 days after the transfer of the property

0.1% to 0.2%

2% to 4%

Inheritance and endowment tax, on the inheritance or endowment of immovable or movable property; tax applies regardless of whether inheritance or endowment is granted in a will or is acquired under the inheritance law or under an endowment agreement; tax base is the market value of the inheritance and endowment, reduced by debts and expenses; tax is paid by resident and nonresident recipients, including companies; tax return must be filed within 15 days after the transfer of the property Individuals in first line of heritage 0% Individuals in second line of heritage

2% to 3% All others

E. Miscellaneous matters

4% to 5%

Foreign-exchange controls. The currency in North Macedonia is the denar (MKD). All transactions in North Macedonia must be made in denars.

The National Bank of the Republic of North Macedonia, which is the central bank, is exempt from income tax.

Residents and nonresidents may maintain foreign-currency ac counts at commercial banks.

Registration with the central bank is required for the following transactions:

• Obtaining or granting loans

• Paying or receiving cash

• Opening bank accounts abroad

Transfer pricing. North Macedonia has transfer-pricing rules. Under these rules, the tax authorities may adjust the taxable income of taxpayers derived from transactions with related companies if they deem prices paid (or charged) to related companies for various types of items to be excessive. In such circumstances, the difference between prices stated in financial statements and arm’s-length prices is subject to tax. Taxpayers whose total annual turnover exceeds MKD300 million (approximately EUR4.8 million) that are engaged in related-party transactions with nonresident entities must file an annual transferpricing report. Taxpayers whose volume of related-party transactions does not exceed MKD10 million (approximately EUR163,000) per year are required to submit a “short” transferpricing report with the corporate income tax return. The deadline for submission of the transfer-pricing report is 30 September of the year following the reporting year.

Debt-to-equity ratios. Under thin-capitalization rules, interest on loans received from shareholders owning at least 20% of the capital of the borrower or on loans guaranteed by such sharehold ers is subject to tax to the extent that such interest corresponds to the excess of the loan balance over three times the shareholders’ share in the equity of the borrower.

The thin-capitalization restrictions apply only to loans provided by direct shareholders that are nonresidents. In addition, the 20% participation threshold is alternatively measured by reference to voting rights. Loans provided from financial institutions are ex cluded from the thin-capitalization restrictions. Newly estab lished entities are excluded in their first three years of operations.

F. Treaty withholding tax rates

Dividends Interest Royalties

%

Albania 10 10 10

Austria 0/15 (i) 0 0

Azerbaijan 8 0/8 (b) 8

Belarus 5/15 (a) 10 10

Belgium 0/10/15 (ff) 10 10

Bosnia and Herzegovina 5/15 (aa) 10 10

Bulgaria 5/15 (a) 0/10 (b) 10

China Mainland 5 0/10 (cc) 10

Croatia 5/15 (a) 0/10 (e) 10

Czech Republic 5/15 (a) 0 10

Denmark 0/5/15 (f) 0 10

Egypt (w) 10 10 10

Estonia 0/5 (a) 0/5 (k) 5

Finland 0/15 (g) 0/10 (h) 0

France 0/15 (d) 0 0

Dividends Interest Royalties % % %

Germany 5/15 (q) 0/5 (z) 5

Hungary 5/15 (a) 0 0

India 10 0/10 (b) 10

Iran 10 10 10

Ireland 0/5/10 (r) 0 0

Italy 5/15 (a) 0/10 (j) 0

Kazakhstan 5/15 (aa) 0/10 (e) 10

Kosovo 0/5 (aa) 10 10

Kuwait 0 0 15

Latvia 5/10 (q) 0/5 (t) 5/10 (u)

Lithuania 0/10 (i) 0/10 (e) 10

Luxembourg 5/15 (a) 0 5

Moldova 5/10 (a) 5 10

Morocco 10 10 10

Netherlands 0/15 (i) 0 0

Norway 0/10/15 (x) 0/5 (y) 5

Poland 5/15 (a) 0/10 (k) 10

Qatar 0 0 5

Romania 5 0/10 (l) 10

Russian Federation 10 10 10

Saudi Arabia 5 0/5 (dd) 10

Serbia and Montenegro 5/15 (a) 10 10

Slovak Republic 5 10 10

Slovenia 5/15 (a) 10 10

Spain 5/15 (q) 0/5 (p) 5

Sweden 0/15 (a) 0/10 (m) 0

Switzerland 5/15 (a) 0/10 (n) 0

Taiwan 10 0/10 (c) 10

Turkey 5/10 (a) 0/10 (o) 10 Ukraine 5/15 (a) 0/10 (e) 10

United Arab Emirates 5 0/5 (ee) 5

United Kingdom 0/5/15 (v) 0/10 (s) 0

Vietnam (w) 5/10/15 (bb) 10 10

Non-treaty jurisdictions 10 10 10

(a) The lower rate applies if the recipient of the dividend is a company (other than a partnership) that holds at least 25% of the equity of the payer of the dividends.

(b) The 0% rate applies if the beneficial owner of the interest is the government or the central bank.

(c) The 0% rate applies if the beneficial owner of the interest is the government, a municipality, the central bank or an agency fully owned and controlled by the government or a municipality (debts indirectly financed by the govern ment, a local authority or the central bank).

(d) The 0% rate applies if the recipient of the dividend is a company that holds directly or indirectly at least 10% of the equity of the payer of the dividends.

(e) The 0% rate applies if the beneficial owner of the interest is the government, municipalities, the central bank, other financial institutions fully owned by the government or municipalities, or other legal entities that are directly financed by the government, the central bank or municipalities.

(f) The 0% rate applies if the beneficial owner of the dividends is a pension fund or other similar institution providing pension schemes in which individuals may participate to secure retirement benefits. The 5% rate applies if the re cipient of the dividend is a company (other than a partnership) that holds at least 25% of the equity of the payer of the dividends and if such holding is maintained for an uninterrupted period of at least one year and the dividends are declared within that period.

(g) The 0% rate applies if the recipient of the dividend is a company (other than a partnership) that holds at least 10% of the voting power of the payer of the dividends.

(h) The 0% rate applies if the beneficial owner of the interest is the State of Finland, Bank of Finland, Finnish Fund for Industrial Co-operation or if the interest is from loans supported by the government of Finland.

(i) The 0% rate applies if the recipient of the dividend is a company (other than a partnership) that holds at least 10% of the equity of the payer of the dividends.

(j) The 0% rate applies if the beneficial owner of the interest is the government, municipalities or their fully owned entities or if the interest payments arise from loans of other agencies or instrumentalities (including financial institu tions) based on agreements between the governments.

(k) The 0% rate applies if the beneficial owner of the interest is the government including municipalities, the central bank and financial institutions controlled by the government or if the interest is derived from loans guaranteed by the government.

(l) The 0% rate applies if the beneficial owner of the interest is the government including municipalities, agencies or banks of the government or municipali ties or if the interest is derived from loans warranted, insured or financed by the government.

(m) The 0% rate applies if any of the following circumstances exist:

• The beneficial owner of the interest is the state, a statutory body or the central bank.

• The interest is paid on loans approved by the government of the country of the interest payer.

• The interest is paid on loans granted by the SWEDCORP, Swedfund International AB, the Swedish Export Credits Guarantee Board or any other public institution with the objective of promoting exports or development.

• The interest is paid on bank loans.

(n) The 0% rate applies if the beneficial owner obtained the interest with respect to sales on credit of industrial, commercial or scientific equipment or with respect to sales on credit of merchandise between enterprises or if the interest is paid on bank loans.

(o) The 0% rate applies if the beneficial owner of the interest is the government, municipalities or the central bank.

(p) The 0% rate applies if the beneficial owner obtained the interest with respect to sales on credit of industrial, commercial or scientific equipment or with respect to sales on credit of merchandise between enterprises or if the interest is paid on long-term bank loans (over five years).

(q) The lower rate applies if the recipient of the dividend is a company (other than a partnership) that holds at least 10% of the equity of the payer of the dividends.

(r) The 0% rate applies if the beneficial owner of the dividends owns at least 25% of the equity of the payer of the dividends for the entire 12-month period end ing on the date of payment of the dividend or if the beneficial owner of the dividends is a pension scheme. The 5% rate applies if the beneficial owner of the dividends is a company that holds at least 10% of the voting power of the payer of the dividends.

(s) The 0% rate applies to interest paid with respect to a loan granted or credit extended by an enterprise to another enterprise and to interest paid to political subdivisions, local authorities or public entities.

(t) The 0% rate applies to interest paid with respect to a loan granted or credit extended for the sale of industrial, commercial or scientific equipment (un less the sale or loan is between related persons), and to interest paid to the government including local authorities, the central bank and financial institu tions wholly owned by the government.

(u) The higher rate applies to royalties paid for the use of, or the right to use, movies or tapes for radio and television broadcasting.

(v) The 0% rate applies if the beneficial owner of the dividends owns at least 25% of the equity of the payer of the dividends for the entire 12-month pe riod ending on the date of payment of the dividend or if the beneficial owner of the dividends is a pension scheme. The 5% rate applies if the recipient of the dividend is a company (other than a partnership) that holds at least 10% of the equity of the payer of the dividends.

(w) This treaty is not yet in force.

(x) The 0% rate applies if the beneficial owner of the dividends is the central bank of Norway, the government pension plan of Norway or Norfund or, in case of North Macedonia, the central bank of North Macedonia. The 10% rate applies if the recipient of the dividend is a company (other than a partner ship) that holds at least 25% of the equity of the payer of the dividends.

(y) The 0% rate applies to the following:

• Interest paid to the government of a contracting state, a political subdivi sion or local authority thereof, the central bank of a contracting state or an institution wholly owned by the government of a contracting state

• Interest paid on a loan insured or guaranteed by a governmental institution for the purpose of promoting exports

• Interest paid with respect to the sale on credit of industrial, commercial or scientific equipment

(z) The 0% rate applies to the following:

• Interest paid with respect to the sale of commercial or scientific equipment on credit

• Interest paid with respect to the sale of goods by an enterprise to another enterprise on credit

• Interest paid on a loan guaranteed by the Federal Republic of Germany with respect to the export of foreign direct investment

• Interest paid to the government of the Federal Republic of Germany, the Deutsche Bundesbank, the Kreditanstalt fur Wiederaufba, the Deutsche Investitions-und Entwicklungsesellschaft or the North Macedonian govern ment

(aa) The lower rate applies if the recipient of the dividend is a company that holds directly at least 25% of the equity of the payer of the dividends.

(bb) The 5% rate applies if the recipient of the dividend is a company that holds directly at least 70% of the equity of the payer of the dividends. The 10% rate applies if the recipient of the company holds at least 25%, but no more that 70%, of the equity of the payer of the dividends.

(cc) The 0% rate applies if the beneficial owner of the interest is the government, municipalities, the central bank, other financial institutions fully owned by the government or other legal entities that are indirectly financed by the government, the central bank or municipalities.

(dd) The 0% rate applies if the payer or the beneficial owner of the interest is the government, including municipalities, the central bank and financial institu tions fully owned by the government.

(ee) The 0% rate applies if the beneficial owner of the interest is the state, a local government, the central bank, the Abu Dhabi Investment Authority, the Abu Dhabi Office, the International Petroleum Investment Company, the Abu Dhabi Investment Council, the Dubai Investment Company, the Mubadala Development Company, the United Arab Emirates Investment Authority, the Al Dafra Holding Company or any other institution created by the govern ment or a local authority or local government, other than the state, that is recognized as an integral part of that government.

(ff) The 0% rate applies if the recipient of the dividend is a company that holds at least 25% of the equity of the payer of the dividends. The 5% rate applies if the recipient of the dividend is a company that holds directly at least 10% of the equity of the payer of the dividends.