Investment in Macedonia 2017

74 | Investment in Macedonia 2017

KPMG in Macedonia kpmg.com/mk

Edition 2017 Investment in Macedonia 2017 | 3 Preface

Investment in Macedonia is one of a series of booklets published by KPMG to provide information to those considering investing or doing business internationally.

Every care has been taken to ensure that the information presented in this publication is correct and reflects the situation as of May 2017 unless otherwise stated. Its purpose is to provide general guidelines on investment and business in Macedonia. As the economic situation is undergoing rapid change, further advice should be sought before making any specific decisions.

For further information on matters discussed in this publication please contact Gordana Nikushevska, Partner and Srdjan Randjelovic, Director.

KPMG in Macedonia

Soravia Center, 7th floor 3 Filip Vtori Makedonski 1000 Skopje Republic of Macedonia

Tel: +389 2 3135 220 Fax: +389 2 3111 811

[email protected]

General Information...... 7

Geography and climate...... 7

Population and language...... 7

Infrastructure...... 7

Communications...... 9

Currency...... 9

Labor force...... 9

Political system...... 10

Macedonia and the European Union...... 10

Macedonia and NATO...... 10

Economy...... 10

Opportunities for International Investors...... 13

Protection and promotion of foreign investments...... 13

Forms of foreign investments...... 14

Profit and capital repatriation...... 14

Establishment of new business entities or acquisition of shares in existing entities...... 14

Branches...... 15

Representative offices...... 15

Capital markets...... 15

Banking and finance...... 16

International private law...... 17

Company Law...... 19

Rules applicable to all forms of business association...... 19

Limited liability company (DOO)...... 23

Joint-stock company (AD)...... 25

Other forms of business association...... 28

Commercial Register...... 29

Real Estate...... 30

Types of real estate ownership...... 30

Evidence of title...... 30

Acquisition of real estate...... 31

Title review...... 31

Project development...... 32

Participants in the development process...... 33

Accounting and Auditing...... 35

Accounting...... 35

Auditing...... 37

Taxation...... 38

Profit tax...... 38

Value added tax (VAT)...... 42

Taxation of individuals...... 49

Property transfer, gift and inheritance taxes...... 52

Excise duties...... 53

Customs duties...... 53

Employment Regulations...... 55

Legislation...... 55

Employment contracts...... 55

Working hours...... 56

Holidays...... 56

Medical check-ups...... 56

Healthy and safe working conditions...... 56

Termination of employment contracts...... 57

Foreign Nationals...... 58

Legislative framework and general rules...... 58

Visas...... 58

Visa exemption rules...... 59

Residence permits...... 59

Foreign nationals working in Macedonia...... 60

Government Control...... 62

Public procurement...... 62

Concessions...... 63

Licensing...... 65

Competition and antitrust regulations...... 66

Banking supervision and the National Bank of Macedonia...... 68

Foreign exchange regime...... 69

Appendix A: Bilateral Agreements for the Mutual Protection and Encouragement of Foreign Investment...... 70

Appendix B: Double Taxation Treaties to which Macedonia is a party...... 71

Geography and climate Ethnic Macedonians represent 66% of Macedonia, the land of myths and legends, the population. Albanians make up 25%. lakes, valleys and mountains, sunshine and Minority groups include Turks 4%, Serbs grapes, wine, dance and song, is situated 2%, Roma 2% and others 1%. in the central part of the Balkan peninsula. Nearly 66% of the Macedonian population It is a landlocked country, bordered on the is Eastern Orthodox Christian. Another north by Serbia and Kosovo, on the east 33% of the population practice Islam, and by Bulgaria, on the south by Greece, and 1% other religions. on the west by Albania. The Vardar River, which originates in the north-western The country’s official language is part of the Republic and bisects it, is the Macedonian. Secondary languages closely longest river. It flows into Greece and correspond to ethnic background. English is drains into the Aegean Sea. Macedonia is used frequently in business. strategically located along key land routes from Europe to the Middle East and Asia. Infrastructure

The country’s total area is 25,713 square Roads and railways kilometers. Macedonia consists mostly The Republic of Macedonia is well situated of highlands and mountains. Its terrain as a transport hub. Most of the roads is punctuated alternately by deep valleys connecting the larger cities are of good and rugged mountains and hills. The entire quality, especially the transit routes that are territory of Macedonia is a transitional mostly motorways. The most important of region between the Mediterranean and these is the E-5 motorway, which follows continental climates. Along the valleys of the Morava and Vardar valleys and leads the Vardar and Strumica Rivers, the climate on to the Aegean and the Near East. The is temperate Mediterranean. The interior same route is followed by an international has a moderate continental climate with railway line. The road network in Macedonia warm and dry summers and cold and wet continues to be modernized in order to winters. satisfy transport needs. Most tourist amenities are connected by modern roads. Population and language Petrol stations are usually open round the According to the latest statistics, in 2016 clock and are available along such roads Macedonia’s population was approximately and at border crossings. 2.07 million. The capital, Skopje, is by far The construction of the important Corridor the largest urban center with over 600,000 VIII (East – West) has shown great inhabitants. development potential as a strong factor

contributing to the economic integration Tabanovce, near Kumanovo, on the route of the countries it connects and further Skopje-Nish-Belgrade and Blace on the to the regional stabilization process. The route Skopje-Pristina. main alignment of Corridor VIII starts in the Macedonia has an electrified rail network ports of Bari and Brindisi in Italy, continues conveniently connected to several cities. It to Durres and Vlore in Albania, goes includes about 925 km of railway lines. through Tirana, Skopje in Macedonia, Sofia and Plovdiv in Bulgaria, and ends in the Airports Bulgarian ports of Burgas and Varna. This road, together with the adjoining railway The Republic of Macedonia has two line, will enable better and faster transit international airports – at Skopje and Ohrid between Europe and Asia Minor. – which can accommodate all types of modern aircraft, except inter-continental The most recent road construction projects flights. The Turkish company TAV has taken include the Miladinovci – Stip motorway over the management of both airports for and the Kichevo – Ohrid motorway, part of a period of 20 years. Skopje Airport was Corridor VIII. modernized in 2011, which positioned Furthermore, the project for the Demir it among the top 10 airports in Eastern Kapija – Smokvica section of the Corridor X Europe. (North – South) motorway envisages the In 2016, the Airports Council International construction of a new modern motorway (ACI) recognized Skopje Alexander the section with a length of 28.18 km, thus Great Airport as Best European Airport in completing the main axis of Corridor X service quality for 2015, in the category crossing the Republic of Macedonia. Due to “Best Airport by region under 2 million the specificities of the terrain, this project passengers per year”. This is the third time has been assessed as very complex, Skopje Airport has received this award involving the construction of bridges, by the prestigious aviation organization tunnels, overpasses and road nodes. following acclaim in the same category in Three border check points are available 2012 and 2013. when traveling from Greece: Medzitlija A number of carriers offer direct and (region of Pelagonija), 14 km from Bitola, indirect flights from Skopje Airport to major Bogorodica, 4 km from Gevgelija in the European cities. valley of the Vardar River, and Dojran next to Lake Dojran. The first two are used for Ohrid St. Paul the Apostle Airport is a small road and railway traffic. tourist facility, providing space for eight commercial aviation aircraft and five general The official border crossings connecting aviation aircraft. Currently, the passenger Albania and Macedonia are Cafasan, on terminal and other airport capacities service the Tirana-Struga-Ohrid route, 13 km from about 60,000 passengers and 1,000 aircraft Struga, and Saint Naum, on the Pogradec- annually. The main purpose of this airport Ohrid route, 29 km from Ohrid. is tourism development in the Ohrid area One border check point is available when and to serve as an alternative to Skopje traveling to Serbia and one to Kosovo: Alexander the Great Airport.

Communications forms of electronic payment for utility and telephone charges. Fixed-line communications The telephone system is modern and Currency digitalized. The major provider of fixed-line The official currency in Macedonia is the communications is Makedonski Telekom Macedonian denar (MKD). The denar is owned through Matav by Deutsche circulated in notes of MKD 10, MKD 50, Telekom. Other fixed-line operators MKD 100, MKD 200, MKD 500, MKD 1,000 include one.Vip, Neotel and Telecabel. The and MKD 2,000, and coins of MKD 1, digitalized telephone service is available in MKD 2, MKD 5, MKD 10 and MKD 50. most rural areas. Direct international dialing Exchange rates with other currencies is available everywhere. are quoted daily by the Macedonian National Bank for statistical and accounting Mobile communications purposes. Three mobile telephone operators currently provide services in Macedonia: T-Mobile Labor force (part of Deutsche Telekom Group), one.Vip According to the data of the State (established as a result from the merger of Statistical Office, in the first quarter of the Macedonian units of Telekom Slovenije 2017, the labor force in the Republic of (One) and Telekom Austria (Vip Operator) Macedonia numbered 952,644 persons, that is controlled by Mobilkom Mazedonien of whom 734,043 were employed and Beteiligungsverwaltung) and Lycamobile 218,601 unemployed. (virtual mobile operator). The unemployment rate stands at 22.9% Internet and remains high, although the overall The largest internet provider in Macedonia trend over recent years has been steadily is Makedonski Telekom, offering wireless, downward. Reducing unemployment levels dial-up, ISDN, ADSL and optic internet in various sectors and geographic locations connections. remains one of the country’s economic challenges in 2017. This is a vibrant market populated by numerous internet service providers (ISPs), While the Macedonian labor force is whose rates and service quality vary widely. generally highly skilled and well educated, Macedonia has various firms licensed to wages in the country are significantly lower operate data-transfer services, among than those in Western Europe, creating which one.Vip and Telecabel are the biggest a significant upside potential for labor- players. intensive investments. The average monthly gross wage paid per Electronic payment methods employee in March 2017 was MKD 32,999 Credit card use has gained in popularity and (approximately EUR 50), while the average the majority of consumer retailers offer this monthly net wage paid per employee in service. Local banks offer online banking March 2017 amounted to MKD 22,445 services, debit card services, and various (approximately EUR 370).

Political system Macedonia and NATO Macedonia is a republic. It held its first North Atlantic Treaty Organization (NATO) multiparty elections in 1991 and its current integration is also an important goal of Constitution was adopted on 17 November the Government, as part of the so-called 1991. The national legislative body – a Adriatic Group. NATO Allies recognize the unicameral Parliament – is comprised of work and commitment demonstrated by 123 members elected by popular vote Macedonia to NATO values and the Alliance who serve a four-year term. The most operations. It is agreed that an invitation recent parliamentary elections were held in would be extended to Macedonia as soon December 2016. as a mutually acceptable solution to the issue over the country’s name is reached The President is the Head of State and with Greece. The negotiations between Commander-in-Chief of the army. The Macedonia and Greece on the name issue President is elected by popular vote are currently ongoing. and serves a five-year term. The current President is Mr Gjorge Ivanov and this is Economy his second term which began in May 2014. The real GDP growth is expected to rise to Executive power rests with the 3.2% in 2017, compared to 2.4% growth Government. It is headed by a Prime in 2016. Minister, who is appointed by the parliamentary majority. The Government In 2016, the average inflation rate was is comprised of 15 ministries. The current -0.2%. However, inflation is expected to Prime Minister is Mr. Zoran Zaev. recover in the following years with an annual average inflation rate of 1.9% during Macedonia has 84 municipalities headed by the period 2016-2019. mayors elected every four years. Municipal Councils, the local legislative bodies, Over recent years, global brands such as determine the mayors’ executive functions. Johnson Controls, EVN, Societe Generale, Sparkasse, Telekom Austria, Lukoil, Macedonia and the European Union Johnson Matthey, Vienna Insurance Group, T-Home, TAV, ArcelorMittal, Marquardt, The European Union (EU) integration of IBC Israel, Gazit Globe Israel, Acibadem the Republic of Macedonia is the most Healthcare Group, Porsche, Kromberg & important goal of the Government. The Schubert, Dräxlmaier, Van Hool, Kemet achievement of candidate status for Electronics, Gentherm, Lear, Leopold EU membership has provided a strong Kostal, Philip Morris and Uniqa have set up incentive for furthering the realization of operations in Macedonia. the goals, directions and priorities set by the Macedonian Government as part of In 2016, the current account deficit stood at its Program 2017-2020, continuing with EUR 303.3 million, up from EUR 187.0 million reforms towards overall fulfillment of the in 2015. It accounted for 3.1% of GDP terms for EU membership, establishing in 2016. an efficient negotiation structure, building negotiation positions and setting a negotiation date.

The table below lists some key Macedonian macroeconomic indicators:

Indicator 2010 2011 2012 2013 2014 2015 2016

Real sector

Annual real GDP growth (%) 3.4 2.3 (0.5) 2.7 3.5 3.7* 2.4*

Inflation (av.) (%) 1.6 3.9 3.3 2.8 (0.3) (0.3) (0.2)

Unemployment rate (%) 32.1 31.4 31.04 29.0 28.4 26.1 23.7

Foreign sector

Trade balance, FOB (EUR million) (1,602) (1,838) (1,947) (1,757) (1,780) (1,725,7) (1,777,4)

Export, FOB (EUR million) 2,535 3,215 3,124 3,212 3,745 4,051.2 4,329.3

Import, FOB (EUR million) 4,137 5,053 5,071 4,968 5,525 5,776.9 6,106,7

Net direct investments (EUR million) 157 344 117 264 278 170.7 354

Direct investments (%) (GDP) 2.2 4.6 1. 7 2.8 2.3 1. 9 3.6

Source: National Bank of the Republic of Macedonia *Projections for certain items

Trade agreements effective from 1 April 2004 and the Interim Agreement on Trade and Trade Related Framework agreements liberalizing foreign Matters covering various trade components trade between Macedonia, the European effective from 1 June 2001. In accordance Union, the European Free Trade Association with the Stabilization and Association (EFTA) and the Central European Free Agreement, customs duties on industrial Trade Agreement (CEFTA) countries, goods between Macedonia and the EU as well as Turkey and Ukraine, have countries are in the process of being expanded the market exposure of domestic phased out. Currently, there is a wide manufacturers. Macedonia’s major trade asymmetric liberalization of EU imports agreements are as follows: of industrial goods of Macedonian origin which are duty-free. Relief for agricultural WTO produce is also provided. Macedonia has been a member of the World Trade Organization (WTO) In March 2004, Macedonia submitted an since 4 April 2003. official application for European Union membership.

European Union Having acquired EU membership candidate In April 2001, Macedonia and the European status in December 2005, the Republic of Community and its Member States Macedonia embarked upon the key stages became signatories to the European of European integration. Stabilization and Association Agreement

EFTA Foreign investment

According to an Agreement signed on According to state authorities, net foreign 19 June 2000 which entered into force on direct investment in the country for 2016 1 May 2002, trade with EFTA countries was approximately EUR 354 million (Iceland, Liechtenstein, Norway and compared to EUR 202.8 million in 2015 and Switzerland) enjoys preferential terms and EUR 197.4 million in 2014. conditions.

CEFTA Macedonia became a CEFTA member in 2006. The trade component of this agreement came into force on 26 July 2007. In accordance with CEFTA, Macedonia began liberalizing trade in industrial and agricultural goods with CEFTA member countries: Albania, Bosnia and Herzegovina, Moldova, Montenegro, Kosovo and Serbia.

Bilateral Free Trade Agreements Macedonia has signed and ratified such agreements with Turkey and Ukraine.

Technological industrial development zones (TIDZ) Currently, there are 15 technological industrial development zones in Macedonia, three in Bunardzik close to Skopje, and one each in Stip, Struga, Tetovo, Strumica, Kicevo, Gevgelija, Berovo, Delcevo, Radovis, Rankovce, Vinica and Prilep. In the TIDZ Skopje 1, 2 and 3 in Bunardzik, factories have been built by several investors including Johnson Matthey, Kemet Electronics, Van Hool, Cap-Con, Diatec, Vitillo, Delphi and Visteon. There are ongoing activities for the construction of factories from several foreign investors within the existing technological industrial development zones. The factories built recently include Condevo and Technical Textiles in Stip, Gentherm and Accomplast in Prilep, Lear in Tetovo, Kostal and ODW Elektrik in Struga and KSS in Kicevo.

Protection and promotion of foreign for international investors, the citizens or investments legal entities of the respective contracting country will enjoy preferential investor National treatment and most favored treatment (“most favored nation status”). nation status The Macedonian Constitution stipulates Protection of investments that foreign persons (legal entities, The Republic of Macedonia is a party individuals or civil partnerships registered to 38 Bilateral Agreements for Mutual in a foreign country) must enjoy equal Protection and Encouragement of Foreign rights with local persons when conducting Investment. The country is also a party economic activities in the Republic of to the Convention on the Settlement of Macedonia except where otherwise Investment Disputes between States and provided by the law (“national treatment”). Nationals of Other States. This principle covers the entire range of economic and legal forms used for Incentive measures and privileges business activity. The Republic of Macedonia has a flat tax According to the Trading Company Law, rate of 10% for corporate and personal foreign companies and foreign sole income tax purposes. Investors are eligible proprietors shall operate according to the for reduction in the profit tax base by the terms and conditions stipulated by law amount of prior profit reinvested in tangible and shall be given equal treatment in their assets (such as real estate, facilities and operations with domestic individuals and equipment) and intangible assets (such as legal entities on the territory of the Republic computer software and patents) used for of Macedonia, unless otherwise stipulated expanding the business activities of the by an international agreement and/or by entity. law regulating special types of foreign The Law on Technological Industrial companies and foreign sole proprietors Development Zones provides for a special with a specific scope of operations. tax treatment for any investor who invests If a bilateral treaty signed and ratified by the in the appointed zones. Generally, these Republic of Macedonia provides for more incentives include: favorable investment terms and conditions

• Ten-year tax holiday from profit tax • Long-term loan with a maturity period for entities performing their business of five years or more, when it is a loan activities in the zones from an investor intended for a trade company that the investor fully owns • Certain exemption from value added tax (VAT) for trade made within the zone • Long-term loan with a maturity period and for imports in the zones of five years or more, when it is a loan intended for establishing lasting • Tax holiday from personal income tax economic links and if such loan has on salaries to all workers employed at been granted between economically entities carrying out business activities associated entities. in the zones for a period of 10 years from the month in which the first salary Profit and capital repatriation is paid. According to the Law on Foreign Exchange In addition to the tax incentives, this Operations, foreign investors can freely Law also provides for certain customs transfer profit, proceeds from disposal exemptions, exemptions from fees for and sale of ownership shares in direct preparation of the construction site, investments and the remainder of a free connection to the water, sewerage, liquidated investment, provided that they heating, gas and power supply networks, have registered their direct investments and other incentives. according to this Law and have paid all legal obligations relating to taxes and Forms of foreign investments contributions in the Republic of Macedonia. The Law on Foreign Exchange Operations defines direct investments as investments Establishment of new business by an investor with the aim of establishing entities or acquisition of shares in lasting economic links and/or realizing existing entities a right to manage a trade company or Macedonian laws provide that foreign another legal entity in which the investor entities and/or foreign individuals may has invested. The law lists the following establish entities with foreign participation types of direct investments: and may acquire shares in existing local • Creation of a trade company or entities. Such companies must take the extending the equity of a trade company form of entities as outlined in the Trading to full ownership by the investor, Company Law. There is no limitation on the establishing branches, or the acquisition share participation of foreign legal entities of full ownership of the existing and individuals, unless otherwise provided company for by another law for specific types of businesses. • Participation in a new or already existing trade company if the investor holds Generally, no prior permission from or acquires more than 10% of the governmental institutions is required for participation in the equity of the trade the establishment of an entity of the above company, i.e. more than 10% of the types, except for cases involving banking or voting rights insurance activities, and investment funds.

Branches above, for a period of two years as of the A foreign company has the right to date of its registration. establish branch offices as its own organizational units or in any other manner Representative offices to carry out operations and assume A foreign company entitled to carry liabilities and exercise its rights before the out commercial activities pursuant to bodies and institutions of the Republic of its national legislation may establish a Macedonia, under the terms and conditions commercial representative office in the set out by the law. Republic of Macedonia. A representative office is not a legal entity and shall not A foreign company or a foreign sole carry out commercial activities. proprietor is obliged to register the establishment of its branch office in the The manner, registration procedure and Commercial Register, based on reciprocity. the body authorized to register the entry of representative offices is prescribed by the The branch office of the foreign company Government of the Republic of Macedonia. and the foreign sole proprietor must disclose each year in the Commercial Capital markets Register or another appropriate register the annual accounts, the audit report The emergence of capital markets and the notes pertaining to recorded in Macedonia is a direct result of the data in the register which were changed, structural, economic and social changes pursuant to administration, or bankruptcy in the country since 1989. The legislation reorganization proceedings or other notes is comprised of numerous laws and which are relevant to the financial situation regulations, the most important of of the foreign company or the foreign sole which are the Trading Company Law, the proprietor. Securities Law, the Law on Takeover of Joint-Stock Companies and the Investment The foreign company or the foreign sole Funds Law. proprietor is liable, up to its entire assets, for the liabilities incurred during the Macedonian Stock Exchange operation of the branch office. The Macedonian Stock Exchange (MSE) Where a foreign company, or a foreign was established in September 1995, as sole proprietor, that has established a the first organized stock exchange in the branch office has been registered in the history of the Republic of Macedonia. On state where it has its registered office for 28 March 1996, the commencement of less than two years as of the date of the trading operations created a central market submitted request for the establishment place for securities trading. of the branch office, the founders of the The MSE is organized as a joint-stock foreign company, or the foreign sole company. The major shareholders comprise proprietor, shall be jointly and severally banks and stockbroker companies. liable for liabilities that arise from the The main bodies of the MSE are the operations of the branch office, in addition Shareholders’ Assembly and the Board of to the liability referred to in the paragraph Directors, consisting of eight members

(five non-executive members, two of the National Bank of the Republic of independent members and one executive Macedonia member who is also the Chief Executive • Foreign bank which was granted a Officer of the MSE). license for opening and operating a branch by the Governor of the National Market supervision Bank of the Republic of Macedonia and The Securities and Exchange Commission is responsible for stock market supervision. • Branch of a bank from a European Union The Commission is an autonomous and Member State (Note: this provision shall independent organization with the status be applied starting from the day the of a legal entity which regulates and Republic of Macedonia becomes a full supervises all participants in transactions member of the European Union, when with securities in the Republic of bank branches from EU Member States Macedonia. shall be subject to the provisions for foreign bank branches). The Commission has public authorizations established by the Securities Law, the Branch of a foreign bank Investment Funds Law and the Law on A foreign bank may open a branch in the Takeover of Joint-Stock Companies. It Republic of Macedonia after obtaining a is responsible for the legal and efficient license for opening and operating a branch functioning of the securities market, as from the Governor of the National Bank of well as the protection of investors’ rights. the Republic of Macedonia.

Trading procedures A branch of a foreign bank shall invest MSE members may fulfill orders for buying funds of at least 20% of residents’ and selling listed securities, i.e. securities collected deposits in the Republic of that are accepted for trading on the Macedonia. MSE markets only via the BEST (Bourse The funds of the branch may be used Electronic System of Trading) system. for repayment of foreign banks’ liabilities In order to protect investors, the Board of incurred outside the country, only after Directors of the MSE may introduce certain settling the liabilities arising from the limits on price fluctuations. operations of the branch in the Republic of Macedonia. Banking and finance Branch assets The commercial activities of banks and financial institutions are regulated by the A foreign bank branch shall hold monetary Banking Law. assets of at least MKD 120 million (approximately EUR 2 million). The provisions of the Banking Law set out three possibilities for a bank to carry Funds must be paid in by the foreign bank to out banking activities in the Republic of a special account of the National Bank prior Macedonia: to the issuance of the license for opening and operating the branch. Once the branch • Bank which was granted a founding is registered in the Commercial Register, the and operating license by the Governor

funds shall be transferred to one or more • Registration and validity of industrial deposit accounts of the branch at banks ownership rights if the application has incorporated and domiciled in the Republic been submitted in the Republic of of Macedonia. Macedonia

The foreign bank shall keep the deposit • Approval and execution of enforcement stated above at the greater of 5% of total on the territory of the Republic of deposits of the branch in the Republic of Macedonia. Macedonia or MKD 120 million. The total deposits shall not include the deposits of Applicable law the foreign bank that opened the branch. Legal entities and branches of foreign The MKD 120 million deposit shall be companies are regulated by the law of treated as a branch’s own funds and shall the state in which they are registered. not be subject to encumbrance and interest Therefore, legal entities and branches of calculation by the foreign bank that opened foreign companies registered in Macedonia the branch. shall be subject to Macedonian law. Since ownership rights upon movable and International private law immovable properties are regulated by the law of the state in whose territory they are International Private Law Code located, Macedonian law shall be applicable The rules of the International Private to properties located within Macedonia. Law Code (IPLC) regulate the terms and conditions concerning the choice of Contracts are regulated under the law applicable law in private legal relations, chosen by the parties, unless otherwise which have an international element as provided for in the IPLC or an international well as the recognition and enforcement of treaty. foreign court judgments in Macedonia. Unfair competition and the restriction of competition are regulated by the law of the Competence of Macedonian courts and state in whose territory the interests of other authorities competitors or consumers are damaged or The international competence of Macedo- may be damaged. nian courts and other authorities is exclusive only if it is explicitly provided for. For Recognition and enforcement of foreign example, lawsuits and claims concerning awards in Macedonia real estate property and property rights in Decisions and other acts of foreign courts Macedonia are within the exclusive power and authorities can take legal effect in of Macedonian courts. Macedonia through their recognition Macedonian courts also have exclusive and/or enforcement subject to the terms competence on lawsuits concerning: and conditions of the IPLC and the New York Convention on the Recognition and • Legal status of legal entities registered in Enforcement of Foreign Arbitral Awards. the Republic of Macedonia Decisions under the IPLC and other acts • Validity of a registration in public of foreign courts and authorities can be registers

recognized and enforced if the foreign court or authority is competent according to Macedonian law to issue an act subject to enforcement, and its recognition and enforcement does not contradict public policy in Macedonia.

The New York Convention, to which Macedonia is a party, provides rules for enforcement of foreign arbitration awards in contracting states.

Procedure for enforcement of foreign court judgments and arbitration awards The procedure for enforcement of a foreign court judgment starts upon the filing of a respective request before a Macedonian court. Attached to the request must be an original or a copy of the foreign act verified by the court which has issued it and a certificate of the foreign court that the judgment has entered into force. These documents must be translated into Macedonian by a sworn court translator.

The local court examines whether all preconditions for recognition and enforcement of the foreign act are fulfilled. However, the Macedonian court does not review the case and the respective judgments on the merits.

The Trading Company Law governs the Rules applicable to all forms of formation, operation, transformation and business association termination of companies in the Republic of Macedonia. Articles of Association The adoption of the Articles of Association There are five forms of business is an initial step in the establishment of a association in Macedonia under the Trading company. Company Law: The Articles of Association must contain: • General partnership (Javno Trgovsko Drushtvo – JTD) • Trade name and address of the company • Limited partnership (Komanditno Drushtvo – KD) • Scope of the company’s activities

• Limited liability company • Management and representation of the (Drushtvo so Ogranichena Odgovornost company – DOO) • Identity of the partners/owners of the • Joint-stock company company (except for the AD) (Akcionersko Drushtvo – AD) • Type (cash or in-kind) and amount of • Limited partnership with shares partner contributions (for JTD and KD), (Komanditno Drushtvo so Akcii – KDA) and/or the amount of the company’s capital (for DOO, AD and KDA) and All types of business associations are recognized as legal entities. The founders • Other matters as regulated by the may participate in one or more companies Trading Company Law, which may differ provided that the law does not prohibit for each form of company. such participation. Irrespective of the In cases when a partner or a shareholder nationality of its founders, each type of intends to make an in-kind contribution, company is considered to be Macedonian. the Articles of Association must state The most usual forms of business the name of the contributor, the full association for foreign investors are the description of the in-kind contribution, its limited liability company (DOO) and the monetary value, and the grounds for the joint-stock company (AD). contributor’s rights.

In the case of a limited liability company, a joint-stock company or a company limited by shares, the in-kind contribution must

be valued by an expert appointed by the actions. The latter are held liable jointly and relevant court. The conclusion of the severally for these obligations. Eventually, expert needs to contain a full description with the registration of the company, the of the in-kind contribution, the method of newly established company automatically valuation, the resulting valuation and its assumes these obligations. consistency with the share of the capital or the number, the nominal and issuing Registration of annual financial value of the shares being subscribed for statements by the contributor. The monetary value All entities are obliged to present their of the in-kind contribution stated in the annual accounts (officially prescribed forms Articles of Association may not exceed the for balance sheet, income statement expert’s valuation. and other supporting explanatory notes) to the Central Register of the Republic Registration of Macedonia as well as the income tax A newly established company comes return to the Public Revenue Office. The into legal existence with its entry into the filing deadline is the end of February of the Commercial Register of the Republic of following year or by 15 March, if submitted Macedonia. Applications for registration in electronic form. Each medium and of a company along with the required large sized entity is obliged to present its documents may be submitted before the annual accounts to the Central Register in Commercial Register only in electronic electronic form. form through local registration agents The Law prescribes the conditions and appointed by the Central Register of the cases in which limited liability and joint- Republic of Macedonia. The authorized stock companies are also obligated to person has an obligation to notify the present their financial statements. For Commercial Register within 15 days as more details on the reporting requirements, of the date the requirements for filing please refer to Section Financial reporting. the registration form in the Commercial Register have been met. If the authorized Termination of business associations person fails to perform such duties, then the authorized person is subject to an There are several grounds for termination administrative fine and is obligated to of a company: compensate any damage caused to the • Expiration of the term of the company company. or other grounds/circumstances provided for in the Articles of Pre-company status Association Prior to registration with the Commercial • Resolution by the shareholders/partners/ Register of the Republic of Macedonia, the members of the company adopted by founders may reach an agreement on the all of the partners (for JTD and KD) with actions that must be taken in preparation the qualified majority prescribed by the for incorporation. The founders’ actions law or the Articles of Association (for create rights and obligations for the DOO and AD) persons who have undertaken the said

• In case of bankruptcy of the company the transformation agreement/plan must be in compliance with the mandatory • By absorption, merger or division of the requirements of the Trading Company Law. company The transformation agreement/plan must • Upon a definitive court judgment be reviewed by a registered auditor • In other cases in accordance with the appointed collectively by the management Law. bodies of each of the companies involved in the transformation. When one of the above occurs, the company undergoes liquidation The management bodies that concluded proceedings unless a bankruptcy procedure the agreement or the plan are required to has already been initiated. The company adopt a report on the transformation. The loses its legal status upon deletion from report must contain a detailed economic the Commercial Register. and legal explanation of the terms and conditions of the transformation, as Transformation of business associations specified in the transformation agreement/ Chapter 10 of the Trading Company Law plan. regulates mergers, consolidation of two The report and the transformation or more companies, divisions into two or agreement/plan must be presented at the more companies, the spin-off of certain Commercial Register. The management operations into a new company, and bodies of the companies, no later than transformations whereby the type of the one month prior to the convening of the company changes. partners’ meeting or the General Meeting, The applicable provisions specify jointly publish a notification regarding the and classify the types of business transformation in the Official Gazette of the transformations, the procedure for Republic of Macedonia and in at least one execution of the transformation, and the daily newspaper. rights and obligations of the companies and The reviewed transformation agreement/ their partners/shareholders. plan must be approved by the members, Prior to adopting a resolution authorizing the members’ meeting or the General a transformation, companies must draft Meeting of Shareholders of each of the a transformation plan or conclude a companies involved in the transformation. transformation agreement, depending The resolutions must be adopted by a on whether initially there is one or more qualified majority of three-fourths of the participating company. The transformation capital in the case of a DOO (Ltd), or by a agreement/plan with all enclosures majority vote which may not be lower than thereto must be drawn up in the form two-thirds of the voting shares represented of a notarized act. It must specify the at the General Meeting of an AD (JSC). terms and conditions of the intended The transformation enters into force transformation, as well as the obligations from the date of its registration into the of the participating companies with regard Commercial Register. to the transformation. The contents of

Insolvency Commercial Register of the Republic of A company is considered insolvent when it Macedonia and shall notify the creditors is unable to meet its monetary obligations to report their claims within 15 days as of or in the case of over-indebtedness. The the date of the announcement on the said company’s management body must file website. an application with the relevant court If the liquidator, after the expiry of the for the commencement of insolvency time period for submission of the claims, proceedings. Any creditor of the company determines that there are no creditors, the may also file the application. liquidator is obliged within seven days to If there are grounds for an insolvency submit a request for deleting the company procedure, a receiver must be appointed by from the Commercial Register. the court. Immediately upon appointment, If the company has creditors, after the receiver represents and manages the the reimbursement of the creditors’ current affairs of the company, collects its claims, residual assets are distributed receivables and converts its assets into to the partners/shareholders. This must cash and subsequently distributes the cash not be performed until a six-month to the company’s creditors. period has elapsed from the date of the announcement of the notice to Liquidation the creditors. When all liabilities of the The liquidation procedure, in contrast to company have been settled and the insolvency, is voluntary and is initiated residual assets distributed, the liquidator in the case of expiration of the term of applies for deletion of the company from the company as set out in its Articles of the Commercial Register. Association, or upon resolution of the partners/shareholders. Classification of commercial entities

The liquidation of a JTD or KD is executed In accordance with the Trading Company by all the shareholders/partners and the Law, commercial entities are classified liquidation of a DOO and AD is executed as large, medium, small or micro-sized by the members of the management body, entities, depending on their number of respectively the manager, as liquidator(s). employees, annual revenues and the The liquidator shall announce the liquidation average value of total assets as declared without any delay, in a time period not in the annual accounts for the last two shorter than seven days nor longer than accounting years. 15 days, following the inscription in the The classification is based on the criteria Commercial Register. The announcement listed below: shall be published on the website of the Classification Number of Annual revenue Total assets employees (thousand EUR) (thousand EUR) Micro up to 10 up to 50 n/a Small up to 50 up to 2,000 up to 2,000 Medium up to 250 up to 10,000 up to 11,000

All other entities are classified as large • Shareholders’ personal assets are entities. protected from business debt as they are not liable for the company’s Depending on the classification of the liabilities. By contrast, unlimited entities as per the Trading Company partnership partners are liable to Law, different reporting, filing and other creditors with their entire property. regulatory requirements may apply to the entities. • A DOO avoids the higher publicity requirements and the complex Statutory reserves incorporation procedures applicable to All entities are required to set up a an AD company. statutory reserve. The statutory reserve • A DOO is administratively easier to is formed by appropriation from the net manage than the procedures applicable profit. The statutory reserve is calculated for an AD company. as a percentage, determined by the entity’s statute, but must not be less than 5% until As a result of these advantages, the vast the level of statutory reserve reaches 10% majority of foreign-owned companies of the capital. Until it reaches the minimum operate in this legal form. required level, the statutory reserve may The Macedonian DOO resembles be used only for covering losses. Once the the German and Austrian “GmbH” minimum level is reached, the statutory (Gesellschaft mit beschrankter Haftung), reserve may also be used to distribute the French “Sarl.” and the English private dividends, but only if the amount of the company limited by shares. dividends for the current business year has not reached the minimum for distribution. Formation A DOO can be formed by one or more Limited liability company (DOO) persons. The Macedonian Trading Company The DOO is a commercial company in Law provides that the maximum number which one or more individuals or legal of shareholders in a DOO shall not exceed entities each subscribe to the pre- 50. If the number of shareholders of the determined core capital of the company company exceeds 50, the shareholders or with a contribution. The shareholders shall the bodies of the company shall undertake not be liable for the company’s liabilities. actions to adjust the number of members A DOO is liable to its creditors only to the within one year as of the date when the extent of its own assets. number of members exceeded 50. In This form of enterprise is convenient for case the required actions for adjusting the small and medium-sized business activities number of shareholders have not been because of the advantages it offers over executed, the members or the bodies the other types of business associations: of the company shall undertake actions to transform the company into an AD or • The minimum capital required is conduct a procedure for the liquidation of relatively low – EUR 5,000. the company.

The specific formation rules applicable to expressed in a round number divisible DOO are the following: by 100.

• The total statutory share capital must be The capital of the company is divided into subscribed initially on incorporation. interests and the size of each shareholder’s interest determines their rights and • If the statutory share capital is in the obligations concerning the company. The form of a monetary contribution and interests of shareholders in a DOO are not is not fully or partially paid-in during securities, but stakes. the process of incorporation of the company, any remaining amount must Management be repaid in a manner determined in the Articles of Association no later than A DOO is managed by the General Meeting one year from the announcement of of Shareholders and by the appointed incorporation of the company. manager(s).

• The founders must appoint a manager(s) Each DOO must hold at least one General for the company. The manager does not Meeting of Shareholders each calendar necessarily have to be a DOO member, year (called an Annual General Meeting). Macedonian citizen or resident of the It is usually convened at the manager’s country. discretion, but it can also be convened upon a written request of shareholders • The company has to be registered in the whose interests amount to at least one- Commercial Register of the Republic of tenth of the company’s capital. Macedonia. The information included in the Articles of Association regarding the The General Meeting is the company’s amount of the capital, the members’ most superior management body. It interests, along with the names of the is empowered to make key strategic manager(s), and their management and and executive decisions regarding the representation rights are published on company. The shareholders are authorized the official website of the Commercial to decide on admission and expulsion of Register. shareholders, appointment of manager(s), capital increase or decrease, adoption In the case of a DOOEL (solely-owned of the annual report and annual financial limited liability company), a Statement of statements, distribution of profits, and Founding of the Company must be drawn others. up instead of Articles of Association. The day-to-day management of a DOO is Capital conducted by at least one manager who represents the DOO in dealings with third The minimum statutory capital of a DOO is parties. The manager shall be personally EUR 5,000 expressed in MKD equivalent, liable without limitation towards the calculated according to the average company and towards third parties for the exchange rate published by the National activities conducted contrary to law and Bank of the Republic of Macedonia other regulations, as well as for failing applicable for the day of the payment. The to adhere to the company agreement. amount of the statutory capital shall be

Only individual(s) may be appointed as Formation manager(s) of the company. An AD can be founded in two ways: The managers in a DOO may have written simultaneously or successively. An AD is management contracts executed with incorporated by a Constituent Assembly the company. These must be signed by a whereby all persons, who have already person authorized by the General Meeting subscribed shares into the capital of of Shareholders or, in the case of a the new company, decide to constitute DOOEL, by the sole owner of the capital. If the company and adopt its Articles of the management contract is not concluded, Association. An AD may be formed by then the manager is employed by virtue of several legal entities and/or individuals a standard employment contract. and also by one individual or legal entity. In the case of a solely-owned joint-stock In the case of a DOOEL, the sole owner company, the sole owner decides on issues of the capital manages and represents the otherwise addressed by the Constituent company either personally, or through an Assembly. appointed manager. The AD is registered at the Commercial Distribution of profits Register of the Republic of Macedonia by filing its Articles of Association and other Shareholders cannot claim their interest documents evidencing that: back while the company is in operation. They are only entitled to profits in • Its capital is fully subscribed proportion to their interest, unless • The Board of Directors or, respectively, otherwise agreed by the shareholders. the Supervisory Board has been Payment of interest on a shareholder’s appointed and profits is explicitly prohibited. • The remaining requirements of the law have been fulfilled (e.g. banks, Joint-stock company (AD) insurance and investment companies A joint-stock company is a company whose must obtain the necessary licenses capital is divided into shares. An AD’s granted by the Macedonian authorities). liabilities to its creditors are limited to the amount of its assets. Foreign investors Capital prefer this type of business association when large amounts of capital need to General rules be raised, particularly when public capital The statutory minimum capital of an AD markets need to be tapped. differs according to whether the founding The Macedonian AD resembles the French of the AD occurs simultaneously or “Société Anonyme”, the German and successively. When a company is founded Austrian “AG” (Aktiengesellschaft) and spontaneously without a public offering is similar to the English public company notice to subscribe for shares, the minimum limited by shares. nominal amount of the capital shall be EUR 25,000 in MKD equivalent value, according to the average exchange rate of the National Bank of the Republic of Macedonia.

In cases when a company is founded by way • By company funds. of a public offering notice to subscribe for A resolution to increase the capital must shares, the minimum nominal amount of the be taken by the General Meeting of capital shall be at least EUR 50,000 in MKD Shareholders. This resolution must be equivalent. A higher statutory minimum is accompanied by a resolution to amend the required for banks, investment companies Articles of Association of the company. and insurance companies.

The capital of the company is divided into Reduction of capital ordinary and preference shares. An ordinary A company’s capital may be reduced share provides its holder with the right to through either of the following: vote, to receive a dividend and a specified share in the company’s assets in the case • A reduction in the nominal value of of liquidation or insolvency of the company. shares, or Preference shares may provide the right to a • Merging of one or more types of share, dividend for an ex-ante determined pecuniary whereby the minimum nominal amount amount and/or a percentage of the nominal of the merged share may not be less amount of the share, the pre-emptive right than EUR 1 to a payment of a dividend or a specified share in the company’s assets in the case of • Withdrawal of treasury and other liquidation or insolvency of the company. shares, if the withdrawal results in a decrease of the registered capital. The shares in an AD can be traded on the stock exchange. If the company fulfills certain A capital reduction requires shareholder conditions under the Securities Law and approval. The registered capital shall not consequently is registered as a company be decreased below the minimum nominal with special reporting obligations, a takeover amount of the capital stipulated by the of 25% of the voting shares by one entity/ law. The registered capital of the company person must be performed in accordance may be reduced to the statutory minimum with the Law on Takeover of Joint-Stock with an amendment to the Articles of Companies. Association. Notice of the resolution to decrease Increase of capital the capital shall be pre-registered in the A company’s capital may be increased in one Commercial Register of the Republic of of the following ways: Macedonia and this pre-registration is to be published in the Official Gazette and in • Via contributions by issuing new shares one daily newspaper. The company shall (whereby new shares can be paid-in as state in the announcement that it agrees cash, in-kind contribution or a loan to be to pay outstanding claims to each creditor converted into capital) who files a request and/or to provide such • By a conditional increase of the statutory creditors with security for their respective capital claims. If, following the expiry of 90 days as of the date of publication of the • Via authorized capital and announcement, no request for settling any

claim is filed, it shall be deemed that all the members of the Management Board and creditors have consented to the resolution the Supervisory Board may be shareholders. to decrease the capital. In the event that Board members violate their obligations, they are held jointly liable Creditors, of whom the company is aware to the company for any damage caused if and whose claims exceed EUR 10,000 they failed to operate and act with due care calculated in MKD equivalent, shall be and diligence. In a solely-owned joint-stock individually notified in writing, at their place company the owner is empowered to of residence or at their registered office as decide on all issues otherwise handled by entered in the Commercial Register of the the General Meeting of Shareholders. Republic of Macedonia. The General Meeting of Shareholders Internal Audit Unit (IAU) at an AD consists of all shareholders entitled to Based on provisions of the Trading Company vote. The annual General Meeting of Law, the Supervisory Board of an AD is Shareholders must be held not later than obliged to organize an IAU and to appoint an three months after the preparation of the internal auditor. annual accounts, financial statements and the annual report for the operations The IAU is an independent unit within the of the company in previous year, but not entity which performs audits on the legality, later than six months after the end of the regularity and effectiveness of the entity’s calendar year or 14 months from the last operations. annual General Meeting of Shareholders The IAU must prepare a semi-annual and held. General Meetings of Shareholders are annual report and submit them to the Board usually convened by managers or by the of Directors (a one-tier system), or the Supervisory Board, or upon a request of Supervisory Board and the Management shareholders representing no less than 10% Board (two-tier system). The Supervisory of the company’s capital. Body within the AD is obliged to submit the The General Meeting of Shareholders may IAU annual report to the General Meeting of amend and supplement the Articles of Shareholders. Association, transform and dissolve the company, elect and recall members of the Management Board of Directors or the Supervisory Board, appoint and dismiss registered auditors, General rules approve the annual financial statements as The joint-stock company’s governing certified by the appointed registered auditor bodies are the General Meeting of and resolve other matters which fall into Shareholders and the Board of Directors its prerogatives by law or by virtue of the (one-tier system), or the Supervisory Articles of Association. Board and the Management Board (two- tier system). There are no requirements Two-tier system regarding the nationality or residence of The company’s constituent Supervisory the members of either board. A member Board must be elected prior to the of the Management Board shall not be a company’s registration. Members of member of the Supervisory Board. The

the Board are appointed by the General of such arrangements fall within this Meeting of Shareholders. When members category. of the Supervisory Board are elected, it shall be specified which members are One-tier system elected as independent members of the One-tier companies are managed and Supervisory Board. The total number of represented by a Board of Directors (BoD), Supervisory Board members may vary which consists of a minimum of three and from 3 to 11. a maximum of 15 persons. The BoD shall, The Supervisory Board does not take from among the elected members, appoint part in the management of the company. one or more executive members of the BoD Its primary function is to represent (executive members). A member of the BoD the company in its relations with the who is elected as an independent member Management Board. The Supervisory Board of the BoD may not be elected as an appoints the members of the Management executive member of the BoD. The number Board and exercises control over its of executive members shall be lower than activities and resolutions. The Management the number of non-executive members of Board must report on the company’s the BoD (non-executive members). operations to the Supervisory Board The BoD delegates the actual management at least once every three months, and and representation of the company to following the expiry of the financial year one or more of its members who are they shall also submit annual accounts, subsequently designated as Executive annual financial statements and annual Directors. They serve at the discretion of the report of the company’s operations. BoD and can be replaced at any time. The The day-to-day management of an AD executive members of the BoD of the AD with a two-tier management system is may have a management contract with the carried out by the Management Board company. under the control of the Supervisory Board. The number of members of the Other forms of business association Management Board may vary from 3 to General partnership (JTD) 11. Subject to Supervisory Board approval, the Management Board may effectively The general partnership is an entity formed delegate company representation to one by two or more legal entities or individuals or several of its members. The members who are jointly and severally liable to of the Management Board may have creditors for the company’s liabilities with management contracts with the company. their entire property.

Certain resolutions of the Management A general partnership shall be founded Board require prior approval from the with a partnership agreement between the Supervisory Board. The termination or founders. transfer of enterprises, an alteration The Macedonian general partnership of the company’s business, long-term (in contrast to the German and Austrian arrangements that may have a material general partnerships) is a separate impact on the company, or the termination corporate entity from its partners.

Each partner is entitled to take part in the limitation to the full value of their assets. A management of the partnership’s business person may register only one trade name unless the Partnership Agreement has as a sole proprietor. assigned this duty to one or several of the partners or to a third party. Commercial Register The registration of legal entities is Limited partnership (KD) performed under an administrative Limited partnerships include general and procedure carried out online before the limited partners. General partners are Commercial Register within the Central jointly and severally liable up to the full Register of the Republic of Macedonia. value of their assets for the liabilities of the The online registration can be performed limited partnership while limited partners only by local registration agents appointed shall be liable for the liabilities of the limited by the Central Register of the Republic of partnership only up to the amount of their Macedonia. subscribed contribution in the capital of the The registration authority is bound by short limited partnership. General partners must terms for processing applications and manage and represent the entity. issuing resolutions. The information in the Commercial Register is publicly available, Limited partnership with shares (KDA) including via the internet. A limited partnership with shares means a company whose core capital is divided The court retains its competency regarding into shares. Limited partnerships with insolvency procedures but there is a shares are formed by at least three limited statutory duty for announcing certain data partners whose liability is limited up to the on such procedures to the Central Register. amount of their subscribed contributions The Central Register maintains a register to the company’s capital. There are also for entities which are legally restricted to general partners who are jointly and establish or manage commercial entities in severally liable for the liabilities of the the Republic of Macedonia. company to the full value of their assets.

KDAs are managed by a General Meeting of Partners and have a Supervisory Board. The day-to-day management of the partnership is carried out by the general partners or they can entrust the management of the limited partnership by shares to one or more managers.

Sole proprietor (TP) A sole proprietor may be any capable individual who has permanent residence in the Republic of Macedonia. A sole proprietor shall be personally liable without

The major legislative acts governing Real estate in Macedonia can be owned by real estate and real estate transactions one or more individuals/entities. When it is in Macedonia are the Constitution of owned by two or more individuals/entities, the Republic of Macedonia, the Law on the ownership right can be established Ownership and Other Property Rights, the as co-ownership or joint ownership. The Construction Law, the Law on Construction difference between these two types of Land, the Law on Privatization and Lease ownership is that each owner’s share in of Construction Land on State Property, the co-ownership is determined proportionally Law on Real Estate Cadastre and the Law (ideal part) and in case of joint ownership on Obligations. each owner’s share is definable, but it is not determined in advance. Types of real estate ownership Apartments, business premises, garages, Ownership of real estate in Macedonia is and other specific elements of residential public or private. and business buildings which have two Public properties are properties of common or more apartments, business premises interest, as well as those designated for and other specific parts, can be owned public use and public functions, such as by different individuals and legal entities national roads, forests and parks, streets, (condominium ownership). All individual squares, museums, schools. titleholders have exclusive rights over the common parts of the buildings (facade, Properties of common interest are state roof, stairs, hallways, elevators, and owned, and can be used by all legal entities others). and individuals. These properties are managed by the Republic of Macedonia Evidence of title through the authorized administrative The ownership title and limited property department in question. They can be rights to real estate property in Macedonia ceded to third parties through concession are evidenced by ownership title or long-term lease upon fulfillment of the documents (usually in the form of a notary conditions provided for in the law. deed). The law requires the title documents Properties of common interest cannot to be registered in the Real Estate Cadastre be subject to disposal (i.e. sale purchase, Agency of the Republic of Macedonia. By donation, in-kind contribution, exchange) virtue of this registration, the acquisition and cannot be acquired on the basis of of the ownership title or limited property possession and expired prescription period. rights becomes effective with regard to third parties.

Acquisition of real estate There are also special rules and procedures The real estate market in Macedonia governing the acquisition of real estate has been fairly dynamic. Investments arising from enforcement, insolvency and in real estate are taking place across all similar procedures. real estate sector segments: residential, office, industrial, retail, casinos, mixed-use Statutory costs developments and special-use properties. The statutory costs for direct acquisition of real estate, such as the sale, purchase and Foreign individuals and legal entities, exchange, are as follows: residents of Member States of the EU and the Organization for Economic Cooperation • Sales tax – the tax base for the sales and Development (OECD) can acquire an tax on real estate and right shall be the ownership right to buildings and premises market value of the real estate and right within a building, as well as a right of at the moment the liability occurs. The ownership and right of long-term lease to rate ranges from 2 to 4%. The tax may construction land (with a duration from 10 to be shared between the parties or be 99 years) on the territory of the Republic of borne by just one of them. Macedonia, under the same conditions as • Fee for registration in the Real Estate citizens. Cadastre Agency of the Republic of Foreign individuals and legal entities, non- Macedonia – according to the statutory residents of Member States of the EU and tariff, the minimum is EUR 5 for each the OECD can acquire ownership rights to registration, but depends on various buildings and premises within a building, and aspects. The fee may be shared rights of ownership and long-term lease of between parties or borne by just one of construction land (with a duration from 10 to them. 99 years) on the territory of the Republic of • Notary fee – according to the statutory Macedonia, under reciprocity conditions. Notary Tariff, not more than In Macedonia, foreign individuals or legal EUR 500 per transaction, but depends entities cannot directly acquire a right of on various aspects. The fee may be ownership to agricultural land. shared between parties or borne by just one of them. Title documents The general rule under Macedonian law is Title review that transactions involving real estate (e.g. Notary publics have no legal obligation to purchase and exchange) must be executed review a title’s ownership history, i.e. to with a notary deed before a registered notary review the title rights of the predecessors of in the region where the real estate is located. the current owner. For other real estate transactions, such as As a general legal rule, the ownership contribution in-kind, sale of a commercial title of the current owner depends on enterprise containing real estate properties the rights of their predecessor while the and voluntary distribution agreement, rights of the predecessor, in turn, depend signature notarization is sufficient. on the ownership title of the predecessor

of the predecessor. Thus, if one of the • No court or restitution claims. previous owners did not have a clean and • No public debts of the seller which could indisputable ownership title, this will reflect lead to a forcible sale of the real estate on the current owners, i.e. a third rightful by the state authorities. party can claim the property right against the current owner. Project development The possibility of third party property claims After the acquisition of real estate, the is precluded by the so-called prescription owner can commence its development. period. According to the effective legislation, According to the Macedonian legislation, after the expiration of the prescription an investor may be the owner of the land, period, the current owner of the property individuals entitled to long-term lease of is considered the rightful owner, regardless the construction land (from 10 to 99 years), of the rights of their predecessors. The the concessionaire and individuals/entities prescription period is 10 years in case of entitled to construction right on a legal lawful and bona fide possession, and the basis (law, contract, etc.). absolute prescription period is 20 years in case of bona fide possession. The main stages of development can be divided into: • Clean, valid and marketable ownership title held by the seller – the seller must • Regulation and planning stage be, and their predecessors must have • Environmental impact assessment been, the valid owner of the targeted real estate, in order to avoid any risk • Permission for construction works and for rescinding or annulment of the • Execution of construction works and transaction. their use. • No liens or encumbrances over the property – the buyer must be fully aware Regulation and planning as to whether there are any registered The construction must be in accordance liens and/or encumbrances over the with a Detailed Urban Plan (DUP) which is targeted real estate, e.g. mortgages, adopted by the municipality. The regulation easements, interlocutory injunctions, and planning stage comprises the going-concern pledges, limited property designing of a Basic Construction Project rights established in favor of third parties. (BCP) which must be in accordance with A general principle in Macedonian law the DUP and is the first precondition for is that liens and encumbrances “follow commencing construction works. the property”, i.e. registered liens and The BCP provides guidelines for the encumbrances can be enforced against technical parameters of construction, the the new owner. location of the site on a land parcel and • No other registered rights in favor of third fulfillment of the basic conditions of the parties – if there are registered rental or construction. lease agreements over the targeted real estate, the buyer shall be bound by them until the expiration of their term.

Environmental impact assessment acts and protocols are jointly responsible Environmental impact assessments are for the authenticity of the facts recorded required for real estate projects which are in them. presumed to impact the environment, such Generally, the completion of construction as chemical factories, oil refineries, thermal works is certified by the issuance of a power plants, agriculture, forestry and water permit for use, or based on a technical supply facilities and industry facilities. review report prepared by a supervisor engineer if the constructed object falls in Permission for construction works a specific category of construction. The The next and main precondition for permit for use is issued by an authorized commencing construction works is obtaining body which has issued the permit for a construction permit by the investor. construction. In addition, the ownership of the structure must be recorded in the Real Chronologically, the process starts with Estate Cadastre Agency of the Republic of the investor’s application submitted to the Macedonia. municipality in which the construction is to be executed. The law prescribes in detail the Participants in the development necessary documents and conditions that process must be fulfilled in order for the respective permit to be obtained. During the various stages of the development process, the investor enters Construction permits for construction of into relations with other participants, local importance are issued by the mayor of namely: the designer, compliance reviewer, a municipality and, for the construction of contractor and the supervisory engineer general importance for the country, by a state (technical controller). The relations between authorized institution. the participants in the development process must be defined in a contract. Execution of construction works and their use The designer of a construction is an individual with designer capacity who must The next development stage is the be employed at a company registered execution of construction works. The in the Central Register of the Republic investor is obliged to carry out construction of Macedonia for performing designing works and complete the building within activities. Both the designer and the a period up to 10 years from the date the company must have an appropriate design construction work permit became effective. license. Designers are responsible for During construction works, a number of the preparation of the investment design. standard-form acts and protocols must They also exercise control to ensure that be compiled. The acts and protocols construction works comply with the design serve as evidence for the items that are (so-called “author’s supervision”) and are recorded in them and they concern the authorized to issue mandatory instructions commencement, execution and completion to the contractor. of the construction work. The participants in The compliance reviewer is an individual the development process who sign these who has been licensed by the Chamber

of Authorized Architects and Authorized Engineers to carry out evaluations to ensure that the construction work complies with the investment design. The compliance reviewer is responsible for the accuracy, quality and compliance of the design with the law, standards and norms for design and other technical requirements.

The contractor is the legal entity registered with the Central Register of the Republic of Macedonia for undertaking construction works, for which it must possess license A and/or B issued by the Chamber of Authorized Architects and Authorized Engineers. The contractor is responsible for execution of the works in compliance with the approved design and permits, and the legal requirements applicable to such construction work.

The supervisory engineer (technical controller) is a civil engineer who manages the execution of the construction work on behalf of the contractor. If the construction work is executed by the investor themselves, they are obliged to appoint a supervisory engineer who must possess license A and/or B issued by the Chamber of Authorized Architects and Authorized Engineers.

Accounting • Bookkeeping is organized in a chronological order. Introduction • Accounting records are to be closed on Changes in the Macedonian accounting 31 December of each year. legislation over the past years have moved it closer to the International Financial There are standard charts of accounts for Reporting Standards (IFRS). companies, banks, insurance companies and not-for-profit organizations. On 29 December 2009, a Rulebook for Accounting was published, which contains Financial reporting the 2009 bound volume of the IFRS, as adopted by the International Accounting Annual accounts Standards Board (IASB). These IFRSs are All entities are required to prepare annual applicable for annual periods beginning on accounts as at 31 December of each or after 1 January 2010. year. The annual accounts consist of a The Trading Company Law, the Banking balance sheet, profit and loss account and Law, the Law on Insurance Supervision accompanying notes. as well as other laws also contain The annual accounts must be prepared regulations applicable to financial reporting in the prescribed format as published in requirements. the Official Gazette, in the Macedonian language and in MKD. The annual accounts Accounting records requirements must be signed by the authorized The Trading Company Law regulates accountant who has prepared them, the obligations and manners in which indicating the date of preparation and the the accounting records of all companies register number of the accountant from the (including financial institutions) will be kept Institute of Certified Accountants. including the following: Companies having significant influence • The accounting records of business over another entity (ownership of over organizations are kept in accordance 40% of the voting rights, assuming no with the IFRS as adopted in the other party holds a larger share of voting Republic of Macedonia. rights) must prepare consolidated annual • Accounting records are to be kept in the accounts. Consolidated annual accounts Macedonian language. consist of a consolidated balance sheet, a consolidated profit and loss account and • Accounting records are to be kept using accompanying notes. double entry bookkeeping.

Financial statements and other explanatory information. The All large and medium-sized entities, management is responsible for the timely entities required by law, banks, insurance preparation of the consolidated financial companies, entities quoted on the stock statements and their content. exchange as well as entities whose financial statements are included in a consolidated Filing requirements financial statement must issue financial Annual accounts must be prepared and statements following the end of each submitted to the Central Register of the financial year. Financial statements are the Republic of Macedonia not later than the management’s responsibility. end of February the following year, in paper form, or until 15 March, if submitted in The financial statements consist electronic form. The consolidated annual of statements of financial position, accounts must be submitted to the Central comprehensive income, changes in equity Register not later than 31 March the and cash flows as well as notes, comprising following year. summary of significant accounting policies and other explanatory information. Entities whose financial statements are subject to independent audit must Notes need to include additional information submit their audited financial statements necessary to give a true and fair view of to the Central Register of the Republic the financial position and the results of the of Macedonia within 30 days after their business, including an explanation of the approval by the General Meeting of accounting policies applied. Shareholders of the legal entities, but not The financial statements must be signed by later than 30 June of the following year. the authorized accountant who has prepared Furthermore, certain entities (e.g. banks, them, indicating the date of preparation and financial institutions and insurance the register number of the accountant from companies) submit their financial the Institute of Certified Accountants. statements to the Ministry of Finance, the National Bank of the Republic of Macedonia Consolidated financial statements or the Agency for Insurance Supervision, Companies having significant influence over while entities quoted on the Macedonian another entity must prepare consolidated Stock Exchange submit financial financial statements. Consolidated financial statements to the Securities and Exchange statements must present a true and fair Commission. view of the group’s transactions with third parties. To this end, all inter-company Publication of financial statements transactions and balances are eliminated. Banks, insurance companies and entities Consolidated financial statements must quoted on the Macedonian Stock comprise consolidated statements of Exchange must publish their financial financial position, profit or loss and other statements in the Official Gazette of the comprehensive income, changes in equity Republic of Macedonia within 15 days and cash flows as well as notes, comprising following their approval by the General a summary of significant accounting policies Meeting of Shareholders.

Banks and insurance companies must The audit practice is regulated by the Law make public an auditor’s report and annual on Audit requiring that the International financial statements including notes to the Standards of Auditing (ISA) adopted and financial statements and publish a balance published in the Official Gazette of the sheet, income statement, statement of Republic of Macedonia no. 79 from 11 June changes in equity, a cash flows statement 2010 be applied. and an auditor’s report on the annual The auditor is to give an independent financial statements, in at least one daily opinion on whether financial statements newspaper within 15 days following give a true and fair view of (or present the adoption of the annual financial fairly in all material aspects) the financial statements and the auditor’s report by the position, the results of operations, the General Meeting of Shareholders. statement of cash flows and the statement of changes in equity of the entity in Auditing accordance with the applicable legislation. The Macedonian Trading Company Law requires that the financial statements of certain entities be audited by an independent auditor. The following commercial entities shall be subject to an audit:

• Large and medium-sized commercial entities registered as joint-stock companies

• Listed entities – listed on the Stock Exchange and

• Large and medium-sized commercial entities organized as limited liability companies.

Consolidated and stand-alone financial statements which are part of consolidated financial statements are also subject to an independent audit. If a group prepares consolidated annual accounts, it must also be subject to audit.

The general rule is that an entity subject to audit must appoint an independent auditor. The appointment of auditors is normally done at a General Meeting of Shareholders at which the previous year’s accounts are approved.

Profit tax the taxation of branches and subsidiaries Corporate entities, including subsidiaries with respect to business profits, i.e. the tax of foreign companies incorporated base is the accounting profit or loss for the under Macedonian law, are considered year as adjusted for tax purposes with non- Macedonian tax residents. deductible expenses or non-taxable income, as well as transfer pricing adjustments. Upon registration in Macedonia, these legal entities are subject to tax on their profit Taxable income realized from carrying out business activity Generally, a taxpayer’s tax base is the in Macedonia, as well as abroad. The tax entity’s accounting result according to its rate is flat and set at 10% of the tax base. financial statements, further adjusted for Non-resident companies are subject to profit tax purposes. These adjustments tax on profits derived from carrying out represent either items that increase the business activities in Macedonia if these financial result for tax purposes, usually an are carried out through a permanent add-back of non-deductible expenses, or establishment of the foreign legal entity. items that decrease the financial result for tax purposes. The latter are usually specific The tax year for profit tax purposes is the income items that are exempt from calendar year. taxation, or tax incentives provided by the Starting from 2014, corporate profit tax is Government. calculated based on taxation of year-end Most of the expenses which are not profits as adjusted for tax purposes. In the recognized for tax purposes represent period from 2009 to 2013, only distributions permanent tax differences. Temporary tax of profits were subject to tax. differences (expenses which are non- As noted in Section Incentive measures deductible for tax purposes in the year and privileges above, a ten-year tax holiday when accrued for accounting purposes, but from profit tax is granted to entities in a subsequent period, if certain conditions performing their business activities in are met) arise mainly from impairment of technological industrial development zones. receivables and loan receivables (explained in further detail below). Branch vs. subsidiary Permanent establishments, including Non-deductible expenses and understated branches, are subject to tax on profits revenues derived from their activities in the country. Some of the major taxable items which are Effectively, there is no difference between either fully non-deductible or are subject

to certain limitations include (the list is not • Unjustified shortages and wastages exhaustive): exceeding normal levels for the respective industry • Expenses not related to a taxpayer’s business activity • Other items specifically noted in the profit tax legislation. • Employment-related expenses above the prescribed limits Write-off and impairment of receivables • Expenses for organized provision of Write-off and impairment of receivables meals and travel to work and back (except in the case of banks, saving houses (above a prescribed limit) or insurance companies) are generally not • Expenses for accommodation and recognized for tax purposes, i.e. generally transport for individuals who are not considered non-deductible expense and employed by the company but are subject to 10% tax. engaged to perform certain activities Impairment of receivables is tax deductible related to its business if they are not in case they are accrued as the result of appropriately documented a court judgment or if the receivables are • Allowances for managing directors who duly reported in the course of a bankruptcy are not employed with the taxpayer or liquidation procedure. (recognized in the amount of 50% of The tax base for a certain period could be the average gross salary in the country) reduced for the amount of the collected • Voluntary pension contributions (above receivables which were impaired in a prescribed limit) previous period(s) and accordingly included in the tax base for the respective year(s). • Entertainment expenses (in the amount of 90%) As of 2014, any loans provided which are not repaid in the same year in which they • Donations and sponsorships up to 5% were provided will be considered a taxable or 3% of the total income received expense, and a tax credit will be available in (recognized if they are in the public the year of repayment. interest)

• Payments regarded as “hidden” Transfer pricing distribution of profits Transactions between related parties are recognized for tax purposes at arm’s • Overstated expenses and understated length, i.e. should transactions deviate revenues arising from related party from the market level, the differences could transactions, including both, supplies lead to additional income being assessed of goods and services as well as or an expense being disallowed for tax intercompany interest charges on purposes. extended loans For the purpose of determining the market • Interest falling under “thin capitalization” level, as per the Profit Tax Law (PTL) the rules (thin cap rules are suspended comparative uncontrolled price method or for the first three years since the the cost plus method could be used. establishment of the taxpayer)

Taxpayers, on the request of the Public for profit tax purposes should the loan Revenue Office, are obliged to present amount exceed threefold the amount of satisfactory information and evidence the equity attributable to that shareholder. to substantiate whether related party The same rule applies to loans granted transactions have been performed at arm’s by a third party, while guaranteed by a length. qualifying shareholder or granted in relation Furthermore, interest on loans granted to a deposit provided by the qualifying between related parties (except for shareholder to the third party. loans granted by banks or other financial The amount which is not recognized for institutions) is recognized for tax purposes tax purposes is the amount of interest on at arm’s length. In case the taxpayer the part of a loan which exceeds threefold cannot produce satisfactory evidence the amount of the equity attributable to the that the interest on related parties loans qualifying shareholder. is on an arm’s length basis, the interest income/expense from these loans will be The thin capitalization rules do not determined for tax purposes by applying apply to loan facilities granted by direct EURIBOR plus 1% (SKIBOR plus 1% for shareholders which are banks or other loans extended in MKD). financial institutions, as well as loan facilities granted by direct shareholders to Penalty interest between related parties newly established entities in the course of is not recognized for tax purposes (except the first three years of their establishment. penalty interest incurred with regard to a bank or other financial institutions). Tax depreciation The definition of related parties for tax The annual depreciation/amortization purposes was expanded in 2014 and expense is recognized for tax purposes in includes: accordance with the applicable accounting • Individuals or legal entities who have standards. control or significant influence over the taxpayer’s business decisions Tax losses Tax losses comprise accounting losses • Related companies in accordance with reduced by any non-deductible expenses, the Trading Company Law and can be carried forward and offset • Family members of owners or members against future taxable profits in the of the Management Board following three years.

• Any legal entity which is resident in a However, the right to utilize the losses is country with a beneficial tax system. subject to:

• Prior approval from the tax authorities Thin capitalization rules (the request is due for submission until Interest on loans granted by direct the end of March of the following year, shareholders holding at least 25% of and is usually followed by a tax inspec- a company’s share capital (qualifying tion), and shareholder) is considered non-deductible

• The taxpayer has covered the related meaning that lower rates can be applied on losses in accordance with the Trading the income if provided by a particular DTT. If Company Law. not, the provisions of the PTL will apply.

For an overview of the withholding tax Capital gains and losses rates applicable under the DTTs, please see There is no specific tax treatment for Appendix B. capital gains or losses, i.e. any such gains or losses will be included in the profit or The application of the DTT provisions loss for the year. with regard to particular income is subject to approval from the Macedonian tax Withholding tax authorities following a separate formal procedure. Withholding tax (WHT) at a rate of 10% is to be withheld by the payer when certain types Tax paid abroad of income are paid by a Macedonian entity to foreign legal entities, provided that the Resident taxpayers have the right to credit income is not derived through a permanent tax paid abroad in accordance with the establishment of the foreign legal entity in provisions of the respective DDTs up to the Macedonia. tax determined by applying the domestic tax rate of 10%. The following types of income realized by foreign residents are generally subject to Grouping/consolidated returns W HT: As of 1 January 2009, the profit tax • Dividends consolidation is no longer applicable.

• Interest Corporate tax incentives • Royalties The following corporate tax incentives are • Entertainment or sporting activities provided by the Macedonian Profit Tax Law:

• Management, consulting or financial • A ten-year tax holiday may be granted to services an entity carrying out business activities in a technological industrial development • Research and development services zone.

• Telecommunication services • The tax base is reduced by the prior • Insurance and re-insurance premiums year’s profit that is reinvested in tangible assets (such as real estate, facilities and • Rental of real estate located in equipment) and intangible assets (such Macedonia. as computer software and patents) used If there is a Double Tax Treaty (DTT) existing for expanding the business activities between Macedonia and a foreign country of the entity. The assets for which this where the recipient of income is considered incentive is utilized must not be disposed a tax resident, the provisions of the DTT of for a period of five years from the year prevail over the Macedonian legislation, the investment was made.

• An entity that is obliged to introduce Supply of goods with installation and use equipment for registering cash The place of supply of goods that are also payments can reduce its profit tax installed by the supplier or by a third party liability by the acquisition cost of up to on behalf of the supplier is the place where ten electronic cash registers. An approval the goods are installed. from the tax authorities is required in order to use this incentive. Supply of electricity, gas, heating and cooling Value added tax (VAT) The supply of electricity, gas, heating and Generally, VAT is due on the supply of goods cooling is deemed a supply of goods for and services in the country sold/carried Macedonian VAT purposes and the place of out from the taxpayer in the course of their supply is considered to be the place where economic activities. “Supply” refers to these types of goods are received. goods or services provided in exchange for consideration. However, certain transactions Place of supply of services carried out for no consideration are also The general rule is that the place of supply of considered to be supplies, for example, services is the place where the supplier of private use of business assets. services has headquarters or a branch office, The following transactions are generally from where such services are physically subject to Macedonian VAT: supplied. When there is no such place, the place where the supplier of services has • Supplies of goods or services whose a permanent place of living or residence place of supply is in Macedonia and is considered the place of supply of the • Import of goods into Macedonia. services.

A number of exceptions from the above Tax regime and place of supply of goods general rule are listed in the Macedonian VAT Import law. These exceptions mainly relate to the following: The import of goods is subject to Macedonian VAT and is payable by the • The place of supply of services related to importer to the customs authorities. Upon real estate (e.g. renting out real estate, importation of goods, VAT is calculated by agency services related to real estate, the relevant customs authorities conducting valuation, construction, supervision of the procedure for customs clearance. construction works) is the place where the real estate is situated. Exports • The place of supply is the place where the Goods exported from Macedonia, as well services are physically carried out for the as services related to the export (e.g. following types of services: international transportation) are zero rated (exempt from Macedonian VAT with the -- Artistic, sporting, educational, right to input VAT credit for purchases scientific and entertainment services related to export), subject to specific -- Transport and associated services and documentation requirements.

-- Valuation and work on movable -- Transfer and assignment of copyrights, property. patents, licenses, trademarks and other like rights and • The place where transport services are supplied is the place where the transport -- Services of agents when they procure takes place, having regard to distances for their principal the services listed covered. above

• The place of supply of agency services in -- Providing access to electricity network relation to services is the place of supply in case of congestion of the specific of the underlying service in connection to allocation unit when assigning cross which the agency services were supplied. border transmission capacities of interconnection lines. • The place of supply of certain services is considered the place where the recipient Registration for VAT purposes of the services is established or has a fixed base for which the services were Mandatory VAT registration carried out. These services mainly include VAT can be charged only by VAT registered the following: persons. Mandatory VAT registration -- Advertising services applies for all taxable persons carrying out independent business activity if their -- Banking and financial services, annual VAT taxable turnover for the last insurance and re-insurance services, calendar year exceeded MKD 1 million with the exception of the hiring of (approximately EUR 16,260). safes Taxpayers whose VAT taxable turnover -- Obligations to refrain from pursuing or during the year exceeds the above exercising, in whole or in part, an act threshold are obliged to make a VAT or a right, or bear an action or a factual registration after the month in which the situation threshold is reached. VAT exempt supplies -- Legal, economic and technical of goods and services (without the right to advice and consulting, in particular input VAT credit for related purchases) are activities of public notaries, solicitors, not taken into consideration when the VAT auditors, tax consultants, accountants, registration threshold is calculated. engineers, as well as other like activities Voluntary registration -- Services for electronic data processing Any taxable person who does not meet and provision of information, including the requirements for mandatory VAT know-how and expertise registration but carries out an independent economic activity in the country has the -- Provision of personnel right to register for VAT purposes on a -- Hiring of movable tangible property voluntary basis at the beginning of each with the exception of all forms of calendar year (or upon the starting of transport economic activity) without fulfilling the threshold requirements. -- Telecommunication services

VAT registration procedure the total VAT taxable turnover of the VAT In order to register for VAT (under the registered person does not exceed mandatory or voluntary procedures), the MKD 25 million (approximately EUR taxable person must file an application 405,910). in the relevant territorial directorate of The deadline for submitting VAT returns is the Public Revenue Office. On the basis the 25th day of the month following the of the application, the Public Revenue relevant tax period. Office will record the registration in the VAT taxpayers register and will issue a VAT VAT rates Registration Document. Standard rate Deregistration The standard VAT rate that applies to most Generally, a VAT registered person remains VAT taxable supplies is 18%. registered for VAT purposes for a period of at least five calendar years, regardless of Reduced rate the amount of the total supplies performed A reduced VAT rate of 5% applies mainly to by the taxpayer. In specific circumstances, supply of the following goods and services: a taxpayer may be deregistered for VAT purposes before the expiry of the five-year • Food products for human consumption period based on a decision issued by the • Fodder, fodder additives and livestock relevant tax authorities. • Baby products and school accessories VAT registered persons can apply for deregistration if the total amount of the VAT • Agricultural equipment and taxable turnover of the registered person in mechanization, seeds and planting the fifth calendar year does not exceed the materials for production of agricultural registration threshold. crops, fertilizers and materials for plant protection Furthermore, the tax authorities are entitled to deregister a VAT registered person if • Drinking water provided from public certain conditions stated in the VAT Law systems are met. • Publications, except for publications mostly related to advertising and VAT grouping/VAT consolidation publications with pornographic content Two or more VAT registered persons can • Pharmaceuticals and medical devices apply for VAT grouping (VAT registration as a single VAT taxpayer), if so decided by • Machines and software for automatic them due to ownership, organizational or processing of data and their units management relations. (computers)

• Solar heating systems and their VAT period components Generally, under the Macedonian VAT law, the VAT period is the calendar month. The • Transportation of passengers and their VAT period may be the calendar quarter if luggage

• Medical equipment and other devices The obligation to calculate and remit the for the purpose to facilitate or treat a VAT on specific supplies is transferred from disability for the personal use of disabled the supplier to the recipient in the case of persons supplies between registered VAT taxpayers. The self-charging of VAT will be mandatory • Communal and waste disposal services for the following supplies: • Hotel accommodation services -- Construction, including maintenance, • Supplies of pellets, pellet stoves and reconstruction and removal of pellet boilers. buildings (or parts of buildings). The self-charging (i.e. the reverse Supply of new apartments for residential charge mechanism) is to be applied purposes sold within five years after they when the recipient of the supply are constructed (subject to a reduced VAT is the investor and the supplier rate until 1 January 2018). is the contractor, as well as for A reduced VAT rate of 5% applies to supplies received by a contractor and goods and services which are listed in a provided by a subcontractor government decision. -- In case of assets being transferred to creditors in the course of a VAT reverse charge mechanism procedure for enforced collection, The VAT reverse charge mechanism is and applied with regards to: -- Supply of waste materials. (i) Supplies received from non-residents The Government specifically defines the Macedonian taxable persons (regardless types of supplies which are subject to the of whether they are VAT registered in reverse charge mechanisms on domestic Macedonia or not), acquiring goods supplies (i.e. on supplies between or receiving services from foreign registered VAT taxpayers). resident taxable persons with no fixed establishment on the territory of Exemptions Macedonia, are obliged to apply the VAT reverse charge mechanism and charge Exempt supplies with no right to input VAT Macedonian VAT on the VAT base of the credit for related purchases respective supply. Exempt supplies with no right to input VAT The obligation of the Macedonian credit for the purchases related to them recipient is to calculate the VAT due on the mainly include the following: respective supply, to submit a VAT return • Supplies and renting of buildings and and pay the VAT due. The VAT charged apartments used for dwelling purposes under the reverse charge mechanism may with the exception of their first sale if be used as an input VAT credit following performed within five years from their the general provisions of the VAT law (see completion Section Recovery of input VAT below). • Health care (ii) Domestic supplies • Supplies of human organs, blood and milk

• Insurance and re-insurance services as • Supply of services consisting of work on well as services related to insurance movable property acquired or imported and re-insurance performed by for the purpose of undergoing such insurance brokers and agents work within the territory of Macedonia, and dispatched or transported out of • Banking and financial services with Macedonia by the person providing the certain exemptions services, or by the foreign customer, or • Welfare and social security services on behalf of either of them

• Education, sports and physical • Supply of gold and other precious education metals to central banks

• Supplies related to culture • Supply, modification, repair, maintenance, chartering and hiring of • Non-profit activities involving nature aircraft used by companies involved in • Gambling international commercial transport, and supply, hiring, repair and maintenance of • Public postal services and sale of equipment incorporated or used therein postage stamps • Supply of goods for the direct needs of • Road tolls aircraft referred to in the preceding point • Services supplied by radio and television • International air transport of passengers, bodies, except for commercial activities if certain conditions are met • International transport of passengers • Services supplied by intermediaries • Supply of goods or services for which acting in the name and on account of no input VAT credit was used under the another person, where they relate to provisions of the VAT law. supplies referred to above in this section

• Services rendered by telecommunication Exempt supplies with right to input VAT operators where the donation of funds credit for related purchases (zero rated is enabled through establishing a special supplies) phone number for donations used for There are certain supplies whose place charities. of supply is on the territory of Macedonia for which no VAT is charged, but a VAT Supplies of services whose place of supply registered person is granted the right to is outside Macedonia, if considered VAT use the input VAT charged on purchases taxable when supplied within the territory related to the performance of such of the country, are also VAT exempt supplies. These mainly include the supplies bearing the right for the supplier to following: utilize the input VAT for purchases related to their performance. • Export of goods The supply of goods and services as well • Goods supplied in free trade zones, as the import of goods intended for a except for supplies to end users project financed with funds granted as a • Particular services related to export, part of a donation agreement concluded import or transit of goods between the Republic of Macedonia

and foreign donors will be zero-rated if • Purchases related to hotel that agreement stipulates that the funds accommodation. received will not be used for payment of A VAT payer is entitled to partial VAT taxes The zero rate is applied after following recovery in respect of purchases which are a statutory procedure. used to perform both supplies qualifying for recovery and exempt supplies. Partial Recovery of input VAT recovery will be based on the ratio of A Macedonian VAT registered person is qualifying for recovery of taxable supplies entitled to recover input VAT in respect to total supplies. of taxable supplies from another VAT registered person or in respect of imported The right to input VAT is possible in the goods if they are used for the purposes relevant calendar period when a VAT of business activities. The input VAT credit registered person purchases the goods claimed by a VAT registered person must and services in question, and if all the be supported by an invoice or customs conditions of the VAT law are fulfilled. declaration where the VAT charged on import is separately shown, and these Special provisions for investment gold documents are recorded in the accounting Gold used as investment is exempt from documentation of the taxable person. VAT. The exemption also applies for import of such investment gold as well as any Generally, a VAT registered person is not intermediary services related to its supply. entitled to recover input VAT on: A taxpayer that trades in investment gold • Purchases used for the performance of has the right to input VAT credit for the VAT VAT exempt supplies such as financial paid on any purchase or import of gold, services, insurance, renting of real which was subsequently transformed into estate for dwelling purposes, education, investment gold, as well any services that health care services, and others (see change the form, weight or purity of the Section Exempt supplies with no right gold. to input VAT credit for the related purchases above) Taxpayers that produce investment gold or transform gold into investment gold • Purchases of passenger cars (except have the right to input VAT credit on the for cars equipped for special purposes), purchases or import of goods or services motorcycles and aircraft; purchases of that are directly in connection with the fuel, spare parts and services related production or the transformation of the to the repair and maintenance of such gold. means of transport; renting such means of transport (excluding the acquisition Reimbursement of VAT of passenger cars or means of transport for certain predefined purposes such as If, in a given month, the input VAT resale, leasing and taxi/courier service) deduction declared by a registered person exceeds the amount of output VAT • Purchases used for representation and charged, the excess amount is subject to entertainment purposes reimbursement. • Purchases related to office equipment

The VAT for reimbursement is generally Macedonian acquirer of the goods, or offset against VAT payables in subsequent recipient of the services, was to apply periods, unless the VAT registered person the reverse charge mechanism. has explicitly requested a refund. The term A refund of Macedonian VAT can be claimed for a VAT refund is 30 days from the filing by non-resident persons registered for VAT of the respective VAT return. purposes in their countries for purchases VAT claimed for refund is offset against of goods and services from Macedonian other public payables (for taxes or penalty VAT registered persons, provided that the interest for late payment) of the taxpayer. foreign person possesses a regular invoice with VAT separately shown. The amount of VAT refund for non-residents the relevant invoice should have been paid According to the VAT law, foreign entities and the foreign person is able to prove the registered for VAT purposes in their executed payment. countries, which are not headquartered in Generally, the VAT refund application must Macedonia and which do not have a fixed be accompanied by the original invoices establishment there, are entitled to recover or customs declarations on the basis of the VAT paid for particular purchases of which the VAT refund is claimed, as well as goods and services in Macedonia, upon a certificate issued by the competent tax their request. In order to apply for a VAT authorities from the country in which the refund, the foreign taxable person must person is established evidencing that the meet certain conditions and complete a person performed economic activity during statutory procedure. the calendar year when the right to claim The principle of reciprocity applies with refund of Macedonian VAT arose. regard to foreign entities entitled to claim The minimum amount of VAT that can refunds of Macedonian VAT. be claimed for refund is MKD 30,000 In order to be entitled for a refund (approximately EUR 490) for one or several of Macedonian VAT, a foreign person consecutive months in the calendar year. registered for VAT purposes in their country The deadline for VAT application submission of residence must meet the following is 30 June in the year following the year in conditions: which the purchases were made.

• The foreign person did not perform The Macedonian tax authorities have six supplies on the territory of Macedonia, months to review the application for a or VAT refund submitted together with the • The foreign person performed only documents attached to it and make the supplies related to import, export and refund. transit (exempt from VAT with the right VAT refunds from the Macedonian tax to an input VAT credit for purchases administration are made only in MKD, which related to them), or implies that a non-resident needs to open a • The foreign person performed only non-resident bank account in order to obtain supplies for which an obligation of the a VAT refund.

Taxation of individuals • Compensation for temporary illness

Personal income tax (PIT) • Paid leave compensation • Income from agriculture; agricultural Residence income not exceeding MKD 1.3 million Macedonian residents for tax purposes are (approximately EUR 21,000) is subject considered individuals if they meet any of to lump sum taxation the following conditions: • Income from independent activities – • Have a permanent dwelling on the business activity, professional and other territory of Macedonia, or intellectual services

• Reside in Macedonia for more than • Income from property and property 183 days in any 12-month period. rights

Macedonian tax resident individuals are • Royalties subject to tax on the worldwide income, • Income from capital, including dividends whereas non-resident individuals are and other types of profit participation; subject to tax on income derived from interest on loans granted to legal Macedonian sources. entities or individuals, interest on bonds Different residency rules may be provided and securities. The interest on term for in DTTs. deposits and other deposits will be taxable from the date of Macedonia’s Income subject to tax accession to the European Union

Generally, the following types of income • Capital gains from the disposal of received by individuals are subject to securities, equity participations and personal income tax: immovable property. Capital gains from • Employment income, including the the disposal of securities realized by benefits provided to employees 31 December 2018 will not be taxable exceeding the maximum amounts • Gains from games of chance and other determined in the PIT Law, the Law premium games and on Labor Relations and other pieces of legislation • Other income, which includes all types of income not listed above which are • Employment income for work not explicitly listed as exempt income performed abroad based on an under the provisions of the Macedonian employment relationship with a PIT Law. The receipt by an individual Macedonian employer of shares or securities for non- • Remuneration received for provision of consideration is also considered other services income within the terms of the PIT Law and PIT is due on the market value of • Remuneration received by members the shares or securities received (except of the Management and Supervisory for those which have been subject to Boards of legal entities taxation under the Property Tax Law). • Pensions

The social security contributions applicable the Republic of Macedonia or local self- for 2017 total 27%. government

The income referred to above is considered • Disability pensions taxable regardless of whether it is received • Scholarships granted by government in cash, securities, in-kind or otherwise. bodies and registered not-for-profit organizations Deductions and exempt income • Per diem allowances for business trips Deductions within the approved limits Certain payments decrease an individual’s • Specific types of rewards taxable income, including mandatory health insurance, pension and disability • Compensation for a period of contributions made on behalf of the taxpayer. unemployment

There is a statutory personal tax allowance • Children allowances which is deductible from the tax base when • Certain types of income received on the calculating personal income tax on salaries. basis of insurance contracts and The amount of personal allowance fixed by the PIT Law for 2017 is MKD 89,472 • Certain types of compensation provided (approximately EUR 1,455), on an annual under the Law on Labor Relations of the basis. Republic of Macedonia.

Deductions for donations made to certain In addition, salaries of employees at a qualifying institutions are also allowed up to taxpayer operating in a technological an amount of MKD 24,000 (approximately industrial development zone are exempt EUR 400) if certain conditions are met. from PIT for a period of 10 years after the commencement of activities in the zone. There are also statutory deductions for particular types of non-employment income A tax credit may be used for foreign taxes (such as income from immovable property paid provided that the relevant conditions and royalties) determined either as a fixed are met. percentage of the gross income or at the level of the actual expenses incurred, if Capital gains these are properly evidenced by documents. PIT is due on capital gains realized by the The statutory deductions vary in the range sale of securities, shares in companies and of 25% to 60% depending on the type of immovable property (the taxation of capital income received. gains realized from the sale of securities will not apply from 1 January 2013 until Exempt income 31 December 2018). Exempt income generally includes the In regard to capital gains realized from following types of income: selling immovable property, 100% of the • Interest on demand deposits, term capital gain is included in the tax base deposits and current accounts, as well except for cases where the seller resided as interest under securities issued by within the property for at least one year; in

such a case, the reduced tax base of 70% Individuals who derive only income from of the gain will apply. employment (with the exception of those individuals who receive employment No tax will be due on capital gains realized income from abroad or from diplomatic in the following cases: or consular offices in Macedonia) and/or • The taxpayer who has resided within pensions, or agriculture income are not the property for at least one year sells obliged to file an annual personal income the property after at least three years tax return. from the day of its acquisition The annual personal income tax liability is • Taxpayers who sell their property after ultimately determined by a decision of the five years from the day of acquisition respective tax office based on the annual personal income tax return submitted by • Taxpayers who sell property which they the individual. The tax office must issue the inherited or received as a gift, and for decision for the determination of the annual which, at that time, no tax was due personal income tax liability within 60 days under the Law on Property Taxes from the date of the filing of the tax return. • The income realized is the result of a sale of property between spouses, Advance installments for PIT or when the property is being sold to Depending on the particular type of income a third party, in relation to a divorce received by individuals, there can be an procedure. obligation of either the payer of the income Relief from tax to deduct advance personal income tax upon payment of the respective income, A tax credit may be used for foreign taxes or of the individuals themselves to make paid provided the relevant conditions are advance installment payments (determined met. on the basis of a decision of the tax office) Relief from tax may also be sought during the calendar year. under the provisions of an existing DTT Generally, the advance PIT installments depending on the specific method provided are deducted by the payer of the income for therein. on income such as employment income; The application of the DTT provisions remuneration for provision of services; with regard to particular income is subject remuneration of members of the to approval from the Macedonian tax Management and Supervisory Boards of authorities. legal entities; pensions; compensation for temporary illness; paid leave Tax rates and payment dates compensation; income from property and The personal income tax liability is property rights; royalties; dividends and determined on a calendar year basis. interest. Macedonia applies a flat personal income tax rate of 10%. Payroll-related contributions Social security contributions are fully The deadline for the submission of an borne by the remuneration recipient, i.e. annual personal income tax return is employees. 15 March of the following calendar year.

The social security contributions applicable for 2016 total 27%.

Description 2017 Pension and disability contributions 18.0%

Health insurance contributions 7.3% Unemployment insurance contributions 1.2% Additional health insurance in case of accidents at work and work related injuries 0.5%

Total 27.0%

The base for calculation of the social Property transfer, gift and security contribution is the gross salary, inheritance taxes subject to a monthly minimum base (threshold) of 50% of the average monthly Transfer tax salary and a monthly maximum base The tax for the transfer of immovable (ceiling) of twelve average monthly salaries. property ranges from 2% to 4% and The official average salary, which is used is levied on the market value of the for computation of the above limits, is the property. The tax rate is determined by average salary published in January; for the respective municipality where the 2017 it is MKD 32,887 (approximately immovable property is located. Transfer tax EUR 535). is due by the seller of the property unless otherwise agreed between the parties. Salary calculations are submitted electronically on a monthly base and the Certain transfers of immovable properties payment is due by the 15th day of the are exempt from taxation including the current month for the previous month. transfer of an immovable property where contributed in kind for equity of a company, Instead of contributions being paid and the first sale of a residential apartment to different institutions, an integrated provided that the supply was subject to collection of social contributions within the VAT. Public Revenue Office has been introduced. Property tax Social security contributions due Owners of immovable property situated in by managing directors who are not Macedonia are liable to property tax. The employed by the company tax is levied on the market value of the As of 2014, remuneration paid to managing property on an annual basis, at a rate which directors who are not employed by the ranges from 0.10% to 0.20%. This rate is company and are not insured elsewhere as determined by the municipality where the a result of employment or self-employment property is situated. The person liable for is subject to pension and health insurance the property tax is the owner (legal entity contributions (at the same rates as or an individual) of the immovable property, applicable to payroll related contributions, or the user of the property if a limited right provided above). to use the property was granted.

The person using the property is liable for Customs duties the property tax on immovable property owned by the Macedonian State. Import procedures All goods entering the customs territory Gift and inheritance taxes of Macedonia must be declared to the Certain individuals inheriting property customs authorities and must be assigned a (movable and immovable) are subject to customs-approved treatment or use. inheritance tax. The tax rates depend on The person declaring the goods to the the relationship of the beneficiary to the customs authorities must be registered testator or donor. No inheritance tax is in Macedonia, except when the person is levied provided that the beneficiary is a declaring the goods for: spouse or immediate family member. A gift tax is levied on donated property, as • Transit well as on property transferred without • Temporary import and consideration. No gift tax is levied on property donated to spouses and • If the person declares goods occasionally immediate family members. and this is approved by the custom authorities. The inheritance and gift tax rates are in the following ranges: Customs value • 2% to 3% for property inherited by/ The first and basic valuation method for donated to brothers, sisters and their determining the customs value is the children transaction method, which is based on the price actually paid or payable for the • 4% to 5% for inheritance/gifts goods when sold for export to Macedonia. (donations) between unrelated persons. Certain adjustments to this price might The tax rate is determined by the be necessary (e.g. freight and insurance municipality where the property is located. cost incurred on the customs territory of Macedonia must be excluded from the Excise duties customs value). If the customs value cannot Excise duties are levied on a variety of be established based on the transaction goods produced or imported in Macedonia. value method, it is established based on the These include: next possible valuation methods respecting the order of application. • Alcohol and alcoholic beverages

• Tobacco goods Classification of goods The applicable tariff, which entered into • Mineral oils and force as of 1 January 2008, is based on • Motor vehicles. the Combined Nomenclature (CN) of the European Community and on the Excise duties can be determined in a international Harmonized System (HS) used percentage (proportional excise duty), in by many industrialized nations in the world. absolute amount per measurement unit This classifies all goods of international (specific excise duty) or as a combination commerce so that each article is classified in of both (combined excise duty).

one place and one place only, within the tariff. Inward processing regime Classification determines the rate of duty Macedonia implements an inward applicable to imported goods and whether processing regime, which allows a any special preferential treatment is available. Macedonian manufacturer to import process and export goods free of customs Charges at importation duty and VAT. Customs duties are mainly charged on the The inward processing regime takes two customs value of the goods (ad valorem), forms: although many agricultural products are also liable to specific duties, assessed • Drawback system – under the drawback according to the weight or quantity. system, the customs duties and import A few items are subject to compound VAT are paid in advance, when the duties, i.e. a mixture of value-based and goods are placed in a procedure of specific duties. The rate and type of duty customs import for inward processing. applicable to an item is determined by its Duties paid in advance are subject to classification. refund when goods are exported to a destination country and the appropriate VAT is also charged at importation. Any documentation is submitted, certifying such VAT paid may be recovered as that the procedure of export has been input tax provided that (i) the importer is carried out. registered for VAT purposes in Macedonia, (ii) the goods are used in the line of their • Suspension system – under the business activities, (iii) the importer has a suspension system, the customs duties proper import customs declaration issued and VAT are suspended when the in their name and has properly recorded it goods are first entered into an inward in their books, and (iv) the VAT is paid. processing regime. However, these need to be secured through a bank Export procedures guarantee or a cash deposit. When aimed to be exported, goods must be declared to the customs authorities as well. From a VAT perspective, the export of goods to a destination outside Macedonia can be zero rated provided that (i) the goods are transported outside of Macedonia by the supplier, the customer or a third party authorized to transport the goods, (ii) the customer is established abroad and (iii) the exporter can produce the necessary evidence for export.

Legislation Employment contracts The major items of legislation which Contract forms and obligation for govern employment and labor relations in notification Macedonia are the Law on Labor Relations (LLR), the Collective Agreements, the Law Employment contracts must be concluded on Employment and Work of Foreigners in writing. An employment contract is kept and other legal acts. The LLR regulates the at the business premises of the employer. implementation of the rights, obligations One copy of the employment contract and responsibilities of employees and must be given to the employee on the day employers, namely: of its signing.

• Conclusion, amendment and The employer is obliged to notify in writing termination of employment contracts the respective division of the Employment Agency of the following circumstances: • Working hours, absences and holidays • Signing of each employment contract • Employment discipline – one day before the employee • Compensation and contractual liabilities commences work and of the parties to an employment • Termination of an employment contract contract – within eight days after its termination. • Special protection for some categories of employees. Types of employment contracts The LLR regulates the following major Legal requirements are also provided for types of employment contracts: in the Law on Health and Safety at Work, the Law on Personal Data Protection, as • Contracts concluded for an indefinite well as in a number of ordinances adopted period of time (contracts with an on the basis of the LLR and the above- indefinite term) and mentioned laws. • Contracts concluded for a fixed period One of the main goals of the Macedonian of time (contracts with a fixed term). employment legislation is to create a The most common and generally accepted minimum level of protection for employees. type of employment contract in Macedonia As a result of this, the LLR, as well as the is the contract with an indefinite term. It other relevant Macedonian legislation, gives better protection to the employee’s contains numerous mandatory rules and rights and interests as it provides more regulations which an employer hiring stable and long-term employment. employees in Macedonia must abide by Therefore, an employment contract and comply with.

concluded for an indefinite period of time A requirement to work more than the cannot be transformed into a fixed-term regulated hours is always compensated contract without the prior written consent for by the employer, in a way provided for of the employee. under the LLR.

Under the fixed-term employment contract, Special regulations cover part-time work, the parties determine the period for which shift work, including night shifts and the contract shall be valid and binding. overtime. These provisions vary depending A fixed-term employment contract can on the labor category of the employee and be concluded for work which lasts for the associated working conditions. a definite time period, with or without termination up to five years. Holidays

In case of the continuation of employment Full-time employees are entitled to at after the expiry of a fixed-term employment least 20 working days of annual paid contract, it will be transformed into holiday. Certain categories of employees a contract with an indefinite term for are entitled to additional holidays in a way employment. provided for under the LLR.

The LLR also sets out the possibility for an The official holidays are listed in the Law employment contract for seasonal work, on Holidays of the Republic of Macedonia. part-time employment, with a probation The Government can designate additional period and employment contracts as a official holidays. trainee, for the purposes of vocational and independent work in the profession. The Medical check-ups maximum duration of such a training period All employees must undergo periodic is one year. medical check-ups. Their frequency depends on the labor category, working conditions Working hours and the employees’ age as determined by The LLR contains mandatory provisions the Minister of Health, but they must be determining regular working hours under performed at least once every 24 months an employment contract in Macedonia. for all employees. Associated expenses are The regular working week is 40 hours the employer’s responsibility. comprised of five working days of eight hours each. These are in fact the maximum Healthy and safe working working hours which the parties to an conditions employment contract can negotiate, unless One of the main obligations of the otherwise provided for in the LLR. The employer is to provide healthy and safe Law sets out mandatory limits for working conditions at the workplace. The Law on hours within the working day and week, in Health and Safety at Work aims to secure order to protect the rights of employees greater protection of the employees’ life, and to prevent an employer from imposing health and working capacity by holding the extended working hours. employer responsible for the conditions under which employees have to carry out All exceptions to the regular working their employment obligations. week are expressly stipulated in the LLR.

Employees acquire protection at work in compliance with the prescribed measures and standards of work protection in accordance with the LLR and the Law on Health and Safety at Work.

Employees are required to observe the measures for protection at work and to perform the duties carefully in order to protect theirs and other people’s lives and health.

If the stipulated measures for protection of work have not been implemented, employees may legally refuse to work, should their lives or health be under direct threat.

The fulfillment of the above obligations by employers is subject to inspection and control by the state labor authorities, which are entitled to impose fines in case of non-compliance with the rules and the standards for healthy and safe working conditions.

Termination of employment contracts Employment contracts may be terminated either by the employer or employee in writing. The LLR determines cases in which employment is terminated with and without a notice period. Generally, the notice period must be at least one month preceding the termination of employment contract by the employee, but not exceeding three months. For termination by the employer of employment contracts covering more than 150 employees or 5% of the total number of employees, the notice period is two months. The procedure for collective redundancy includes mandatory obligations for the employer.

Legislative framework and general provided for under a special law, or an rules international agreement to which the The legal status of foreign nationals in Republic of Macedonia is a party. Macedonia is governed by the Law on All foreign nationals are obliged, upon entry Employment and Work of Foreigners, in the Republic of Macedonia, to declare the Law on Foreigners and the Law on the purpose of their stay and to specify Ownership and Other Property Rights. the address at which they will stay at the Under Macedonian law, foreign nationals Ministry of Internal Affairs. are restricted in exercising the following rights: Visas Foreign nationals who wish to stay in Ownership rights – foreign nationals have Macedonia must obtain a visa unless they the right to acquire movable property in the are subject to visa-waiver agreements. same manner as Macedonian citizens. A visa is a clearance for entry and/or With regard to immovable property, the stay on the territory of the Republic of same rules apply for foreign citizens as Macedonia for a certain period of time. for foreign legal entities as described previously in Section Acquisition of real The Law on Foreigners provides for the estate. following major visa categories: transit visa (visa B), short-term visa (visa C) and Professional rights – foreign nationals long-term visa (visa D). cannot be employed as state public servants or customs officers. A transit visa is required for travel through Macedonia to another country. During Political rights – foreign nationals are the transit, foreign citizens may stay in not eligible to be candidates for positions Macedonia up to five days. such as mayor, Member of Parliament, or president. A short-term visa allows a foreign citizen single or multiple entries into Macedonia There is a general rule that foreign for up to three months within a six-month nationals are obliged to comply with period. Macedonian laws and the established legal order. In this respect, foreign nationals Valid for six months, a long-term visa residing in Macedonia bear the same civil allows a foreign national a single entry and administrative responsibilities, and into Macedonia and a stay of up to 30 are subject to penalty in the same way as days. Foreign citizens with a long-term Macedonian citizens, unless otherwise visa are obliged to register at the Ministry

of Internal Affairs within five days of their • International exchange programs for entering the Republic of Macedonia, students whereas the Ministry is obliged to issue • Specialization, professional a temporary residence permit within 25 improvement or practical qualification days of the registration date. • Scientific research All visa applications must be submitted to the diplomatic and consular offices of the • Accommodation in facilities for elderly Republic of Macedonia or to the external people service providers in accordance with the • Medical treatment Law on Foreigners. • Family reunification Visa exemption rules • Humanitarian reasons Citizens of some countries can enter Macedonia without obtaining visas. • Foreign national who is an immediate family member of a Macedonian citizen EU citizens do not need visas for a stay of up to 90 days. Citizens from the • Foreign nationals of Macedonian origin USA, New Zealand, Japan, Canada and • Child of a foreign national who was born Switzerland are also allowed to stay in in the Republic of Macedonia Macedonia without visas for up to three months. • Foreign national resident of an EU and OECD Member State who acquired Calculation of the period commences an ownership right over an apartment, on the day of first arrival into Macedonia residence building or house with a value as indicated in the foreign national’s exceeding EUR 40,000. international passport. The customary documents required for Residence permits issuance of a temporary residence permit evidence the following: (i) the applicant has Residence permits are issued to foreign sufficient financial means to meet the costs nationals entering Macedonia who intend of their stay in Macedonia; (ii) the applicant to stay in the country three months or has been provided with accommodation or longer. financial means for accommodation or, for There are three types of residence permits: residents of EU and OECD Member States, proof that the person acquired residence A. Residence up to three months property on the territory of the Republic B. Temporary residence permits and of Macedonia with a value exceeding EUR 40,000; (iii) the applicant has health C. Permanent residence permits. insurance; (iv) the applicant has met the The most common grounds for issuance of requirements for a certain type of temporary temporary residence permits are: residence permits; and (v) there are no grounds for refusal of entry. • Work An application to obtain a temporary • Education or studying residence permit must be filed at a

© 2017 KPMG Macedonia DOO, a Macedonian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 60 | Investment in Macedonia 2017 diplomatic and consular office of the Foreign nationals working in Republic of Macedonia abroad or to external Macedonia service providers in foreign countries The Law on Employment and Work of where the Republic of Macedonia does Foreigners regulates the employment of not have a diplomatic or consular office. As foreign individuals in Macedonia. an exception, in cases set out in the Law on Foreigners, the application to obtain a Foreign nationals who intend to be temporary residence permit may also be employed, self-employed or work as submitted directly to the Ministry of Internal assigned individuals in the Republic of Affairs. Macedonia must obtain either a temporary residence permit for the purpose of work The decision of the Ministry of Internal issued by the Ministry of Internal Affairs or Affairs on granting a temporary residence a work permit issued by the Employment is delivered to the foreign applicant through Agency provided that they have regulated the diplomatic and consular office of the their residence on other grounds in Republic of Macedonia in abroad or directly Macedonia. at the Ministry of Internal Affairs. The temporary residence permit for the A temporary residence permit can be purpose of work represents a single permit extended if the grounds for its issuance for both work and residence of a foreigner still exist at the time of the extension. The and may be issued for employment extension will be rejected in case the foreign purposes, seasonal employment and for individual has not resided on the territory of work of a foreigner who has been assigned the Republic of Macedonia longer than one- in the Republic of Macedonia. fourth of the period for which the temporary residence permit was issued. The foreigner or the legal entity which will employ the foreigner is entitled to request Once the foreign national has been granted the issuance of a temporary residence a temporary residence permit, they may permit for the purpose of work at the live, reside and travel in the Republic of Ministry of Internal Affairs of the Republic of Macedonia during the validity of the permit. Macedonia. The foreign national may freely choose and change their place of residence, or leave the Upon obtaining of a prior confirmation of country and enter it again. the fulfillment of the legal conditions by the Employment Agency, the Ministry of Foreign nationals who have obtained a Internal Affairs will issue a decision allowing permanent residence permit have all the temporary residence for the purpose of rights and obligations granted to or imposed work within 15 days if the application is on Macedonian citizens. For example, they submitted before the Ministry of Internal can be employed by Macedonian employers, Affairs, or within 30 days if the application receive social security compensation and is submitted through the diplomatic and use tax benefits. consular office or the external service providers abroad.

The Employment Agency is authorized • Short-term services provided by to issue work permits to foreigners who foreigners have already regulated their residence • Work performed by foreigners residing in Macedonia based on other grounds in the Republic of Macedonia for the which are explicitly specified in the Law on purposes of studying and Employment and Work of Foreigners. The work permit would allow the foreigner free • Services in cases of emergency. access to the labor market in Macedonia. For all other categories of employees, a work permit is required. The work permit is Foreign nationals who generally do not issued provided that all requirements of the require a work permit in Macedonia law are met. Foreign national business visitors may undertake a business trip in the country Generally, employers/local clients without a work permit. must register the commencement and discontinuation date of the work performed A business visitor is a foreign citizen who by foreigners at the Employment Agency. resides in the Republic of Macedonia, and who does not have income in the Republic The Employment Agency shall issue of Macedonia, or does not sell or offer a certificate to the person responsible services directly, but only participates in for registering the work performed by business meetings, establishes business foreigners. contacts including negotiations concerning the provision of services or similar activities and including those services and activities related to the foreign company’s preparation to acquire presence in the market of the Republic of Macedonia. Those types of activities may be performed in the Republic of Macedonia for a limited period of 90 days within six months from the date of the individual’s first entry.

Foreign nationals who may work on short-term assignments without a work permit

Foreign nationals may be engaged to perform short-term assignments only upon prior mandatory registration with the Macedonian Employment Agency and subject to the following conditions:

• Creative services in the area of culture

• Services related to commercial fairs

Public procurement The LPP regulates the manner The Law on Public Procurement (LPP) and procedure for awarding public is the main legislative act governing the procurement contracts, the competences principles, terms and procedures for of the PPB, the competences of awarding public procurements and ensuring the Public Procurement Council, the efficiency in the spending of budget establishment and competences of resources. The Republic of Macedonia has the State Committee for Appeals of a decentralized public procurement system. Public Procurement Procedures and the legal protection in the procedures for Each entity that is subject to the LPP awarding public procurement contracts, must organize procedures for awarding as well as concessions and public private public procurement contracts regarding partnerships. water supply, energy, transport and postal services, between one or more contracting Main participants bodies and one or more economic Public procurement award procedures operators. usually involve many participants, among The range of activities included in the which are the contracting authorities, scope of public procurement are explicitly candidates, contractors, subcontractors, listed in the law and divided into three suppliers and service providers. areas: The contracting authorities shall be:

• Works • State and local government authorities • Supply of goods and the municipality of Skopje

• Provision of services. • Legal entities established for a specific purpose for meeting public interest The Public Procurement Bureau (PPB) needs, which are of non-industrial or within the Ministry of Finance manages non-commercial nature, associations, and operates the electronic public public enterprises, joint-stock and procurement system (EPPS), which is limited liability companies established an online based tool accessible via the by the state or local government website https://e-nabavki.gov.mk. authorities

The State Committee for Appeals of Public • Legal entities which conduct certain Procurement Procedures is established to activities in sectors related to water ensure legal protection in the area of public energy, transport, postal services, or procurement, independently from the other. executive government.

Any Macedonian and foreign legal • Simplified competitive procedure entities and individuals, as well as any • Open conceptual solution contest. combinations thereof, meeting the legal requirements set out in the LPP, may apply In addition, the LPP lays down special in public procurement procedures and be manners for awarding a public procurement awarded public procurement contracts. contract whereas a contracting authority may conclude a framework agreement by Public procurement activities conducting open or restricted procedures. Common public procurement procedures Only in certain cases in accordance with and the awarding of a public procurement the LPP, the contracting authority may contract may be performed through either conclude a framework agreement by open or restricted procedures. In certain conducting other procedures as under the cases, the contracting authority may award LPP. a public procurement contract by applying other procedures. The contracting authority Concessions may conduct the open or restricted The conditions and procedures for procedure and the simplified competitive granting, implementing and terminating procedure by publishing an electronic concessions in Macedonia are regulated by contract notice through the ESPP. the Law on Concessions and Public Private Partnerships (LCPPP). After announcing a contract notice, the contracting authority shall prepare tender The LCPPP regulates the granting of documentation stating the requests, rules, concessions and the conclusion of criteria, and other necessary information, agreements for the establishment of public so as to ensure that the economic operator private partnerships (PPP). has sufficient information regarding the manner of conducting the procedure. Objects of concession agreements The objects of concession agreements are: Types of procedures for awarding public procurement contracts • Goods of common interest for the Republic of Macedonia Contracting authorities may choose to implement one of the public award • Public property of the state and/or procedures envisaged in the LPP, municipalities. depending on the type and nature of the Concessions do not transfer the ownership scope of the contract: titles of properties, but only give the • Open procedure concessionaire the right to use the said properties in exchange for certain • Restricted procedure concession payments. The PPP regulates • Competitive dialogue the cooperation between the public and private partners related to rendering of • Negotiated procedure with a prior public services within the competences of publication of a contract notice the public partner, to the end users. • Negotiated procedure without a prior publication of a contract notice

Types of concessions and PPPs Any Macedonian and foreign individual or The types of concessions depending on legal entity meeting the legal requirements their objective are: set out in the LCPPP may participate in a concession procedure and be granted a • Public works concession – concession or be party to a PPP agreement. implementation of a construction project and management of a Concession and PPP procedures completed facility Concession and PPP procedures are • Public services concession – implemented under the terms and performance of activities determined by conditions stipulated in the LCPPP. law as public service Procedures for granting of concessions and conclusion of agreements for • Concession of goods of common establishment of PPP are carried out by interest – use of goods of common the Committee for implementation of interest or mining concessions. procedure, which depending of the type of The types of PPPs depending on the concession/PPP, may be constituted by the purpose of the funds for compensation and Government of the Republic of Macedonia, allocation of key risks are: or the mayor of the municipality or managing authority in case of other legal • Agreement for public works supply – entities. The LCPPP provides for the implementation of construction and following types of concession and PPP designing activities procedures: open concession procedure, • Agreement for public services supply – restricted concession procedure, procedure provision of selected services. for negotiation with prior notification and competitive dialogue. Parties to concessions and PPP The last element of the concession/PPP agreements process is the signing of a concession/PPP The public authorities, grantors of agreement, which may be concluded for up concessions and parties to PPP to 35 years. agreements are: Regarding the long validity term, for which • The Government of the Republic they are usually concluded, the LCPPP of Macedonia, for facilities in state envisages the possibility for concession/ ownership PPP agreements to be amended by virtue • Municipalities and the City of Skopje, for of written addenda. facilities in municipal ownership. Appeal of the concession procedure Public partners to PPP agreements may also The LCPPP provides that any decision, be public enterprises, public institutions, action or omission by the contracting companies established or majority owned authorities in a concession/PPP procedure by the Republic of Macedonia, municipalities may be subject to appeal before the and the City of Skopje as well other legal State Committee for Appeals of Public entities, vested with the performance of Procurement Procedures. duties of public interest.

The appeal suspends the concession and alteration or cessation in providing public PPP procedure. If the State Committee for communications networks and services. Appeals of Public Procurement Procedures The Agency must register the operator or rejects the appeal, the claimant is entitled the service provider by recording it in the to submit a claim before the competent official records within seven days of the court. The claim does not suspend the receipt of the notification, with a written implementation of the decision for confirmation of the registration made. selection of the most favorable candidate However, this registration in the Agency is or the signing of the contract under the not a sufficient condition for exercising the concession/PPP procedure. rights and obligations of operators or service providers under the Law on Electronic PPP Register Communications. The respective rights and The Ministry of Economy keeps a public obligations must be exercised only if certain PPP Register which contains information conditions under this and other relevant on PPP agreements and the amendments laws and regulations are fulfilled. thereto, which have been executed by Radio and TV broadcasting activities require contracting authorities. a license issued by the Broadcasting Council of the Republic of Macedonia, an Licensing independent not-for-profit regulatory body, with public competencies and authority in Licensing regime in electronic the field of broadcasting activity defined by communications the Law on Broadcasting Activity. The Law on Electronic Communications regulates the terms and the manner of Licenses for radio and TV broadcasting carrying out activities in the electronic activities are issued after an open communications sector in the Republic of competition process. A license can be Macedonia. issued at state, regional or local levels. The license term under the Law on Broadcasting The bodies authorized to regulate the Activity is nine years. activities in the electronic communications sector are the Ministry of Transport and Licensing regime in the energy sector Communications and the Agency for The Republic of Macedonia signed the Electronic Communications (the “Agency”). Treaty Establishing the European Energy The Agency for Electronic Communications Community in October 2005. operates as an independent regulatory body, In 2010, the Government adopted the established as a separate not-for-profit legal Strategy for Energy Development of the entity with public authorizations set out in Republic of Macedonia until 2030, which the law. defines the most favorable long-term A notification must be submitted to the development of the energy sector in Agency prior to the commencement of Macedonia. construction and/or use of public electronic Activities in the energy sector are regulated communications networks and/or providing by the Energy Law. The activities in the public electronic communications services, energy sector set out in Article 4 of the

Energy Law can be carried out by local The Commission on Protection of and foreign legal entities on the basis of a Competition is an independent state body license issued by the Energy Regulatory with the status of a legal entity, independent Commission of the Republic of Macedonia in its work and decision making process (the “Commission”). within the boundaries provided for by the Law. The Commission is responsible The Commission is a regulatory body, which for enforcing the Law on Protection of is fully independent from the interests of the Competition. energy industry, and governmental bodies, responsible for issuance, amendment and The basic competencies of the Commission withdrawal of licenses for activities in the on Protection of Competition are to control energy sector. the application of the provisions of the Law on Protection of Competition, to monitor and The license is issued for a period from three analyze the conditions on the market to the up to 35 years depending on the type of extent necessary for the development of free activity, the extent of the funds required for and efficient competition, and to conduct carrying out the activities, duration of the procedures and make decisions according to right of exploitation of the energy source, the provisions of the Law. as well as the requirement of the entity. To acquire a license to carry out activities The Commission is empowered to impose in the energy sector, a foreign entity must sanctions in cases of prohibited agreements, establish a branch office in the Republic of decisions and concerted practices, unfair Macedonia. competition or abuse of monopoly or dominant market position. The competencies of the Commission, according to the law, include establishment The Commission is also responsible of regulations on forming prices for different for issuance of authorization for the types of energy and services related to concentration of economic activities activities in the energy sector and making (e.g. mergers, acquisition of control, joint decisions on the pricing of various types of ventures). energy in accordance with the regulations on price formation. Prohibited agreements, decisions and concerted practices Competition and antitrust The law expressly prohibits and declares regulations void all types of agreements between The main part of competition and antitrust undertakings, decisions by associations of legislation in Macedonia is the Law on undertakings, as well as concerted practices Protection of Competition. of two or more enterprises having as their objective or effect the prevention, restriction The Law on Protection of Competition or distortion of competition, which: applies to all enterprises engaged in activities in or outside Macedonia if they prevent, • Directly or indirectly fix prices or other restrict or distort competition within the trading conditions country. • Limit or control production, market, technical development or investments

• Share markets or sources of supply • Refuse to deal or encourage and request from other undertakings or • Apply dissimilar conditions to equivalent association of undertakings not to transactions with other trading parties, purchase or sell goods or services to thereby placing them at a competitive certain undertakings, with an intention disadvantage to harm them in a dishonest manner • Make the conclusion of contracts • Refuse to allow another undertaking subject to acceptance by the other access to its own networks or other party of additional obligations which, infrastructure facilities, for adequate according to their nature or trade remuneration, provided that without customs, are not related to the subject such concurrent use the other of contract. undertaking is unable for legal or factual The Commission on Protection of reasons, to operate as a competitor of Competition may impose sanctions on the the dominant undertaking. enterprises, parties to the agreements, when they prevent, restrict or distort competition. Control on concentration of economic activities Abuse of dominant position (monopoly) Concentration of economic activities may The law generally prohibits a monopoly have the following forms: position except in cases where such • Merger of two or more independent a position is authorized by the state in enterprises accordance with the legislation of the Republic of Macedonia. • Acquisition of direct or indirect control of the whole or parts of one or more The law prohibits abuse of a dominant enterprises. position of one or more enterprises on a relevant market or its part, which may: The law imposes on the enterprises participating in the concentration an • Impose, directly or indirectly, purchase obligation for a prior notification to the or sale prices or other unfair trading Commission on Protection of Competition if: conditions • The aggregate annual revenue of • Limit production, markets and technical the participants in the concentration development to the disadvantage of generated via the sale of goods and/or consumers services on the world market amounts • Apply different conditions to identical or to at least EUR 10 million in MKD similar types of contracts with regard to equivalent, realized during the business certain partners, thereby placing them year preceding the concentration and at a competitive disadvantage provided that one of the participants is registered on the domestic market • Conclude contracts subject to acceptance by the other party of • The aggregate annual revenue of additional obligations which, according the participants in the concentration, to their nature or trade customs, are not generated by sales of goods and/or related with the subject of contract services on the territory of the Republic

of Macedonia, amounts to at least • Capital adequacy, i.e. maintenance of an EUR 2.5 million in MKD equivalent adequate capital base that will enable realized during the business year covering of the risk profile of banks. The preceding the concentration capital adequacy ratio calculated as a ratio between the bank’s own funds and • One of the participants in the its risk weighted assets must not be concentration has participation on the lower than 8% market of more than 40% or the total market participation of all participants is • Criteria for classification of on-balance more than 60% in the year preceding and off-balance sheet assets of the concentration banks according to their risk level and determining the adequate amount of • The Commission may authorize the impairments and special reserves for concentration 25 days after receiving coverage of the banks’ potential and/or the notification. established losses

Banking supervision and the • Exposure limits as a ratio between the National Bank of Macedonia total on-balance and off-balance sheet The National Bank of the Republic of exposure to single persons and groups Macedonia (NBRM) is the only supervisory of connected persons and the bank’s authority responsible for the licensing own funds and supervision of banks and savings • Limits of exposure to foreign exchange institutions in the Republic of Macedonia. (FX) risk and the manner of managing The main purpose of the supervisory this type of risk function performed by the NBRM is the • Limits on investments in land, buildings, maintenance of a safe and sound banking equipment and equity holdings. system and protection of depositors and other creditors that invest their money Licensing for banking activities (by the in the banking sector. The NBRM has NBRM) includes: established supervisory standards that are • Issuing licenses for the establishment based on the international standards and and operation of banks and establish- practices set by the Basel Committee on ment of foreign banks’ branches Banking Supervision. • Issuing licenses for statutory changes Supervisory standards (acquisitions and mergers of banks, transformation of a savings institution While performing their activities, into a bank and acquisition of a savings banks are obliged to comply with the institution by a bank) existing supervisory standards that are implemented for the purpose of limiting • Issuing approvals according to the the banks’ risk exposure. The supervisory Banking Law. standards established and implemented The legal framework thoroughly defines the by the NBRM are derived from the Basel licensing process performed by the NBRM. Committee’s principles and the European In the licensing process, the NBRM follows Directives. The most important standards implemented by the NBRM are:

• Permanent off-site surveillance of International payments and transfers the operations of banks and savings After declaring the justification for bank institutions by collection and analysis of transfer, banks authorized for foreign reports submitted to the NBRM and transactions may execute international • On-site (full-scope or targeted) bank transfers abroad. examinations conducted at banks For transfers and payments abroad themselves, i.e. examination of their exceeding EUR 10,000, banks require performance through direct control of specific documents proving the grounds for their documentation and established and the amount of the payment. systems and procedures. When the transfer is a transaction In cases of violation of provisions of the law subject to registration at the NBRM, the or other acts, the NBRM is empowered to registration document must be presented impose certain measures on the banks, such to the bank. as: issuance of written warnings and orders to eliminate violations, prohibition of certain Reporting to the NBRM transactions and appointment of a trustee for a certain period. Local companies are required to report their borrowings from abroad to the NBRM As a final and exceptional measure, the NBRM on a monthly, quarterly and annual basis. also has the right to withdraw banks’ licenses.

Bilateral Agreements for the Mutual Protection and Encouragement of Foreign Investment

Albania Malaysia Austria Montenegro Azerbaijan Morocco Belgium-Luxembourg Economic Union Netherlands Belarus People’s Republic of China Bosnia and Herzegovina People’s Republic of Korea Bulgaria Poland Croatia Romania Czech Republic Russian Federation Denmark Serbia Finland Slovakia France Slovenia Germany Spain Hungary Sweden India Switzerland Iran Taiwan Province of China Italy Turkey Kuwait Ukraine Lithuania Vietnam

Source: Ministry of Finance of the Republic of Macedonia

Double Taxation Treaties to which Macedonia is a party

State Dividends (%) Interest (%) Royalties (%) Albania 10 10 10 Austria 15/0* 0 0 Azerbaijan 8 8 8 Belarus 15/5* 10 10 Belgium 15/10* 15 10 Bosnia and Herzegovina 15/5* 10 10 Bulgaria 15/5* 10 10 China 5 10 10 Croatia 15/5* 10 10 Czech Republic 15/5* 0 10 Denmark 15/5/0* 0 10 Estonia 5/0* 5 5 Finland 15/0* 10 0 France 15/0* 0 0 Germany 15/5* 5/0* 5 Hungary 15/5* 0 0 India 10 10 10 Iran 10 10 10 Ireland 10/5/0* 0 0 Italy 15/5* 0/10* 0 Kazakhstan 15/5* 10 10 Kosovo 5/0* 10 10 Kuwait 0 0 15 Latvia 15/5* 5/0* 10/5* Lithuania 10/0* 10 10 Luxembourg 15/5* 0 5

Moldova 10/5* 5 10 Netherlands 15/0* 0 0 Norway 15/10* 5 5 Montenegro 15/5* 10 10 Morocco 10 10 10 Poland 15/5* 10 10 Qatar 0 0 5 Romania 5 10 10 Russian Federation 10 10 10 Saudi Arabia 5 5 10 Serbia 15/5* 10 10 Slovakia 15/5* 10 10 Slovenia 15/5* 10 10 Spain 15/5* 5 5 Sweden 15/0* 0/10* 0 Switzerland 15/5* 0/10 0 Taiwan 10 10 10 Turkey 10/5* 10 10 Ukraine 15/5* 10 10 United Kingdom 15/5/0* 10/0* 0 *The reduced rate can be applied under specific circumstances. Source: Ministry of Finance of the Republic of Macedonia

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