www.pwc.com/mk
Guide to Doing Business and Investing in Macedonia 2016 Edition
Papazoski and Mishev Law Firm A law firm connected with PwC Guide to Doing Business and Investing in Macedonia Guide to Doing Business and Investing in Macedonia
This guide is intended to assist PwC's clients and other parties interested in doing business in Macedonia. It does not exhaustively cover the subject, but is intended as a synopsis of some of the important initial issues of concern to those planning to do business in Macedonia.
The information in this book is based on taxation law, legislative proposals and current practice, up to and including measures passed into law as of 31 October 2015. It is intended to provide a general guide only on the subject matter and is necessarily in a condensed form. It should not be regarded as a basis for determining the tax liability in specific circumstances. Professional advice should always be taken before acting on any information in the booklet.
Please note that, for simplification purpose, the terms “Macedonia” is used in this document to refer to the Republic of Macedonia.
Guide to Doing Business and Investing in Macedonia 3 Content
1 Macedonia - A Profile 10
1.1 Introduction 10
1.2 Government structure 12
1.3 Legal system 12
1.4 People 12
1.5 Economy 12
1.6 Foreign trade 15
2 Business environment 16
2.1 Business climate 16
2.2 Technology and Industrial Zones 17
2.3 Regulatory environment 17
3 Foreign investment 20
3.1 Investment policy 20
3.2 Investment incentives 21
4 Banking and finance 22
5 Importing and exporting 26
6 Business entities 28
6.1 Local representation 28
6.2 Forms of Companies 29
6.3 Joint - Stock Company - (AD) 29
6.4 Limited Liability Company - (DOO or DOOEL) 30
6.5 Branch Office 31
6.6 Representative Office 31
4 Guide to Doing Business and Investing in Macedonia 7 Labour relations 34
7.1 Labour market 34
7.2 Labour relations 34
7.3 Wages and salaries 35
7.4 Social insurance / Pensions 35
7.5 Work permits / Visas 37
7.6 Holidays 37
8 Audit and accounting requirements and practices 38
9 Taxation 40
9.1 Corporate Income Tax 40
9.2 Excise Duty 43
9.3 Property Tax 44
9.4 Inheritance and Gift Tax 44
9.5 Tax on Sales of Real Estate 45
9.6 Personal Taxation 45
9.7 Value Added Tax 47
10 PwC 50
10.1 General Information 50
10.2 Our services include: 51
Assurance Services 51
Advisory Services 51
Tax Services 51
Legal Services 51
Human Resources Services 52
PwC Academy 53
Guide to Doing Business and Investing in Macedonia 5 Partner's letter
Welcome to the eleventh publication in the series “Guide to Doing Business and Investing in Macedonia”
Paul Tobin Country Managing Partner
In recent years Macedonia has successfully developed as an attractive The publication highlights many of the principal features of the destination for foreign direct investment in the region in a strong accounting, tax, legal and general business regulatory environment competition with a number of countries. This has led to steady that interfaces local issues with those of the global business world. growth of the GDP and decrease of the level of unemployment, a trend that has been maintained in 2015 despite the on-going political Finally, this publication incorporates and promotes the principles instability. Nevertheless, Macedonia has a number of areas that can adhered to in the policies of ongoing governments towards the be additionally improved. Accordingly the next few years will be development of the economy of the Republic of Macedonia. critical and Macedonia will have to face a number of challenges to build further upon its developing reputation as a new and growing Transparency investment destination. The principle of Transparency is recognized by ongoing governments as a vital feature in promoting a clearer The continuing name dispute with Greece, that has an impact on understanding for locals and foreigners alike of government Macedonia’s international relations and ability to join international procedures. This applies across all areas of decision-making organisations, is one of these challenges. including taxation, customs and other areas of policy-making.
But the country has a number of strong points it can capitalise on. Trust Macedonia’s international communication campaigns have boosted The principle of Trust underscores the desire of governments and its visibility. The priority given by the current Government to its regulatory authorities to establish long-standing and supportive economic development has materialised into a range of generous tax relationships with the domestic and foreign investment community. incentives and a generally improved business climate. In recent years The country’s EU candidate status is a powerful endorsement of Trust Macedonia has frequently been ranked within the world top between Macedonia and the international community. reforming countries according to the World Bank’s Doing Business Survey. It was also ranked at 7th place in the recent global survey Diligence and Professionalism “Paying Taxes 2016” carried out by PwC. In a small open economy the principles of Diligence and Professionalism are paramount in achieving high standards of work performance and In this changing environment, this Guide to doing business and essential in achieving high economic growth and prosperity. investing in Macedonia 2016 publication is aimed at providing comprehensive and up-to-date information on conducting business PwC in Macedonia in Macedonia. This includes commentary on the latest legal The largest provider of professional services with more than 50 developments, audit and accounting changes, major tax and highly-qualified and experienced staff, and having been supporting investment incentives and general economic and business our clients in the market for more than 23 years, PwC Macedonia conditions. along with its connected law firm Papazoski and Mishev, can assist in your business plans from commencement of operations to The Guide will be of valuable assistance to domestic and foreign expansion of business to multi-sector trading and investment investors or potential investors alike, regardless of the type, size and enterprises. We hope to be of service to you during this exciting character of your investment. period of new opportunities in Macedonia.
6 nia Guide to Doing Business and Investing in Macedonia Office location in Macedonia
PwC Papazoski and Mishev Law Firm 16, 8 Septemvri Blvd. Hyperium Business Centre, 2nd floor 1000 Skopje Republic of Macedonia
Telephone: +389 (0)2 3140 900 +389 (0)2 3140 901 Fax number: +389 (0)2 3116 525
E-mail: [email protected] Internet: www.pwc.com/mk
Guide to Doing Business and Investing in Macedonia 7 Investing in Macedonia - Highlights
In spite of its small size and modest domestic market, Macedonia presents a number of truly remarkable advantages for potential investors:
• Macedonia benefits from a with one of the lowest strategic geographical corporate income tax rates position at the crossroads of in Europe; in addition, 2 main European transport Macedonia has several corridors; Investment Zones with up to 10 years tax holidays for • Macedonia has developed a corporate profits, highly-liberalised foreign employment income, VAT, trade policy and has signed customs duties and others; various bilateral agreements that give local producers • Macedonia has a highly- free access to the European qualified workforce and one Union and other markets, of the most competitive making Macedonia a labour costs in Europe; highly-competitive production and export • Macedonia applies the platform; highest standards in its corporate reporting and • Macedonia offers a stable corporate governance and it monetary environment with already applies a significant one of the lowest inflation number of the European rates in the region and a Union standards on public stable currency; procurement, competition, state aid, OECD Corporate • Investors in Macedonia Governance principles, benefit from a very product standards and favourable tax environment many other areas.
8 Guide to Doing Business and Investing in Macedonia
Macedonia - A Profile
1.1 Introduction
Geography and climate Macedonia is located in the central Balkans and shares common borders with the following countries: Albania to the West, Bulgaria to the East, Greece to the South and Serbia and Kosovo to the North.
Macedonia falls within the Central European Time zone (GMT + 1).
The country covers an area of 25,713 sq. km (slightly smaller than Belgium). Its terrain is mostly mountainous and traversed by the Vardar River.
Number of inhabitants in Macedonia's main cities:
• Skopje – 532,174 • Kumanovo – 107,745 • Bitola – 93,236 • Tetovo – 90,329 • Gostivar – 82,813 • Prilep – 76,125 • Strumica – 56,348 • Veles – 55,036 • Ohrid – 53,929
The climate is a Mediterranean– Continental mix. Along the Vardar and Strumica river valleys, the climate is temperate Mediterranean. Inland, the climate is generally Continental with hot-dry summers and cold-wet winters.
History Due to its location, at the crossroads of various empires, Macedonia’s history can be characterized as ‘tumultuous’. The name, history and territory of what is now
10 Guide to Doing Business and Investing in Macedonia Chapter 1
the Republic of Macedonia have been Yugoslavia’s unique political and constitutional amendments strengthening throughout history the object of claims economic system, along with its geo- minority rights in the country. from neighbouring countries, some still political position, enabled it to achieve a unsolved. standard of living and degree of political International relations and cultural freedom not experienced by In addition to its membership of the Ancient Macedonia is marked by the rule other Eastern European countries during United Nations, since 1993, the country of Alexander the Great (356-323 BC), the Communist period. As a result, was admitted to the Council of Europe in whose empire extended from Europe to Macedonia underwent large-scale September 1995. In November 1995, Egypt and India. In the second century BC economic development and Macedonia joined NATO’s Partnership of Macedonia became a province of the transformation post-WWII. Peace programme. Roman Empire. Following the East - West split of the Roman Empire in 395 AD, In the 80's and early 90's, increased In January 1996, full diplomatic relations Macedonia became a territory within the political freedom and growing tensions were established with the European Union Eastern Roman Empire. between the different ethnical and, in 2001, it concluded the components in Yugoslavia hastened the Stabilisation and Association Agreement At the end of the seventh century, end of the multi-republic state. Each of with the EU. Macedonia was mainly settled by Slavonic the former Yugoslav republics looked to peoples and fell under the control of the form independent states. Macedonia became a member of the Byzantine and Bulgarian Empires. World Trade Organisation in 2003 and Subsequently, it fell under Ottoman rule Macedonia is one of the few former has been a member of the World Bank which lasted until the early-20th century. republics to have gained independence and the International Development from the state of Yugoslavia without Association since 1993. Following the collapse of the Ottoman giving rise to any conflict. Under a Empire and two Balkan Wars (1912- referendum on its sovereignty, Macedonia The country is also a member of: CEI, 1913), the political geography of the declared independence on September EBRD, FAO, IAEA, IBRD, IFC, IMF, Balkans was radically altered. Under the 8th, 1991. In November 1991, Interpol, IOC, IOM (observer), ISO, OSCE, terms of the 1913 Treaty of Bucharest, Macedonia’s Parliament issued a new UNCTAD, UNESCO, WHO, and many Macedonia was partitioned between constitution, and in 1993, the country other international organisations. Greece, Bulgaria and Serbia. Under the became a member state of the United Treaty of Versailles, at the end of World Nations assuming the temporary title of The most significant recent political event War I, Macedonia constituted a part of the “the Former Yugoslav Republic of was the seventh recommendation of the Kingdom of Serbs, Croats and Slovenes Macedonia” (FYROM). European Commission to the European that later became the state of Yugoslavia. Council to decide on starting negotiations The turbulent period, in the wake of the on EU accession with Macedonia. During the Second World War Yugoslavia break-up of the former Yugoslavia, was was partitioned by the Axis powers. This marked by war and economic turmoil Macedonia is expected to join NATO but resulted in the occupation of Macedonia throughout the region which inevitably the event so far has been postponed by Bulgarian and Italian forces. impacted the Macedonian economy. The mostly due to the on-going name row Macedonian partisans joined the All- conflict in Kosovo, in 1999, contributed to with Greece. There are good hopes that Yugoslav Partisan Army, led by Josip Broz an influx of an estimated 300,000 ethnic Macedonia will soon become a full NATO Tito, and in 1944 they took part in the Albanian refugees into Macedonia. In member. liberation of the country from foreign turn, this situation contributed to civil occupying forces. unrest, in 2001, by the ethnic-Albanian Towards EU integration communities in the north and north- Macedonia has been eligible for the EU’s The first session of the Anti-Fascist western parts of the country. Phare programs since 1996. Assembly of the National Liberation of Macedonia was held in August 1944 as a On August 13th, 2001, Macedonian and From 1997, Macedonia and the European constitutional foundation for an Albanian representatives jointly signed a Union were signatories to various independent Macedonian state. At the end peace agreement known as the Ohrid cooperation agreements. In April 2001, of the war, Macedonia became a republic Framework Agreement (OFA). In the Stabilisation and Association within the Socialist Federal Republic of November 2001, the Macedonian Agreement, between Macedonia and the Yugoslavia. Parliament approved a series of EU was signed in Luxembourg. This
Guide to Doing Business and Investing in Macedonia 11 1 2 3 4 5 6 7 8
agreement entered into force on 1 April Deputies. All Deputies serve a four-year spoken language is Macedonian, a 2004, thereby, taking the country another term. After the most recent elections in language of the south-Slavic language step forward on the road to European 2014, 16 parties and coalitions of parties group (more precisely of the eastern integration. were represented in the National Assembly. sub-group, together with Bulgarian). Albanian is also an official language in Macedonia applied to become an official Executive authority rests with the some parts of the country. EU candidate state on March 22, 2004. government, which is headed by the On November 9, 2005 the European Prime Minister. The Prime Minister and There is a range of other languages Commission recommended that the ministers are elected by the National spoken in Macedonia, reflecting the Macedonia become a candidate state. Assembly. country’s ethnic diversity, of which Vlach (Aromanian), Turkish, Romani, Serbian/ On December 17th 2005, the European Bosnian, Greek and other. Council rewarded the country’s achievements in implementing various 1.3 Legal Religions: reforms and agreements (e.g. the implementation of the “Copenhagen system criteria”, the Stabilisation and Association process, the Stabilisation and Association The Macedonian legal system is based on Agreement, and the Ohrid Agreement) by a civil law system. The judiciary is its official recognition as an EU candidate constituted of the Supreme Court, the state. Constitutional Court and the Judicial Council. The Parliament appoints judges On 14 October 2009 the European in the Constitutional Court while the Commission recommended to the Judicial Council appoints judges to serve European Council to adopt a decision to in the regular courts. In 2007 the start negotiations with Macedonia on the Administrative Court was introduced to terms of its accession. However, the decide upon appeals on the decisions or European Council has not taken a positive acts of the state administration. decision on this issue yet. GDP (nominal) per capita:
Macedonia is awaiting the decision of the 2010 – EUR 3,434 European Council to start official 1.4 People 2011 – EUR 3,630 negotiations on accession - the final step 2012 – EUR 3,616 before full EU accession. Population: 2.06 million 2013 – EUR 3,930
Ethnic groups: 1.2 Government 1.5 Economy structure General description In accordance with the constitution, In the first few years after independence, adopted on November 17, 1991, the state the Macedonian economy suffered the of Macedonia was established as a loss of a large and protected market sovereign republic. The head of state is resulting in steep falls in GDP. This led to the President of the Republic who is a period of economic decline with high directly-elected, by secret ballot, for a inflation, large fiscal deficits, and almost maximum of two five-year terms. no foreign investment.
The legislative body is the Parliament of At the end of 1994, the Government Macedonia which consists of a single- Languages: initiated and successfully implemented a chamber National Assembly of 123 The constitutional and most widely stabilization program, with the assistance
12 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 1
of international donors including the World constantly remained below 3% per year EUR 1,757 million and in 2014 it was Bank and the International Monetary Fund. until 2007, while the EUR / Denar 1,762 million. As a result, by the end of 2000 exchange rate has been almost unchanged macroeconomic stability was established, over the last 13 years. 2008, however The current government’s policy is thus the fiscal balance registered a substantial witnessed for the first time in the decade a focused on the improvement of the above surplus for the first time, and inflation sharp inflation of over 8% according to issues through: remained modest. official figures, followed by a deflation rate • The creation of new jobs, and; of 0.8% reported in 2009. As a result of the • The promotion of investment, especially Positive economic trends at the close of global crisis loosening its grip and the in export-oriented industries. 2000 came to an abrupt end with the effects of the Government’s monetary conflict of 2001. GDP declined by more policy, the inflation rate returned to its Foreign Investment than 4 percent, the fiscal balance and the pre-crisis trends, stabilising at 1.6 % in Foreign Direct Investment (FDI) was balance of payments deteriorated severely, 2010. The worsening economic climate and negligible pre-1998 (e.g. registering less than and reforms were stalled. events in Europe, especially the EUR 10 million in 1995). Since then, FDI has neighbourhood significantly affected been steadily growing. It reached a peak of about EUR 400 million in 2001. This was Industrial production restarted its growth Macedonia. During 2011 the inflation rate largely attributable to acquisitions, by foreign in 2002 and, after 4 years of consistent was 3.9%, in 2012 it has decreased to 3.3% investors, of major companies and banks growth, it regained its pre-conflict levels in and in 2013 it was 2.8%. In 2014 the during the privatisation process. The largest 2006. Growth levels of over 5% were inflation rate was -0.3%. acquisition was that of the national telecom achieved for 2007 and 2008. This trend operator by Magyar Telekom (Deutsche however could not be maintained due to Two issues remain however increasingly Telekom group). the impact of the global crisis. As the result worrying: of the global trends the Macedonian • The official unemployment rate that was A sharp fall in FDI occurred as a result of the industrial production also suffered, leading historically high, has slightly decreased crisis in 2001. Since that period, foreign to 5% to 8% decrease in the 2009 to 2010 to 26,8% in 2015. In 2013 it was 29% investment registered less than EUR 100 period. In 2011 a new trend for a rise of the and in 2014 28% (although it is widely million in both 2002 and 2003. However, industrial production started - 3% for 2011, thought that the actual proportion of following various efforts towards achieving 4% for 2012, 3.2% for 2013 and in 4.8% for unemployed is lower due to the economic and political stabilization, FDI has 2014. importance of the informal economy); been on an upwards trend since 2004. The • Trade balance deficit has been years 2006, 2007 and 2008 saw a significant Despite the growth and substantial foreign consistently growing up to 2014. In new wave of investment mainly arising from trade deficits, the inflation rate has 2012 it was EUR 1,047 million, in 2013 privatisations in the energy sector, and certain
Summary of macro-economic figures 2010 2011 2012 2013 2014
GDP growth (yearly real growth rate %) 2.9 2.8 (o,4) 2.9 3.5 GDP per capita (in EUR) 3,434 3,630 3,616 3,948 4,126 Unemployment rate (end-year) 32 31.4 31 29 28 Consumer prices (yearly change %) 1.6 3.9 3.3 1.2 (0.5) General government balance (% of GDP)* (2.1) (2.5) (3.1) (4) (4.2) Trade balance (million EUR) (1,447.8) (1,648.3) (1,756.4) (1,757) (1,762) Merchandise exports 2,530.1 3,210.9 3,106.9 3,235.2 3,723 Merchandise imports 3,977.9 4,859.2 4,863.5 4,938.3 5,485 Gross external debt/GDP (in per cent) 58.2 64.9 69.4 64.3 70.2 Interbank interest rate (% per annum) 3.7 2.2 2.1 1.86 1.79
*Source: National Bank and State Statistical Office of Macedonia
Guide to Doing Business and Investing in Macedonia 13 green-field investments in Macedonia’s free economic zones. The worldwide economic crisis has resulted in a significant decrease in investment flow in 2009. During 2010 there were signs of restoration of the previous investor interest. However, the actual FDI level experienced just slight increase compared to the previous year. In 2011, the FDI level has increased significantly, compared to the previous two years. The FDI levels in 2010 and 2011 were EUR 160 million and EUR 337 million respectively. Several new greenfield investments, mainly in the free economic zones are being agreed, who started being realised in 2012. In 2012, the level of FDI has decreased to EUR 105 million. In 2013 the level of FDI was EUR 264 million, while in 2014 it was EUR 278 million.
Privatisation Privatisations of State owned enterprises paved highways and secondary roads. A The railway network extends over 900 were performed quickly and almost major highway parallels the railroad along km. At the end of 2012 the Government completely in the 90’s, mostly through the North-South corridor. Several has announced a public tender for sales to the management and employees of undergoing projects, both in Macedonia construction of the railway Corridor VIII. the companies. Out of about 2000 State and in the neighbouring countries, are Which will allow access on the railway owned enterprises, less than 50 are still aimed at upgrading and completing the traffic to the ports in Drac and Valona. currently not privatised. North–South and East–West connections. New projects for construction of In 2014, a contract has been signed for The Macedonian government has now motorways from Miladinovci to Stip, purchase of 6 new passengers’ trains and engaged upon a final process of privatisation Kichevo to Ohrid, and the highway section the first fright wagons have arrived in / concession of the public sector. After the from Demir Kapija to Smokvica are 2014 from the total 150 ordered. The successful privatisation of the carried out, enhancing the Macedonian railway towards Bulgaria is in a telecommunications industry and partial motorway network for new 132 km. construction phase and a consortium has privatisation of the energy sector (the been selected for planning of the railway national electricity distributor having been The Government obtained financing for some track from Kicevo to Lin, Albania. sold to EVN from Austria), the Government extensive construction and re-construction Macedonia has two international airports, now has ambitious plans to restructure and works on the Corridor X road network (the in Skopje and Ohrid. In March 2010 the privatise the remaining publicly-held energy, North – South connection). It is expected that Turkish airport operator TAV took both transport and health sectors. with the completion of these construction airports under a concession for a 20-year works, a full highway network will be in period with objectives to upgrade the Transport place from Serbian to Greek borders. existing facilities. In 2011 the upgrade was Although a landlocked country, The railway network extends over 900 km. completed with new landing strips and Macedonia benefits from a strategic The principal North-South rail connection airport building. Under the operation of geographical position at the crossroads of from Belgrade to the port of Thessalonica TAV the number of passengers has two major pan-European transportations (Aegean Sea) passes through Skopje. Both increased from 800,000 during 2011 to corridors (corridors VIII and X) linking network and rolling stock are in need of 1,278,343 in 2014. Central Europe to the Adriatic, Aegean investment. The rail system is still State and Black Sea. owned but in 2007 the railways company Telecommunications was split into two separate entities The country has a well-developed fixed Macedonia’s immediate neighbourhood (infrastructure and rolling stock) as a communications network with a tele-density provides an actual and potential consumer preparatory step for privatisation. In 2014 a of over 20 lines per 100 inhabitants, within market of about 30 million people. As a contract has been signed for construction and the region average. The former state whole, South Eastern Europe is a market modernisation of the tolling process of monopoly – Makedonski Telekomunikacii of over 80 million persons. Corridor X and installation of an electronic was privatised in 2001: Magyar Telekom Macedonia has an extensive network of system for collection of tolling fees. (Deutsche Telekom Group) now holds a
14 Guide to Doing Business and Investing in Macedonia Chapter 1
majority stake in the company, while the The generation capacities are still mostly Ukraine and with the European Free State remains a minority shareholder. State-owned. They include four coal-fired Trade Association countries; Three mobile operators are active on the power plants with an installed capacity of • Stabilization and Association market: T-Mobile Macedonia, (a subsidiary about 800MW and over 20 small and Agreement with EU since April 2001, of Makedonski Telekomunikacii), One medium hydro-power plants with an giving Macedonia duty-free access to (owned by Telekom Slovenia) and VIP (a installed capacity of above 537MW. European markets for the majority of subsidiary of Mobilkom Austria). In 2014, The 210MW oil-powered Negotino plant is the goods (for some goods, full One and Vip announced a decision to used only during peak periods and cold liberalization will be implemented merge into one company, which is reserve. Attempts to privatise it and gradually over a period of ten years). expected to be realised by the end of 2015. subsequently convert it to gas have not The mobile networks cover up to 99% of been completed. As a WTO member, Macedonia has the population. The mobile market committed itself to the three basic rules penetration rate is about 100% of the As private investment, a combined cycle of trade conduct: transparency in laws, population. The mobile networks cover up gas power and heating plant with average equal rights and privileges for foreign to 99% of the population. The mobile annual capacity of the power plant of 220 and domestic firms and citizens, and market penetration rate is about 100% of MW for electricity generation and up to most-favoured nation treatment. the population. 160 MW for heat production was The Law on Customs Tariff is fully- constructed in the suburb of Skopje. harmonized with customs systems The full liberalisation of the introduced by the World Customs telecommunications sector is on-going and There are a number of new generation Organization and the Combined international fixed line operators, competing projects on-going, most of them aimed at Nomenclature of the European with the incumbent operator, have entered tackling the country’s vast hydro-energetic Union. the market since 2006. In total there are 42 potential. They include, among other: fixed line operators in Macedonia. • the two large (over 500MW altogether) Nonetheless, restrictions still exist in hydro-power plants at Cebren & Galiste relation to: Macedonia recognizes the importance of the • large number of small and medium • export licenses for environment “digital economy” and several steps have hydro facilities. protection, protection of human health, been taken in this direction. Legislation, in protection of animals and plants, the shape of the Law on Data in Electronic In 2014 a liberalisation of the electricity protection of historical heritage, trade Form and Electronic Signature and Bylaws market took place for companies which in military hardware; and has been in place since 2001, whereby all have more than 50 employees and • measures for the protection of domestic necessary laws have been modified to turnover higher than 10 million Euros. production from significant increases enable and validate the use of an electronic The country imports all its oil and gas in imported goods, anti-dumping signature. At the same time, steps have been needs. A pipeline brings oil from measures, and measures against taken for establishing the first Certification Thessaloniki to the country’s only refinery, subsidized import prices. Authority (CA) for the purposes of the OKTA, which is owned by Hellenic Government, private persons and Petroleum. A natural gas pipeline brings After several years of stagnation, foreign companies. Russian gas from the Bulgarian border to trade re-started growing in 2004. Skopje and the gas distribution network is However, in 2009 the total trade (import Energy in development. + export) dropped to USD 7.5 billion Macedonia is striving to become self- compared to over USD 10 billion in 2008. sufficient in electrical energy. The total This also led to a decrease of the trade annual generation of electricity in 2013 balance deficit - USD 2.2 billion in 2009. amounts to slightly above 5,500GWh, 1.6 Foreign trade The foreign trade has started to grow mostly from thermal and hydroelectric again in 2010. Estimated total trade level sources, covering about 65% of domestic In recent years, Macedonia has strived to was raised to USD 8.1 billion. Additionally, energy needs. achieve a high level of foreign trade due to more favourable import to export liberalisation. structure, the trade balance deficit In line with European policies, the State In part, this has been achieved as a result decreased to USD 1.9 billion. The total Electricity Utility has been restructured of the following: trade has increased to USD 11 billion in into 4 independent units: two for • Membership of the World Trade 2011. This affected however the trade generation, one for transmission and one Organization since 2003; deficit that increased to USD 2.3 billion. for distribution of electricity. The • Member of CEFTA – Free Trade The trade deficit in 2012, 2013 and 2014 distribution company has subsequently Agreements with Albania, Bosnia and has not changed drastically by 2011; been privatised in 2006 and 90% of the Herzegovina, Serbia, Montenegro; namely it was at level of about USD 2.3 shares were sold to EVN (Austria). • Free Trade Agreement with Turkey and billion.
Guide to Doing Business and Investing in Macedonia 15 Business Environment
2.1 Business climate
Over the past years, the various governments have successfully reduced the fiscal deficits and they have focused on maintaining a low inflation rate, a stable Denar-Euro exchange rate and low interest rates.
Although the above has enabled the development of a stable macro-economic environment, the country has not been as successful in re-starting its economic growth. Although positive, the growth rates recorded during the last years are still behind expectations and lower than those of the region’s most dynamic countries.
The government’s future stated objectives will be to support the growth of domestic consumption, industrial output and create a favourable environment for foreign and domestic investment. To achieve this, the government has already implemented and is still developing, a number of measures, including: • Further public sector reform including the introduction of private sector investment in the public services and infrastructure sectors; • Continuation of trade liberalisation policies; • Measures aimed at enabling easier access to financing; • Implementation of tax incentives through the creation of tax-free zones and a general reduction of the overall tax burden.
16 Guide to Doing Business and Investing in Macedonia Chapter 2
excluding the sales of goods and Parallel foreign exchange markets do not 2.2 Technology services considered as final exist in Macedonia. The long-term consumption under the VAT law; stability of the domestic currency has and Industrial iii) VAT exemption on the import of goods eliminated such practice. The strategy of into the TIDZ intended for export, the National Bank is to maintain a stable Zones excluding the goods intended for final exchange rate by pegging the Denar to consumption as per the provisions in the Euro, thereby maintaining low Investors in technology and industrial the VAT Law; inflation. zones can benefit from tax holidays for up iv) Exemption from taxes and other to 10 years for corporate income tax and duties related to the utilization of The Constitution of Macedonia personal income tax for the employees, construction land, connections to guarantees the free transfer and VAT and customs duties exemptions and water, sewerage, heating, gas and the repatriation of investment capital and other incentives. Under the Law on power supply networks. profits. By law, foreign investors are Technological Industrial Development entitled to transfer profits and income, Zones, the zones are used to facilitate The TIDZ users are also entitled to customs subject to having registered their direct economic activities to be performed under duties exemptions and reliefs in accordance investments and paid all legal obligations special conditions, including tax and other with the domestic customs legislation. relating to taxes and social insurance incentives for zone users. contributions. The land in TIDZ may be leased to foreign The aim of the TIDZ is to support the investors for a period of up to 99 years. Regulation of business development of high modern The Company Law technologies through an application of The current Company Law is effective the highest environmental standards. The since 2004. In 2006 the Central Register establishment, development and 2.3 Regulatory was established as the body authorised to monitoring of the zones is carried out by perform all company registrations and the Directorate for Technological environment the institution to maintain the all Industrial Development Zones. There are companies Trade Register. This is the currently eight operational TIDZs in Investor considerations primary law regulating business activity Macedonia – two in Skopje, one in Macedonia’s national currency, the Denar in Macedonia. It defines the types of Tetovo, Stip, Struga, Prilep, Kichevo and (MKD), while fully convertible within the companies, procedures and regulations Rankovce respectively. In addition, there domestic market, is not convertible on for their establishment and operations. are three planned zones in the following foreign exchange markets. Conversion of As all foreign investors are granted the cities: Gevgelija, Strumica, and Radovish. most foreign currencies is possible on the same rights and privileges as Macedonian official foreign exchange market. In nationals, they are entitled to establish The first TIDZ - “Skopje 1” - covers an addition to banks and savings and operate all types of self-owned area of about 140 ha and is located 10 km institutions, numerous authorized private companies or joint-stock east of Skopje, on the Skopje-Kumanovo exchange offices also provide exchange companies. Foreign investors are not highway (E75), and 3 km from Skopje services. required to obtain special permission international airport. Currently, there are from state-authorized institutions, other several investors in this TIDZ. Most of The official exchange rate is freely than what is customarily required by law. these investors have already started determined by the market. The National Under the Company Law, companies are operating and exporting goods abroad Bank of Macedonia operates in the formed as separate legal entities that and some of them are still constructing foreign exchange market, but participates operate independently and are distinct their operational facilities. on an equal basis with other entities. from their founders, shareholders and managers. Depending on the type, The tax exemptions and incentives In accordance with the regulations, all companies have their own rights, available in the TIDZ include: banks have limits regarding their open liabilities, names and registered offices. i) Corporate income tax and personal foreign exchange position, and they are The law defines five forms of companies: income tax exemption for a period of also required to maintain a foreign General Partnership, Limited Partnership, up to ten years: currency reserve requirement on their Limited Liability Company, Joint-Stock ii) VAT exemption on the sales of goods forex deposits. There are no restrictions Company and Limited Partnership by and services within the TIDZ, on the purchase of foreign currency. Shares.
Guide to Doing Business and Investing in Macedonia 17 The Central Register operates under the will be granted with one-year resident the property is expropriated or restricted, principle of “One Stop Shop system” permit which could be further extended rightful compensation of its market value which basically means that the investor is under the law. Non-EU and non-OECD is guaranteed. served in one place for most of the residents can acquire ownership of procedures required to register its buildings, apartments and office premises Competition, Monopolies and business in Macedonia. under the terms of reciprocity. However, Antitrust the application of reciprocity rights is The Law against Unfair Competition According to the Law on the One Stop determined by the Minister of Justice. (LAUC) was enacted in 1999 by the Shop system all types of companies can Parliament of Macedonia. On April 1st, be registered after 4 hours of submitting Pursuant to the Law on Ownership and 2000, the Commission for Protection of an application (in practice, it might take Other Real Rights, residents of EU and Competition (CPC) was established and 1-2 business days). The Central Registry, OECD member countries can directly now functions as an independent an institution authorised to register acquire the right of ownership or long institution. The German Act against companies within the Trade Register, term lease of construction land under the Restraints on Competition (ARC) was provides a unique company ID number, same conditions as Macedonian citizens. used as a base model for drafting the tax number from the Public Revenue Non-EU and non-OECD residents will be LAUC. Office and a bank account at the same entitled to the same right under the terms time of registration. Following the second of reciprocity. A new law on the enhancement of phase of the One Stop Shop system, all competition came into effect in 2010 – legal entities will own a personal Foreign residents can not directly acquire Law on Competition Protection. The electronic certificate which will allow ownership of agricultural land. However, competition legislation guarantees the them to communicate with all the they can conclude a long term lease protection of free market competition, governmental institutions, providing for contract under the terms of reciprocity, if in cases where competition is distorted home or office use without actually going the consent of the Minister of Justice and by one of the following restrictive to the counters. prior opinion of the Minister of practices: Agriculture and the Minister of Finance is • through collusive agreements; Law on Investment Funds obtained. The bylaws that should provide • through the abuse of a dominant This law governs the conditions for the further details are not adopted yet, which position in the market; incorporation of investment funds and may to some extent inhibit the direct • through business combination among investment fund management companies. acquisition of land by foreigners. companies that lead to the creation of a It also regulates the manner in which a dominant position or the strengthening company operates and exercises Indirect ownership (including lease) of of existing dominant positions. supervisory control of these operations construction and agricultural land, as and the process of the selection of a well as residential and business premises, In practice, certain publicly-held depository bank. The law does not through a locally-registered business, is enterprises still enjoy special privileges discriminate against foreign investors in commonly used by foreigners as a vis-à-vis their private counterparts. It the establishment of open-ended or closed safeguard against legal problems. remains an ongoing area of concern for investment funds. the country’s judicial system which will Ownership of real estate can be obtained be required to comply with competition Right to Private Ownership and through a purchase or gift contract; on rules under the European Union’s Acquis Establishment the basis of a non-monetary in kind Communitaire. In accordance with the Constitution of contribution to a company; or on another Macedonia, the investor’s right to basis stipulated by law, such as Price controls property is guaranteed. inheritance. The Commission of the European Communities reported in 2000 that “Price According to the Law on Ownership and Ownership of property requires the liberalization has been essentially Other Property Rights and to the Law on preservation of specific rights that serve completed. Price controls exist for only Foreigners, residents of the EU and OECD both the individual and the community. very few products”. Since March 2005, member countries can acquire ownership For example, no person may be deprived price controls are only in a form of of apartments, buildings and business of his/her property or the rights deriving regulated prices and approved prices (any premises under the same conditions as from it, unless the use of that property form of direct control has not been Macedonian citizens, in which case they affects the general welfare of the public. If implemented since).
18 Guide to Doing Business and Investing in Macedonia Chapter 2
Price control has remained active mainly The Central Securities Depository (CSD) In addition to the government-issued in the energy sector and communal was established on 31st December, 2001. bonds for frozen foreign currency utilities sector. Prices in the energy The CSD records the existence of an deposits and denationalisation, the sector (oil derivatives, electricity, heating) ownership of securities and associated Ministry of Finance, on behalf of the as well as prices of telecommunication transactions. The CSD has greatly Government, issues treasury securities services, are controlled by independent improved the efficiency of the capital (treasury bills and treasury bonds) on a regulatory bodies. markets and the rights of minority continuous basis. Issuance of treasury shareholders in companies. All joint- bills began in January 2004 and Securities markets stock companies have transferred their treasury bills, and treasury bonds range Macedonia’s securities markets are shareholding books to the CSD. from three months to three years. limited in turnover and capitalization. The establishment of the Macedonian Protection of industrial property rights Stock Exchange in 1995 made it possible for portfolio investments to be regulated. The current Industrial Property Law Socialist Federal Republic of On March 28, 1996, the commencement was enacted in early 2009. This law Yugoslavia, Macedonia has adhered to of trading operations created a central governs the acquisition of most of the international conventions and market place for securities trading. This intellectual property rights. The State agreements that govern these rights. was also the first organized stock Office of Industrial Property governs Macedonia’s accession to the WTO in exchange in the history of the country. registration of patents, industrial April 2003 underscored the urgent designs, trademarks, geographic need for the country to prevent While activity on the stock market is indications and designations of origin. copyright infringement. The first step limited, it does offer a vehicle through in this direction was taken in 2002 which foreign investors can move into the A separate law regulates copyrights, when the Government of Macedonia area. the Law on Copyrights and Related reached an agreement with Microsoft Rights. The protection of author’s to legalize all the Government’s The Securities and Exchange rights, software, CD and other software. Commission adopted legislation that intellectual property is administered by regulates Macedonia’s securities market. the Inspection Service within the Joint action taken by the Inspectors Ministry of Culture, established in from the Ministry of Culture and The Macedonian Stock Exchange is made 1999. Ministry of Interior Affairs has shown up of the First Market (the Official Market some visible results in combating which consists of two sub-segments: the Since 1993, Macedonia has been a piracy in the production and sale of Super Listing and Exchange Listing member of the World Intellectual items, such as CDs, DVD movies and segments), with various listed companies, Property Organization (WIPO), and in software. and the Unofficial Market. The latter also 1994, it became a member of the consists of two sub segments a Market for Permanent Committee of Industrial In October 2008 the Macedonian Publicly-Owned Companies (Large Property Protection Information of Parliament ratified the Convention for Non-Listed Companies) and the Free WIPO. As a successor to the former Recognition of the European Patents. Market.
According to the changes in the respect of government and municipal Macedonian Securities Law in 2013, all Law on Financial Discipline bodies, public enterprises and issuers of securities (joint-stock In December 2013 a Law on Financial companies held by the state and the companies and limited partnerships by Discipline was adopted, with the municipalities on 1 January 2016. stock) who were not listed on the purpose of regulating the timely Macedonian Stock Exchange were fulfilment of the monetary obligations The Law on Financial Discipline statutory required to list their securities between business players and provides fines up to EUR 10,000 for the on the Exchange if they meet the special discouraging payment defaults. legal entities for nonfulfillment of its criteria for mandatory listing as defined obligations under the Law, and fines up in the Listing rules of the Exchange. The Under the Law on Financial Discipline, to EUR 1,500 for the authorized person mandatory listing is with limited the term for fulfilment of the monetary of the legal entity. duration until 30 April 2018. obligations is 60 days, however the legal entities can agree to a term no Extensive amendments on Law are longer than 120 days. It is envisaged expected to be adopted until the end of the Law to become also applicable in 2015.
Guide to Doing Business and Investing in Macedonia 19 1 2 3 4 5 6 7 8
Foreign investment
3.1 Investment
policy
As a small, albeit open economy, Macedonia continues to take steps to attract foreign direct investment (FDI). The country has enacted legislation that not only ensures an equal footing for foreign investors vis-à-vis their domestic counterparts, but also provides numerous incentives to attract such investment. The country currently has six Ministers and an agency dedicated to attracting and assisting foreign investors. The country has also concluded a number of bilateral investment protection treaties and other multilateral conventions that impose stricter protection standards for foreign investors.
The Constitution stipulates that a foreign person in Macedonia may acquire property rights under conditions set by law. Furthermore, the Constitution guarantees a foreign investor the right to the free transfer of invested capital and profits. A foreign person may establish the same types of companies as a national of Macedonia. A foreign investor may also be an individual business person – sole proprietor.
There is no single law regulating foreign investment. Rather, the legal framework applicable to foreign investors is made up of various laws, including: the Companies Law, Securities Law, Corporate Income Tax Law, Personal Income Tax Law, Law on Value Added Tax, Foreign Trade Law, Law on Takeovers, Law on Foreign
20 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 3
Exchange, Law on Investment Funds, Banking Law, Law on Supervision of 3.2 Investment Investment Protection and Insurance, Audit Law etc. Trade Agreements incentives Up to 30 bilateral Investment In general, there are no restrictions Protection Agreements have been signed, 13 of which are with governing the participation of foreign Tax incentives members of the Organization for capital in the banking sector. Under the The range of incentives in Macedonia Economic Cooperation and Law on Banks, acquisitions of more than includes exemption from customs duties, Development (OECD). Among those 5% of a bank’s shares are subject to the various tax holidays and specific tax relief who have signed such agreements consent of the National Bank of Macedonia. measures. are: Austria; Albania; Belgium; Belarus; Bosnia and Herzegovina; The Law on the Supervision of Insurance The low corporate income tax rate of 10% Bulgaria; China; Croatia; the Czech requires that foreign and domestic should also be a favourable incentive for Republic; Egypt; Finland; France; investors should obtain an approval by the establishment of operations by foreign Germany; Hungary; Iran; Italy; the Agency for Insurance Supervision in investors, especially under the current India; Korea; Malaysia; The respect of any purchase of shares which regime, applicable since 2014, where Netherlands; Poland; Romania; The provides qualified participation in an corporate income tax is not payable on Russian Federation; Serbia; insurance company (10%). Supplemental reinvested profits, if ownership over the Montenegro; Spain; Sweden; investments in the shares of the assets purchased with the reinvested Switzerland; Taiwan; Slovakia; insurance company may be subject to profit is maintained for a period of five Slovenia; Turkey; Ukraine. additional approvals as well. years as of the day of their purchase. Free trade agreements have been The Constitution of The taxpayer, registered within a signed with Turkey and Ukraine, the Macedonia guarantees technological development zone is eligible countries from EFTA and there is the equal treatment for all for reliefs from payment of corporate Stabilization and Association market participants and income tax and personal income tax for a Agreement with the EU, giving the right for foreign period up to ten years. In addition, import Macedonia duty-free access to investors to freely transfer of goods in the zones as well as supply of markets of 650 million consumers. In and repatriate investment goods from local suppliers exceeding EUR 2006 Macedonia became a member capital and profits. 1,000 which are not intended for final state of the Central European Free consumption are exempted from value Trade Agreement. added tax.
21 1 2 3 4 5 6 7 8
Banking and finance
Banking system The financial system in Macedonia consists of the National Bank of Macedonia (Central Bank), commercial banks, savings houses, exchange offices, the Deposit Insurance Fund, in addition to insurance companies, investment funds, pension funds, funds management companies, lease companies, brokerage houses and a stock exchange.
The banking system itself consists of 15 universal banks and 3 saving houses, regulated by the Banking Law.
The banking system is still small and has a relatively low level of financial intermediation. After independence, at the beginning of the 1990s, the banking sector developed rapidly but without sufficient control. This aggravated by external factors, led to serious problems including a liquidity crisis in the mid- 1990s. Since then, the regulatory authorities have strengthened supervisory monitoring moving toward well- developed risk based supervision, and depositors’ confidence has been restored. The situation is now fully stabilised; banks have high levels of liquidity, a satisfactory level of capitalization, and higher efficiency and profitability, albeit with a relatively low level of intermediation.
As a result, the mortgage and loan market has long remained under-developed. The situation has however started to improve in the recent years but there is still a potential for future development. For instance, total private sector lending has increased year-on-year by almost 30% in 2006 and about 40% in 2007, but in the recent years the increase was
22 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 4
significantly slowed to 7.1% in 2010, 8,5% According to the Banking Law, a foreign Générale, Turkiye Halk Bankasi A.S., Alfa in 2011 6,9% in 2012, 6,4% in 2013 and bank can enter the Macedonian banking Finance Holding, Steiermärkische Bank 10% in 2014. market through a representative office taking over most of the remaining (with the Governor’s approval) and privately owned banks. In parallel, interest rates have been subsidiary or a branch (with the steadily decreasing, but still remain high. Governor’s licence). Insurance market Average rates on commercial loans in An Insurance undertaking is a joint-stock Denar have decreased from 9.5% in 2010, The three largest banks – Komercijalna company with a head office in 8,9% in 2011, 8,5% in 2012, 8% in 2013, Banka AD Skopje, Stopanska Banka AD Macedonia. Under the Law on 7,5% in 2014, and 7,1% in the 2nd quarter Skopje (National Bank of Greece main Supervision of Insurance, the Agency for of 2015. shareholder) and NLB Tutunska Banka Insurance Supervision supervises the AD Skopje (NLB Ljubljana main insurance activities. Central Bank shareholder) dominate the banking The Central Bank is an independent system, holding together around 60% of The Law on Supervision of Insurance institution, the sole money-issuer, whose the net assets of the banking system. governs the conditions for performing main objective is to maintain price the activities of life and non-life stability. The National Bank supports the Still highly fragmented outside the 3 insurance and reinsurance. Currently, economic policy and the financial largest banks, the banking sector has insurance services can be provided only stability of the country without undergone a significant change over the by licensed companies registered in jeopardizing the realization of the main past two years with investors like Société Macedonia. objective, and adhering to the principles of the market economy. The National Bank is responsible for the stability of the national currency (Macedonian Denar), general liquidity of the banking system, liquidity in the payments abroad, holding and managing the foreign exchange reserves; regulating the payment system as well as the implementation of monetary policy. The Central Bank serves also as the main regulatory body responsible for the supervision of all banking institutions.
Banking market The banking system in Macedonia currently consists of 15 private banks, 3 savings houses and the State-owned Macedonian Bank for Development Promotion. According to the Banking Law, a bank must be established as a joint-stock company with a head office in Macedonia. Banks are obliged to follow the prescribed supervisory standards regarding solvency and capital adequacy, risk management, exposure limits, investments, liquidity.
Savings houses are limited in their banking activities and services (savings and loans) for individuals, some of them now offer as well micro-credit type financing.
Guide to Doing Business and Investing in Macedonia 23 The insurance market consists of 15 insurance companies, 31 insurance broker companies and 11 insurance representation companies.
Leasing companies The Law on Leasing was enacted in 2002. The Law on Leasing recognises two types of leasing, operational and financial leasing. The leasing companies are controlled and supervised by the Ministry of Finance. However, Macedonia still had not ratified the UNIDROIT Convention for international financial leasing and it is not a member state of the UNIDROIT organisation. Currently, there are 8 actively operating companies in Macedonia.
The leasing market is still under- developed compared to most other countries in CEE but it is now anticipated that conditions are set to further improve. As a future perspective, steady growth at a slower rate is expected.
Financial companies The Law on Financial Companies was enacted in 2010. Under the law, a financial company is a non-banking institution, which provides financial services such as provision of loans, administrating credit cards, factoring and issuance of guarantees. A financial company can operate in Macedonia upon obtained licence from the Ministry of Finance and the activities of the financial companies are controlled by the Ministry of Finance. Currently there are 10 financial companies operating in Macedonia from which one company is member of an international group.
The financial market, as well as the leasing market is still under-developed, however it is noted that there is need between the consumers for such fast loans which are obtained in a much simpler procedure than from a bank. With the recent entering on the Macedonian market of one international financial
24 Guide to Doing Business and Investing in Macedonia Chapter 4
company it is expected that in near future other similar companies will follow.
International financial market The Macedonian Stock Exchange is a member of the Federation of Euro-Asian Stock Exchanges (FEAS) since 1996 and an affiliated member of the Federation of European Stock Exchange (FESE) since 2005.
Memorandums of Understanding between the Macedonian Stock Exchange and the Stock Exchange in Sofia, Ljubljana, Athens, Belgrade, Zagreb and Vienna were signed. The Memorandum regulates the degree of cooperation between the two Stock Exchanges and the exchange of information as a first phase in building bilateral and regional relations.
The Law on Foreign Exchange Operations regulates that residents, other than authorized banks, may not purchase securities abroad. The authorized banks may purchase and sell securities abroad on their behalf and for their account (only securities issued or guaranteed by Governments of member states of the OECD and by international financial institutions or securities with investment rating assessed by at least one top international investment-rating agency). The Deposit Insurance Fund, the insurance companies, the pension funds and the investment funds may purchase securities abroad in accordance with the laws regulating their operations.
Source of funds Banks are the main source of financing, since the capital market is generally under-developed and with a relatively low level of market capitalization.
While companies from Macedonia are free to borrow from foreign banks without restrictions, the inflow of foreign funds for this purpose has been minimal.
Guide to Doing Business and Investing in Macedonia 25 1 2 3 4 5 6 7 8
Importing and exporting
Customs regulations The Customs Act from 2006 brought Macedonia’s customs regulations further in line with EU standards.
The law includes provisions for the governance and operation of free zones. Also, new simplified procedures are introduced for inward processing such as easier-to-use declarations. Furthermore, new rules provide for the guarantee of customs debt, the issuance of binding statements for tariff classification of certain goods, and binding origin statements for specific goods in determining the predictability of preferential and non-preferential tariff treatment. The amendments of the Customs Law in December 2010 introduced licences for customs agents.
Customs duties generally apply to most products imported into Macedonia. A number of products are subject to quality control by market inspection officials at customs offices. These officials are employed by the Ministry of Economy to ensure that imported goods are in compliance with domestic standards.
The products subject to quality control include most agricultural products, cars and electrical appliances or products in which failure to meet set standards may pose a health risk to consumers. Where applicable, products also must pass sanitary, phyto- pathologic or veterinary control. According to the Stabilization and Association Agreement 2001 between Macedonia and EU, generally, products
26 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 5
with Macedonian origin can be account payments. Profits and There are no regulatory restrictions exported into EU countries free of dividends from inward investments on foreign direct investments by customs duties. can be freely transferred abroad, after non-residents in Macedonia. Credit corporate income tax and withholding transactions between residents and Foreign exchange regulations tax (if any) is paid. non-residents can be freely The foreign exchange regime is arranged. The only requirement is governed by the Law on Foreign There are, however, reporting that such loans must be registered Exchange Operations and requirements applicable on with the Central Bank. Certain accompanying regulations. According investments by Macedonian residents legal entities conducting business to this Law, payments to or from abroad. Such investments should activities abroad can hold deposits foreign countries are performed by normally be reported to the Central in foreign banks but only with banks authorised for foreign Registry and in some cases to the permission from the Central Bank. transactions by the National Bank of Central Bank on prescribed forms. Non-residents can freely open Macedonia (the Central Bank). Transfers of funds and investments non-resident accounts in Payments on behalf and for the abroad, by Macedonian residents, are Macedonian banks. The foreign account of Macedonia are carried out possible, but subject to specific exchange law introduces a much by the Central Bank. reporting requirements and more liberal regime for capital There are no restrictions on current authorisations from the Central Bank. transactions.
Ohrid Lake Guide to Doing Business and Investing in Macedonia 1 2 3 4 5 6 7 8
Business entities
6.1 Local representation
Finding a Partner Although there are no legal restrictions on fully foreign owned and managed companies, finding a local partner is usually highly advisable for foreign investors in order to maximise business efficiency and to access the local markets.
Finding an Attorney Foreign attorneys are not permitted to practice in Macedonia. A domestic attorney must conduct all legal work. Foreign firms should consult with local attorneys on the legal aspects of their potential activities, including registration, licences, taxes, import / export procedures, and contracts. Additionally, a local accountant can assist with the structuring of a local company and its operations.
Franchising Franchising is a relatively new concept for the business community in Macedonia. The legal system in Macedonia accommodates franchise agreements, although Macedonian law does not explicitly cover franchising. The Macedonian Franchise Association was established in 2003 specifically to help domestic and foreign companies with these issues.
The laws on labour relations are well established, leases can be freely negotiated, and laws exist to protect trademarks, patents and copyrights.
A large number of international franchises have successfully entered the Macedonian market since the end of the 1990s in the retail, hotel, rental and restaurant sectors.
28 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 6
Joint Ventures / Licensing Joint-Stock Company (AD) – this is a into trade register, amounting to at least Existing legislation permits joint company that has, by its Charter, a one-quarter of their nominal value (values ventures, including a combination of defined capital (basic capital) divided in exceeding the nominal should be wholly foreign and domestic investment. With equal parts (shares). Shareholders paid in). The payment of the remainder many large firms undergoing participate with one or more shares and can be effected in one or more privatisation, joint ventures are their liabilities are secured with the entire instalments, in accordance with the share becoming more common. A local capital of the company. A joint-stock issuance decision, within a term that company often joins forces with a company may be founded by one or more cannot exceed three years. foreign company that provides legal entities or individuals. equipment and merchandise, while the If the contribution is partially paid as local company provides buildings, Limited Partnership by Stock – this monetary contribution, and partially as warehouses, office space and is a company in which one or more non-monetary contribution, the portion personnel. general partners, are liable jointly paid as monetary contribution must be without limit for the company’s fully paid in prior to the registration. obligations. Limited partners have the status of stockholders and are not liable The Company Law provides two for the obligations of the company. procedures with respect to 6.2 Forms of establishing a joint-stock company: Sole Proprietors – individuals that • Simultaneous founding - when the Companies conduct business operations are required founders themselves or jointly with to register as sole proprietors. The other persons, undertake to acquire all In accordance with the Company Law, individual is fully and unlimitedly liable the shares without a public invitation both Macedonian and foreign individuals with all his assets to the creditors. (simplified procedure similar to the or companies can establish the following types of business entities: procedure for the founding of a limited Details for the procedures for registering liability company). different kinds of business is presented in • Successive founding - the joint-stock General Partnership – this is an the following four points: association of two or more legal entities company may be founded through or individuals who are personally and subscription to all or to a certain jointly liable without limit to the number of shares on the basis of an creditors. This liability includes their 6.3 Joint Stock announcement (this procedure is more entire property. complicated and is much longer (min. 3 Company-(AD) months) and is, in practice, little used). Limited Partnership – this is a partnership of two or more entities or The lowest nominal value of basic capital Entry of the company into the individuals in which at least one of the assets required for founding a joint-stock trade register partners will be jointly liable without company are as follows: The managing entity of the joint-stock limit and with his entire property for the • EUR 50,000.00 in MKD counter value company should immediately submit the obligations of the company (“general - by a public invitation application for the entry of founding of a partner”) and at least one partner • EUR 25,000.00 in MKD counter value joint-stock company into the trade (“limited partner”) who is liable for the - without a public invitation register. The following documents should obligations of the company up to its • The minimum nominal value of the be also attached to the application: recorded contribution in the company. share cannot be lower than EUR 1 in • the statute, which is the founding deed MKD counter value of the company; Limited Liability Company (DOO or • relevant documentation for DOOEL) – this is a company in which the The deposit may not be contributed in the identification of the company’s shareholders participate with one share form of personal labour or services. For founders; each (basic contribution) in the the purposes of the evaluation of non- • the enactment on undertaking of company’s pre-determined basic capital. monetary deposits, an evaluation report by shares and one copy of the prospectus The basic contribution may differ in an appraiser, chosen by the founders, from on the basis of which the whole sum or value, but the contribution cannot be in the list of appraisers determined by the part of the basic capital assets had the form of labour or services. A court, should be enclosed in the statute. been subscribed; minimum of 1 and a maximum of 50 • the minutes of the founding assembly, shareholders can establish a limited The money deposits can be paid for, up to the invitation to it and the list of liability company. the moment of the entry of the company participants;
Guide to Doing Business and Investing in Macedonia 29 • the incorporation report prepared by with a one-tier system (board of The law defines more complex rules and the company’s founders; directors) or a two-tier system (separate requirements for convocation and • the resolution for appointment of the management and supervisory boards). realisation of the GM of the publicly-owned members of the board of directors, i.e. joint-stock companies (large non-listed of the managing board and of the • One-tier system companies) and the listed joint-stock supervisory board, if such members companies. are not appointed in the statute of the Board of directors: The board of directors company; is composed of non-executive and • the licence, if required in accordance executive members (directors), with the law, and the appraiser’s numbering at least 3 (three) but not more 6.4 Limited report; than 15 (fifteen) members. • statements by the company’s founders Liability that they are not prohibited by law to • Two-tier system incorporate the company and that the Company incorporation of the company is Management Board: The Management conducted in accordance with the law. Board should consist of at least 3 (three) - (DOO or and not more than 11 (eleven) members. The joint-stock company is considered The Supervisory Board should nominate OOEL) D founded once it has been registered in the the members of the Managing Board. trade register. No single person may be a member of The Limited Liability Company is, in the Managing Board and a member of practice, the most common form of The company registration the Supervisory Board at the same time. business entity. A single founder (i.e. one procedure is as follows: person) may establish a limited liability Since January 1, 2006, the Central The Chairmen of the Management company. The company may have a Registry has become the only body Board should act as an agent and maximum of 50 founders. The company’s authorised to carry out the registration of representative of the joint-stock capital assets are deposited by the a new local company or a branch office of company in relations with third parties. founders. The founders cannot be liable a foreign company. At the same time it The statute of the company may for the obligations of the limited liability has implemented a One-Stop-Shop authorise the Supervisory Board to company. The basic capital assets should system through which the registration of allow one or more members of the be at least EUR 5,000 in MKD counter a company can normally be completed Management Board bearing the title of value, in either cash or assets. If the capital within four hours (1-2 business days in General Manager(s), to act as agents of is invested in assets, a qualified appraiser practice). The One-Stop-Shop system the company. must perform the appraisal. The amount undertakes all registration procedures of each separate deposit may not be less with various state bodies (including the Supervisory Board: The Supervisory than EUR 100 in MKD counter value. provision of a tax ID no.). Following Board should consist of at least 3 (three) registration, the company must perform and no more than 11 (eleven) members. Type of management the following: The assembly of the company should The company must have one or more nominate the members of the managers, with limited or unlimited • Activate the Bank Account; Supervisory Board. authority, according to the statutory • Registration with the Public deeds of the company. If the founder is a Revenue Office to obtain a VAT General Meeting (GM) of the single person, the company is established number; and Joint-Stock Company (AD) with a Statement. If there are two or • Only in case of foreign The shareholders can exercise their rights more investors, the company is investment, registration of the in the joint-stock company, especially in established with an Agreement. foreign investment within the relation to the adoption of annual balance Central Registry. sheets, the appointments and recalls of Documentation members of the company’s board of When the founder is an individual foreign directors or the supervisory board, etc. citizen, a photocopy of the founder’s The members of the Board of Directors i.e. passport should be submitted. The Systems of management of a joint of the Supervisory Board and the photocopy has to be translated by an stock company Management Board may participate in the authorized translator. When the founder The management of a joint-stock GM without voting rights, unless they are is a foreign firm, an excerpt from the company may be organized in accordance shareholders. Trade Registry where the Founder is
30 Guide to Doing Business and Investing in Macedonia Chapter 6
entered, duly notarized and translated by • A copy of the Company Agreement or Representatives an authorized translator, should be Charter certified by an authorized A foreign company can appoint one or submitted. administrative body of the company’s more representatives, for each branch country of origin, as well as a office undertaking activities for the The company must have a location based certificate issued by the foreign company in Macedonia. on the ownership title or contract for authorities proving that the submitted rental of the estate or business premises. Agreement or Charter is still in effect. The representatives appointed with the If the laws of the company’s country of Macedonian Central Branch Office should Name of the company origin do not require a written act as representatives of the other While foreign words can be included in the Agreement or Charter, a certificate branches. company’s name, they must nevertheless proving the existence of the company, be written in the Cyrillic script for the its interest holders and their liabilities, purposes of submission in the Trade issued by the relevant diplomatic or Registry within the Central Registry. consular office of Macedonia, must be 6.6 Representative submitted. This must include a list of persons to whom representation of the office company in Macedonia has been 6.5 Branch Office entrusted, including their names, A representative office of a foreign occupations, residential addresses and company is not a legal entity. It is only A foreign company can establish a branch citizenship. Proof that these persons permitted to undertake activities of a office in Macedonia if it is registered in have been legally designated according research or information-gathering the Trade Register of its domicile country. to the Company Agreement or Charter, nature. The registration of the The branch can perform the same and the laws of the company’s country representation offices is performed in the activities as the foreign-domiciled of origin, must be attached to the list; Register of representative offices of the company. The branch may perform • A decision issued by the authorized foreign companies in Macedonia. The activities in the name, and on behalf of, body of the company establishing the register is maintained within the Central the foreign-domiciled company, including branch; Register. use of its name and address. • A list of the nominated authorised Consequently, the foreign-domiciled representatives of the founder in Documents needed: company would incur full liability over Macedonia; • Application containing the firm, the the branch operations. • A certified copy of the company’s credit registered seat and the activities to be rating issued by a relevant authority or performed (from a list of limited If a foreign-domiciled company establishes chartered audit enterprise under the activities that can be performed); several branches in Macedonia, it must laws of its country of origin; • Authorized copy from the registration designate a main branch (central branch • A description of activities to be of the foreign company; office) in the Trade Registry. The trade performed by the branch. • Decision of the foreign company for name of the other branches must include opening/establishment of a the trade name of the Macedonian central Liability in legal transactions representative office and decision for branch, as well as the reference numbers A foreign-domiciled company or sole appointment of a manager or of the other branch offices, according to proprietor will be liable, with its entire representative of the representative their order of entry in the register. assets, for the liabilities arising out of a office; branch’s operations. • Passport photocopy of the Manager of A foreign sole proprietor has the right to the representative office; establish only one branch. The foreign Where the person establishing the branch • A working program of the company or sole proprietor must apply to is registered in the country, in which it has representative office; the Trade Register within the Central maintained a main office, for less than • Notarised statement of the foreign Register for registration. two years preceding the date on which the company that assumes all the liabilities application for establishment of a branch arising from the operations of the The following documents must be was filed, the founders of the foreign representative office as well as proof of included with the registration in the Trade company, or the foreign sole proprietor, paid registration fees. register: should be held jointly and severally liable • An excerpt from the Registry in which for a period of two years, following the The Central Register decides within 5 the founder is entered, showing the date of establishment, for any liabilities days from the day of submission of the content and date of entry; which arise in respect of the activities. registration application.
Guide to Doing Business and Investing in Macedonia 31
1 2 3 4 5 6 7 8
Labour relations
7.1 Labour market
Ever since the 1980s, Macedonia has suffered from high rates of unemployment. At the time of Independence, the unemployment rate was close to 24%. The restructuring of the economy has led to an overall decline in labour demand, and the overall low growth and lack of major investments have failed to create a sufficient number of job opportunities.
Additionally, the labour law has not permitted sufficient flexibility in the labour market. Recent labour market reforms, including a new Labour Relations Law, in 2005, and its subsequent amendments have injected some labour market reform of benefit to employers.
In the second quarter of 2015, the rate of unemployment is 26,8 %. Unemployment is particularly acute among women and some of the ethnic minorities.
It should be noted that the official figures do not reflect the large “informal” economy, as a result of which, the actual numbers of jobless may be significantly lower.
7.2 L abour relations
The employment relation is regulated by an individual employment contract pursuant to the Labour Relations Law. The employment contract, which must be in writing, and kept at the employer’s premises should govern the following:
34 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 7
• information concerning the contracting The minimum salary in Republic of compulsory social security contributions is parties (employer & employee); Macedonia on annual level is determined as follows: • the commencement date; by the Ministry of Finance upon prior • the duties of the employee and the opinion obtained from the established place of work; Economic and Social Council in which the • 18% - pension and disability • the term of employment (part-time or representative labour unions and insurance full-time); employers associations participate. The • 7.3% - health insurance • working hours; minimal net salary in 2015 is MKD 9,590. • 1.2% - unemployment insurance • vacations and other leave; • 0.5% - additional health • the compensation and pay period; Salaries are computed and paid at least insurance. • list of the general acts determining the once monthly. Social security working conditions. contributions and personal taxes are withheld by the employer along with the Labour Unions payment of salaries to employees. As of January 2015, the Mandatory The two principal Labour unions are the Social Security Contributions Law was Council of Trade Unions of Macedonia and Employees are entitled to salary subject to several changes which by the Union of Independent and compensation during leave from work, August 2015 were abolished. However Autonomous Syndicates of Macedonia. under conditions, and in the amount, one change concerning the maximum determined by the Labour Relations Law base for calculating the social security About 75% of the employed labour force, and respective collective labour contributions remained. Namely, the are members of a union. Membership is agreements. maximum base for calculating and voluntary and activities are financed paying social security contributions was entirely by membership fees. This applies to: increased from six to twelve average • annual leave; gross salaries (i.e. increase from Collective bargaining agreements are • sick leave; approximately EUR 3,000 to negotiated between the representative • maternity leave; approximately EUR 6,175 as at the labour unions and the Government for • vocational training arranged by the moment).The Public Revenue Office the general collective agreement for the employer; (PRO) is the authorised body to control public sector and between the • other cases stipulated by the law and the calculation and the payment of the representative labour unions and collective agreements. compulsory social security representative employers association for contributions. All employers send their the general collective agreement for the calculations to the PRO which controls commercial sector. These two collective them and, if correct, issues a agreements represent the two pillars 7.4 Social declaration of acceptance that is used under which industry branch and by the banks to perform the payment of employer level collective agreements insurance / the social security contributions and net can be negotiated and signed. The salaries. general collective agreement for the Pensions commercial sector applies directly and The rights arising from contributions of is obligatory for all employers and Calculation and payment of all the pension and disability insurance include: employees in the private commercial employees’ social security contributions is • retirement and disability pension; sector. regulated by the Law on Contributions for • vocational training; Mandatory Social Insurance. The • family pension; amendments to this law, effective since • monetary allowance for work related January 2009, introduced the unified injury and diseases. 7.3 Wages and system of gross salaries. The rights arising from contributions of salaries Employers are obliged to calculate, health insurance include: withhold from employees’ gross salary • health protection in case of illness and As of September 2015, the average and pay into the accounts of respective injury not related to work; monthly net salary was MKD 21,861 funds the compulsory social security • health protection for work related (c. EUR 356). contributions. The current level of the injury and diseases;
Guide to Doing Business and Investing in Macedonia 35 • salary compensation in case of absence • Third tier - a private pension fund • A 30-minute paid break during daily from work due to illness, injury or made up of voluntary contributions. working hours; pregnancy and motherhood; • Rest of at least 12 hours between two • compensation of some travel expenses. In the second tier, 6 % of the calculated consecutive working days; compulsory pension and disability • Rest of at least 24 consecutive hours The rights arising from contribution for contribution is paid, while the rest is paid per week. Should employees be unemployment insurance in case in the first tier. required to work during this period, unemployed include: the leave hours should be carried • Monetary compensation; For the second tier, employees can forward into the following working • Employment related trainings; contribute to either one of two private week; • Health protection; pension funds: Nov Penziski Fond or KB • Annual leave, during the course of one • Pension and health insurance for some Prv Penziski Otvoren Fond. calendar year, between 20 and 26 unemployed categories; Voluntary pension contributions can be working days; • Beneficial employment conditions for made in the voluntary pension funds such • Up to seven days paid leave, in cases of disabled. as NLB Penzija Plus and the KB Prv marriage, death of close family Otvoren Dobrovolen Penziski Fond. There members, professional examinations In addition, the Law on Pension and is a personal income tax exemption and other employer requirements, in Disability Insurance established a available for the voluntary invested funds accordance with the terms and multi-tier pension system, which of up to four average monthly gross salaries conditions of respective collective comprises three tiers: (i.e. EUR 2,040 as at the moment). agreements. • First tier - a compulsory state pension fund, Rest and leave periods Should employees be assigned to • Second tier - a compulsory private Employees are entitled to the following professional training, the leave may pension fund rest and leave periods: exceed seven working days.
36 Chapter 7
Sick leave remuneration, but no more than four A foreign individual can legally work in Employees are required to notify average net salaries paid in Macedonia, Macedonia only upon obtaining a work employers, within 24 hours, of having in the last year. The compensation is permit first. Three types of work taken sick leave, and afterwards provide paid by the Health Insurance Fund. permits are available: personal work a health certificate issued by an permit, employment work permit and appropriate doctor to the employer. Termination of Employment work permit for exercising work Approved sick leave will not be According to the Labour Relations Law, without employment in the country. considered as justifiable grounds for employment can be terminated in the The choice of any particular work termination of employment. following instances: permit is dependent upon the nature • By agreement between the employer and duration of the work to be According to the Health Insurance Law, and employee; undertaken in Macedonia. The permit which requires mandatory health • Upon the expiry of a fixed-term of is issued by the Employment Agency of insurance, insured persons have a right to employment; Macedonia and the procedure is basic health services and health protection • Upon death of the employee or the conducted through the Macedonian arising from illness, work-related injuries employer (individual), respectively Embassy in the resident/domicile and occupational diseases. bankruptcy or liquidation of the country of the foreign applicant. employer (legal entity); Although under the latest regulatory Insured persons are also entitled to • By a court verdict; changes the procedure for issuance of salary compensation due to illness- • By termination notice, supplied by work permits could be conducted related work absences. the employee or by the employer only through the Macedonian Employment on explicitly enumerated legal Agency as well, such option is still not The employer is obliged to make salary grounds. available in practice until relevant payments during the first 30 days of sick by-laws which would further regulate leave. After that period, any payments that procedure are adopted. should be made by the Health Insurance Fund. 7.5 Work permits In addition, the relevant immigration Law provides a possibility for a foreign Maternity leave and / visas national to provide short-term services benefits to a Macedonian entity for duration up In accordance with the Labour Relations While working in Macedonia, foreign to 60 days in one calendar year, based Law, women are given special protection. employees are guaranteed the same on a simple registration of work before Female employees are entitled to nine labour rights as Macedonian citizens. the Employment Agency. months continual leave from work during pregnancy, birth and maternity, and one year’s leave in case of a multiple birth. September 8 Independence Day Based on the findings of authorized 7.6 Holidays medical institutions, female employees January 1 New Year’s Day October 11 Uprising Day may begin maternity leave 45 days before delivery and compulsorily 28 January 7 Orthodox Christmas October 23 Revolution Day days before delivery. Variable date Orthodox Easter December 8 St Clement During maternity leave, female employees (2 days) Ohridski Day are entitled to pay in compliance with the health care regulations. May 1 Labour Day Variable date Ramadan Bajram
A female employee entitled to maternity May 24 St Cyril and Depending on the religion or leave, may return to work, prior to the Methodius Day nationality, Macedonian residents end of the maternity leave period. are entitled to various respective August 2 Ilinden Uprising Day holidays Compensation during maternity leave is equal to the employee’s actual
Cave in Matka Canyon
Guide to Doing Business and Investing in Macedonia 37 1 2 3 4 5 6 7 8
Audit and accounting requirements and practices
Accounting and financial statements
Annual financial statements According to the Company Law, the business entities are generally obliged to prepare annual financial statements at the end of each calendar year. As of 2012 there is a possibility entities, which have not carried out business activities during the year, to decide not to prepare annual financial statements.
All large- and medium-size business entities as well as, financial institutions, legal entities that are listed on Macedonian Stock Exchange and entities whose financial statements are subject to consolidation, have obligation to prepare the annual financial statements in accordance with International Financial Reporting Standards as published in Official Gazette.
In addition, all other entities have an obligation to prepare the annual financial statements in accordance with International Financial Reporting Standards for Small- and Medium-Size Entities.
The practical application of the law is not without challenge. There are areas of practical difficulty surrounding: • The lack of trained accountants in the industry who are familiar with IFRS; • Harmonisation of the IFRSs (as publish by IASB), with the ones published in Official Gazette; • Inconsistent interpretation of the IFRS related accounting laws; • Benefits of applying IFRS not always understood by local companies.
38 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 8
In addition, the Ministry of Finance has issued a Rulebook for the Preparation of the Annul Financial Statements that is predefined form of reporting. These statements have to be submitted to the Government Authorities. A mandatory Chart of Accounts for the companies was also introduced. There are separate Chart of Accounts and Annual Financial Statements forms for financial institutions and insurance companies.
New Accounting Law was adopted in 2012. Pursuant to it only licensed accountants and accounting firms can perform accounting activities for business entities established in Macedonia. An Institute for Certified Accountants was established that will regulate the activities of the accounting professionals.
Audit In 2014 new Audit Law was enacted replacing the former Audit Law that was The Audit Law requires audit to be which should be submitted to the in operation since December 2010. This performed by an audit company registered Supervisory Board / Board of Directors, way the requirements regarding audit with the Central Register or by a certified and among others, they should contain the were further improved and clarified. auditor that operates as a sole proprietor following: in accordance with the Companies Law. In • description of the audits carried out The legal regulation, has created an audit both cases the auditor should be licensed during the year; environment similar to that of most by the Council for Advancement and • assessment of the company’s internal Western-developed countries: Oversight of the Audit. control environment; • The VIII EU Directive, which refers to • findings, recommendations and the conditions required of certified The Council for Advancement and assessment on the implementation of auditors in relation to competence and Oversight of the Audit issues the license recommendations proposed by the independence, was incorporated into for operating as an Audit company or Internal Audit Department; this law; certified auditor. The Audit Law contains • assessment of the implementation of • The Audit Law stipulates that audit the terms and conditions for acquiring the the Annual Plan of the Internal Audit activities are to be performed pursuant title – “Certified Auditor”. Department; to International Standards on Auditing. • assessment of the budgeted audit time As per the Audit Law, public interest and possible deviations from the The Company Law specifies the entities entities are required to form Audit budget; and which are obliged to submit financial and Committee consisting of at least five • information about other activities. accounting statements for a statutory members. audit: The Supervisory Board / the Board of • Large- and medium-size joint-stock Internal Audit Function Directors is obliged to submit the annual companies; The Companies Law stipulates the report of the Internal Audit Department to • Listed entities; obligation for establishment of an Internal the Shareholders’ Assembly. • Large and medium limited liability Audit Department for all large-size companies. joint-stock companies and entities listed There is an Association of Internal on the stock exchange as of January 2011. Auditors of Macedonia that is a member of The Audit Law also enables businesses to The Internal Audit Department should Global Institute of Internal Auditors from undergo voluntary audits. prepare semi-annual and annual reports, 2013.
Guide to Doing Business and Investing in Macedonia 39 1 2 3 4 5 6 7 8
Taxation
9.1 Corporate Income Tax
Basis of taxation In June 2014, the Government of Republic of Macedonia has introduced a new Corporate Income Tax Law which is effective as of 1st January 2015, but also applicable for the taxation of profit for FY2014.
Corporate income tax is paid by resident legal entities both on the profit arising from the activities performed on the territory of Macedonia and from incomes generated abroad.
A permanent establishment of a foreign entity in Macedonia is also liable for corporate income tax for the profits realised on the territory of Macedonia.
A legal entity is considered resident if registered in accordance with the Company Law, or if it has a head office on the territory of Macedonia.
Residents are taxed on the profit they generate both in the country and abroad, while non-residents are taxed only on the profit they generate from business activity on the territory of Macedonia.
According to the new Corporate Income Tax Law, the tax base for calculating the corporate income tax is the profit realised for the current year, as determined according to the accounting standards, adjusted for the amount of taxable expenses incurred during the fiscal year.
40 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 9
The Law provides list of non-deductible business activity is fully tax deductible, they are taxed with the taxpayer which expenses which are subject to annual provided it does not fall under the thin distributed the dividend. corporate income tax: capitalization rules. Under these rules, if the As for the accumulated profit realised for the • 90% of the entertainment costs; total amount of the loans received from a period FY2009 to FY2013, the legislation • travel and other allowances to employees non-resident shareholder (which is not a stipulates that such accumulated profits above the prescribed limits; bank or a financial organization) that owns would be subject to taxation at the moment • any excess of the monthly remuneration at least 25% of the capital in the company of their distribution. to members of the management bodies of during a tax period exceeds the amount of the companies, including travel expenses, three times its share in the equity of that Investment and Tax Incentives over 50% of the average salary for the company, the part of the interest referring to • A taxpayer which is a registered user country; these loans is not tax deductible. within a technological industrial • expenses for shortage and scrapping of development zone is exempt from materials above the normative standards; According to the Corporate Income Tax Law, corporate income tax for a period of up to • receivables written off without obtained outstanding receivables from money 10 years from the commencement of the court decision; transfers in substance loans are considered performance of the activity in the zone • impairment of receivables; to be non-deductible expenses, provided under terms and conditions and • costs which are not business related; that they are not paid back in the same year according to a procedure determined by • any difference between applied transfer when the money transfer is made. This does the Law on Technological and Industrial prices and market ones, etc. not apply to loans provided by associations Development Zones; and foundations whose main activity is • A taxpayer that is obliged, in accordance Further, hidden profit distributions are also placement of loans determined in with the Law on Registration of Cash included in the scope of the annual accordance with their statute and program. Payments, to introduce and use approved corporate income taxation. equipment for registering cash payments, Tax rate will be granted a reduction in the The following cases are considered as The corporate income tax rate is 10%. calculated corporate tax for the hidden profit distributions: procurement of up to ten fiscal machines, • provision of services or goods to Tax Relief in the amount of their value. shareholders or to their related parties at The Corporate Income Tax Law introduces terms below the market ones; the possibility for decreasing the tax base for Simplified tax regime • application of lower interest rate than the the year for the amount of profit reinvested for small companies market rate upon the provision of loans for development purposes of the business of Companies that perform economic activity to the above persons; the local taxpayer. In order to be able to other than banking, financial, insurance • purchases from the above persons at utilise the above tax relief, the taxpayers activities and games of chance and terms which exceed market ones. must maintain ownership over the assets entertainment provided that their overall purchased with the reinvested profit for a revenues earned in the last year from any Companies can apply depreciation methods period of five years as of the day of their source do not exceed MKD 3,000,000 , are and rates as well as generally perform purchase. exempt from payment of corporate income impairment of their fixed assets and The tax base can also be decreased for the tax. In addition, provided that companies inventories under the applicable accounting amount of the collected receivables which whose overall revenues earned in the last standards without any consequences for tax have been treated as non-deductible year is between MKD 3,000,001 and MKD purposes. expenses in the previous tax periods due to 6,000,000 can register under the simplified being written off or impaired. tax regime and calculate and pay corporate Further, no restrictions are imposed with income tax in the form of 1% of the total respect to methods of inventory valuation. Dividend taxation revenues for the previous calendar year. The impairment of receivables is generally Dividends received from Macedonian treated as a taxable expense except for companies are excluded from the taxable Permanent establishment impairments made by banks, savings houses base of the recipient subject to corporate A permanent establishment under the and insurance companies where required by income tax, the tax base should be Corporate Income Tax Law is a fixed place law. decreased by the amount of the dividend of business through which the business of income generated from the participation in an enterprise is wholly or partly carried on The interest on loans received for the the capital of another taxpayer – resident of either directly or through a dependent purposes of conducting the Company's the Republic of Macedonia, provided that agent.
Guide to Doing Business and Investing in Macedonia 41 More specifically, the domestic law increased by the index of retail prices provides that a permanent establishment growth in the country. representative of the Macedonian could include a place of management, a Government; branch office, a factory, a workshop, Withholding tax on income paid to 3) income from interest on deposits in mining activities or any other place of foreign legal entities a bank located in Macedonia; and extraction of natural resources. Domestic legal entities, domestic 4) income from intermediation or individuals - registered for carrying out consulting regarding government A building site or construction or an activity - as well as a foreign legal securities on the international installation project may constitute a entity or individual having a permanent financial market. permanent establishment if it lasts more establishment in Macedonia are obliged, than six months. when paying certain types of income to a foreign legal entity, to withhold tax and to The withholding tax rate is 10% and is Furthermore, the provision of services, pay the tax withheld to the revenue levied on the gross income. including consulting services, shall be authorities simultaneously with the deemed to give rise to a permanent payment of the income. If a Double Taxation Treaty is in place, establishment if such activities last longer withholding tax shall be payable in than 90 days within any 12-month accordance with the treaty provisions period. subject to obtaining a tax clearance by the Withholding tax is applied on Macedonian tax authorities. Transfer pricing rules the following incomes payable The difference between the market price abroad: Double taxation avoidance and the transfer price applied on 1) dividends; A corporate taxpayer, resident of transactions between related entities is 2) interest; Macedonia, who has paid tax in a foreign subject to corporate income tax. The 3) royalties; country on the profit earned through transfer pricing rules apply also with 4) income from entertainment or work abroad, is entitled to a tax credit for respect to loans received/granted to sporting activities in Macedonia; the corporate income tax paid abroad, but related parties. Upon a request by the tax 5) income from management, only up to the amount that would have authorities, the companies should present consulting, financial services, been incurred under the provisions of the sufficient documentation and analysis for services related to research and Macedonian Corporate Income Tax Law. confirmation that the conditions under development; the related-parties transactions, are in 6) income from insurance or Macedonia has signed Double Taxation line with arm’s length principle. reinsurance premiums; Treaties with 47 countries: Netherlands, 7) income from telecommunication France, Italy, Sweden, Denmark, Kosovo, Capital gains services between Macedonia and a Norway, Finland, Switzerland, Hungary, Capital gains are treated as ordinary foreign country; Croatia, Turkey, Yugoslavia (applicable for taxable income. 8) income from lease of immovable Serbia and Montenegro), Poland, People's property in Macedonia. Republic of China, Taiwan, Russia, Loss carry-forward Ukraine, Slovenia, Bulgaria, Egypt, The Law stipulates that the loss realised Tax shall not withheld on the Albania, Iran, Romania, Belarus, Spain, in the income statement for the year, following revenues: Czech Republic, Slovakia, Moldova, adjusted for the amount of non- 1) transfer of the profit of the United Kingdom of Great Britain and deductible expenses could be carried permanent establishment of a Northern Ireland, Ireland, Qatar, Austria, forward against future profits for a foreign legal entity in Macedonia, Latvia, Lithuania, Estonia, Belgium, period of maximum three years as of the for which corporate income tax has Morocco, Germany, Kuwait, Luxembourg, year when the profit has been realised. been previously paid; Kazakhstan, Bosnia and Herzegovina, 2) revenue from interest on debt India, Azerbaijan, Saudi Arabia and Tax payment instruments issued and/or Vietnam. Four treaties have not entered Monthly advanced tax payments for the guaranteed by the Macedonian into force yet (the treaties signed with year are calculated from the amount of Government, the National Bank of Egypt, Saudi Arabia, Vietnam and tax computed as per the tax return on the Macedonia and banks or other Belgium). As for Belgium, corporate tax Corporate Income Tax for the previous financial institutions acting as a payers can benefit from the treaty year. The tax amount is divided by 12 and concluded by Former Yugoslavia.
42 Guide to Doing Business and Investing in Macedonia Chapter 9
The applicability of the above benefits Charge to excise duty In case the excise goods are produced from the Double Taxation Treaties is The excise duty is chargeable upon the out of excise duty suspension preconditioned by a clearance procedure release of excise goods for consumption procedure, the excise payer is the in front of the local tax authorities. in an excise warehouse or upon their producer. In case of transport out of exit from the warehouse. An exception excise duty suspension procedure, the applies in cases where the use of goods excise payer is the sender of excise in the excise warehouse is exempt from goods or the guarantor (in case a 9.2 Excise Duty excise duty or the goods are subject to a guarantee for excise duty is given by new procedure that suspends excise the transporter, the person who Pursuant to the Law on Excise, which is duty. Goods subject to excise duty declares customs or the owner of the based on the EU Directive on Excises no. located in an excise warehouse at the excise goods). 92/12/EEC (including other directives moment the excise license expires are implemented for approximating the treated as released in free circulation The excise payer is the recipient of the excise rates separately for each category unless transported to another excise excise goods in case the excise duty of excise goods) only the consumption of warehouse within 10 days. arises at the moment the excise goods excise goods as stipulated in applicable are in the receiver's possession. EU directives are subject to excise duty. In case the excise goods are produced These are as follows: out of excise duty suspension The excise period for which excise duty • Mineral oils; procedure, excise duty is payable upon is calculated and paid is one calendar • Tobacco commodities; production. month. • Alcohol and alcoholic beverages; and • Passenger vehicles. The excise duty is chargeable upon Exemptions from excise import of excise goods in accordance Exemption from excise duties applies to Excise goods are subject to excise duty with the customs regulations. all excise goods when intended for the upon: following: • Production within the territory of Excise payer • Diplomatic and consular missions; Macedonia; The excise payer is an individual or legal • International organizations; • Import into the country. entity who holds an excise license. • Military forces of contractual parties - members of NATO; • Used as samples for analysis of the necessary production tests or scientific and research purposes; • Destroyed under customs supervision; • Personal baggage carried from abroad by a traveller when not of commercial nature; • Mineral oils and gas kept in reservoirs of motor vehicles or airplanes coming from abroad, not intended for further sale.
Exemption from excise duties applies in case the mineral oils are: • Not used as engine fuel or for heating; • Used in air traffic except when used in a plane for private purposes; • Used in furnaces as an additive to the main fuel; • Used for special vehicles for the purpose of defence and security.
Guide to Doing Business and Investing in Macedonia 43 Excise duties exemptions are applicable amount per measurement units (e.g. and the Council of the City of Skopje in case alcohol and alcoholic beverages kilogram, litre, piece) - specific excise. pursuant to the Law on the City of Skopje. are: • Used for production of vinegar; A taxpayer paying property tax for a • Subject to complete denaturisation residential building or a flat, in which he/ according to the relevant regulations, she lives with family members, is entitled when released in free circulation; 9.3 Property to a reduction of the calculated tax by • Used for the production of a product 50%. from denaturized alcohol not suitable Tax for human consumption; • Used for the production of Property tax shall be paid on the medications; ownership of real estate, i.e. land and 9.4 Inheritance • Used for medical purposes in buildings as well as installations hospitals, clinics and pharmacies; constructed on them or below them and and Gift Tax • Used directly or as an integral part of permanently attached to them. semi-finished products for the Inheritance and gift tax is paid on real production of food; Property taxpayer is the owner of the estate and entitlements to usage of real • Used for the production of aromas for property. In case when the owner is not estate, which the heirs or the receivers of food products and soft drinks. known or cannot be reached, the property gifts respectively, inherit / receive on the taxpayer is the user of the property. basis of the Law on Inheritance / a gift Exemption on the Property taxpayer can also be the agreement. Tax is also paid for cash, basis of donations taxpayer who usufructs the property, and money claims, securities and other The import of goods for the realization if the property is owned by several movable property provided the value of of projects shall be exempt from excise persons, each of them is a property the inheritance/gift is higher than the duties where financed by foreign donors, taxpayer proportionately to the part average annual salary in Macedonia as based on a contract between the owned. Property taxpayer is also the user determined by the State Statistical Bureau Government of Macedonia and the of the real estate owned by the state and for the previous year. The value of all gifts foreign donor containing a clause that the municipality. of the same type, received in the course of such funds shall not be used for payment one calendar year, is included in one tax of taxes. Property tax base is the market value of base. The Municipal administration, the the real estate which can be determined administration of the municipality of the The exemption procedure is initiated by by an evaluator employed in the City of Skopje and the administration of the entity authorized to realize the municipalities. Additionally, upon a the City of Skopje keep records on the project - the implementing agency - by request by the municipality the value of the gifts, on the basis of which, at submitting a request to the Ministry of determination of the market value may be the end of the year, the tax can be Finance. done by an official evaluator. Market determined for the person receiving the value is determined according to the gift, should he/she receives more gifts of In case of any procured excise goods Methodology for determining the market the same type, which cumulatively exceed utilised for the purposes of the project in value of real estate. the non-taxable amount in the course of Macedonia (i.e. fuel, vehicles, etc.), the the year. excise duty is paid by the excise payer Property tax rates are proportional on a special tax account. The entity and range from 0.10% to 0.20%. They Inheritance and gift taxpayer is an authorized to realize the project is can be determined on the basis of the individual or a legal entity - resident of obliged to submit a request for refund to type of property. Thus, tax rates for Macedonia, who inherits taxable property. the Ministry of Finance. Following the property tax on agricultural land not used Gift taxpayer is an individual or a legal processing of the request, the excise for agricultural production can be entity that receives property as a gift in duty is refunded to the excise payer. increased from three to five times in the country or abroad. Inheritance and relation to the basic rates. gift taxpayer is also a foreign individual Excise amount and a non-resident legal entity for the real The excise amount is determined in The amount of the rates is determined by estate and movable property he/she accordance with either a percentage rate a decision of the Municipal Council, the inherits or receives as a gift on the - proportional excise, or in an absolute Municipal Council of the City of Skopje territory of Macedonia.
44 Guide to Doing Business and Investing in Macedonia Chapter 9
Inheritance and gift tax base is the market Tax base is the market value of the real country and abroad during a calendar value of the property inherited or received estate and rights at the moment the tax year, excluding the tax exempt income. as a gift as at the moment the tax liability liability arises. arises, decreased by the debts and The tax exempt income, such as certain expenses burdening such property. When exchanging the real estate, the tax employment related expenses, awards, base is the difference between the market scholarships, damages, alimony, certain Inheritance and gift tax rates are values of the real estate being exchanged. types of interest etc. is exhaustively listed proportional and differ on the basis of the When selling the real estate within a in the Personal Income Tax Law. order of succession. bankruptcy and executive procedure, the tax base is the attained selling price. The taxable income comprises of the The heir or recipient of the gift in first following types of revenues: order of succession is exempt from paying Tax rates are proportional and amount • Personal earnings - refers to all Inheritance and gift tax. The taxpayer in from 2% to 4%. revenues earned by the taxpayer on the second order of succession is subject to the basis of employment and 2% to 3% tax rate, as for the taxpayer in The amount of the rates is determined by contractual services. Personal income third order of succession or a taxpayer a decision by the municipality and the comprises wages and salaries and who is not related to the testator, 4% to Municipal Council of the City of Skopje other allowances on the basis of 5% tax rate is levied. and the Council of the City of Skopje employment, pensions, income of the pursuant to the Law on the City of Skopje. members of company management and supervision boards; salaries of Tax liability arises on the day of officials, MPs and advisors; salaries of 9.5 Tax on Sales concluding the agreement for transfer of professional athletes; allowances for ownership right over the real estate, the jurors, forensic experts, trustees; of Real Estate agreement on exchange of real estate allowance for the members of the respectively. Macedonian Academy of Sciences and The tax on sales of real estate is payable Arts; salary earned abroad on the basis on the transfer of the ownership right If the transfer of the ownership right is of employment in the country; and over a real estate for compensation, on carried out on the basis of a decision by a every individual income on the basis of the exchange of one real estate with court or other government body, the tax contract for occasional or temporary another, as well as on other means of liability occurs on the day that decision rendering of services to legal entities acquiring real estate for compensation becomes effective. and individuals. between legal entities and individuals. • Income from self-employed If the right to ownership over construction activity - refers to income realized by Taxpayer is the seller of the real estate. facilities under construction is transferred, individuals from business activities, The taxpayer can be the buyer of the real the tax liability occurs on the day of agriculture or from rendering estate only if explicitly agreed in the sales handing over the facility to the buyer. professional and other intellectual agreement. services, such as doctors, lawyers, If the transfer of ownership over the real notaries public, tax consultants, When exchanging real estates, the estate is carried out on the basis of a life engineers, architects, accountants etc. taxpayer is the one who exchanges the support agreement, the tax liability arises If several individuals realize income real estate of a higher value. at the moment of death of the person from a joint activity, each shall be If the right to ownership of the real receiving the support. liable for the share of the income estate is transferred on the basis of a belonging to him/her, according to the lifelong support agreement, the agreement for joint activity. taxpayer is the recipient of the real • Income from property and estate. 9.6 Personal property rights - refers to income earned by individuals from lease and When selling the real estate within a Taxation sub-lease immovable property, bankruptcy and executive procedure, as equipment, vehicles and other well as when realizing agreements on Personal income tax is a tax paid by property. The taxpayer is entitled to a mortgage, the taxpayer can be the buyer individuals on the overall net income statutory deduction of 25% from the of the real estate. they earn from various sources in the annual gross revenue for the
Guide to Doing Business and Investing in Macedonia 45 maintenance and management and purchase price. The tax base is 1) contributions for mandatory social expenses related to the leased 70% of the earned capital gains. insurance; property, whereas in case of lease of Capital gains are subject to 10% tax 2) personal exemption in the amount of equipped residential and business payable in advance. Effective from 1 MKD 84.000 during the annual premises, the statutory deduction is January 2013 until 31 December 2015 personal income tax calculation; and 30% of the annual gross income. If the capital gains from sale of securities 3) standard or actual costs foreseen by taxpayer provides evidence that he would be exempt from personal this Law. incurred costs higher than the income tax. Capital losses from sale of stipulated ones, the real costs would securities could be offset against Personal income tax is not payable on be recognized for tax purposes. capital gains in the next three years. income generated from: • Income from copyrights and Capital gains from sales of immovable 1) awards granted by the United Nations industrial property rights - refers property sold after three years as of and international organizations; to fees from copyrights and industrial the acquiring date are not subject to 2) business trip allowance, fieldwork property rights. Depending on the taxation. allowance (accommodation, meals) or type of artwork (paintings, scientific • Gains from games of chance allowance for living separately from and professional work, literature - refer to income from games of chance the family granted to employees in the translation, artistic work in music, film and other prize games. The tax is not lowest amount determined by the etc.), the taxpayer is entitled to a paid in case the single realized gain is general collective agreement of the statutory deduction in the range from under MKD 5,000; otherwise the tax is private sector in the field of economy, 25% to 60% of the gross income. If the payable on the total gain at 10% tax that is, to employees in the non- taxpayer provides evidence that he rate. economy field in the amount incurred costs higher than the • Other income - refer to all other determined by the regulations relative stipulated ones, the real costs would income realized by individuals, which to state administrative bodies; be recognized for tax purposes. is not included in the above categories; 3) compensation for suffered damages • Capital revenues - refer to revenues which is not explicitly exempt from from catastrophes, up to the lowest realized from the following: personal income tax and is not taxed amount determined by the general • Dividends and other income otherwise. The tax base is 65% of the collective agreement of the private realized from participation in the gross income. sector in the field of economy, that is, profit of legal entities and with regard to employees in the field individuals; Income received in kind is subject to of non-economy, in the amount • Interest on loans given to taxation under the general rules. determined by the regulations relative individuals and legal entities; to the state administrative bodies; • Interest on bonds or other Taxpayers 4) salaries of employees at the taxpayer securities; and Tax payer is every individual - resident of which is a user of a technological • Interest on time savings and other Macedonia taxed on his/her worldwide development zone, for a period of ten deposits. income. Tax payer is also a non-resident years as from the beginning of individual on the Macedonian sourced carrying out the activity in the zone, Dividends are subject to 10% advance tax income. that is, as from the first month when on the gross income amount, while the the user pays salary regardless of the interest is subject to 10% tax on the A person is considered a Macedonian tax number of employees at the user, amount of the calculated interest. Interest resident if he/she stays continuously or under the conditions and procedure on bonds issued by the state and LGUs, intermittently on the territory of determined by the Law on interest on public loans and call deposits Macedonia for 183 days or more within Technological Industrial Development is not subject to taxation, whereas any 12-month period. Zones. interest on time savings and other types 5) compensation for damages on the of deposits is not taxable until Macedonia Tax base basis of life and non-life insurance; becomes an EU member state. The tax base for determining the 6) interests from public loans personal income tax is the sum of all the 7) interests on bonds issued by the • Capital gains - refer to the gains income gained in money, securities, in Republic of Macedonia and the local from sales of securities, share of kind or in any other form, in the country self-government units capital and real estate i.e. the and abroad, during the tax period, 8) interests on saving deposits, difference between their sales price reduced by: transaction accounts and sight deposits
46 Guide to Doing Business and Investing in Macedonia Chapter 9
Tax rate case where the recipient of the supply 2. VAT base for import of goods The personal income tax rate is 10%. is the investor and the supplier is the contractor, and in the case where the VAT base for import of goods is the value Tax year recipient of the supply is the contractor of the imported goods as determined The tax year is the calendar year. and the supplier is the subcontractor, under the customs regulations increased in accordance with the law that by the amount of: Tax incentives regulates the construction and • Customs duties, taxes (except VAT), A taxpayer which is a registered user • supply with used material and used excise duties, fees and other import within a technological industrial material that cannot be used in the duties; and development zone is exempt from same condition again, waste, industrial • Related expenses, including payment of personal income tax for the and non-industrial waste materials, commissions, packaging expenses, employees’ salaries for a period of up to waste material that can be recycled, transport and insurance expenses up 10 years from the commencement of the partially processed waste. to the first delivery destination of the performance of the activity in the zone goods in the country. under terms and conditions and Taxpayer according to a procedure determined by Taxpayer is a legal entity or an individual 3. Special types of VAT base the Law on Technological and Industrial conducting business activities on the The following are special types of tax Development Zones. territory of Macedonia. Tax payers are base: obliged to register for VAT purposes in • for the supply of goods from a case: consignment warehouse, the purchase • The total taxable sales during the price or, if it does not exist, the cost calendar year exceed MKD 1,000,000; price at the moment of supply; 9.7 Value Added or • for transfer and assignment of • The projected taxable sales at the copyrights, patents, licenses, x Ta beginning of the business activity trademarks and similar rights , the exceed MKD 1,000,000. costs for the service provided; VAT-Able Sales • in the case where the consideration for The following sales are subject to Small business entities have an the supply of the good or the service is Macedonian VAT: opportunity to choose whether to register fully or partially comprised in the • Sales of goods and services for as VAT taxpayers at the beginning of each supply of another good or another compensation in the country within calendar year. If they decide to stay out of service, the market price of the the business activities of the taxpayer the VAT system, they are taxed as final received good or received service; and consumers and do not have the right to • in the case of supply provided by • Import of goods. VAT refund. means of auction, the final price obtained; Reverse-Charge VAT VAT Base • in the case of supply of used goods, In case of VAT-able supplies of goods and 1. VAT base for sales in the including used motor vehicles, art and services from abroad where the supplier country collection items and antiques, the does not have taxable presence in difference between the purchase and Macedonia, the recipient of the goods/ VAT base is the total amount of the sales price, if tax for the delivery to the services is obliged to calculate and pay compensation (money, goods, services taxpayer is not due; and the Macedonian VAT due. If registered for and other benefits) received or to be • the consideration (commission) for the VAT purposes, the receiver of the goods/ received for the sales, including: service for borrowing a temporary services is entitled to a VAT refund in the • Taxes (except VAT), excise duties, fees, agency employee to an employer-user, same VAT period under conditions contributions and other charges; in accordance with the law. prescribed by law. • Relating expenses for packing, transporting and insurance, as well as VAT Rates In addition, supplies subject to VAT also commissions and other expenses VAT is calculated by applying proportional are: payable by the receiver of the goods or VAT rates on the VAT base of the taxable • construction, including maintenance, user of the services; and supplies of goods and services and reconstruction and removal of • Subsidies directly related to the price of imports. The general VAT rate of 18% is constructions or parts thereof, in the goods or services sold / rendered. applied to all taxable supplies and
Guide to Doing Business and Investing in Macedonia 47 imports, except to supplies and imports • Export of goods abroad; • Services of funeral institutions. subject to preferential rate. • Supply of goods to be transported or dispatched from the country to free 2. VAT exemptions on import 5% preferential VAT rate is applied to the zones, customs zones or warehouses The VAT Law also establishes VAT following: provided they are not meant for final exemption in respect of specific cases of • Food for human consumption; consumption and the value of the import of goods into Macedonia, • Water from public systems for water- goods exceeds EUR 1,000; including: supply, drainage of urban wastewater • Services related to import, export and • Goods which are moved from one and melioration of agricultural land; transit; place to another under the transit • Accommodation services with food • Work on movable goods temporarily customs procedure within the customs supplies included; imported in Macedonia for the purpose area of the Republic of Macedonia; • First sale of apartments performed of their improvement; • Goods to be entered in a free zone or within the first five years from the • International air transport of free warehouse; construction (until end of 2015). passengers; • Goods to be placed in a procedure of • Publications, except for publications • Sale, maintenance and renting of customs clearance or customs import mainly used for advertisement aircrafts used in international air procedure for improvement according purposes, as well as publications with traffic; to the system of deferred payment pornographic contents; • Services to aircrafts used in under the customs regulations; • Seeds and planting materials for international air traffic; • Goods re-imported in an unchanged production of agricultural crops; • Sale of gold to the National Bank of condition compared to their first • Fertilizers; Macedonia; import; • Materials for plant protection; • Intermediate services concerning the • Goods imported by foreign diplomatic • Foils made of plastic for agricultural above listed sales. or consular representative offices for use; Other sales are VAT exempt without the official needs, as well as by diplomatic • Agricultural machines; right to VAT credit for VAT paid by the personnel, for personal needs; • Pharmaceuticals and medical devices; supplier, including: • Goods imported by international • Computers and computer software (until • Sale of residential buildings and organizations; the accession of Macedonia to the EU) apartments, excluding the first sale • Goods to be exhibited at fairs, trade • Thermal solar systems and that will be executed within 5 years exhibitions or similar events; components; from the construction; • Goods imported for examination, • Transportation of persons and their • Rent of apartments if they are used for research, analysis or testing; accompanying luggage; residential purposes; • Goods temporarily imported and fully • Public cleaning services and waste • Postal services of Macedonian Post; exempt from paying tariff duties in management services. • Banking and financial transactions; accordance with the terms and the • Livestock feed, livestock feed • Insurance and reinsurance services; conditions set out in the customs additives, and livestock; • Games of chance and entertainment regulations; • Baby products, that is: baby bed, games; • Goods necessary for implementation of pram, transporter, bouncer, car seat, • Services rendered by institutions in the projects financed with funds from bath tub, feeding bottle, pacifier, bottle area of culture; foreign donors on the basis of and diapers; • Services rendered by institutions for agreements between the Government • School supplies, that is: school bag social care and protection; of Macedonia and a foreign party. (backpack), notebook, pencil, pen, • Services rendered by children and block, student's book, coloured pencils, youth institutions; Time of Occurrence of ruler, compass, play-doh, sharpener, • Educational services; VAT Liability rubber and correction fluid. • Services by radio and television The VAT liability occurs at the moment broadcasting stations; the sales of goods took place. In case the VAT Exemptions • International transport of passengers sales include shipment of goods, the VAT 1. VAT exemptions in respect of (except for air transport); liability occurs at the moment the supplies performed • Healthcare services; shipment begins. If the sales include Certain sales are VAT exempt with a right • Transport of patients and sales of installing, VAT liability is due at the to VAT refund for the VAT paid by the human organs, blood and maternal moment the instalment of the good is supplier such as: milk; finished. As per services, VAT is due at the
48 Guide to Doing Business and Investing in Macedonia Chapter 9
moment the service is fully rendered. • Representation expenses; position, the taxpayer may request for a If the payment is made prior to the above • Transportation of passengers; VAT refund or offset the VAT claims moment, VAT is due at the moment the • Procurement or import of refrigerators, against future VAT liabilities. The law payment is received. audio and video appliances, carpets provides that the Public Revenue Office When importing goods, VAT is due on the and art works used for equipping office should refund the VAT within 30 days day when the liability for paying customs space; from the date of submission of the VAT duty and other import levies is due or on • Hotel or other type of accommodation Return. However, in practice the tax the day of importing the goods into and food expenses. authorities tend to make the refund Macedonia, in case of goods exempted within 2-3 months. A penalty interest of from customs duty. VAT period, VAT calculation, daily 0,03% is calculated for the benefit submission of the VAT return, of the taxpayer by the tax authorities for VAT Credit VAT payment and refund every day of delayed payment. VAT credit is the amount to be reduced Taxpayers calculate and pay VAT on a from the VAT that should be paid on the monthly basis if their total VAT-able VAT Refund to Special Entities supplies made in a certain VAT period. The supplies per calendar year exceed MKD Taxpayers without headquarters or fixed VAT credit refers to the VAT on supplies 25 million or on a quarterly basis if their establishments in Macedonia that do not made by other taxpayers to the taxpayer total VAT-able supplies per calendar year perform any VAT-able sales in the country and to VAT paid upon the import of goods. are below this limit. The VAT period for may be refunded the VAT paid for their voluntarily registered taxpayers is the procurements in Macedonia upon their The right to VAT credit is available in case calendar quarter. request. the following conditions are cumulatively met: Taxpayers submit their VAT returns and Non-profit organizations are entitled to a • The taxpayer uses supplied goods or pay the VAT due no later than 25 days after VAT refund for sales and import of goods rendered services for the purpose of its the expiry of the relevant VAT period. transferred abroad to be used for business activity; and humanitarian, charitable or educational • The taxpayer owns an invoice from the In cases of reporting inaccurate or purposes. supplier issued in accordance with the incomplete supplies, taxes or input taxes VAT law or a customs declaration in a particular tax return for the In case a foreign diplomatic or consular which are appropriately booked in its corresponding tax period, there is an representative office procures goods or accounting records. obligation for submitting a new, corrected uses services for official purposes in the tax return for the referred tax period. country, the paid VAT will be refunded in No right to VAT credit The deadline for submission of such respect of invoices exceeding the amount exists in respect of the correction would be 28th February in the of up to MKD 5,000 (including VAT). following purchases: year following the year when the • Procurement or import of goods and correction is performed, at the latest. If International organizations and their services for VAT exempted sales; the mistake is less than 1% of the members are entitled to a VAT refund for • Procurement, production, and import reported tax, this correction can be made sales of goods or services provided to of bicycles, motor vehicles with less in the last tax return. VAT on imports is them pursuant to the conditions and than 4 wheels, passenger cars and paid simultaneously with the payment of limitations stipulated in international services related to their utilization; customs duties. If in a VAT refundable agreements.
Matka Canyon Guide to Doing Business and Investing in Macedonia 49 1 2 3 4 5 6 7 8
PwC
10.1 General Information
PwC (www.pwc.com) is one of the world’s leading providers of professional services. Our aim is to assist clients build value, manage risk and improve performance.
PwC draws on the expertise of more than 208,000 people in over 157 countries and territories.
We provide a full range of business services to leading global, national and local companies and public institutions worldwide.
PwC Skopje PwC Skopje is an integral part of our commitment to the Central and Eastern Europe region and was established in August 1992, one of the first PwC offices in South East Europe.
PwC is the leading professional services firm on the Macedonian market with 50 employees providing services to the most successful large and medium size companies in the country. With PwC, Skopje as your professional services provider you can be assured of the following: • A respected international name and reputation; • A highly professional and experienced team of audit and assurance advisors, local and international tax experts and consulting specialists; • The largest professional services firm in Macedonia;
50 Guide to Doing Business and Investing in Macedonia 8 9 10
Chapter 10
• Several industry specialisms; • IAS/IFRS accounting training; Crisis Management • Long term client relationships; • Assistance in setting up an internal PwC offers an array of services to help • A diverse and well-founded network of audit department. clients deal with critical events as they clients and contacts occur. We provide comprehensive Advisory Services services covering business recovery and Our broad knowledge and experience restructuring, dispute analysis and enables us to advise you on forensic investigations. 10.2 Our services immediate business related issues and also to put them into local context. Tax Services include: We are experienced working with We provide tax and business advice on clients during times of economic and all aspects of inward investment into Assurance Services financial change and can anticipate Macedonia with a focus on structuring The Assurance practice comprises the impact of Macedonia’s reform investments and trading activities for internationally trained local and efforts on your business. maximum tax advantage. Our team is foreign auditors and accountants. All composed of local and expatriate tax PwC staff are familiar with local and PwC Macedonia has strong professionals with experience in the international accounting practices. As relationships with key local strategic industries of the country and a part of our long-term development organisations and ministries. These who can provide detailed insight into strategy, PwC Macedonia requires its relationships enable us to resolve the Macedonian tax framework. local employees to gain many issues quickly and to identify Effective tax planning is vital for the internationally recognized reliable sources of information. growth and development of any professional qualifications in business. accounting (UK ACCA), and to Our services: specialize in IFRS. Transactions Few major decisions can be taken PwC is well-known in the marketplace without considering their tax Due to Macedonia’s transition to a for our skill in assisting with and implications. At PwC we have the skills market economy, the country’s executing all types of financial and experience in all areas of taxation accounting and auditing legislation transactions. We help our clients in – corporate and personal; direct and are changing rapidly. We are well mergers and acquisitions, including indirect - to help you maximise your placed to understand the practical financial and operational due tax advantages and minimise your implications of the new laws and diligence, accessing the capital markets exposures. Our services include: practices on your company’s activities, and valuing, negotiating and • International Tax Planning; and we can help you develop structuring deals. We also assist with • Personal Taxation and Executive appropriate strategies to obtain the divestments and developing exit Remuneration; maximum benefit from each new strategies. • Customs and Trade Consultancy; situation. • Estate Planning and Taxation; Performance Improvement • Pensions Planning; Our services: We help clients improve their • Value Added Tax; • Financial, operational and performance. We use our deep • Intellectual Property and organisational audit under understanding of finance, risk Technology Transfer. international and statutory management/compliance, IT regulations; systems, operations and human Legal Services • Financial and accounting review, resources to help our clients identify Our connected law firm Papazoski investigation and due diligence; and implement cost savings and Mishev is dedicated to the highest • Restatement of accounting records initiatives, improve management level of training and professional in accordance with standards of and control, identify and manage qualifications. We have built a strong Macedonia in compliance with risk and improve quality. We also legal team with a large market share IAS/IFRS, UK GAAP, US GAAP; use our proven experience and in Macedonia comprised of a reliable • Accounting and consulting services expertise to provide hands-on expert legal consultants with in financial audit, general and assistance to improve financial diversified and comprehensive management accounting, under-performance and cash-flow competencies, experience and broad organisational restructuring; management. practice who are dedicated to
Guide to Doing Business and Investing in Macedonia 51 providing high quality services in • International Private Law. report. It is a tool created to assist accordance with international the HR professionals and companies’ standards and best local practices. Human Resources Services decision makers to develop We provide advice and assistance on Our HR specialists has been working competitive HR policies that attract, various type of issues within the area with both multinational and locally motivate and retain talents that of business law: headquartered companies assisting them support the business strategy. • Corporate Secretarial; with finding effective solutions to their PayWell report is structured in three • Corporate Structuring; HR issues and apply best HR practices. different sections: • Labour Law and Immigration; • Introduction, consisting of • Financial Services Regulation; PayWell Salary & Benefits information on the survey • Anti-Trust Law; Survey Report methodology and data • Mergers & Acquisitions; It is fifth year how we represent the confidentiality; • Intellectual Property; PayWell Salary & Benefits Survey • Compensation and benefits
52 Chapter 10
analysis report, providing international experience. Our • International Financial Reporting information on the compensation proposed services are designed to Standards (IFRS); and benefits systems and trends on provide you with a tailorable • International Financial Reporting the Macedonian market; answer to your specific needs and Standards for Small and Medium • Salary data report, providing demands. The education is Entities (IFRS for SME); salary statistics for each analysed conducted by high-skilled tutors • Finance for non – finance; job. with long-term experience gained • Trainings for HR specialists; in the areas that are part of our • Soft skills training; PwC Academy programme. • IT. Our PwC Academy can provide you and your Company with continuous Our Training programme: Our aim is to assist clients build professional education, in • Tax legislative; value, manage risk and improve combination with local and • Internal audit; performance.
53 Office contact details
Paul Tobin Country Managing Partner e-mail: [email protected]
Emmanuel Koenig Partner Assurance Services e-mail: [email protected]
Ljube Gjorgjievski Miroslav Marchev Country Managing Director Tax and Legal Services Assurance Services Human Resources Services PwC Academy e-mail: [email protected] e-mail: [email protected]
Elena Popova Bojadzievska Kiril Papazoski Biljana Mandarik Krsteska Advisory Services Attorney at Law Human Resources Services e-mail: [email protected] Papazoski and Mishev Law Firm e-mail: [email protected] e-mail: [email protected]
Address Telephone: E-mail: 16, 8 Septemvri Blvd. +389 (0)2 3140 900 [email protected] Hyperium BusinessCentre, 2nd floor +389 (0)2 3140 901 1000 Skopje +389 (0)2 3140 940 (Papazoski and Mishev Law Firm) Internet: Republic of Macedonia www.pwc.com/mk
54 Guide to Doing Business and Investing in Macedonia Legal Disclaimer: The material contained in this brochure is for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this publications.
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
“PwC” is the brand under which member firms of PwC International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.
© 2015 PwC. All rights reserved.