About Macedonia

Determination of taxable income

The taxable income of a company is determined by ascertaining assessable income and then subtracting all allowable deductions.  The basis for calculating the tax payable is determined as the difference between total revenue and total expenditure of the taxpayer, in amounts determined in accordance with accounting regulations and accounting standards including:
  • Employees’ related expenditures such as: organized transportation to/from work, food provided to employees, business trip allowance, field allowance, family separation allowance, one-off severance payment, retirement allowance, annual holiday allowance, anniversary awards etc. are tax deductible up to the amount prescribed by the law and the applicable Collective Agreements;
  • The premiums paid for insurance of the tax payer’s business property and all kinds of compulsory non-life insurance determined by law;
Non-deductible expenses for tax purposes, such as stated bellow, increase the tax base:
    • Expenses that are not connected with a business activity;
    • Costs for representation;
    • Write-off on unpaid receivables;
    • Difference between transfer and market price achieved between related parties,
      The interest on loans received for the purposes of conducting the Company’s business activity is fully tax deductible, provided it does not fall under the thin capitalization rules. Under these rules, if the total amount of the loans received from a shareholder that owns at least 25% of the capital in the company (which is not a bank or a financial organization) during a tax period exceeds the amount of three times its share, the interest referring to these loans shall not be tax deductible. This shall not apply to newly established entities in the first three years of operation, including the year of establishment;
  • Withholding tax, borne as a cost by a Macedonian taxpayer;
    • Cash and tax penalties and penalty interest for late tax payments and cost of enforced collection;
      Hidden payments of profits. Delivery of certain products and services of the partners or shareholders or persons connected to them at a price lower than the market , including lower interest on approved loans, payments for goods and services received by the partners or shareholders or persons connected to them, at prices higher than market and enabling the acquisition of gains of the partners or shareholders or persons connected to them;
    • Shortage of assets which are not caused by extraordinary events (theft, fire or other natural disasters), which are not on cost of the salary of the responsible person;
    • Donations shall be recognized as tax deductible up to the limit of 5% of the overall revenue, and sponsorships in the amount of 3% of the overall revenue, according to the conditions and the procedure set out in the Law on Donations and Sponsorships in Public Activities;
    • Interest on loans for purchasing cars, furniture, carpets, pieces of fine and applied art and other decorative items;
    • Cost of dispersing and scattering on assets over amounts determined by law.
    Special rules apply in respect of the categories listed below.

DEPRECIATION

The annual depreciation/amortization expense is recognized for tax purposes in accordance with the applicable accounting standards. Generally the straight-line method of depreciation is used.

STOCK/INVENTORY

Inventory includes raw materials, work-in-progress, finished goods and payments on account. Each item of inventory must be valued at acquisition cost or cost of production. All valuation methods (FIFO, LIFO, average prices) are accepted.

CAPITAL GAINS AND LOSSES

Capital gains are treated as ordinary taxable income.

DIVIDENDS

Dividends received from Macedonian and foreign companies are included in the taxable base of the recipient subject to profit tax.
Where the shareholder is enterprise/individuals non-resident of Macedonia is subject to 10% withholding tax. The withholding tax rate may be reduced in accordance with tax treaties for avoiding double taxation with the countries with which Macedonia have agreement. (For details see below under “Treaty and non-treaty withholding tax rates”).

INTEREST DEDUCTIONS

Interest on loans granted between related parties (except for loans granted by banks or other financial institutions) is recognized for tax purposes at arm’s length. In case the taxpayer cannot produce satisfactory evidence that the interest on related parties loans is on an arm’s length basis, the interest income/expense from these loans will be determined for tax purposes by applying EURIBOR plus 1% (SKIBOR plus 1% for loans extended in MKD).
Penalty interest between related parties is not recognized for tax purposes (except penalty interest incurred with regard to a bank or other financial institutions).
Interest on loans granted by direct shareholders holding at least 25% of a company’s share capital (“qualifying shareholder”) is considered non-deductible for profit tax purposes should the loan amount exceed threefold the amount of the equity attributable to that shareholder.
The same rule applies to loans granted by a third party, while guaranteed by a qualifying shareholder or granted in relation to a deposit provided by the qualifying shareholder to the third party.
The amount which is not recognized for tax purposes is the amount of interest on the part of a loan which exceeds threefold the amount of the equity attributable to the qualifying shareholder.
The thin capitalization rules do not apply to loan facilities granted by direct shareholders which are banks or other financial institutions, as well as loan facilities granted by direct shareholders to newly established entities in the course of the first three years of their establishment.

LOSSES

In the year in which losses are incurred, they may, in principle, be deducted without restrictions.
“Tax losses” arise in cases when the tax base consisting of expenses not recognized for tax purposes and understated revenues is lower than the amount of tax credits allowed for expenses which were taxed in previous years, i.e. expenses which were non-deductible in a previous period, and for which the conditions for their recognition for tax purposes have occurred. The “tax loss” can be carried forward for 5 years and offset with future tax bases consisted of expenses not recognized for tax purposes and understated revenues.

FOREIGN SOURCED INCOME

Foreign sourced income is generally taxable.

INVESTMENT ALLOWANCE/INCENTIVES

The tax base for income tax is decreased for the amount of realized investments from the profits (reinvested earnings) for development, i.e. investment in tangible assets (property, facilities and equipment) and intangible assets (patents and computer software) intended to expand the activity of the taxpayer. Exception: investments in passenger cars, furniture, carpets, audio visual devices, appliances (white goods), pieces of fine and applied arts and other investments that serve for administrative purposes.
A taxpayer that is obliged, in accordance with the Law on Registration of Cash Payments, to introduce and use approved equipment for registering cash payments, shall be granted a reduction in the calculated corporate income tax for the procurement of up to ten fiscal machines, in the amount of their value.