Personal tax, Withholding tax

Personal tax

Personal income tax is payable by Macedonian resident individuals on their worldwide income, excluding the tax-exempt income. Non-resident individuals are required to pay tax on Macedonian-sourced income only. A person is considered a Macedonian tax resident if he/she stays continuously or intermittently on the territory of Macedonia for 183 days or more within any 12-month period.

The tax-exempt income consists of certain employment related expenses, awards, scholarships granted by the Government, damages, alimony, certain types of interest etc. and is exhaustively listed in the Personal Income Tax Law.

The taxable income comprises of the following types of revenues: personal earning, income from a self-employed activity, income from property and property rights, income from copyrights and industrial property rights, capital revenues, capital gains, gains from games of chance and other income.

The tax base is the positive difference between the gross taxable income obtained throughout the taxable year and the deductions allowed in the Law on Personal Income Tax, such as the following:

Mandatory social contributions for pension and disability insurance, health insurance and for employment, excluding the contributions paid by farmers upon their cadastral income;

  • Contributions for voluntary pension and disability insurance paid by the taxpayer;
  • The annual personal exemption which amounts MKD 90.372 (1.469 euro) for 2018;
  • Administrative fees and other public revenues paid out of the taxpayer’s income.
  • The personal income tax rate is 10% and the tax year is the calendar year.

Income from salary

Collective bargaining agreements are negotiated between the representative labour unions and the Government for the general collective agreement for the public sector and between the representative labour unions and representative employers association for the general collective agreement for the commercial sector. These two collective agreements represent the two pillars under which industry branch and employer level collective agreements can be negotiated and signed. Collective agreements define a minimum salary for each professional activity. Salaries are computed and paid at least once a month. Social contributions and personal taxes are withheld by the employer along with the payment of salaries to employees. As of December 2018, the average monthly net salary was MKD 24.200 (about EUR 400).

Income property and property rights

A statutory deduction of 25% of gross rent for unfurnished and 30% for furnished premises is given to account for income-generating expenses.  Alternatively, taxpayers can opt for itemized deduction instead of availing the standard deduction.

Income from copyrights and industrial property right

Based on the type of the original work different statutory deductions are given from 25 % for forms of performance art related to popular music up to 60% for sculptors. Alternatively, taxpayers can also opt for itemized deduction instead of availing the standard deduction.

Capital gains for individuals

These refers to the gains from sales of securities, shares of capital and real estate, i.e. the difference between their sales price and purchase price. The tax base is 70% of the earned capital gains. Capital gains are subject to 10% tax payable in advance. Capital losses from the sale of securities could be offset against capital gains in the next three years. Capital gains from sales of immovable property sold after three years as of the acquiring date are not subject to tax.

Gains from games of chance for individuals

They refer to:

  • income from games of chance and other prize games (TV quizzes, competitions, etc..) are taxable income, the tax is payable on the total gain at a 10% tax rate. The tax is not paid in case the single realized gain is under MKD 5,000 (c. euro 81,0); and
  • income from games of chance from casino, betting and slot machine clubs are taxable income. 

Withholding tax

Legal entities resident in Macedonia, registered for carrying out an activity, as well as a foreign legal entity having a branch in Macedonia are obliged, when paying certain types of income to a foreign legal entity, to withhold tax and to pay the tax withheld to the revenue authorities simultaneously with the payment of the income. Withholding tax is applied to the following outbound payments:  dividends, interest, royalties, income from entertainment or sporting activities in Macedonia; income from management, consulting, financial services, services related to research and development, income from insurance or reinsurance premiums, income from telecommunication services between Macedonia and a foreign country and income from the lease of immovable property in Macedonia.

Tax shall not be withheld on the following payments: transfer of the profit of the permanent establishment/branch of a foreign legal entity in Macedonia, for which profit tax has been previously paid (no branch remittance tax), revenue from interest on debt instruments issued and/or guaranteed by the Macedonian Government, the National Bank of Macedonia and banks or other financial institutions acting as a representative of the Macedonian Government, income from interest on deposits in a bank located in Macedonia and income from intermediation or consulting regarding government securities on the international financial market.

The withholding tax rate is 10% and is levied on the gross income, subject to the application of a double tax treaty.

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