Income Tax in Macedonia
Personal Income Tax:
Taxation of individuals’ income in Macedonia is based on their residence status.
Macedonian tax residents are taxed on their worldwide income.
Non-residents are taxed on their income derived in the Macedonian territory.
Personal income tax rates:
Personal income is subject to a flat 10% tax rate.
Irrespective of their citizenship, individuals are considered Macedonian tax residents if they have a permanent or temporary residence in the country. The individual is considered to have a temporary residence in Macedonia if one stays in the country continuously or intermittently for 183 days or more within any 12-month period.
If a double tax treaty (DTT) is in place, the 183-day residency principle is applicable in accordance with the provisions of the treaty.
A foreign tax resident is any individual who is not a Macedonian tax resident.
Generally, the following types of revenues realised in the country and abroad are subject to Macedonian taxation: personal income (employment and service agreement based income); income from independent activities (business, intellectual, registered agricultural business activity, and other types of independent activities); income from sale of own agricultural products; capital gains; capital revenues; income from property and property rights; income from copyrights and rights to industrial property; gains from games of chance and other prize games; as well as other types of individual's revenues not mentioned above.
PIT is payable on income irrespective of whether received in money, securities, in kind, or any other type of compensation.
Personal earnings are subject to taxation and are comprised of all revenues earned by the taxpayer on the basis of employment, including revenues under contractual services. Personal income is also comprised of wages and salaries and other allowances on the basis of employment; pensions; income of the members of company management and supervision bodies; salaries of officials, MPs, and advisors; salaries of professional athletes; allowances for jurors, forensic experts, and trustees; allowances of the members of the Macedonian Academy of Sciences and Arts; salary earned abroad on the basis of employment in the country; and every individual income on the basis of an occasional or temporary service contract with legal entities and physical persons.
Income from self-employment consists of income realised by individuals from business activities, registered agricultural business activity, or from rendering professional and other intellectual services, such as doctors, lawyers, public notaries, tax consultants, engineers, architects, accountants, etc. If several physical persons realise income from joint activity, each shall be subject to PIT on the share of the income attributable to a person in accordance to the agreement for joint activity.
Income from sale of own agricultural products:
Income from sale of own agricultural products consists of sale of own agricultural products to payers that keep accounting records and to natural persons, if the sale took place outside organised green markets.
The taxpayer whose total income in the year exceeds the amount of MKD 1 million shall be obliged to register for business activity in accordance with the legislation by the 15th January of the following year, at the latest.
If the taxpayer during the calendar year generates income from sale of own agricultural products not exceeding in total MKD 1 million, such taxpayer shall have the right to recover the tax paid thereof, provided the taxpayer has not realised any other income which is taxable under the PIT law.
Capital gains refer to the income realised by the taxpayer as a positive difference from the sales of securities, share of capital, and real estate. A capital gain is the difference between their sales price and their purchase price. The basis for taxation is 70% of the earned capital gains from sale of securities, share of capital, and immovable property in which the taxpayer has lived at least one year prior to the sale, taxed in advance by applying the 10% tax rate. Commencing 1 January 2013 until 31 December 2018, capital gains from the sale of securities shall not be taxable.
Capital gains from the sale of immovable property are exempt in case where the immovable property:
· is sold three years as of date of purchase, in case the taxpayer has lived in it for at least a year prior to the sale
· is sold after five years as of date of purchase
· is inherited/obtained as gift, if such inheritance/gift is exempt from taxation under the Property Taxes Law,
· is acquired within a procedure for denationalisations; or
· sold between spouses, or from spouses to third parties, and such sale is in relation to a divorce procedure.
Capital revenues refer to revenues realised from the following:
· Dividends and other income realised through participation in the profit with legal and physical persons.
· Interest on loans given to legal and physical persons.
· Interest on bonds or other securities.
· Interest on time savings and other deposits.
Dividends are subject to 10% advance withholding tax (WHT) on the amount of the gross dividends.
Interest income is subject to 10% tax rate on the amount of the calculated interest. Interest on bonds issued by the state and local government units (LGUs), public loans, and call deposits is not subject to taxation, whereas interest on time savings and other types of deposits is not taxable until Macedonia becomes a European Union (EU) member state.
Income from property and property rights:
Income from property and property rights is comprised of income earned by physical persons from lease and sub-lease of immovable property, equipment, transportation vehicles, and other property. In case of a non-furnished property lease, the taxpayer is recognised a 25% deduction from the annual gross revenue for maintenance and management expenses. As for the lease of equipped residential and business premises, a 30% deduction of the annual gross income is recognised to the individual. If the taxpayer provides evidence to the tax authorities that one incurred expenses higher than the amount calculated as per the deductions above, the real costs would be considered upon calculating the tax liability.
Income from copyrights and industrial property rights:
Income from copyrights and industrial property rights is derived depending on the type of artwork (paintings, artistic work in music, film, etc.), with the deduction expenses amount to 25% to 60% of the gross income.
Gains from game of chance:
The tax on gains from games of chance and other prize games is not paid on the realised gain if it does not exceed the amount of MKD 5,000; otherwise, the tax is paid on the total amount of the gains, at the 10% rate.
On the other hand, any gain realised in betting houses is taxable at the 10% rate. In this case, the tax base is the difference between the betting deposit and the paid out gain.
As other income under the PIT law is deemed all other taxable income realised by physical persons that is not mentioned above. This category especially includes the income generated by e-commerce through specialised Internet pages, Internet marketing services, as well as income generated from the sale of usable solid waste.
The tax base is the gross income received decreased by 35%. Other incomes are taxable at the 10% flat tax rate.
Tax exempt income, such as certain employment related expenses, awards, scholarships, damages, alimony, certain types of interest, etc., is exhaustively listed in the PIT Law.
Deductions from Income:
Compulsory health, pension, unemployment, and other related contributions borne by individuals are tax deductible in full.
The PIT Law prescribes an annual personal tax exemption on an employee’s personal income, which is in the amount of MKD 84,000 for 2018.
Corporate Income Tax:
Corporate income tax:
Macedonian companies are subject to corporate tax on their worldwide income. Macedonian companies are companies incorporated in Macedonia. Foreign companies are taxed in Macedonia on their profits generated from activities conducted through a permanent establishment in the country and on income from Macedonian sources.
Rate of corporate income tax:
The corporate income tax rate is 10%.
Tax incentives available in Macedonia are described below.
Tax relief for reinvested profits:
As of January 2015, companies may claim tax relief for the amount of profits reinvested in business-related tangible and intangible assets. No relief is available for profits reinvested in cars, furniture, carpets, audiovisual devices and other decorative objects used to equip administrative premises. The tangible and intangible assets acquired under the tax relief may not be sold or otherwise disposed of within the five-year period beginning with the year in which the investment is made. If this condition is not satisfied, the company must pay the tax saved.
Technological Industrial Development Zones:
Companies are exempt from income tax for the first 10 years of their activities in a Technological Industrial Development Zone, subject to the conditions and procedures established in the Law on Technological Industrial Development Zones.
Capital gains and losses:
Capital gains are included in taxable income and are subject to tax at the regular corporate income tax rate of 10%.
The tax year is the calendar year.
Companies must make advance monthly payments of corporate income tax by the 15th day of each month. The tax base for the monthly payments equals 1/12 of the tax determined for the preceding year adjusted by the percentage of the cumulative growth of retail prices in the country in the preceding year.
Companies must file annual tax returns by 15 March of the year following the tax year. Filing of monthly tax returns is not required. If the tax determined in an annual tax return is more than the amount of advance tax paid, the company must pay the difference within 30 days after the filing due date. Any overpaid amount must be refunded within 30 days following the request of the taxpayer.
Dividends paid to foreign companies are subject to withholding tax at a rate of 10% on the net amount of the distributed dividends (that is, after deduction of the 10% corporate tax), unless tax treaty relief applies. Remittances of profits by branches to their home countries are not subject to withholding tax.
Dividends distributed to resident companies are exempt from corporate tax.
Foreign tax relief:
Resident companies may claim a tax credit for foreign income tax paid, but the amount of the credit may not exceed the 10% profit tax imposed in Macedonia on the foreign-source income.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.