INVESTMENT IN INVESTMENT IN MACEDONIAMACEDONIA

The economic and tax The economic and tax environmentenvironment

20072007

ContentsContents

IntroductionIntroduction Business entryBusiness entry Tax and tax systemTax and tax system Profit TaxProfit Tax VATVAT Personal income taxPersonal income tax ConclusionsConclusions

INTRODUCTION- Republic of Macedonia Independent since 1991 Overcoming legacy of the socialist period Will for reforms Recognition- Macedonia 4th best performer

in the world (WB Doing Business Report)

Business entry

Free and unrestricted access for foreign investors

No additional requirement Free participation in all types of legal

entities-existing or newly founded Free transfer of profit One-stop-shop system

Tax system

Profit (corporate) tax Value Added Tax Personal Income Tax Property taxes

Profit tax

Tax rate: 12% in 2007 and 10% afterwards Lump-sum for micro-companies: EUR 300 for income up to 25.000

EUR and EUR 700 for income from 25.000-50.000 EUR

Tax payers: Macedonian entities- on world-wide income Permanent establishment of foreign entities- on Macedonian source

profit Group taxation for Macedonian entities and their subsidiaries; valid

for 5 years

Deductions

Incomes from dividends from participation in equity of the Macedonian companies are not included in the tax base

30% of the capital gains from sale of securities, equity and real estate are not included in the tax base.

Capital losses may be carried forward in the next three years

Revenues earned on the basis of the funds that are strictly earmarked for performance of the activity of the legal entity – taxpayer (budgets, funds) are not included in the tax base for calculation of the profit tax

Corporate tax incentives

Reduction of the tax base: For the amount of re-invested profit in Republic

of MacedoniaReduction of the tax payable For procurement of up to ten fiscal devices, by

the amount of their valueFull tax exemption Users of the free economic zones-10 years

Withholding tax

Introduced 1 January, 2006Tax rate: 12% (for 2007) and 10% afterSubject to taxation: Incomes from dividends Incomes from interests Incomes from royalties Incomes from management, consulting and other types of services Rents Insurance premiums Awards and prizes from entertainment and sport activities Telecommunication services

Exception from withholding

Transfer of a portion of the profit of a permanent establishment of a foreign legal entity in the Republic of Macedonia, to which tax profit has been previously paid;

Income from interest from debt instruments issued and/or guaranteed by the Macedonian Government, the National Bank of the Republic of Macedonia, banks or other financial institutions acting as an agent of the Macedonian Government;

Income from interest from deposits in a bank located in the Republic of Macedonia; and

Income from intermediation or consulting with state securities on international financial market.

Withholding tax

Double taxation treaties relief available Macedonia has concluded 25 DTT, among which

with Slovenia, Serbia and Montenegro, Albania, Bulgaria

Full tax exemption or lower tax rate

Reporting obligation- By 15 February in current year domestic entities are obliged to report PRO for the tax withheld in the previous year

Value Added Tax (VAT)

Introduced 1 April, 2000 General tax rate 18% and preferential 5% on certain products Registration Voluntary Mandatory-turnover ≥1.300.000MKD (EUR 21.000) Tax period Calendar month ≥EUR 400.000 Quarter < EUR400.000 A year- voluntary registered tax payers Tax return- 15 days following the respective tax period Tax refund- theoretically within 30 days from the submission of the tax return Tax credit deduction available

Value Added Tax- exemptions

Tax exemptions in the country Without right to tax credit

deduction (sale of residential buildings and apartments, except the first sale, postal, banking and financial services, insurance, culture, health services etc.)

With right to tax credit deduction (export of goods, sale of goods to the FEZ, custom zones; services connected to the import, export and transit etc)

Tax exemption during import Goods the sale of which is VAT

exempt in the country Goods in transit, re-export or

temporary imported goods Goods imported by foreign,

diplomatic or consular representative missions for official needs, as well as by diplomatic personnel, for personal needs

Goods to be exhibited on fairs, which will be exported afterwards

Goods necessary for implementation of projects financed with funds from foreign donors

Personal Income Tax

Tax rate: 12% (2007) 10% after

Tax payers: Physical persons-residents and non-residents

Tax return deadline: 15 March following year

Subject to taxation: Personal income Income from agriculture Income from independent activities Income from property and property

rights Income from copyrights and

industrial property rights Capital revenues Capital gains Gains from games on chance Other Incomes

Property taxes

Property tax: from 0.10% to 0.20% of the market value of the real estate and the movable property;

Tax on inheritance and gifts: it is free for the first order of successors, 2-3% tax rate in second order of succession and for the taxpayer in third order of succession or a taxpayer who is not related to the testator, it is paid at 4-5% tax rate, calculated on the market value of the inherited or the property received as a gift;

Tax on sale of real estates and rights: 2-4% of the market value of the real estate.

Conclusions

Improved business climate

Attractive tax package Low taxes and flat tax

rates

= Attraction of foreign investments

Other competitive advantages

Member of CEFTA, WTO Agreement for Stabilization and association and future EU

Membership One-stop-shop system for registration of new businesses Low costs and simple procedure for starting-up a business Free market access E-government Competitive cost of labor Free Trade Agreements Investment Protection Treaties Additional incentives for the foreign investors (incentives in the free

economic zones, double taxation treaties, equal treatment with the domestic entities, free transfer of profit etc.)

FDI- top priority in the Country