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INVESTMENT OPPORTUNITIES IN MACEDONIA

After years of reforms intended to liberate the market from Government regulation, Macedonia has reached

its best rating in the World Bank Doing Business report (2016) yet, jumping to the 12th place. Macedonia

ranked sixth in Europe and easily best in the region in terms of the ease with to open and run a business in

the country. (www.independent.mk)

Basic Indicators

Land area: 25,713 km²

Population (in 2014): 2,066,000

Political system: Multi-party parliamentary system

Capital: Skopje

Official language: Macedonian

Currency: Macedonian Denar pegged to the DM/€ for the last 20 years

Average exchange rate (2015) 1 EUR = 61.6; 1 USD = 58.2309

International telephone code: 00 389

Internet country code: .mk

Time zone: Central European Time (CET)

Main Macroeconomic Indicators

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Source: Republic of Macedonia, Commission staff working document, accompanying the document Communication

from the Commission to the European Parliament, the Council, the European Economic and Social Committee and

the Committee of the Regions, European Commission 2015

International Trade

According to the total volume of international commodity trade, the most important trading

partners of the Republic of Macedonia are Germany, Great Britain, Greece, Serbia and Italy

(52.0% of the total international trade).

Source: www.investinmacedonia.com

The top five products exported from Macedonia, along with their trade value are:

The top five products Macedonia imported from abroad, along with their trade value are:

Products Trade Value in million US$

Petroleum oils, etc., (excl. crude) 672,687.89

Platinum unwrought or in powder form 664,968.65

Electrical energy 187,542.93

Products Trade Value in million US$

Supported catalysts 753,751.26

Filtering or purifying machinery and apparatus 423,491.67

Ferro-nickel 290,137.59

Ignition wiring sets 206,879.01

Tobacco, not stemmed/stripped 127,644.40

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Palladium unwrought or in powder form 170,069.01

Ceramic wares laboratory, chemical/other 120,784.41

Source: http://wits.worldbank.org

Foreign Direct Investments

Foreign Direct Investment in Macedonia increased by 27.36 EUR Million in August of 2015.

Foreign Direct Investment in Macedonia averaged 37.79 EUR Million from 2003 until 2015,

reaching an all-time high of 506 EUR Million in November of 2007 and a record low of -48.03

EUR Million in July of 2010. Foreign Direct Investment in Macedonia is reported by the National

Bank of the Republic of Macedonia.

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Source: www.tradingeconomics.com

As a result of a growing interest in Macedonia’s investment potential, a number of international

companies have started operations in the country, both as green-field projects and through

different types of asset acquisition and privatization.

Some of the most significant foreign investors include Johnson Matthey (UK), Mobilkom Austria

(Austria), EVN (Austria), Deutsche Telecom (Germany), Kromberg & Schubert (Germany),

Dräxlmaier Group (Germany), Van Hool (Belgium), Societe Generale (France), Johnson Controls

(USA), KEMET Corporation (USA), the National Bank of Greece (Greece), Hellenic Bottling

Company S.A. (Greece), QBE Insurance Group Limited (United Kingdom), Mittal Steel

(Netherlands), Duferco (Switzerland), Titan Group (Greece), Marquardt (Germany), Coficab

(Tunis), Mensan Otomotiv (Turkey), Endava (UK), Apple Land (Dubai), Anthura (Netherlands),

Istem Medical (Turkey), ODW-Elektrik (Germany), Key Safety System (USA), Amphenol (USA),

KPME (Ukraine), Teknohose (Italy), Prodis (Russia), Grishko (Russia), VPTEX (Netherlands).

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Source: www.investinmacedonia.com

Trade Agreements

FREE MARKET ACCESS Duty-free access to a market of over 650 million customers. Macedonia

is a signatory of three multilateral Free Trade Agreements:

SAA (Stabilization and Association Agreement) with the EU member states;

EFTA (Switzerland, Norway, Iceland and Liechtenstein) and

CEFTA (Macedonia, Albania, Moldova, Serbia, Montenegro, Bosnia and Herzegovina and

Kosovo).

Macedonia has also signed two bilateral Free Trade Agreements with the following countries:

Bilateral Free Trade Agreement with Turkey, and

Bilateral Free Trade Agreement with Ukraine

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Macedonia has also been a member of the World Trade Organization (WTO) since 2003.

Transport Infrastructure Macedonia is at the cross-roads of South Eastern Europe, which makes it an ideal transit and

distribution center for products for European markets. The developed road and railway

infrastructure, in combination with the small area of the country enables access to every

inhabited place in Macedonia in less than 3 hours.

Road Infrastructure

The overall road network of the country totals 13,278 km of roads, with continuous investment

in roads in accordance with the National Road Transport Strategy, prepared by the Ministry of

Transport and Communications with assistance from the EU. New projects and network

maintenance are carried out according to the Public Investment Program annual updates. The

backbone of the country’s road network consists of the two Pan-European corridors VIII and X.

Railways

The railway infrastructure in the Republic of Macedonia has been put in place since 1873, when

the first Railway Track from Skopje to Thessaloniki in Greece has been constructed. Today the

railways network is about 900 km in single track lines and normal gauge. The Macedonian

railway network system is connected to the north and south, with the railway network systems

of Serbia and Greece. The total length of the railway infrastructure in Corridor VIII (east-west) is

about 306 km on the territory of the Republic of Macedonia, of which 154 km (or 50%) are

constructed and operational. Therefore, about 89 km or 29% of the total length are yet to be

constructed on the link with Bulgaria. About 63 km or 21% of the total length of the link with

Albania remain to be constructed. The railway transport is managed by the state-owned

enterprise Macedonian Railways and at present, the company is the single provider of railway

services in the country.

Airports

There are two international airports in Skopje and Ohrid. There are regular direct flights to

several large European transport hubs. Turkish TAV company has been the operator and

manager of the Macedonian airport system since 2008, after receiving the right to a 20-year

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concession from the Macedonian Government. Under the concession agreement, TAV is to

modernize the international airports Alexander the Great in Skopje and St. Paul the Apostle in

Ohrid, and to build a new cargo airport in Shtip.

Maritime

Macedonia is a land-locked country. The access to the neighboring ports is enabled through the

roads and railway links. The closest ports are in Thessaloniki, at about 100 km from the Greek

border checkpoint in Gevgelija, and in Durres, at about 150 km from the Albanian border

checkpoint in Struga. Passenger transport exists on Lake Ohrid with smaller ships, from 25 to

150 seats.

Telecommunications The Republic of Macedonia has a modern digital telecommunications network. The Macedonian

telecommunications sector is the most liberalized in the region. At the moment, fixed

telephone services are offered by eight companies, while mobile telephony is in constant

development. The presence of three mobile operators guarantees quality and availability of

services. The country’s excellent Internet access has made a substantial contribution to a

positive business climate. Macedonia pursues international trends in the development of its

Internet communications and enables easy and fast Internet access made via numerous

Internet providers.

Energy The broadly spread network for distribution and supply of electricity makes Macedonia a

favorable destination for investments in every part of its territory. In 2006, the Austrian EVN

undertook the supply of the domestic market with electricity. Energy sector development is a

priority in Macedonia, especially taking into consideration the fact that 70% of the technically

available hydro-potential is open for current and future investment.

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Pipelines

Gas Pipeline

The gas pipeline system, with a capacity of 800 million m³ annually, is part of Corridor VIII. The

length of the main gas pipeline is around 98 km, and it runs from the border with Bulgaria to

Skopje. The distribution network already in place is 26 km long and the city network is 31.5 km

long.

The planned development of the gas pipeline network in the Republic of Macedonia is centered

on constructing new facilities for the production of electric and/or heating power, expanding

direct supply to potential consumers, as well as upgrading the gas pipeline network in the

region and beyond.

Oil Pipeline Thessaloniki (Greece) – Skopje (Macedonia)

The 212.6 km oil pipeline is used for the transport of raw oil from the Thessaloniki port to the

Skopje refinery. The oil pipeline was built in 2002 along Corridor X and its capacity is 360 m³/h

i.e. 2.5 million tons annually.

INVESTMENT LOCATIONS

Technological and Industrial Development Zones (TIDZs)

The Technological and Industrial Development Zones (TIDZs) are centers in which highly

productive clean manufacturing activities are concentrated and new technologies are

developed. Macedonia offers additional incentives for development in the TIDZs, in addition to

those normally associated with free economic zones. Investors in TIDZs are entitled to personal

and corporate income tax exemption for the first 10 years. Investors are exempt from payment

of value added tax and customs duties for goods, raw materials, equipment and machines.

Moreover, up to 500,000 EUR can be granted as incentive towards building costs depending on

the value of the investment and the number of employees. Land in a TIDZ in Macedonia is

available under long-term lease for a period of up to 99 years.

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Other benefits include completed infrastructure that enables free connection to natural gas,

water, electricity and access to a main international road network. Investors are also exempt

from paying a fee for preparation of the construction site. Fast procedures for business activity

registration are provided in TIDZ that further reduce the costs of setting up.

The Government pays special attention to production activities, activities from the IT area

(software development, hardware assembling, digital recording, computer chips and the like),

scientific research activity and new technologies with high environmental standards, for which

additional benefits are envisaged in the TIDZs. Investors in TIDZs who operate in these areas are

exempt from the liability for submission of a guarantee as collateral for any customs arrears.

Source: www.investinmacedonia.com

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Setting up Your Business

Registering a Company in Macedonia

The current Company Law is effective since 2004. The amendment to the Company Law in 2005

facilitated the start of the Central Register at the beginning of 2006, as the body authorized to

perform all company registrations and the institution to maintain the all-companies Trade

Register. This is the primary law regulating business activities in Macedonia. It defines the

types of companies, procedures and regulations for their establishment and operations. As all

foreign investors are granted the same rights and privileges as Macedonian nationals, they are

entitled to establish and operate all types of self-owned private companies or joint-stock

companies. Foreign investors are not required to obtain special permission from state-

authorized institutions, other than what is customarily required by law. Under the Company

Law, companies are formed as separate legal entities that operate independently and are

distinct from their founders, shareholders and managers. Depending on the type, companies

have their own rights, liabilities, names and registered offices. The law defines five forms of

companies: General Partnership, Limited Partnership, Limited Liability Company, Joint Stock

Company and Limited Partnership by Shares.

Macedonia has introduced a ONE-STOP-SHOP SYSTEM that enables investors to register their

businesses after 4 hours of submitting of an application (in practice, it might take 1-2 business

days). One can register a company in Macedonia by visiting one office, obtaining the

information from a single place, and addressing one employee. This significantly reduces

administrative barriers and start-up costs. Another important feature of the One-Stop-Shop is

the electronic distribution service that allows any potential investor or third party to obtain

complete electronic information about the operations of companies in the country.

For more information please visit the Central Registry office.

Address: Kuzman Josifovski Pitu, Skopje 1330, Macedonia

Phone: + 3892 3288-298

Web: www.crm.com.mk

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Work Visas/Permits

Foreign residents can easily establish employment in the Republic of Macedonia, after getting

an appropriate visa or permit from the Ministry of Foreign Affairs or its diplomatic and consular

offices abroad. Nationals of EU member states, as well as nationals of the state-parties to the

Schengen agreement may enter the Republic of Macedonia presenting a valid identity card

issued by the competent authorities of the EU member states or of the state-parties to the

Schengen agreement.

Type of visas:

Entry visa

Business visa,

Employment visa

Visa requirements and procedure:

Visas shall be issued only at the embassies or consulates of the Republic of Macedonia

abroad;

The validity of the passport or other travel document of the applicant has to be

minimum 3 (three) months;

The applicant is to contact an embassy or the consulate of the Republic of Macedonia

for additional information about the conditions and procedure for visa issuance;

The application may be submitted to the embassy/consulate of the Republic of

Macedonia by post mail or by fax, in which case the applicant must collect the visa in

person;

Using the list of diplomatic and consular missions of the Republic of Macedonia abroad (which

can be found at the Ministry of Foreign Affairs), visa applicants can choose the most convenient

embassy/consulate to submit the application.

Types of permits:

Work Permit,

Residence Permit

Licenses and Permits

In addition to the registration of all business activities as stipulated by the Company Law, some

business activities may be subject to obtaining additional working licenses or permits before

starting their operations. For the companies operating in these sectors, the registration process

is followed by a licensing process with the relevant authorities covering the matter of licenses

and/or permits in their respective business area.

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Employees in the Central Register are trained to direct newly registered companies to the

appropriate licensing authorities.

Law and Regulation Market freedom, the freedom of entrepreneurial activity, as well as property rights are

fundamental values outlined in the Constitution of the Republic of Macedonia.

Right to Private Ownership and Establishment

The Constitution of the Republic of Macedonia guarantees an investor’s right to property. No

person may be deprived of his/her property or the rights deriving from it, unless the use of that

property affects the general welfare of the public. Foreign investors may acquire property rights

for buildings and for other immovable assets to be used for their business activities, as well as

full ownership rights over construction land through a locally registered company. If the

property is expropriated or restricted, rightful compensation of its market value is guaranteed.

If the foreign company registers a local company according to Macedonian law, it can acquire

land with full ownership rights similar to a domestic company.

The Company Law

The Company Law is the primary law regulating business activity in Macedonia. It defines the

types of companies, as well as the procedures and regulations for their establishment and

operations. Foreign investors receive the same treatment as local companies and therefore do

not need any special approvals.

Under the Company Law, trade companies are formed as separate legal entities that operate

independently and are distinct from their founders, shareholders, and managers. Depending on

the type, trade companies have their own rights, liabilities, names, and registered offices. The

law defines five forms of trade companies: public trade (general partnership), limited

partnership, Limited Liability Company, Joint Stock Company, and limited partnership by shares.

The legal framework includes the One-Stop-Shop system that aims to tackle some of the

administrative barriers of entry into the business life in Macedonia. According to the Law of the

One-Stop-Shop system, all types of trade companies are registered within 4 hours of

submission. Another important feature of the One-Stop-Shop is the electronic distribution

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service that allows any potential investor or third party to obtain complete electronic

information about the operations of companies in the country.

Law on Investment Funds

The Law on Investment Funds governs the conditions for the incorporation of investment funds

and investment fund management companies. It also regulates the manner in which a company

operates and exercises supervisory control of these operations, and the process of selecting a

depository bank. The law does not discriminate against foreign investors in the establishment

of open-ended or closed investment funds.

Price Controls

Price liberalization in Macedonia has been essentially completed. Price controls only exist for a

few products. Prices in the energy sector (oil derivatives, electricity) are controlled by

independent regulatory bodies.

Competition

The Macedonian Law on Competition ensures that the task of the right of competition is to

prevent certain practices and business activities on the market, which certain undertakings will

use to achieve an unjustified advantage compared to other undertakings, and to jeopardize the

free competition among undertakings.

Monopolies and Antitrust

The Law against Unfair Competition (LAUC), drafted on the basis of The German Act against

Restraints on Competition, came into force on 1 April 2000, thus establishing the Monopoly

Authority (MA) as a body within the Ministry of Economy. This law guarantees the protection of

competition, in cases where competition is distorted by collusive agreements, abuse of a

dominant position in the market, or merger agreements among companies that lead to the

creation of a dominant position or the strengthening of existing dominant positions.

Securities Markets

The Central Securities Depository (CSD) records the existence of an ownership of shares and

associated transactions. The CSD has greatly improved the efficiency of the capital markets and

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the rights of minority shareholders in companies. All joint stock companies have transferred

their shareholding books to the CSD.

Environment Protection

Considerable steps are taken to establish a system of integrated permits for industrial facilities

considered to be significant polluters.

The Law on Environment (Official Gazette of RM no. 53/2005; 81/2005; 24/2007; 159/2008)

contains two chapters dealing with environmental permits:

Chapter XII on Integrated Environmental Permits: defines two types of activities (“A” and

“B”) for which permits are required. A-type installations are those subject to the EU

Integrated Pollution Prevention and Control (IPPC) directive 96/61/EC, and B-type activities

cover installations bellow the thresholds determined for A activities;

Chapter XIII on General Environmental Audit: sets obligations for Operators to carry out a

general environmental audit in case of termination of activities of an installation and in case

of transfer of the integrated environmental permit.

These chapters are reflective of the EU Directive 96/61/EC and 2008/1/EC on Integrated

Pollution Prevention and Control (IPPC). The Law on Environment requires the control of the

installation’s operations and emissions to be followed through self-monitoring under conditions

defined in the permit and through yearly inspections done by the state environmental

inspectors. The permit sets conditions for the prevention of pollution and for the protection of

the environment.

Human Capital

General Overview

Macedonia prides itself with its educated, highly-qualified, and ethical workforce that is

available to foreign investors. Educational standards at technical higher educational institutions

in Macedonia resemble those of the Western countries. Workers welcome opportunities for

continuous education and life-long learning, successfully completing customized vocational

trainings. The Government is willing to help investors in the process of labor force training by

participating in such programs.

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Education Geared for Business

The Macedonian educational system makes mandatory elementary and high school education

as well as English language education starting in the first grade of elementary school. In

addition to standard high schools, many vocational high schools in each city enable students to

learn various trades. There are five public and numerous private internationally recognized

universities and colleges. Both vocational schools and universities offer tailor-made training

programs in an effort to meet the specific demands of companies investing in Macedonia. In

the past several years, Macedonia spends an average of 6% of its GDP on education, a

percentage higher than the corresponding one in most of the OECD countries.

Every year approximately 80% of high school graduates enroll in universities, and there has

been a 35% increase in the total number of undergraduate degrees in the past several years.

With 45% of the population under 30 years of age, Macedonia offers a young, educated, and

skilled workforce.

Social Contributions

Over the past few years, the Macedonian Government significantly reduced social security

contributions. Further reductions are planned and their implementation will be carried out in

line with the general economic conditions in the country.

Source: www.investinmacedonia.com

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Labor Legislation

The recently enacted new Labor Law, prepared in accordance with EU standards, provides

increased flexibility of the labor market by offering and promoting flexible and different

employment contracts and flexibility in working hours. Reforms in this sphere have also

introduced training programs, support for entrepreneurs, as well as improvement of the overall

business climate.

Collective agreements, concluded on a national level, regulate employment rights, and

obligations and responsibilities of the employees and employers. The leading trade union

organization of the employees concludes a general collective agreement.

The Law on Establishment of Employment Relations with Foreign Persons regulates the

employment of foreign nationals in Macedonia. According to the provisions of the Law, foreign

nationals, or persons who do not hold a Macedonian nationality, can be employed in

Macedonia once they obtain a work permit. The Employment Agency of the Republic of

Macedonia issues the work permit upon an employer’s request.

Costs of Doing Business

Salaries

The average gross monthly wage in 2013 was €502, one of the lowest in Europe. This amount

includes

The net salary,

Personal income tax and

Social contributions for pension and disability insurance, health insurance and

employment insurance.

The minimum salary for each professional branch is defined by collective agreements.

Method of Calculating the Gross Wage

1) The wage calculation for an employee working full-time in the course of a month is done in

line with the following method:

Gross wage - contributions - personal exemption = Base for calculation of the personal income tax (PIT)

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Base for calculation of the PIT х 10% = PIT amount

Gross wage - Contributions - PIT = Net wage

2) For employees working fewer hours in the month from the total number of working hours,

the calculation is done per hour i.e. the gross wage and the personal exemption are calculated

in accordance with the hours spent at work.

3) When a wage lower than the minimum base is being calculated, the supplemental payment

of contributions up to the minimum base is done as follows:

50% of the average wage – gross wage = Base for supplemental payment

Base for supplemental payment x contribution rate = Amount of the contribution to be supplemented to the

minimum base

4) The wage calculation with hours of effective work and hours of sick leave for a wage lower

than the minimum base is done as follows:

Gross wage / total number of hours in the month х Effective working hours = Gross wage for the effective hours

Gross wage / total number of hours in the month х Sick leave hours = Gross wage during the sick leave

Supplemental payment up to the minimum base is calculated as follows:

50% of the average wage / total number of hours in the month х Effective working hours = Minimum according to hours

Minimum according to hours – gross wage for effective hours = Base for supplemental payment

Base for supplemental payment х Contribution rate = Amount of contribution for supplemental payment up to the minimum

base

Net wage calculation for the fields 3.7 and 3.10 of the client software

Field 3.7 = 3.13 / total number of hours in the month х Hours for effective work

Field 3.10 = 3.13 - 3.7

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Utilities

The price of electricity and the price of natural gas are set by the Energy Regulatory

Commission of the Republic of Macedonia. The cost of 1m natural gas for consumers directly

connected to the distribution system is 0.47 EUR with 18% VAT included in the price (decision

from ERC dated 20.01.2014).

Tax System in the Republic of Macedonia

Source: www.ujp.gov.mk

History

The beginning of the 1990’s saw the implementation of a new fiscal structure based on the

principles of market economy, private property, and independence of economic entities, along

with the introduction of the new economic system in the Republic of Macedonia. A new

principle, which at that time became incorporated in the current fiscal system of the Republic

of Macedonia, was the principle of allocating neutrality in taxes and budget. Pursuant to this

principle, some sectors of the economy were not to receive incentives and support through

fiscal policy instruments.

Another new important principle was the revocation of the high number of contributions and

their replacement with taxes. Only the contributions paid to social funds were preserved - the

contributions for health, pension and disability insurance. The principle of transferring the tax

burden from direct to indirect taxes was also promoted: this meant reduction in income taxes

and increase in consumption taxes. The introduction of the Value Added Tax (VAT) on 1 April

2000, which replaced the previous turnover tax, was also aimed to serve the purpose of higher

consumption taxes.

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Types of Taxes

1. Income taxes

- Profit Tax

- Personal Income Tax

2. Consumption taxes

- Value Added Tax

- Excises

- Customs

3. Property Taxes

Along with the process of decentralization in the Republic of Macedonia, which started on 30

June 2005, the administration of the property tax and the municipal fees is performed by the

municipalities as units of the local self-government and the City of Skopje, as a separate unit of

the local self-government.

Tax Incentives for Investors

The Republic of Macedonia has a flat tax rate of 10% for corporate and personal income tax

purposes. The Law on Technological and Industrial Development Zones provides for special tax

treatment of any investor who invests in the designated zones. Generally, these incentives

include:

• A 10-year tax holiday from profit tax for entities performing their business activities in the

zones;

Certain exemptions from VAT for trade conducted within the zone and for imports in the

zones;

• A tax holiday from personal income tax on salaries for all workers employed at entities

carrying out business activities in the zones for a period of 10 years from the month in which

the first salary is paid.

Profit Tax

As of 1 January 2014, the Profit Tax Law was adopted, the most important aspect of which is a

change in the concept of taxation in Macedonia. The new law restores the principle that 10%

corporate income tax would be payable on the profit realised for the current year, as

determined according to the accounting standards, adjusted for the amount of non-deductible

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expenses incurred during the fiscal year. In accordance with this new model of taxation, tax is

calculated and payable with a tax rate of 10% on two components:

(i) on profits realized for the current year; and

(ii) on non-deductible expenses and understated revenues, i.e. the tax base represents the

expenses considered not recognized for tax purposes as well as understated revenues, less

allowable tax credits (the tax is due at year-end and is payable irrespective of the financial

results of the taxpayer, i.e. regardless of whether the taxpayer is profitable or loss making).

The Law introduces the possibility of decreasing the tax base for the year by the amount of

profit reinvested for development purposes of the local taxpayer. The amounts from the

reinvested profit which would be recognized for the purposes of the above tax relief include

investments in certain tangible and intangible assets, except for some explicitly listed types of

assets intended for administrative purposes.

FIC aims to be the united voice of foreign investors in the country

Contact details:

Address: Blvd. Dimitrie Cupovski 13, 1000 Skopje, Macedonia

Mr. Vlatko Stojanovski

vlatko@mchamber.mk

Tel: 0038 (02) 3244-004

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vlatko@mchamber.mk

Dimitrie Cupovski 13, 1000 Skopje, Republic of Macedonia, P.O.Box 324 Ph: + 389 2 3244004, 3244064 • Fax: + 389 2 3244088 • E-mail: fic@mchamber.mk • Web: www.fic.mk