Developments in the tax legislation

Further to the recently announced changes to the tax legislation, the Government adopted the amendments to the respective tax laws, two of which are currently in a parliamentary procedure, and one has been enacted.

• Abolition of the progressive/increased tax rates: The intended return into force as of 1 January 2023 of the progressive rate of 18% and the increased tax rate of 15% which were applicable for 2019, has been relinquished. Accordingly, the tax rates that applied during the moratorium period from 2020 to 2022 (flat rate of 10% and a rate of 15% on income from games of chance) will continue to apply in the future.
• Postponement on the taxation of interest on term deposits: It is envisaged the taxation of interest on term deposits to be postponed until the accession of the Republic of North Macedonia into the European Union.
• Changes to the list of proceeds deemed not subject to taxation:
  • The exemption from tax with respect to premiums for life insurance and voluntary health insurance, as well as with respect to the contributions to a voluntary pension fund, has been revoked.
  • The holding period required for exemption from tax on capital gains from disposal of securities and units in investments funds, has been shortened from 10 to 2 years.
• Non-monetary benefits provided to employees
  • Introducing specific provisions regarding benefits from using company’s motor vehicles for private purposes, the tax base being determined on monthly level as (i) 1% of the accounting value of the motor vehicle on 31 December of the previous year, reduced for the compensation paid by the employee (if any) or (ii) if the vehicle was purchased in the current year (or acquired on the basis of a leasing contract), 1% of the purchase value of the motor vehicle reduced for the calculated depreciation;
  • Introducing specific provisions regarding taxation of securities and equity participations provided by employers or their related parties, the tax base being determined as the market price on the date of acquisition (in case of participations provided without consideration) or the difference between the market price and the price paid by the employer (in case of participations provided at a discount);
  • Further defining the taxation of the use by employees of residential buildings or apartments owned or leased by the employer, with the tax base being determined as the rent for similar property according to the local circumstances or the rent paid by the employee.
• Changes with respect to the manner of taxation of capital gains.

The amendments entered into force on the date of its promulgation in the Official Gazette and started to apply as of 1 January 2023.

The proposed amendments envisage:

• Amendments in relation to non-deductible expenses:
  • The limited deductibility of expenses for premiums for life insurance has been revoked. The provisions regarding the limited deductibility of expenses for voluntary health insurance and contributions to a voluntary pension fund, remain.
  • Тhe incentive for donations in sports is abolished.
• Changes with respect to transfer pricing:
  • The requirement to submit a transfer pricing report to the tax authorities until 30 September is replaced with the obligation for preparing of transfer pricing report while the submission is to be done upon request.
    
  • The tax authorities may submit such a request after 30 days from the deadline for submission of the CIT return, after which taxpayer have a deadline to submit the report within 15 days.
  • Apart from the above, taxpayers should report data on related parties’ transactions as an Attachment to their CIT return on a prescribed form.
  • Taxpayers who have the obligation to prepare a transfer pricing report, are obliged to keep the report within 10 years as of the end of the year for which it refers to.
• Changes in the taxation regime of small and micro companies: the exemption from taxation of companies with total income not exceeding MKD 3 million is abolished. The simplified regime for companies having income up to MKD 6 million, to pay 1% tax on total revenue, remains.
• Changes in the provisions related to reinvested profit: if a taxpayer cannot provide sufficient evidence that the tax incentive has been used for qualifying investments, it will be liable to pay fivefold the tax that would have been paid if no exemption would have been used.

It is envisaged the amendments to enter into force on the date of its promulgation in the Official Gazette and to apply as of 1 January 2023.

The proposed amendments envisage significant developments in the VAT legislation, i.e.:

• Supply of goods: the provisions that define what is considered as supply of goods, is expanded to include shortages of goods not caused by extraordinary events (theft, fire, or other natural disasters) as well as the cost of wastage, spillage, breakage, and spoilage of goods, provided that they have not incurred as a result of an extraordinary event or force majeure.
• Supply of services: introducing specific definitions regarding supply of certain services, such as electronically supplied services, telecommunication services, etc.
• Vouchers: introducing specific provisions regarding the taxation of vouchers.
• Introducing of the concept of a tax representative: it is envisaged that a foreign person without a headquarter or a branch office in North Macedonia supplying goods and services therein (except such that are taxable by the recipient under the reverse charge mechanism) is required to register for VAT purposes and to appoint a tax representative who would be liable for its VAT compliance in North Macedonia.
• Place of supply of services: alignment of the place of supply rules for services, with the EU place of supply rules.
• Exchange rate: the middle exchange rate instead of the selling exchange rate is to be used for conversion of considerations that are expressed in a foreign currency.
• Changes in the list of goods and services subject to reduced tax rate:
  • only basic food products are to be subject to the 5% VAT rate, whereby the supply and import of other products for human consumption shall be subject to 10% VAT;
  • the electronic/digital textbooks as well as electronic/digital books for drawing and coloring for children and menstrual products are added to the list of goods subject to 5% VAT rate;
  • the application of preferential rate of 5% for supply of electricity for households to be prolonged until 31 December 2023 while the preferential rate of 10% is to apply for 2024.
• Tax base for import of used passenger vehicles: introducing a minimum tax base for the first sale of imported used passenger vehicles, in the amount of the value determined by the customs authorities upon its import.
• Changes to the provisions related to the VAT refund: the right of taxpayers to assign the VAT receivable to another taxpayer is abolished.
• Electronic invoices: introduction of the same provisions which previously were introduced with a temporary effect as a covid related measure, according to which invoices in pdf or other electronic format containing all the necessary elements in accordance with the VAT Law shall be considered as invoices in electronic form.

It is envisaged the amendments to enter into force on the date of its promulgation in the Official Gazette, whereby the provisions referring to tax representative and the new rules for place of supply of services are to apply as of 1 July 2023.

Srdjan Randjelovic
Partner
Tel.: +389 2 313 52 20

Koce Jovanov
Senior Manager, Tax
Tel: +389 2 313 52 20

Katerina Mitevska
Manager, Tax
Tel: +389 2 313 52 20