Tax Alert - Updated Strategy for the Reform of the Tax System (2021-2025)

August, 2022

The Government of Republic of North Macedonia adopted the updated Strategy for the Reform of the Tax System (2021-2025). This strategy will be implemented through announced amendments to the tax regulation in a number of areas.

With the announced amendments the tax burden on businesses and citizens will be likely increased since certain tax exemptions and tax benefits prescribed by the current tax  regulations would be abolished or limited. 

Listed below are some of the most significant planned legal amendments by type of tax.

Corporate income tax (CIT)

• The current tax exemption related to reinvested profit would be abolished, however it is announced that a tax exemption would be introduced in respect of the part of the costs of investments in green transition and digital transformation. 
• Additional conditions for the utilization of the tax exemption related to income from dividends paid by companies which are Macedonian tax residents, as well as for dividend income from foreign companies would be introduced.
• The tax exemptions based on contributions to a voluntary pension fund, life insurance premiums, as well as premiums for private health insurance, which are paid by the employer would be abolished. Additionally, it is announced that same tax exemptions would be also abolished from the aspect of personal income tax.
• The tax exemption related to donations in sports would be limited.

Personal income tax and statutory social contributions (PIT&SSC)

• An obligation for payment of SSC on income from on a service contract would be introduced.
• The maximum statutory threshold for payment of SSC would be abolished, thus the SSC would be paid on the total amount of gross salary.
• The conditions and circumstances for taxation of certain types of benefits in kind to managers and employees would be specified.
• Taxation of capital gains realized from the sale of shares and shares issued by an investment funds, as well as taxation of interest from term deposits would be introduced. 
• Further postponement of progressive taxation with PIT until 31 December 2023 is announced.

Value added tax (VAT)

Amendments to the VAT Law are also expected, which according to the publicly announced information at this stage, will be in the direction of:

• Reducing the list of goods and services for which a preferential VAT rate of 5% is applied.
• Expansion of the list of goods and services for which the VAT refund is explicitly excluded.
• Abolition of VAT exemption for certain types of supply of goods and services.
• Clarification of the VAT treatment of scrap expenses.
• Clarification of the provisions from the VAT law that refer to self-charge of VAT.

According to the announcements by the Ministry of Finance, these amendments to the tax regulations should be presented to the public and the process of their adoption should include a public debate with the relevant factors in the country’s economy. The amendments to the tax regulations would be adopted during 2022 and become applicable as of 1 January 2023.