New Law on Personal Income Tax
The new Law on Personal Income Tax (“PIT Law”), applicable from 1 January 2019, abandons the “flat” tax rate and introduces progressive taxation. Besides a tax rate of 10%, the new PIT Law envisages a tax rate of 18% and 15%, applicable to different types of income.
Тhe PIT Law applies from 1 January 2019, meaning that it will apply for the taxation of income generated during the year 2019. The currently applicable regulation was providing a “flat” tax rate of 10%. However, the new PIT Law abandons this rate and introduces the changes listed below.
1. Progressive taxation
Progressive tax rates will apply for work related income (such as salaries, pensions etc.), income from copyrights and related rights, income from an independent activity, and income from the sale of agricultural products (“Labour Income”).
The progressive rates which will apply to the Labour Income are:
Annual tax base
|Monthly tax base in case of advance payment||Tax rate|
Up and equal to MKD 1,080,000 (approx. EUR 17,560)
Up and equal to MKD 90,000 (approx. EUR 1,460)
|Over MKD 1,080,000||Over MKD 90,000||
18% tax rate for the part of the income exceeding MKD 1,080,000 / MKD 90,000
2. Increased tax rate
Personal income tax for capital income shall be paid at an increased single rate of 15%, instead of the current rate of 10%. The following categories of income are considered capital income: income from industrial property rights, income from leasing and subleasing, income from capital (such as income from dividends, interest from loans, income from securities etc.), capital gains (gains when selling or exchanging real estate, securities and other property), gains from games of chance, income from insurance and other income (e.g. income from online trade etc.)
- Tax returns filing procedure
Natural persons who reside in the Republic of North Macedonia and who generate income during the calendar year had to submit their annual tax returns electronically, or in hard copy, no later than by 15 March of the next year. Under the amendments, the Public Revenue Office (“PRO”) has to prepare annual tax returns for tax payers. To collect the data on the generated income and the effectuated advance tax payments, all tax payers must be registered in the electronic system of the PRO “e-Personal tax”. The PRO is obliged to submit the filled-out annual tax returns no later than 30 April via e-Personal tax. The tax payers, on the other hand, are obliged to confirm or correct tax returns prepared by the PRO, by no later than 31 May, otherwise the Law presumes that the tax return is confirmed by the tax payer.
3. Capital Gains for the Sale of Securities and other Property
The sale of movable and intangible property will be subject to capital gains tax.
The new PIT Law also introduces capital gains tax from the sale of securities, as well as income from interests from deposits from 1 January 2020.
Amendments to the Law on Corporate Income Tax
The amendments to the North Macedonian Law on Corporate Income Tax (“CIT Law”), applicable from 1 January 2019, clarify and further regulate several provisions related to tax exemptions for donations given in sport, transfer pricing, non-deductible expenses, taxation of non-profit organizations and other issues.
The amendments clarify the provisions regulating non-profit organizations and the obligation for the taxation of their income from commercial activities. The CIT Law also regulates tax exemptions for donations in sport and other relevant questions regarding this type of donations. It is expected that the amendments will result in incentives for donations to sport clubs, athletes and sports in general.
The amendments to the CIT Law further specify the definition of affiliated entities and extend the list of non-deductible expenses. The transfer pricing provisions are additionally regulated, defining the arm’s length principle and extending the list of methods used for determining the price in transactions in accordance with the arm’s length principle. When submitting annual tax returns, taxpayers are obliged to attach a report for transactions with affiliated entities.
From its adoption, the CIT Law will allow reductions of the tax base by investing in tangible assets acquired through financial leasing. If the taxpayer:
- alienates the assets acquired through the reinvestment of the income in a period of five years after the investment, and,
- if the financial leasing agreement is terminated, the taxpayer is obliged to pay tax which would have been paid if the tax exemption was not used in the first place.
Changes in Practice Concerning the Implementation of the Law on VAT for Individuals
In January 2019, the PRO issued the Information Regarding the Registration of Natural Persons as VAT Taxpayers (“Information”), which caused an uproar in the public. Based on this Information, natural persons whose total turnover will exceed the VAT registration threshold of MKD 1,000,000 are obliged to register as VAT taxpayers, with all the obligations that follow, such as the submission of VAT returns and periodical reports. As part of a total turnover, the Information envisages income from economical activities such as expert witnessing and bankruptcy administration, leasing business premises, income from a contract for a deed, from copyright contracts and industrial property rights, income based on becoming a member of Supervisory Board, etc.
Due to the lack of specification by the Law on VAT, as to what precisely an economic activity is, with the performance of which a natural person becomes a VAT taxpayer, it is left to the PRO to ultimately decide which activity is to be deemed as economic. As a consequence of this arbitrary and very wide interpretation of the term economic activity, the PRO is tacitly widening the circle of registered VAT taxpayers.
After registration, the taxpayer stays a registered VAT taxpayer for 5 more years, independently of the fact that during these 5 years the turnover of the taxpayer may not exceed the registration threshold.
For the purpose of abandoning this practice by the PRO, there is a demand by the general public and academics of the field that the provisions of Law on VAT regarding the legal terms “tax payer” and “economic activity” need to be harmonized with the provisions of the Directive 2006/112/EC of the European Union (“VAT Directive”).
Further demands include the rise of the VAT registration threshold back to MKD 2,000,000, as it was before the Amendments of the Law on VAT of 2014. The current VAT registration threshold is the lowest in the region, with the sole purpose of raising the number of registered VAT taxpayers.
Another proposal is the introduction of a period after which the registered VAT payer can demand the deregistration because of a turnover below the threshold of registration. The current Law on VAT does not provide such a period.