New Law on Personal Income Tax
The new Law on Personal Income Tax (“PIT Law”), applicable from 01 January 2019, abandons the “flat” tax rate and introduces progressive taxation. Besides the tax rate at 10%, the new PIT Law envisages a tax rate at 18% and 15%, applicable to different types of income.
On 24 December 2018, the Assembly of the Republic of Macedonia adopted the new PIT Law that enters into force from the day of its publishing in the Official Gazette of the Republic of Macedonia and will apply from 01 January 2019. The currently applicable regulation was providing a “flat” tax rate at 10%. However, the new PIT Law, abandons this rate and introduces the following changes:
I. Progressive taxation
Progressive tax rates will apply for work related income (such as salaries, pensions etc.), income from copyright and related rights, income from independent activity, and income from the sale of agricultural products (“Labor Income”).
The progressive rates which will apply to the Labor Income are:
- Annual tax base
Up and equal to MKD 1,080,000.00 (approx. EUR 17,560.00)
Over MKD 1,080,000.00
- Monthly tax base in case of advance payment
Up and equal to MKD 90,000.00 (approx. EUR 1,460.00)
Over MKD 90,000.00
- Tax rate
10%
18% tax rate for the part of the income over MKD 1,080,000.00 / MKD 90,000.00
II. Increased tax rate
The personal income tax for capital income shall be paid at an increased single rate at 15%, instead of the current rate at 10%. The following categories of income are considered as 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.)
III. Other changes
The new PIT Law envisages additional changes, such as:
- Capital gains from sale of securities, as well as income from interests from deposits (with some exempt amount) will be taxable only after 01 January 2020;
- Capital gains subject to tax are extended to include gains from the sale of movable and intangible property;
- Statutory deductions allowed for particular types of income are reduced;
- Income from insurance is introduced as a separate type of taxable income;
- The tax deduction for which the tax base is reduced amounts MKD 96,000.00 (approx. EUR 1,560.00) annually; etc.
Amendments to the Law on Corporate Income Tax
The amendments to the Law on Corporate Income Tax (“CIT Law”) clarify and further regulate several provisions related to tax exemption for given donations in sport, transfer pricing, non-deductible expenses, taxation of non-profit organizations and other issues.
In order to clarify and specify the provisions of the CIT Law, the Government of the Republic of Macedonia proposed amendments which are currently in the parliamentary procedure. The amendments clarify the provisions regulating non-profit organizations and the obligation for taxation of their income from commercial activities. The CIT Law will also regulate tax exemptions for donations in sport and other relevant questions regarding this type of donations. According to expectations, the proposed amendments will result with incentives for donations in 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 prices 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 the tax balance sheet, taxpayers will be obliged to attach a report for transactions with affiliated entities.
From its adoption, the CIT Law will allow for a reduction of the tax base by investing in tangible assets acquired through financial leasing. If the taxpayer (i) alienates the assets acquired though the reinvestment of the income in a period of five years after the investment, and (ii) if the financial leasing agreement is terminated, the taxpayer will be under an obligation to pay the tax which would have been paid if the tax exemption was not used in the first place.
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.
