Foreign tax relief, Corporate groups, Related party transactions

Foreign tax relief

Unilateral relief from double taxation is granted under the form of a foreign tax credit. Foreign taxes (withholding tax and income/profit tax) paid on dividends/profits from a foreign branch may be credited against the Macedonian profit tax due, limited to the level of this Macedonian tax. A tax credit is also allowed for foreign tax paid on dividends received from a foreign subsidiary. The double taxation relief provided by a tax treaty (usually also a credit) supersedes domestic relief.

Corporate groups

There is no possible for VAT purposes. Two or more entities may be registered as one based on relations from ownership, management and organisation.

Related party transactions

Transactions between related parties are recognised for tax purposes at arm’s length, i.e. should transactions deviate from the market level, the differences could lead to additional income being assessed or an expense being disallowed for tax purposes. An unrecognized expense and a less pronounced income for tax purposes are:

Positive difference between the costs of executed business or financial transaction between related parties (transfer price) and market price as follows:

- The amount of the positive difference between the costs arising from:

The transfer transaction and the costs arising from that transaction after price determined in accordance with the arm's length principle, or

- The amount of the positive difference between the revenue derived from transaction at a price established in accordance with the arm's length principle and income derived from that transaction at the transfer price.

 The arm's length principle applies to all transactions between related parties, including those relating to: tangible and intangible property, business and financial services, intra-group services, royalties, shares, derivatives, other securities, other financial instruments and any other transactions that may affect the profits or losses of related parties.

When determining the price of transactions in accordance with the principle “arm’s length "the following methods are used: 1) Comparable uncontrolled price method; 2) Method of resale price; 3) Cost-price method; 4) Method of transaction net margin; 5) Method of dividing profit; 6) any other method if the application of the above-mentioned methods is not appropriate. 

Taxpayers who have realized income of more than MKD 60.000.000 (approximately EUR 975.000) during the respective year have an obligation to submit a transfer pricing report together with the annual account. 

Furthermore, interest on loans granted between related parties (except for loans granted by banks or other financial institutions) is recognised for tax purposes at arm’s length. In case the taxpayer cannot produce satisfactory evidence that the interest on related parties loans is on an arm’s length basis, the interest income/expense from these loans will be determined for tax purposes by applying EURIBOR plus 1% (SKIBOR plus 1% for loans extended in MKD).

Penalty interest between related parties is not recognized for tax purposes (except penalty interest incurred with regards to a bank or other financial institutions).

The definition of related parties for tax purposes is the one as per the Trading Company Law.

Withholding tax

Legal entities resident in Macedonia, registered for carrying out an activity, as well as a foreign legal entity having a branch in Macedonia are obliged, when paying certain types of income to a foreign legal entity, to withhold tax and to pay the tax withheld to the revenue authorities simultaneously with the payment of the income. Withholding tax is applied to the following outbound payments:  dividends, interest, royalties, income from entertainment or sporting activities in Macedonia; income from management, consulting, financial services, services related to research and development, income from insurance or reinsurance premiums, income from telecommunication services between Macedonia and a foreign country and income from the lease of immovable property in Macedonia.

Tax shall not be withheld on the following payments: transfer of the profit of the permanent establishment/branch of a foreign legal entity in Macedonia, for which profit tax has been previously paid (no branch remittance tax), revenue from interest on debt instruments issued and/or guaranteed by the Macedonian Government, the National Bank of Macedonia and banks or other financial institutions acting as a representative of the Macedonian Government, income from interest on deposits in a bank located in Macedonia and income from intermediation or consulting regarding government securities on the international financial market.

The withholding tax rate is 10% and is levied on the gross income, subject to the application of a double tax treaty.

Exchange control

There are no exchange control requirements.

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