EY North Macedonia Alert - January 2025

Introduction of the newly adopted law on 15% global minimum tax

North Macedonia adopted a new law on 15% global minimum tax.

On December 27, 2024, the Ministry of Finance proposed the new Law on Global Minimum Corporate Income Tax, which was adopted on the same date by the Parliament and will become effective on the date of its publication in the Official Gazette of North Macedonia. The new law aims to ensure a minimum effective taxation of 15% for large multinational and domestic groups resembling the rules laid down by the OECD and implemented through a Directive in the European Union.

The law applies to constituent entities of multinational groups or large domestic groups with annual consolidated revenues of EUR 750 million or more in at least two of the four fiscal years preceding the fiscal year tested.

Specifically, the new law enacts a Qualified Domestic Top-up Tax (“QDMTT”) which is expected to impact a sizable number of multinational groups operating on the territory of N. Macedonia and currently incurring effective corporate tax of 10% or lower. These entities should be subject to additional taxation up to an effective rate of tax of 15%. The QDMTT provisions reflect a number of complicated rules for determining the applicable tax base adjustments and covered tax expenses similar to those stipulated in the internationally accepted rules of the OECD.

The new law contains certain available forms of relief, such as the:

• de minimis exclusion, which provides an exemption from the top-up tax for small-size constituent entities. This exemption applies if the average qualified income of all constituent entities in a jurisdiction is less than EUR 10 million and the average qualifying gain or loss is a loss or a gain less than EUR 1 million.
• substance-based income exclusion - allows for a reduction of the amount subject to the top-up tax in the respective jurisdiction by 5% of the 'substantive activities' of the group, particularly its payroll expenses and the net book value of its tangible assets.
• safe harbour - allows multinational groups to be exempt from the additional tax in a particular jurisdiction for a given fiscal year if the effective level of taxation of constituent entities in that jurisdiction meets the requirements of a qualified international safe harbour agreement.
• exclusion for large domestic groups in the initial phase of their international activity (applicable during the transitional period) - for the first five years of their international activity, the additional tax payable by the ultimate parent company or intermediate parent company located in another country will be reduced to zero. This exclusion applies if the group has constituent entities in no more than six jurisdictions and the total net accounting value of tangible assets in all jurisdictions (except the tested jurisdiction) does not exceed EUR 50 million.

The national top-up tax applies from January 1, 2024, except for entities excluded based on the rule for the initial phase of activity, for which the top-up tax will apply from January 1, 2025. The first reporting obligation will be 18 months for the transitional period following the end of the respective tax period. Subsequent reporting obligations will follow the standard 15-month period after the end of the respective tax period.

The law includes provisions for mergers, demergers, and acquisitions and additional transitional measures for the treatment of deferred tax assets and liabilities and the application of safe harbor rules.

In addition to this, the new law contains provisions for adoption of a Rulebook by the end of 2025.

The new tax rules allow the Macedonian government to collect the minimum tax until 15% that should have been otherwise collected in the tax budget of the ultimate parent’s state. Nevertheless, the rules may need to be further customized for application in N. Macedonia to reduce uncertainty in respect of the application of exemptions and forms of tax relief that currently reduce the effective tax rate of eligible Macedonian taxpayers. Further clarification is necessary on the application of the transitional safe harbor rules in N. Macedonia that generally provide simplification and exemption to certain categories of constituent entities in the first few years of adoption.

Due to the implementation of the rules late in the year, the Macedonian taxpayers part of large multinational groups should immediately take relevant steps to assess the impact of the new tax regime on their activities and proceed with the necessary computational analysis of their 2024 tax expense.

EY North Macedonia remains at your disposal should you require further assistance and guidance related to the application of the Law for Global Minimum Corporate Income Tax.