Following the Strategy For Reform of the Tax System adopted by the Macedonian Government earlier this year, it is expected the draft amendments to the Value Added Tax (“VAT”) Law and Corporate Income Tax (“CIT”) Law to be adopted during 2023. On the other hand, the proposed amendments of Personal Income Tax (“PIT”) Law have been voted and published in the Official Gazette of North Macedonia on 20 December 2022, further to which the same have entered into force as of 01 January 2023.
The proposed amendments to the VAT, CIT as well as the adopted PIT changes are further outlined below.
► VAT registration of new established foreign persons (applicable as of 1 July 2023)
- Foreign legal entities without registered seat or branch in North Macedonia, which perform supply of goods and services in the country (subject to VAT) would be obliged to register for VAT purposes (prior to commencement of the activity) through a VAT representative. At this stage this is only possible if the foreign person has a branch in North Macedonia. This imposes a review of the activities of foreign non-established persons in order to:
- avoid potential penalties for non-registration and non-charging VAT; and
- have another option for recovery of VAT which they may have incurred in the course of their activities.
► Specification of the obligation for taxation of:
- Shortages of goods that did not occur as a result of extraordinary events (theft, fire or other natural disasters); and
- The costs for waste, scrap, debris and wreckage of goods exceeding the normative amount prescribed for the relevant business sector, provided that the same did not occur as a result of extraordinary events or vis major.
► Broadening the definition of supply of services (applicable as of adoption)
- Telecommunication services – services related to transmitting or receiving signals, words, images and sounds or information of any kind through communication, radio, optical or other electromagnetic systems, including the associated transmission or assignment of the right to use the capacity for such transmission, transmission or reception, including providing access to global information networks; and
- Electronically performed services - services that refer to the development of web pages, web hosting, maintenance of programs and equipment at a distance, software and its update, images, text and information and making available databases, music, movies and games, including games of chance, as well as political, cultural, artistic, sports, science and entertainment broadcasts and events, distance learning.
► Specifying the VAT treatment of value vouchers (applicable as of adoption)
- A value voucher is considered an instrument that should be accepted as compensation or part of compensation for supply of goods or services, if the latter is known, or the potential supplier and the conditions for use of the value voucher are listed on the value voucher itself or in related documentation.
- The value vouchers can be single or multi-purpose and in electronic and in physical (hard copy) form.
- Value voucher does not refer to an instrument that provides the owner with the right of discount for the purchase of goods and services as well as transportation tickets, tickets and stamp cards.
- The sale of single vouchers shall be considered as supply of goods / services.
- In case of multi-purpose vouchers, the supply of goods / services shall be considered the moment in which the voucher is redeemed / used.
► Introduction of special tax bases (applicable as of adoption)
The proposed amendments prescribe special VAT base for supplies realized through auction, for import of used passenger motor vehicles and for transfer of movable and immovable property in a procedure of forced collection.
► Preferential VAT rate of 5% will be introduced for the following goods:
- Feminine hygiene products;
- Publications (i.e., electronic textbooks, brochures and other printed materials, newspapers and other periodicals, etc.); and
- Supply and import of electricity for households (applicable as of 1 January 2023 until 31 December 2023).
► Preferential VAT rate of 10% will be introduced for the following goods:
- Supply and import of other products for human consumption different from the basic products for human consumption; and
- Supply and import of electricity for households (applicable as of 01 January 2024 until 31 December 2024).
► Clarification and introduction of new general rule on the place of supply of services (applicable as of adoption)
- Persons performing activities or supplies that are not VAT-able supplies of goods and services, shall be considered as taxpayers for each supply of services performed towards them.
- The place of supply of services performed towards taxpayers shall be considered the place where the taxpayer has its registered seat (in case of a branch, the registered seat of the same). In case such place does not exist, as place of supply of services shall be considered the place of residence of the recipient of the services; and
- The place of supply of services performed towards non-taxpayers shall be considered the place where the service provider has its registered seat (in case of a branch, the registered seat of the same). In case such place does not exist, as place of supply of service shall be deemed the place of residence of the service provider.
Although this change supposes simplification and alignment with the place of supply rules in the EU and the other countries, it raises several practical concerns observed in the countries where it is in force.
- On one hand, the burden on the supplier shifts from correct qualification of the services to the right qualification of the customer. In this respect, the standards for qualification involve different practices which may vary based on the business and the types of customers.
- On the other hand, the change will apply immediately at adoption which imposes preliminary assessment of the business model and preparation for the change in order to utilize the opportunities and avoid risks.
Certain exceptions of the general rule are prescribed regarding provision of specific services, such as immovables, transport of passengers, transport of goods, cultural, artistic, scientific services, auxiliary transport services, catering etc). In such cases the place of supply of services shall be considered the place where the service is performed.
- The place of supply of services performed towards persons who are not taxpayers shall be considered the place where the recipient of the service has its registered seat or place of residence, in case of:
a) Transfer of copyrights, patents, royalties, trademarks and other similar rights;
b) Advertising/marketing services;
c) Consulting services;
d) Banking and financial services and insurance and reinsurance services;
e) Lease of personnel;
f) Rental of movable property, except for all types of means of transport;
g) Intermediary services for access to natural gas systems or other similar systems, access to the systems for electrical energy in case of congestion of the corresponding allocation unit during the allocation of the cross-border transmission capacities of the interconnecting pipelines;
h) Telecommunication services;
i) Broadcasting services; and
j) Services performed electronically.
In order to avoid double taxation, non-taxation or violation of conditions of competition, the Minister of Finance is authorized to determine the place of supply of specific services to ensure that such specific services are taxed in the place where they are actually used.
The by-laws related with the proposed amendments to the VAT Law shall be adopted within six months from the date of their entry into force.
The amendments proposed to the CIT refer to the following:
► The whole amount of life insurance premiums paid by employer for employees to be treated as tax non-deductible expense.
► The current right to decrease the CIT liability for the amount of donations made in sports activities will be abolished.
► The current obligation for mandatory submission of the Transfer Pricing documentation will be abolished, further to which the taxpayers will have the obligation for submission only upon request from the tax authorities.
► The current exemption for payment of annual 1% CIT on total revenues for taxpayers under simplified CIT regime - for the amount of realized total revenue up to MKD 3 million (approx. EUR 48.7 thousand) will be abolished.
► No progressive taxation with PIT will be introduced i.e., taxation of all types of income under single flat rate of 10% will apply, except for income from the games of chance for which a PIT rate of 15% will continue to apply.
► Taxation of capital gains from sale of securities and shares issued by investment funds acquired as of 01 January 2023 has been introduced as well as amendments in the concept of their taxation in respect to the vesting period, tax rate and method for calculation and payment of the tax due. There are new obligations for payers of capital gain prior to the payment.
► Taxation of fixed term deposit interest has been postponed until accession of North Macedonia to the European Union.
► The PIT base for taxation of certain benefits in-kind provided by the employer to its employees has been specified, as follows:
- Use of residential buildings or apartments owned or leased by the employer - the PIT base shall be determined based on the amount of rent payable for similar properties leased under approximately equal terms, or the amount of rent paid by the employer;
- Use of corporate motor vehicles or other means of transportation for private purposes, including transportation to and from the workplace - the tax base is:
1) For used motor vehicles: 1% of the net book value of the motor vehicle determined on 31 December of the previous year; and
2) For new motor vehicles: 1% of the purchase value of the motor vehicle in the year of purchase, or 1% of the purchase value decreased for the amount of depreciation allowed for tax purposes under the Nomenclature for Depreciation.
- Granting of securities and participation in the equity of the employer or of its related parties free of charge or at a lower price than the market price - the PIT base shall be the market price of the securities and the participation (stake) in the share capital on the day of acquisition or the difference between the market price and the price paid by the employee.
► The current PIT exemption from taxation of premiums paid for life insurance, voluntary health insurance and voluntary pension fund paid by the employer for its employees has been abolished. They all now become taxable with 10% rate.
► The procedure for PIT exemption and relief of income realized by foreign individuals based on the applicable Double Tax Treaties has been specified, whereby the tax rate to apply should not exceed the rate agreed in the respective treaty.
EY North Macedonia remains at your disposal should you require further assistance and guidance related to the application of the announced amendments to the VAT, CIT and adopted PIT Laws.