PROFIT TAX LAW

 

(Published in the

Official Gazette of the Republic of Macedonia No. 80/93-1967)

(Unofficial Translation)

 

 

 

I. GENERAL PROVISIONS

 

 

Article 1

 

This Law introduces tax on profits and determines the means of profit taxation.

 

 

Article 2

 

The tax rate on profits is proportionate.

 

 

Article 3

 

The computation and payment of tax on profits is carried out by the taxpayer of profit tax.

 

 

 

II. THE TAXPAYER

 

 

Article 4

 

The taxpayer of profit tax is a legal entity and a physical person performing a registered activity (entity) - resident of the Republic of Macedonia earning a profit from an activity in the country and abroad.

 

The resident under paragraph 1 of this article is an entity established or occupying a head office on the territory of the Republic of Macedonia.

 

 

Article 5

 

The taxpayer of profit tax is also a legal entity and a physical person performing a registered activity, that is not a resident of the Republic of Macedonia, for profits earned through performing an activity on the territory of the Republic.

 

 

Article 6

 

The legal home office and its branch offices, that represent a group of legal entities, can pay tax on profits as a single taxpayer (tax consolidation), if they are all residents of the Republic of Macedonia.

 

The legal home office and its branch offices constitute a group of legal entities in terms of this Law, if there is direct or indirect control among them over at least 90% of the stocks or the share.

 

The legal home office submits an application for tax consolidation to the public revenue administration.

 

The approved tax consolidation is implemented for a minimum of five years.

 

 

Article 7

 

A physical person who performs a registered activity and is subject to payment of personal income tax in lump sum, is exempt from profit tax.

 

 

 

III. TAX BASE

 

 

Article 8

 

The basis for computation of profit tax is the profit which is determined in the tax balance.

 

The profit represents the difference between the total incomes and expenditures of the taxpayer, in amounts determined by accounting regulations, excluding incomes and expenditures that are otherwise determined by this Law.

 

 

Article 9

 

The value of the reserves of unfinished production, semi-products and ready goods is estimated at the full cost price, in accordance with the accounting regulations.

 

The value of the reserves determined under paragraph 1 of this article can not exceed the sales value on the day of establishing the tax base.

 

 

Article 10

 

Expenditures that are acknowledged as deductive rates, when determining the profit liable for taxation, are solely those expenditures incurred by performing an activity.

 

 

Article 11

 

The computation of the material expenses and the purchase value of the sold merchandise is carried out by implementing the method of average prices.

 

If other methods are implemented in the estimation of the value of the reserves, the material expenses and the purchase value of the sold merchandise, the corrected amounts that would have resulted from the implementation of the method under paragraph 1 of this article are to be declared in the tax balance.

 

 

Article 12

 

Business expenditures, resulting from shipment of goods, materials and services among associated legal entities and physical persons performing a registered activity, are determined according to the prices achieved on the domestic market or the on the comparable foreign market, unless an affiliation of associated persons is not in question.

 

An individual associated with the taxpayer is regarded as a legal entity or physical person performing a registered activity, where there is the possibility of control or influence over business decisions in the relations with the taxpayer.

 

The possibility of control exists in cases of possession of over half or of the single largest part of the stocks or the share.

 

Substantial influence over business decisions appears in cases of large mutual purchases and sales, technological dependency or if other means of management control are established.

 

 

Article 13

 

All transactions of the taxpayer with associated persons are to be reported separately in the tax balance, along with the transfer prices, at which the transactions were completed.

 

The difference between the market price and the transfer price is included in the tax base.

 

 

Article 14

 

The computed gross salaries of the employees are acknowledged in full as a deductive rate, part of the business expenditures, for the period in which the profit is determined, at the level of the paid amount.

 

The salaries of the employees, based on profit participation of the legal entity or physical person performing a registered activity, are not acceptable as expenditures in the tax balance.

 

 

Article 15

 

The depreciation of fixed assets is acknowledged as an expenditure in the tax balance up to the determined amount, according to the provisions of the law on accounting. The determined method of depreciation is applied until the final depreciation of the base of the single asset or group of assets.

 

When determining the tax base, the depreciated assets or group of assets can not be included again in the computation of the depreciation.

 

The remaining current value of the assets, that are no longer usable, can be depreciated in full, regardless of the prescribed duration period. If such depreciation is to be regarded as an expenditure, when determining the tax base, the public revenue authority must give its consent.

 

 

Article 16

 

When by application of the functional method of depreciation, the total depreciation of the taxpayer is increased more than 10% of the depreciation, computed through proportionate methods, the public revenue authority is to approve the computation of the depreciation by the functional method.

 

 

Article 17

 

Costs related to interests on credits used for businesses are acknowledged as part of the expenditures in the tax balance. In cases of credits among associated persons, the interest costs are acknowledged up to the amount of the interests at which a respective credit could have been obtained in the computed period.

 

 

Article 18

 

Fines and penalties of the taxpayer shall not be acknowledged as part of the expenditures in the tax balance.

 

 

Article 19

 

Expenses incurred by members of the managing board or share holders for vehicle usage, food and beverages, gifts, for purchase of movable property and real estate, which are not intended for performing the activity, shall not be acknowledged as part of the expenditures in the tax balance.

 

 

Article 20

 

All costs incurred for promotion, propaganda, advertising and representation shall be acknowledged as expenditures in the tax balance at a maximum of 3% from the total income.

 

 

Article 21

 

The calculated long-term reservations of material and non-material costs shall not be acknowledged as expenditures in the tax balance, except for those reservations whose obligation is defined by law.

 

 

Article 22

 

Payments for stipends shall not be acknowledged as expenditures in the tax balance, except for payments effected through social funds (foundations) according to the law.

 

By exception of paragraph 1 of this article, payments of stipends for leading sportsmen are acknowledged as expenditures in the tax balance.

 

 

Article 23

 

The tax base of the taxpayer, bank or other financial organization is reduced for the reserves set aside to cover outstanding credits and other risks.

 

The tax base of the taxpayer is reduced by reserves set aside for insurance and other risks in the company for insurance and re-insurance of properties and persons.

 

The reserves set aside under paragraphs 1 and 2 of this article, that are acknowledged for reduction of the tax base, may total a maximum of 15% of the profit declared in the positive balance.

 

 

 

IV. TREATMENT OF TAX ON RETURNS OF CAPITAL

AND CAPITAL GAINS AND LOSSES

 

 

Article 24

 

Incomes from dividends realized through participation in the capital of another taxpayer - resident of the Republic, as well as incomes from participation in profits of incorporated companies, are not included in the tax base, if they are taxable with the taxpayer, who effects payment according to the general rate under article 28 of this Law.

 

 

Article 25

 

Capital gains acquired from sales of securities, equipment and real estate are included in the tax base of the taxpayer.

 

Capital gains under paragraph 1 of this article refer to the difference between the sales value of the securities, equipment and real estate and their accounting values, revalued on the day of the sale.

 

Capital loss is achieved if the difference under paragraph 2 of this article is negative.

 

The purchase value is revalued according to the accounting regulations.

 

 

Article 26

 

Short-term capital gains realized from sales of shares and bonds, kept in the taxpayer's portfolio under 12 months and capital gains realized from sale of equipment and real estate, are fully included in the tax base.

 

Long-term capital gains realized from sales of shares and bonds, kept in the taxpayer's portfolio 12 months and longer, are included in the tax base at up to 50% of the difference.

 

 

Article 27

 

Long-term capital loss realized through sales of shares and bonds is settled through capital gains under article 26 paragraph 1 of this Law, acquired in the same year.

 

If capital loss appears after the settlement indicated in paragraph 1 of this article, the surplus is transferred to upcoming capital gains in the next three years.

 

 

 

V. TAX RATE

 

 

Article 28

 

The tax rate on profits equals 30%.

 

 

Article 29

 

In cases when taxpayers of tax on profits from certain fields and activities, who are in exceptional economic difficulties due to natural disasters or major force and can not perform their duties, may receive from the Government of the Republic of Macedonia a reduction, postponement or exemption of taxation for a particular period of the determined rate of tax on profits, under paragraph 28 of this Law, for taxpayers from certain fields or for certain taxpayers.

 

 

 

VI. TAX REDUCTIONS AND EXEMPTIONS

 

 

Article 30

 

The taxpayer is entitled to expedited replacement costs in cases of technological renovation and structural adaptation, not exceeding 25% of the replacement, computed in accordance with article 15 of this Law.

 

By exception of paragraph 1 of this article, the taxpayer is entitled to expedited replacement costs intended for protection of the environment and nature.

 

The taxpayer attains the right under paragraph 1 and 2 of this article by submitting a written request to the public revenue authority on the basis of appropriate documentation.

 

 

Article 31

 

The tax base of the taxpayer is reduced by the amount of the contributions made from profits into new investments (reinvested profit) in the Republic, not exceeding 30% of the tax base in the particular activity.

 

 

Article 32

 

The tax base of the taxpayer who has made contributions from profits in economically underdeveloped regions and in specific regions (mountainous areas, border zones and backward regions) is reduced for the amount of the investments.

 

 

Article 33

 

The liability for payment of taxes on profits is reduced for domestic legal entities or a physical person performing a registered activity, at the proportionate level of the profit belonging to a foreign person, based on the investments for a period of the first three years, under condition that the participation of the foreign capital is minimum 20% in the fully invested permanent capital of the taxpayer.

 

The liability for payment of taxes on profits is reduced for legal entities or a physical person performing registered activities, that are non-residents of the Republic of Macedonia, at the proportionate level of their profit, based on the investments in the period of the first three years.

 

 

Article 34

 

Incomes earned from funds strictly intended for performing an activity with the legal entity - taxpayer (budgets, funds) are not included in the tax base for computation of tax on profit.

 

 

Article 35

 

The tax liability of the taxpayer is reduced by the amount of the profits invested in protection of environment and nature and in international sports, that are of importance to the Republic.

 

 

Article 36

 

Production and service enterprises for professional rehabilitation and employment of disabled persons, whose products and services are completely made or rendered in protected workshops, are exempt from payment of tax on profit by submission of a written request to the public revenue authority based on appropriate documentation.

 

 

 

VII. AVOIDANCE OF DOUBLE TAXATION ON PROFIT

 

 

Article 37

 

The taxpayer, resident of the Republic, who has paid tax in a foreign country on the profit earned through work abroad, is entitled to reduced taxation in the country, at the amount of the profit tax paid abroad, and not exceeding the anticipated tax by implementation of the tax rate under article 28 of this Law.

 

 

Article 38

 

The domestic legal entity - resident of the Republic, is entitled to reduction on the computed tax in the country for the tax amount paid by its branch office in another country, for the profits included in the income of the domestic legal entity.

 

The domestic legal entity, that has permanently within a period of at least one year, before submission of the balance, held 25% or more of the shares or participated in the non-resident branch office, verified with appropriate documentation, positive balance and tax balance, is entitled to tax reduction under paragraph 1 of this article.

 

 

 

VIII. ENDORSEMENT AND COLLECTION

 

 

Article 39

 

The temporary computation and payment of tax on profit in the course of the year is carried out within the set period for submission of the semiannual computation. The final computation and payment of tax on profit is carried out in the set period for submission of the annual computation in accordance with the accounting law.

 

If the taxpayer of tax on profit formulates the computations for periods shorter than those stated in paragraph 1 of this article, the tax on profit is computed and paid by submission of those computations.

 

The taxpayer of tax on profit is obliged to determine and pay tax on profit with the periodical, semiannual and annual computation, using a special form that together with the computations is submitted to the public revenue authority.

 

The taxpayer of tax on profit is obliged to carry out payment of tax on profit based on the special form, which together with the computations, is submitted to the holder of the payment operations where the transfer account is maintained.

 

 

Article 40

 

An advance payment of the tax on profit is computed and paid in the course of the year, latest by the 15th day in the month for the previous month.

 

The monthly advance amount for the current month is determined by applying the regulated rate for:

 

- the period February-June, according to the profit tax base

determined after the annual computation for the previous year,

increased by the percentage of the cumulative retail price

increase in the Republic from the previous period of the first

six months compared to average retail prices in the previous

year, or according to the profit tax base determined after the

annual computation for the previous year, increased by the

percentage for the average net salary increase per employee of

the legal entity or physical person performing a registered

activity, which is earned in the taxable month, compared to the

earned average monthly net salary per employee of the legal

entity or physical person performing a registered activity in

the previous year, if it is more favorable.

 

- the period July-December, in the current year and for the month

of January the following year, according to the profit tax base

determined after the semiannual computation, increased by the

percentage of the cumulative retail price increase in the

Republic in the second six months of the previous period, i.e.,

by January 31 the following year, compared to the average retail

prices in the first six months, or according to the profit tax

base determined after the semiannual computation, and increased

by the percentage of the average net salary increase per

employee of the legal entity or physical person performing a

registered activity, which is earned in the taxable month,

compared to the earned average monthly net salary per employee

of the legal entity or physical person performing a registered

activity in the first six months, if it is more favorable.

 

If the taxpayer of tax on profit fails to submit an order for payment of tax on profit, the holders of the payment operations will collect payment of tax from the transfer account and advise the public revenue authority.

 

Newly established legal entities and physical persons performing a registered activity shall pay the advance for profit on tax with the first periodical or semiannual computation in the current year.

 

 

Article 41

 

If the taxpayer of tax on profit has paid a smaller advance payment of tax on profit than the one determined with the periodical, semiannual or annual computation, the difference between the paid advance and the actual liability of the computed tax on profit must be paid within a period of 15 days from the termination of the period for submission of periodical, semiannual or annual computation.

 

If the taxpayer of tax on profit has paid a larger advance payment of tax on profit than the one due for payment with the periodical, semiannual or annual computation, he is entitled to request reimbursement of the overpaid amount from the public revenue authority.

 

The taxpayer of tax on profit shall receive reimbursement of the overpaid profit tax from the public revenue authority upon request, within a period of 15 days from the date of submission of the reimbursement request.

 

If the taxpayer of tax on profit fails to request reimbursement of overpaid profit tax, the overpaid amount shall be considered as advance payment for the following period.

 

 

Article 42

 

The regulations of the law on personal income tax are applied accordingly in instances of forced collection, interests and outdated profit tax liability.

 

 

Article 43

 

The public revenue authority controls the procedure of computation, payment and return of tax on profit.

 

 

Article 44

 

The Republic Bureau of Statistics publishes the percentage of the retail price increase in the Republic, under article 40 paragraph 2 of this Law, by the 10th day of the month.

 

 

 

IX. PENALTY CLAUSES

 

 

Article 45

 

The taxpayer of tax on profit, who for the determined tax base and tax reductions, has indicated incorrect figures on the tax computation form, due to which a smaller tax base has been determined, shall be fined for violation with a penalty amounting to ten times of the underpaid profit tax sum.

 

The person in charge of the taxpayer of tax on profit shall also be fined for violation under paragraph 1 of this article in the amount of five to fifteen salaries.

 

 

Article 46

 

The legal entity that has failed to submit the computation on the designated form (article 39) to the public revenue authority, shall be fined for violation with a penalty from 50 to 100 salaries.

 

The person in charge of the legal entity shall be fined with a penalty from two to fifteen salaries for violation under paragraph 1 of this article.

 

 

Article 47

 

A physical person who performs a registered activity - taxpayer of tax on profit, shall be fined with a penalty from five to fifteen salaries, for actions under article 46 of this Law, having failed to submit the computation on the designated form within the set period to the public revenue authority.

 

 

Article 48

 

For violations under article 45 paragraph 1 of this article, further to the penalty, a protective measure can also be pronounced against the legal entity and physical legal entity, performing a registered activity, that will prohibit the activity from six months to one year, while the person in charge of the legal entity may be prohibited to perform the function from three months to one year.

 

 

 

X. TRANSITIONAL AND CONCLUDING PROVISIONS

 

 

Article 49

 

The Minister of Finance shall issue further regulations specifying

the procedures of computation and payment of the tax on profit, the prevention of double exemption or double taxation and will determine the tax balance form, used for computation and payment of tax on profit, within a period of 30 days from the date this comes into effect.

 

 

Article 50

 

By exception of the provisions under articles 39 and 40 of this Law, the legal entity, as a taxpayer of tax on profit, is obliged during payment of tax on profit with the final 1993 computation, as well as for the settlement of the monthly advance for the period February-June 1994, to increase the base of the profit tax determined on the basis of the figures of the 1993 annual computation together with the results of leveling of the prices of the goods, which is included in the revaluation reserve of the proportionate part of the sold goods.

 

 

Article 51

 

By exception of the provisions under articles 39 and 40 of this Law, a physical person that performs a registered activity shall determine and pay the monthly profit tax advances for the period January-June 1994 together with the semiannual computation for this period.

 

 

Article 52

 

The Profit Tax Law (Official Gazette of the Republic of Macedonia No. 5/93) shall no longer be valid on the day this Law enters into force.

 

 

Article 53

 

This Law shall enter into force on the date of publication in the Official Gazette of the Republic of Macedonia and will be enforced as of January 1, 1994.