Israel – North Macedonia Tax Treaty

Business activity in North Macedonia

The government, with a focus on business, has transformed North Macedonia into an open economy, actively seeking to attract foreign investment. Macedonia’s strategic location positions it favorably for business expansion. As an EU candidate country, trading with other EU members is seamless, providing entrepreneurs looking to establish businesses in Macedonia with the opportunity to reach up to 650 million consumers across the European continent. Entrepreneurs seeking to expand or initiate a new business venture should carefully consider the potential offered by North Macedonia.

In order to attract investments and expedite business growth, North Macedonia sustains a competitive taxation system, with some of the lowest rates worldwide.

For more information on business activity in Macedonia– click here

Bilateral agreements between North Macedonia and Israel

Several agreements were signed between Israel and North Macedonia:

1. Double Taxation Agreement
2. Agreement on cooperation in the fields of health and medicine

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and North Macedonia regarding the avoidance of double taxation was signed on December 9, 2015, and entered in force in on the first of January 2019.

To read the agreement in English click here.

Applicability of the MLI

Both North Macedonia and Israel have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Israel signed the agreement on June 7, 2017, and ratified it on January 1, 2019. In contrast, North Macedonia signed the MLI on January 29, 2020, and is currently in the process of ratification.

Residency for tax purposes in North Macedonia

Residence of an individual

Regardless of their nationality, individuals are deemed tax residents of North Macedonia if they hold either permanent or temporary residence in the country.

Temporary residence in North Macedonia is attributed to individuals who stay in the country continuously or intermittently for 183 days or more within 12 (twelve) months. In the presence of a double tax treaty (DTT), the 183-day residency standard applies as per the treaty’s provisions.

Only those who hold either permanent or temporary residence in the country are required to pay personal income tax based on the aggregate income derived from various sources, both domestic and international, over one calendar year.

To read about how an individual is considered a resident of Israel, click here.

Residency of a company

A company is considered to be a tax resident in North Macedonia if it is established or maintains its headquarters in the territory of North Macedonia.

Foreign legal entities with headquarters outside the country are classified as non-residents for tax purposes. However, if a foreign legal entity has branches in Macedonia and those branches are recognized as a Permanent Establishment (PE) for the foreign entity within the country, they are subject to taxation on any profits generated within the territory of North Macedonia.

To learn about how a company is considered a resident of Israel, click here.

The tax system in North Macedonia

North Macedonia Tax Authority is called the Public Revenue Office.

Income taxation: 10% (subject to exemptions and deductions)

Taxation of companies and branches: 10%

VAT:

• general tax rate of 18% and
• Preferential tax rate of 5/10%.

Capital gains tax: 10%

Withholding Tax

Inheritance tax and estate tax in North Macedonia

Taxes on inheritance and gifts in North Macedonia are typically levied based on the market value of the property acquired through inheritance or as a gift. Municipalities set the tax rates within the 0% to 5% range, guided by legislation.

Moreover, some inheritances and gifts enjoy tax exemptions, such as those received from first-degree relatives and residential real estate received from second-degree relatives. Also, tax exemptions also enjoy the parties that lived in the same household for at least one year before death or before the gift was given and the receiving party or their family does not have their own residential real estate.

Relocation to North Macedonia

The Republic of North Macedonia is home to about 200 Jewish people. The Macedonian Jewish community is represented by the Jewish Community, named the ‘Macedonian affiliate of the World Jewish Congress’.

Despite its modest size, the North Macedonian Jewish community demonstrates a remarkable degree of organization. Serving as the primary communal entity for Macedonian Jewry, the Jewish Community in the Republic of Macedonia plays a pivotal role by overseeing political, social, and religious functions for Jews throughout the country.

North Macedonia boasts a rich cultural heritage, featuring historical landmarks, beautiful landscapes, and a diverse cultural panorama. Despite its compact size, the country is an excellent business location due to factors such as a secure monetary environment, strategic geographical location, liberalized foreign trade policy, competitive tax climate, and a highly qualified workforce.

Real estate taxation in North Macedonia

Real estate tax in North Macedonia is levied on immovable property. The property tax base is determined by the market value of the immovable. This market value is assessed by an appraiser officer working within a local self-government unit. Alternatively, if requested by the local self-government unit, the assessment may be conducted by an authorized appraiser.

The person liable for property tax is the legal entity or the individual owner of the property. In cases where the owner is unknown or unreachable, the individual responsible for property tax is the user of the property.

Property tax rates vary between 0.10% and 0.20%, with the possibility of being determined based on the property type. However, certain exceptions apply. For instance, in cases where agricultural land remains unused for agricultural production or residential/commercial real estate is not utilized or leased for more than six months in a calendar year, the property tax rates may exceed the specified range. In such instances, rates can be increased from three to five times in relation to the standard rates.

The amount of the rates is decided by the Municipal Councils.

For more information on Real estate in Macedonia– click here

Transfer of funds from Israel to North Macedonia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in North Macedonia

In North Macedonia, various business structures are accessible, such as:

1. Limited liability companies – Limited Liability companies can be established by one or more natural and/or legal persons, with a maximum membership limit of 50 individuals. The liability of members is generally limited to the payment of their capital contribution. The governance of limited liability companies involves member meetings and is overseen by one or more managers. In the case of single-member limited liability companies, management responsibility falls upon the member and/or an elected manager.

2. Joint stock companies – A joint stock company can be established by one or more natural and/or legal persons, and the liability of shareholders is generally limited to the payment of their capital contribution. The governance of joint stock companies is administrated by general meetings of the shareholders. In the context of single-member joint stock companies, the rights and responsibilities of these general meetings are exercised either by the single shareholder or by a body designated by the founder.

3. General partnerships – A general partnership can be established through the collaboration of two or more natural and/or legal persons. The partners are jointly and severally liable to an unlimited extent for the debts and obligations of the partnership.

4. Limited partnerships – A limited partnership can be established through the collaboration of two or more natural and/or legal persons, mandating the presence of at least one general partner and one limited partner. General partners bear joint and several liabilities, extending without limit, for the partnership’s debts and obligations. Limited partners, on the other hand, typically have their liability confined to their capital contributions.

5. Limited partnerships by shares – A limited partnership by shares may be formed by one or more general partners with at least three limited partners. General partners are jointly and severally liable to an unlimited extent for the debts and obligations of the partnership. The liability of limited partners is generally limited to their contribution.

6. Sole Proprietorships – An individual with a business capacity and a permanent residence in North Macedonia is permitted to engage in commercial activities within the country as a sole proprietorship. The proprietor assumes unlimited liability for the debts and obligations associated with the business. Registration in the Commercial Register is mandatory for sole proprietorships.

Incentive laws in North Macedonia

North Macedonia boasts an advantageous tax landscape, featuring one of the world’s lowest corporate income tax rates. Furthermore, the country offers several Investment Zones, providing a decade-long tax holiday for corporate profits, employment income, VAT, customs duties, and various other taxes.

Investors in North Macedonia’s free zones enjoy a comprehensive 10-year tax holiday covering profit, corporate tax, and personal income tax. Furthermore, they benefit from exemptions on value-added tax for imported goods, as well as customs duties for equipment and machinery. Long-term lease options for up to 99 years are available at concessional rates for free zone land.

Additionally, investors are spared utility taxes, land building permit fees, and receive free connections to natural gas, water, and sewage networks. The government may further support capital investments with a 10% return on costs incurred for new machinery, equipment, buildings, or land.

Likewise, a registered user within a technological industrial development zone is eligible for a ten-year exemption from Corporate Income Tax (CIT) payment.

North Macedonia Double Tax Treaties