Taxation for Companies in North Macedonia: A Comprehensive Guide

North Macedonia, a country strategically positioned in Southeast Europe, has become a promising destination for business owners and investors looking for growth opportunities in the region. With a favorable tax regime and business-friendly policies, company formation in North Macedonia presents many advantages, especially for businesses involved in B2B (business-to-business) transactions. Understanding the tax system for companies is crucial for business success, enabling businesses to optimize tax strategies and ensure compliance with local regulations.

In this article, we’ll provide a comprehensive guide to taxation for companies in North Macedonia, covering corporate income tax, VAT, withholding tax, and other relevant aspects. We will also explore how the tax system supports B2B operations and what considerations businesses should keep in mind when establishing a company in this growing European market.

Overview of the Corporate Tax System in North Macedonia

North Macedonia has established itself as a business-friendly jurisdiction, primarily due to its flat corporate tax rate of 10%. This low tax rate applies to profits earned by companies registered in the country, making it one of the most competitive tax environments in Europe. The government has adopted policies to attract foreign investors, offering tax incentives, special economic zones, and simplified procedures for company formation.

For B2B businesses, this low tax rate, combined with North Macedonia’s strategic location, creates a favorable environment for companies engaged in cross-border trade, services, or manufacturing. The corporate tax system is straightforward, with a focus on supporting business growth and encouraging reinvestment.

Corporate Income Tax

The cornerstone of North Macedonia’s corporate tax regime is the 10% flat corporate income tax rate. This applies to all domestic and foreign companies registered in the country. One of the key benefits of the system is that retained earnings (profits that are reinvested in the business) are not taxed until they are distributed as dividends. This allows companies to reinvest profits into operations without facing an immediate tax burden, making North Macedonia an appealing location for company formation, particularly for startups and growing businesses.

For B2B companies engaged in sectors such as IT, manufacturing, or professional services, this flat tax rate provides a significant advantage over other jurisdictions with higher corporate tax rates. The ability to retain and reinvest profits can support faster growth and more competitive pricing in B2B transactions.

Taxable Entities and Scope

Corporate tax applies to various business entities, including:

Limited Liability Companies (LLCs)

Joint Stock Companies

International Business Companies (IBCs)

Partnerships

Both resident companies and non-resident companies with permanent establishments in North Macedonia are subject to corporate tax. Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on income sourced from within North Macedonia.

Value Added Tax (VAT)

In addition to corporate income tax, businesses operating in North Macedonia are also subject to Value Added Tax (VAT). VAT is a consumption tax applied to the sale of goods and services, and the standard VAT rate in North Macedonia is 18%. A reduced VAT rate of 5% applies to specific goods, including basic food products, pharmaceuticals, and certain services like transportation.

For B2B companies involved in trade, manufacturing, or service industries, understanding VAT obligations is essential. Businesses that generate taxable income above a certain threshold are required to register for VAT, and failure to comply with VAT regulations can result in penalties.

Key considerations for businesses dealing with VAT include:

VAT Registration: Companies that exceed the annual revenue threshold (approximately €30,000) must register for VAT. This registration is mandatory for businesses involved in B2B transactions or those selling goods and services subject to VAT.

VAT Invoices: VAT-registered businesses are required to issue VAT-compliant invoices, which must include specific information such as the VAT number, the total amount of VAT charged, and the applicable VAT rate. This is especially important for B2B transactions, where VAT invoices are often necessary for clients to claim VAT refunds.

Input VAT Deductions: Businesses can claim deductions for input VAT, which is the VAT paid on goods and services purchased for business purposes. This allows companies to offset the VAT they owe to the government, reducing the overall tax liability.

For companies involved in B2B operations, especially those importing or exporting goods, understanding VAT compliance is crucial for maintaining smooth financial operations and avoiding penalties.

Withholding Tax

North Macedonia imposes a withholding tax on certain types of payments made to non-residents. The standard withholding tax rate is 10% and applies to the following categories of income:

Dividends

Interest

Royalties

Rents

Service fees for technical, managerial, or consultancy services provided by non-residents

For B2B companies engaged in cross-border transactions, it is essential to consider the implications of withholding tax when making payments to non-resident suppliers, service providers, or investors. However, North Macedonia has entered into double taxation treaties with over 40 countries, which can reduce or eliminate withholding tax rates on certain types of income, such as dividends and interest.

These treaties are especially beneficial for companies with international B2B partnerships, as they help avoid the double taxation of income earned in multiple jurisdictions. For businesses considering company formation in North Macedonia with international partners, consulting a tax advisor on withholding tax obligations and treaty benefits can help optimize the tax strategy.

Tax Incentives and Free Economic Zones

North Macedonia offers several tax incentives aimed at encouraging investment and supporting business growth, particularly for companies involved in manufacturing, logistics, and B2B services. One of the most significant incentives is the availability of Free Economic Zones (FEZs).

Free Economic Zones (FEZs) are special areas designed to attract foreign investment by offering additional tax benefits, including:

Tax Holidays: Companies operating in FEZs may be eligible for corporate income tax exemptions for up to 10 years. This can significantly reduce the tax burden for businesses during their initial stages of development, making FEZs an attractive option for company formation.

Customs and VAT Exemptions: Businesses in FEZs may also benefit from exemptions on customs duties and VAT for imported raw materials, machinery, and equipment. This is especially advantageous for B2B companies involved in manufacturing or assembly operations, as it lowers the cost of production and improves profit margins.

Employment Subsidies: North Macedonia also offers incentives for companies that create jobs within the country, including wage subsidies and training support. For B2B companies, this makes it more cost-effective to expand operations and hire local talent.

These incentives, combined with the low corporate tax rate, make North Macedonia an attractive destination for company formation, particularly for businesses seeking to expand into Southeast Europe or establish a regional hub for B2B activities.

Corporate Tax Filing Requirements

Companies in North Macedonia are required to submit annual tax returns and financial statements to the local tax authorities. The corporate tax year follows the calendar year, and tax returns must be filed by March 31st of the following year. Failure to file returns or pay taxes on time can result in penalties and interest charges.

Additionally, companies are required to make advance tax payments on a quarterly basis, with the final payment due at the end of the tax year. Keeping accurate financial records and working with a local tax advisor is essential for ensuring compliance with these requirements, particularly for businesses involved in complex B2B transactions or international trade.

Advantages of North Macedonia’s Tax System for Companies

Low Corporate Tax Rate: The 10% flat corporate income tax rate is one of the lowest in Europe, offering significant tax savings for businesses, especially those involved in B2B operations.

Tax Incentives: The availability of tax holidays, customs exemptions, and VAT incentives in Free Economic Zones provides additional financial benefits for companies, particularly in manufacturing and export-oriented industries.

Reinvestment Opportunities: The ability to reinvest retained earnings without immediate tax liabilities encourages business growth and supports long-term investment strategies.

Double Tax Treaties: North Macedonia’s network of double tax treaties allows companies to reduce or eliminate withholding tax liabilities on cross-border payments, improving profitability for businesses involved in B2B partnerships.

Disadvantages of North Macedonia’s Tax System for Companies

Compliance Burden: While the tax system is straightforward, companies must remain diligent in complying with corporate tax filing requirements, VAT regulations, and withholding tax obligations. Non-compliance can result in penalties and legal complications.

Limited Local Market: While the tax system offers advantages, North Macedonia’s relatively small domestic market may limit growth opportunities for companies that rely on local demand. B2B companies may need to focus on regional or international markets to achieve significant expansion.

Bureaucratic Challenges: Navigating the tax system may involve bureaucratic delays, especially when applying for incentives or operating in regulated sectors. Companies considering company formation should work with local advisors to streamline the process.

Conclusion

The taxation system for companies in North Macedonia is one of the most competitive in Europe, offering a flat corporate tax rate, VAT exemptions, and a range of incentives for businesses. For B2B companies and those considering company formation, the low tax rates, combined with special benefits in Free Economic Zones, provide opportunities for cost-effective operations and profitable growth.

However, businesses must remain mindful of their tax obligations, from corporate tax filings to VAT compliance and withholding tax rules. By understanding the key aspects of the tax system and working with local experts, companies can optimize their tax strategies and thrive in North Macedonia’s growing business environment.

B2B Hub offers comprehensive company formation and corporate services in any jurisdiction of your choice. For inquiries, please contact us at +44 086 097 2345, visit our website at b2bhub.ltd, or send us an email at reg@b2bhub.ltd.