Category: North Macedonia

The last decade of the previous millennium set the Republic of Macedonia on a new course, with EU & NATO integration a number one priority for the country in the Western Balkans. This new course meant that reforms in almost all areas of state management were inevitable.

A new system is reinforcing the principles of market economy, private property, and independence of economic subjects. The reforms have spread into the taxation policy of the country, starting in 1994 with the enactment of a series of new laws regulating income and property taxes and, in 2005, establishing a new government body: the Public Revenue Office.

The highlights of tax reform in Macedonia were the 2000 introduction of the Value Added Tax (which replaced the previous turnover tax) and the 2001 creation of a new excise taxation system. VAT promoted the goal of transferring the tax burden from direct to indirect taxes, which meant a reduction of the income tax and an increase in consumption taxes.

The new fiscal system introduced the principle of allocated neutrality of taxes and the state budget, based on which the instruments of the fiscal policy will no longer stimulate and support some (privileged) sectors.

The key elements of the new tax system include: a) income, consumption, and property are the subjects of taxation; b) taxpayers are companies and citizens; c) proportional tax rates are applied to taxes on revenues and consumption; and d) there is a developed system of electronic payment of taxes.

There are four types of taxes in Macedonia:

1. Income (direct) Taxes: A 10% Personal Income Tax is payable annually by individuals – both residents and non-residents –on income generated in the country and abroad. The Profit Tax is payable annually by: (a) resident legal entities of Macedonia generating income in the country and abroad, and (b) permanent establishment of non-residents on the profit realized by activity performed in Macedonia; the taxable profit increased for the unrecognized expenses is the tax base, and the tax rate is 10%. Withholding tax applies to revenues of foreign legal entities. A set of 48 international agreements for avoiding double taxation are available.

2. Consumption (indirect) Taxes: VAT is payable on the turnover of goods and services at all stages of production, trade, and services. The taxpayer is a person (either a legal entity or individual) which performs a commercial activity either permanently or temporarily. The tax period can be one or three months and the general tax rate is 18% (the beneficial rate is 5%). Excise Tax is charged on the consumption of mineral oils (at a specific rate), alcoholic beverages (at a specific rate), tobacco goods (at combined rates) and PMVs (at progressive rates). The purpose of Customs duties is to protect and support the financial interests and economic activity of the country, both protecting it from unfair competition and enhancing the competitiveness of the Macedonian economy. The import of products is the subject of taxation, the value of the imported products is the tax base, and all persons and/or legal entities that import products from abroad appear as taxpayers. The customs duties are regularly harmonized with the rules of WTO and the Combined Nomenclature of EU; foreign trade agreements with EU, EFTA, CEFTA countries, Turkey, and Ukraine, as well as the One Stop-Shop system for cross-border trading offer a set of benefits. 

3. Various Property taxes include: the Real Estate Tax is payable annually by the owners (individuals and/or legal entities) and the tax rate is 0.10% to 0.20% of the estate’s market value; the Real Estate Transfer Tax is paid by the seller (if not otherwise agreed), on each transfer of property, regardless of the compensation, and the tax rate is 2% to 4% of the market value at the moment of transfer; the Inheritance and Gift Tax applies to real estate or right of usage and usufruct that is inherited or received as a gift; the tax base is the market value of the estate, and the tax rate varies from 2-5% depending on the inheritors and the hereditary lines, with inheritors of the first line exempted from payment. 

4. With the new fiscal concept, a high number of contributions were replaced with personal income tax. Only the Contributions for social funds were kept, which are part of the gross salary concept, and include contributions for health, pension, and disability insurance, and insurance in case of unemployment. The basis for calculating and paying social contributions depends on the type of income gained by the taxpayer.

By Vesna Gavriloska, Partner, Cakmakova Advocates 

This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Prior to initiating a civil court procedure, parties may try to solve a dispute through out of court negotiations. When these out of court negotiations are not successful or when the relevant statute of limitations is about to expire, in order to protect their rights, the parties can initiate a procedure in the competent court.

One situation in which this can occur involves a claim for damages arising from a traffic accident. In these circumstances, according to the Macedonian Law on Obligatory Traffic Insurance, the party that has suffered damage in the traffic accident is obliged to request compensation first out of court, and only where no positive result can be reached in out of court negotiations may the party initiate a court procedure.

According to the Macedonian Law on Civil Procedure, claims in civil court are to be initiated with a law suit.

In commercial disputes with a value up to MK 1 million (equal to EUR 16,314), prior to filing a suit the parties are obliged first to attempt to resolve the dispute via mediation, and are able to file a formal claim with the court only where that mediation was not successful. Should the claimant fail to provide evidence to the court that the procedure of mediation ended without success the law suit will be rejected. 

Once the suit has been accepted, each party will be obliged to state the facts and propose evidence on which it bases its claim or by which it objects to the allegations and evidence of the opposing party. The lawsuit has to be delivered to the defendant for response within eight days from filing. The summons which is delivered to the defendant together with the law suit is required to mention that the defendant is obliged to provide written response to the law suit in no less than 15 days and no longer than 30 days from the day of the receipt. Within eight days of receiving the defendant’s response to the lawsuit or after the time period for submitting a response to the lawsuit has expired the court will schedule a preparatory hearing to be held within 50 days of its scheduling. The parties are obliged to state all the facts and evidence on which they base their allegations at the preparatory hearing, as well as to submit the documents they intend to use as evidence in court. 

The court is obliged to lead the court procedure without postponement and with the least possible cost and has to disable any abuse of the rights of the parties involved. 

Throughout the course of the court procedure, the parties can agree to settle the claim, either in whole or in part. The court will point out to the parties the possibility for a settlement and will help them to conclude a settlement. 

The court will decide on its own which facts it will consider substantiated, based on a conscientious and thoughtful assessment of each piece of proof separately and all together, as well as based on the results of the complete procedure.  The parties can file an appeal of the court’s judgment within 15 days from the day it is received. A timely-filled appeal prevents the judgment from becoming legally valid in the part being appealed. The competent Appellate Court has to decide upon the submitted appeal.  

The extraordinary legal remedies available to the parties against the second instance judgment according to the Macedonian Law on Civil Court Procedure are Revision and Repeating of the procedure. The party can submit a Revision within 30 days from the day of receipt of the judgment. The competent court for deciding upon the submitted Revision is the Supreme Court of Macedonia and it has to issue a decision upon the submitted Revision within a maximum of eight months after receiving the file from the first instance court.

The Repeating of the court procedure as an extraordinary legal remedy can be submitted within 30 days from the day of receipt of the second instance judgment. 

The parties may also agree to have their disputes solved by arbitrage, according to the regulations from the Macedonian Law on International Trade Arbitrage. In the arbitrage procedure, decisions are to made by a majority vote of all members of the arbitrage counsel. The arbitrage decision has the same standing as a final court judgment and it represents an executive document upon which the execution procedure can be started.    

According to the Macedonian Civil Process Law general civil court competence is granted to the court in the jurisdiction where the headquarters of the defendant (if a legal person) are located or where the place of residence of the defendant (if a natural person) are located.

In addition, according to the Civil Process Law, the court located where the damage occurred is also competent to hear the dispute.

By Zlatko Antevski, Attorney at Law, Lawyers Antevski

This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Restrictive agreements and practices in Macedonia are governed by the Protection of Competition Act (2010) (the “Competition Act”), which entered into force on November 13, 2010.

The Competition Act is entirely aligned with Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) and prohibits agreements between undertakings, decisions by associations of undertakings, and concerted practices which have as their object or effect the prevention, restriction, or distortion of competition in the Macedonian market. Moreover, under the Stabilization and Association Agreement concluded between the EU and Macedonia, EU competition rules can be applied directly in Macedonia in the assessment of the forms of distortion of competition that may affect the trade between Macedonia and EU member states.

The competent authority for the investigating and sanctioning of restrictive agreements and practices in Macedonia is the Commission for the Protection of Competition (the “Commission”). The determination of whether an agreement or practice is indeed in breach of the Competition Act is carried out within administrative proceedings based upon suspicion of a misdemeanor. Additionally, the Criminal Code (1996) foresees personal criminal liability and imprisonment from one to ten years for the legal representatives of a company who have entered into cartel agreements or are involved in such agreements or practices resulting in the generation of substantial profits or causing substantial damages.

The Competition Act automatically treats as null and void all agreements and practices that: (i) directly or indirectly fix purchase or selling prices or any other commercial conditions; (ii) limit or control production, markets, technical development, or investment; (iii) share markets or source of supply; (iv) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them in a less favorable competitive position; or (v) make the conclusion of contracts conditional on the acceptance of obligations which are unrelated to the subject matter of the contract in question.

Rules on restrictive agreements and practices apply to both written and oral agreements, non-binding arrangements, and other types of informal collusion. In addition, the exchange of commercially sensitive information between competitors, even in the absence of an agreement to act on it, constitutes a breach of the Competition Act. In this context, it is not necessary for the agreements or practices to be implemented or to have any effect on the market, as long as they were intended to have an anti-competitive effect. Similarly, it does not matter if the agreement or practice was entered into with an innocent intent, if the effect of it is anti-competitive. 

Agreements, decisions of associations of undertakings, and concerted practices that contribute to the promotion of the production or distribution of goods and services or to the promotion of technical or economic development (provided that the consumers have a proportionate share of the resulting benefit), are exempted from the rules on restrictive agreements and practices, subject to the fulfillment of certain conditions set out in the Competition Act. These so-called “block exemptions” apply to: (i) technology transfer, license, or know-how agreements; (ii) horizontal research and development or specialization agreements; (iii) vertical agreements on exclusive distribution rights, selective distribution rights, or exclusive purchase and franchise rights; (iv) insurance agreements; (v) distribution and servicing of motor vehicles agreements; and (iv) transport sector agreements. The Commission is also empowered, upon its own discretion, to exempt a particular agreement, a decision of an association of undertakings, or a concerted practice from the scope of the Competition Act in view of protection of the public interest.

Entrance into restrictive agreements or engaging in restrictive practices can result in fines of up to 10% of the undertakings’ turnover in the previous accounting year. However, the Commission is empowered to grant leniency to undertakings that have entered into restrictive agreements or have engaged in restrictive practices where they admit their participation in a cartel. The Commission may grant full immunity from fines that would otherwise be imposed on that undertaking if it first presents evidence enabling the Commission to initiate a misdemeanor procedure or first presents evidence enabling the Commission to complete the already initiated misdemeanor procedure with a decision establishing the existence of a misdemeanor (if the existence of the misdemeanor could not be created without such evidence).

If the undertaking that has admitted its participation in a cartel fails to meet the requirements for full immunity, the fine may be reduced if the undertaking submits additional relevant evidence to the Commission of decisive importance for the adoption of a decision establishing the existence of a misdemeanor.

By Ana Stojanovska, Partner, ODI Law Macedonia

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Personal Data Protection Act 2005 (the “Act”) is the key legislative act that regulates personal data protection matters in Macedonia, including transfers of personal data outside of Macedonia. The Act is aligned with the EC Directive 95/46/EC (the “Data Protection Directive”). Macedonia’s obligation to align the Act with the Data Protection Directive derives from its status as a European Union candidate country, for which implementation of the EU legislation is mandatory. The Directorate for Personal Data Protection (the “Directorate”) is the Macedonian independent agency competent to oversee the Act’s implementation.

As a rule, the Act allows transfers of personal data outside of Macedonia only if the country where the personal data is being transferred to provides an adequate level of protection. The Directorate is empowered to make a general assessment as to whether other countries satisfy that requirement, based on a set of criteria including: (i) the nature of the personal data being transferred; (ii) the purpose and duration of the proposed processing of the personal data; (iii) the state of the rule of law in the country receiving the personal data; and (iv) the existing personal data safeguards in the country receiving the personal data. However, the Directorate has not made a general assessment of whether a particular country provides an adequate level of personal data protection to date. Hence, transfers of personal data to countries which are not subject to the exceptions discussed below are subject to the approval of the Directorate on a case-by-case basis.

An approval from the Directorate is not required for transfers of personal data to countries which are either members of the EU or the European Economic Area (EEA) or are “white-listed” – i.e., have already been determined to provide an adequate level of personal data protection by the European Commission. The white-listed countries to date include: Andorra, Argentina, Canada (commercial organizations), Faeroe Islands, Guernsey, Israel, Isle of Man, Jersey, New Zealand, Switzerland, Uruguay, and the US (only companies which are operating in compliance with the EU-U.S. Privacy Shield). The Act operates under the assumption that the EU/EEA and “white-listed” countries provide an adequate level of personal data protection. Furthermore, under the Act, the Directorate is required to rely on the assessment by the EC of the adequacy of the level of personal data protection available in non-EU/EEA countries. Thus, if the EC concludes that a certain country does not provide an adequate level of personal data protection, the Directorate shall issue a general order restricting all transfers of personal data from Macedonia to that country.

In specific cases, transfers of personal data from Macedonia into a particular country can be carried out without obtaining approval from the Directorate, even if that country has not been white-listed by the Directorate or the EC (or if it has never been subject to an assessment at all) if the transfer is made on the basis of the unambiguous consent of the owner of personal data or where it is necessary for the: (i) performance of a contract or the implementation of pre-contractual measures taken in response to the request of the owner of personal data; (ii) conclusion or performance of a contract concluded in the interest of the owner of the personal data between the controller and a third party; (iii) establishment, exercise, or defense of legal claims; (iv) protection of the vital interests of the owner of the personal data; or (v) is made from a register which is open to consultation either by the public in general or by any person who can demonstrate a legitimate interest.

Transfers of personal data to non-EU/EEA and non-white-listed countries not falling within the exceptions above are subject to individual approval by the Directorate. The Directorate is required to issue its approval within 30 days from the receipt of an application, assuming it is satisfied that adequate safeguards for the protection of personal data have been adduced by the applicant. To satisfy this requirement, a multinational company might provide the Directorate with Binding Corporate Rules which define its global policy with regard to the international transfers of personal data within the same corporate group to entities located in countries which do not provide an adequate level of protection or standard data protection contractual clauses issued by the EC.

By Gjorgji Georgievski, Partner, and Simona Kostovska, Associate, ODI Law  

This Article was originally published in Issue 4.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

“In general we are still suffering the consequences of the political crisis we’ve endured for two years now,” says Kristijan Polenak, the Managing Partner of the Polenak Law Firm in Skopje, of the unsettled situation in Macedonia.

“The elections in early December did not solve it, and no parliamentary majority was created to elect the government, meaning we have a temporary government with limited ability to get things done.” As a result, Polenak sighs, “this reduces the chances of having laws passed and improving regulations.” There are talks among the various political parties to create a coalition, but this will probably drag on,” Polenak says, calling it “familiar for the region.”

Despite ongoing political uncertainty, Polenak reports, foreign investments in the country in the first eleven months last year reached EUR 213.5 million, showing improvement from EUR 157 million in 2015. Still, Polenak notes that the country failed to meet the initial forecast of growth in GDP in 2016, mustering only about 2.4%. “The instability is reflected in all sectors of social life,” Polenak says. “You name it. Anywhere.” He says, “Uncertainty is a killer for business.”

Still, his own circumstances don’t reflect the country’s problems. “Notwithstanding all that,” Polenak says, “because we have about 90% foreign-based clients, our firm didn’t see a decline last year. Indeed, we had a good year in 2016, with above 7% increase in income over the year before.” Not everyone in the market is so fortunate, he concedes. “What I’m hearing is that some law firms in Macedonia are struggling,” he says. “Particularly those focusing on domestic clients.”

Polenak reports that the Macedonian Bar Association has passed new tariffs, which became effective in September 2016, and which have increased the prices of legal services. “These tariffs introduced a minimum threshold of legal fees, which are fairly high,” he says, noting that they “are bound to affect the market, meaning people will be hesitant to retain a lawyer for small or medium-sized matters.” Many lawyers are enthusiastic about the changes, as “finally we have a proper tariff.” Polenak himself isn’t so sure. “That’s fine,” he says, “but whether the market can accept it we’ll have to see.”

Finally, Polenak turns to the subject of the increasing alliances and networks popping up among law firms in CEE, particularly in the countries of the former Yugoslavia, calling it “obviously a trend, and it will continue.” According to Polenak, “this shows that law firms are grouping into networks on a larger scale, probably because the local markets are fairly small.” For him, the question “Does it really enhance quality?” is unsettled, though he notes that “I can tell you that we learned a lot from our bigger partners in the SEE Legal Group, like Turkey, Romania, and Greece.” Macedonia, he notes, is small, with no international or regional law firms, and those few that have tried to operate in the country as incorporations are facing scrutiny from the Macedonian Bar.