North Macedonia: Profit Tax Law Amended with Dividends' Tax Exemption Principle

Amendments in the FYR Macedonian Profit Tax Law, promulgate in the Official Gazette No.85 of June 29^th, 2010 and effective as of July 7^th, 2010, have introduced the principle of exemption for certain types of dividend distributions.

Prior to the change, companies' retained earnings were taxed at a nil rate, while any distribution of dividends was taxed with the 10% corporate income tax rate prior to distribution.

With the amendments to article 36g of the Profit Tax Law and the addition of the principle of exemption, dividends (or other forms of profit distribution, whether in monetary value or in-kind) made to resident legal entities will be exempt from corporate income tax. Essentially, this means that profits from one to another local resident company will be transferable without tax implications. This change is introduced as an anti-crisis measure, in an attempt to make the full profit amount available to local companies. The amendments also aim at avoiding the multiple taxation of dividends transferred between resident related entities. The principle of exemption continues to apply to retained earnings as well.

Dividends distributed to individuals remain subject to the 10% corporate income tax prior to distribution. Similarly, dividends distributed to foreign resident companies (or individuals) also continue to be taxed at the same rate. Therefore, the change in the Profit Tax Law does not impact resident individuals and non-resident legal entities and individuals in any way, as the same taxation rules continue to be applicable.

This taxation exemption is available to local resident companies as of July 7^th, 2010. It is expected that, with the change, local companies will be stimulated to invest in other local companies or local banks. The improvement of banks' loan criteria is also expected as another result as banks will improve their liquidity with the measure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.