The beginning of April 2011 was marked by the adoption of the amended Profit Tax Law in FYR Macedonia, which has entered into force as of April 16th. Amendments will impact companies, including foreign companies active in the country.

Of importance to companies providing services in the Republic is the definition of a permanent establishment (PE), whereby performing activities in FYR Macedonia for a continuous period of 90 days in a 12 month period will be considered a permanent establishment. Interruptions of up to seven days will be disregarded. All PEs will need to register as profit taxpayers before commencing their activities. The registration will be complete when they receive a unique tax number used for identifying them as taxpayers.

Changes have been introduced in the definition of the tax base as well. The tax base for a tax period is equal to the non deductible expenses plus the difference between the actual income and reported income. This amount is taxed while the remaining income is only taxed if distributed to the capital owners (following an offsetting against previous losses).

A large number of changes in regards to which expenses are considered non-deductible for tax purposes have been introduced in the law. Some of these newly defined taxable expenses, among others, include: expenses related to the use of personal vehicles for business purposes (in the amount of 70%), hidden profit payments (providing services/goods to shareholders at costs lower than market value, low interest rates etc) and donations to the public sector in excess of 5% of the company's annual income.

The amended law also provides for deductible expenses related to voluntary pension insurance (a relatively new sector in the country). Expenses up to four average monthly salaries will be recognised on an annual basis for each employee, with expenses in excess of this amount being taxed.

Small businesses will be assessing the annual profit tax themselves, calculating and paying within 30 days of the deadline for the tax return's submission (May 31st), and using a separate form from the one used by medium and large enterprises.

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.