FYR Macedonia/February 2013
On October 31 2012, The FYR Macedonian Parliament ratified the income and capital tax treaty signed with Luxembourg on May 15 2012. The taxes covered by the treaty are the personal income tax, profit tax and property tax in FYR Macedonia while in Luxembourg taxes include the individuals’ income tax, the corporation tax, capital tax and communal trade tax.
The treaty is generally in line with the OECD Model Tax Convention on income and on capital with some deviations/specifics discussed below.
Permanent Establishments (PE) are (according to the treaty) allowed to deduct expenses incurred for their purposes, including executive and administrative expenses. Profits of businesses carried on in one of the two states through permanent establishments will be treated as profits of a distinct company dealing independently with the company of which it is a PE. Profits will not be attributed to a PE where it merely purchases goods or merchandise for its mother company.
In regards to withholding taxes, the treaty with Luxembourg is pretty standard at least in terms of dividends, whereas 25% participation warrants a 5% withholding tax rate while in all other cases the rates is set at 15%. In the case of Luxembourg, dividends are also considered to be the investors’ shares of profit in commercial, industrial or mining project which are paid based on the capital invested. A zero withholding rate on interest has been set and the term interest has been defined to mean income from any debt claims and from government securities, bonds and prizes. The withholding tax rate for royalties is 5%.
Regarding the elimination of double taxation avoidance, the treaty stipulates that both FYR Macedonia and Luxembourg will allow deduction from taxes on income/capital in the amount of income/capital tax paid on it in the other state.
Pending Luxembourg’s ratification, the treaty will be applicable from the beginning of the year after it is ratified.
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