On April 1st, 2016, the FYR Macedonian parliament ratified the tax treaty signed with the United Arab Emirates (UAE) on October 26th, 2015. The ratification law was published in the Official Gazette No. 63 of April 1st, 2016.
The treaty covers the personal income tax and profit tax in FYR Macedonia and the income tax and corporate tax in the UAE. The agreement will also be applicable to similar taxes that may be imposed after its signing, provided that the authorities of the signatory parties notify each other about the tax changes introduced.
As usual, the agreement is mostly harmonized with the OECD model with the below specifics that are of interest.
Permanent establishments are deemed to arise when a building/construction site or an installation project (including any related site activity of supervisory nature) lasts for more than six months. Additionally, a permanent establishment also includes a place of management, a branch, an office, a factory, a workshop or a mine or oil/gas well.
As far as withholding taxes are concerned, dividends are to be taxed with 5%. The same rate of 5% withholding tax rate on interest has been agreed upon, which is also applicable to royalties.
In regards to the provisions for the elimination of double taxation, the treaty stipulates that both parties will allow deduction from taxes in the amount of tax paid to the other state. Both countries also reserve the right to take into account any exempted income or capital for which tax has been paid in the other country when calculating the amount of tax payable for the remaining income/capital.
Pending ratification of the treaty by the UAE and its subsequent entry into force, the agreement provisions will be effective from the calendar year following the year during which it enters into force.
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