Reinstatement of withholding tax on dividends distributed to resident companies

FYR Macedonia/March 2014

Effective from July 2010 and up until February 2014, the tax treatment of dividends in FYR Macedonia depended on the residency of the dividend-receiving entity/individual. This was due to the fact that in July 2010, the Government had introduced an anti-crisis taxation exemption principle, whereby all forms of profit distribution made to resident legal entities were exempt from corporate income tax, effectively eliminating the tax burden on the transfer of profits between resident companies. Profit distributions to non-resident entities & individuals were taxed with a 10% withholding tax rate.

However, on 21 January 2014 the FYR Macedonian Parliament adopted the proposed amendments on the Law on Profit Tax (published in the Official Gazette no.13 on 23 January 2014 and effective as of 31 January 2014) which reinstate the final withholding tax of 10% on dividends paid to resident companies. The Law effectively levels the field for taxation of all dividend distributions, regardless of the tax residency of the receiving entity or individual.

FYR Macedonian entities paying out dividends are obliged to pay a withholding tax on the dividends distributed to entities or personal income tax on dividends paid to individuals. The same obligation is applied to non-resident entities with a permanent establishment in FYR Macedonia who choose to distribute dividends to other entities.

The tax on dividends is withheld concurrently with the dividend payment (be it monetary or in shares), at a flat rate of 10% regardless of the year for which dividends are distributed. It should be noted that for companies distributing dividends to non-residents, the rate may be reduced under the conditions of a valid Double Tax Treaty, provided that the resident entity distributing dividends explicitly requests a written approval from the Revenue Office which would grant it the right to use the lower or nil tax rate defined in the Treaty. If this procedure is not followed, tax will be withheld at the legally prescribed rate, i.e. 10% and a tax refund would be subsequently requested.

Failure to withhold tax for the payment of dividends is penalized with a fine of EUR 1,500-2,500 to the company and a penalty amounting to EUR 500 – 1,000 to the general manager (physical person) of the company.

Elena Kostovska
Eurofast Global, Skopje Office
+389 2 2400225