No mandatory contributions on freelance agreements
Starting from 1st August, 2015, freelance and copyright agreements, as well as all other contracts for services provided by natural persons will no longer be subject to mandatory social and health insurance contributions. Such contracts will only be subject to 10% personal income taxes.
As of the beginning of 2015, all payments to individuals based on freelance, copyright or other service agreements were subject to mandatory health and social insurance contribution deductions. The system for calculation and payment of mandatory contributions was still being developed, when it was announced that as of 1st August, 2015 freelance and copyright agreements, as well as other contracts for services provided by natural persons will no longer be subject to mandatory social and health insurance contributions. Such contracts will only be subject to personal income tax at the rate of 10%.
The obligation to make mandatory social and health contributions and to pay personal income tax remains enforceable for income generated by: (i) managers of limited liability companies; and (ii) executive members of Board of Directors and members of a Managing Board in joint stock companies, if such individuals are not employed in the respective company.
Amendments in the Law on Personal Income Tax
Recent amendments of the Law on Personal Income Tax introduce a definition of capital gains generated from sale of securities, equity and real estate. Amendments define the ways of determining the sale and purchase price of real estate built by natural persons, and the base for taxation of such revenue. The Law on Personal Income Tax has also been harmonized with the new Law on Misdemeanors.
In July 2015, several amendments of the Law on Personal Income Tax were adopted, introducing a new method of calculating the tax base for the purpose of payment of personal income tax on capital gains. Pursuant to the amendments, the capital gains tax generated from the sale of real estate is calculated in the base for taxation in its full amount, except in cases when the natural person lived in the real estate in question at least one year before the sale. In the latter case only 70% of the capital gain is to be used in setting the tax base for payment of personal income tax. Also only 70% of the capital gain generated from the sale of securities and shares will be subject to personal income tax.
The amendments provide for several exceptions where capital gains generated from the sale of real estate will not be subject to personal income tax, such as cases when a natural person sells real estate that was previously owned for at least five years, or where capital gains are generated from the sale of real estate directly related to divorce proceedings.
Amendments have also been introduced which affect the manner of determining and imposing fines based on the Law on Personal Income Tax, as required by the new Law on Misdemeanors discussed below.
Changes to the Law on Trade Companies
Pursuant to the recent amendments to the Law on Trade Companies, all corporate amendment procedures registered with the Trade Registry administered by the Central Registry of the Republic of Macedonia ("CRM") can now be carried out via the CRM's e-system.
In May 2015 the Assembly of the Republic of Macedonia adopted major amendments to the Law on Trade Companies, which are now in force. Some of these amendments are linked to amendments to the Law on the One-Stop-Shop system, which ultimately enables attorneys and law firms to act as registration agents, alongside accountants. Furthermore, these amendments make it possible to register corporate amendments (including transfer of shares, and increase and decrease of share capital), and to de-register a company via CRM's electronic system.
Aside from these technical aspects, amendments to the Law on Trade Companies introduce an obligation on listed joint stock companies to publicly announce deals with interested affiliated parties on their company web site, the web site of the stock exchange and in one daily newspaper. Furthermore, subsidiaries are now prohibited from owning or acquiring shares in their controlling parent companies. Companies that already own shares in their parent companies have an obligation to sell their respective shares within one year from the date of introduction of the amendments (i.e. by May 2016).
Another substantial amendment is the new authority of the Trade Registry administered by the CRM to automatically de-register companies whose shareholders do not pay in their registered capital within one year of the company's establishment.
New Law on Misdemeanors
The new Law on Misdemeanors, adopted in late July 2015, prescribes a new method for calculating fines imposed on legal entities and sole proprietors. Fines are now calculated based on several elements, as opposed to being pre-defined as was previously the case.
The new Law on Misdemeanors, adopted in July 2015, introduces significant amendments in the procedure for determining fines to be paid for misdemeanor liability. The new method of calculation takes in consideration revenue, the number of employees, as well as the previous behavior of the offender as relevant in the process of determining the amount of the fine, as follows:
- Total revenue in the previous fiscal year - up to 70% of the prescribed fine;
- Average number of employees (based on the situation at the end of the month prior to the misdemeanor) – up to 20% of the prescribed fine; and
- History of behavior of the offender – up to 10% of the prescribed fine.
All sector specific laws containing misdemeanor provisions must be amended pursuant to this regulation within 6 months.
Previously, misdemeanors were subject to predetermined monetary fines, or ranges of fines for legal entities for specific misdemeanors which were often considered to be unfair to small and medium-sized enterprises which were subject to the same penalties t as large corporations. Pursuant to the new law, fines are the sum of the percentages of the aforementioned criteria, determined on case by case basis for each individual company.
The new Law on Misdemeanors also provides for different types of sanctions, including: (i) warning notice for less serious misdemeanors; and (ii) temporary prohibition for performing business activity. The new Law on Misdemeanors has already entered into force, and all related laws that prescribe misdemeanour liability and fines must be harmonized with this new legislation within 6 months (i.e. by January 2016).
Attorneys as registration agents before the CRM
As a result of the latest amendments to the Law on the One-Stop-Shop System, as of 1st November, 2015 attorneys and law firms are now authorized as registration agents to carry out the procedures for the establishment of new companies, as well as to register corporate amendments for their clients via the e-system of the CRM.
The Law on the One-Stop-Shop System has been amended in order to enable attorneys and law firms to act as registration agents in t establishing sole proprietorships and LLCs via the CRM's electronic system. Previously, only accountants had the authority to act as registration agents.
Aside from the establishment of sole proprietors and LLCs, attorneys and law firms that act as registration agents will also have the authority to register establishments, corporate amendments and deletion of all types of companies envisaged by the Law of Trade Companies. The procedures for registration via CRM's electronic system shall not be subject to administrative fees, and the corporate documents in the scope of the proceedings do not need to be notarized.
Inspections pursuant to the Law on Financial Discipline
The Public Revenue Office has recently started conducting inspections and issuing fines, based on the provisions of the Law on Financial Discipline, enacted in December of 2013 and entering into force as of May of 2014.
The Law on Financial Discipline requires that economic operators in the private sector cannot stipulate a period longer than 60 days for meeting of their financial obligations. As an exception, the Law provides for a period of up to 120 days, subject to the explicit written consent of both parties to a commercial agreement.
The Law also prescribes certain fines to be imposed to private companies that are found by the Public Revenue Office to be in violation of the imposed deadlines for meeting their financial obligations. These fines range from EUR 5,000 up to EUR 10,000 (in MKD counter value) for the legal entity found in breach of the provisions of the Law and from EUR 750 to EUR 1,500 (in MKD counter value) for the responsible person of such legal entity. On top of these fines, any creditor with outstanding claims has the right to MKD 3,000 in compensation (approx. EUR 50) in case of a breach of the deadlines provided by the Law.
The Law, which is loosely based on European Directive 2011/7/EU on combating late payments in commercial transactions, required the Public Revenue Office to have commenced inspections and fining companies for breaches of the Law as of January 2015 (applicable to transactions from May of 2014 onward). However, the Public Revenue Office has only started performing such actions in the last few months.
The Law is rather vague when defining and regulating certain issues and since there is no established practice to date, the exact manner of implementation of the Law remain unclear. Perhaps the most important unresolved issue is whether the prescribed fines will be given by the Public Revenue Office:
- per invoice (e.g. three separate fines to be given in case of three belated invoices towards the same creditor and based on the same agreement);
- per agreement (all belated invoices towards the same creditor and based on the same agreement to be grouped and one fines given for such breach);
- per creditor (e.g. one single fine to be given in case of a number of belated invoices based on a number of agreements towards one creditor); or
- per general breach of the Law (one fine to be given regardless of the number of belated invoices, number of agreements or number of creditors).