Tax Guide for US Expats Living and Working in Macedonia
Who Is Liable For Income Taxes in Macedonia
Territoriality. Individuals resident in the Republic of Macedonia (RM) are subject to income tax on their worldwide income.
Nonresident individuals are subject to income tax on their income earned in the RM.
Definition of resident. An individual is a resident of the RM if he or she has a permanent or temporary residence in the RM. An individual is considered to be resident in the RM if he or she is present in the RM either continuously or with interruptions for 183 or more days in any 12-month period.
Income subject to tax. Under the Macedonian Personal Income Tax Law, the following types of income are subject to tax:
- Personal earnings
- Self-employment income
- Income from property and property rights
- Income from copyrights and industrial property rights
- Investment income
- Capital gains
- Gains from games of chance and other prize games
- Other revenues
For a table outlining the taxability of income items. The various types of income are discussed below.
Personal earnings. The following items are included in personal earnings:
Salaries and allowances (to the extent that the amounts exceed the legal threshold amounts for allowances) arising from employment, performance-based remuneration (for example, bonuses) and fringe benefits
- Pensions
- Income realized by members of management and supervisory boards of enterprises
- Income realized by officials, members of parliament, advisers and similar high-level persons
- Income realized by professional sportsmen
- Sick-leave allowances
- Annual leave allowances
- Allowances for judges and jury members, forensic experts and receivers not employed by the respective institutions or enterprises
- Compensation and remuneration paid to the members of the Macedonian Academy of Sciences and Arts
- Salaries earned and paid abroad based on employment contracts with Macedonian employers
- Income derived from rendering services under contracts with entities and individuals on a temporary or occasional basis
Self-employment income. Self-employment income includes in come from the following types of activities:
- Business activities
- Professional and other intellectual services
- Agricultural activities
- Other activities with the objective of realizing revenues
Self-employed persons must maintain accounting books, except individuals whose total income from agricultural activities does not exceed MKD 1,300,000 annually. The tax base for employment income is net income, which is the difference between revenues and expenditures.
Income from property and property rights. Income from property and property rights includes income earned through the lease or sublease of land, residential or business premises, garages, leisure and recreational premises, equipment, transportation vehicles and other types of property.
Income from copyrights and industrial property rights. Income from copyrights and industrial property rights is considered to be payments received for the use of, or the right to use, such items.
Investment income. Under the Macedonian personal income tax law, investment income includes the following items:
- Dividends and other income realized through participations in the profits of legal entities and non-corporate entities
- Interest on loans granted to legal entities and individuals
- Interest on bonds or other securities
The gross amounts of the above items are taxable.
Capital gains. Capital gains consist of income realized through sales of securities, shares of capital and real estate. The tax base equals the difference between the higher selling price and lower purchase price. Only 70% of capital gains is included in taxable income.
Gains from games of chance and other prize games. Each amount of gain exceeding MKD 10,000 from games of chance and other prize games is subject to personal income tax.
Other income. Other income is any other type of income that is not specifically mentioned in the Personal Income Tax Law as being exempt from tax. Other income includes income realized by acquiring securities and equity shares without consideration if the income is not taxed under the law on property taxes. For such income, the basis for the calculation of the tax is the market value on the day of the acquisition.
Taxation of employer-provided stock options. No specific measures in the Macedonian tax law cover the taxation of stock options. Stock options granted are generally regarded as part of employment remuneration.
Deductions
Deductible expenses. Deductible expenses for personal income tax purposes include the following:
- Contributions by an individual for pension, disability and health insurance and for employment
- Contributions by the individual for voluntary pension and disability insurance
- Fees and other public duties paid
Nonresident individuals may not claim the above deductions.
Personal deductions and allowances. Resident individuals may claim a deductible personal exemption in the annual income tax calculation. For 2011, the annual personal exemption equals MKD 87,792. Nonresident individuals may not claim such exemption.
Rates. Personal income tax is imposed at a rate of 10%.
Tax credit. Individuals donating financial resources to a legal entity under the Law on Donations and Sponsorship of Welfare
Activities may claim a credit against personal income tax in their annual tax return. The credit may not exceed an amount equal to the first 20% of the annual tax debt, up to a maximum of MKD 24,000.
Relief for losses. Capital losses from sales of shares can be carried forward for three years. Loss carrybacks are not allowed.
B. Other taxes
Property tax. Property tax is imposed on the owners of real estate, nonagricultural land, residential buildings or flats, business areas, administrative buildings, buildings or flats for rest and recreation, garages and other constructions. Property tax rates range between 0.1% and 0.2%, depending on the type and location of the property.
Real estate transfer tax. Transfers of real estate are subject to real estate transfer tax at a rate of 2% to 4% of the market value of the real estate.
Inheritance and gift taxes. Inheritance and gift taxes are imposed on the transfer of certain property by inheritance or gift. Inheritances and gifts are subject to tax if the market value of the inheritance or gift is higher than the amount of the average annual salary in the RM in the preceding year, according to the data from the State Statistics Bureau. The following types of property are subject to tax:
- Immovable property
- Money and claims of money
- Securities and other movable property
The inheritance and gift tax rates vary depending on the order of succession of the recipient. The tax rate is 0% for taxpayers in the first line of succession. For taxpayers in the second line of succession, the tax rate is between 2% and 3%. For other taxpayers, the rate is between 4% and 5%. The municipal authorities fix the actual rate of tax.
C. Social security
Contributions. Employers are required to withhold the following contributions from gross salary.
Totalization agreements. To provide relief from double social security contributions and to assure benefit coverage, Macedonia has entered into totalization agreements, which usually apply for a maximum of two years, with the following countries.
Australia*
Croatia
Poland
Austria
Czech Republic
Romania
Belgium
Denmark*
Serbia
Bosnia
Germany
Slovenia
Herzegovina
Luxembourg
Switzerland
Bulgaria
Montenegro
Turkey
Canada* Netherlands
* This agreement has not yet been ratified.
To learn more about the history, culture, economy and other information about Macedonia
We have been preparing US income tax returns for US Citizens and permanent residents living in Macedonia for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Macedonia and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Macedonia.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email