Tax News: Recent developments in the tax legislation
Recent developments in the tax legislation
KPMG's Tax News outline and highlight legislative changes and trends in the area of tax.
Draft version of the new Law on Tax on Personal Income
The draft version of the new Law on Tax on Personal Income (the title has been reworded) was adopted by the Government of the Republic of Macedonia and entered in a parliamentary procedure.
The proposed changes include:
Introduction of progressive taxation
It is proposed that the progressive taxation will apply to the following types of income:
- Income from work (such as salaries, pensions, works under service contracts, etc.)
- Income from royalties and related rights
- Income from independent activity
- Income from the sale of agricultural products.
The discussed rates are
- 10% on the tax base of up to MKD 1,080,000 annually (approximately EUR 17,500)
- 18% on the tax base exceeding MKD 1,080,000 annually.
The threshold computed in monthly terms is MKD 90,000 (approximately EUR 1,400).
The tax base is defined as the gross income received in the country and abroad (in money, securities, or in other types) reduced for:
- Mandatory social security contributions (health insurance, pension and disability insurance and unemployment insurance)
- Tax deduction of MKD 96,000 annually (approximately EUR 1,500)
- Statutory deductions or actual expenses incurred provided for by the Law.
The availability of the above reductions may differ for various types of income.
Envisaged increase of the tax rate for other types of income
For income from industrial property rights, rental income, income from capital, capital gains, gains from games of chance, income from insurance and other income, a tax rate of 15% is being proposed.
Other proposed changes
- Interests from deposits to become taxable from 1 January 2020 with some exempt amount.
- The types of capital gains subject to personal income tax are extended to include capital gains from the sale of movable and intangible property.
- Insurance income is introduced as a separate type of taxable income.
- The statutory deductions allowed for particular types of income are reduced.
- The list of proceeds not subject to taxation is extended, except for certain cases of accommodation and transport costs paid by a company.
- The definition of “Other income” is expanded to include specific financial assistance for medical treatments in the country and abroad.
Amendments to the Law on Value Added Tax
The latest amendments to the Law on Value Added Tax (VAT Law) extends the period for application of the preferential VAT rate of 5% for the first supply of residential buildings and apartments, in part where they are used for residential purposes and which will be made within five years after their construction, for another five years, i.e. from 1 January 2019 to 31 December 2023.
Request for authentic interpretation of place of supply for VAT purposes for call center services
A request for authentic interpretation of Article 14 paragraph (3) items 1 and 5 of the VAT Law that determines the place of supply of services based on the nature of the service provided was submitted to the Parliament of the Republic of Macedonia.
According to this provision, the place of supply of services shall be the place where the recipient of the services is established or has a fixed base for which the services were carried out, or if such a place does not exist, their permanent place of living or residence in the case of services in the field of advertising and public relations as well as services for electronic data processing and provision of information, including know-how and expertise.
Due to different interpretations in the application of this provision, the request for authentic interpretation aims to obtain an answer whether the services provided by the taxpayers registered as Call Centers (that provide call services) to recipients who are established in a country other than the Republic of Macedonia would not be subject to Macedonian VAT.
We will inform you of the developments once the Parliament issues the authentic interpretation.
Macedonia becomes part of the Inclusive Framework on BEPS for Eastern Europe and Central Asia
Macedonia has signed the Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS), thus becoming the 117th jurisdiction to join it. As a member of IF, Macedonia expresses its commitment to implement the BEPS Minimum Standards (i.e. Action 5 – Countering harmful tax practices; Action 6 – Preventing treaty abuse; Action 13 – Transfer pricing documentation and CbC reporting and Action 14 – Making dispute resolution mechanisms more effective) as well as the internationally agreed standards to tackle tax evasion and avoidance.
In November, Macedonia, together with other IF members, participated in the 4th Regional Meeting of the Inclusive Framework on BEPS for Eastern Europe and Central Asia that was held in Yerevan, Armenia.
Convention on Mutual Administrative Assistance in Tax Matters
Macedonia has signed the Convention on Mutual Administrative Assistance in Tax Matters and thus became the 124th jurisdiction to join the world’s leading instrument for boosting transparency and combating cross-border tax evasion.
The Convention is a freestanding multilateral agreement designed to promote international co-operation for a better operation of national tax laws, while respecting the fundamental rights of taxpayers. The Convention provides for all possible forms of administrative co-operation between the parties in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion.
The Convention applies to all forms of compulsory payments to the general government except for customs duties. It covers taxes on income, profits, capital gains, and net wealth levied at the central government level. It also covers local taxes, compulsory social security contributions, estate, inheritance or gift taxes, etc. The Convention will enter into force on the first day of the month following the expiration of a period of three months after the date of deposit of the instrument of ratification with one of the Depositaries (the Secretary General of the Council of Europe or the Secretary General of OECD).
It is expected that the Macedonian tax administration will strengthen its cooperation with the tax administrations from other parties (signatories of the Convention) in the area of tax assessment and collection as well as combating tax avoidance and evasion.
We will inform you of the developments once the Convention enters into force.
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