In recent years, many countries have revised their tax legislation to improve and stabilize their national economies. The Republic of North Macedonia is among the countries with one of the lowest corporate tax rates in Europe, set at 10%, making it an attractive destination for investment. However, as a nation still undergoing transition and in need of new investments, the new Macedonian government believes that further reducing the tax rate will create better opportunities to attract new investments, which is crucial for improving and stabilizing the economic situation.
This summer, the new government of North Macedonia included in its program a proposal to reduce the corporate tax rate from 10% to 5% for multinational companies that generate over EUR 50 million in net profits. The goal of this policy is to create even more favorable conditions and attract foreign investments from high-profit companies, which would contribute to the overall economic growth and development of the country.
North Macedonia’s economy requires reforms that will stimulate progress across all sectors. The new government believes that low tax rates will motivate multinational companies to transfer their profit centers to North Macedonia, where they can consolidate their earnings. Such investments are expected to lead to significant changes, starting with an increase in budget revenues, the creation of new jobs, improvements in infrastructure, technological development, increased production, and consequently, GDP growth.
Although there are significant risks involved, the new policy aims to maintain budgetary stability. The reduction in the tax rate is inversely proportional to the number of investments in the country. Both parties stand to benefit from this change: foreign investments will aid economic development, and the companies themselves will receive highly favorable conditions for operating in this region. Not only will their costs decrease, but their profits will also increase. If the saved funds are reinvested, leading to further profits, economic growth, overall budget revenues, and company earnings will see a long-term positive effect.
From a legal perspective, such a tax reduction raises questions related to regulatory transparency and legal predictability. Investors seek stability when choosing investment destinations. To ensure the long-term success of this policy, mechanisms must be in place to guarantee tax benefits without serious consequences. Therefore, the new government’s program does not foresee that the reduction in the corporate tax rate will come at the expense of other taxes. In other words, the rates for other taxes will not increase as part of the new tax policy. Improving the position of one group should not complicate the situation for another within the economic cycle. This approach demonstrates the confidence that the new government has in these reforms. The low tax rate is not expected to harm the current economic situation; on the contrary, it is believed that it will create new opportunities for success, market stability, and room for prosperity. By creating favorable conditions in the field of economic development, the shadow economy is demotivated and made unprofitable.
Furthermore, in addition to easing the situation for multimillion-dollar companies, small and medium-sized enterprises will be motivated to invest in their growth to reach a more favorable tax category.
Despite the risks associated with taking these steps, the new government aims to follow the examples of countries such as Ireland, Estonia, Hungary, and Cyprus, which offer significant incentives for investors and have proven successful in attracting multinational companies to locate their branches or relocate their headquarters to their territories. The fact that this tax policy has been successful in other countries is another reason to adopt these changes.
This specific tax policy represents a thoughtful and strategic decision by the government of North Macedonia, aimed at strengthening the country’s position as an attractive investment destination. This reform could increase foreign investor interest, boost competitiveness, and create new opportunities for business development and economic growth. The changes, supported by a stable and predictable legal framework, lay the foundation for stabilizing and developing the national economy, motivating and attracting foreign companies, and fostering a healthy competitive atmosphere with a constant drive for investment in profitable businesses.
By Ivica Jevtic, Partner, and Sara Ivanovska, Associate, JPM Partners
This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
