NORTH MACEDONIA: An Introduction to General Business Law
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North Macedonia: General Business Law | Recent Developments
I Country Overview & Business Climate
North Macedonia is a dynamic country in the Balkans that became a member of NATO in 2020 and is also an EU-applicant country in the process of harmonizing its law with the EU’s acquis. The country recently adopted a law on Strategic Investment that provides for more business-friendly administration of strategic investment projects in various economic sectors. North Macedonia is also well on the way to making many business administration services accessible online.
The Republic of North Macedonia is a landlocked, upper-middle-income country at the heart of the Balkans in Southeast Europe. Skopje is the capital and the largest city - home to more than a quarter of the country’s 2 million population - and the country’s business centre. The main drivers of economic growth have been construction, industrial production and wholesale and retail trade.
In recent years North Macedonia has undergone significant economic reforms to promote free and open markets, privatization, and price liberalization. The World Bank data shows that the country’s robust growth up to 2019 was reversed by mid-2020 as the pandemic unfolded. There has been a decline of 4.5% in the past year. It is expected that the growth will rebound in 2021. The 2020 World Bank Doing Business Report ranked North Macedonia the 17th best place in the world for doing business.
North Macedonia remains focused on creating market conditions for dynamic economic growth. The government announced capital investments in building roads and other infrastructure such as gas interconnections as well as hospitals and schools.
II Legal System
North Macedonia is a unitary parliamentary republic that became a member of NATO in 2020. North Macedonia is a Member State of the UN, the Council of Europe, the World Bank, OSCE, CEFTA, BSEC and the WTO. The country is a prospective candidate for joining the European Union.
North Macedonia has a civil law legal system. The judicial power is independent of the legislative and executive powers and it is exercised by principal courts, appellate courts, the Administrative Court, the Higher Administrative Court and the Supreme Court of the Republic of North Macedonia. North Macedonia’s legislation is in the process of harmonization with the EU’s acquis.
III Foreign Investments
Equal treatment of all market participants is guaranteed under the Constitution of the Republic of North Macedonia. Foreign investors have the right to freely transfer and repatriate investment capital and profits. Attracting and encouraging foreign investments is key to the country’s policy for economic growth and job creation.
Foreign investors can invest freely and directly in all economic sectors, except for some specific industries for which additional approvals are required. The general laws applicable to trade companies, as well as the specific laws that cover specific industries, also cover foreign investments.
Licensing and approvals are required for conducting business in certain industries and sectors (e.g. banking, insurance and energy) - however, these requirements also apply to domestic investors and therefore impose no additional restrictions on foreign investors.
In North Macedonia, the preferred business structure is a limited liability company. This form of legal entity is suitable for businesses of all kinds and sizes, including greenfield projects, holding companies and joint ventures.
All companies are subject to registering any changes to management, amendments to Articles of Association, as well as any other modification of the company’s status, including bankruptcy and liquidation proceedings or deletion of a company from the Trade Registry. The data provided to the Trade Registry is available to the public.
All resident and non-resident legal entities operating through a permanent establishment are liable to pay corporate income tax in North Macedonia. Corporate income tax is paid at a flat rate of 15% for earned capital income.
IV Most Recent Developments
Digital transformation of government services facilitates easier communication between citizens, businesses and the Government’s administrative bodies. Digital services provide for increased efficiency of administrative services, enhanced quality, transparency, accessibility and time-saving.
The North Macedonian Strategy for Public Administration Reform 2018-2022 and its respective Action Plan aims to reorganize the public sector institutions and improve their administrative capacity. Although the Strategy highlights different priority areas in which reforms are needed, ‘Service Delivery and ICT Support of Administration’ focuses on the digitalization of the administrative services.
In May 2019, the Assembly of the Republic of North Macedonia adopted a new Law on Electronic Documents, Electronic Identification and Trust Services (‘LED’) that came into force from 1st of September 2020.
The primary aim of the LED is to harmonize the national legislation of North Macedonia with the acquis communautaire, specifically with the Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC.
The provisions of the LED provide mechanisms for companies and public authorities to communicate and cooperate without the presence of their customers and citizens in an office or a branch.
Important innovations include the so-called ‘Registry of Authorizations’. This is an online database, managed by the Ministry of Information Society and Administration, where an individual can authorize another to act as a proxy in legal matters. For instance, the manager of a company may authorize one of his employees to act as a proxy for the tax authorities or an individual may authorize another individual to submit a request to the administrative authorities on his/her behalf. Thus, the need for a written authorization is reduced to a minimum, saving time and costs. This register is yet to be developed.
It should be noted that North Macedonia already offers access to many business services online. For instance, services of the trade registry which include the process for registering a company, are fully digitalized. Tax declarations can also be filled in online. There is online access to the Cadaster of Real Estate and some other public services.
In January 2020, the country made a step forward to improving its legal framework for economic development and harmonization of its legislation with EU law by adopting a Law on Strategic Investments (‘LSI’).
The main purpose of the LSI is to encourage and create better conditions for the attraction and implementation of strategic investments, to increase economic growth and provide employment opportunities as well as to apply new technologies and innovations. The LSI also aims to increase competition, increase exports, reduce trade deficit as well as provide for the improvement of welfare and living conditions of its citizens.
The LSI harmonizes North Macedonian legislation with the EU Regulation No. 347/2013, which lays down the guidelines for the development and interoperability of priority corridors of trans-European energy infrastructure.
LSI defines a strategic investor as a domestic legal entity or a branch of a foreign legal entity registered in North Macedonia. The proposed investments must comply with the environmental standards set out in the local law and the Constitution of the Republic of North Macedonia. Proposals must also comply with the law and obligations arising from international agreements ratified in accordance with the Constitution as well as the strategic priorities of the country’s Government.
In addition, a ‘strategic investment project’ must be carried out that meets one or more of the strategic purposes of LSI. These include.
- an investment of at least EUR 100 million in two or more municipalities;
- an investment of at least EUR 50 million in the City of Skopje or the City of Skopje as a separate municipality.
- or an investment of at least EUR 30 million in rural municipalities.
In addition to this, regardless of the value of the investment, the title of a ‘strategic investment project’ may also be granted to projects if they are carried out under contracts between countries, to projects implemented and financed in cooperation with the EU, the Council of Ministers of the Energy Community (PECI – Project of Energy Community Interest; PMI – Project of Mutual Interest; PCI – Project of Common Interest), as well as to projects implemented in cooperation with international financial institutions, whereby a project is implemented by a public institution or public company, or a trading company that is wholly or partially owned by the state or a municipality.
The LSI also includes ‘strategic industries criteria’ and lists areas of industry in which the investment projects must be carried out, such as energy infrastructure, transport and telecommunications, tourism, manufacturing, agriculture, forestry and water management, food, health, industrial and technology park as well as wastewater and waste management.
According to the LSI, the ‘strategic industries criteria’ do not apply to investments of EUR 150 million and more. Such investments may receive the status of a strategic investment project regardless of the economic activity area.
State aid and incentives may be granted to strategic investment projects in accordance with the Law on State Aid Control.
The implementation of the law and of strategic investment projects is yet to be revealed.
The AMLCFT Law imposes a legal obligation for legal entities to register their beneficial owners in the Registry 8 days after the entity is established or a change to the ownership structure occurred. Failure to comply with the obligation for registration of the UBOs is subject to a monetary fine for the legal entity as well as its legal representative. The registration is conducted through online submission of an application for registration made by the entity or by another authorized person by the entity. The authorization is also provided electronically.
Entities exempt from such obligation are: sole proprietors, independent performers of economic activities, budget-financed beneficiaries, state-owned legal entities and legal entities undergoing bankruptcy or liquidation proceedings.
The AMLCFT Law is in accordance with the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and the Council, and repealing Directive 2005/60/EC of the European Parliament and the Council and Commission Directive 2006/70/EC.