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  Issue 73  Q & A

How is tax payment regulated when a foreign legal entity is engaged?

Tax treatment of the withheld profit tax

In accordance with articles 5 and 6 of the Rulebook, a revenue from research and development services is the revenue realized from base and technical researches, laboratory and other services, projects and elaborates (except those referring to investments with ongoing realization), conference fees and seminars, propaganda services, market research, advertising in the media, fair shows, promotion of products abroad, questioning public opinion.

According to the above mentioned, the revenues realized by a foreign legal entity from conference fees and organization of seminars whose objective is to gain new and expert knowledge in direction of research and development of products, materials, means, processes, systems or services, are treated as incomes from research and development services and accordingly, they are subject to taxation in accordance with the Law regulations.

In accordance with articles 5 and 6 of the Rulebook, revenues from financial services are considered those of a foreign legal entity realized from: 1) issued warranties and other kinds of security; 2) financial leasing interests; 3) trade for personal account or client’s account on stock exchange, through desk or at other market, with instruments at money market (including checks, accounts, deposit certificates), foreign currencies, derivate instruments that include, but are not limited on futures and options, foreign rate exchange interests and interest rates, including snaps, term agreements on interests, transferable securities, other transferable instruments and finances, including gold prizes; 4) participation in issuing all kinds of securities, including risk-taking and placing, as agents, and providing services related to the issuance; 5) services related to calculation and settling finances, including securities, derivate products and other transferable instruments; 6) counseling, mediation and other helpful financial services related to all kinds of financial services, including references for credit ability and analysis, research and counseling on investments and portfolios, counseling on overtaking and restructuring companies’ strategies; 7) mediation in insurance and reinsurance (activities by brokers, insurance and broker companies and agents), consulting services, and services in risk evaluation.

In the concrete case, for all kinds of services abovementioned, a taxpayers is a foreign legal entity as receiver of assets from the provided service, accordingly, obligations upon that basis shall not be under the weight of domestic subjects who are obliged only to keep and pay the tax, consequently, the withheld tax is a cost of the foreign legal entity for the revenues realized from the provided service on the territory of the Republic of Macedonia.

The capital gain realized from sale of securities is not subject of the withheld tax.

7. Revenues from the processing services (data processing) of credit cards in accordance with articles 5 and 6 of the Rulebook are considered revenues from financial services.

8. Revenues from the services related to material assets, as stated in accordance with articles 5 and 6 of the Rulebook are considered revenues from technical services.

9. Within the period of publishing the Rulebook on the way of calculation and paying in profit tax and prevention against double exemption or double taxation, you were obliged to obey the Law regulations.

The publication of the Rulebook on profit tax arranges the manner and the procedure of calculation, payment and return of the withheld tax, the manner of application of international agreements on avoiding double taxation, accordingly, the foreign legal entity can within three years after the end of the year in which the revenue has been paid, submit a verified form to the Ministry of Finance – Public Revenue Office – Regional Direction, to return the overpaid tax in terms of the tax which in accordance with the provisions of the agreement on avoidance of double taxation should have been paid.
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