After the recession caused by Covid-19 and the sharp drop in GDP of 6% in 2020, the Macedonian economy recorded a 4% growth in 2021, thanks to the recovery of domestic consumption, greater mobility, the return of the diaspora and the government support measures. Private investment still remains weak.
Despite the recovery in foreign trade, some key sectors suffer from the disruption of global supply chains which, together with the increase in energy and food prices, have further weakened the country’s balance of payments and pushed inflation to 3.2% in 2021 The forecasts of the Central Bank for the next two years are optimistic; the pace of economic growth should accelerate and the Macedonian GDP will increase by 4% annually.
These expectations are based on the “Accelerated Growth Plan” recently launched by the Macedonian government which provides for greater public and private investments, and the attraction of new foreign investments thanks to the improved business environment. Therefore, growing geopolitical tensions, increased price volatility and increased global financial risks could have a strong impact on the Macedonian economy, especially on inflation, foreign demand and competitiveness.
Main sectors of industry
The Macedonian economy is mainly concentrated in services (about 63% of the Macedonian GDP), prevailing over industry (28.5%) and agriculture (11.4%). Among the services, the following sectors stand out: banking, ITC, insurance, transport, tourism, wholesale and retail trade, logistics and communications. The main production sectors are: automotive components, iron and steel, food, footwear, textiles, tobacco, construction, chemicals, mining. The industrial fabric is dominated by small and medium enterprises (about 70,000) present in all economic sectors. Over 95% of the economy is privately owned.
Macedonia is also known for its minerals, so much so that it participates with 5% in the world production of lead and zinc, whose reserves amount respectively to 42 and 85 million tons. Then there are important deposits of copper, nickel, coal and stones (especially marble, travertine, onyx and granite). Finally, in terms of energy, the country depends entirely on imports, in particular those of oil, purchased with a daily average of 23,000/25,000 tons.
The industrial sector arose, above all, to exploit these resources. Various steel and metallurgical centers are present today in Skopje, Kumanovo, Titov Veles, Radivos. In the capital there are also mechanical plants, chemical plants, tobacco industries and cement factories. The mechanical industry is present in Ohrid and Kocani, the tobacco industry in Prilep and Kumanovo. Finally, there are textile and food factories.
The tertiary sector contributes almost 60% to the formation of the GDP. Macedonia’s central location in the Balkan Peninsula has contributed considerably to the development of the transport network, especially the road system, which includes the Pan-European corridors criss-crossing in the heart of the country. In particular, there are two directions: the VIII east-west and the X north-south. In general, the road network of approximately 9,400 km allows connections with all inhabited centers, in addition to the motorway junction between the north and south of the country.
The motorway system is currently being privatized and the road network is also being upgraded, as the government recently received a 70 million euro loan from the World Bank for just this purpose. The privatization process also affects airports and will lead to a substantial modernization of buildings and runways.
Taxation for businesses in Macedonia
Macedonian corporate income tax (Corporation tax) is 10% of profits whether they are distributed or not. If dividends are distributed, they will again be taxed by the shareholder’s country of residence. Also, there is no IRAP-like tax in Macedonia.
The current standard VAT rate in Macedonia is 18%. However, in some cases there is a reduced rate of 5%
In some cases where a Macedonian company distributes profits or parts thereof, there is a withholding tax of 10%.
If, on the other hand, the company operates in the so-called “Industrial Technological Development Zone” VAT and taxes on imports and exports will be 0.
In Macedonia concessions are granted for the so-called “micro-enterprises”. In particular, companies with a turnover not exceeding MKD 3 million are exempt; if the turnover is between 3 and 6 million MKD, the company can apply a substitute tax equal to 1% of the income realized in the previous year. In any case, banking, financial and insurance companies are excluded from this concession, regardless of the turnover achieved.
Another type of facilitation concerns companies active in areas of industrial technological development benefiting from a 10-year exemption. The wages of the employees of the aforementioned companies are also exempt from taxation for the same period of time.
Furthermore, concessions are provided for companies that hire disabled people or that carry out activities of particular social interest such as, for example, those connected to supporting youth development.
Investing in Macedonia
There are many reasons to invest in Macedonia:
- tax-free access to a market of 650 million consumers through multilateral and bilateral agreements
- excellent strategic location
- moderate relative labor cost
- corporate profit tax and IRPEF equal to 10% – flat rate
- the tax drops to 0% if you operate in free zones, or 0% in the case of reinvested profits
- one stop shop system (company formation in just 24 hours)
- excellent infrastructure
In order to attract foreign investment, the Macedonian government has established 4 main free zones and other smaller zones in different locations in Macedonia. Companies that decide to invest in the areas will be able to benefit from incentives considered among the most favorable in Europe and beyond.
The two largest zones are located near the capital Skopje and at the same time are also the most attractive, given their proximity to the international airport and the country’s main highway, as well as the possibility of finding human resources, services and supplies for company needs.