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Macedonia: Considerations for Investors

Macedonia
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For a country struggling through the transition following its separation from the former Yugoslavia, in the past decade Macedonia has made significant progress and has invested both time and resources into promoting itself as a foreign investment haven.  

It is incentives such as those offered to companies investing in the free economic zones that have brought some serious foreign investors into Macedonia and that are helping change the country's business climate. Those incentives include a 10-year profit tax holiday and a 5-year 50% reduction of the personal income tax so that the effective rate of personal income tax amounts to 5%. Investors are also exempt from payment of value added tax and customs duties on goods, raw materials, equipment, and machines. 

Despite these incentives, one problem that many foreign investors struggle with is the significant bureaucracy that still exists in many spheres. Fortunately, as part of the process of reaching out to investors, Macedonia is shortening some administrative procedures.

One such shortened procedure is that for setting up a company. In theory, now, in Macedonia a company can be set up within 4 hours. In practice, however, it usually takes between 1-3 business days. Either way, what neither the theory nor the practice reveal is that before even beginning the process of establishing a company an investor first needs to understand the business setting of the country – and be advised on possible alternatives to an original plan. In other words, what might seem like a good idea in the United States may be more easily achieved in a different manner in Macedonia, and instead of setting up a joint stock company, for instance, an investor may be well-advised in Macedonia to establish a limited liability company. In another example, while in some ventures a branch office may be a viable option, in others, licensing and other reasons may require that the investor set up a separate legal entity which will be present on the Macedonian market. Ultimately, therefore, a good legal advisor is very important in grasping the consequences of what establishing a certain type of company would be for the investor. 

Also, with regard to regulated activities requiring licenses (for example the energy, insurance, and banking sectors), the standard period of 1-3 business days for setting up a company does not apply, and it may take significantly more time. Thus, in such circumstances as well, it is important to have a legal advisor who will understand the dynamics of the investor and get a good grasp of what the investor requires, and who will be able to manage the entire process of setting up the company in a timely and efficient manner. 

Another issue which investors need to take into consideration is the frequent change of legislation in Macedonia. While it is often done with the goal of harmonizing Macedonian legislation with EU legislation, even seasoned lawyers find it challenging to keep up with all the amendments to essential legal acts. Laws regulating issues which are of essential importance to citizens should be subject to debate by experts, people should be given time to understand the effect of those changes on their lives, and investors should be given the time to alter their plans and forecasts to the proposed changes. None of the these things have been happening in the past decade, however, as the country rushes to change quickly what normally takes much more time to distillate. And those frequent changes have been known to cost investors a lot.

One manner to cope with those frequent changes and at times to even use them to one’s benefit is to know and follow EU legislation. As the country is striving become part of the EU, most important changes are towards the principles of EU directives, and a good lawyer working in the present set of circumstances in Macedonia will know why certain laws are being amended and the direction investors can expect the laws to evolve in. The one to profit from this reasoning will always be the client.      

By Dragan Dameski, Partner, and Elena Miceva Stojchevska, Attorney at law, Debarliev, Dameski & Kelesoska Attorneys at Law a member of TLA.

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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