Transparency of the Regulatory System
Macedonia has simplified regulations and procedures for large foreign investors operating in the TIDZ. However, Macedonia’s overall regulatory environment is complex and nontransparent. Frequent regulatory and legislative changes and inconsistent interpretations of the rules create an unpredictable business environment that enables corruption. Until recently, the government negotiated the incentive terms used to attract foreign investors to the TIDZ in confidential negotiations, and the terms were not publicized. Recently, the government has published all incentives for businesses operating in Macedonia, which will be standardized and available to domestic and international companies. However, companies worth more than USD 1 billion that want to invest in Macedonia can negotiate terms different from the standard incentives. The government can offer customized incentive packages if the investment is of strategic importance. The legal regulatory and accounting systems used by the government are consistent with international norms.
Rule-making and regulatory authorities reside within government ministries, regulatory agencies, and parliament. Almost all regulations most relevant to foreign businesses are on the national level. Businesses, the public, and NGOs play a limited role in the legislative and regulatory development process. Regulations are generally developed in a four step process. First, the regulatory agency or ministry drafts the proposed regulations. The proposal is then published for public review and comments. After public comments are considered and properly incorporated into the draft, it is sent to the central government to be reviewed and adopted in an official government session. Once the government has approved the draft law, it is sent to parliament for full debate and adoption. Legislation is rarely reviewed on the basis of scientific or data-driven assessments to assess the impact of the legislation.
There is no one centralized location that maintains a copy of all regulatory actions. All newly adopted regulations, rules, and government decisions are published in the Official Gazette of the Republic of Macedonia after they are adopted by the government, parliament, or signed by the corresponding minister or director. Public comments are not published or made public as part of the regulation.
Macedonia accepts International Accounting Standards, which are transparent and consistent with international norms. However, Macedonia has not yet aligned its national law with EU directives on corporate accounting and auditing.
The current government has promised to regularly communicate and consult with the business community and other stakeholders before amending and adopting legislation. It pledged to use the Unique National Electronic Register of Regulations (ENER), an online platform intended to facilitate public participation in policymaking, to increase the minimum comment period from 20 to 30 days, to minimize the use of short parliamentary procedures in lawmaking, and to include a phase-in period for legal changes to allow enterprises to adapt. Key institutions influencing the business climate will start publishing official and legally-binding instructions for implementation of laws. These institutions will be obliged to publish all relevant laws, by-laws, and internal procedures on their websites.
In February 2018, the government adopted a new Strategy for Public Administration Reform and Action Plan, which focuses on policy creation and coordination, strengthening of public service capacities, and increasing accountability and transparency.
International Regulatory Considerations
Macedonia is not a part of any regional economic bloc. As a candidate country for accession to the EU, it is gradually harmonizing its legal and regulatory system with EU standards. As a member of the WTO, Macedonia regularly notifies the WTO Committee on Technical Barriers to Trade of proposed amendments to technical regulations concerning trade. Macedonia ratified the Trade Facilitation Agreement (TFA) in July 2015 (Official Gazette 130/2015), becoming the 50th out of 134 members of WTO. In October 2017, the government formed a National Trade Facilitation Committee, chaired by the Minister of Economy, which includes 22 member institutions. The Committee held its first session in March 2018 to identify areas that need harmonization with TFA.
Legal System and Judicial Independence
Macedonia’s legal system is based on civil law with adversarial-style elements. The country has written commercial law and contract law. There are specialized courts that handle commercial and contractual disputes between businesses. Contracts are legally enforced by civil and administrative court rulings, and sporadically, with mediation. Enforcement actions are appealable and adjudicated in the national court system. Cases involving international elements can be decided in international arbitration.
In July 2015, parliament, without allowing public comment, introduced obligatory mediation in disputes between companies up to USD 16,871 in value as a precondition before going to court. Companies complain the measure, which went into effect February 1, 2016, imposes additional costs and protracts enforcement of contracts.
Numerous international reports have cited Macedonia’s failure to fully respect the rule of law. Political interference, inefficiency, favoritism, prolonged processes, and corruption characterize the country’s judicial system. Enforcing contracts and resolving commercial disputes in Macedonia’s court system is time-consuming, costly, and subject to political pressures.
Laws and Regulations on Foreign Direct Investment
The Constitution of the Republic of Macedonia provides for free transfer and repatriation of investment capital and profits by foreign investors. Under Macedonia’s law, foreign and domestic investors have equal opportunity to participate in the privatization of remaining state-owned assets. There is no single law regulating foreign investments, nor a “one-stop-shop” website that provides all relevant laws, rules, procedures, and reporting requirements for investors. Rather, the legal framework is comprised of several laws including the Trade Companies Law; the Securities Law; the Profit Tax Law; the Customs Law; the Value Added Tax (VAT) Law; the Law on Trade; the Law on Acquiring Shareholding Companies; the Foreign Exchange Operations Law; the Payment Operations Law; the Law on Foreign Loan Relations; the Law on Privatization of State-owned Capital; the Law on Investment Funds; the Banking Law; the Labor Law; and the Law on Financial Discipline. An unofficial English language version of the consolidated Law on Technological Industrial Development Zones (free economic zones) is available at the following link: http://makemigration.readyhosting.com/Regulativa/pdf/Slobodni_ekonomski_zoni.pdf. No new major laws, regulations, or judicial decisions related to foreign investment passed during the past year. However, in May 2018 the Parliament passed a new Law on Financial Support of Investments, available at the following link http://www.economy.gov.mk/Upload/Documents/Nacrt%20Zakon%20za%20finansiska%20poddrska%20na%20Investicii.pdf .
The Trade Companies Law
This is the primary law regulating business activity in Macedonia (http://www.mse.mk/Repository/UserFiles/File/Misev/Regulativa/Zakoni%20ENG/LL_CG_TradeCompanies_Dec_2004_E.pdf). It defines the types of companies allowed to operate in Macedonia, as well as procedures and regulations for their establishment and operation. All foreign investors are granted national treatment, and are entitled to establish and to operate all types of private and joint-stock companies. Foreign investors are not required to obtain special permission from state-authorized institutions other than what is customarily required by law.
Law on Privatization of State-owned Capital
Foreign investors are guaranteed equal rights with domestic investors when bidding on shares of companies owned by the government. There are no legal impediments to foreign investors participating in the privatization of domestic companies.
Foreign Loan Relations Law
This law regulates the credit relations of domestic entities with those abroad. Specifically, it regulates the terms by which foreign investors can convert their claims into deposits, shares or equity investments with the debtor or bank. The Foreign Loan Relations Law also enables rescheduled debt to be converted into foreign investment in certain sectors or in secondary capital markets.
Law on Investment Funds
The Law on Investment Funds governs the conditions for incorporation of investment funds and investment fund management companies, the manner and supervisory control of their operations, and the process of selecting a depository bank. The law does not discriminate against foreign investors in establishing open-ended or closed investment funds.
Law on Takeover of Shareholding Companies
The law regulates the conditions and procedures for purchasing more than 25 percent of the voting shares of a company. The company must be listed on an official stock market, have at least 25 employees, and have initial capital of EUR2 million. This law does not apply to shares in companies owned by the Republic of Macedonia.
Law on Foreign Exchange Operations
This law establishes the terms for capital transactions. It regulates current and capital transactions between residents and non-residents, transfers of funds across borders as well as all foreign exchange operations. All current transactions (e.g., all transactions that are eventually registered in the current account of the balance of payments, such as trade and private transfers) of foreign entities are allowed. There are no specific restrictions for non-residents wishing to invest in Macedonia. Foreign investors may repatriate both profits and funds acquired by selling shares after paying regular taxes and social contributions. In case of expropriation, foreign investors have the right to choose their preferred form of reimbursement.
Profit Tax Law
The corporate profit tax rate is 10 percent. At the beginning of 2006, the government amended the Profit Tax Law and introduced a withholding tax on income of foreign legal entities. The withholding tax is applied to income from dividends, interest, management consulting, financial, technical, administrative, research, and development services, leasing of assets, awards, insurance premiums, telecommunication services, author fees, and sports and entertainment activities. Income from all of these activities is subject to a 15 percent withholding tax rate, except for income from interest and rent proceeds from the leasing of real estate, which are taxed at a 10 percent rate. This withholding tax does not apply to legal entities from countries that have signed an agreement to avoid double taxation with Macedonia. The United States does not have such an agreement with Macedonia.
All individual employment contracts and collective agreements signed between unions and employers are regulated by this law. The Labor Law (http://www.lexadin.nl/wlg/legis/nofr/eur/arch/mac/laborlaw.pdf) regulates the implementation of rights, obligations, and responsibilities of the employee and employer. A general collective agreement clarifies and often enhances the basic rights and benefits provided for in the Labor Law. In addition, there are collective agreements applicable in some industries or sectors, which further specify relations between employers and employees in those industries.
Law on Financial Discipline
Effective from May 1, 2014, this law regulates timely payment of liabilities between private sector legal entities, and liabilities stemming from business relations between private sector and public sector legal entities (http://www.ujp.gov.mk/files/attachment/0000/0766/Zakon_za_finansiska_disciplina_215_07.12.2015.pdf). Under the law, private entities must settle payment liabilities within 60 days of the day when the liability occurred. Failure to comply with the provisions of the law provides for high fines both for legal entities and for the responsible person.
Law on Financial Support of Investments
In February 2018, the government passed the Law on Financial Support of Investments. It is still pending parliament’s approval. This law provides financial assistance to eligible foreign and domestic businesses.
Competition and Anti-Trust Laws
The Commission for Protection of Competition (CPC) is responsible for enforcing the Law on Protection of Competition. The CPC issues opinions on draft legislation that may impact competition. The CPC reviews the impact on competition of proposed mergers and can prohibit a merger or approve it with or without conditions. The CPC also reviews proposed state aid to private businesses, including foreign investors, under the Law on Control of State Aid (Official Gazette 145/10) and the Law on State Aid (Official Gazette 24/03). The CPC determines whether the state aid gives economic advantage to the recipient, is selective, and adversely influences competition and trade. More information on the CPC’s activities is available at: http://www.kzk.gov.mk/eng/index.asp. There were no significant competition cases during the past year.
Expropriation and Compensation
According to the Constitution of Macedonia and the Law on Expropriation (Official Gazette 95/12, 131/12, 24/13, and 27/14), property under foreign ownership is exempt from expropriation except during instances of war or natural disaster, or for reasons of public interest. Under the Law on Expropriation, the state is obliged to pay market value for any property expropriated. If the payment is not made within 15 days of the expropriation, interest will accrue. These regulations have been strictly followed. The government has not undertaken any measures that have been alleged to be, or could be argued to be, indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.
ICSID Convention and New York Convention
Macedonia is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the European Convention on International Commercial Arbitration. Additionally, Macedonia has either signed on to, or has inherited by means of succession from the former Yugoslavia, a number of bilateral and multilateral conventions on arbitration including the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA); the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards; the Geneva Protocol on Arbitration Clauses from 1923; and the Geneva Convention on Enforcement of Foreign Arbitration Decisions.
In April 2006, the Law on International Commercial Arbitration came into force in Macedonia. This law applies exclusively to international commercial arbitration conducted in Macedonia. An award from arbitration under this law has the validity of a final judgment and can be enforced without delay. Any award decision from arbitration outside Macedonia is considered a foreign arbitral award, and is recognized and enforced in accordance with the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards.
Investor-State Dispute Settlement
Macedonia accepts binding international arbitration in disputes with foreign investors. Foreign arbitration awards are generally recognized and enforceable in Macedonia provided the conditions of enforcement set out in the Convention and the Law on International Private Law (Official Gazette of the Republic of Macedonia, No. 87/07 and No. 156/2010) are met. So far, the country has been involved in three reported investor-state disputes brought in front of international arbitration panels. None of those cases involved U.S. citizens or companies. Local courts recognize and enforce foreign arbitration awards issued against the Government of Macedonia. The country does not have a history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Macedonia accepts international arbitration decisions on investment disputes. The country’s Law on International Commercial Arbitration is modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Local courts recognize and enforce foreign arbitral awards and the judgments of foreign courts. Alternative dispute resolution mechanisms are available for settling disputes between two private parties but seldom utilized. A Permanent Court of Arbitration, established in 1993 within the Economic Chamber of Macedonia (a non-government business association), has the authority to administer both domestic and international disputes. Macedonia requires mediation in disputes between companies up to EUR15,000 (USD 18,360) in value before companies can go to court.
There is no tracking system of cases involving SOEs involved in investment disputes in Macedonia, and post is not aware of any particular examples.
Macedonia's bankruptcy law governs the settlement of creditors' claims against insolvent debtors. Bankruptcy proceedings may be initiated over the property of a debtor, be it a legal entity, an individual, a deceased person, joint property of spouses, or business. However, bankruptcy proceedings may not be implemented over a public legal entity or property owned by the Republic of Macedonia. The World Bank’s Doing Business Report for 2018 ranks Macedonia 30th out of 190 countries for ease of resolving insolvency.
In addition to commercial banks and the National Bank of Macedonia serving as credit monitoring authorities, Macedonian Credit Bureau (http://www.mkb.mk/en/MKBPogled.aspx) serves as a credit bureau.