Transparency of the Regulatory System
The government has made progress adopting reform priorities called for by the EU, NATO, and other bodies, leading to well defined laws, institutional structures, and regulatory legal frameworks. However, laws are not regularly prepared based on data-driven evidence or assessments and are frequently moved through Parliament using shortened legislative procedures. Universal implementation of laws and regulations can also be a problem.
North Macedonia has simplified regulations and procedures for large foreign investors operating in the TIDZ. However, the country’s overall regulatory environment is complex and not fully transparent. Frequent regulatory and legislative changes, coupled with inconsistent interpretations of the rules, create an unpredictable business environment that may enable corruption. The current government has published all incentives for businesses operating in North Macedonia, which are standardized and available to domestic and international companies. Companies worth more than USD 1 billion that want to invest in North Macedonia can also negotiate terms different from the standard incentives. Moreover, 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.
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 North 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.
North Macedonia accepts International Accounting Standards, which are transparent and consistent with international norms. However, North Macedonia has not yet aligned its national law with EU directives on corporate accounting and auditing.
The government has systems in place to regularly communicate and consult with the business community and other stakeholders before amending and adopting legislation, through the Unique National Electronic Register of Regulations (ENER). Interested parties, including chambers of commerce, can review the legislation published on ENER. The online platform is intended to facilitate public participation in policymaking, increase public comments, and to allow a phase-in period for legal changes to allow enterprises to adapt. Key institutions influencing the business climate publish official and legally binding instructions for the implementation of laws. These institutions are obliged to publish all relevant laws, by-laws, and internal procedures on their websites, however, some of them do not maintain regular updates.
In 2018, the government adopted a new Strategy for Public Administration Reform and Action Plan (2018-2022), and National Plan for Quality Management of Public Administration, which focus on policy creation and coordination, strengthening of public service capacities, and increasing accountability and transparency. The government also adopted its Open Data Strategy (2018-2020), which puts forth measures to encourage the release and use of public data as an effective tool for innovation, growth, and transparent governance.
International Regulatory Considerations
North 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, North Macedonia regularly notifies the WTO Committee on Technical Barriers to Trade of proposed amendments to technical regulations concerning trade. North Macedonia ratified the Trade Facilitation Agreement (TFA) in July 2015 (Official Gazette 130/2015), becoming the 50th out of 134 members of the WTO to do so. In October 2017, the government formed a National Trade Facilitation Committee, chaired by the Minister of Economy, which includes 22 member institutions. The Committee identified areas that need harmonization with TFA and is working toward their implementation.
Legal System and Judicial Independence
North Macedonia’s legal system is based on civil law with adversarial-style elements. The constitution provides for independent courts. 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.
North Macedonia has obligatory mediation in disputes between companies up to USD16,871 in value as a precondition before going to court. Some companies complain the measure imposes additional costs and protracts enforcement of contracts.
Numerous international reports have cited North Macedonia’s failure to fully respect the rule of law. In 2018, the government demonstrated greater respect for judicial independence and impartiality compared to previous years. However, limited judicial independence, politicization of the judicial oversight body, and inadequate funding of the judiciary continued to be concerns. Enforcing contracts and resolving commercial disputes in North Macedonia’s court system is time-consuming, costly, and subject to political pressures.
Laws and Regulations on Foreign Direct Investment
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; the Law on Financial Discipline, the Law on Financial Support of Investments, and the Law on Technological Industrial Development Zones .An English language version of the consolidated Law on Technological Industrial Development Zones is available at: http://fez.gov.mk/wp-content/uploads/2018/01/law-in-tidz-eng.pdf .. No other new major laws, regulations, or judicial decisions related to foreign investment were passed during the past year, however some existing laws received small amendments.
The Trade Companies Law
This is the primary law regulating business activity in North Macedonia (http://www.mse.mk/Repository/UserFiles/File/Misev/Regulativa/Zakoni percent20ENG/LL_CG_TradeCompanies_Dec_2004_E.pdf ). It defines the types of companies allowed to operate in the country, as well as procedures and regulations for their establishment and operation. All foreign investors are granted national treatment and are entitled to establish and 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
This 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 EUR 2 million. This law does not apply to shares in state-owned enterprises. .
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 North 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 was raised from 10 percent to 15 percent on January 1, 2019. Since 2006, a withholding tax of 15 percent was levied on foreign legal entities as well as on income from dividends, interest, management consulting, financial, technical, administrative, research and development services, leasing of assets, awards, insurance premiums, telecommunication services, author fees, sports and entertainment activities, and rent proceeds from lease of real estate. The withholding tax does not apply to legal entities from countries that have signed an agreement to avoid double taxation with North Macedonia. The United States does not have such an agreement with North Macedonia.
All individual employment contracts and collective agreements signed between unions and employers are regulated by the Labor Law. (http://www.lexadin.nl/wlg/legis/nofr/eur/arch/mac/laborlaw.pdf ) The law also 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 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.finance.gov.mk/files/u11/Zakon percent20za percent20finansiska percent20disciplina_precisten_januari_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 results in high fines both for legal entities and for the responsible person.
Law on Financial Support of Investments
On May 3, 2018 the Parliament adopted the Law on Financial Support of Investments, http://fez.gov.mk/wp-content/uploads/2018/06/Law-on-the-Financial-Support-of-Investments.pdf . This law regulates the types, amount, conditions, manner, and procedure for providing financial assistance to eligible foreign and domestic investors. In March 2019, the government proposed amendments to this law, lowering some of the criteria for businesses’ eligibility for financial assistance from the government.
Law on Technological Industrial Development Zones
The Law on Technological Industrial Development Zones (http://fez.gov.mk/wp-content/uploads/2018/01/law-in-tidz-eng.pdf ) regulates the incentives for investing in technological industrial development zones as well as the conditions, manner and procedure for the establishment, development, and operation of the zones. It also regulates the business activities performed in the zones, the procedure for acquisition of facilities in the zones, the procedure for issuance of a construction permit in the zones, and the procedure for leasing construction land in the zones.
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, to determine if the aid adversely influences competition and trade under the Law on Control of State Aid (Official Gazette 145/10) and the Law on State Aid (Official Gazette 24/03). More information on the CPC’s activities is available at http://kzk.gov.mk/en . There were no significant competition cases during the past year.
Expropriation and Compensation
The Law on Expropriation (https://www.finance.gov.mk/files/u17/_______-_____________________________________2.pdf ) provides that seizure and limitation of the right to ownership and property rights of real estate could be applied for the purpose of realization of public interest and for the purpose of building facilities and carrying out other activities of public interest. According to the Constitution and the Law on Expropriation, 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 expropriated property. If the payment is not made within 15 days of the expropriation, interest will accrue. The government has conducted a number of expropriations, primarily to enable capital projects of public interest, such as construction of highways and railways to which the government offered fair market value compensation. Expropriation procedures have followed strict legal regulations and due process. 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
North 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, North 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 North Macedonia. This law applies exclusively to international commercial arbitration conducted in the country. 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 North 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
North Macedonia accepts binding international arbitration in disputes with foreign investors. Foreign arbitration awards are generally recognized and enforceable in the country provided the conditions of enforcement set out in the Convention and the Law on International Private Law (Official Gazette of the Republic of North Macedonia, No. 87/07 and No. 156/2010; http://www.slvesnik.com.mk/besplatni-izdanija.nspx?pYear=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 North Macedonia. The country does not have a history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
North 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 on International Commercial Arbitration. 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 are 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. North Macedonia requires mediation in disputes between companies up to USD16,871 in value before companies can go to court.
There is no tracking system of cases involving SOEs involved in investment disputes in North Macedonia, and post is not aware of any particular examples.
North 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 North Macedonia. The World Bank’s Doing Business Report for 2019 (benchmarked to May 2018) ranked North Macedonia 10th out of 190 countries for ease of doing business.
In addition to commercial banks and the National Bank of North Macedonia serving as credit monitoring authorities, the Macedonian Credit Bureau (http://www.mkb.mk/en/MKBPogled.aspx ) serves as a credit bureau.