FYR Macedonia: VAT treatment of related entities

Elena Kostovska

According to Article 56 of the Law on VAT in FYR Macedonia, the Public Revenue Office (PRO) is empowered to – at its discretion – register two or more legal entities as VAT-dependent or VAT-related taxpayers. The basis for such a joint VAT registration is the existence of certain ownership, organisation or management relationships between the entities as well as PRO's view of whether such relations may lead to a misuse or breach of the national tax laws. On the other hand, the practice has given us sufficient evidence that related entities voluntarily register as related VAT payers to take advantage of the monthly tax period which is mandatory for such group-payers.

To be considered as VAT-related entities, the companies must fulfill one or more of the following criteria:

• A direct ownership relation is established when a 25%+ ownership can be determined (that is, company A has a capital participation of at least 25% in company B);

• An organisational relation is established when the same physical person (or close family members) or legal entity (or related entities) directly or indirectly own two or more companies; and

• A management relation is established when the general management of each of the companies is controlled by the same person or when the management of the entities is carried out by different persons who are controlled by a single person/entity.

Multiple companies that are deemed to be related for VAT purposes, with the joint registration, constitute a new entity which is an amalgam of the members it is comprised of. This new entity must appoint a legal representative who will be in charge of the joint VAT registration of the related entities and will be signatory of all VAT returns filed in front of the authorities.

In terms of the VAT treatment for turnover realised by the related entities, it is worth noting that:

• Supply of goods and services between members of the VAT group are not considered subject to VAT; and

• Supply of goods and services between one of the members of the group and third parties are subject to VAT.

In practical terms, any supply of goods or services between the group members that is regulated with an invoice should not include VAT. However, the PRO is not currently sanctioning the calculation of VAT on such inter-group invoices; rather it is simply considering it as miscalculated VAT.

One problematic aspect of the VAT-related entities' registration is the previous VAT payables/receivables that individual group members had before the joint registration. With the joint registration, all previous balances that the individual group members have (that is, VAT refunds from the PRO or unpaid VAT balances) are now transferred to the group's legal representative. Because the amounts will vary, detailed records of each member's previous balance as well as any future balances are required. A suggested operating mode to ensure efficient record-keeping is for the representative member of the group to claim receivables from PRO or record payables of each of the other members for the amount of VAT balance they have with the PRO before to the joint registration, which will effectively be balanced against future period VAT payable to/receivable from the PRO for each of the members.

Elena Kostovska (elena.kostovska@eurofast.eu)

Eurofast Global, Skopje Office, FYR Macedonia

Tel: +389 2 2400225

Website: www.eurofast.eu