FYR Macedonia: Tax treatment of interest income

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

FYR Macedonia: Tax treatment of interest income

kostovska.jpg

Elena Kostovska

The FYR Macedonian government considers any interest income arising from loans as regular income, but there are specific points in relation to the interest rate worth surveying in detail, which are often neglected by taxpayers. In terms of loans between related entities (including physical persons who are capital shareholders in a resident company), the legislation has a specific perspective on the acceptable interest rates. For example, a loan extended by a resident legal entity to a physical person – shareholder or founder – can be defined to give rise to a specific annual interest rate but an average interest rate available from commercial banks in the country will also be taken into consideration and will impact the tax base for the entity extending the loan. Specifically, if a loan is granted from a legal entity to a shareholder (physical person) at a rate lower than that used by commercial banks, the difference in the interest income the entity would have generated if using the interest rate of the commercial banks and the income that the entity has in fact generated by using the lower rate is considered as "hidden revenue" and has the same treatment as an unrecognised expense, therefore effectively raising the year-end tax base for corporate income tax purposes.

By the same token, resident companies receiving loans from related entities (including physical persons) at an interest rate higher than those available at commercial banks actually increase their tax base for corporate income tax by the amount equal to the difference in interest paid at the higher rate and interest that would have been paid if the loan agreement was under interest conditions available in banks.

Furthermore, interest paid on the basis of a loan granted from shareholders or founders who own at least 25% of the capital in the company and are in amount that is more than or equal to three times the capital participation of the loan grantor (for example a loan in amount of €1 million ($1.4 million) or more from a shareholder who has invested €333,333 in the entity) are considered as unrecognized expense for tax purposes. This provision, however, is not applicable in the first three years of the company's operation.

Yet another interest-related aspect that changes the tax base for corporate income tax is interest payments for loans received and used for purposes not related to the main business activity of the loan recipient. Interest paid for such loans is considered an unrecognised expense for tax purposes and thus increases the tax base. The same applies for interest paid on loans used for the purchase of furniture, artwork and decorative objects.

Elena Kostovska (elena.kostovska@eurofast.eu)

Eurofast Global, Skopje Office

Tel: +389 2 2400225

Website: www.eurofast.eu

more across site & shared bottom lb ros

More from across our site

Given the US/G7 pillar two deal, the OECD is in danger of being replaced by the UN as the leading global tax reform forum
Cinven’s latest investment follows its acquisition of a stake in Grant Thornton UK in December; in other news, a barrister listed by HMRC as a tax avoidance promoter has alleged harassment
CIT base narrowing measures remain more prevalent than increased CIT rates, the report also highlighted
ITR's parent company, LBG, will acquire The Lawyer, a leading news, intelligence and data-driven insight provider for the legal industry, from Centaur Media
KPMG UK’s Graeme Webster and KPMG Meijburg & Co’s Eduard Sporken outline the 20-year evolution of MAPAs, with DEMPE analyses becoming more prevalent and MAPA requirements growing stricter
Rishi Joshi, of the Institute of Chartered Accountants of India, warns of potential judicial overreach as assets are recharacterised to bypass a legislative exclusion
Only 2% of in-house survey respondents said they were ‘heavy’ users of AI for TP, Aibidia’s report also found
There was a ‘deeply embedded culture within PwC that routinely disregarded formal confidentiality obligations,’ the chairman of Australia’s Tax Practitioners Board said
Jennifer Best was most recently the acting commissioner of the IRS’s large business and international division
Section 899’s exclusion from the One Big Beautiful Bill does not mean it has been nipped in the bud, Aruna Kalyanam also tells ITR
Gift this article