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

If the Reform leader becomes UK prime minister then he may follow the direction of the US in at least one significant way
Trump declared a new national emergency in issuing the order; in other news, Grant Thornton Germany is up for sale and the subject of interest from both its UK and US counterparts
The judgment, which saw Denmark's Supreme Court rely on OECD TP guidance, sets aside more than 15 years of consistent administrative practice, experts have told ITR
Belgium’s new coalition government has gone ahead with a new exit tax regime that could land it in the courts
Brazil’s government has not officially framed the bill as a countermeasure amid trade tensions with the US, but the move is being considered as part of Brazil’s strategic response, one expert tells ITR
Understanding India’s income tax landscape can help charities ensure compliance, optimise tax benefits, and enhance their impact, writes Raghav Bajaj of Khaitan & Co
Tax advisers in Brazil are rising above the country’s notoriously complex tax system to deliver high-quality advisory services, ITR’s exclusive in-house data reveals
ITR’s data has highlighted the US firm’s ambition to become America’s ‘premier’ tax player via a concerted partner recruitment strategy
Jaap Zwaan’s arrival continues a recent streak of A&M Tax investing in the region; in other news, the US and Japan struck a deal that significantly lowered tariff rates
In a world where international tax concepts rely on human activity, Leonard Wagenaar poses existential questions about the future of such ideas when AI is ever-present
Gift this article