Foreign direct investment (FDI) in North Macedonia

FDI in Figures

In the absence of adequate domestic savings, foreign investments provide an important avenue for the development of North Macedonia’s economy. According to UNCTAD's World Investment Report 2024, net FDI flows to North Macedonia decreased to USD 667 million in 2023, down by 15% compared to the record level reached one year earlier. At the end of the same period, the total stock of FDI was estimated at USD 8.4 billion, around 57% of the country’s GDP. According to the Central Bank, the largest direct investments were from Austria, with EUR 1,199 million, followed by Greece with EUR 751 million. The top five foreign investors also include Turkey (EUR 715 million), Germany (EUR 652 million), and the Netherlands (EUR 597 million), together accounting for 51.9% of total direct investments. In terms of investment activities, EUR 2,470 million in direct investments were made, with 33% allocated to "manufacturing" and EUR 1,724 million (22.9%) to "financial and insurance activities". Preliminary figures show that during 2024, total net inflows from direct investments in the country amounted to EUR 1,255 million (passing the one billion mark for the first time), as a result of registered net inflows from intercompany lending (by EUR 686 million), equity (EUR 313.6 million) and reinvestment of earnings (EUR 255.3 million).

North Macedonia’s legal and regulatory framework is generally favourable to foreign investors and provides numerous incentives to attract them. Moreover, the country adopted a new law to create more advantageous conditions for strategic investments. Both the Law on Technological Industrial Development Zones (TIDZ) and the Law on Financial Support of Investments offer incentives to investors, including a ten-year tax exemption on personal and corporate income, free access to public services, job creation and capital investment subsidies, and financial support to exporters. Labour costs are low, but on the other hand, there is often a shortage of skilled labour. Foreign investors may directly invest in all industry and business sectors, barring those restricted by law. For instance, investment in the production of weapons and pharmaceuticals requires government approval. Additionally, sectors like banking, financial services, insurance, and energy necessitate compliance with specific licensing requirements, which are applicable to both domestic and foreign investors alike, while the country does not have a national investment screening mechanism in line with international standards. North Macedonia has made significant efforts to harmonize its legal framework with the criteria, standards, and practices of the European Union. The sector of digitalization and green energy have been identified as strategic by the government: according to data by fDi Markets, renewable energy projects contributed most to FDI in North Macedonia between January 2017 and July 2022, totalling USD 739 million, ahead of the real estate sector (USD 409 million) and software and IT (USD 381 million – latest data available). A number of challenges remain nonetheless, including corruption, lack of transparency, poor customer service, excessive bureaucracy, political interference in the judiciary, lack of government capacity, communication difficulties, and shortcomings in the rule of law and contract enforcement. North Macedonia ranks 58th among the 133 economies on the Global Innovation Index 2024 and 73rd out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in North Macedonia

Strong Points

The country's key advantages in terms of attracting FDI include:

- Low labour costs and high-quality workmanship;
- Stable democracy;
- Fast and uncomplicated procedures to create an enterprise;
- FDI-friendly governement policies;
- the country's integration into the German production chain.

Weak Points

The country's hurdles to investment are :

- High structural unemployment and training deficit;
- Important size of informal economy;
- Inadequate transport infrastructure;
- Significant indebtedness of the private sector (93% of GDP at the end of 2014);
- Conflicting political landscape;
- Tensions between the Slavic majority and the Albanian minority.

Government Measures to Motivate or Restrict FDI

North Macedonia is an open and business friendly country, which ranks on the 11th spot in the 2018 Doing Business Report of the World Bank which evaluates the ease of doing business in 190 countries.

The North Macedonian Constitution stipulates that foreign persons (legal entities, individuals or civil partnerships registered in a foreign country) must enjoy equal rights with local persons when conducting economic activities in North Macedonia except where otherwise provided by the law (“national treatment”). This principle covers the entire range of economic and legal forms used for business activity.

The North Macedonia has a flat tax rate of 10% for corporate and personal income tax purposes. Investors are eligible for reduction in the profit tax base by the amount of prior profit reinvested in tangible assets (such as real estate, facilities and equipment) and intangible assets (such as computer software and patents) used for expanding the business activities of the entity.

The Law on Technological Industrial Development Zones provides for a special tax treatment for any investor who invests in the appointed zones.

The legal framework also includes the One-Stop-Shop system that aims to tackle some of the administrative barriers of entry into the business life in North Macedonia. According to the Law of the One-Stop-Shop system, all types of trade companies are registered within 4 hours of submission. Another important feature of the One-Stop-Shop is the electronic distribution service that allows any potential investor or third party to obtain complete electronic information about the operations of companies in the country.

To learn more about the goverment measures to encourage FDI in North Macedonia, please visit Invest in North Macedonia website.

Bilateral investment conventions signed by North Macedonia

North Macedonia has signed numerous bilateral conventions on FDI. You may see them on the policy investment hub website.