Macedonia Crushes California

Lake Mavrovo Macedonia

Lake Mavrovo Macedonia

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You Want To Make A Company

I was watching a financial show and an ad came on, asking folks to relocate their business to Macedonia, and promoting their tax advantages.

This is a rather effective example of why California is “toast” as a business destination.

So, just imagine you are a financier and you are thinking of making a new corporation somewhere. You need a little land, some labor, and intend to have profits from year one, so the tax rate matters. You have a home office in California right now, and you are trying to decide between California and somewhere else… For California, you have a major tax and regulatory load to deal with. Corporate taxes from 8% to 10%+ along with a 9%+ sales tax, the CARB, and a few dozen other agencies, all with a load of fees. THEN, on top of that, you get to pay US Federal taxes. The total bite can run out to about 50%.

Now, lets look at what Macedonia is offering:

From this site:

http://www.investinmacedonia.com

INCENTIVES IN THE TECHNOLOGICAL INDUSTRIAL DEVELOPMENT ZONES

– 0% personal and corporate income tax for the first 10 years (10% thereafter)

– No VAT and customs duties for export production

– Subsidy of up to €500,000 towards building costs

– Land lease for up to 99 years at attractive concessionary rates

– Free connection to utilities

– Green Customs Channel expediting exports to the EU

– Advantageous location – access to pan-European corridors 8 and 10, railroad, and international airport

Gee… Income tax of ZERO for a decade. More than enough time to get my business launched and proving itself. After that, it jumps all the way to 10% TOTAL. Not a double dip of state and federal as in the USA.

For exports, I get a free pass on VAT (so it’s better to export to California than to build in it).

And they will pay me up to a half million Euros toward my factory. (Where California will hit me with fees and penalties up the wazoo…)

Decisions, decisions…

So, Dear Governator: In a nutshell, that’s why you are toast. If you can’t compete on the global stage, business leaves and taxes with them. No wealth creation means you are eating your seed corn and when that is gone, you die. Please explain this to the senate and assembly. Have a nice day.

FWIW, this link is a bit old (almost 3 years), but still has interesting information in it. The focus is a bit more on property taxes:


http://www.globalpropertyguide.com/Europe/Macedonia/Taxes-and-Costs

Dec 07, 2007

Income taxes in Macedonia are moderate

EFFECTIVE TAX RATE ON RENTAL INCOME
Monthly Income
€1,500 €6,000 €12,000
Tax Rate
7.5% 7.5% 7.5%

INDIVIDUAL TAXATION
Non-residents are liable to pay taxes only for their income from Macedonian sources. Personal allowances are not available to non-residents.

INCOME TAX
Income is taxed at a flat rate of 12%. The taxable base depends on which kind of income is being taxed, as the rules for deducting expenses vary with the categories. The rate will go down to 10% for 2008 and the succeeding years.

Rental Income

Rental income is taxed at a flat rate and the applicable rate depends on the category of the rental property. Unstudied business space is taxed at 8.11% and accommodated business space is taxed at 7.52%. Taxable income is gross rental income.

Capital Gains
Capital gains realized from the sale of real estate property are taxed as ordinary income at 12%. The capital gain is computed as the selling price, less acquisition costs, maintenance costs and depreciation. The tax is then levied on only 70% of the computed capital gain. Capital gains from the sale of real estate property held for more than 3 years are exempt from taxation.

PROPERTY TAXATION

Real Estate Tax
The owner of the property is generally liable to pay the tax, but in the case of a rental agreement, the tenant is the one liable. The rates are determined by the municipalities and range from 0.1% to 0.2%. A 50% tax reduction is available for taxpayers living in a residential building, or flat with family.

CORPORATE TAXATION

INCOME TAX
Corporate income is taxed at a flat rate of 12%. Expenses incurred in the generation of income are deductible. This rate will go down to 10% in 2008 and later years.
Capital Gains
Corporate capital gains are taxed as ordinary income at 12%. Capital gains are generally computed as selling price less acquisition costs, maintenance costs and depreciation. The tax is levied on only 70% of the computed capital gain.

Notice a couple of nice goodies? Things like NO Capital Gains on real estate held over 3 years (and if less than that, on only 70% of the gain). Or how about the corporate capital gains being on only 70% of the gain and then at the ordinary income rate (that is now 10%). Effectively that’s a 7% Capital Gains rate and you apply that net of costs of the gain. Nice…

Oh, and if I pack up and move there, my US income will have a ‘pass’ on the first large chunk ( last I looked it was about $75,000 but I’m sure that’s changed now) for US taxes AND be exempt from Macedonian taxes too. Very Very nice.

So where do you think I’d put my new factory (and my new home…)?

“Suck the life out of me California” or business partner Macedonia?

Caveats

I’m sure there are fleas on this hound somewhere, there always are. Perhaps it is a high labor cost or heavy unionization, or maybe it’s a layer of local and city taxes to be uncovered. Left over tensions between former Yugoslavia ethnic groups? Perhaps very high fuel costs… There is always something.

But there are also a load of ‘fleas on the hound’ in California too ( including local sales taxes, various fees, licenses and punishments at all levels, illegal immigration and that ethnic tension).

And the Feds are busy “fixing” our low energy costs with various forms of breakage of the energy industries. ( For example, in a “Ministry of Stupidity Speaks” moment, Obama froze offshore drilling for 6 months. Well, one small problem: Those rigs cost about 1/4 million $/day and that breaks the contract. They will up-anchor and go to the Middle East and Brazil to drill. And enter a new contract for a few years. We are locking in higher dependency on OPEC for the next 4 to 5 years. And higher prices. The shut-in capacity here is about 1/2 the total non-OPEC growth of supply. Yeah, that much.)

So most likely those minor costs in each country will be about the same. It will be very very hard for the combined Macedonian load to rise higher than the combined USA / California set…

Also realize, this was a focused look at just ONE place out looking for business. There’s a whole world of such places, and a proper business plan would look at all of them and match the particular needs more closely (such as nature of the labor force, local support facilities, etc.). This could easily find places as good, or perhaps even better than, Macedonia for any one company.

It’s a big world out there, and California needs to realize that it is NOT “special”… Macedonia looks like a great location for making movies too…

FWIW, if I were looking to set up a new company, I’d put Macedonia on the shopping list of places. California would not even be considered.

Further Information

http://www.exploringmacedonia.com/

https://cia.gov/library/publications/the-world-factbook/geos/mk.html

http://en.wikipedia.org/wiki/Republic_of_Macedonia

http://www.macedonia.org/

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged . Bookmark the permalink.

14 Responses to Macedonia Crushes California

  1. Willy Nilly says:

    Yes, well, Macedonia could be a delightful place if we knew its future was good. But it’s a bit like the Ukraine. A delightful mix of Bulgarians, Serbs, Albanians and Greeks, living in harmony. Sort of like Yugoslavia lived in harmony. Until our next Bill Clinton decides to start bombing the non-Muslim majorities.

  2. Pascvaks says:

    Nothing in Life is Free!

    But there are a lot of things that you don’t have to pay through the nose to get.

    In the Fairy Tales I learned as a child sitting on my mother’s knee, American’s were always “hard working, smart, thrifty, smart, brave, smart, clean sometimes, smart, and reverent”. I wonder what happened?

  3. j ferguson says:

    E.M.
    An imponderable in this comparison is the measure of enthusiasm of the troops. The tax in Macedonia may be there.

    Doing a project with a significant installation of machinery from another European country taught me that 32 hour weeks, frequent bank holidays, month long vacations and the association of limited future with dirty hands, meant not much got done.

    I don’t think we’re there yet, even in California.

  4. Pingback: Macedonia Crushes California « Musings from the Chiefio | macedoniatoday

  5. j ferguson says:

    To be fair to the Europeans, there was in the ’70s, in the civil engineering business, at least at our company, a California labor tax.

    We all worked for salary based on 40 hour weeks.

    But in the midwest, we actually worked anywhere from 48 to 60 hours – and yes, no overtime pay.

    For some reason our San Jose branch was about 2/3 as productive as the Chicago office.

    I was sent from Chicago to San Jose to get a project, which was languishing, done as in COMPLETED.

    First day out there, at 5:00:00PM, everyone got up and left.

    I asked.

    “It’s 5:00. Day’s over.”

    I was used to working 8 to 6 every day and 6 hours on Saturday.

    Job had been budgeted with these “free” hours included.

    Which was why the San Jose job was upside down.

    I’m sure this experience was not typical of other industries out there, or maybe even other civil engineering companies, but???

    Low productivity is just as bad as a tax, but harder to see,

  6. Mooloo says:

    Corruption is the fly in the ointment.

    It’s no good making twice as much if the local mafiosi cream off three-quarters of it.

  7. P.G. Sharrow says:

    I would not rush to Macedonia just yet, WW3 is not yet over.

    Isn’t Macedonia just over the hill from Greece?

    Fixing California is a bit higher on my agenda then fleeing. Besides I’m too old to move again.

  8. Peter Czerna says:

    Don’t do it – you’ll get stiffed (or shafted, or whatever the technical term is).

    It doesn’t matter what the details of the situation in Macedonia are, you will lose out. I have no idea what Macedonia is really like, but that is not the point.

    You don’t speak the language. You will have to hire some very expensive Zorbas and their brothers, cousins and uncles as fixers, teams of advisers, interpretors and translators. You have no idea what the accounting rules are. You can’t even read the articles of incorporation of your own company. Everything you do will require an intermediary. Which will be worse, the guy recommended by Zorba (his second cousin twice removed) or the one recommended by the guy from the government department who is supposed to be advising you (who turns out to be his uncle… well you get the idea)?

    You will find that the incomprehensible 100-page contracts with your customers are null and void because of… well, anything, actually. Or the contract is just ignored anyway.

    I’ve been stiffed in more languages than I care to remember. At least, knowing California as you do, you KNOW when you are being stiffed.

    Anyway, thanks for this entertaining post. I just hope you were not being serious!

  9. KiwiKev says:

    With attitudes like those above maybe you Yanks had better just stay put in the bad old US of A. Either that or invade, eliminate all the perceived downsides, then relocate.

    REPLY: [ I think you will find that some of the folk you are calling “Yanks” are not in the USA… and for me, I’m only “1/2 a Yank” as my Mother was from the U.K. and raised me with more of a British mindset. Hmmm…. I wonder, is 1/2 a Yank a Tug? ;-) And, FWIW, every single place on the planet has ‘downsides’. I’ve run overseas locations before. You can never ‘eliminate’ them, only adapt to them and select the place with the most acceptable ones. The whole point of this postings was that the USA “downsides” are now quite high in comparison… at least on the taxing issues… -E.M.Smith ]

  10. E.M.Smith says:

    @Peter Czerna: To put your mind at ease: I’m not planning on actually going there. (Somewhere more southernly is in mind ;-) FWIW, I found the language not that hard to ‘start to pick up’. Close enough to the Russian I learned almost 40 years ago that some of the words were immediate cognates in Cyrillic; and others were pretty simple to figure out. Plus the roman alphabet version is pretty straight forward too. Easier for me than the Greek alphabet.

    Per “Zorba”: Realize that the Republic of Macedonia is not Greece, it’s part of the Former Yugoslavia… Per work quality: Yeah, that’s the land of the Yugo ;-)

    @Pascvaks: The WWII “Greatest Generation” died and the TV / MTV generation is what’s left. We were raised with everything given to us and largely see no reason for that to change… There are a few, like me, who were raised by a more ‘traditional’ method. FWIW, most of my fondest memories are now things that are illegal. “Child Labor” ( I worked in the family restaurant from age 7… sometimes more than 40 hours per week during the summer.) “child endangerment” (I drove a farm tractor at about 8 or 9? My Dad taught me to work iron in fire… and I helped put plumbing in the restaurant and ran power saws and used chemical solvents and even, gasp, Asbestos! … ) and the list goes on. I tried to give some of this insight to my kids, but it’s diluted when second hand.

    The other problem is that the Welfare System was built (thanks to the progressive movement and F.D. Roosevelt) and the result has been an ever increasing fraction of the population that has grown up as welfare dependents. We’re now into 3rd generation Welfare Families in many places. So we planted a new tradition and are now harvesting the bitter fruit of it.

    @J. Furguson:

    Had a very similar “strange thing”. I was working in the State of California Architects Office with a bunch of high end degreed professionals. I was 3/4 of the way through a technical explanation to one of them (of computer code that would take a while to ‘get back up to speed’ if we stopped) when suddenly everyone in the room got up and walked over to one corner of the office. It was like something from a Science Fiction movie when you realize you are not one of the Pod People ! The Client stood up and took two steps away, turned, looked at me and said “You coming?” Not wanting the Pod People to know I was “not of the body”… I went to the corner…

    Seems that the work rules gave a precise 15 minute break 2 times a day. You ran to the bathroom or went to the coffee pot (or both) then (and supposedly at no other times). Start, work 2 hours, break, 2 hours, lunch, 2 hours, break, 2 hours, BING it was 5:00 and books snapped shut and drawers clicked shut all over the room as the Pod People formed a Queue at the exit.

    As someone who grew up in a family restaurant where the work was done when the last hungry person was fed and the last dishes were washed (with no regard for ‘breaks’ or how long) and who’s first factory job was a union job packing peaches where the ‘work day’ ran out to 12 hours mid season and the line did not stop; the whole notion of slamming shutdown for two breaks and hard crash halt at 5 pm was just alien…

    @all:

    But yes, that ‘work rules’ and ‘local customs’ (i.e. graft) rules discovery is part of the final selection of a site. You visit with others first and find out what their experience was in moving there.

    Then again, IFF you have a ‘company of one’ or maybe 2 family members, you could still park the “company” there, get a $70k+ ‘free pass’ on US income, and do your financial planning and trading consultancy with web publishing from a zero tax location ;-)

    Not everything involves hiring 200 locals all related to ‘Zorba’…

    And I’d love to ‘give it a try’ and file a full report on the experience. But my present scale doesn’t justify it… and I have a fondness for Southern Hemisphere beaches… especially tropical… and rum drinks… and palm trees… and I already understand Spanish and speak it a bit… and French somewhat better (as in French Polynesia ;-)

    So yeah, there are “Issues” for me with Macedonia… but not major ones…

    Per “fixing California”: I’m all for it, and while I’m here I’ll do what I can to promote that. But I’m pretty good at seeing social patterns. What I see is an ever larger number of folks dependent on the California Socialism Machine voting to keep it and ever fewer willing to fight the monster, and instead just packing up and leaving. The end result will NOT be a gentle transition. It will end with a financial collapse. My intent is to not be here for that phase. We’ll see who wins this race condition.

    Basically, the low end is staying (they are not all that mobil once here) and new ones are arriving (desperation can move poor folks to buy a bus ticket in or just walk over the border). So the Welfare Load is rising fairly fast. The Uber Rich and Hollywood Glitterati are staying (as they are rich enough not to notice and politically Pod People in their own right). That just leaves the middle class. Mobil enough to leave and squeezed enough to be motivated. They are plunging in numbers as they go where the jobs are or move their businesses out of state (when faced with a “tax & regulate to destruction” or “move to new prosperity” choice.)

    I know, I am one. (I chose ‘shut down’ about 1/2 decade ago, but now I’m itching to do something new and when I restart, it will not be in California… If in the USA, it will be in Florida or Texas [ with a Nevada possible in 3rd place ] and I’m toying with the idea of another country.) But such changes are a slow process. An established dentist, for example, would be reluctant to pack up and start over. But the new graduates go to the growing place with lower taxes. The 50 something car repair shop owner does not want to pack up and leave, but when he dies the shop is ‘parted out’ and the parts go somewhere else. (That is what has happened to the local machine shops in Silly Con Valley. We once had a forrest of specialized and general purpose machine shops that could make anything from bent sheet metal for computer boxes to space vehicle parts. Large chunks are gone now.)

    That is how economic change happens. And since there is a generational component to it, most folks don’t see it happening and don’t understand it. They see it as just some kind of accident of fate. It isn’t. It is entirely subject to our own influence, but we influence it badly with backwards behaviours.

    So California may be fixable, but it will take a concerted effort in the correct direction applied over 40 years. I don’t really have time enough left for that… So I’ll support the folks working in that direction, but for me, the answer will be elsewhere. ( With a palm tree and a Tequila Sunrise ;-)

  11. j ferguson says:

    E.M.
    I ran a business in South Florida (Sun VAR) for seven years. Then went back to construction design for another seven working for someone else.

    If you are seriously considering Florida as a location for a start-up, i would be happy to share my experience with you, but off-line.

    On the scheduled break, I can well remember conducting a briefing on civil aspects of a very large defense proposal and having the assembly rise in unison while my host told me it was break-time – this in mid sentence.

    I always thought my better presentations could be entrancing, but found it harder to fool myself after finding i couldn’t compete with “break.”

  12. wer says:

    @ Willy Nilly

    Your comment is just full of ignorance. There is an insignificant amount of Greeks and Bulgarians in Macedonia, and Serbs are just 2%. Intstead, the two major groups are Macedonians 66% and Albanians 25%.

  13. crosspatch says:

    “I’m sure this experience was not typical of other industries out there, or maybe even other civil engineering companies, but???”

    I noticed a considerable difference in work ethic when I moved from the East coast to California but I can’t use a really broad brush. We have people who have worked long hours and weekends for years to get stuff done. It seems to depend on the type of office/business. High tech places work around the clock. There really is no “day is done” time, the Internet never sleeps. But dealing with companies in other fields can be “interesting”.

  14. j ferguson says:

    Crosspatch,
    I hope not to slander any of our fellows who graze here, but after spending my education and early career in the construction industry, I got into the computer business. I was an early adopter (sufferer) in the use of computer aided design for construction design and documentation – it really worked for me.

    So fool that I was, I thought it would be neat to be an AutoCad dealer and help my cohorts get started and maybe make a little money doing it. I was successful with the helping and the money was also little.

    My shock was the sharp difference in intelligence i found in the folks I dealt with at Autodesk (1986) and later Sun Microsystems, from what I’d seen in construction. If it were IQ, maybe the difference between 105 and 135++. It was electric.

    And the guys (and gals) in that industry didn’t watch the clock – they liked what they were doing.

    I worked in Dublin on a civil project in 2001 and found the people in that office same as computer industry here in terms of smarts and enthusiasm. What a joy to work there.

    So the 9 to 5’ers aren’t everywhere even in California, but i’d bet that this sloth does trend differently from industry to industry.

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