Tax Environment
Tax jurisdictions: There are 2 main tax jurisdictions in Bosnia and Herzegovina: the Federation of B&H (FB&H ), with 10 cantons, and the Republic of Srpska (RS).
Foreign exchange control: Foreign exchange is regulated by the Foreign Exchange Laws of the FB&H and the RS and the Foreign Exchange Policy Law of the Bosnia and Herzegovina.
Accounting principles/ financial statements: IAS and IFRS are fully applicable in the B&H. Rules are also provided in the Laws on Accounting and Audit and the framework law at the state level.
Principal business entities: These are the joint stock company and the limited liability company. Foreign companies can open representative offices in the B&H, but they do not have legal entity status.
Note: All of these laws or their excerpts are available on FIPA web site www.fipa.gov.ba (English version).
Corporate taxation:
Residence: A company in Bosnia and Herzegovina is a resident if it is registered as a legal entity. An entity has a taxable presence in Bosnia and Herzegovina by carrying out business activities in the jurisdiction that meet the criteria for a permanent establishment.
Basis: Resident companies are subject to tax on worldwide income, while nonresident companies are taxed only on income derived from the relevant jurisdiction.
Taxable income: The taxable base is determined by increasing the accounting profits or losses for nondeductible expenses and reducing the accounting profits or losses for allowable items.
Taxation of dividends: In the FB&H, dividends that have already been subject to tax or that benefit from a corporate income tax exemption are not taxable. Dividends are not subject to tax in the RS.
Capital gains: Capital gains are generally taxed as profits at a rate of 10%.
Losses: Tax losses may be carried forward for up to 5 years. Tax losses carried forward from the current year are compensated in the first year; taxable profits are available for offset, so that the tax base is always reduced for the oldest losses. The carryback of losses is not permitted.
Rate: The tax rate is 10%. Small taxpayers in the RS (i.e. those with less than 9 employees and with total annual revenue in the preceding year not exceeding BAM 100,000 and provided not more than 50% of total revenue comes from a single client) pay corporate income tax at a rate of 2%.
Surtax: No
Alternative minimum tax: No
Foreign tax credit: Resident taxpayers are entitled to a tax credit for tax paid abroad up to the corporate income tax liability in Bosnia and Herzegovina.
Participation exemption: No
Holding company regime: No
Incentives: The FB&H offers a full corporate income tax exemption for companies whose exports exceed 30% of total income (turnover) and companies investing not less than BAM 20 million over 5 consecutive years in production, provided the investment during the first year is at least BAM 4 million. A company whose workforce is comprised of more than 50% of persons with disabilities or special needs hired for a period longer than 1 year is exempt from corporate income tax for that year. All costs related to R&D may be recognized as expenditure. There are also incentives for scientific and development research.
Withholding tax:
Dividends: Dividends paid from the FB&H to a nonresident are subject to a 5% withholding tax; the RS does not levy withholding tax on dividends.
Interest: A 10% withholding tax is levied on interest paid to a nonresident unless the rate is reduced or exempt under a tax treaty.
Royalties: Royalties paid to a nonresident are subject to a 10% withholding tax unless the rate is reduced under a tax treaty.
Other: A 10% withholding tax is levied on income from services provided to a nonresident, unless the rate is reduced under a tax treaty.
Branch remittance tax: No
Other taxes on corporations:
Capital duty: No
Payroll tax: In both the FB&H and the RS, the employee withholds tax from salary on a monthly basis.
Real property tax: Property tax is levied in the FB&H at the cantonal level. In the RS, tax rate is determined by the municipality where the property is located. See also under “Transfer tax.”
Social security: In the FB&H, the employer contributes 10.5% of the employee’s gross salary and the employee contributes 31% on the gross salary for social security (17% for pension insurance, 12.5% for health insurance, 1.5 % for unemployment insurance). In the RS, both employer and the employee contribute 30.6% of gross salary.
Stamp duty: No
Transfer Tax: The acquisition of real property in the FB&H is subject to a real estate sales tax levied at the cantonal level. The tax base is the purchase value of the property at the time of transaction. The taxpayer (i.e. the buyer or the seller) for purposes of the real estate sales tax varies depending on the canton. In the RS, the purchase of real property is taxed at a rate of 3%. The tax base is determined by the municipal appraisal team and the taxpayer is seller.
Other: No
Anti-avoidance Rules:
Transfer pricing: The difference between the price determined by applying the arm’s length principle and the transfer price must be included in tax base and will be taxed.
Thin capitalization: No
Controlled foreign companies: No
Other: No
Disclosure requirements: Transactions between related parties must be separately disclosed on the tax balance form.
Administration and compliance:
Tax year: Calendar year
Consolidated returns: Group taxation is allowed in the FB&H for a group of resident companies with a minimum of 90% (FB&H)/80% (RS) direct or indirect ownership. In the RS, a foreign legal person with 2 or more permanent establishments carrying out economic activities within the RS can file a consolidated tax return.
Filing requirements: The tax return in the FB&H must be submitted and any tax due paid to the authorized branch office of the tax authorities within 30 days of the end of the tax period. The tax return in the RS must be submitted within 90 days at the end of the tax year, and in the case of a calendar year – no later than 31 March of the following year.
Penalties: In the FB&H, late interest is 0.04% per day. Penalties range from BAM 500 to BAM 50,000. In the RS, late interest is 0.06% per day and minimum penalties are BAM 500, BAM 1,000 and BAM 1,500.
Rulings: The tax authorities and the Ministry of Finance will issue rulings at the request of a taxpayer.
Personal taxation:
Basis: The FB&H and the RS tax residents on their worldwide income; nonresidents are taxed only on Bosnia and Herzegovina-source income.
Residence: An individual is considered resident for income tax purposes if he/she has a residence or center of business and/or vital interests in Bosnia and Herzegovina, or stays in Bosnia and Herzegovina for at least 183 days in the aggregate during the tax year.
Filing status: In both the FB&H and the RS, the employer withholds tax from salary on a monthly basis. Final tax liability is assessed on an annual basis.
Taxable income: The tax base in the FB&H is the total gross taxable income paid by the employer less employee contributions and deductible allowances (the monthly basic personal allowance, less dependent family member allowance(s) and invalidity allowance, where applicable). In the RS, the tax basis is total gross taxable income paid by the employer less social security contributions and deductible allowances (monthly basic personal allowance, less dependent family member allowance(s) and invalidity allowance, where applicable).
Capital gains: Capital gains are subject to tax at the standard 10% rate in the FB&H, and 8% in the RS.
Deductions and allowances: Personal deductions in the FB&H are BAM 3,600 per calendar year and in the RS BAM 3,000 per calendar year. There are also deductions for dependents.
Rates: The rate is 10% in the FB&H and 8% in the RS.
Other taxes on individuals:
Capital duty: No
Stamp duty: No
Capital acquisitions tax: No
Real property tax: The acquisition of real property in the FB&H is subject to a real estate sales tax levied at the cantonal level. The tax base is the purchase value of the property at the time of the transaction. The taxpayer (i.e. the buyer or the seller) for purposes of the real estate sales tax varies depending on the canton. In the RS, the purchase of real property is taxed at a rate of 3%. The tax base is determined by the municipal appraisal team and the taxpayer is seller.
Inheritance/estate tax: Inheritance and gift taxes are levied at the cantonal level in the FB&H. Inheritance and gift taxes are paid on transfer of immovable and movable property. Since the tax rate is levied at the cantonal level, it varies between 2% and 10%. In the RS, the tax rates are 3% of the market value (or value estimated by the tax authorities) of immovable property and 10% of the market value (or value estimated by the tax authorities) of movable property.
Net wealth/net worth tax: No
Social Contributions in Bosnia and Herzegovina:
a) Employee’s share:
FB&H: 17% for pension insurance, 12.5% for health insurance, 1.5 % for unemployment insurance (in total: 31 % on gross wage).
RS: 18% for pension insurance, 12.5% for health insurance, 1% for unemployment insurance, 1,5% for child protection (in total: 33% on gross wage).
Brčko District: 17% for pension insurance for employers who apply the law of FB&H and 18% for pension insurance for employers who apply the law of RS, 12% for health insurance and 1.5 % for unemployment insurance (in total 30.5 or 31.5% on gross wage).
b) Employer’s share:
FB&H: 6% for pension insurance, 4% for health insurance, 0.50% for unemployment insurance (in total: 10.50% on gross wage).
Brčko District: 6% on gross wage for pension insurance for employers who apply the law of FB&H.
RS: No such contributions are paid.
Administration and compliance:
Tax year: Calendar year
Filing and payment: Returns must be filed monthly and annually.
Penalties: In the FB&H, late interest is 0.04% per day. Penalties range from KM 500 to KM 50,000. In the RS, late interest is 0.06% per day and minimum penalties are KM 500, KM 1,000 and KM 1,500.
Value added tax:
Taxable transactions: VAT is levied at the state level and is applicable to the following transactions: goods or services provided for consideration; the import of goods; the use of business assets or inventory for non-business or personal purposes (if credits for related purchases have been utilized); and the provision of services for no or reduced consideration or for non-business purposes.
Rates: The standard rate is 17% (which applies to most deliveries of goods and services). Certain transactions are exempt, including certain public services, health and medical services and financial services. Other transactions (mainly exports of goods) are zero rated.
Registration: Registration is compulsory if the annual value of deliveries exceeds KM 50,000. A company may register voluntarily if the threshold is not met. Once entering into the VAT system, a taxpayer cannot opt out for 5 years. A taxable person established abroad that carries out performs taxable economic activities in the Bosnia and Herzegovina must register trough VAT representative.
Filing and payment: VAT returns and payments are due by the end of the current month for the prior VAT period and must be submitted until the 10th day of the current month for the previous month (pervious tax period).
Tax exemptions
The Federation of Bosnia and Herzegovina Law on the Corporate Income Tax enables the taxpayer, who in the year for which the corporate income tax is being determined, has achieved 30% of their total revenue by export to be exempted from the tax payment for that year.
Taxpayer who in the period of five consequent years invests into production in the value of minimum 20 million KM, on the territory of the Federation of Bosnia and Herzegovina, is being exempted from the payment of corporate income tax for the period of five years beginning from the first investment year, in which minimum 4 million KM must be invested.
If taxpayer from the above paragraph, in the time period of five years, does not achieve the prescribed census for investment, they lose the right of tax exemption, and the unpaid corporate income tax is being determined in accordance with the provisions of the Law on the Corporate Income Tax augmented for penalty interest payable for untimely paid public revenues.
In the Federation of Bosnia and Herzegovina, taxpayer who employs more than 50% of disabled persons and persons with special needs longer than one year is being exempted from the payment of corporate income tax for the year, in which more than 50% disabled persons and persons with special needs were employed.
Profits transferred from abroad are not taxed in Bosnia and Herzegovina:
Profits transferred from abroad are not taxed, if they were previously subject to taxation abroad.
Source of tax law:
Corporate Income Tax Law and Regulations in the FB&H and the RS, Personal Income Tax Law and Regulations in the FB&H and theRS, Value Added Tax Law and Regulations on state level.
Tax treaties:
Bosnia and Herzegovina has 30 tax treaties.
Tax authorities:
Tax Authority of the FB&H, Tax Authority of the RS and Indirect Taxation Authority of Bosnia and Herzegovina.
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