Loading...

Bosnia and herzegovina

Bosnia and herzegovina
Capital Sarajevo
Population 3,854,000
Area 51,129 SQ KM (19,741 sq mi)
Currency CONVERTIBLE MARK (BAM)
GDP USD 16.55 billion
GDP per capita USD 4,298
FDI (2012 - 2016) USD 1,755 million
corporate tax 10%
vat 17%

GENERAL OVERVIEW

European Union, on September 20, 2016, accepted Bosnia and Herzegovina’s membership application and welcomed the progress made by the Bosnia and Herzegovina authorities in implementing their Reform Agenda 2015-2018. The Economic Reform Agenda represents a crucial instrument for Bosnia and Herzegovina economic-social development and it creates conditions for stepping-up European integrations process of Bosnia and Herzegovina. Agenda defines numerous reform in the area of public finance, business climate, labour market, social welfare reform, rule of law, and public administration reform.

The European Commission’s Questionnaire is prepared and will be handed over to EU Commission on February 28th, 2018. By the end of 2018 or at the beginning of 2019 Bosnia and Herzegovina is expected to gain the Candidate Status.

Economic activity of Bosnia and Herzegovina in 2017 recorded the growth in exports of goods with rate of 16,5 %, as well as slight increase in the final consumption. The largest trading partner of Bosnia and Herzegovina is EU, covering 70,7% of overall foreign trade of the country.

Foreign direct investments in Bosnia and Herzegovina rose to €197.7 million in the first half of 2017, according to Central bank data, representing an increase by 66.8 % compared to the prior-year period.

LEGAL SNAPSHOT

Bosnia and Hercegovina (BiH) has in recent years tried to increase direct foreign investments. Therefore it has adopted and amended several laws and bylaws concerning employment, corporate, financial regulations etc. Although the political environment and complex government structures create certain obstacles to economic development and foreign direct investments, surveys conducted among foreign investors in 2016 and 2017 give a pretty optimistic view of the expectations of the companies when it comes to doing business in BiH and investment conditions.

The Stabilization and Association Agreement between the EU and BiH entered into force on June 1 2015. It establishes a close partnership between the EU and BiH and deepens the political, economic and trade ties between the two parties.

TAX INCENTIVES

One of the reasons for investing in Bosnia and Herzegovina could be favorable tax system. Bosnia and Herzegovina has one of the lowest rates of VAT (17%) in the region and Europe, as well as the very acceptable corporate tax rates that are also among the lowest in the region and Europe (10%)

A) Tax incentives for corporate income tax

In Federation of Bosnia and Herzegovina:

Law on Corporate Income Tax enables foreign investors to enjoy the following benefits
- The taxpayer who invests in production equipment more than 50% of the total profit in the current tax period, shall be reduced of the obligation of the calculated tax for 30% of the amount in the year of investment.
- The taxpayer who in a period of 5 consecutive years makes investments from its own funds, in the total amount of €10 million starting with the first year when taxpayer has to invest at least €2 million, shall be reduced of the obligations of the calculated income tax for 50% of the amount in the year of investment.
- The taxpayer is entitled to a tax-deductible expense in the double amount of the gross wage paid to newly employees if meets the following conditions:
- Duration of the employment contract must be at least for a period of 12 months with full-time working hour
- New employee was not employed with the taxpayer or a related person in the previous five years.

 

In Republika Srpska:

A taxpayer who in the territory of the Republika Srpska invests in equipment, facilities and real estate for carrying out production activities in the amount of more than 50% of realized profit (the tax base) for current tax period, the income tax liability shall be reduced by 30%.

A-1) Capital losses and its compensations

Laws on corporate tax income provides that realized capital loss, for the company, will be transferred and compensated by the reduction of the tax base (in the period of 5 years) – but only for losses realized in the company located in the individual entity.

A-2) Reservations and tax reductions

The laws on corporate tax income in both entities provide the reducing of tax base for, by the laws, determined reservations (e.g. reservations for environmental protections etc.)

B) Personal tax incentives

Certain incentives are provided by the laws on personal income tax in the entities such as tax deductions that include personal exemption and deduction for each dependent family member, which increases and decreases the basis for calculation of income tax.

C) Contributions benefits

Laws on social security contributions have foreseen certain benefits such as: in the textile, leather and footwear industry, the tax base is determined as the product of the average monthly salary in the entities with the lower coefficient.

D) Employing unemployed persons

According to the laws in both entities, at the beginning of every year, the Employment Bureaus publish a public call – the program for co-financing of employment - and companies can apply. The aim of the program is covering/paying wage costs for a period of one year - for employees taken from the Employment Bureaus.

E) Agreements on avoidance of double taxation

Bosnia and Herzegovina has signed the agreements on avoidance of double taxation with 39 countries which refer to the laws that regulate corporate income tax, property tax and personal income tax. Depending on the particular country, it is provided to pay certain taxes only in one country (or tax difference) if the taxpayer is operating a business in two countries which have signed the agreement. The list of countries is as follow:

No. Countries Avoiding double taxation
1 Albania In force
2 Algeria In force
3 Austria In force
4 Azerbaijan In force
5 Belgium In force
6 China In force
7 Croatia In force
8 Cyprus In force
9 Czech Republic In force
10 Finland In force
11 France In force
12 Germany In force
13 Greece In force
14 Hungary In force
15 Ireland In force
16 Iran, Islamic Republic of In force
17 Italy In force
18 Jordan In force
19 Kuwait In force
20 Qatar In force
21 Macedonia
The former Yugoslav Republic of
In force
22 Malaysia In force
23 Moldova In force
24 Montenegro In force
25 Netherlands/Holland In force
26 Norway In force
27 Pakistan In force
28 Poland In force
29 Romania In force
30 Slovakia In force
31 Slovenia In force
32 Spain In force
33 Sri Lanka In force
34 Sweden In force
35 Serbia In force
37 Turkey In force
38 United Arab Emirates In force
39 United Kingdom and Northern Ireland In force
Document prepared by: Foreign Investment Promotion Agency of Bosnia and Herzegovina – FIPA December 2017

INDEX

Global Competitiveness Index RANK 103
Ease of doing business RANK 86
Starting Business rank RANK 175
Global logistics report RANK 97

Global competitiveness report 2017 - 2018

Rank Institutions Infrastructure Health and primary education Higher education and training Labor market efficiency Technological readiness Business sophistication Innovation
Bosnia and Herzegovina 126 100 56 91 123 69 115 123
Source: World Economic Forum

Electricity prices

EUR/kwh HOUSEHOLD NON HOUSEHOLD
  2015 2016 2017 2015 2016 2017
Bosnia and Herzegovina 0.081 0.083 0.086 0.063 0.061 0.059
EU - 28 0.209 0.205 0.204 0.121 0.116 0.114
Source: Eurostat

Monthly salary

Net average monthly salary (2016) € 428

Gross average monthly salary (2016) € 669

FDI Overview

According to preliminary data of the Central Bank of Bosnia and Herzegovina (CBBH) on FDI for the first half of 2017 within the Balance of Payments (with estimated reinvested earnings) Bosnia and Herzegovina attracted 387 million BAM or €198 million. Data for the first six months indicate increase of FDI for 66.8% compared with the same period of 2016 either 1.3% compared with five years average.1

Overview of annual amount of FDI and preliminary data for the first half of a year, Period 2010 - 2017, in millions of EUR

  2010 2011 2012 2013 2014 2015 2016 I - VI 2017
Annual amount (FDI Flows) 307 357 307 208 415 314 274  /
First half of a year (Balance of payments) 166 114 136 264 245 213 119 198
Source: Central Bank of Bosnia and Herzegovina

The preliminary data for a certain period of the year are not necessarily an indicator of annual trends. However, on the basis of projects implemented by foreign investors in Bosnia and Herzegovina, and the expressed interest of potential investors, we can be optimistic and expect growth of foreign direct investments in the future.

Official Data of FDI Flows and FDI Stock in Bosnia and Herzegovina

Total amount of Foreign Direct Investment (FDI) in Bosnia and Herzegovina was €6.6 billion (€6,629 million). In the structure of FDI, for the period May 1994 till December 2016, equity and reinvested earnings were €4.8 billion (€4,843 million) and other capital was €1.8 billion (€1,786 million).

According to the FDI Stock by countries, the largest share still refers to Austria (€1.3 billion), Croatia (€1.1 billion), Serbia (€1.1 billion) and Slovenia (€486 million).

1Since the data is collected by different methodologies, both annual and quarterly amounts of FDI, within FDI Flows and the Balance of Payments are not identical. Within the FDI Flows are available data for the first half of 2017 but without the amount of reinvested earnings. FDI data, based on FDI Flows, for the period January – June 2017 confirm the increased by 29% compared with the same period of the previous year.

Top investor countries in Bosnia and Herzegovina, May 1994 - December 2016

Total amount €6.6 billion

Country Amount
Austria 1275
Croatia 1140
Serbia 1082
Slovenia 486
Russia 417
Netherlands 371
Germany 286
Italy 284
Switzerland 258
United Kingdom 229
All other Countries 801

Due to the good reputation and long industrial tradition of Bosnia and Herzegovina, the manufacturing sector received the largest amount of FDI (34%). A significant share of investment has been in banking sector (24%).

FDI Stocks by Industry, May 1994 - December 2016

Sector Percent
Manufacturing 34%
Banking 24%
Telecommunication 13%
Trade 12%
Real estate 4%
Service 4%
Other financial service 2%
Tourism 1%
Transport 1%
Other  5%
Source: Central Bank of Bosnia and Herzegovina

Based on value within Stock of FDI in December 2016, main activities and investors countries per activities

Activities: Main Investors Countries:
Financial service activities, except insurance and pension funding; Austria / Croatia / Slovenia;
Telecommunications; Serbia* / Slovenia;
Wholesale trade, except of motor vehicles and motorcycles; Croatia, Slovenia, Austria, Germany, Netherlands;
Manufacture of coke and refined petroleum products; Russian Federation;
Manufacture of food products; Austria / Serbia / Croatia;
Retail trade, except of motor vehicles and motorcycles; Serbia / Croatia / Austria / Spain / Germany / Switzerland / Slovenia;
Real estate activities; Kuwait / Saudi Arabia / Croatia / United Arab Emirates / Austria
Manufacture of other non-metallic mineral products; Austria / Netherlands / Croatia;
Manufacture of chemicals and chemical products; Serbia;
Mining*; United Kingdom / Austria / Croatia;
Source: Central Bank of Bosnia and Herzegovina
*Serbia is not specified because of the rules of statistical confidentiality or less than three registered companies, same as *Mining of coal and lignite;

FDI Flows in Bosnia and Herzegovina

Flows of FDI in Bosnia and Herzegovina, by years, € million

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1329 684 180 307 357 307 208 415 314 274
Source: Central Bank of Bosnia and Herzegovina

Main Investors Countries in last five years

Year and amount per year in € million: Main countries according value of FDI per year:
2016 274 Croatia / Austria / United Arab Emirates;
2015 314 Croatia / Netherlands / Italy;
2014 415 Russian Federation / Austria / Croatia;
2013 208 Serbia / Luxemburg / United Kingdom;
2012 307 Russian Federation / Austria / Croatia;
Source: Central Bank of Bosnia and Herzegovina

Main Activities according amount of FDI:

Year Main activities according value of FDI per year
2016 Wholesale trade, except of motor vehicles and motorcycles / Financial service activities, except insurance and pension funding / Manufacture of tobacco products;
2015 Financial service activities, except insurance and pension funding / Real estate activities / Wholesale trade, except of motor vehicles and motorcycles;
2014 Real estate activities / Manufacture of coke and refined petroleum products / Financial service activities, except insurance and pension funding;
2013 Financial service activities, except insurance and pension funding / Wholesale trade, except of motor vehicles and motorcycles / Telecommunications;
2012 Wholesale trade, except of motor vehicles and motorcycles / Financial service activities, except insurance and pension funding / Retail trade, except of motor vehicles and motorcycles;
Source: Central Bank of Bosnia and Herzegovina

INVESTORS CONFIDENCE

“We were, amongst other benefits, attracted to Bosnia and Herzegovina by competitive labor force prices in comparison to high professional standards of local employees. Also, in the first years of operation, we had enjoyed tax policies which were highly in favor of foreign investors. A stable local currency pegged to Euro, low inflation rate as well as the rising incentives towards integration into the EU market, were additional levers for us to invest and settle in this area.”

EDINA VELIĆ, HEAD OF LEGAL DEPARTMENT, PERUTNINA PTUJ
Read More

Partners

Ebrd

Strategic partner

Karanovic Nikolic

Content partner

Confida

Content partner

I&F McCann

Communications partner