The most important taxes and public revenues which the company will be required to pay in Bosnia and Herzegovina include the following:
- Value added tax (VAT),
- Corporate income tax (CIT),
- Personal income tax,
- Other taxes and para-fiscal charges and fees, and
- Social security contributions.
The matters regulated on the level of Bosnia and Herzegovina (for example, Value Added Tax matters) apply to the entire territory of the State. The matters not conferred to the State are regulated at entity level. Therefore, the legislation in Bosnia and Herzegovina may be adopted on different levels which in practice may mean that compliance requirements are imposed by several laws and regulations on different levels.
Value added tax
VAT system in Bosnia and Herzegovina is centralized since VAT Law applies to the whole territory of Bosnia and Herzegovina. The system is modelled after the EU VAT Directive, and majority of general VAT principles applicable throughout the EU apply also in Bosnia and Herzegovina. VAT is regulated by the Law on Value Added Tax (VAT Law), Rulebook on applying of the VAT law (VAT Rulebook), and a number of other VAT regulations which prescribe detailed rules for implementation of general rules of the VAT Law.
Generally, a taxable person is an entity (legal and natural persons) who independently carries out supplies of goods and services, within its business activities.
Only registered VAT taxpayers are required to pay VAT on their supplies of goods and services, and have the right to deduct input VAT charged to them by their suppliers. Taxable persons whose turnover in a 12-months period exceed, or will exceed, BAM 50.000 (app. EUR 25.000) are required to register for VAT. Entities whose turnover does not exceed this threshold may register for VAT, but are not required to.
Transactions subject to VAT include the following:
- Supply of goods and services. A supply of goods/services will be subject to VAT only if made on the territory of Bosnia and Herzegovina and if made against consideration, and
- Import of goods.
The VAT Law prescribes the list of exemptions from VAT including two main principal groups of exemptions:
- Exemptions with the right to deduction of input VAT (0%-rates supplies) such as export of goods, supplies made under international loan or donation agreements, international transport and similar.
- Exemptions without the right to deduction of input VAT including primarily public and financial services, but also a supply of land (agricultural, forest, or construction land) and renting of flats for housing longer than 60 days.
Tax Base and Tax Rates
The standard VAT rate is 17%.
Tax base for assessment of VAT constitutes everything which the taxpayer received or will receive from the customer in consideration for the supply.
Non-residents in Bosnia and Herzegovina VAT system
Non-resident entities who are performing taxable supplies on Bosnia and Herzegovina territory are required to register for VAT purposes and to appoint a VAT representative who is jointly liable for the VAT due of a non-resident entity, and is jointly responsible for administration of VAT.
Non-residents who are not performing taxable supplies in Bosnia and Herzegovina are entitled for a refund of VAT charged by Bosnia and Herzegovina tax payers, under general conditions which domestic taxpayers have to fulfil for deduction of VAT.
Individuals who are not permanently residing in Bosnia and Herzegovina are also entitled for refund of VAT if VAT amount is higher than BAM 100 (EUR 50).
Personal Income Tax and social security contributions
Rules governing taxation of personal income are prescribed by the Law on Personal Income Tax (“PIT Law”) and accompanying secondary regulations with the PIT Law.
Types of income subject to personal income tax
- Main types of income for which the PIT Law prescribes specific rules of taxation include salaries, income from independent personal activities, income from capital (lease, interest) and income from capital gains.
- Tax period is a calendar year, except in a case when individual becomes a tax resident or non-resident during a tax year.
- Personal income tax is levied by 10% tax rate.
- Annual taxable income presents a sum of total income achieved in a tax year and decreased for the value of personal deductible items such are: (i) in Republic of Srpska personal deduction for tax payer in amount of BAM 6.000 (ca. EUR 3.000) annually, amount of BAM 900 (ca. EUR 450) for spouse and each children and relative supported by the tax payer and the value of interest paid for credit used in purpose of housing loan and (ii) in Federation of BiH personal deduction for tax payer in amount of BAM 3.600 (ca. EUR 1.800) annually, amount of percentage from 0.3% up to 0.9% for spouse and each children and relative supported by the tax payer.
- Annual tax return for personal income tax is submitted until 31 March of the current year for the income generated during previous year.
Taxation of income from labour
- Salary tax is applicable on the gross amount of salary paid to employee increased for various benefits in kind, such are use of a company vehicle or other equipment for personal purposes by employee, loans with an interest below market values, covering of employee’s dues by employer, etc.
- Taxable basis is reduced for paid social security contributions.
- Income tax amount is deducted by the employer at each payment of the salary, as an advance payment of the income tax, and such amount is deemed as the final tax obligation.
- Individuals employed abroad are liable for payment of the income tax in advance, as they are required to pay the tax in seven days upon the reception of income from a foreign employer.
Social security contributions
Salaries (and other similar types of income generated from labour) are subject to obligation to pay contributions for mandatory social security insurance. The rates of social security contributions due on salaries are as follows:
||Republic of Srpska
||F of BiH(employer)
|Pension and disability
Tax and social security contributions are payable by the employer in the moment of payment of salary.
Income from capital
- Income from capital include income from lease of property (movable or immovable) and interest income.
- Taxable base for income from lease of property can be decreased for the percentage of standard expenses set by the PIT Law (in Republic of Srpska 20% and in Federation of BiH 30% from income from lease of property). Tax is withheld in the moment of payment of the rent if lessee is a legal entity, or it is paid until the 10th in the month for the income received in a previous month, if lessee is individual or a foreign entity.
- Income from capital are included in the annual tax return.
Capital gains tax
- Income from alienation of immoveable property, IP rights, shares, and other rights, is subject to tax for the difference between selling and purchased price. Tax is paid until the 10th in the month for capital gain generated in previous month.
- Tax payer is obliged to submit tax return in 30 days upon the moment when capital gain is generated, but also to include income from capital gains into annual tax return for respective year.
Position of foreign nationals
- The scope of tax liabilities of any natural persons depends on whether such person is a resident of Republic of Srpska/Federation of BiH or not: residents of Republic of Srpska/Federation of BiH are liable to personal income tax on their worldwide income. Non-residents are liable to tax only on income earned in Republic of Srpska/Federation of BiH territory.
- Resident tax payers are individuals who have a permanent residence in Republic of Srpska/Federation of BiH, or if they are residing on Republic of Srpska/Federation of BiH territory in a period longer than 183 days during any tax period.
- If a foreign national is a resident of a country which has a double tax treaty with Bosnia and Herzegovina, the residency of such individual will be established in accordance with the rules set out in the double tax treaty.
- A foreign national (Republic of Srpska non-resident) who receives a salary for work in Republic of Srpska territory, will not be liable for taxes in Republic of Srpska if next three conditions are (cumulatively) met:
- Republic of Srpska/Federation of BiH non-resident resides in Republic of Srpska/Federation of BiH for a period shorter than 183 days
- Salaries are paid by, or on behalf of their foreign employer
- The cost of their salaries is not born by the permanent establishment which is established in Republic of Srpska/Federation of BiH
- In addition to salary tax, foreign employees may be required to pay social security contributions on their salaries while they work in Republic of Srpska/Federation of BiH, but this obligation may be eliminated on the basis of a convention on social security insurance.