Bosnia - Herzegovina Tax & Business Guide - Deloitte
Basic facts
Population 3.9m Inflation 7.4% (2006)
Main languages Bosnian, Croatian, Serbian GDP per head US$2,940 (2006)
Currency Konvertibilna Marka (BAM) GDP growth 6.0% (2006)*
GDP sources 14.2% agriculture, 30.8% industry, 55.0% services
*Economist Intelligence Unit estimate.
Political environment
Bosnia and Hercegovina (BiH) consists of two entities, the Republika Srpska (RS) and the Federation of BiH, each with political, legislative and judicial authority, and the Brcko District as a self-governing unit under the jurisdiction of the central state. BiH is a parliamentary democracy and is currently governed by a broad coalition of nationalist and moderate parties.
General elections took place in October 2006 to select a three-member state presidency, the RS president, and state, entity and cantonal parliaments.
Foreign trade and investment
Exports US$3.4bn (2006) Imports US$7.6bn (2006)
Leading export markets: Croatia, Italy, Slovenia and Germany.
Major exports: Minerals, metals, clothing and wood products.
Bosnia and Hercegovina (BiH) has made significant efforts to open its economy to foreign investment. Major initiatives include a liberal State Foreign Investment Policy Law, a common currency, and an increasingly uniform trade and customs policy.
BiHÌs Foreign Investment Promotion Agency provides assistance to foreign investors.
Business and financing
Business forms N/a
Foreign entities can generally establish and own business enterprises on a par with domestic entities. The only exceptions are armaments and the media, where foreign control is limited to 49%.
Labour environment
Unemployment rate 45.5% (2004) Minimum wage BAM 308 (BiH) and 205 (RS) monthly
Unions are legally recognised. The Federation of BiH and the RS have allowed collective bargaining through agreements between the government and workers in the public sector.
The minimum monthly wage in the Federation of BiH is BAM 308; the minimum monthly wage in the RS is BAM 205.
Taxation
Corporate tax
Main rate 30% (BiH)
Bosnia and Hercegovina (BiH) is divided into three jurisdictions for tax purposes: the Federation of BiH (consisting of ten cantons that regulate some taxes), the Republika Srpska (RS) and the Brcko District. The corporate tax rate in the Federation of BiH is 30%, but a 10% rate applies in the RS and the Brcko District. In the Federation of BiH, tax holidays are available for certain activities, but these tax breaks are not available in the RS or in the Brcko District. A new corporate tax is likely to be introduced in the Federation of BiH in 2007. According to the draft law, the main changes will be a decrease in the corporate income tax rate and reduction or elimination of tax holidays, deductions and incentives.
Individual tax
Main rate 10% to 15%
Brcko District. The Brcko District was the first of the three jurisdictions to pass a comprehensive modern individual income tax law, which took effect in 2004. Individuals resident in the Brcko District are subject to tax on their worldwide income; non-residents are taxed only on income sourced in the Brcko District. A flat rate of 10% applies.
The Federation of BiH. Personal income tax is governed at the cantonal level (ten cantons)Ûthe tax rate in Sarajevo Canton is 15% on personal income exceeding a prescribed amount. In addition, wage tax at a rate of 5% applies in the Federation of BiH, on income earned from employment. These laws are expected to be replaced in 2007 by a unified law applicable to the territory of the Federation of BiH. Expected tax rates (progressive) are 5%, 10%, 15% and 20%.
Republika Srpska. A new personal income tax law was introduced on January 1st 2007. The rates (progressive) are 10% and 15%.
Capital gains
Taxed as income
Capital gains are generally taxed as income.
Indirect tax
VAT standard rate 17%
A state value-added tax (VAT) applies and is administered by a centralised indirect tax authority. VAT applies to most transactions at a standard rate of 17%, with exemptions for, inter alia, financial transactions, insurance and reinsurance and related services, medical activities and education. Exports of goods and services are generally VAT-exempt, subject to certain conditions.
Tax administration and compliance
Tax year Companies: accounting year; Individuals: calendar year
Each of the three entities (the Federation of BiH, the RS and the Brcko District) has its own tax administration that is responsible for collecting taxes. There is no central tax administration except for the indirect tax authority, which is responsible for VAT and customs revenues. The Brcko District has introduced a system of self-assessment, under which taxpayers make a payment of tax with the return, except for taxpayers receiving only employment income who are taxed by withholding at source. The Federation of BiH and RS are moving towards a similar system.
Additional tax information
Withholding taxes Dividends, Interest and Royalties 15% (the Federation of BiH)
Management services, Interest, Royalties, Risk insurance premiums 10% (Republika Srpska).
Tax treaties Bosnia and Hercegovina (BiH) has concluded treaties with Moldova, Pakistan, Turkey, Croatia, and Serbia and Montenegro. Some treaties concluded by the former Yugoslavia also still apply.
Dividends Dividends are taxable at the standard corporate or income tax rates.
Revenue protection Transfer-pricing and CFC legislation are regulated under the corporate profit laws.
Anti-haven issues are not specifically addressed in the current legislation.
Groups Group taxation may be granted to a group of resident companies with minimum 90% direct or indirect ownership (the Federation of BiH). There is no provision for group taxation in the Republika Srpska.
Incentives Project-related incentives.
Other taxes Customs duties, Real estate turnover taxes.
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