Pursuant to Article 15 of the Law on Indirect Taxation Authority (Official Gazette of BiH, No.

89/05) and Article 61, paragraph 2 of the Law on Administration (Official Gazette of BiH, No. 32/02), for the purpose of implementing customs and tax exemptions from Article 26 of the Framework Agreement between Bosnia and Herzegovina and the Commission of European Communities on the rules of cooperation regarding financial assistance to Bosnia and Herzegovina within provision of assistance through the Instrument for Pre-Accession Assistance (IPA) (Official Gazette of BiH International Agreements, No. 6/08), with the agreement of the Delegation of the European Commission to Bosnia and Herzegovina, number: of 03 April 2009, the Director of the Indirect Taxation Authority hereby issues the INSTRUCTION On the procedure for the implementation of customs and tax exemptions in accordance with the Framework Agreement between Bosnia and Herzegovina and the Commission of European Communities on the rules of cooperation regarding financial assistance to Bosnia and Herzegovina within provision of assistance through the Instrument for Pre-Accession Assistance (IPA) CHAPTER I GENERAL PROVISIONS Article 1 (Scope) This Instruction defines the procedure for the exercise of the right to exemption from import duties and value added tax (hereinafter: VAT) when importing or releasing goods for free circulation within the customs area of Bosnia and Herzegovina (hereinafter: BiH) and to exemption from VAT in procuring goods and services in BiH, according to Article 26 of the Framework Agreement between Bosnia and Herzegovina and the Commission of European Communities on the rules of cooperation regarding financial assistance to Bosnia and Herzegovina (hereinafter: Framework Agreement) within provision of assistance through the Instrument for Pre-Accession Assistance (IPA). Article 2 (Exercise of Exemption) Exemptions referred to in Article 1 of this Instruction shall be exercised in the implementation of the contracts related to the IPA-funded projects, under the Framework Agreement. CHAPTER II - EXEMPTION FROM IMPORT DUTIES AND VAT WHEN RELEASING GOODS FOR FREE CIRCULATION Article 3 (Exemption from Import Duties and VAT) (1) The goods which are imported under the IPA-funded projects and are released for free circulation within the customs area of BiH shall be exempted from import duties (customs, customs registration) and VAT, under Article 26, paragraph (2), item a) of the Framework Agreement.

(2) Personal goods and household goods intended for personal use, which are imported by individuals (and members of their nucleus families), except for the staff locally hired for the purpose of carrying out duties defined in the agreements on technical cooperation, shall be exempted from import duties (customs, customs registration) and VAT, under Article 26, paragraph (2), item d) of the Framework Agreement, provided that the above-mentioned personal and household goods are either re-exported or sold in the country in accordance with the legislation in place in BiH, after the expiration of the contract. (3) The exemptions referred to in paragraphs (1) and (2) of this Article shall be exercised at the customs office within BiH to which the goods subjected to exemption have been declared, and at which the exemption beneficiary has presented the following documents: a) For exemptions from paragraph (1) of this Article: 1) A customs declaration (JCI) for the release of goods for free circulation (procedure code 4200 entered in the first sub-division of box 37) which is also considered as an application for exemption, filled out in accordance with the regulations governing the completion of customs declarations; code 210 shall be entered in the second sub-division of box 37 of the customs declaration (code for exemption from IPA-related import duties and VAT, under Article 26, paragraph (2), item a) of the Framework Agreement), 2) properly filled out and certified Certificate for exemption of imported goods from import duties and VAT, issued under Article 6 of this Instruction, on the form attached in Annex 1 of this Instruction. The control number of this Certificate has to be entered in box 44 of the customs declaration, next to the code of the IPA document, and 3) specification of imported goods that the Certificate from paragraph 2) of this Article refers to, and which contains the data and attestation referred to in Article 6, paragraph (2), item a) of this Instruction. This specification shall be submitted in two original copies, of which one copy shall be returned by the customs office, upon attestation (along with entering the number and date of the customs declaration), to the beneficiary of exemption, while the other copy shall be kept by the customs office with customs declaration. b) For exemptions from paragraph (2) of this Article: 1) A customs declaration for the release of the relevant goods for free circulation (procedure code 4200 entered in the first sub-division of box 37) which is also considered as an application for exemption, filled out in accordance with the regulations governing the completion of customs declarations; code 211 (code for exemption from IPA-related import duties and VAT, under Article 26, paragraph (2), item d) of the Framework Agreement) shall be entered in the second sub-division of box 37 of the customs declaration, except for the goods released for free circulation, which are exempted from import duties and VAT on the basis of an oral customs declaration, 2) A certificate issued by the Delegation of the European Commission to Bosnia and Herzegovina (hereinafter: the EC), which confirms that the beneficiary of this exemption is engaged in discharging the duties defined in the contract on technical cooperation within the IPA, and

3) A list of goods being imported, signed by the beneficiary of the exemption, in two original copies, of which one copy shall be returned by the customs office upon attestation (along with entering the number and date of the customs declaration), to the beneficiary of exemption, while the other copy shall be kept by the customs office with customs declaration. (4) If goods to be exempted under paragraphs (1) and (2) of this Article are not imported at once, within successive imports, a customs declaration referred to in paragraph (3) of this Article shall be submitted for every individual import to the same customs office at which the import and exemption procedure was initiated at the first import, and the customs office shall follow imports by checking off successively the goods being imported by their type, quantity and value per each customs declaration, and entering the number and date of the relevant customs office on the submitted specification for the imported goods, and the list of goods. (5) The decision to exempt goods from import duties and VAT under the submitted customs declaration referred to in paragraph (3) of this Article shall be made by the customs office in the form of a note entered in box C (e.g. Exempted under Article 26, paragraph 1, item a) of the IPA Framework Agreement or Exempted under Article 26, paragraph 1, item d) of the IPA Framework Agreement, depending on the situation) if the submitted customs declaration and attached documents contain all required data, and the application of the beneficiary of exemption shall be approved fully. The note shall be entered by the customs office also in the inspection file for the relevant customs declaration. (6) The goods referred to in paragraphs (1) and (2) of this Article which are exempted from import duties and VAT when being released for free circulation shall not be used for the purposes which are different from the purposes for which exemption has been granted, without prior notification to the responsible customs authority and payment of import duties and VAT by the beneficiary of the exemption. CHAPTER III EXEMPTION FROM VAT IN PROCURING GOODS AND SERVICES IN BiH Article 4 (Exemption from VAT) (1) In accordance with the provisions of Article 26, paragraph (1), item b) of the Framework Agreement and Article 29, paragraph 2 of the Law on Value Added Tax (Official Gazette of BiH, Nos: 9/05, 35/05, and 100/08), deliveries of goods and services in BiH within the projects funded by the European Commission through the IPA shall be exempted from VAT. (2) Exemption from VAT, referred to in paragraph (1) of this Article, shall be exercised on the basis of the properly filled and certified Certificate for VAT Exemption, issued under Article 6 of this Instruction, on the form attached in Annex 2 to this Instruction. Article 5 (Invoicing) A registered tax payer supplier of goods and services referred to in Article 4 of this Instruction shall issue an invoice without VAT. The invoice shall contain also the following

clause: Exempted from VAT under Article 29, paragraph 2 of the Law on Value Added Tax. CHAPTER III PROCEDURE FOR ATTESTING A CERTIFICATE FOR EXEMPTION FROM IMPORT DUTIES AND VAT Article 6 (Certificate Attestation Procedure) (1) Upon signing a contract within the IPA, the EC shall give the contractor the appropriate copy of the Certificate referred to in Article 3, paragraph (3), item 2) or in Article 4, paragraph (2) of this Instruction, together with detailed instructions on the exemption procedure that the copy of the Certificate refers to. (2) The contractor who received IPA funds shall submit to the EC the completed appropriate certificate in three identical copies and the following: a) along with the form Certificate for exemption of imported goods from customs duties and VAT, one pro-forma invoice for goods to be imported, specification of goods to be imported in three copies, which shall contain the information on the type, quantity and value of the goods to be imported, a signature and the seal of the importer and/or deliverer of goods, name and seal of the end user of the goods, and space for a signature and the seal of the responsible ministry (for attestation of the specification of goods prior to import), as well as the original statement by the end user of the goods being imported, b) along with the ''Certificate for Exemption from VAT, one original invoice. (3) The EC shall enter the control number in the appropriate certificate, on all copies. One control number, i.e. one certificate shall correspond to one invoice, or a pro-forma invoice, regardless of the number of items (types of goods). After the EC Task Manager has checked it out, the person authorized by the EC shall affix his or her signature and the EC seal on all three copies of the Certificate. Thereafter, depending on the exemption for which the Certificate is issued, the EC shall keep: a) For import of goods one original of the Certificate and a copy of specification of imported goods, and shall return to the contractor the remaining two certified originals of the Certificate and all original copies of the specification of goods, of which one copy of the Certificate, together with the pertinent specification of the goods (in two copies) shall be attached to the customs declaration referred to in Article (3), paragraph a) of this Instruction; the EC shall keep the rest of the documents for its own files; b) For the procurement of goods and services in BiH one copy of the Certificate, and shall return to the contractor the remaining two copies of the Certificate, of which the EC shall keep one copy for its own files, and shall give the other copy to the provider of goods or services which issued an invoice without VAT, for the purposes of control.

Article 7 (Records and Report) (1) The EC shall keep official records on the issued certificates referred to in Article 6 of this Instruction. (2) The EC shall send monthly reports on issued certificates for exemption from VAT to the Taxpayers Services Division in the Sarajevo Regional Center by the 20 th day of each month, for the previous month. The monthly report shall contain: a) control number, b) number, date and value of the contract signed between the EC and a contractor, c) name of the IPA-funded project, d) name of contractor, contractor's address and VAT number (if any), e) name of the representative of international contractor and VAT number, f) name of the provider of goods and services, address and VAT number, g) name and date of invoice, h) total value of procured goods or services in KM, the subject of the Certificate for Exemption from VAT. CHAPTER IV - FINAL AND TRANSITIONAL PROVISIONS Article 8 (VAT Refund) The contractor who paid VAT within the implementation of the projects funded by the European Commission through the IPA prior to the entry into force of this Instruction, shall receive the VAT refund, in accordance with Article 29, paragraph 1, item 4 of the Law on Value Added Tax. Article 9 (Annexes as Part of This Instruction) Attached to this Instruction are Annex 1 (form of the Certificate for Exemption of Imported Goods from Customs Duties and VAT), referred to in Article 3, paragraph (3), sub-paragraph a), item 2), and Annex 2 (form of the Certificate for Exemption from VAT), referred to in Article 4, paragraph (2) of this Instruction, and shall be considered as an integral part of this Instruction. Article 10 (Entry into Force) This Instruction shall enter into force on the eighth day from the day of its publication in the Official Gazette of BiH. DIRECTOR Number: 01-02- ______________ /09 Date, __________ 2009 KEMAL AUEVI