Professional Documents
Culture Documents
Preface
This guide was prepared by LeitnerLeitner in Bosnia and Herzegovina in 2011.
LeitnerLeitner has offices in:
Vienna
Linz
Salzburg
Sarajevo
Zagreb
Budapest
Bucharest
Bratislava
Belgrade
Ljubljana.
Key contacts:
Developments in tax legislation are rapid. The information given in this guide reflects the tax
legislation as of December 2011. Before taking specific decisions, its recommended that
professional advice and guidance be sought.
This guide provides a brief overview. More detailed information on matters discussed in this
publication can be obtained from the persons responsible for the tax and advisory service areas
within LeitnerLeitner in Bosnia and Herzegovina:
Partner Pavo Djedovi - pavo.djedovic@leitnerleitner.com
Manager Ante Pavi - ante.pavic@leitnerleitner.com
Praxity 2011
This guide is intended as a general guide only and should not be acted upon without further advice.
Contents
Page
1.
General information
8
9
10
13
15
Personal taxation
19
2.
3.
4.
5.
6.
7.
1.1
1.2
1.3
1.4
1.5
1.6
8.
23
10.
11.
12.
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26
Trusts
Practical information
27
28
12.1 Transport
12.2 Language
12.3 Time relative to Greenwich Mean Time (GMT)
12.4 Business hours
12.5 Public holidays
1. General information
1.1 Opportunities and possible obstacles for foreign investors
Bosnia and Herzegovina is a forward-moving country that has achieved significant progress in
improving the business climate. It lies in the very heart of South Eastern Europe and on the
crossroads between Europe, the Middle East and Northern Africa.
Bosnia and Herzegovina has become an ideal location to invest in, with numerous investment
opportunities in various sectors. Bosnia and Herzegovinas economy remains one of the fastest
growing in Europe. It offers potential investors significant opportunities to enter into a wider
regional market and run their business on the world scale, since Bosnia and Herzegovina is the
signatory of the Central European Free Trade Agreement (CEFTA), which provides free access to this
consumer market with 50 million people. Bosnia and Herzegovina also has free trade agreements
with Turkey, generalised system of preferences with the European Union, U.S., Switzerland, Norway,
Japan and New Zealand, as well as a preferential export regime with Iran.
Therefore, starting a business in Bosnia and Herzegovina provides the opportunity to export to a
market of over 600 million people without burdening any customs duties!
Bosnia and Herzegovina has achieved a satisfactory political stability that guarantees security for
businesses. The main goal of Bosnia and Herzegovina is EU membership; B&H is a potential
candidate country for EU accession. In this respect, it is worth mentioning that B&H has signed the
Stabilization and Association Agreement (SAA) with the EU, establishing formal contractual relations
between the EU and B&H. Until the ratification process of the SAA is completed by all the EU
member states, the Interim Trade Agreement with EU is in force.
Generally, Bosnia and Herzegovinas main investment advantages could be summarised as:
Strategic location
Available natural resources and beauties
Long tradition in different industry branches
Abundance of industrial zone, attractive sites and available production facilities
Favourable legal environment
Low tax rates
Highly educated and price competitive labour force
Stable domestic currency BAM pegged to EURO
Regional and bilateral Free Trade Agreements
EU membership perspective.
Unskosanskikanton
Posavskikanton
Tuzlansko-podrinjskikanton
Zeniko-dobojskikanton
Bosansko-podrinjskikantonGorazde
Srednjobosanskikanton
Hercegovako - neretvanskikanton
Zapadnohercegovakikanton
Sarajevskikanton
Hercegbosanskikanton.
1.6 Currency
The unit of currency is the Bosnia and Herzegovina convertible mark, represented by KM. The
International Standards Organization (ISO) currency code is BAM. The convertible mark has a fixed
exchange rate to the Euro - 1 EUR = 1.95583 BAM.
3. Government incentives
3.1 Corporate Profit Tax incentives
The PTA offers some exemptions from paying Corporate Profit Tax (CPT), depending on the value
and type of the investment and the number of employees with disabilities.
The FBiH's PTA exempts taxpayers from CPT payment for the fiscal year in which they have achieved
30% of their total income from exports. Furthermore, taxpayers who invest a minimum of BAM 20
million in production within five years of the first investment year, are exempt from CPT for these
five years. One of the conditions is that in the first year a minimum of BAM 4 million has to be
invested. If the taxpayer benefiting from this CPT tax incentive does not fulfil the above-mentioned
minimum investment requirements within the time period of five years, he or she has to repay
unpaid CPT plus statutory penalty interest.
The RS's CPT Law does not offer any tax incentives.
10
11
An open joint-stock company is a legal entity, for example banks, insurance companies, or
companies with minimum initial capital of BAM 4 million (approximately 2 million), and
they have at least 40 shareholders. Shares may be publicly listed.
A closed joint-stock company is a legal entity whose shares are distributed among a limited
number of shareholders. The minimum initial capital is BAM 50,000 (approximately
25,000).
The RS defines joint stock companies as legal entities founded by the establishment contract of one
or more domestic/foreign natural and/or legal entities with initial capital divided into a defined
number of shares. As with the FBiH, the RS has both open and closed joint-stock companies:
An open joint-stock company in the RS is a legal entity whose shares may be publicly traded,
i.e. offers its shares for sale on the open market, and is listed on the stock exchange and
other public markets. Minimum initial capital is BAM 50,000 (approximately 25,000).
A closed joint-stock company in the RS is also a legal entity, but shares are distributed
among a limited number of shareholders. The maximum number of shareholders is 100.
Minimum initial capital is BAM 20,000 (approximately10,000).
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13
The court procedure for establishing a business should legally take five days, although the complete
process, in practice, may take up to 30 to 45 days.
The costs are generally:
14
15
16
For tax purposes, reorganisations are governed by the general acounting provisions (CAL). As
prescribed by CAL, the accounting framework applicable in BiH are the International
Accounting Standards (IAS), which are published in the official gazette.
17
Employer %
Employee %
Total
Pension insurance
6.00
17.00
23.00
Health insurance
4.00
12.50
16.50
Unemployment
0.50
1.50
2.00
0.50
0.00
0.50
0.50
0.00
0.50
Total Percentage
10.50*
31.00**
41.50
Employees
share* (%)
Pension insurance
18.0
Health insurance
12.5
18
1.0
Child protection
1.5
Total
33.0
19
7. Personal taxation
7.1 Resident employees
An employee is resident in the FBiH if:
A taxpayer resident in the RS is an individual who has his/her residence in the territory of the RS and
stays in the RS for a period of at least 183 days, continually or with interruptions, for a period of 12
months (beginning and ending in the relevant year).
7.1.1 General employment relationships
For the purpose of ITA, an employee receiving income under an employment contract is deemed to
derive employment income. Employment income includes all remuneration, in cash or in kind,
derived by an employed person and paid by the employer, or by a third party.
7.1.2 Tax base assessment
The income tax base of a resident is the total amount of income earned by a resident in the FBiH and
abroad (the worldwide income principle), reduced by personal allowances. Income categories
include:
Employment
Self-employment
Property and property rights
Capital
Winnings from conventional games of chance (gambling).
The same principle is used to determine the income tax base of a resident in the RS. The income
categories are income from:
Employment
Self-employment
Royalties
Capital
Capital gains.
20
+/-
+/-
+/-
Tax credits
Annual tax liability
Prepaid tax
Additional payment or refund
Please note that the FBiH Parliament is currently discussing amendments to the Law on IT and
contributions. This will change the current way that personal income taxation is calculated.
21
+/-
+/-
3. Royalties
+/-
Tax credits
Annual tax liability
Prepaid tax
Additional payment or refund
Employers are legally required to deduct wage tax and social security contributions from salaries
paid to their employees. The wage tax constitutes a prepayment on the employees annual income
tax and is credited against his/her income tax liability. Any excess tax is refunded.
The monthly prepayment of tax on income from tradepeoples activities, from independent
professional occupations and from agriculture and forestry, must be in line with the ruling from the
Tax Administration. Accordingly, income tax is determined based on accounting books. Taxpayers
that have started business activities during the tax year do not make advance payments until they
submit their first tax return.
7.2.2 Non-resident employees
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23
List of EffectiveDTTs
Albania*
Denmark
Italy
Pakistan
Spain
Algeria
Egypt
Jordan*
Poland
Sweden
Austria*
Finland
Kuwait*
Qatar*
Sri Lanka
Belgium
France
Malaysia
Republic of
Ireland*
Turkey
Romania
United Arab
Emirates
United Kingdom
and Northern
Ireland
China
Germany
Moldova
Croatia
Greece*
Montenegro
Serbia
Czech Republic
Hungary
Netherlands
Slovakia
Cyprus
Iran
Norway
Slovenia
24
25
26
27
11. Trusts
A foundation/trust is a legal entity with no membership. Its main purpose is for the management of
certain property that serves a public interest, or for charitable purposes.
A Foundation may be established by one or more natural or legal entities(the founder), with the
exception of the State of Bosnia and Herzegovina, Entities, Cantons, Cities, Municipalities, local
communities, Governmental bodies, State enterprises and funds.
A Foundation must not be in conflict with the constitutional order of Bosnia and Herzegovina, or be
involved in the election campaign. The founders of a foundation do not have to be citizens of Bosnia
and Herzegovina or legal persons registered in Bosnia and Herzegovina. A foundation can be
established by a unilateral declaration of will, contract, testament, legacy or other appropriate legal
document.
The Ministry of Justice of Bosnia and Herzegovina is responsible for the registration of associations,
foundations, offices or representative offices of foreign and international associations and
foundations.
Registered associations or foundations, office or representative offices of international associations
and foundations can act throughout the entire territory of Bosnia and Herzegovina, regardless of
where it is headquartered.
In accordance with Article 3 of the FBiH CPT Law, foundations/trusts are not considered to be CPT
taxpayers. Similar provisions are included in CPT legislation of the RS.
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12.2 Language
Official languages are Bosnian, Croatian and Serbian. Bosnian and Croatian are written in Latin
alphabet, while Serbian is written in both Cyrillic and Latin alphabets.