It is important to note that Bosnia and Herzegovina (BiH) is divided into three tax jurisdictions: the Federation of BiH (FBiH), the Republika Srpska (RS) and Brčko District (BD). For the sake of simplicity we will focus on the RS and FBiH.
The CIT rate is flat and amounts to 10%. A company in FBiH/RS is resident if it is registered as legal entity in the relevant jurisdiction, or in other case its activities in BiH qualify as PE (PE requirements are similar to those defined by OECD Model treaty). In all tax jurisdictions, losses can be carried forward for up to 5 years. Loss carry-back is not permitted. There are no special limitations in case of M&A transactions. In FBiH, interest expenses taken from related parties are tax deductible in debt / equity ratio of 4: 1 (thin cap rule). In RS, interest expenses are not recognized for the amount of net interest expenses exceeding 30% of the tax base (without financial items). In the RS, R&D costs are recognized in line with IAS. In FBiH and BD, R&D costs are recognized.
Dividends profit is not included in the calculation of the tax base. In the FBiH, taxpayers who make investments from its own resources in production equipment worth more than 50% of the profit of the current tax period, reduces liabilities of corporate income tax for 30% of the amount in the year of investment.
The taxpayer who invests more than 20 million BAM (10,2 million EU) in five consecutive years (minimum investment in first year equals to 4 million BAM (2,04 million EUR), reduces its CIT liability for 50% of the investment in each of 5 years.
Withholdings rate is 10%, for dividends amounts to 5% in FBiH unless an DTT applies (currently, around 30 active DTT’s). Interests, royalties and technical fees paid by a BiH company to a foreign company are subject to withholdings at the rate of 10%. In RS there is a flat rate withholding tax (10%) on all payments to foreign legal person in which there is an obligation to pay withholding tax. The group taxation concept is allowed in BiH for a group of resident companies with a minimum of 90% (FBiH). Moreover, mother company and its subsidiaries constitute a group of companies if among them there is direct or indirect control over 50% of the shares or stakes.
In case of acquiring real estate in the FBiH, the transfer is taxable at cantonal level. In the RS, there is no transfer tax, but the owner of the real estate has to pay property tax up to 0,20% of the market value. (decreased rules for production RE applies).
|Transfer pricing in Bosnia Herzegovina|
|Arm’s length principle||since 1998|
|Documentation liability||It is necessary. It is prescribed the content of transfer pricing documentation.|
|Country-by-Country liability||prescribed both by FB&H Rulebook on transfer pricing as the RS since 2016 (Applies to MNEs with annual consolidated group revenue equal to or exceeding €750 million in the previous year.|
|Master file-local file (OECD BEPS 13) applicable||First fiscal year and penalties are the same as for CbCR. -MF needs to be prepared contemporaneously by the tax return submission date. Transfer pricing documentation needs to be submitted 45FBIH/30RS days from the request made by the tax administration|
|Lack of documentation||RS: 10.226,00 EUR-30.678,00 EUR for legal person and 2.556,00 EUR-7.669,00 EUR for responsible person.
FBIH: 1.534,00 EUR-51.130,00 EUR for legal person and 1.278,00 EUR-5.113,00 EUR for responsible person.
|Tax shortage||There is no interest rates defined by Governmental Rulebook|
|direct or indirect control
(25% for FBIH, 25% for RS)
or common managing director or significant influence on decisions. One person is connected with another when that person participates directly or indirectly in the management, control or capital of that other person or where the same person or the same persons participate directly or indirectly in the management, control or capital of both persons.
|Safe harbours||In FB&H, safe harbour rate for support services is 5%. Support services include: IT maintenance services, accounting and auditing, administration, legal services, HR menagement, employees training and education and tax advisory services.|
Level of attention paid by Tax Authority:
We believe that the attention of the tax authorities will be increasing, given the new provisions of the Act and Regulations relating to transactions with related parties.
The general rate is 17%. There are no reduced rates beside the 0% rate (mainly for the export of goods). VAT-exempt services are mainly banking services, insurance, healthcare, etc. Export exemption as well as exemption for deliveries to free zones apply. Certain thresholds are as follows.
Other indirect tax types in BiH are custom duties and excise duties on goods imported into BiH.
|VAT Options in Bosnia Herzegovina|
|VAT group registration|
|Import VAT deferment|
|Local reverse charge|
|Option for taxation|
|- letting of real estate|
|- supply of used real estate|
|VAT registration threshold*||approx. EUR 25,560/year|
Personal income is taxed at a flat rate of 10%, and it is applicable on the active (e.g. employment, assignment fee) and passive income (interest, real estate rental, etc.). Dividends are not taxable in BiH.
In the RS, the employee contributes 33% of the gross salary. In the FBiH, the employer contributes 10.5%, and employee contributes 31,5 % of the gross salary.
In FBiH, the lowest hourly wage cannot be less than 1,75 BAM (0,895 EUR) net, or 2,96 BAM gross (1,51 EUR). In RS, the lowest salary is determined as a net amount in the amount of 440 BAM (201,96 EUR).
|Wage- related taxes in FBiH and RS||Average wage in FBiH||Average wage in the RS|
|Exchange rate BAM/ EUR 1,96||in EUR||in BAM||in EUR||in BAM|
|TOTAL WAGE COST||295||110,50%||224||100,00%|
|Employer's SS and other contributions||28||10,50%||-||0,00%|
|Personal income tax*||3||1,17%||5||2,14%|
*Tax base differs from the gross salary, deductions apply.
|Wage- related taxes in FBiH and RS||Minimum wage in FBiH||Minimum wage in the RS|
|Exchange rate BAM/ EUR 1,96||in EUR||in BAM||in EUR||in BAM|
|712||1 395||700||1 372|
|TOTAL WAGE COST||786||110,50%||700||100,00%|
|Employer's SS and other contributions||75||10,50%||-||0,00%|
|Personal income tax*||34||4,75%||37||5,24%|