Thinking Beyond Borders
Bosnia and Herzegovina (BiH) consists of two territorial and administrative entities – the Federation of BiH (FBiH) and the Republic of Srpska (RS) – and one district, the Brcko District (BD). Due to the small size of the BD, this document will address only the legislation of FBiH and RS entities. Each entity has its own income tax legislation. Generally, in both entities, a person’s personal income tax (PIT) status is determined by residence status for PIT purposes, and the source of the income derived by the individual. The PIT base is determined by subtracting allowable deductions from the total income.
Extended business travelers staying less than 183 days in a year in the FBiH or the RS are taxed on the income earned in the FBiH or the RS, respectively, provided there is no applicable Double Taxation Treaty.
Unless otherwise specifically stated, the information provided below applies to both the FBiH and the RS.A person’s PIT liability in the FBiH/RS is determined by residence status.
The FBiH PIT Law defines a resident taxpayer as an individual who:
A tax non-resident is considered to be an individual who does not have a permanent residence and habitual abode in the FBiH and spends less than 183 days in the FBiH in any tax period.
The RS resident taxpayer is an individual who:
In accordance with the RS PIT Law, center of vital interests of an individual can be one of the following:
A tax non-resident taxpayer is any individual who is not a resident in accordance with the RS PIT law.
There is no threshold/minimum number of days that exempts a person from the requirement to pay PIT and file tax returns. If a person qualifies for relief pursuant to an applicable double tax treaty, no PIT liabilities or PIT filing obligations arise. In the FBiH/RS, the PIT trigger point arises simultaneously with the payment of income, and not the recharge of costs.
The following types of income are subject to PIT: income realized through dependent activity (i.e. employment), independent activity, property and property rights, capital investment, participation in giveaways and games of chance and others. For extended business travelers, the types of income that are generally taxed are employment income and all related benefits-in-kind.
The PIT rate in the FBiH and RS is 10 percent.
Social security contributions (SSC) in BiH are regulated at the level of the entities.
Total SSC rates applicable in the FBiH amount to 41.50 percent, applicable to gross salary. Out of that,31 percent is withheld from salary and 10.5 percent is paid in addition to salary.
SSC in the RS amount to 33 percent, all of which is withheld from salary.
The existence of a totalization agreement between BiH and the home country/jurisdiction of an expatriate may have a bearing on SSC liabilities.
There are no obligations for foreign employers of business travelers coming to the FBiH and/or the RS.
A visa is not required for most foreigners entering BiH (such as European Union (EU) and US residents), that is, they can enter BiH under the visa-free regime. However, foreign nationals must obtain a work permit in order to work in BiH.
BiH has entered into double taxation treaties (DTTs) with several countries/jurisdictions to prevent double taxation. Further, BiH has incorporated into its legal system, through succession, a number of DTTs from the former Socialist Federative Republic of Yugoslavia.
A list of countries/jurisdictions with which BiH has applicable DTTs can be found below.
|Egypt||Montenegro||United Arab Emirates|
|Finland||The Netherlands||United Kingdom|
A permanent establishment could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of the employee’s authority.
Value-added tax (VAT) is applicable at 17 percent for taxable supplies. The registration threshold is taxable supplies of BAM50,000 (approximately EUR25,000 euros.
Both the FBiH and the RS have a transfer pricing regime, and if a business traveler’s costs and taxes are recharged to an entity in the FBiH or the RS or if a service fee is charged for the duties performed by the business traveler, such charges may be subject to scrutiny under the transfer pricing rules.
BiH has data privacy legislation.
Generally, there are restrictions on the transfer of foreign currencies for residents. Certain reporting obligations are imposed to control tax evasion and money laundering. In addition, legislation requires financial institutions and other cash dealers to give notification of cash transactions over BAM 30,000 (approximately EUR 15,000) or other suspicious cash transactions.
Generally, costs paid to business travelers not employed by an FBiH/RS company are considered as a nondeductible expense or an entertainment expense, unless the company can prove the business purpose of the travel.
All information contained in this document is summarized by KPMG Tax&Advisory B-H d.o.o., the Bosnian and Herzegovinian member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on Law on Value Added Tax (Official Gazette of BiH no. 9/05, 35/05, 100/08 and 33/17), Law on Anti Money Laundering and Terrorist Financing (Official Gazette of BiH no. 47/14 and 46/16), Law on Protection of Personal Data (Official Gazette of BiH no. 49/06, 76/11 and 89/11), Law on Foreigners (Official Gazette of BiH no. 88/15), Double Tax Treaties between Yugoslavia/Bosnia and Herzegovina and respective countries, Law on Personal Income Tax of FBiH (Official Gazette of FBiH no. 10/08, 9/10, 44/11,7/13 and 65/13), Rulebook on the Implementation of Law on Personal Income Tax (Official Gazette of FBiH no. 67/08, 4/10, 86/10, 10/11, 53/11, 20/12, 27/13, 71/13, 90/13, 45/14, 52/16, 59/16, 38/17, 3/18 and 30/18), Law on Social Security Contributions of FBiH (Official Gazette of FBiH no. 35/98, 54/00, 16/01, 37/01, 1/02, 17/06, 14/08, 91/15, 104/16 and 34/18), Law on Corporate Profit Tax (Official Gazette of FBiH no. 15/16), Rulebook on Implementation of Law on Corporate Profit Tax (Official Gazette of FBiH no. 88/16, 11/17 and 96/17), Rulebook on Transfer Prices (Official Gazette of FBiH no. 67/16), Law on Personal Income Tax of RS (Official Gazette of RS no. 60/15, 5/16 and 66/18), Law on Social Security Contributions of RS (Official Gazette of RS no. 114/17), Law on Corporate Profit Tax of RS (Official Gazette of RS no. 94/15, 1/17 and 58/19), Rulebook on Transfer Prices and Methods for Their Determination (Official Gazette of RS no. 47/16).