Key tax factors for efficient cross-border business and investment involving Bosnia and Herzegovina.
With the following countries, territories and jurisdictions:
Limited Liability company (LLC)
Joint Stock company (JSC)
Bosnia and Herzegovina (hereinafter: “BiH”) consist of two territorial entities: the Federation of Bosnia and Herzegovina (hereinafter: “FBiH”) and the Republika Srpska (hereinafter: “RS”) and Brcko District.
Minimum capital requirement for the FBiH:
Minimum capital requirement for the RS:
For the purposes of both the FBiH Corporate Profit Tax (“CPT”) Law and the RS CPT Law, a resident (which is taxable on its worldwide income) is either a business entity incorporated in the FBiH or the RS, respectively, or a business entity whose place of effective management or supervision is on the territory of the FBiH or the RS, respectively.
A non-resident entity (taxable only on income realized in the FBiH or the RS, respectively) is a business entity incorporated outside of the FBiH or the RS, respectively and/or whose place of effective management or supervision is outside of the territory of the FBiH or the RS, respectively.
The CPT return submission deadline is
The standard corporate income tax rate is 10 percent.
5 percent in the FBiH and 10 percent in the RS.
Dividends received from another resident company are not taxable, if paid out from profits in relation to which tax has been calculated and paid. Dividends received from a non-resident company are taxable.
Capital gains are taxable at the rate of 10 percent in both the FBiH and the RS.
Losses may be carried forward for 5 years. The carryback of tax losses is not allowed.
Yes, tax grouping is generally allowed in the FBiH under the following conditions:
Tax consolidation applies for at least 5 years once chosen and approved by the tax authorities.
Legal entity should be registered with the relevant court register depending on company location.
Yes, in the FBiH a real estate transfer tax applies (amounts to 5 percent of the estimated value of a real estate).
No real estate transfer applies in the RS.
First transfer of new building is subject to VAT at the flat rate of 17 percent.
In the FBiH, the real estate tax (RET) applies to, inter alia, vacation real estate and rented real estate. RET is regulated at the cantonal level in the FBiH (i.e. there are currently 10 different laws applicable in the FBiH) and further regulated by municipal decisions.
In the RS, the RET rate is set at a maximum of 0.20 percent and applies on an annual basis to all real estate situated in the RS, except for real estate that is used for production where the RET rate is set at a maximum of 0.10 percent. The RET base is the market value of real estate, whose market value is determined in accordance with municipal decisions.
In both the FBiH and the RS, prices for the sale of goods and services between related parties should be at arm’s length; if not, the difference exceeding the arm’s length value will be added to the tax base and is therefore taxable.
New CPT Laws for both the RS and the FBiH took effect as of January 1, 2016 and March 5, 2016 respectively.The new FBiH and RS CPT Laws contain more detailed transfer pricing rules. Both CPT Laws require taxpayers to include transfer pricing documentation in their tax returns as proof that transactions with related parties were at arm's length. Further details with regard to transfer pricing rulings are set out in applicable Rulebooks on transfer prices of the FBiH and the RS.
Yes (see question above).
There are no thin capitalization rules in the RS. In the RS, total interest expense is not deductible for CPT purposes in the amount of net interest expense (i.e. interest expense over interest income), which exceeds 30 percent of the tax base that excludes interest income and interest expense.
In the FBiH, financial expenses for interest per financial agreements and instruments to related parties are generally recognized for tax purposes. However, if the ratio between these obligations per financial agreements and the registered share capital of a taxpayer exceeds the ratio of 4:1, then the financial expenses exceeding the 4:1 are not recognized for tax purposes and cannot be transferred to another tax period. However, this does not apply to banks and insurance companies.
The standard rate is 17 percent.
Source: Bosnian tax law and local tax administration guidelines, updated 2019.
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