Bosnia and Herzegovina - Income Tax

Bosnia and Herzegovina - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date? 

FBiH

31 March.

RS 

31 March.

What is the tax year-end? 

31 December in both entities (the FBiH and the RS).

What are the compliance requirements for tax returns in Bosnia and Herzegovina? 

FBiH

The annual personal income tax return is due by the end of March following the year for which the tax is being assessed. Any tax liability assessed in the annual tax return must be settled by this date as well. 

A taxpayer is not obliged to submit an annual personal income tax return if he/she has realized income from only one source (such as, employment), but the taxpayer can submit an annual tax return if he/she is entitled to a tax refund.

Individuals receiving income directly from abroad related to working in FBiH are obliged to calculate income tax on a monthly basis and to pay it within five days from the receipt of income. 

RS

The annual personal income tax return is due by the end of March following the year for which the tax is being assessed. Any tax liability assessed in the annual tax return must be settled by this date as well. 

A taxpayer is not obliged to submit an annual personal income tax return if he/she has realized income from only one source (such as, employment), but the taxpayer can submit an annual tax return if he/she is entitled to a tax refund. 

Individuals receiving income directly from abroad related to working in the RS are obliged to calculate income tax on a monthly basis and to pay it within seven days from the receipt of income. 

Residents

FBiH and RS

All resident taxpayers who source any type of income from abroad may be required to submit an annual personal income tax return, if such income is subject to PIT in the FBiH/RS.

Non-residents

FBiH and RS

Only FBiH/RS sourced income of non-residents is subject to PIT in the FBiH/RS. 

Tax rates

What are the current income tax rates for residents and non-residents in Bosnia and Herzegovina?

FBiH and RS

The tax rate applicable on personal income is 10 percent, and it applies to both

residents and non-residents. 

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Bosnia and Herzegovina?

FBiH

The FBiH PIT Law defines a resident taxpayer as an individual who:

  • has permanent residence in the FBiH; 
  • spends a cumulative period of at least 183 days in the FBiH during any calendar year; or 
  • earns income by carrying out a dependent activity outside the FBiH that is paid from the budget of the FBiH and/or BiH.

A non-resident is considered to be an individual spending less than 183 days in the FBiH during any calendar year.

RS

The RS resident taxpayer is an individual who:

  • has permanent residence in the RS; or 
  • stays in the RS for a period of at least 183 days, continually or with interruptions, during any 12 months period.

A non-resident taxpayer is an individual who has permanent residence in other

country or entity and realizes income in the RS.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

There is no de minimus number of days rule.

What if the assignee enters the country before their assignment begins?

If an assignee enters BiH before the assignment begins, he/she will be treated as a tourist until their work assignment begins and will not be required to file taxes with the tax authorities. However, this may to a certain degree impede ability of assignees to obtain work permits.

Termination of residence

Are there any tax compliance requirements when leaving Bosnia and Herzegovina? 

Individuals may be required to file a final tax return upon leaving the relevant entity if the individual is required to file an annual tax return (i.e. if the individual had income from sources other than employment). The annual tax return is due 31 March of the following year in both entities.

What if the assignee comes back for a trip after residency has terminated? 

Once residency has been terminated, the assignee can re-enter BiH with a valid foreign passport or a valid personal ID card (if allowed) and a valid visa (if required). The assignee will have a tourist status in BiH and will not be required to file taxes with the tax authorities.

Communication between immigration and taxation authorities

Do the immigration authorities in Bosnia and Herzegovina provide information to the local taxation authorities regarding when a person enters or leaves Bosnia and Herzegovina? 

Generally, if an individual entering BiH holds a work permit, the local employment authorities should inform the tax authorities that a work permit has been issued to the individual. However, KPMG in Bosnia and Herzegovina cannot confirm whether this has been implemented in practice.

Filing requirements

Will an assignee have a filing requirement in the host countrymafter they leave the country and repatriate?

There are no special filing requirements for assignees after they leave the country and repatriate.

Economic employer approach

Do the taxation authorities in Bosnia and Herzegovina adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Bosnia and Herzegovina considering the adoption of this interpretation of economic employer in the future?

Taking into consideration that, in general, all foreign nationals working in BiH need to be engaged on employment contracts the economic employer approach does not apply.  

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days? 

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

Generally, all types of remuneration and benefits-in-kind received by an employee for services rendered may, under conditions prescribed in the personal income tax law, constitute taxable income. 

Tax-exempt income

Are there any areas of income that are exempt from taxation in Bosnia and Herzegovina? If so, please provide a general definition of these areas. 

FBiH

As per the FBiH PIT Law, the following payments/reimbursements inter alia are not considered to be taxable income in the FBiH:

  • Compensation for losses incurred due to natural disasters and reimbursements based on injuries and illness paid by the employer to the employee or the employee's family members not exceeding the amounts prescribed by special legislation.
  • Meals provided by the employer at the employer’s premises in the value not exceeding the amounts prescribed by special legislation. 
  • Accommodation provided by the employer to the employee provided that such accommodation is required in course of performing the employee's duties. 
  • Accommodation and reimbursement of accommodation costs provided to public officials employed in diplomatic and consular offices abroad and other reimbursements paid not exceeding the amounts prescribed by special legislation. 
  • Gifts provided by the employer to the employee for holidays not exceeding the amounts prescribed by special legislation. 
  • Severance payments in case of termination of employment not exceeding the amounts prescribed by special legislation.

RS

The following payments/reimbursements inter alia are not considered to be taxable income in the RS:

  • Severance payments due to retirement/termination of employment. 
  • Compensation for losses incurred due to natural disasters and reimbursements based on injuries and illness paid by the employer to the employee or the employee's family members not exceeding the amounts prescribed by special legislation. 
  • Accommodation provided by the employer to the employee provided that such accommodation is required in course of performing the employee's duties. 
  • Accommodation and reimbursement of accommodation costs provided to, amongst others, public officials and individuals employed in diplomatic and consular offices abroad in accordance with special legislation. 
  • Allowance provided by the employer for public transportation not exceeding the amounts prescribed by special legislation. 
  • Reimbursement by the employer of travel expenses and daily allowances for business trips within and out of the country not exceeding the amounts prescribed by special legislation. 
  • Reimbursement by the employer of reallocation cost not exceeding the amounts prescribed by the special legislation. 
  • Allowances provided by the employer for the use of a private car for business purposes not exceeding the amounts prescribed by special legislation.

Expatriate concessions

Are there any concessions made for expatriates in Bosnia and Herzegovina?

With the exemption of diplomatic and consular staff, there is no special tax regime for expatriates.

Salary earned from working abroad

Is salary earned from working abroad taxed in Bosnia and Herzegovina? If so, how? 

Yes, in case of BiH tax residents, that is, tax residents of the relevant entities. Residents must report their worldwide income. If an individual earns a salary and pays foreign taxes for work performed abroad, such income and taxes paid must be reported in the annual personal income tax return, supported with a salary confirmation and formal evidence of the foreign taxes paid.

In addition, salary sourced by both BiH tax residents and BiH tax non-residents directly from abroad but earned from working in BiH must be declared and corresponding PIT calculated and paid within five and seven days in the FBiH and in the RS, respectively. 

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Bosnia and Herzegovina? If so, how? 

FBiH

According to the FBiH PIT Law, investment income (i.e. interest from loans, paid insurance premiums not taxed at source) is taxable at the rate of 10 percent. Capital gains are not taxable in the FBiH.

In addition, property income (i.e. income from renting and leasing movable and immovable property, income from sale of real estate) and intellectual property rights income (income from sale or concession of patents, franchises, royalties and other property rights) is subject to tax in the FBiH at the rate of 10%, subject to certain conditions.

RS

In the RS, capital income is taxed at 10 percent and includes, amongst others, income from renting or leasing real estate and movable property.

In the RS, capital gains are taxed at the rate of 10 percent and include, among others:

  • gains arising on the sale of immovable assets 
  • gains arising on the sale of property rights, authorship rights, license, and franchise rights.

Dividends, interest, and rental income

FBiH

Dividend income is not taxable.

Interest and rental income are taxable at the rate of 10 percent. 

RS

According to the RS PIT Law, dividends paid to physical persons from profit accumulated until 31 December 2010 are exempt regardless of the period in which the dividends are paid out. Dividends paid to physical persons from profit accumulated in 2011 and onwards are taxable at the rate of 10 percent. 

Certain interest income is taxable at 10 percent rate. 

For rental income, please refer to taxation of capital income.

Capital losses

FBiH

Not applicable.

RS

Capital losses can be set off against capital gains realized in the same tax period. 

Personal use items

Any item taken for personal use of the assignee should be treated as a benefit-in-kind and as such taxable at 10 percent.

Gifts

Please refer to gift section.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Bosnia and Herzegovina? If so, please discuss? 

Not applicable.

Are there capital gains tax exceptions in Bosnia and Herzegovina? If so, please discuss? 

Not applicable.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in Bosnia and Herzegovina? 

FBiH

In calculating taxable income, every tax resident taxpayer is entitled to deduct the following from their monthly gross salary (inclusive of expatriates who are tax resident in the FBiH).

  • A basic monthly personal allowance of BAM 300 for each month for which tax is being assessed (available only if the employer calculates, withholds and pays personal income tax); 
  • Additional allowances if family members are qualifying; 
  • Employee compulsory social security deductions.

Additional annual deductions are available in the FBiH for tax resident taxpayers (inclusive of expatriates who are tax resident in the FBiH):

  • health services and medicines bought in a year, under certain conditions 
  • interest paid on the basis of qualifying loans for the purchase or construction of the owner's main residence.

Foreign sourced income earned by a tax resident taxpayer, which is taxed abroad, is also taxable in the FBiH but a tax credit for taxes paid abroad may be applied to reduce tax otherwise paid in the FBiH. Double taxation treaties are also applicable. 

RS

In calculating taxable income, every tax resident taxpayer is entitled to deduct the following from their monthly gross salary (inclusive of expatriates who are tax resident in the RS).

  • A basic monthly personal allowance of BAM 200 for each month for which tax is being assessed (available only if the employer calculates, withholds and pays personal income tax);• Additional allowances if family members are qualifying. 
  • Employee compulsory social security deductions.

Additional annual deductions are available for every tax resident taxpayer for (inclusive of expatriates who are tax resident in the RS):

  • premiums for voluntary pension insurance (not exceeding BAM 1,200 per year) 
  • interest paid on the basis of qualifying loans for the purchase or construction of the owner's main residence.

Foreign sourced income earned by a tax resident taxpayer, which is taxed abroad, is also taxable in the RS but a tax credit for taxes paid abroad may be applied to reduce tax otherwise paid in the RS. Double taxation treaties are also applicable. 

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Bosnia and Herzegovina?

Generally, current year gross-up.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Bosnia and Herzegovina? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), etc.

PAYE in both entities, in case of individuals employed by BiH (that is, FBiH or RS) employers. 

A similar principle is used in case of income received from abroad, in which case the individual receiving the income is liable to pay tax within five (FBiH)/seven (RS) days from the date the income was received. 

PAYG installments

When are estimates/prepayments/withholding of tax due in Bosnia and Herzegovina? For example, monthly, annually, both, etc.

In case of individuals employed by BiH (that is, FBiH or RS) employers, tax is due monthly or more often if payments are made more frequently. 

As stated earlier, immigration regulations require foreign nationals working in BiH to have local labor contracts, in which case the above statement applies to them as well.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Bosnia and Herzegovina? For example, a foreign tax credit (FTC) system, double taxation treaties, etc? 

To avoid double taxation, under the domestic laws of BiH and its entities and in accordance with tax treaties which BiH has concluded with a number of countries, the credit method generally applies to foreign earned income. Note that the credit for tax paid abroad may not exceed the amount of taxes that would be due in BiH (that is, its entities) on that foreign income.

Double taxation treaties with the following countries are currently applicable: 

  • Albania
  • Algeria
  • Austria 
  • Belgium 
  • China 
  • Croatia 
  • Cyprus 
  • Czech Republic 
  • Denmark 
  • Egypt 
  • Finland 
  • France 
  • Germany
  • Greece 
  • Hungary 
  • Iran
  • Ireland 
  • Italy
  • Jordan
  • Kuwait 

  • Malaysia 
  • Moldova 
  • The Netherlands 
  • Norway 
  • Pakistan 
  • Poland 
  • Qatar 
  • Romania 
  • Serbia 
  • Macedonia
  • Montenegro 
  • Slovakia 
  • Slovenia 
  • Spain 
  • Sri Lanka 
  • Sweden 
  • Turkey 
  • United Arab Emirates
  • United Kingdom

General tax credits

What are the general tax credits that may be claimed in Bosnia an Herzegovina? Please list below.

Please refer to section general deductions from income.

Sample tax calculation

This calculation assumes a married taxpayer resident employed in BiH with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is gross USD100,000 and the calculation covers three years. 

  2014 USD 2015 USD 2016 USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 0
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD 1.00 = BAM 1.714137. 

 

Other assumptions

  • All earned income is attributable to BiH sources. 
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year. 
  • Interest income is not remitted to BiH. 
  • The company car is used for business and private purposes and originally cost USD50,000 and there are no records available on business/private use. Therefore, it is assumed that the car is used for private purposes only. 
  • The employee is deemed tax resident throughout the assignment. 
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation. 
  • The employee supports a spouse and two children. 
Calculation of taxable income


All income treated as gross income for the purpose of following calculations. 
 
FBiH
 
Year ended 2014 BAM 2015 BAM 2016 BAM
Days in BiH during year 365 365 365
Earned income subject to income tax

     
Salary 171.414 171.414 171.414
Bonus 34.283 34.283 34.283
Cost-of-living allowance 17.141 17.141 17.141
Net housing allowance

20.570 20.570 20.570
Company car 10.285 10.285 10.285
Moving expense reimbursement 34.283 0 0
Home leave 0 8.571 0
Education allowance 5.142 5.142 5.142
Total earned income 293.117 267.405 258.835
Other income (interest income) 10.285 10.285 10.285
Total income 303.402 277.690 269.120
Deductions1 (employee SSC @ 31%) 94.055 86.084 83.427
Total taxable income 209.348 191.606 185.692

 

Calculation of tax liability

  2014 BAM 2015 BAM 2016 BAM
Taxable income as above 209.348 191.606 185.692
Less:      
Personal allowances (basic allowance, dependent spouse and two children allowance) 9.720 9.720 9.720
Total taxable income 199.628 181.886 175.972
Foreign tax credit 0 0 0
Total FBiH tax @ 10% 19.963 18.189 17,597

 

RS

Year ended 2014 BAM 2015 BAM 2016 BAM
Days in BiH during year 365 365 365
Earned income subject to income tax      
Salary 17.141     17.141

17.141

Bonus 34.283 34.283 34.283
Cost-of-living allowance 17.141 17.141 17.141
Net housing allowance 20.570     20.570     20.570    
Company car 10.285     10.285     10.285    
Moving expense reimbursement

34.283     0 0
Home leave 0 8.571 0
Education allowance 5.142     5.142     5.142    
Total earned income 293.117     267.405 258.835
Other income (interest income) 10.285 10.285 10.285
Total income 303.402 277.690 269.120
Deductions2 (employee

SSC @ 33%)
100.123 91.638 88.809
Total taxable income 203.280 186.052 180.310

 

Calculation of tax liability

  2014 BAM 2015 BAM 2016 BAM
Taxable income as above 203.280 186.052 180.310
Less:      
Personal allowances (basic allowance, dependent spouse and two children allowance) 5.100 5.100 5.100
Total taxable income 198.180 180.952 175.210
Foreign tax credit 0 0 0
Total RS tax @ 10%

19.818 18.095 17.521

Footnotes

1Employee social security contributions 31 percent.

2Employee social security contributions 33 percent.

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