Bosnia and Herzegovina

Bosnia and Herzegovina

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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. 

Key Message

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. 

Income tax

Liability for income tax

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:

  • 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 tax non-resident is considered to be an individual who does no 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:

  • 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 starting or ending in the related tax period;
  • has a habitual abode and center of vital interests in the RS.

In accordance with the RS PIT Law, center of vital interests of an individual can be one of the following:

  • ownership of real estate with market value in excess of BAM 300,000 (cca EUR 150,000);
  • effective economic tie with the RS;
  • ownership of share in company capital in excess of BAM 100,000 (cca EUR 50,000);
  • marital or extramarital communion with a citizen of the RS or BiH;
  • work with a work permit;
  • studies on the territory of RS.

A tax non-resident taxpayer is any individual who is not a resident in accordance with the RS PIT law.

Tax trigger points

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.

Types of taxable income

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, and others. For extended business travelers, the types of income that are generally taxed are employment income and all related benefits-in-kind.

Tax rates

The PIT rate in both the FBiH and the RS is 10 percent.

Social security

Liability for social security

Social security contributions (SSC) in BiH are regulated atthe level of the entities.

Total SSC rates applicable in the FBiH amount to41.50 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 of an expatriate may have a bearing on SSC liabilities.

Compliance obligations

Employee compliance obligations

There are no obligations for foreign employers of business travelers coming to the FBiH and/or the RS.

Immigration

Work permit/visa requirements

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.

Other

Double taxation treaties

BiH has entered into double taxation treaties (DTTs) with several countries 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 with which BiH has applicable DTTs can be found below.

Albania Egypt Kuwait
Algeria Finland Macedonia
Austria France Malaysia
Azerbaijan Germany Moldova
Belgium Greece Montenegro
China Hungary The

Netherlands
Croatia Iran Norway
Cyprus Ireland Pakistan
Czech Republic

Italy Poland
Denmark Jordan Qatar
Romania Spain United Arab Emirates
Serbia Sri

Lanka
United Kingdom
Slovakia Sweden  
Slovenia Turkey  

Permanent establishment implications

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.

Indirect taxes

Value-added tax (VAT) is applicable at 17 percent for taxable supplies. The registration threshold is taxable supplies of 50,000 Bosnian marks (BAM) (approximately 25,000 euros (EUR)) or more in the previous year.

Transfer pricing

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.

Local data privacy requirements

BiH has data privacy legislation.

Exchange control

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 BAM30,000 (approximately EUR15,000) or other suspicious cash transactions.

Non-deductible costs

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.

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