Key tax factors for efficient cross-border business and investment involving Bosnia and Herzegovina.
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Limited Liability company
Joint Stock company
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:
- EUR 500 for LLC;
- EUR 25.000 for JSC.
Minimum capital requirement for the RS:
- EUR 0.5 for LLC;
- EUR 10.000 for closed JSC;
- EUR 25.000 for opened JSC.
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 RS, respectively, or a business entity whose place of effective management or supervision is on the territory of the FBiH or RS, respectively.
A non-resident entity (taxable only on income realized in the FBiH or RS, respectively) is a business entity incorporated outside of the FBiH or RS, respectively and/or whose place of effective management or supervision is outside of the territory of the FBiH or RS, respectively.
With regard to 2016, in the FBiH CPT return submission deadline is March 30, 2017 and in the RS it is March 31, 2017.
The standard corporate income tax rate is 10 percent.
5 percent in the FBiH and 10 percent in RS.
Dividends received are generally not taxable, neither in FBiH nor in RS.
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 defined.
Yes, tax grouping is generally allowed in the FBiH under the following conditions:
- if there is more than 50 percent direct/indirect control between the parent company and subsidiaries;
- all of the legal entities under consideration are FBiH residents;
- the legal etities under consideration prepare a statement of consent with regard to the consolidation.
Legal entity should be registered in relevant court register depending on company location.
Yes, in FBiH a real estate transfer tax applies (amounts to 5 percent). No real estate transfer applies in RS.
First transfer of new building is subject to VAT at flat rate of 17 percent.
Real estate transfer tax to be considered (see above).
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 Federation of Bosnia and Herzegovina and Republic of Srpska.
Yes (see question above).
There are no thin capitalization rules in the RS. 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.
a) Taxpayers that make investments from their own resources in production equipment worth more than 50 percent of the profit of the current tax period may reduce their profit tax liability in the year of investment (same tax period) by 30%.
b) A 50 percent CPT exemption for a five-year period provided that the taxpayer invests BAM 20 million (approx EUR 10 million) in production facilities in the FBiH (BAM 4 million must be invested in the first year),
c) The taxpayer is entitled to a tax-deductible expense of twice the amount of the gross salary paid to new employees if the following conditions are met:
- the duration of the employment contract must be at least 12 months for a full-time contract;
- the new employee was not employed by the taxpayer or a related party in the preceding five years.
a) Taxpayers that make investments in production equipment worth more than 50 percent of the profit (tax base) of the current tax period on the territory of RS may reduce their profit tax liability in the year of investment (same tax period) by 30%.
The standard rate is 17 percent.
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