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 Republic Srpska (hereinafter “RS”).
In FBiH the capital requirement is EUR 500 and in RS it is 0.5 EUR.
For the purposes of the FBiH Corporate Profit Tax (“CPT”) Law, a resident (which is taxable on its worldwide income) is either a business entity incorporated in the FBiH, or a business entity whose actual management or supervision is situated in the FBiH. A non-resident entity (taxable only on income realized in FBiH) is a business entity incorporated outside of FBiH and whose actual management and supervision is situated outside of FBiH, but is conducting its business activity in FBiH through a subsidiary or from time to time (e.g. seasonal or short-term contracts).
The RS Corporate Profit Tax Law does not explicitly define residency, but it makes a distinction between a local business entity incorporated in the RS (taxable on its worldwide income) and a foreign business entity (taxable on income realized in the RS).
With regard to 2015, in FBiH CPT return submission deadline is March 30, 2016 and in RS it is March 31, 2016.
The standard corporate income tax rate is 10 percent.
5 percent in both the FBiH and the 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. No carry back.
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 will be set out in applicable implementing regulations, which has not yet been enacted.
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, reduce the obligation of the calculated tax expense of 30 percent of the amount,in the year of investment.
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) CPT tax base can be reduced up to the value of the investment for taxpayers who invest in property, plant and equipment for the purposes of conducting registered manufacturing activity;
b) Under the condition that the taxpayer employs 30 new employees for an indefinite period, the taxpayer can reduce its CPT base up to the amount corresponding to the amount of personal income tax and social security contributions paid for those employees.
The standard rate is 17 percent.
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