Bosnia & Herzegovina Income Tax Rate

Bosnia & Herzegovina personal income tax rate is a flat 10%.

Basis - The FBIH and RS tax residents on their worldwide income; nonresidents are taxed only on FBiH/RS-source income.

Residence - An individual is considered resident for income tax purposes if he/she
has a residence or centre of business and/or vital interests in the FBiH/RS, or stays in the FBiH/RS for at least 183 days in the aggregate during the tax year.

Filing status - In both the FBiH and RS, the employer withholds tax from salary on a monthly basis. Final tax liability is assessed on an annual basis.

Taxable income - The tax base in the FBiH is total gross taxable income paid by the employer less employee contributions and deductible allowances (the monthly basic personal allowance, less dependent family member allowance(s) and invalidity allowance, where applicable). In the RS, the tax base is total gross taxable income paid by the employer less social security contributions and deductible allowances (monthly basic personal allowance, less dependent family member allowance(s) and invalidity allowance, where applicable).

Capital gains - Capital gains are subject to tax at the standard 10% rate in the FBiH, and 8% in the RS.

Deductions and allowances - Personal deductions in both the FBiH and RS are BAM 3,600 per calendar year. There are also deductions for dependents

Rates - The rate is 10% in the FBiH and 8% in the RS.

Other taxes on individuals:

Capital duty - No

Stamp duty - No

Capital acquisitions tax - No

Real property tax - The acquisition of real property in the FBiH is subject to a real estate sales tax at a rate of 5%. The tax base is the purchase value of the property at the time of the transaction. The taxpayer (i.e. the buyer or the seller) for purposes of the real estate sales tax varies depending on the canton. In the RS, the purchase of real property is taxed at a rate of 3%.The tax base is determined by the municipal appraisal team and the taxpayer is seller.

Inheritance/estate tax - Inheritance and gift taxes are levied at the cantonal level in the FBiH. In the RS, the tax rates are: 3% of the market value (or value estimated by the tax authorities) of immovable property and 10% of the market value (or value estimated by the tax authorities) of movable property.

Net wealth/net worth tax - No

Social security - In the FBiH, the employer contributes 10.5% of the employee's gross salary and the employee contributes 31% of the gross salary. In the RS, both the employer and the employee contribute 30.6% of the gross salary.

Administration and compliance:

Tax year - Calendar year

Filing and payment - Returns must be filed monthly and annually.

Penalties - In the FBiH, late interest is 0.04% per day. Penalties range from BAM 1,000 to BAM 50,000. In the RS, late interest is 0.06% per day and minimum penalties are BAM 500, BAM 1,000 and BAM 1,500.

Tax collection authority in Bosnia & Herzegovina: Tax administrations (entity, cantonal and municipal levels) are in charge of tax collection in Bosnia and Herzegovina. The Bosnia & Herzegovina Indirect Taxation Authority is in charge of collecting value added tax and coordinating fiscal policy issues in general. This body is also responsible for collecting customs and excises on the entire territory of Bosnia & Herzegovina.

Taxation categories in Bosnia and Herzegovina: The basic taxation categories are:

- Value Added Tax
- Corporate income tax
- Personal income tax
- Property tax
- Social security contributions paid by employers and employees
- Excise taxes, a special type of sales tax paid on some commodities like oil products, tobacco products, soft drinks, alcohol drinks, beer, wine and coffee.

Tax on Foreigners in Bosnia & Herzegovina: All foreigners with permanent residence in The Federation of Bosnia & Herzegovina and RS pay personal income tax on revenues earned during a calendar year in Bosnia & Herzegovina territory. Equally, all foreigners who do not reside permanently in Bosnia & Herzegovina but who earn income in the Federation Bosnia & Herzegovina and RS are considered as taxpayers.

In Brcko District, foreigners are treated as taxpayers if they stay in the District territory during an uninterrupted period of 183 days at least.

Bosnia & Herzegovina Corporate Tax Rate

Bosnia & Herzegovina corporate income tax rate is a flat 10%, which is one of the lowest tax rates in European Union.

Corporate Tax Base

Profits are calculated in accordance with applicable laws, by deducting (real) expenses from revenues. The corporate income tax base includes profit gained through revenues and capital gains, according to the accounting regulations. The expenditures must conform to the accounting standards.

Tax Exemptions

The Federation of Bosnia & Herzegovina Law on the Corporate Income Tax enables the taxpayer, who in the year for which the corporate income tax is being determined, has achieved 30% of their total revenue by export to be exempted from the tax payment for that year.

Taxpayer who in the period of 5 consequent years invests into production in the value of minimum BAM 20 million, on the territory of the Federation of Bosnia & Herzegovina, is being exempted from the payment of corporate income tax for the period of five years beginning from the first investment year, in which minimum BAM 4 million must be invested.

If taxpayer from the above paragraph, in the time period of 5 years, does not achieve the prescribed census for investment, they lose the right of tax exemption, and the unpaid corporate income tax is being determined in accordance with the provisions of the Law on the Corporate Income Tax augmented for penalty interest payable for untimely paid public revenues.

In the Federation of Bosnia & Herzegovina, taxpayer who employs more than 50% of disabled persons and persons with special needs longer than one year is being exempted from the payment of corporate income tax for the year in which more than 50% disabled persons and persons with special needs were employed.

Profits transferred from abroad are not taxed in Bosnia & Herzegovina

Profits transferred from abroad are not taxed in Bosnia & Herzegovina, if they were previously subject to taxation abroad.

Residence - A company in the FBiH/RS is resident if it is registered as a legal entity there. An entity has a taxable presence in the FBiH/RS by carrying out business activities in the jurisdiction that meet the criteria for a permanent establishment.

Basis - Resident companies are subject to tax on worldwide income, while nonresident companies are taxed only on income derived from the relevant jurisdiction.

Taxable income - The taxable base is determined by increasing the accounting profits or losses for nondeductible expenses and reducing the accounting profits or losses for allowable items.

Taxation of dividends - In the FBiH, dividends that already have been subject to tax or that benefit from a corporate income tax exemption are not taxable. Dividends are not subject to tax in the RS.

Capital gains - Capital gains are generally taxed as profits at a rate of 10%.

Losses - Tax losses may be carried forward for up to 5 years. Tax losses carried forward from the current year are compensated in the first year taxable profits are available for offset, so that the tax base is always reduced for the oldest losses. The carryback of losses is not permitted.

Rate - The tax rate is 10%. Small taxpayers in the RS (i.e. those with less than 9 employees and with total annual revenue in the preceding year not exceeding BAM 100,000, provided not more than 50% of total revenue comes from a single client) pay corporate income tax at a rate of 2%.

Surtax - No

Alternative minimum tax - No

Foreign tax credit - Resident taxpayers are entitled to a tax credit for tax paid abroad up to the corporate income tax liability in the FBiH/RS.

Participation exemption - No

Holding company regime - No

Incentives - The FBiH offers a full corporate income tax exemption for companies whose exports exceed 30% of total income (turnover) and companies investing not less than BAM 20 million over 5 consecutive years in production. All costs relating to R&D may be recognised as expenditure. There are also incentives for scientific and development research.

Withholding tax:

Dividends - Dividends paid from the FBiH to a nonresident are subject to a 5% withholding tax; the RS does not levy withholding tax on dividends.

Interest - A 10% withholding tax is levied on interest paid to nonresidents unless the rate is reduced or exempt under a tax treaty.

Royalties - Royalties paid to nonresidents are subject to a 10% withholding tax unless the rate is reduced under a tax treaty.

Other - A 10% withholding tax is levied on income from services provided to nonresidents, unless the rate is reduced under a tax treaty.

Branch remittance tax - No

Other taxes on corporations:

Capital duty - No

Payroll tax - In both the FBiH and RS, the employer withholds tax from salary on a monthly basis.

Real property tax - Property tax is levied in the FBiH at the cantonal level. A new property tax law applies in the RS as from 1 January 2022 with the tax rate determined by the municipality where property is located. See also under "Transfer tax."

Social security - In the FBiH, the employer contributes 10.5% of the employee's gross salary and the employee contributes 31% on the gross salary for social security. In the RS, both the employer and the employee contribute 30.6% of gross salary.

Stamp duty - No

Real estate transfer tax - The acquisition of real property in the FBiH is subject to a real estate sales tax at a rate of 5%. The tax base is the purchase value of the property at the time of the transaction. The taxpayer (i.e. the buyer or the seller) for purposes of the real estate sales tax varies depending on the canton. In the RS, the purchase of real property is taxed at a rate of 3%.The tax base is determined by the municipal appraisal team and the taxpayer is seller.

Bosnia & Herzegovina Value Added Tax (VAT) Rate

The VAT rate in Bosnia & Herzegovina is 17%. The Indirect Taxation Authority is in charge of calculation and collection of VAT.

Taxable transactions - VAT is levied at the state level and is applicable to the following transactions: goods or services provided for consideration; the import of goods; the use of business assets or inventory for nonbusiness or personal purposes (if credits for related purchases have been utilised); and the provision of services for no or reduced consideration or for non-business purposes.

VAT Rates - The standard rate is 17% (which applies to most deliveries of goods and services). Certain transactions are exempt, including certain public services, health and medical services and financial services. Other transactions (mainly exports of goods) are zero rated.

Registration - Registration is compulsory if the annual value of deliveries exceeds BAM 50,000. A company may register voluntarily if the threshold is not met. Once entering into the VAT system, a taxpayer cannot opt out for 5 years. A taxable person established abroad that carries out performs taxable economic activities in the BiH must register through a VAT representative.

Filing and payment - VAT returns and payments are due by the end of the current month for the prior VAT period. A taxable entity must also file an annual VAT return by the end of April of the year following the tax year.

Value added tax is a comprehensive tax on consumption, assessed based on the value added to goods and services. This is a general tax applied to all commercial activities, including manufacturing and distribution of goods and providing services. It is a consumer tax because it is not paid by the company, but by the end user. It is assessed as a percentage of the cost of goods or services. The tax amount is visible in all stages, from manufacturing to distribution chain. When paying tax liability, the taxpayer will reduce the value added tax by the tax amount he/she has already paid to other taxpayers at purchase. This ensures neutrality of taxation, regardless of the number of transactions involved.