Bosnia and HerzegovinaTax Obligations Detailed

In Bosnia and Herzegovina, employers navigate a multi-layered tax system with contributions split between employers and employees, varying slightly between its entities.

Employer Tax Contributions in Bosnia and Herzegovina

Bosnia and Herzegovina comprises two entities, the Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS), and the Brčko District (BD), each with its own regulations. The following overview focuses on the FBiH and RS as the primary areas of employer obligations.

Federation of Bosnia and Herzegovina (FBiH)

• Social Security - Pension and Invalidity Insurance: 6% of the employee's gross salary.
• Social Security - Health Insurance: 4% of the employee's gross salary.
• Social Security - Unemployment Insurance: 0.5% of the employee's gross salary.
• Natural Disasters Fund: 0.5% of the employee's net salary.
• Water Fund: 0.01% of the employee's net salary.

As of January 1st, 2025, employers also benefit from a temporary exemption on performance bonuses up to 200 BAM, expiring on December 31st, 2025. It's important to note that while this bonus is exempt, its calculation must align with the broader salary structure defined by the employer, which can include workplace rules or sector-specific collective agreements.

Republika Srpska (RS)

In Republika Srpska, there are no direct social security contributions required from employers. The employee bears the full cost of social security contributions, which include:

• Pension and Invalidity Insurance: 18.5% of the employee's gross salary
• Health Insurance: 12% of the employee's gross salary
• Unemployment Insurance: 0.6% of the employee's gross salary
• Child Protection: 1.7% of the employee's gross salary.

Corporate Income Tax

The standard corporate income tax rate in Bosnia and Herzegovina is 10% of net profits. This applies uniformly across both entities (FBiH and RS) and the Brčko District.

Payroll Taxes and Deadlines

Employers are responsible for withholding income tax (10% flat rate) and social security contributions from employee salaries. The due date for the payment of these withheld taxes is the 10th of the following month.

Monthly income and social security tax reports must be submitted to the tax office, coinciding with the salary payments. The deadline for submission is typically by the end of the following month. However, Republika Srpska has a slightly earlier deadline of the 10th of each month. This reporting should also align with quarterly submissions due on the 20th of the month following each quarter, and the annual return due by February 15th of the following year.

Value Added Tax (VAT)

The standard VAT rate in Bosnia and Herzegovina is 17%. No reduced VAT rates are currently applicable.

This information is current as of February 5th, 2025 and is subject to change due to potential legal and regulatory updates. Always consult with local authorities or tax advisors for the latest information.

In Bosnia and Herzegovina, employee tax deductions primarily involve income tax and social security contributions, varying based on the entity (Federation of Bosnia and Herzegovina (FBiH) or Republika Srpska (RS)).

Income Tax

• FBiH: A flat 10% income tax is levied on gross income after deducting social security contributions and allowances.
• RS: A flat 10% income tax is also applied, calculated similarly to FBiH. However, the non-taxable portion of the salary is KM 500.

Social Security Contributions

• Both employers and employees contribute to social security, covering pension/disability and health insurance.
• Contributions are calculated on the gross salary amount, with specific percentages varying by entity and contribution type.
• FBiH and RS: follow entity-specific regulations for social security, with Brčko District aligning with RS guidelines for pensions.

Tax Deductions and Allowances

• FBiH: A monthly tax deduction of BAM 300 is standard, based on the tax card issued by the tax administration. Additional deductions are available for dependents or housing loan interest.
• RS: The standard monthly tax deduction is BAM 200. Additional deductions may apply, such as for dependent family members. It's important to note the increased non-taxable salary portion to KM 500.

Additional Considerations

• Tax Cards: Employees obtain tax cards from the tax administration, outlining their applicable deductions.
• Contract Updates (RS): Employers in RS should update employment contracts to reflect gross salary, incorporating the non-taxable portion and applicable deductions. Non-compliance results in fines.
• Salary Calculation: Gross salary includes the base salary plus increases stipulated by law, collective agreements, and individual contracts. This gross amount forms the basis for social security and tax calculations. The increase in the non-taxable portion aims to raise the net salaries of employees.

General Information on Payroll in Bosnia and Herzegovina

Bosnia and Herzegovina's payroll system reflects its unique political structure, divided into the Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS), along with Brčko District. Each entity has its own set of laws governing employment, taxation, and social security.

The official currency used for payroll is the Bosnia and Herzegovina Convertible Mark (BAM). The standard payroll frequency is monthly, and the fiscal year aligns with the calendar year, running from January 1st to December 31st. The date format typically used is DD/MM/YYYY.

Common Deductions

• Personal Allowance: A basic deduction available to all employees, the amount of which may vary by entity.
• Dependent Family Members: Deductions are allowed for spouse, children, and dependent parents meeting certain criteria.
• Housing Loan Interest: In certain cases, interest paid on housing loans can be deducted from taxable income.

Employer Obligations

Employers in Bosnia and Herzegovina are responsible for deducting the correct taxes and social security contributions from employee salaries and remitting them to the appropriate authorities. They are also required to comply with labor laws, including maintaining proper records of employment, providing mandatory benefits, and ensuring accurate salary payments. It's worth noting the potential fines for non-compliance, especially in RS regarding contract updates.

Deadlines and Procedures

Specific deadlines for tax filing and payment of social security contributions vary based on the entity and type of tax/contribution. Employers are generally required to file monthly tax returns and make contributions within specified timeframes. Detailed information on deadlines and procedures can be found on the websites of the relevant tax authorities and social security funds within each entity.

As of today, February 5, 2025, this overview provides accurate information regarding employee tax deductions in Bosnia and Herzegovina. However, tax laws and regulations can be subject to change. It's always recommended to consult with local tax and legal professionals for the most up-to-date information and personalized guidance.

In Bosnia and Herzegovina, the Value Added Tax (VAT) system follows a standard rate of 17% for most goods and services as of February 5, 2025.

VAT Registration

• Threshold: The VAT registration threshold is BAM 100,000 (approximately €51,050) in annual taxable supplies. This applies to resident businesses only. Non-resident businesses are required to register regardless of turnover if they conduct taxable activities in Bosnia and Herzegovina.
• Voluntary Registration: Businesses below the threshold can register voluntarily, committing to VAT liability for at least 60 months.
• Non-Resident Businesses: Non-resident businesses must appoint a fiscal representative.

VAT Filing and Payment

• Frequency: Monthly
• Deadline: The VAT return and payment are due by the 10th of the month following the reporting period.
• Refunds: Unused tax credits can be refunded after six months. Registered exporters typically receive refunds within 30 days. The minimum VAT refund claim for non-residents is BAM 200 per transaction/invoice.

VAT Rates and Exemptions

• Standard Rate: 17% applies to most goods and services.
• Zero-Rated Supplies: Exports, certain international transport services, and specific supplies like gold to the Central Bank are zero-rated (allowing input VAT recovery).
• Exempt Supplies (No Input VAT Deduction): Real estate (except for the first sale of newly constructed property), certain public services (healthcare, education), financial services, insurance, long-term residential leases (over 60 days), and postal services.

Specific Provisions

• Digital Services: Non-resident providers of digital services are required to register, collect, and remit 17% VAT.
• E-invoicing: While not yet mandatory for B2B transactions, e-invoicing is anticipated to become compulsory, likely aligning with EU standards.

Additional Points to Note

• The VAT regime is consistent throughout Bosnia and Herzegovina.
• Simplified VAT invoices are permissible if they contain specific required information.

It's important to consult with a tax professional for personalized guidance regarding VAT compliance in Bosnia and Herzegovina, as regulations are subject to change. This information is current as of February 5, 2025.

Bosnia and Herzegovina offers various tax incentives at different governmental levels. These incentives primarily target investments, employment, and specific sectors.

Federation of Bosnia and Herzegovina (FBiH)

• Investment Incentives:
  • A 30% corporate income tax reduction for investments in production equipment exceeding 50% of the current tax period's profit, financed by the company's own assets.
  • A 50% corporate income tax reduction for investments in production assets exceeding BAM 20 million over five years (with a minimum of BAM 4 million in the first year), financed by the company's own assets. This incentive is valid for five years, and failing to meet the investment criteria results in repayment of the unpaid tax with penalties.
• Employment Incentive: A double tax deduction on gross salaries paid to newly hired full-time employees under contracts lasting at least 12 months, provided the employee hasn't worked for the company or related entity in the last five years.
• Foreign Tax Credit: A credit for taxes paid abroad on income generated outside FBiH, up to the amount of FBiH profit tax liability for the same income.

Republika Srpska (RS)

• Investment Incentive: A corporate income tax base reduction for investments in plant and equipment for registered production activities. The specific amount of the reduction is not mentioned in the provided sources.
• Employment Incentive: A tax base reduction for companies hiring 30 or more previously unemployed workers indefinitely during a calendar year. The reduction is up to the amount of personal income tax and social security contributions paid for these employees.
• Foreign Tax Credit: A credit for taxes paid in a foreign state on income also taxable in RS, deductible from the RS tax liability.

Brčko District

• Investment Incentive: Compensation up to the amount of paid profit or income tax for new investments in fixed assets made during the tax year. The difference between the tax amount and the investment cannot be carried forward.
• Employment Incentive: A tax base reduction by the amount of gross salary paid to new indefinite-term employees.
• Other Incentives: Brčko District offers various incentives like exemptions from utility fees for company signage, compensation for utility connection costs, refunds for fees paid to obtain location conditions and building permits, and compensation for the difference between business and household utility prices. Additionally, there's compensation for maternity leave salaries and financial support for hiring workers with secondary or higher education (BAM 5,000 and BAM 7,000, respectively).

General Tax Information for Businesses in Bosnia and Herzegovina

• Corporate Income Tax Rate: The standard corporate income tax rate is 10% across all jurisdictions.
• Loss Carryforward: Losses can be carried forward for up to five years and offset against future profits, with the oldest losses offset first. Loss carryback is not permitted.
• Dividends: Dividends received from companies within the same tax jurisdiction are exempt.
• Capital Gains: Capital gains are generally taxed at the standard corporate income tax rate (10%).

Upcoming Changes and General Notes

Bosnia and Herzegovina is undergoing tax modernization, with plans to introduce mandatory e-invoicing and live reporting of transactions, likely in 2025. It is divided into three jurisdictions (FBiH, RS, and Brčko District) each having its specific regulations. The information provided here is based on available data and may be subject to change. Consulting a tax advisor is recommended for specific situations and up-to-date information.