Tax laws Bosnia and Herzegovina
Bosnia and Herzegovina (BiH) has a complex tax system because of its political structure. The country is made up of two entities: the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS), along with the Brčko District, each having its own tax rules and authorities. However, there are overarching national laws that influence the tax system. Here is an overview of the tax laws in Bosnia and Herzegovina:
1. Income Tax
Income tax in Bosnia and Herzegovina is governed by the entity-level laws in both the Federation of Bosnia and Herzegovina and Republic of Srpska.
Personal Income Tax:
- FBiH: Personal income tax is charged at a flat rate of 10% on most types of income. However, the rate may differ for certain regions and income categories.
- RS: The personal income tax rate is 10% as well, with allowances for deductions related to certain expenses, such as health and pension contributions.
Corporate Income Tax:
- FBiH: The corporate income tax rate is 10% on profits.
- RS: Corporate income tax is also 10% on profits.
- Brčko District: A corporate income tax rate of 10% applies here as well.
2. Value Added Tax (VAT)
Value Added Tax (VAT) is applied across the whole country, although there may be slight variations between the entities.
- Standard VAT Rate: The standard VAT rate in Bosnia and Herzegovina is 17%.
- Reduced VAT Rate: There is a reduced VAT rate of 8% for certain goods and services, including medical products, basic foodstuffs, and transportation services.
- Exemptions: Some goods and services, including financial and insurance services, education, and certain medical services, are exempt from VAT.
3. Social Security Contributions
Social security contributions in Bosnia and Herzegovina are governed by entity-specific laws. These contributions finance pension, health, and unemployment benefits.
Pension Contributions: Employees and employers are required to contribute to the pension system, with the total contribution typically around 31.5%, divided between the employer and employee.
- FBiH: 17% (employer) and 12% (employee).
- RS: 17% (employer) and 11.5% (employee).
Health Insurance Contributions: Contributions to the health insurance system vary, with a typical total contribution rate of 18%.
- FBiH: 8.5% (employer) and 9.5% (employee).
- RS: 8.5% (employer) and 9.5% (employee).
Unemployment Contributions: The total contribution rate is generally around 2%, with the employer paying the larger portion.
4. Sales Tax and Excise Taxes
Sales taxes are incorporated into VAT in Bosnia and Herzegovina. However, there are also excise taxes applied to specific goods.
- Excise Taxes: Excise taxes are imposed on products such as alcohol, tobacco, and petroleum products.
- Tobacco and Alcohol: Tax rates are based on product quantities or value, and can vary depending on the entity and product category.
- Fuel: Fuel is subject to excise tax, with rates differing based on fuel type.
5. Property Tax
Property tax laws in Bosnia and Herzegovina differ by entity and municipality.
- FBiH: Property tax is imposed at the municipal level and rates vary by municipality. Property taxes are generally based on the value of the property.
- RS: Property tax is also regulated at the local level, with municipalities determining the rates based on property value.
- Brčko District: Property tax is calculated based on the value of the property, and rates are set by local authorities.
6. Capital Gains Tax
Capital gains are generally taxed as income in Bosnia and Herzegovina.
- FBiH and RS: Capital gains tax is treated as regular income and taxed at the same rate as personal income (10%).
7. Withholding Tax
Withholding taxes are levied on certain payments, including those made to non-residents.
- Dividends and Interest: A 10% withholding tax is applied to dividends and interest paid to non-residents.
- Royalties: Payments to non-residents for royalties are subject to a 10% withholding tax.
8. Inheritance and Gift Tax
Bosnia and Herzegovina imposes taxes on inheritance and gifts.
- FBiH: Inheritance and gifts are taxed, with rates ranging from 2% to 5% based on the relationship between the deceased/donor and the heir/recipient.
- RS: Inheritance and gift taxes range from 1% to 5%, with close relatives typically paying lower rates.
9. Customs and Import Duties
Bosnia and Herzegovina is part of the Central European Free Trade Agreement (CEFTA) and has preferential trade agreements with the European Union. However, customs duties are imposed on goods imported from non-CEFTA countries.
- Import Duties: Import duties vary depending on the type of goods and country of origin.
- Customs Fees: Customs fees are calculated based on the value and nature of the goods being imported.
10. Environmental Taxes
Bosnia and Herzegovina also applies environmental taxes to promote sustainability.
- Environmental Taxes: These include taxes on certain types of pollution, waste disposal, and emissions, particularly for industrial and energy sectors.
11. Double Taxation Treaties (DTA)
Bosnia and Herzegovina has signed double taxation treaties with several countries to avoid the double taxation of income. These treaties primarily deal with income taxes, and they usually provide for tax credits or exemptions to reduce the tax burden on individuals and businesses earning income in more than one country.
12. Filing and Reporting Requirements
- Tax Returns: Both individuals and companies must file annual tax returns. The filing period for personal income tax returns is typically by April 30th of the following year.
- VAT Returns: VAT-registered businesses must file VAT returns on a monthly or quarterly basis, depending on their size and turnover.
- Corporate Tax Returns: Companies must submit an annual corporate tax return by March 31st.
13. Tax Incentives
Bosnia and Herzegovina offers various tax incentives to encourage investment, especially in underdeveloped regions and in sectors like tourism, energy, and agriculture. These may include exemptions, reductions, or deferrals of taxes for specific projects.
14. Tax Administration
The Indirect Taxation Authority (ITA) is responsible for collecting VAT, customs duties, and other indirect taxes in Bosnia and Herzegovina. The Tax Administration of Federation of BiH and the Tax Administration of Republika Srpska manage income tax, corporate tax, and other direct taxes.
Conclusion
The tax system in Bosnia and Herzegovina is characterized by its complexity due to the political structure of the country. Each entity has its own tax regulations, although there are harmonized laws on certain matters like VAT and customs. The country imposes personal income tax, corporate income tax, VAT, excise taxes, and property taxes, among others. Tax rates are relatively low compared to Western European standards, which can make Bosnia and Herzegovina an attractive place for investment. However, the multi-level tax administration and entity-specific laws mean that businesses must navigate a complex regulatory environment.
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