Tax collection authority

Tax administrations (entity, cantonal and municipal levels) are in charge of tax collection in BiH.

The BiH 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 BiH.

Taxation categories in BiH

The basic taxation categories are:
• Corporate income tax
• Personal income tax
• Value Added Tax
• Wages tax
• Property tax
• Social security contributions paid by employers and employees
• Excises, a special type of sales tax paid on some commodities like oil products, tobacco products, soft drinks, alcohol drinks, beer, wine and coffee.

Value added tax (VAT)

Value added tax (VAT) was introduced on January 1, 2006, replacing sales tax on goods and services. It was introduced at a flat rate of 17%. The Indirect Taxation Authority is in charge of calculation and collection of VAT.

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.

Corporate income tax rate in B&H
• Federation BiH – 30%.
• Republic of Srpska – 10%
• Brko District – 10%
It is expected that these rates will be harmonized soon.

Tax exemptions for foreign investors

The Federation Law on Corporate Income Tax enables the reduction of the tax for a period of 5 years equal to the percentage of foreign capital invested in the assets of the company, provided that the foreign capital is greater than 20% of total capital. This incentive includes companies with 100% foreign capital investment.

In the Federation of BiH, companies, investing their taxable profits in their own production activities and apartment building are given a tax relief in the amount of 100% of the invested value, or in the amount of 75% if they invest in other activities of their company.

Investment capital in not subject to taxation in BiH.

Profits transferred from abroad are not taxed in BiH

Profits transferred from abroad are not taxed if they were previously subject to taxation abroad.

Corporate taxable basis

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

Personal income tax rates in BiH

In the Federation of BiH and in the RS, personal income tax is payable on following types of income:
• wage
• earnings from farming
• income from property and property rights
• income from copyrights, patents and technical inventions
• capital gains
• income from other activities.
In the Federation of BiH, personal income tax is levied at cantonal level, while in the RS it is regulated at entity level. Brko District has its Law on Personal Income Tax that regulates this type of tax for the District.

Please contact FIPA to find out about current personal income tax categories and applicable rates.

In Federation of BiH, wages are taxed 5% (tax base is gross salary), while tax rates for other types of income range from 10% to 30% (depending on the tax-base type, e.g. income from property, copyrights, capital gains, etc.).

In the RS, wage tax is from 0% to 15% (tax base is net salary and depending on the amount of wage). Tax rates for other types of income are the same.

Foreigners and taxes in BiH

All foreigners with permanent residence in the Federation BiH and RS pay personal income tax on revenues earned during a calendar year in BiH territory. Equally, all foreigners who do not reside permanently in BiH but who earn income in the Federation BiH 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.