Bosnia and Herzegovina (BiH) has a complex tax system due to its structure of entities and cantons. Employers in this region have several tax responsibilities.

Social Security Contributions

Employers are responsible for making significant social security contributions on behalf of their employees. These contributions cover:

• Pension and Disability Insurance: Varies based on entity.
• Health Insurance: Varies based on entity.
• Unemployment Insurance: Varies based on entity.
• Additional Contributions:
  • 0.5% contribution for protection from natural and other disasters (FBiH only)
  • 0.5% water protection charge (FBiH only)

Social security contribution rates differ between the two main entities of Bosnia and Herzegovina:

• Federation of Bosnia and Herzegovina (FBiH): Employers make social security contributions.
• Republika Srpska (RS): Employers do not make social security contributions. Contributions are withheld entirely from the employee's gross salary.

Personal Income Tax (PIT)

Employers are responsible for withholding personal income tax from employee salaries. The PIT rate is a flat 10% across all of BiH.

Other Contributions

Employers must withhold a 0.25% contribution from employee net salaries for a Solidarity Fund supporting children with rare diseases.

Additional Considerations

Some cantons within FBiH may have additional taxes or levies. It's essential to check with local tax authorities. Employers must register with relevant tax authorities in BiH. There are specific deadlines for reporting various taxes and contributions. Failure to comply can result in penalties.

In Bosnia and Herzegovina, a flat personal income tax rate of 10% is applied across the country. Besides income tax, employees are also subject to mandatory social security contributions.

Mandatory Social Security Contributions

In the Federation of Bosnia and Herzegovina (FBiH), these contributions include:

• Pension and Disability Insurance: 17%
• Health insurance: 10.2%
• Unemployment Insurance: 0.5%
• Solidarity Fund: 0.5%

In Republika Srpska (RS), the contributions are:

• Pension and Disability Insurance: 18.5%
• Health Insurance: 12%

Employee Tax Deductions

Standard tax deductions for employees are provided in Bosnia and Herzegovina. In the Federation of Bosnia and Herzegovina (FBiH), the deduction is 300 BAM per month. Employees may also be eligible for increased deductions based on dependents or interest paid on housing loans. In Republika Srpska (RS), the deduction is 500 BAM per month.

Additional Taxes

Employees in Bosnia and Herzegovina may also be subject to additional taxes depending on the specific jurisdiction. These can include Cantonal Taxes, where some cantons within the Federation of Bosnia and Herzegovina (FBIH) may levy additional taxes. Individuals may also be subject to property taxes based on the ownership of real estate.

The standard VAT rate in Bosnia and Herzegovina (BiH) is 17%. This applies to most services supplied within the country. However, certain essential services, such as healthcare, education, and some financial services, may be exempt from VAT.

VAT on Imported Services

BiH may use a "reverse charge" mechanism for services received from outside its borders. In this case, the recipient of the service in BiH is responsible for calculating and paying VAT, even if the supplier is a foreign entity. It's essential to assess whether specific imported services fall under the VAT taxable category in BiH.

Important Considerations

The specific treatment of VAT on services can slightly vary depending on the nature of the service. Providing services across borders may have more complex VAT implications regarding the place of supply.

Staying Compliant

The official website of the Indirect Taxation Authority of Bosnia and Herzegovina is the primary source for VAT regulations and updates. For complex situations, international transactions, or to ensure complete compliance, consult a tax advisor specializing in VAT regulations within Bosnia and Herzegovina.

Bosnia and Herzegovina (BiH) provides a variety of tax incentives to attract investment, support specific industries, and encourage job creation. These incentives are available at different governmental levels within the country, including the Federation of Bosnia and Herzegovina (FBiH), Republika Srpska (RS), and Brčko District (BD).

Key Tax Incentives

Investment Incentives

In FBiH, taxpayers who reinvest over 50% of their profits into production equipment can benefit from a 30% reduction in their corporate income tax for the investment year. Companies investing a minimum of BAM 20 million (approximately USD 10.8 million) over five consecutive years in FBiH may be eligible for a 50% tax break for five years. Both RS and BD offer incentives for investments in production and fixed assets.

Employment Incentives

Businesses in BiH can receive subsidies for hiring new employees, particularly those from vulnerable groups such as young people, the long-term unemployed, or persons with disabilities. Employers are eligible for reductions in social security contributions in specific instances, particularly when hiring target groups or increasing salaries.

Sector-Specific Incentives

Bosnia and Herzegovina provides incentives targeted towards specific economic sectors, including agriculture and food processing, manufacturing, tourism, information technology, and research and development.

Incentives for Small and Medium-Sized Enterprises (SMEs)

SMEs are an important part of the BiH economy and may be eligible for specific incentives, such as simplified tax procedures, access to financing, and support for innovation and exports.