Bosnia and Herzegovina operates a complex tax system influenced by its decentralized structure, comprising two main entities – the Federation of Bosnia and Herzegovina (FBiH) and the Republika Srpska (RS), plus the Brčko District. While there are efforts towards harmonization, significant differences persist, particularly concerning social security contributions and certain aspects of income tax. Employers operating in BiH must navigate these regional variations to ensure full compliance with payroll and income tax obligations for their employees. Understanding these requirements is fundamental to managing a compliant workforce in the country.
The tax year in Bosnia and Herzegovina aligns with the calendar year, from January 1st to December 31st. Employers are responsible for calculating, withholding, and remitting various taxes and social contributions on behalf of their employees, as well as paying their own share of contributions. Compliance involves accurate calculation, timely payment, and regular reporting to the relevant tax authorities in the specific entity or district where the employee is registered for social security and income tax purposes.
Employer Social Security and Payroll Tax Obligations
Employers in Bosnia and Herzegovina are required to pay social security contributions on behalf of their employees. These contributions fund various social programs, including pension, health insurance, and unemployment. The rates and calculation bases differ between the Federation of BiH and the Republika Srpska. Contributions are generally calculated on the gross salary of the employee.
Federation of Bosnia and Herzegovina (FBiH)
In FBiH, employer contributions are calculated on the gross salary. The rates for 2025 are expected to remain consistent with current regulations unless legislative changes occur.
| Contribution Type | Employer Rate |
|---|---|
| Pension and Disability | 6.0% |
| Health Insurance | 4.0% |
| Unemployment | 0.5% |
| Total Employer | 10.5% |
In addition to employer contributions, employees also pay contributions which are withheld from their gross salary. These employee contributions are: Pension and Disability (17.0%), Health Insurance (12.5%), and Unemployment (1.5%), totaling 31.0%. The employer is responsible for withholding and remitting both the employer and employee portions.
Republika Srpska (RS)
In RS, employer contributions are also calculated on the gross salary. The rates for 2025 are expected to follow current regulations.
| Contribution Type | Employer Rate |
|---|---|
| Pension and Disability | 7.0% |
| Health Insurance | 5.2% |
| Unemployment | 0.6% |
| Child Protection | 1.7% |
| Total Employer | 14.5% |
Similar to FBiH, employees in RS also pay contributions withheld from their gross salary: Pension and Disability (18.5%), Health Insurance (12.0%), and Unemployment (0.8%), totaling 31.3%. The employer is responsible for withholding and remitting both portions.
Brčko District
The Brčko District has its own regulations, often aligning closely with either FBiH or RS rules or having specific rates. Employers operating in Brčko must adhere to the district's specific social security contribution rates and rules.
Income Tax Withholding Requirements
Employers are responsible for calculating and withholding personal income tax (PIT) from their employees' salaries each month. The income tax system in BiH is generally based on a flat rate, but the taxable base is determined after deducting mandatory social security contributions and applicable personal allowances.
The standard personal income tax rate in both FBiH and RS is 10%.
The calculation of the monthly taxable income typically involves: Gross Salary Minus: Mandatory Employee Social Security Contributions (31.0% in FBiH, 31.3% in RS) Minus: Monthly Personal Allowance Equals: Taxable Income
Income Tax Payable = Taxable Income * 10%
Employers must remit the withheld income tax to the relevant tax authority (FBiH Tax Administration, RS Tax Administration, or Brčko District Tax Authority) on a monthly basis.
Employee Tax Deductions and Allowances
Employees are entitled to certain deductions and allowances that reduce their taxable income. The primary deduction is the personal allowance, which is granted monthly. Additional allowances may be available for dependents (spouse, children) and potentially for specific expenses like healthcare or education, although the rules and amounts can vary between entities.
Personal Allowance: The basic monthly personal allowance is a fixed amount that is deducted from the gross income after social contributions to arrive at the taxable base. The amount is subject to change by entity legislation. For 2025, employers should apply the allowance rate valid for that year in the respective entity (FBiH, RS, or Brčko).
Dependent Allowances: Employees may claim additional allowances for qualifying dependents, such as a spouse who is not employed or receiving a pension, and children. These allowances are typically calculated as a multiplier of the basic personal allowance. The specific multipliers and conditions for claiming dependents differ between FBiH and RS.
Employers usually require employees to submit documentation (e.g., marriage certificates, birth certificates) to claim dependent allowances. The employer incorporates these allowances into the monthly payroll calculation to determine the correct amount of income tax to withhold.
Tax Compliance and Reporting Deadlines
Employers in Bosnia and Herzegovina have strict deadlines for reporting and remitting payroll taxes and social contributions. Compliance involves monthly reporting and annual reporting.
- Monthly Reporting and Payment: Employers must calculate and pay social security contributions and withheld income tax on a monthly basis. The deadline is typically the 10th or 15th day of the following month, depending on the specific entity's regulations and the type of payment. Monthly reports detailing gross salaries, contributions, and withheld tax for each employee must also be submitted electronically.
- Annual Reporting: Employers are required to submit annual reports summarizing the total income paid, contributions, and taxes withheld for each employee during the calendar year. These reports are crucial for employees to file their annual personal income tax returns (if required) and for the tax authorities to reconcile payments. The deadline for annual reports is usually at the beginning of the following year (e.g., by the end of February or March).
Failure to meet reporting and payment deadlines can result in penalties, interest, and other enforcement actions by the tax authorities.
Special Tax Considerations for Foreign Workers and Companies
Foreign individuals working in Bosnia and Herzegovina are generally subject to the same income tax and social security rules as domestic employees if they are considered tax residents or earn income from sources within BiH. Tax residency is typically determined by physical presence (e.g., spending more than 183 days in the country within a 12-month period).
- Tax Residency: Non-residents are generally taxed only on income sourced in BiH, while residents are taxed on their worldwide income. The employer's obligation to withhold tax depends on the employee's residency status and where the work is performed.
- Social Security: Foreign workers employed by a BiH entity are generally required to contribute to the BiH social security system. However, exceptions may apply based on bilateral social security agreements between BiH and the employee's home country, which can prevent double contributions. Employers should verify if such an agreement exists and if the foreign employee is covered by it, potentially allowing them to remain in their home country's social security scheme for a limited period.
- Work Permits and Registration: Employing foreign workers requires obtaining necessary work and residency permits, which involves registration with relevant authorities, including tax and social security institutions.
- Foreign Companies: Foreign companies employing individuals in BiH may trigger a permanent establishment (PE) depending on the nature and duration of their activities, which can create corporate tax obligations in addition to payroll obligations. Engaging employees through a local entity or an Employer of Record can help manage these complexities and ensure compliance with local labor and tax laws without establishing a PE.
Navigating the tax landscape for foreign workers requires careful consideration of residency rules, social security agreements, and registration requirements to ensure full compliance for both the employer and the employee.
