Doing Business 2014 edition in Bosnia and Herzegovina July 2014

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Doing Business
in Bosnia and Herzegovina
July 2014
2014 edition
Guide to Doing Business
in Bosnia and Herzegovina
The purpose of this guide is to assist PwC clients and other parties interested in doing business in Bosnia and
Herzegovina. It does not exhaustively cover the subject, but is intended as a synopsis of some of the important
initial issues of concern for those planning to do business in Bosnia and Herzegovina.
It is intended to provide a general guide only on the subject matter and is necessarily in a condensed form. It
should not be regarded as a basis for determining the tax liability in specific circumstances.
Professional advice should always be taken before acting on any information in the booklet.
Partner’s Letter
Welcome to the second publication in the series of guides to
“Doing Business in Bosnia and Herzegovina”
I am glad to present the 2nd edition of our guide
“Doing Business in Bosnia and Herzegovina”
(“BiH). The guide is based on the latest legislation
and available information.
Although BiH has been affected by the external
environment, BiH economy managed to record
growth, consolidate macroeconomic stability and
strengthen the financial system.
The guide to “Doing Business in Bosnia and
Herzegovina” 2014 edition will be of valuable
assistance to domestic and foreign investors and
potential investors alike, regardless of the type, size
and character of the investment.
Emmanuel Koenig
Country Managing Partner
It aims at providing up-to-date information on
conducting business in BiH. This includes
commentary on the latest legal developments, audit
and accounting changes, major tax and investment
incentives and general economic and business
conditions.
Since 2003, PwC has been advising companies and
individuals on how to do business in Bosnia and
Herzegovina. We draw on our significant
experience in the local market, as well as the
strength of our international network to help build
value, manage risks, and improve the performance
of your business in BiH.
With highly-qualified and experienced staff, PwC
Bosnia and Herzegovina can assist in your business
plans from commencement of operations to
expansion of business to multi-sector trading and
investment enterprises.
A brief guide such as this cannot answer all your
questions. However, it will provide you with some
valuable insight into the BiH market and make you
better prepared to meet the challenges ahead. More
detailed advice should be sought to from our
professionals in PricewaterhouseCoopers d.o.o. and
PricewaterhouseCoopers Tax and Advisory d.o.o.
We hope to be of service to you during this exciting
period of new opportunities in Bosnia and
Herzegovina.
Table of Contents
Chapter 1
Bosnia and Herzegovina –profile ................................................................................................................................ 6
1.1. Introduction ............................................................................................................................................................7
1.2. People ..................................................................................................................................................................... 8
1.3. Governing Structures............................................................................................................................................10
1.4. Legal System .........................................................................................................................................................10
1.5. Economy ................................................................................................................................................................ 11
1.6. Trade......................................................................................................................................................................15
1.7. Energy....................................................................................................................................................................15
Chapter 2
Business environment ................................................................................................................................................. 17
2.1. Main economic indicators ....................................................................................................................................18
2.2. Business environment..........................................................................................................................................18
2.3. Inflation rate .........................................................................................................................................................18
2.4. Wages and employment.......................................................................................................................................19
2.5. EU accession progress..........................................................................................................................................19
2.7. Interest rates on loans ..........................................................................................................................................19
Chapter 3
Foreign investment..................................................................................................................................................... 20
3.1. Investment background........................................................................................................................................21
3.2. Equal treatment....................................................................................................................................................21
3.3. Steps in registering a company............................................................................................................................21
3.4. Free trade zones....................................................................................................................................................21
3.5. Investment incentives ......................................................................................................................................... 22
Chapter 4
Banking and finance................................................................................................................................................... 23
4.1. Structure of the BiH financial services sector .................................................................................................... 24
4.2. Structure of banking sector in BiH..................................................................................................................... 24
4.3. Stock exchanges................................................................................................................................................... 25
4.4. Insurance market ................................................................................................................................................ 25
4.5. Leasing sector ...................................................................................................................................................... 26
Chapter 5
Foreign trade and customs policy.............................................................................................................................. 27
4
5.1. Foreign trade regulations .................................................................................................................................... 28
5.2. Trade agreements ................................................................................................................................................ 28
5.4. Free zones ............................................................................................................................................................ 29
5.5. Customs relief ...................................................................................................................................................... 29
5.6. Foreign trade indicators...................................................................................................................................... 29
Chapter 6
Business entities ......................................................................................................................................................... 30
6.1. Company registration ...........................................................................................................................................31
6.2. Forms of business entities ...................................................................................................................................31
6.4. Regulatory environment ..................................................................................................................................... 33
Chapter 7
Labour relations ......................................................................................................................................................... 35
7.1. Labour .................................................................................................................................................................. 36
7.2. Employment contracts ........................................................................................................................................ 36
7.3. Public holidays..................................................................................................................................................... 37
7.4. Employment of foreigners .................................................................................................................................. 37
Chapter 8
Accounting and audit ................................................................................................................................................. 39
8.1. Accounting ........................................................................................................................................................... 40
8.2. Audit of financial reports.................................................................................................................................... 42
Chapter 9
Corporate Taxation..................................................................................................................................................... 43
9.1. Introduction ......................................................................................................................................................... 44
9.2. Corporate tax ....................................................................................................................................................... 44
9.3. Withholding tax................................................................................................................................................... 52
9.4. Transfer pricing ................................................................................................................................................... 53
9.5. Value added tax ................................................................................................................................................... 54
9.6. Excise duties ........................................................................................................................................................ 54
9.7. Custom duties ...................................................................................................................................................... 54
Chapter 10
Individual Taxation .................................................................................................................................................... 55
10.1. Personal income tax........................................................................................................................................... 56
10.2. Social security contributions............................................................................................................................. 58
Chapter 11
PwC in Bosnia and Herzegovina................................................................................................................................ 59
5
Chapter 1
Bosnia and Herzegovina
– profile
6
Chapter 1 – Bosnia and Herzegovina, profile
1.1. Introduction
Bosnia and Herzegovina (BiH) is a country located
in South Eastern Europe, on the Balkan Peninsula.
It is bordered by Serbia to the east, Croatia to the
north, west and south, and Montenegro to the
southeast. BiH has 21.2 kilometres of coastline on
the Adriatic Sea. The country is home to three
ethnic groups (also known as constituent peoples
which is a term unique to BiH) comprising of
Bosniaks, Croats and Serbs. Regardless of ethnicity,
a national of Bosnia and Herzegovina is identified
in English as a Bosnian. The three official languages
are Bosnian, Croatian and Serbian.
Bosnia and Herzegovina declared sovereignty on 15
October 1991. Bosnia and Herzegovina is a
parliamentary republic, which has a bicameral
legislative branch and a three-member Presidency
composed of a member of each major ethnic group.
The country is politically decentralised and
comprises of two governing entities, the Federation
of Bosnia and Herzegovina (FBiH) and Republika
Srpska (RS), with a third region, the Brčko District
(BD), governed under local government.
History
Bosnia and Herzegovina (BiH) has one of the
richest histories in the region. It has been inhabited
at least since the Neolithic times. In the late Bronze
Age, the Neolithic population was replaced by IndoEuropean tribes known as the Illyrians and it was
called Illyricum. Celtic migrated to the country and
mixed with the natives in the 4th and 3rd centuries
B.C.
Romans conquered the country in the late 2nd and
1st centuries B.C. and the region of Dalmatia and
Pannonia were included in the Western Roman
Empire when the Roman Empire split.
The Ostrogoths conquered the region in 455 and
embraced other tribes like the Alans and Huns.
Emperor Justinian and the Byzantine Empire
conquered the land in the late 6th century. Then
Slavs invaded the Eastern Roman Empire in the 6th
and 7th centuries settling it now as Bosnia and
Herzegovina and the surrounding lands.
The first notable Bosnian ruler was Ban Kulin (1163
– 1204) who strengthened the country’s economy
over nearly three decades and maintained peace
and stability throughout the country. The Ottoman
Empire conquest of Europe in the first half of the
15th century posed a major threat to the Balkans.
Bosnia fell in the year 1463 followed by
Herzegovina in the year 1482. It marked a new era
in the country that introduced another cultural,
political, and religious framework. As the Ottoman
Empire thrived and expanded into Central Europe,
Bosnia was relieved of the pressures of being a
frontier province and experienced a prolonged
period of general welfare and prosperity. A number
of cities, such as Sarajevo and Mostar, were
established and grew into major regional centres of
trade and urban culture.
At the Congress of Berlin in 1878, following the end
of the Russo-Turkish War (1877 – 1878), Austria Hungary was given a mandate to occupy and
govern Bosnia and Herzegovina, in an effort by
Europe to ensure that Russia did not dominate the
Balkans. Although the provinces were still officially
part of the Ottoman Empire, they were annexed by
the Austro-Hungarian Empire on 7 October 1908.
As a result, relations with Serbia, which had claims
on Bosnia and Herzegovina, became embittered.
The hostility between the two countries climaxed in
the assassination of Austrian archduke Franz
Ferdinand in Sarajevo on 28 June 1914, by a
Serbian nationalist. This event precipitated the
start of World War I (1914 – 1918). Bosnia and
Herzegovina were annexed to Serbia as part of the
newly formed Kingdom of Serbs, Croats, and
Slovenes on 26 October 1918. The name was later
changed to Yugoslavia in 1929.
When Germany invaded Yugoslavia in 1941, Bosnia
and Herzegovina were made part of Nazi-controlled
Croatia. At the end of World War II, Bosnia and
Herzegovina was reunited into a single state as one
of the six republics of the newly re-established
Communist Yugoslavia under Marshall Tito. His
authoritarian control kept the ethnic enmity of his
patchwork nation in line. Tito died in 1980, and
with growing economic dissatisfaction and the fall
of the iron curtain over the next decade, Yugoslavia
began to splinter.
A declaration of Bosnia and Herzegovina
sovereignty on 15 October 1991 was followed by a
referendum for independence from Yugoslavia
during 29 February - 1 March 1992 and President
Alija Izetbegovic declared the nation an
independent state. Declaration of Bosnia and
Herzegovina as independent state initiated the war
in Bosnia and Herzegovina. The war was an
international armed conflict that took place in
Bosnia and Herzegovina between April 1992 and
December 1995. It was principally a territorial
conflict, initially between the Serb forces mostly
organized in the Army of Republika Srpska (VRS)
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Chapter 1 – Bosnia and Herzegovina, profile
on the one side, and the multi-ethnic Army of the
Republic of Bosnia and Herzegovina (ARBiH)
which was largely, though not exclusively,
composed of Bosniaks, and the Croat forces in the
Croatian Defence Council (HVO) on the other side.
The war was brought to an end after the signing of
the General Framework Agreement for Peace in
Bosnia and Herzegovina in Paris on 14 December
1995. Peace negotiations were held in Dayton, Ohio,
and were finalized on 21 December 1995. The
accords are known as the Dayton Agreement. Since
its 1992 independence and the 1995 Constitutional
framework of the Dayton Agreement, Bosnia and
Herzegovina has followed a path of state-building,
while remaining under final international
supervision through the figure of the High
Representative for Bosnia and Herzegovina.
Bosnia and Herzegovina is a potential candidate
country for accession into the EU. The EU-BiH
Stabilisation and Association Agreement were
signed in 2008. Its accession to NATO is in the
phase of negotiation and the Membership Action
Plan has been signed in April 2010.
Geography and Climate
Bosnia and Herzegovina is located in South-eastern
Europe, in the western Balkans. It lies between
latitudes 42° and 46° N, and longitudes 15° and 20°
E. The country covers an area of 51,197 sq. km. It
has a 932 km border with Croatia to the north and
southwest, a 312 km border with Serbia to the east,
and a 215 km border with Montenegro to the
southeast.
The prevailing features of the local terrain are
valleys and mountains which measure up to 2,386
m in height. The country is mostly mountainous,
encompassing the central Dinaric Alps. The northeastern parts reach into the Pannonia basin, while
in the south it borders the Adriatic.
According to the World Wide Fund for Nature
(WWF), the territory of Bosnia and Herzegovina
can be subdivided into three eco regions: the
Pannonia mixed forests, Dinaric Mountains mixed
forests and Illyrian deciduous forests.
The country's natural resources include: coal, iron,
bauxite, manganese, forests, copper, chromium,
lead, zinc and hydro potential.
The country has only 21.2 kilometres of coastline,
around the town of Neum in Herzegovina, and
although surrounded by Croatian peninsulas, it is
possible to get to the middle of the Adriatic from
Neum. By United Nations law, Bosnia has the right
of passage to the outer sea. Neum has many hotels
and is an important tourism destination.
Bosnia and Herzegovina does have distinct regions
which have slightly different climates. The southern
and western parts of the country have a
Mediterranean climate with an annual precipitation
of 61 centimetres to 80 centimetres. The Central
and Northern areas of Bosnia and Herzegovina
have continental climate with gradual transition
between four seasons of the year – warm summers
and snowy winters.
1.2. People
Population
According to the 1991 census, Bosnia and
Herzegovina had a population of 4,377,033, while
the 1996 UNHCR census showed a decrease to
3,919,953.
Even though the census was planned for March
2013, it occurred in October 2013, after a long
period of negotiations inside the government. As
almost all of the post-war data were simply an
estimate, a census was a statistical, inclusive, and
objective way to analyse the demographics of
Bosnia and Herzegovina. No official results were
published so far.
Please see in table below the population of the six
major cities in BiH:
Main cities
Population
Sarajevo
305,242
Banja Luka
195,692
Zenica
127,105
Tuzla
131,640
Mostar
111,186
Bihać
61,287
Source: Agency for Statistics BiH
Language
The official languages in Bosnia and Herzegovina
are Bosnian, Serbian and Croatian, all practically
the same language with minor differences. English,
German and French are most commonly studied
foreign languages.
Religion
The State Constitution of Bosnia and Herzegovina
(BiH) and the entity Constitutions of the Federation
of Bosnia and Herzegovina and the Republika
Srpska provide for freedom of religion and the
Government generally respects this right. The
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Chapter 1 – Bosnia and Herzegovina, profile
state-level Law on Religious Freedom also provides
comprehensive rights to religious communities.
Education
Primary education is compulsory in BiH and it is
free for all children from ages 6 through 15 and
lasts for nine years.
Total adult literacy rate is 97% and the rate is 100%
among youth.
Secondary education in Bosnia and Herzegovina is
free as well. It is provided by general and technical
secondary schools, where studies last for three or
four years. Most children in BiH start school at the
age of six and complete high school at the age of
eighteen or nineteen.
Bosnia and Herzegovina's higher education system
comprises eight universities with around 90
faculties, which are treated as higher education
establishments and art academies. University
degrees are acquired at the faculties and arts
academies. There are also 22 private higher
education institutions and the Law on Higher
Education (passed in July 2007) treats private and
public higher education institutions equally.
According to the Agency for Statistics of Bosnia and
Herzegovina, 18,132 students graduated in BiH in
2013.
Living Standards
The political impasse has had adverse effects for
economic and social development. According to the
IMF, the country has a modest GDP per capita of
EUR 3,430 for year 2012. The average estimated
monthly gross salary in December 2013 was EUR
700. Unemployment is exceptionally high and
corruption is a major challenge. In 2009 the
country experienced sharp increases in social
spending and a fiscal crisis precipitated by the
global economic downturn. The financial crisis is
thus currently taking its toll on the country’s
economy.
Bosnia and Herzegovina's most immediate task
remains economic revitalization. The country needs
meaningful progress in structural reforms to
strengthen the basis for sustained growth. Private
sector growth – especially small and medium
enterprises (SMEs) – and increased foreign direct
investments (FDI) are needed to spur economic
growth and job creation. The government’s top
economic priorities are to accelerate EU
integration, strengthen the fiscal system, public
administration reform, World Trade Organization
(WTO) membership and securing economic growth
by fostering a dynamic, competitive private sector.
Number of students who graduated in BiH (source:
Agency for Statistics BiH) has tripled in the last
eight years:
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Chapter 1 – Bosnia and Herzegovina, profile
1.3. Governing Structures
Politics of Bosnia and Herzegovina takes place in a
framework of a parliamentary representative
democratic republic, whereby the Council of
Ministers of Bosnia and Herzegovina is the head of
government and of a multi-party system. Executive
power is exercised by the government. Legislative
power is vested in both the government and
parliament. Members of the parliament are chosen
according to a proportional representation system.
The system of government established by the
Dayton Accord is an example of constitutionalism,
as representation is by politicians who represent
the country's three major groups, with each having
a guaranteed share of power. Bosnia and
Herzegovina is divided into two Entities - the
Federation of Bosnia and Herzegovina (“FBiH) and
the Republika Srpska (“RS”), which each have
largely autonomous political power, as well as the
Brčko District which has own local government.
Each of the entities has its own constitution.
houses: the House of Peoples and the House of
Representatives. The House of Peoples has 15
delegates, two-thirds of which come from the
Federation (5 Croats and 5 Bosniaks) and one-third
from the Republika Srpska (5 Serbs). The House of
Representatives is composed of 42 Members, twothirds elected from the Federation and one-third
elected from the Republika Srpska.
The Constitutional Court of Bosnia and
Herzegovina is the supreme, final arbiter of legal
matters. It is composed of nine members: four
members are selected by the House of
Representatives of the Federation, two by the
Assembly of the Republika Srpska, and three by the
President of the European Court of Human Rights
after consultation with the Presidency.
1.4. Legal System
Bosnia and Herzegovina has a multi-layered and
decentralized judicial system.
The highest political authority in the country is the
High Representative in Bosnia and Herzegovina,
the chief executive officer for the international
civilian presence in the country. Since 1995, the
High Representative has been able to bypass the
elected parliamentary assembly or to remove
elected officials.
Ministry of Justice of Bosnia and Herzegovina is
the central coordinating body in the judiciary field
of Bosnia and Herzegovina. The Ministry is
competent for drafting of proposals of laws and
sub-law acts and other regulations at the state level,
efficient administrative functioning of the judicial
bodies of Bosnia and Herzegovina and cooperation
with international criminal courts.
The Chair of the Presidency of Bosnia and
Herzegovina rotates among three members
(Bosniak, Croat and Serb), each elected as
incumbent of the Chair for an 8-month term within
their 4-year term as a member. The three members
of the Presidency are elected directly by the people.
The Presidency is the head of state institution and it
is mainly responsible for the foreign policy and
proposing the budget.
Ministry of Justice of BiH ensures the legal
conditions for the work of the judiciary institutions
at the state level: Court of BiH, Prosecutor’s office
of BiH, High Judiciary and Prosecutors Council and
Public Attorney’s Office of BiH. Beside the laws for
establishing of the judiciary institutions the
Ministry is also competent for drafting of process
and material laws in criminal and civil area at the
state level.
The Chairman of the Council of Ministers of Bosnia
and Herzegovina is nominated by the Presidency
and approved by the House of Representatives. He
is then responsible for appointing ministers. The
Council is responsible for carrying out various
policies and decisions in the fields of diplomacy,
economy, inter-entity relations and other matters
as agreed by the entities.
Federal Ministry of Justice executes administrative,
expert and other tasks as set out by the laws, falling
under competence of the Federation in the areas of
judicial institutions and administration,
administrative supervision of the judicial
administration and federal administration bodies,
associating into political organizations and citizens’
societies, office management, administrative
supervision and implementation of the penal
sanctions. Federal Ministry of Justice carries out
the administrative tasks that do not fall under
scope of any other administrative body of the
Federation. There are 10 Cantonal Ministries of
Justice in FBiH.
Each of the entities has its own Council of
Ministers, which deal with internal matters not
dealt with by the state Council.
The Parliamentary Assembly is the law-making
body in Bosnia and Herzegovina. It consists of two
10
Chapter 1 – Bosnia and Herzegovina, profile
The Ministry of Justice of Republika Srpska carries
out administrative and other professional activities
related to exercising of competencies of RS.
Moreover, it carries out administrative and other
professional tasks related to sitting for the judicial
examination, processes the requests from domestic
and foreign courts of law and from the other state
bodies, which are related to delivery of
international legal assistance.
The Court of Bosnia and Herzegovina (State Court),
has criminal, administrative and appeals
departments and jurisdiction only over specific
types of crimes, such as war crimes, financial
crimes (e.g. official corruption and human
trafficking), and crimes against the State (e.g.
treason and terrorism). Unlike the BiH
Constitutional Court, which is the final authority on
questions of constitutionality, the State Court
operates alongside, not above, the Federation and
RS Supreme Courts.
The Constitutional Court of Bosnia and
Herzegovina decides any constitutional dispute that
arises between the Entities or between Bosnia and
Herzegovina and an Entity or Entities. The BiH
Constitutional Court also has appellate jurisdiction
over issues related to the constitution arising out of
a judgment from another court in the country, and
jurisdiction over issues referred to it by another
court concerning compatibility with the
constitution, the European Convention for Human
Rights and its associated protocols, laws of BiH, or
international law pertinent to a court decision.
The FBiH has the Constitutional Court of FBiH, the
Supreme Court of FBiH, 10 cantonal courts, and 27
municipal courts, as well as minor offense courts.
The RS has the Constitutional Court of Republika
Srpska, the Supreme Court of Republika Srpska, 4
district courts, and basic courts, as well as minor
offense courts. Brčko District also has its own
courts.
1.5. Economy
General overview
Bosnia and Herzegovina is considered an uppermiddle income economy by the World Bank with a
GDP for 2013 of EUR 13.45 billion (EUR 2,439 per
capita). Gross Domestic Product (GDP) has been
rising for years after the Balkan wars with average
real growth rate of 5%. Negative effects of the global
financial and economic crisis on BiH economy
peaked in 2009. In 2013 the growth of BiH
economy is projected to be at the level of 2.2 %
(according to the IMF estimation).
In the forthcoming period there is a plan to conduct
privatisation of the remaining state-owned
companies; however there is still no common voice
in the government how to approach the process.
Additional large investments are expected in the
energy sector through construction of new and
revitalisation of the existing facilities and plants.
BiH’s accelerated economic reform process has
contributed significantly to a greatly improved
business climate, however many obstacles still
remain to be tackled. The aim of BiH is to eliminate
legal and administrative obstacles for doing
business in BiH, as well as create an attractive
business environment in the SEE.
One of the main strategic goals of BiH is EU
membership and it is a potential candidate country
for EU accession. Bosnia and Herzegovina has
signed the Stabilization and Association Agreement
with the European Union, which is a step toward
EU membership.
Bosnia and Herzegovina is a member of the Central
European Free Trade Agreement (CEFTA), creating
a free trade zone with access to a large consumer
market. The process of negotiation to join the
World Trade Organisation is underway (BiH is
being an observer member at the moment).
Bosnia and Herzegovina has one of the most stable
currencies in South Eastern Europe, which is
pegged to the Euro. The country also has quite low
inflation rates comparing to the region.
In 2012, Bosnia and Herzegovina undertook an
International Monetary Fund (IMF) standby
arrangement of EUR 529.6 million, necessary due
to sharply increased social spending and a fiscal
crisis precipitated by the global economic
downturn. The program aims to reduce recurrent
government spending and to strengthen revenue
collection.
Why invest in Bosnia and
Herzegovina?
Bosnia and Herzegovina has made considerable
efforts to open its economy to more foreign
investment.
Bosnia and Herzegovina has strong economic
potential and represents a good destination in
South Eastern Europe (SEE) for foreign direct
investment due to:
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Chapter 1 – Bosnia and Herzegovina, profile
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Strategic geographical location;
Availability of natural resources;
Long tradition in different industry branches;
Several industrial zones, attractive sites and
available production facilities;
Favourable legal environment ;
Low corporate tax rates;
Highly educated and price competitive labour
force;
Stable domestic currency BAM pegged to
EURO;
Regional and bilateral Free Trade Agreements;
Double Tax Treaty network (37 effective
treaties);
EU perspective.
Currency
The Bosnia and Herzegovina convertible mark
(sign: KM; code: BAM) is the currency of Bosnia
and Herzegovina. It is divided into 100 fenings. The
names derive from German mark and Pfennig,
hence the occasional local spelling of the
subdivision as pfennig.
The convertible mark was established by the 1995
Dayton Agreement and replaced the Bosnia and
Herzegovina dinar, Croatian kuna and Republika
Srpska dinar as the currency of Bosnia and
Herzegovina in 1998. Mark refers to the German
mark, the currency to which it was pegged at par.
Since the replacement of the German mark by the
Euro in 2002, the Bosnian convertible mark uses
the same fixed exchange rate to Euro that the
German mark has (1 EUR = 1.95583 BAM).
Ports include those at Bosanska Gradiška, Bosanski
Brod, Bosanski Samac and Brčko. All are inland
waterway ports on the Sava, however none is fully
operational. There is no merchant marine.
There are 4 airports in BiH with a license for
international aviation traffic (Sarajevo, Banja Luka,
Mostar and Tuzla).
Agriculture
Bosnia and Herzegovina is richly endowed with
natural resources and conditions which create
favourable environment for agricultural
production, including availability of labour, land
and other natural resources, as well as suitable
climate. The agricultural potentials are only partly
realized, in spite of huge human and natural
resources.
Strong development and permanent production
growth, which characterized BiH agricultural sector
is considerably below its real potentials and
expected performances. For the most part,
agriculture remains in private ownership, but farms
have been small and inefficient, and net food
imports increased dramatically in the aftermath of
the war.
Poor financial resources, needed for modernisation
of all segments of agricultural production
(replacement of outdated technologies and
equipment; upgrading of the existing structure of
agriculture sector, etc.) are one of the main
limitations for faster development of this sector.
Transport
Automotive industry
Bosnia and Herzegovina is situated in the Western
Balkans and enjoys a favourable geographic
location in South-Eastern Europe.
Bosnia and Herzegovina has a long tradition and
widespread experience in the automotive industry.
For decades, major brands have relied on the
skilled workforce of BiH to assemble cars for
western markets.
The major obstacle to transportation in Bosnia and
Herzegovina has always been the mountainous
topography. In addition, much of the
transportation infrastructure was destroyed in the
war. The railway system connects Sarajevo with
major towns to the north and with Zagreb (Croatia)
and Belgrade (Serbia). Another line runs south
from Sarajevo to Mostar and on to Ploče on
Croatia’s Adriatic coast. However, few lines are
direct, and as a result roads of variable quality have
in many cases been the preferred means of
passenger and freight transportation.
The main railway is a 1-m gauge track. The
country's total railway track is 1,021 km. In 2010,
there were 22,926 km of roadways, of which 19,426
km were paved.
As a consequence of existing final vehicle assembly
and automotive components production, the
powerful and diversified supply chain and
supporting infrastructure had been established
including education system, research &
development institutions and specialized and
competent labour force with metalworking,
automotive and electrical engineering skills.
Within the past ten years, this industry has
experienced dynamic development, and has
become strongly export-oriented, exporting on
average 90% of production, to more than 30
countries.
12
Chapter 1 – Bosnia and Herzegovina, profile
Today BiH companies in the automotive sector are
producers of a wide spectrum of parts and
components, such as: engines and gears and their
parts, high-quality metal precision parts, drive
shafts, brake parts and systems, clutches, steering
parts and systems, pumps, filters, automotive
electric parts (signals, relays, electronic switches),
textile and leather products, plastic injection parts,
aluminium wheels, car batteries and various small
parts such as springs, screws, hoses and
components of metal, rubber or plastic.
Banking and Financial Services
Foreign banks have significantly invested in BiH.
Unicredit Bank, Raiffeisen Bank, Intesa SanPaolo
Bank,Hypo Alpe-Adria-Bank, Nova Ljubljanska
banka, ProCredit Bank, Ziraat Bank and Sberbank
are all present in the country.
Majority foreign-owned banks continued to
dominate the domestic banking system as they
accounted for 87.3 %of the total equity and 91.9. %
of average assets at the end of 2012. Bosnia Bank
International is the only bank operating in BiH
under Islamic banking principle.
Based on their analysis, in September 2013, agency
Standard & Poor's affirmed B- sovereign credit
rating with stable outlook.
In December 2013, Moody's Investors Service
affirmed B- sovereign credit rating with stable
outlook.
Overview of current sovereign credit rating of BH
issued by both agencies is provided in table below.
Moody's
Investors
Service
B3 / stable
Rating
outlook
Date July 10, 2012
Rating affirmed
Status / Outlook
revised
Standard &
Poor's
B / stable outlook
September 27, 2013
Rating affirmed
The introduction of a deposit insurance agency and
competition between well-established international
banks in BiH has significantly influenced the
growth of savings and lowered interest rates on
loans. Meanwhile, the country’s stock exchanges
are suffering a period of stagnation.
Construction
BiH companies have acquired a solid reputation in
all aspects of construction projects, ranging from
design to structural engineering, building
construction, civil engineering and the production
of high-quality building materials.
The country abounds in natural resources such as
timber, stone, gravel, sand, clay and metal ores. The
potential for growth in Bosnia and Herzegovina
construction market is very high. First priority was
given to the repair and renovation of existing
property and infrastructure.
More opportunities for growth in the BIH building
industry are to be found in the civil engineering
sector, where there are a number of schemes in
addition to Corridor Vc (cross country highway)
under discussion for major road, rail and energy
production developments. These are large-scale
construction projects requiring the creation of
consortiums to carry out the range of tasks involved
and to be competitive at the international tenders.
Wood
Out of all natural resources of BiH, its timber is
best known and 50% of the country is covered in
forests that can serve the wood and furniture
processing industry. Forests and forest lands in
Bosnia and Herzegovina is spread over an area of
2,709,800 hectares.
Given their self-regeneration, natural structure,
composition and natural mixed rejuvenation, the
forests are one of the basic resources in the
development strategy of Bosnia and Herzegovina in
the future.
Given the geographical position of Bosnia and
Herzegovina and the influence of the
Mediterranean, sub-Mediterranean, subcontinental and mountain climate, the forest
composition consists of a number of forest
communities with over 100 wood species.
Besides wood resources, BIH forestry has a
significant number of resources for production of:
 Bio-energy on the basis of forest residues,
sawdust and woodchips;
 Non-timber forest products (NTFP): nuts, fruit,
leaves, bark and roots from forest species; fruit,
bulbs, roots, leaves and flowers from herbs and
shrubs – commonly referred to as medicinal and
aromatic plants (MAPs); mushrooms;
 Endemic and scarce life forms;
 Briquettes, pallets, etc.
13
Chapter 1 – Bosnia and Herzegovina, profile
Sales and exports of the BiH wood sector have
tripled over the past five years.
Some 60% of wood sector production is exported,
where the finished furniture is becoming more and
more important export product. In 2011, wood
industry exports accounted for 20% of total exports
(including the furniture sector).
Information and communications
Bosnia and Herzegovina is committed to the
development and capitalization of information and
communications technologies, being aware that this
key sector plays a vital role in any modern
economic structure.
The ICT industry is developing and spreading
within BIH. The year 2010 recorded huge increase
in number of IT companies to approximately 2,000
compared with 2003 when this number was
approximately 300. While the small enterprises (up
to 10 employees) were predominant in 2003,
average number of employees increased to 26 in
2010.
Metal
The metal sector in Bosnia and Herzegovina has a
long history, great potential and it has a natural
competitive advantage mainly due to existing raw
material resources, low wages and a heritage of the
past. BiH metal processing offers strong human
and resources base.
The metal processing industry in BIH is quite large,
covering the manufacture of basic metals: basic
iron, steel and alloys and manufacture of fabricated
metal products, such as forging, pressing, pressing
and rolling of metals, powder metallurgy, treatment
and coating of metals, general engineering.
Metalworking sector it is highly concentrated in
two large companies ArcelorMittal Zenica and
Aluminium Mostar.
Activities from the mining sector are aimed at
serving local processing industries, electricity
generation and export. This segment of the industry
is in the process of revitalization and reengineering. The oldest mining areas are in central
Bosnia (Mount Vranica) and eastern Bosnia.
The most famous mines in Bosnia and Herzegovina
are located in central Bosnia (Kamenica, Olovo,
Dusina, Dezevice) and eastern Bosnia (Srebrenica
and its surroundings).
Tourism
Bosnia and Herzegovina is a land of breath-taking
natural beauty and everlasting historical and
cultural heritage, which largely matches the new
market travel trends particularly requirements of
the travellers who are looking for new destinations,
adventure and authenticity.
The country has much to offer for those people who
seek different experiences, away from the crowd,
whether they are looking for skiing, rafting, hunting
or patient bird-watching. Those who search for
more cultural tourism will be able to relive
centuries of history by visiting many vestiges and
heritage dating back to Roman, even prehistoric
times.
With its rich tourist offer BiH can satisfy the needs
of the global travellers regardless of their budget
and preferences. Moreover, the tourists will enjoy
BiH gastronomic offer of different traditional and
organic dishes.
The most promising tourism segments:
 Ski and mountain tourism;
 Ecotourism;
 Spa tourism;
 Cultural heritage and religious tourism;
 Adventure and sports tourism;
 Sea tourism.
Tourism sector in BiH has an enormous potential
for development, possessing all preconditions to
play a significant role within the country economy.
Consequently, tourism development in BiH was
recognized as one of the top priorities of an overall
national economic development policy.
Textile
Bosnia and Herzegovina has a long tradition and a
good international reputation in textiles, clothing
and footwear industry.
BIH has a satisfactory number of experienced and
skilled workers with both academic and practical
experience.
The proximity of BIH to both Western and Eastern
European markets is a major asset. BIH has the
potential to attract companies wishing to relocate
closer to their main markets, able to provide a short
product delivery cycle to European retailers.
14
Chapter 1 – Bosnia and Herzegovina, profile
Development of the textile sector stimulates the
development of other sectors and regional
development, thus conditions would be created to
move from “lohn” jobs, which currently represent
the greatest share of exports, to the development of
own product range, own product assortments and
move gradually from “lohn” jobs to regular exports.
New partnerships are bringing in new equipment
and management know-how, as well as financing,
to those companies that have already been
privatised.
1.6. Trade
International relations
The implementation of the Dayton Accords of 1995
has focused the efforts of policymakers in Bosnia
and Herzegovina, as well as the international
community, on regional stabilisation in the former
Yugoslavia. However, donor resources for Bosnia
and Herzegovina have diminished due to
competing assistance priorities elsewhere in the
region and globally. Bosnia and Herzegovina's
relations with its neighbours Croatia, Montenegro,
and Serbia have been fairly stable since the signing
of Dayton in 1995.
When it comes to relations with international
partners, foreign policy of Bosnia and Herzegovina
has been based on the principles of openness and
equal rights, on mutual respect for sovereignty and
territorial integrity, as well as on the principle of
peaceful co-operation, with respect of mutual
interests. At the same time, while conducting the
foreign policy activities, Bosnia and Herzegovina
will act in accordance with the obligations arising
from the concluded and accepted agreements and
other international instruments and membership in
international organizations and associations.
Bosnia and Herzegovina is a member of the United
Nations (1992); the International Monetary Fund
(IMF) (1992), the World Bank (1995), the
Organization for Security and Cooperation in
Europe (OSCE) (1992); and the Council of Europe
(2002). It also participates in regional cooperation
through the Regional Cooperation Council (RCC),
the Central-European Initiative (CEI), the
Southeast Europe Co-operation Initiative (SECI),
the Southeast Europe Co-operation Process
(SEECP), the Adriatic-Ionic Initiative (AII) and
others.
1.7. Energy
BiH has a natural resource base that is rich and
extensive. As such, it holds great potential as one of
the drivers of economic growth.
The energy sector is one of the most powerful in
BIH, with huge potentials and opportunities for
further development and investment. BIH is a
member of the Energy Community of SEE
established in November 2002 between EU and
SEE countries in order to extend the EU internal
energy market to South East Europe and beyond.
According to the Foreign Investment Promotion
Agency of BiH, the country is endowed with various
energy recourses, as follows:
 The main energy resource is brown coal and
lignite with estimated reserves of 6 billion tons
 About 35 % of huge hydro potential of over
6000 MW is in use
 According to the extensive research, there is
significant wind energy potential
 Raw material resources for the bio-mass energy
are extremely favourable, including
approximately 1.5 million m3 of forest / wood
industry residues
 Potential for exploitation of geo-thermal and
solar energy
 Preliminary research surveys of oil and gas, had
indicated the presence of promising deposits on
a number of sites in BIH (off-balance sheet
reserves are estimated at about 50 million tons
of oil).
Own production of traditional
sources of energy
Bosnia and Herzegovina has abundant resources of
two traditional energy sources: coal and water.
Some 55% of generated power is thermo-electric,
while the remaining 45% is hydro-electric. Coal is
the main source of energy in Bosnia, including dark
coal, lignite and treset. It is produced from local
mines throughout the country and the estimated
reserves are more than six billion tons.
Hydropower has great possibility for further
development, as only one-third of its potential has
been utilised. When it comes to the European
countries, Bosnia is in the 8th place with its hydropotential.
However, at present small power plants are mostly
being built and used. Foreign companies are
looking into utilizing the water wealth of BiH for
power generation.
15
Chapter 1 – Bosnia and Herzegovina, profile
Imported sources of energy
Investments in renewable energy
Despite the presence of untapped energy resources
in the country, BiH remains very much dependent
on imported energy sources, particularly gas and
oil.
BiH has various potential energy sources which
need to be explored and utilised in order to avoid
the dependency problems.
Gas is imported by BiH from Russia, through
Ukraine, Hungary and Serbia. It is widely used in
the cities, but it is also limited to those areas, while
outside of them there is no infrastructure for gas
supply.
Bosnia’s dependency on oil imports means that it is
vulnerable to international energy fluctuation
scenarios. Oil is imported mainly from Croatia,
Serbia, Montenegro and Hungary.
The oil refinery in Bosanski Brod has recently been
restored and privatised. Its majority owner is
Zarubezhneft (group headquartered in Russia). The
refinery enables BiH to have its own source of oil
derivatives, which will impact positively the energy
security, as well as the employment levels.
In addition to hydro power, BiH possesses high
potentials for exploitation of renewable sources of
energy, such as wind energy, solar energy, bio-mass
energy and geo-thermal energy.
BiH, especially its southern part, has been
identified as an excellent region for construction of
wind generation plants. According to recent
research conducted by domestic and international
experts, wind potential of Bosnia and Herzegovina
has a 30% higher utility coefficient than the EU
average and the highest potential in the Balkan
region.
The great potential from the renewable sources in
Bosnia and Herzegovina is still not exploited but
several recent regulation activities give optimistic
signs that some legal barriers are being removed,
which could attract potential investors.
16
Chapter 2
Business environment
17
Chapter 2 – Business environment
Subject Descriptor
Units
2009
2010
2011
2012
2013
GDP
GDP per capita, current price
Inflation, end of period consumer prices
Unemployment rate
General government revenue
General government total expenditure
General government net lending/borrowing
General government net debt
General government gross debt
Current account balance
Percent change
EUR
Percent change
Percent
Percent of GDP
Percent of GDP
Percent of GDP
Percent of GDP
Percent of GDP
Percent of GDP
-2.91
3,169
-0.03
24.07
45.14
51.00
-5.86
27.41
35.94
-6.58
0.72
3,250
3.08
27.20
46.87
50.75
-3.88
32.30
39.31
-5.55
1.26
3.373
2.73
27.20
46.55
49.18
-2.63
34.38
40.44
-9.51
-0.70
3,470
2.05
28.00
45.69
48.45
-2.77
38.55
44.27
-9.67
0.50
3,671
1.80
27.00
44.53
46.08
-1.56
36.66
42.12
-8.75
Source: International Monetary Fund, World Economic Outlook Database, September 2013
2.1. Main economic indicators
2.2. Business environment
Macroeconomic performance improved slightly in
2012/2013. Real GDP growth is estimated to have
reached 0.5%. The crisis in the European Union,
the biggest exporting market for Bosnia and
Herzegovina, has caused a decrease in export.
However, domestic consumption has remained
somewhat subdued, largely owing to both the
austerity measures which have been implemented
by the authorities in the past two years and to
falling remittances. More than 50% of the
population reported receiving reduced remittances,
and almost 40% lower wages. Investments appear
to have slowed, as import of capital goods in the
first half of 2013 was slightly lower than in the
same period last year, while long-term bank credit
to private enterprises increased. In the fourth
quarter of 2013, inflow of direct foreign
investments amounted to BAM 24.7 million, which
is by approximately 84.0% less on the annual
Basis. Low value of direct foreign investments in
the fourth quarter of 2013 is a continuation of
negative trends from the previous quarter.
Compared to the same quarter of the previous year,
direct foreign investments were by 84.2% lower,
and went down by 11.8% compared to the previous
quarter of 2013. The banking system remains liquid
and well capitalised, but the ratio of nonperforming loans (NPLs) to total loans is still
increasing. The share of non-performing loans in
commercial banks represented 15.1% of the total
loans at the end of 2013.
focus on enterprise restructuring. In 2012 and 2013
progress has been made concerning public finance,
but more needs to be made in order to limit
government spending.
The Parliament of BiH adopted the state budget for
2014, in the amount of BAM 1.8 billion, in order for
the state to receive another payment from the IMF.
BIH signed a Stand-By Arrangement with the IMF
in September 2012. In addition to fiscal
consolidation, the authorities committed to
improving the composition of public expenditure.
All performance criteria on fiscal balances have
been met and progress has been made toward
implementing structural benchmarks.
2.3. Inflation rate
In 2013, the annual inflation rate on an annual
basis was 1.8%.
For comparison, the annual inflation in the euro
area in 2013 was 1.4%, and annual inflation in the
EU27 was 1.5%.
The government’s fiscal policies are anchored by
the 36-month Stand-By Arrangement (SBA) with
the IMF. Within this framework, the authorities
committed to implementing comprehensive fiscal
austerity measures and structural reforms and to
18
Chapter 2 – Business environment
2.4. Wages and
employment
2.6. Privatisation
The average net monthly wage in BiH in December
2013 was EUR 432, which represented the nominal
increase of 0.9% compared to December 2012.
The sector of financial intermediation had the
highest average net monthly salary in the amount
of EUR 666. The supply of electricity, gas, steam
and air conditioning had the average net monthly
salary of EUR 661. Information and
communication activities had the average net
monthly salary of EUR 599 and the sector of public
administration, defence and compulsory social
insurance had the average net monthly salary of
EUR 585. These four activities had the highest
average wages in 2013.
On the other hand, the lowest average net monthly
wage was recorded in construction and
accommodation and food service activities, in the
amount of EUR 272. Low salaries were recorded in
wholesale and retail trade (EUR 296), repair of
motor vehicles and motorcycles (EUR 296),
administrative and support service activities (EUR
296) and manufacturing (EUR 299).New
employment strategies have been adopted. Both the
Federation of Bosnia and Herzegovina and the
Republika Srpska have adopted Employment
Strategies in 2010 outlining their objectives in
reforming the labour market. The RS Employment
Strategy 2011-15 in particular envisages a reform of
the education system, and aims to encourage
female participation in the labour force. In
addition, both strategies aim to improve
employment protection legislation.
There is still lack of attractive privatization
opportunities in both, Federation of Bosnia and
Herzegovina and Republika Srpska.
In 2013, Agency for privatization in the FBiH
carried out a procedure for selling two objects
(devastated commercial facility and economic land)
in the ownership of the company Energoinvest d.d.
Sarajevo. In December 2013, sale of technicaltechnological units in the ownership of “KTK
Visoko” d.d. Visoko and state shares in the
company UNIS d.d. Sarajevo was announced. In
the Republika Srpska, the privatization plan for
2013 envisaged sale of shares in 56 enterprises.
The privatisation process continues to be stalled.
2.7. Interest rates on loans
As per publicly available information from the
Central Bank BiH the average interest rate on
short-term loans in BAM to private companies had
been continuously decreasing, and reached a level
of 7.0% in December 2013, whereas for the
households, it had decreased, compared to the
previous year, reaching the level of 8.197%
In 2013, the share of short-term loans in total loans
was continuously decreasing, reaching the level of
26.4%, with average interest rates on these loans of
7.0% for private companies and associations, and
8.197% for households.
2.5. EU accession progress
Bosnia and Herzegovina has made a very limited
progress in addressing the political criteria for
membership in the EU.
The country`s political representatives could not
agree on a solution to implement the European
Court of Human Rights judgement in the SejdicFinci case regarding discrimination against citizens
on grounds of ethnicity. On the other hand,
progress has been made regarding processing war
crimes and reforming the judiciary at the state
level.
19
Chapter 3
Foreign investment
20
Chapter 3 – Foreign investment
3.1. Investment
background
1.
2.
The total amount of Foreign Direct Investments
(FDI) between 2000 and 2013 is estimated to
amount to EUR 5.8 billion. In 2007, Bosnia and
Herzegovina attracted the highest amount of
foreign direct investments of EUR 1.3 billion thanks
to several large privatisation of state companies.
The amount of investments has declined in the
recent years due to the global recession.
Production and banking sector have been the most
interesting to foreign investors attracting 35% and
21% of total investments, respectively.
The Foreign Investment Promotion Agency of
Bosnia and Herzegovina announced the plan for
privatising several state-owned companies, as well
as construction of new and revitalisation of existing
energy facilities and plants in the next period.
3.
4.
5.
6.
7.
Creation of a contract or decision on company
establishment that has to be processed by a
notary in BiH;
Payment of initial capital to temporary bank
account;
Registration of a company at the Court
register;
Creation of company’s stamp;
Opening company’s official bank account;
Registration of company and employees at
the tax administration;
Obtaining permission from relevant authority
to commence business activity.
In FBiH, the whole process lasts up to 40 days. The
associated registration costs depend on the amount
of capital but are usually between EUR 500 to EUR
1,500.
The World Bank Doing Business Report 2013 ranks
Bosnia and Herzegovina as being the 162 out of 183
countries in starting a business.
3.2. Equal treatment
3.4. Free trade zones
All investors, whether foreign or domestic, have the
same rights over the ownership of local companies.
The only exception are companies which produce
and sell firearms, ammunition, explosives for
military use, military equipment as well as media
companies whose ownership by non-residents
cannot exceed 49% of total shares without prior
approval from authorised institution.
A free zone is a part of the customs area of Bosnia
and Herzegovina and is managed by its founder(s).
The free zone has the status of a legal entity and it
acquires legal and business capability with the
registration of the Act on Establishing Free Zone at
the Court register.
The foreign investors have the right to:
 open bank account in any local bank,
 freely convert domestic currency in to any
traded foreign currency,
 repatriate profits and
 own real estate and property.
Foreign investment shall not be subject to any act
of nationalization, expropriation, requisition or
measures that have similar effects, except where
the public interest may require otherwise.
3.3. Steps in registering a
company
There are several steps required in establishing a
limited liability company, as the most common type
of legal entity in BiH (please note that certain
procedures might differentiate between FBiH, RS
and BD):
A free zone can be founded by one or more
domestic or foreign legal and physical persons. The
user of a free zone shall perform approved business
activity in the zone based on the contract concluded
with the zone founders.
Establishment of a free zone is considered
economically justified if it is estimated that the
value of exported or re-exported goods from the
free zone would be at least 50% of the total value of
the goods produced within the free zone in a twelve
months period.
Users of a free zone can be the zone’s founder or
other domestic or foreign legal and physical
persons. The users perform activities in the free
zone under the same general conditions.
The users of a free zone do not pay value added tax
and customs duty.
Equipment imported into the free zone to be used
for performing the industrial activity within the
zone shall be exempted from payment of customs
duty.
21
Chapter 3 – Foreign investment
3.5. Investment incentives
The government has introduced several incentives
for foreign investors. Some incentives are
introduced on the state level and the other on the
entity level. There is no unified investment
attraction approach in the country.
Foreign Investor Support Fund was established in
2007 by the BiH Ministry of Foreign Trade to
encourage foreign investors for future business
development. The budget is 1 million EUR per year
and represents non-refundable funds supporting
foreign investment projects that meet certain
criteria such as number of employees, investment
location, environmental protection, value of
investment and other. The maximum available
amount approved per project is 150 thousand EUR.
There are no import and custom duties on
imported equipment (except passenger cars, slot
and gambling machines), if they are imported for
purposes to create a part of registered share capital
of a company in Bosnia and Herzegovina.
The Corporate Income Tax Law of FBiH has
introduced the following investment incentives:
 if 30% of total revenue is realised from exports,
the company is to be exempted from the
corporate income tax payment for that year.
 if investments are higher than 10 million EUR
the company is exempted from corporate
income tax for five years beginning from the
first investment year in which minimum 2
million EUR has to be invested.
Brčko District has also introduced two investment
incentives in regard to corporate income tax:
 for a taxpayer who invests in machines and
equipment for performing its own registered
business activity on the territory of BD, the tax
base is decreased for the amount of investment
made;
 for a taxpayer who employs a new employed for
an indefinite period of time during the tax
period, a deduction is allowed for the total
amount of paid gross salaries for the new
employees.
Republika Srpska also has an investment incentive
regarding the corporate income tax.
Under the Corporate Income Tax Law of Republika
Srpska, a taxpayer who invests in equipment,
facilities and real estate to conduct their own
registered manufacturing activities has the right to
decrease the tax base for the value of the
investment.
22
Chapter 4
Banking and finance
23
Chapter 4 – Banking and finance
4.1. Structure of the BiH
financial services sector
The total assets of the financial services sector in
Bosnia and Herzegovina were BAM 24.6 billion in
2012 (As of August 2014 no structure overview of
financial services sector for 2013 exists), having the
following structure:
 86.31% - Banks (BAM 22.23 billion)
 2.91% - Leasing companies (BAM 716 million)
 4.77% - Insurance and reinsurance companies
(BAM 1.17 billion)
 3.23% - Investment funds (BAM 795 million)
 2.77% - Microcredit organisations (BAM 681
million)
The banking sector dominates the BiH financial
market as can be seen in the figures above. The
sector managed to preserve its stability, although
the effects of world economic and financial crisis
are considerably strong, having impact on activities
of the banks in BiH.
Share of other financial institutions in the structure
of financial services sector in BiH is minor. With
the aim of improving the financial market,
strengthening of financial investors has a
significant role, especially strengthening of
insurance companies and investment funds that
have direct impact on overall economic growth.
4.2. Structure of banking
sector in BiH
The banking system in Bosnia and Herzegovina
comprises of the Central Bank of Bosnia and
Herzegovina (CBBH) as the only first tier bank,
with second level banks, being the commercial
banks.
The Central Bank
The Central Bank of Bosnia and Herzegovina was
founded under the Dayton Peace Agreement and is
headed by the Governing Council. CBBH is the only
monetary authority in the country.
The Country-wide currency Convertible Mark
(Konvertibilna marka) or BAM (international
code), was introduced in June 1998 and replaces
the three different currencies used in the different
parts of BIH. It was formerly pegged to the German
Mark. In 2001 the peg was changed to the Euro at a
rate of BAM 1 = EUR 0.51129.
The main discretionary monetary policy tool
available to the CBBH is the minimum reserve
requirement rate. At this point the rate is 10% for
short term deposits, while the 7% rate is applied to
long term deposits.
Commercial banks
The commercial banks in BIH can conduct banking
activities and operations as laid out in the Law on
Banks. As at 31 December 2013, there were 17
banks with banking license issued in the Federation
of BiH, and 10 in Republika Srpska. The list of the
commercial banks operating in the Bosnia and
Herzegovina in 2013 is given in Table 1A and 1B.
Table 1 A – Banks in the Federation of BiH
No. Name of Bank
1
BOR banka d.d.
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Bosna bank International d.d.
Hypo Alpe-Adria-Bank d.d.
Intesa Sanpaolo Banka d.d.
Investiciono-komercijalna banka d.d.
Komercijalno-investiciona banka d.d.
Moja banka d.d.
NLB Tuzlanska banka d.d.
Privredna banka Sarajevo d.d.
ProCredit Bank d.d.
Raiffeisen Bank d.d.
Razvojna banka Federacije BiH
Sberbank BH d.d.
Sparkasse Bank d.d.
ZiraatBank BH d.d.
UniCredit Bank d.d.
Union banka d.d.
Vakufska banka d.d.
Table 1 B – Banks in the Republika Srpska
No. Name of Bank
1
Banka Srpske a.d. (former Balkan
Invest Bank)
2
3
4
5
6
7
8
9
10
Bobar banka a.d.
Hypo Alpe-Adria-Bank a.d.
Komercijalna banka a.d.
MF Bank a.d.
NLB Razvojna banka a.d.
Nova banka a.d.
Pavlović International Bank a.d.
Sberbank a.d.
Unicredit Bank d.d.
24
Chapter 4 – Banking and finance
By ownership structure 21 banks were foreignowned, 6 banks were owned by domestic private
entities and 1 bank was majority governmentowned. Overall, the main share of assets in BiH
today is privately owned. Foreign-owned banks
have been the main drivers of credit growth.
If we analyse only foreign capital, based on the
criteria of the shareholders’ home country, as at 31
December 2013, the situation has slightly changed
compared to the end of 2012: shareholders from
Austria owned 52.8%% of foreign capital, the
shareholders from Italy owned 15.8% of foreign
capital, while other countries participated with less
than 6.3%.
The three largest banks in BiH are Raiffeisen
Bank BH, UniCredit Group and Hypo Group.
Their assets weighting to the overall banking
system assets is more than 49%.
Supervision Agencies
Within an institutional-based guidance of the
banking sector, the regulation and supervising is
distinguished from the systematic as in the
European countries. In BiH the monitoring and
supervisory authority is assigned to the Banking
Agency of the Federation of BiH (FBA BiH), the
Banking Agency of the Republika Srpska (BARS)
and partly, the Deposit Insurance Agency of BiH
(DIA). The maximum amount of an Insured
Deposit, including any accrued interest, to be
reimbursed by the Agency per Depositor per
Member Bank shall be the Eligible Deposit less
legal or contractual debt owed to the Member Bank
by the Depositor up to the amount determined by
the decision of the Management Board of the
Agency or whichever is smaller. By the decision of
the management Board from November, 2013, the
amount of insurance coverage is BAM 50,000
(EUR 25,565).
The Banking Agencies are responsible for bank
licensing and supervision. Both supervisory
agencies are conducting banking supervision in
FBiH and RS as each entity is governed by
individual entity-level legislation. Both are
authorised to grant and revoke licenses and
monitor banks. The CBBH coordinates the
activities of the two entity agencies. A cooperation
agreement exists between the FBA BiH, BARS and
DIA.
By adopting the Law on Securities in 1998, FBiH
and RS created a legal basis for establishment of
capital markets in BiH.
Sarajevo Stock Exchange (SASE) was created by
eight brokerages in 2001. In 2004, the Sarajevo
Stock Exchange became a full member of the
Federation of Euro-Asian Stock Exchanges (FEAS),
and on the 22 November 2007 it was given
membership of the European Federation of Stock
Exchanges (FESE).
The Banja Luka Stock Exchange was founded in
2001 by eight banks and one company for
conducting trade in securities. The Banja Luka
Stock Exchange (BLSE) has two stock markets: the
official stock market (quotation) and the freemarket stocks. In 1997 the Banja Luka Stock
Exchange was admitted into a correspondence
membership of the World Federation of Stock
Exchanges (World Federation of Exchanges).
The stock market has the following instruments:






Shares - A list
Stocks - B list
Closed-end funds
Open-end investment funds
Bonds and other debt securities
Short-term securities and other securities.
4.4. Insurance market
The insurance market of Bosnia and Herzegovina
consists of 23 companies registered for
performance of insurance and one for re-insurance
operations, while two companies are under
liquidation process. The list of the insurance
companies operating in the Bosnia and
Herzegovina in 2013 is given in Tables 2A and 2B.
4.3. Stock exchanges
25
Chapter 4 – Banking and finance
Table 2A – Insurance companies in FBiH
No. Name of Insurance company
1 ASA osiguranje d.d.
2 Bosna Sunce osiguranje d.d.
3 Camelija osiguranje d.d.
4 Croatia osiguranje d.d.
5 Euroherc osiguranje d.d.
6 Merkur BH osiguranje d.d.
7 Grawe osiguranje d.d.
8 Sarajevo osiguranje d.d.
9 Triglav osiguranje d.d.
10 Uniqa osiguranje d.d.
11 VGT osiguranje d.d.
12 Zovko osiguranje d.d.
Table 2B – Insurance companies in RS
No. Name of Insurance company
1 Aura osiguranje a.d.
2 Brcko gas osiguranje a.d.
3 Bobar osiguranje a.d.
4 Drina osiguranje a.d.
5 Dunav osiguranje a.d.
6 Grawe osiguranje a.d.
7 Jahorina osiguranje a.d.
8 Krajina osiguranje a.d.
9 Mikrofin osiguranje a.d.
10 Neskovic osiguranje a.d.
11 Triglav osiguranje a.d.
Ownership structure and types of
insurance operations
From the total of 23 operating companies
registered for performance of insurance operations,
13 have majority owners from BiH, while 10 have
foreign majority owners. Out of 13 companies with
the main business focus on non-life insurance, 12
are in majority domestic ownership, while in one
company there is majority of foreign ownership.
There are only two companies whose main line of
business is life insurance, one in domestic and one
in local ownership. Out of 9 companies operating
both in the area of life and non-life insurance
(composite companies), one is in majority domestic
ownership, while eight have foreign majority
owners. There is one re-insurance company
registered in BiH and it is in majority domestic
ownership.
The insurance companies where majority of the
capital is ownership of foreign entities increased
their share of the total premium to 56.35% in 2013,
which is 1.58% higher when compared to 2012.
4.5. Leasing sector
Leasing companies are regulated by the Law on
leasing. The leasing service is relatively new to the
BiH market as the first leasing companies were
introduced in 2001.
At the end of 2008 the negative effects of the global
economic and financial crises stopped the
expansion of the growth of leasing companies,
which had its peak in the period from 2006 to
2008.
In 2010 the leasing companies came under the
supervision of the banking agencies. This step
resulted in increased reporting requirements and
stricter lending and provisioning rules. The leasing
companies were forbidden to give loans which
represented a significant part of the portfolio for
certain leasing companies.
There are in total 6 leasing companies registered in
FBiH and one company registered in Republika
Srpska as at 31 December 2013. The list of leasing
companies operating in Bosnia and Herzegovina is
presented in tables 3A and 3B.
Table 3 A – Leasing companies in
the Federation of BiH
No.
1
Name of Leasing company
ASA Leasing d.o.o.
2
3
4
5
6
NLB Leasing d.o.o.
Raiffeisen Leasing d.o.o.
S-Leasing d.o.o
Unicredit Leasing d.o.o.
VB Leasing d.o.o.
Table 3 B – Leasing companies in
the Republika Srpska
No.
1
Name of Leasing company
Hypo-Alpe-Adria Leasing d.o.o.
The leasing companies can perform business
activity in the other state entity by registering a
business unit.
26
Chapter 5
Foreign trade and
customs policy
27
Chapter 5 – Foreign trade and customs policy
5.1. Foreign trade
regulations
5.3. Custom and other
import duties
Customs policy in BiH is governed by the BiH Law
on customs policy and its main implementing
measure being the Decision on implementing
measures of the BiH Law on customs policy.
Customs regulations are unique at the territory of
BiH. Customs duties on all commodities imported
into the customs territory of Bosnia and
Herzegovina are paid ad valorem at rates of 0, 5, 10
and 15 %.
Customs and tariff policy in BiH is the competence
of the BiH Ministry of Foreign Trade and Economic
Relations. BiH indirect taxation authority
implements the law on customs policy. Customs
tariffs in BiH are fully harmonised with the EU
combined nomenclature.
The Indirect taxation authority is responsible for all
other regulations related to customs and their
implementation (the provisions related to customs,
foreign trade, currency and other provisions
referring to the customs policy). It is responsible
for the collection of all customs duties, excise duties
on imported goods and road taxes as well as for the
accounting and collection of VAT on importation.
5.2. Trade agreements
BiH is currently in the negotiation process for WTO
membership (currently being an observer).
In 2008, BiH has signed the Stabilisation and
Association Agreement (SAA) with the European
Union by which BiH gained a status of potential
candidate for the EU. The agreement is still not in
force as BiH government has not yet implemented
several EU requirements (i.e. adoption of state laws
on state aids and on the national census, and the
implementation of the Finci and Sejdic ruling of the
ECHR requiring an amendment to the Constitution
to allow members of national minorities to be
elected within the Presidency of Bosnia and
Herzegovina and to gain seats in the House of
Peoples). However the interim agreement on trade
(a part of SAA) is in effect from July 2008 and it
has enabled a decrease of customs duties to nil for
many products in different time periods.
BiH has also signed the CEFTA agreement in 2006,
which is being implemented since 2007. Based on
this agreement trade with Albania, Bulgaria,
Croatia, Macedonia, Moldova, Romania, Serbia,
Montenegro and Kosovo is not subject to customs
duties. A separate bilateral free trade agreement is
in force with Turkey. BiH also signed bilateral
agreement with Islamic Republic of Iran on
preferential trade.
From 14 September 2011, importers are not obliged
to pay 1% for customs handling.
For certain agricultural products which are
imported in BiH, the Law prescribed obligation for
payment additional charges in the amounts from
0.08 to 6 KM/unit.
Custom tariff includes:
• Nomenclature of the goods of the Harmonised
System;
• Customs duties and other import charges which
are payable for the goods which are imported;
• Preferential tariff measures defined in
agreements which BiH concluded with certain
countries or group of countries, based on which
preferential tariff procedure is granted;
• Special measures for specific tariffs for which
decrease of customs or relief from paying
customs is prescribed;
• Other measures which are envisaged by the Law
on foreign trade policy.
In accordance with the Law on Customs Tariff BiH,
and with the objective of fulfilling the obligations
within the framework of World Trade Organization
and other international agreements, the Council of
Ministers BiH is authorised to, by the end of
November of each year, harmonise the customs
tariffs in BiH and determine the customs tariffs in
BiH for the following year. Customs tariffs in BiH
are fully harmonised with the EU combined
nomenclature.
Bosnia and Herzegovina follows the WCO customs
valuation principles. The 7th Article of GATT
(Agreement on Implementation of Article 7 of the
General Agreement on Tariffs and Trade 1994) is
applicable in BiH.
Quality tests are performed by authorised
companies at the time of importation. Sanitary
inspection is done by an authorised state authority.
The cost of the tests is borne by the importer.
VAT of 17% is imposed on all imports.
28
Chapter 5 – Foreign trade and customs policy
5.4. Free zones
Customs and other import charges are not paid on
import to free zones. Currently there are four free
zones in BiH:
• Vogošca
• Visoko
• Hercegovina Mostar
• Slobomir Bijeljina.
5.5. Customs relief
Relief from payment of import customs duties are
prescribed for:
• Equipment released for free circulation
representing an investment by a foreign person,
except for passenger vehicles, entertainment
and slot machines;
• Goods released for free circulation for military
and police forces and penitentiary institutions
and completely financed by donors shall be
relieved from payment of import duty as well as
goods used for demining;
• Goods released for free circulation for projects
of rebuilding and reconstruction of BiH shall be
relieved from payment of import duty if the
project:
a) is adopted by the Council of Ministers of
Bosnia and Herzegovina;
b) is completely financed by foreign donors or
financed by international development
banks;
c) is mainly financed by the foreign donators
or international development banks.
• Equipment which is intended to be used for
production in free zones;
• Goods imported to BiH for private purposes up
to prescribed limited amounts.
5.6. Foreign trade
indicators
Please see below overview of export and import
amounts, as well as the export/import ratio during
the 2012 – 2013 period.
In EUR 000
2012
Export
4,018
Import
7,799
Export/Import
Ratio
51.50%
Source: Agency for statistics
2013
8,380
15,169
55.24%
Major trading partners on the export and import
side were Croatia, Germany and Serbia.
The countries of South-eastern Europe and EU27
accounted for 87.3% of BiH exports and for 72.1%
of BiH imports.
The following product groups continued to account
for greatest shares in import: products of mineral
origin (21.2%), machinery, appliances, mechanical
and electrical equipment (12.3%), chemicals
(10.0%), food products (9.9%) and base metals
(8.7%).
On the export side the largest share went to base
metals and articles of base metals (24.3%),
products of mineral origin (11.1%), machinery,
appliances, mechanical and electrical equipment
(10.1%), chemicals (6.8%) and furniture (6.2%).
BiH is also member of ATA and TIR carnet systems.
29
Chapter 6
Business entities
30
6.1. Company registration
In Bosnia and Herzegovina, foreign legal and
physical persons have the right to engage in
economic activities, establish business entities and
enjoy the same rights as local persons.
Limited Liability Company (d.o.o.)
LLC is a business entity that can be established by
one or more individuals and/or legal entities in
order to perform certain business activity. The
individuals and/or entities are treated as members
who are also the shareholders of the company.
The easiest way to conduct business activity in BiH
is by registration of a legal entity (company). There
are several other possibilities to enter the market
such as the permanent establishment, registering a
business unit and engaging tax representatives,
however the process is burdened by the lack of
regulation.
A member of LLC is responsible for company’s
liabilities to the extent of their contributed capital.
The LLC is fully liable for its commitments. The
basic capital is constituted from member's
contributions. The contributions do not have to be
equal from each member and each member shall
acquire their share in the company in proportion to
their contribution.
Please note that in order to manage a business a
foreigner needs to have both residency and work
permit that is regulated by the Law on Residence,
Asylum and Movement of Foreigners in BiH.
The name of the LLC is always immediately
followed by the words “društvo sa ograničnom
odgovornošću” or the initials „d.o.o.“.
The establishment, operation and liquidation of a
company are regulated by the Laws on Companies
of FBiH, RS and BD.
Foreign investors should be aware of the fact that
even if the laws and regulations relating to business
entities are similar across the country, there are
some differences that have to be considered. The
steps required to register a company often depend
on the location of the planned business.
FIPA (Foreign Investment Promotion Agency of
BiH) and the World Bank offer some general
information on starting and conducting business in
Bosnia and Herzegovina, but it is better always to
double-check the procedures with professional
advisers for the specific application.
6.2. Forms of business
entities
Foreign investors may establish following forms of
companies:
 Association of capital: a Limited liability
company (d.o.o) and a Joint-stock company
(a.d./d.d.)
 Partnership: a Limited partnership (k.d.) and a
General partnership (o.d. or d.n.o.)
In practice, foreign investors usually prefer to
establish a limited liability company (LLC ) because
of its simple form, small amount of paid up capital
required (approx. EUR 1,000) and relatively easy
establishment.
LLC shares may not be publicly traded. Company's
business activity, rights and responsibilities of the
members, organisation, rules about basic capital
changes and other topics are all defined by the
Statue of the LLC unless otherwise defined by the
law.
Capital
According to the law, the monetary part of the
capital for the LLC has to be no less than approx.
EUR 1,000 on the payment day. The contribution
to the LLC may be monetary, non-monetary, in the
form of service and rights, and work provided. The
founding capital may decrease and increase but it
may not fall below the minimum founding capital
determined by the law.
Managing LLC
The LLC has an Assembly composed of all members
of the company. The full amount of the capital is
presented by 100 possible votes and number of
votes for each member is proportional to their
contribution. The decisions are made by the
majority rule unless stated otherwise in the
Company Statue.
Joint-Stock Company (a.d or d.d)
A joint-stock company (JSC) is a business entity
whose capital is appointed and divided into shares,
and it can be established by one or more individuals
and/or legal entities.
31
In addition to the foundation act, joint-stock
companies usually also have a statue that sets the
managing and business rules of the company. The
founders of the JSC are obligated to be
shareholders in the JSC. There are two types of
joint-stock companies in FBiH and RS:


Closed JSC defined cannot be publicly traded
and has a limited number of shareholders as
defined by the law
Open JSC is a company that has publicly traded
share
According to the Law on Companies of FBiH, an
open JSC has to fulfil one of the following
criteria:
 They have to be banks or insurance
companies;
 Their share capital has to be at least EUR
2,000,000 and it has to have at least 40
shareholders.
Closed JSC can become open JSC by satisfying one
of the above mentioned criteria.
On the other hand, the Law on Companies of RS
states that a JSC is considered open if its founding
capital is no less than approx. EUR 25,500 and if
not stated otherwise.
The founding capital for closed JSC in RS can be no
less than EUR 10,200.
The founding share capital of the JSC in FBiH is
minimally EUR 25,500.
For both, privately and publicly offered JSC, the
nominal stock value is at least EUR 0.5.
On the territory of Brčko District, the basic capital
of the JSC, according to the Law on Companies of
Brčko District, is minimum EUR 7,670 and the
minimal nominal stock value is EUR 0.50.
Mandatory bodies
The mandatory bodies of closed JSC are:
Shareholders’ General Assembly and the Managing
Director or Board of Directors. A closed JSC may
also have an Executive Board and/or Internal
Auditor/ Board of Auditors.
The mandatory bodies of and open JSC are:
Shareholders’ Assembly, General Assembly,
Supervisory Board, Executive Board, and the
Company Secretary.
Since the open JSC is listed on the stock exchange it
must also have Internal Auditor or Board of
Auditors.
Limited Partnership (k.d)
Limited partnership is a business entity that can be
established by two or more individuals and/or legal
entities in which at least one partner's liability is
limited (Limited partner –LP) to the amount of
their contribution, while a liability of at least one
partner is unlimited (General partner –GP). In
legal manner, GP's are considered partners as
partners in a conventional form.
Management
In addition to the founding act, a limited
partnership may have a contract in which the
organisation and management policies of the
limited partnership are determined. One or more
GP's are entitled to manage business activities of
the limited partnership. GP's are considered
managing partners, while the LP's have no right to
manage the limited partnership. The LP's have no
right to bind the company unless they are assigned
by all partners to be agents of the company.
Liability
General partners have unlimited liability meaning
that they are fully liable for the debts and the
commitments of the company. On the other hand,
limited partners are liable in proportion to their
contribution to the company.
General Partnership (o.d) or
Unlimited Liability Company
(d.n.o)
General partnership defined by the Law on
Companies of RS is similar to an Unlimited
Liability Company (ULC) defined by the Law on
Companies of FBiH and Law on Companies of BD.
This form of a business entity is established by two
or more individuals and/or legal entities that have
joint unlimited liability for the debts and
commitments of the company. In RS, members of
the company are called partners, while in FBiH and
BD they are considered members. On the whole
territory of BiH, the contribution to the company
has to be equal by all partners/ members of the
company.
Management
All members (partners) have the right and
obligation to manage the unlimited liability
company (general partnership). If two or more
members (partners) are entitled to manage the
32
company, then they have the right to act
individually, unless there are objections.
The management can be defined by the Statue that
is made in addition to the foundation act of the
ULC (General Partnership).
Liability
Members (partners) are personally and jointly
liable for the debts and commitments of the
company. The liability is unlimited.
Representative Offices and
Branches of foreign legal entities
Foreign persons have the right to establish a
representative office in BiH for performing market
research, informative and promotional activities
and for its own representation. The representative
office does not have the status of a legal entity,
meaning that the representative office may not
conclude business deals in the name of the head
company. There are some exceptions to this rule in
transportation business. The representative office
becomes operational after being registered in the
Register of Foreign Representative Offices kept by
the Ministry of Foreign Trade and Economic
Relation BiH.
Foreign companies can establish a branch office in
Republika Srpska.
Recent amendments to the Company Law of
Federation BiH that came into force in October
2013, introduced the possibility for the foreign
companies to establish one or more branch offices
in Federation BiH for performance of their business
activities. However, in practice it is still not possible
to register a branch office in Federation BiH. In
order to fully enable the registration procedure, it is
necessary to adopt amendments to the Law on
Registration of Business Entities in FBiH that will
prescribe procedure for registration of branch office
of a foreign company at the registering municipality
court and the Tax Authorities of FBiH. The
amendments to the Law on Registration of
Business Entities are in parliament procedure and
is expected they will be adopted soon.
Branch offices have no capacity of a legal entity,
business with third parties is performed in the
name and on behalf of foreign legal entity which
gains rights and obligations through activities of
the branch office.
6.4. Regulatory
environment
Company Laws of Federation of BiH, Republika
Srpska and Brčko District regulate trade secret.
Competition rules on the BiH market are regulated
by the Competition Law.
Trade Secret
All information that are stated by the company to
be a trade secret and the information that would
negatively affect the business activities of the legal
business entity are considered confidential. They
may not be shared with the third party without
consent of the legal business entity.
Information that are to be published due to law
requirements and the information that reveal a
possibility of corruption within the company cannot
be considered as secret.
If the management should violate the trade secret
of the company, they shall be held liable for the
damage sustained as a result of that violation.
The related parties are obligated to follow the
confidentiality rules determined by the contract
and the company statue.
Competition Law
The Competition Law regulates the rules, measures
and procedures for the protection of market
competition, and regulates the power and duties of
the Council of Competition entrusted with the
protection and promotion of market competition in
Bosnia and Herzegovina.
The Competition Law applies to all individuals and
legal entities that, directly or indirectly, participate
in the trade of goods or services and that, through
their actions, prevent, restrict or distort market
competition on the whole territory of Bosnia and
Herzegovina or its relevant part. This law is
applicable on all forms of business entities,
economic associations whether they are local or
foreign.
Joining or merger of independent business entities
or parts of business entities are considered to be
concentration as well as the acquisition of control
or prevailing influence of one or more business
entities over other business entity, or over other
business entities.
A company requires permission for concentration
in following situations:
33
 total annual income of all participants to the
concentration achieved by selling goods and/or
services on the world market is more than EUR
51,129,188 according to the financial statements
in the year preceding the concentration, and
 total annual income of each of at least two
economic entities - participants to the
concentration realised by selling goods and / or
services on the market of Bosnia and
Herzegovina is at least EUR 2,556,460
according to the financial statements in the year
preceding the concentration, or if their joint
share in the relevant market exceeds 40%.
The concentrations that could negatively influence
efficient market competition are prohibited.
34
Chapter 7
Labour relations
35
Chapter 7 – Labour relations
7.1. Labour
Since the end of the war in 1995, the country has
been facing multiple issues regarding the political
climate and economy. The war had a deep and
devastating social and economic impact on the
population involved. Around half of the pre-war 4.5
million people were displaced, and the official postwar unemployment rate was at the 70-80% level.
Although one can question the relevance of the
economic and statistical indicators because of the
significantly large black labour market, few will
argue that the steadily high unemployment rate the
country has been experiencing in the last years is
irrelevant. Even though the unemployment rate is
not even close to the post-war era, mostly due to
the creation of jobs in the growing public sector, the
rate is one of the highest in Europe. The majority of
unemployed people are displaced persons and
refugees. Below are the official International
Monetary Fund unemployment rates for BiH for
the period from 2006 till 2013.
Calendar
Unemployment
year
rate
2013
27.00%
2012
28.00%
2011
27.60%
2010
27.2%
2009
24.1%
2008
23.4%
2007
29.0%
2006
31.1%
Source: International Monetary Fund, World
Economic Outlook
can be based on finite and indefinite period of time.
This is also the case for Republika Srpska and
Brčko District. An employment contract that does
not specify any duration is considered as a contract
of indefinite time. Further on, a contract with finite
period of time cannot be concluded for a period
longer than 2 years.
The notice period cannot be shorter than 7 days in
cases when an employee terminates the
employment contract and 14 days for the employer.
If an employee agrees to the employer’s request to
end the employees work before the expiration of the
notice period, the employee shall be entitled to a
salary compensation from the employer and all
other rights as if he/she worked until the expiration
date of the notice period.
Additionally, there are also Contracts for
Temporary and Occasional work and Service
Contracts. Both contracts can be concluded for a
maximum time period of 60 days.
The Service Contract is regulated by the Law on
Obligations and stipulates that an employee is
obliged to complete the tasks set out in the
contract. The employer is obliged to compensate
the employee for the work done. If there is a
situation where the employee does not oblige with
the terms a warning can be given by the employer,
and a deadline for the employee to adjust the work
in accordance with the contract. If the employee
fails to react to the warning, the employer shall be
entitled to terminate the contract.
The average net wage in December 2013 in Bosnia
and Herzegovina was EUR 432.04, which
represents a increase of 1.08% comparing to the
previous month.
The sectorial distribution of employees in
December 2013 constituted of 18.71% employed in
the processing industry (secondary sector) while
the sector consisting of wholesale, retail and repair
services employed 18.13 %. Other service related
sectors as public administration, defence, social
insurance and education employed 19.77 %.
7.2. Employment contracts
According to the Labour Act of the Federation of
Bosnia and Herzegovina, an employment contract
36
Chapter 7 – Labour relations
7.3. Public holidays
Below are the public holidays in BiH:
Calendar Day
1st & 2nd January
7th of January*
9th of January**
1st of March
Variable date*
Variable date*
1st of May
9th of May**
Variable date*
Variable date*
21st of November
25th of November
25th of December
National Holidays
New Year’s Day
Christmas (Orthodox)
Republic Day
Independence Day
Easter (Catholic)
Easter (Orthodox)
Labour Day
Victory Day
End of Ramadan-Eid
al-Fitr
Feast of Sacrifice – Eid
al-Adha
Dayton Agreement
Day
Statehood Day
Christmas (Catholic)
*Note According to Law of Labour („Official gazette of
Federation BiH“, no. 43/99, 32/00, 29/03) the employee
has the right to be absent in total 4 days per calendar year
related to religious/traditional practices.
**Note Only for RS
7.4. Employment of foreign
persons
Visas
Foreign citizens have the right to enter the boarders
of Bosnia and Herzegovina with or without visa,
depending on their nationality. A list of all
countries that are not required BiH entry visa can
be found on the web page of Foreign Investment
Promotion Agency of Bosnia & Herzegovina
(www.fipa.gov.ba).
Residence Permits
Foreign nationals with an entry visa have the right
to stay in BiH territory for the period stated in the
visa. Foreign nationals who are exempt from the
visa requirement are allowed to stay in the country
for a period no longer than 90 days within period of
6 months following their first entry.
Affairs of BiH. A person may apply for a temporary
residence permit only if:
 If an individual enters with a visa for a longterm stay;
 If an individual is a citizen of a country that is
exempt from the requirement of a BiH entry
visa.
A permanent residence permit can be issued to a
foreign citizen only if he/she has resided in the
territory of BiH for at least 5 years uninterruptedly
prior to applying for the permanent residence
permit. It must be noted that a stay of maximum 90
days outside BiH territory during the period of the
temporary residence permit is not considered as an
interruption of residence.
Work Permits
A foreign national who is seeking to work in Bosnia
and Herzegovina must have a work permit. The
work permit is issued by the competent
Employment Service regional offices responsible
for the region where the employer had registered
head office. The issuance relies on the fact that the
applier must possess a valid residence permit in the
territory of Bosnia and Herzegovina or evidence of
possession of a valid business visa.
The employer is obligated to submit an application
for a work permit on behalf of a foreign worker. The
work permit is issued to a specific person for a
specific job, for a specific employer and for a
specific period of time. The work permit is
considered expired when employment ceases.
Usually, the work permit is valid for a year, but it
can be extended.
The requirement for a work permit is disregarded
when it comes to founders of a company with a seat
in Bosnia and Herzegovina, who perform different
tasks in the company, which cannot be treated as
employment, and does not exceed a total of three
months per year. They shall not be obliged to
acquire a work permit in BiH.
But if the founder of the company is also a manager
who is receiving a salary for their work, such person
must have a work permit in accordance with the
Law of Employment of Foreign Nationals.
A foreign national is obliged to register their
residence with the Service for Foreign Affairs- field
offices or competent organisational unit of Ministry
of Internal Affairs. A foreign citizen who is applying
for a temporary residence permit for the first time
must file the application to the Service for Foreign
37
Chapter 7 – Labour relations
Foreign Driving License
A foreign citizen who has a temporary residence in
Bosnia and Herzegovina is allowed to drive with a
foreign driving license. The individual must also
have an international driving license issued in
accordance with the Vienna Convention on Road
Traffic. But if it is concluded that the driving
courses in the home country of the foreign citizen
are significantly different from the practices and
conventions in BiH, the Ministry of
Communications and Transport can declare the
foreign driving license invalid.
Foreign citizens who are issued a permanent
residence permit are allowed to drive with a foreign
driving license for a period no longer than 6
months from the day the permit was granted. After
the 6 months one is required to change to a
domestic driving license.
Foreign registered vehicles are allowed in the
territory of BiH as long as they have the correct
equipment prescribed by the international
conventions and a valid certificate of registration
issued by the competent authority of the country
where the vehicle is registered.
38
Chapter 8
Accounting and auditing
39
Chapter 8 – Accounting and audit
8.1. Accounting
now left behind thanks to a new set of laws and
regulations for accounting and auditing practice.
International Accounting Standards (IAS) and
International Financial Reporting Standards
(IFRS) are fully applicable in Bosnia and
Herzegovina, provided they are locally translated
and published. Due to the unusual administrative
structure, BIH has a very complex organisation of
laws and regulations. The specific administrative
and political situation in BIH is also reflected
through accounting and auditing laws.
IFRS/IASs, as published by IASB and translated
into one of official languages in BiH (Bosnian,
Serbian, Croatian) are mandatory for all business
enterprises located in territory of BiH.
Territory of BIH consists of three administrative
units, therefore BIH has three Laws on Accounting
and Auditing and the framework Law at the state
level:
 Law on Accounting and Auditing of Bosnia and
Herzegovina (2004) – mandatory on the entire
territory of BIH;
 Law on Accounting and Auditing of Federation
of BIH (2009) – mandatory on the territory of
FBIH;
 Law on Accounting and Auditing of Republika
Srpska (2011) – mandatory on the territory of
RS;
 Law on Accounting and auditing in Brčko
District of BIH (2005) – mandatory on the
territory of BD.
Still regarded as a transition economy, BiH’s longterm goal is EU membership. Due to these
economic and political goals, BiH is obliged to fulfil
all EU demands, including harmonisation of local
accounting framework with IAS/IFRS.
Until 2011, accounting framework was not
harmonised on the entire state territory, there were
some significant differences between the laws and
regulations of administrative units, especially
between FBIH and RS. This fact often represented a
significant issue for both, domestic and foreign
companies, especially if their business was not
restricted to only one administrative unit.
According to BiH laws, annual financial statements
include:
 Balance sheet (Statement of financial position);
 Income statement (Statement of comprehensive
income) ;
 Cash flow statement ;
 Statement on changes in equity and
 Notes to financial statements.
This set of annual financial statements is
mandatory for:
 Large business enterprise;
 Medium-sized business enterprises.
As an exception to provisions of those laws - banks,
microcredit companies, savings and loans
cooperative ventures, insurance companies, leasing
companies, companies dealing with investment
funds, companies dealing with mandatory or
voluntary pension funds, stock exchanges,
brokerage and dealership companies, and other
financial organisations are classified as large
enterprises.
Small enterprises present their annual reports
through:
 Balance sheet and
 Income statement.
Business enterprises are classified as laid out in
table below. In order to be classified in a certain
category, an enterprise has to fulfil two out of three
given criteria.
This meant that accounting work was often
duplicated, which automatically implicated higher
accounting costs. Fortunately, such problems are
Criteria
Average number of employees
Total assets
Annual income
Small enterprises
< 50
< 1,000,000
<2,000,000
Medium enterprises
50 – 250
1,000,000 – 4,000,000
2,000,000 – 8,000,000
Large enterprises
> 250
> 4,000,000
> 8,000,000
Source: Law on accounting and audit
40
Chapter 8 – Accounting and audit
Business enterprises classified as large and
medium-sized are obliged to compile and present
semi-annual financial statements, that is, financial
statements prepared for the accounting period from
1st January to 30th June. Business enterprises
compile and publish financial statements for a
business year ended on 31st December of the
current year with prior year comparatives, which
are due by end of February.
hard to keep up with all those changes. Also, the
implementation of IAS/IFRS is taking slow steps,
because local accountants are not familiar and
trained for such regulations and the translation
process takes some time.
The accounting year in BIH is generally the
calendar year.
Main professional accounting and auditing
institutions in BIH:
 The Accounting and Auditing Commission of
BIH;
 Association of accountants, auditors and
financial workers in FBIH;
 Association of accountants and auditors in RS.
The Accounting and Auditing Commission of BIH
conducts a program for qualifications in the
accounting and auditing profession. In accounting
and auditing profession in BIH, three titles are
established, as follows:
 Certified Accounting Technician (CAT) ;
 Certified Accountant (CA) and
 Authorised Auditor (AA).
IFAC (International Federation of Accountants) at
its Council meeting held in Kuala Lumpur,
Malaysia on 5 November 2010, accepted in full
membership Association of Accountants and
Auditors of Republika Srpska and the Association
of Accountants, Auditors and Financial Workers of
Federation of Bosnia and Herzegovina.
Business records are opened at the beginning of the
business year – calendar year or some other period,
determined in line with the law, on the basis of the
balance sheet and closing balance sheet showing
balance of assets and sources of assets on the day of
conclusion of the previous accounting period.
Periods of time for which the business records and
financial statements need to be kept, start upon the
last day of the business year they refer to. Financial
statements and auditor’s reports are kept for an
indefinite period of time in their original form.
Journals and general ledgers are kept for at least
ten years in RS, and at least eleven years in FBIH.
Despite of all progress that has been made during
the last few years, accounting profession in BIH is
still facing some issues. Most of these issues can be
contributed to constant changes in laws and
regulations. For accounting professionals it gets
41
Chapter 8 – Accounting and audit
8.2. Audit requirements
The audit of financial statements in Bosnia and
Herzegovina is done in accordance with local laws
on Accounting and Auditing, and the International
Standards on Auditing (ISA). The ethics code is
based on the International Ethics Standards Board
for Accountants and the rules of the audit
profession are also respected, as well as other rules
and regulations that define this profession.
All audits are done by licensed legal entities. Audit
of financial statements is done by persons who have
a valid licence issued by the Ministry of Finance
and are a part of an audit company or engaged by
the audit company.
Auditing of the financial statements can be
performed by persons with professional title of an
authorised auditor, who possess a licence for work
on financial statements auditing tasks and who are
employed or engaged by an auditing company.
Subject to mandatory auditing in FBIH are standalone and consolidated financial statements of:
 Large enterprises;
 Middle-sized enterprises;
 Financial statements of legal entities whose
securities are traded or preparation for their
emission is made at an organized securities
market.
Financial statements of business enterprises are
subject to the mandatory statutory audits if it has
been prescribed by their particular regulations
defining their business operations.
One auditing company may audit the same entity
for five consecutive years. Exceptionally, an
auditing company may audit the same company for
another two years, after expiration of the 5 year
term, provided there is a rotation of signing
auditor.
The Office for Auditing of financial operations of
the institutions of BIH - is an independent body
responsible for government and public sector
auditing in all the country.
Chamber of Auditors of FBIH is a professional body
of auditors in FBIH. It was established in 2011. The
Chamber has jurisdiction and performs tasks in the
field of audit and other professional areas in
connection with the audit. Also, the Chamber
determines the amount of dues and other income,
cares about the reputation of the auditing
profession, produces minimal methodology of
performing quality supervision of work for audit
firms and licensed auditors and monitors the
quality of the audit process and work of licensed
auditors.
Subject to mandatory auditing in RS are financial
statements of Public Interest Entities, defined by
the Law on Accounting and Auditing of Republika
Srpska. According to the Law, Public Interest
Entities are:
 Financial statements of legal entities whose
securities are traded or preparation for
their emission is made at an organized
securities market;
 Banks, microcredit companies, insurance
companies, leasing companies, stock
exchanges, brokerage and dealership
companies and other financial
organisations;
 Public companies;
 All legal entities of particular importance
for RS, regardless of their legal form and
organizational frame.
42
Chapter 9
Corporate Taxation
43
Chapter 9 – Corporate Taxation
9.1. Introduction
Direct taxes are imposed on entities at the district
level, while indirect tax regulations are imposed at
the state level.
 A non-resident legal entity that conducts
business activity and has a permanent
establishment (PE) in Republika Srpska, for
income that is related to that PE.
 A non-resident legal entity that generates
income from immovable property in Republika
Srpska, for the income generated in Republika
Srpska.
 A non-resident legal entity that generates
income in Republika Srpska, not mentioned
above, and is subject to WHT in accordance with
the CIT law of Republika Srpska.
9.2. Corporate income tax
The CIT rate in RS is 10%.
Bosnia and Herzegovina is politically decentralised
and comprised of two governing entities,
Federation of Bosnia and Herzegovina (FBiH) and
Republika Srpska (RS), with a third region, Brčko
District (BD) which is governed locally.
Federation of Bosnia and Herzegovina, Republika
Srpska and Brčko District impose corporate income
tax to residents, to their worldwide income. Nonresidents are taxed on income realized in the
Federation of Bosnia and Herzegovina, Republika
Srpska and Brčko District.
Taxpayer and rate
Federation of Bosnia and Herzegovina
A corporate income tax (CIT) payer in Federation of
Bosnia and Herzegovina is a resident company or
other legal entity performing independent and
permanent business activity through sale of goods
and provision of services on the market for the
purpose of generating profit.
A CIT payer in Federation of Bosnia and
Herzegovina is also a non‑resident who generates
profits on territory of the Federation of Bosnia and
Herzegovina through permanent establishment.
A non‑resident whose registered seat or
management is not in Federation of Bosnia and
Herzegovina and who does not have a permanent
establishment in Federation of Bosnia and
Herzegovina is subject to withholding tax (WHT)
for income generated in Federation of Bosnia and
Herzegovina.
The CIT rate in Federation of Bosnia and
Herzegovina is 10%.
Republika Srpska
A CIT payer in Republika Srpska is:
 A legal entity from Republika Srpska that
generates income from any source in Republika
Srpska or abroad.
 A business unit of a legal entity that generates
income in Republika Srpska.
Brčko District
A CIT payer in Brčko District is:
 A legal entity from Brčko District that generates
income from any source in Bosnia and
Herzegovina or abroad.
 A business unit of a legal entity with
headquarters in the Federation of Bosnia and
Herzegovina or Republika Srpska, for income
generated in Brčko District.
 A non-resident legal entity that conducts
business activity and has a PE in Brčko District,
for income that is related to that PE.
 A non-resident legal entity that generates
income from immovable property in Brčko
District, for the income generated in Brčko
District.
 A non-resident legal entity that generates
income in Brčko District, not mentioned above,
and is subject to WHT in accordance with the
CIT law of Brčko District.
The CIT rate in Brčko District is 10%.
Corporate residence
Federation of Bosnia and Herzegovina
residency
Under the CIT Law of Federation of Bosnia and
Herzegovina, a resident is a legal entity whose
registered seat is in Federation of Bosnia and
Herzegovina or whose management and control of
business activities is located in Federation of
Bosnia and Herzegovina.
A PE of a non-resident is a permanent place of
business through which the non-resident performs
activity in whole or partially throughout the
territory of Federation of Bosnia and Herzegovina.
44
Chapter 9 – Corporate Taxation
Under the CIT Law of Federation of Bosnia and
Herzegovina, the following is considered to be a
permanent establishment of a non-resident:
 Management headquarters.
 Branch office.
 Business office.
 Factory.
 Workshop.
 Location of natural resources extraction.
 Construction site (construction or assembly
project) when the work is performed during a
period exceeding six months.
 Provision of consulting or business services
lasting for a period exceeding three months
consecutively over a 12-month period.
 A representative acting independently on behalf
of a non-resident related to the activities of
signing a contract or keeping supplies of
products delivered on behalf of a non-resident.
Republika Srpska residency
Under the CIT Law of Republika Srpska, a resident
is a legal entity registered in Republika Srpska.
A PE is considered to be a place of business of a
non-resident in Republika Srpska (i.e. construction
works, installation and assembly works,
infrastructure used for research or exploitation of
natural resources or supervisory on these works). A
PE shall also be considered to be a place of business
where an individual or legal entity has the
authorisation to conclude contracts for a foreign
legal entity.
Brčko District residency
The CIT Law of Brčko District defines a resident as
a legal entity registered in Brčko District.
A PE of a non-resident in Brčko District is
considered to be:
 construction works, installation and assembly
works, infrastructure used for research or
exploitation of natural resources, or supervisory
on these works, or
 a place of business where an individual or legal
entity has the authorisation to conclude
contracts for a foreign legal entity.
Representative office of a foreign
legal entity
A foreign legal entity can establish a representative
office in Bosnia and Herzegovina for performance
of promotional, propaganda and market research
activities and for representation of a foreign legal
entity. A representative office of a foreign legal
entity cannot perform other activities aimed at
generating profit.
Based on the activities it ca perform, a
representative office of a foreign legal entity does
not create a PE in Bosnia and Herzegovina and they
are not considered to be CIT payers in Bosnia and
Herzegovina.
Branch income
Federation of Bosnia and Herzegovina
As mentioned above, it is expected that the
registration of a branch office of a foreign legal
entity will soon be fully enabled in Federation of
BiH. A branch office of a foreign legal entity in
Federation of BiH will be a corporate income
taxpayer for the income realised on the territory of
Federation of BiH.
Republika Srpska
Branch office of a foreign legal entity is a corporate
income taxpayer for the income realised on the
territory of Republika Srpska.
Brčko District
A branch office that an entity registered in
Federation of BiH and Republika Srpska has in
Brčko District is a corporate income taxpayer for
the income realised on the territory of Brčko
District.
Income determination
Taxable profit is determined by adjusting the
accounting profit, as presented in the profit and
loss statement, in a manner prescribed by the CIT
law.
Federation of Bosnia and Herzegovina
income
Income for assessment of taxable profit in
Federation of Bosnia and Herzegovina is income
from the sale of goods, services and materials, as
well as financial, extraordinary and other income
calculated in the profit and loss account in
accordance with accounting regulations and the
International Financial Reporting
Standards/International Accounting Standards
(IFRS/IAS).
Income from collected written-off debt shall not be
included in the tax base, provided it was included in
income in the previous tax period and it was not
subject to tax allowable or recognised expenditure.
Inventory valuation
Inventories are valued using the average price
method.
45
Chapter 9 – Corporate Taxation
Capital gains
The taxable base includes profit from liquidation
and capital gain from the balance sheet.
Dividend income
Dividends from other taxpayers shall not be
included in the tax base. Dividends are considered
to be participation in a profit of a company.
Republika Srpska
Taxable revenue for the purpose of assessing the
tax base in Republika Srpska includes all revenue
(domestic and foreign) from whatever source
derived, whether in cash or in kind or whether
related or unrelated to the company’s economic
activity.
In the event of revenue received in kind (other than
cash) or services, the amount of revenue shall be
equal to the market price of a property or
services received.
Inventory valuation
Inventory includes goods used for resale, final
goods produced by the taxpayer, semi-final goods
used for further production, as well as main and
auxiliary materials for production.
Purchase value of inventories at the beginning and
end of a fiscal year has to be expressed using the
same method for determination of purchase value
of inventories.
The purchase value of inventories can be
determined by using the first in first out (FIFO)
method or the weighted average cost method.
Capital gain
Capital gain is realised through sale or other type of
transfer of capital or investment assets and
represents a difference between the sales price and
adjusted base of an asset. The sales price is the
contracted price (i.e. the market price established
by the competent tax authority in case it finds the
contracted price to be lower than the market price).
Capital gains or losses realised during the fiscal
year can be offset, and the realised net gain or loss
is added or subtracted from the taxable base, if they
are not already included in the income or expense.
Dividend income
Income from dividends is not included in the
taxable base.
Brčko District
Taxable income in Brčko District includes all
income from any source (domestic or foreign),
whether in cash or in kind, regardless whether the
income is related to the business activity of the
company.
Inventory valuation
The purchase value of inventories can be
determined using the first in first out (FIFO)
method or the average cost method.
Capital gain
Capital gain is realized by sale or transfer of capital
and investment goods and represents positive
difference between the sales price and adjusted
property base.
Dividend income
Income from dividends is not included in the
taxable base.
Deductions
Federation of Bosnia and Herzegovina
In general, only expenditures that directly relate to
realised revenue can be considered as tax
deductible expenditures, when assessing the tax
base.
Depreciation
Depreciation cost is deductible only if it relates to
the property subject to depreciation that is in use.
Depreciation of fixed assets is deductible up to the
amount determined with the linear method by
applying the maximum depreciation rates as
prescribed by the Government of Federation of
Bosnia and Herzegovina, as follows:
Assets
Rate (%)
Buildings, except
10.00
Management, administration, office,
and other buildings for providing
service activities
3.00
Apartment houses, hotels, restaurants
14.30
Roads, communal objects, upper railways
rail machine
14.30
Equipment, vehicles, mechanicals except 20.00
Equipment for water management,
water-supply, and sewerage system
14.30
Computers and equipment for
environment protection
33.30
Crops
14.40
Livestock units
40.00
Intangible non-current assets
20.00
Source: FBiH Corporate Income Tax Law
46
Chapter 9 – Corporate Taxation
Property being depreciated, with purchase value
less than BAM 1,000, may be fully deducted in the
year when it was purchased, provided that the
property was put in use.
The purchase value of computer hardware and
software may be fully deducted in the year when the
purchase was made.
Once depreciated, the depreciate assets shall not be
re-included in the depreciation calculation for the
purposes of the tax balance.
total income, with the exception of membership
fees regulated by the law.
Expenses of sponsorship are deductible up to the
amount of 2% of total income.
Net operating losses
Tax losses may be carried forward for five years.
Tax base is always firstly decreased by an older tax
loss.
Tax losses cannot be carried back.
Depreciation is allowed for increases in the value of
fixed assets due to revalorisation in accordance
with IFRS/IAS, up to the amount of calculated
depreciation on the revalorisation base and using
the linear method prescribed by law.
Bad debt
Bad debt provisions are deductible if one of the
following conditions is met:
 The debts have not been collected within 12
months from due date
 The taxpayer has started court procedures in
regard to the receivable or started the enforced
collection procedure.
 The receivable is registered in the bankruptcy
procedure
 Agreement has been reached with the debtor in
the bankruptcy or liquidation procedure.
Tax provisions
The following provisions are considered as tax
deductible:
 Provisions for severance payments up to the
prescribed amount,
 Provisions for expenditures of natural resources
renewal,
 Provisions for expenditures in warranty periods,
 Initiated court procedures.
 Provisions for potential credit losses of banks
and microcredit organisations.
Charitable contributions
Costs of humanitarian, cultural, educational,
scientific, and sports purposes (except professional
sports) are deductible in the amount of up to 3% of
total income.
Other expenses with limited deductibility
Representation costs are tax deductible in the
amount of 30% of total business related
representation costs.
Expenses of membership fees to chambers are
deductible in the amount not exceeding 0.1% of
47
Chapter 9 – Corporate Taxation
Republika Srpska
Expenditures are deductible in computing the
Republika Srpska tax base if they directly relate to
the realised revenue.
Depreciation
Depreciation deductions are allowed only with
respect to depreciable assets that are being used.
A depreciable asset is any tangible or intangible
asset that is held for use in the production or supply
of goods and services, for rental to others, or for
administrative purposes. Land or any other asset
that does not decrease in value through wear and
tear or obsolescence is not considered a depreciable
asset.
The assets are depreciated using the linear method
of depreciation except for machines and equipment
which can be depreciated with acceleration (first
year at 40%, second year at 30%, and third year at
30%). The CIT Rulebook prescribes a wide range of
accepted depreciation rates, depending on type of
assets, ranging from 1% to 50% annually.
Bad debts
A legal entity is entitled to a deduction when it
comes to bad debts and provisions.
Legal entities, other than banks, authorised credit
institutions, or insurance companies, are entitled to
a deduction of a bad debt that arose in connection
with a sale of goods or provision of services,
provided that revenue was previously included in
the tax base of that legal entity.
Bad debt provision is tax deductible if it is due
more than a year, and:
 the taxpayer has started court litigation for the
receivables or an enforced collection procedure
is initiated
 the receivables are registered in the bankruptcy
procedure of the debtor, or
 an agreement has been reached with the debtor
in the bankruptcy or liquidation procedure,
provided that the debtor is not a physical or
related person.
Banks or other authorised credit institutions are
entitled to deduction of maximum 20% of the tax
base for increase of reserves for usual losses due to
unpaid loans.
Insurance or reinsurance companies are entitled to
a deduction for increase of reserves as recorded in
the accounting documents in accordance with the
relevant regulations.
In the event of insurance contracts pertaining to
reinsurance, reserves are to be reduced so that they
cover only part of the risk remaining with the
insurer, and the amount may not exceed 20% of the
tax base.
The tax savings resulting from a reduction or
cancellation of any provision that is collected later,
will be included in taxable revenue at the moment
of collection.
Charitable contributions
Contributions to public institutions and
humanitarian, cultural, and educational
organisations are deductible in an amount not
exceeding 3% of the fiscal year’s total revenue. Any
excess contribution may be carried forward three
years.
Other expenses with limited deductibility
Expenditures that are recognised and deductible
from revenue also include the following:
 30% of the cost of entertainment, meals, and
amusements related to the company’s business
activity.
 Sponsorship expenses in an amount not
exceeding 2% of the fiscal year’s total revenue.
 Scholarships to students in an amount of up to
75% of average monthly net salary per employee
in Republika Srpska in accordance with the
latest published data from the body in charge of
statistics.
Tax losses
Losses may be carried forward and offset against
income in the following five years. Tax losses are
utilised on a FIFO basis.
Tax losses cannot be carried back.
Brčko District
Expenditures are deductible in computing Brčko
District tax base provided they directly relate to the
realised revenue.
Depreciation
Depreciation deductions are allowed only with
respect to depreciable assets that are being used.
A depreciable asset is any tangible or intangible
asset that is held for use in the production or supply
of goods and services, for rental to others, or for
administrative purposes. Land or any other asset
that does not decrease in value through wear and
tear or obsolescence is not considered a depreciable
asset.
48
Chapter 9 – Corporate Taxation
The assets are depreciated using the linear method
of depreciation except for machines and equipment
which can be depreciated with acceleration (first
year at 40%, second year at 30%, and third year at
30%). The CIT Rulebook prescribes a wide range of
accepted depreciation rates, depending on type of
assets.
Calculation of depreciation for newly purchased
property starts the following month on the day
when it was put to use. The calculation of
depreciation for newly constructed buildings starts
from the first day of the following year in which it
was put to use.
Bad debts
Legal entities, other than banks, authorised credit
institutions, or insurance companies, shall be
entitled to a deduction of a bad debt that arose in
connection with a sale of goods or services but only
if the revenue from the sale was previously included
in the tax base of the legal person. For this purpose,
a credit or trade receivable is considered a bad debt
only if one of the following is true:
 It is more than 12 months past the due date for
payment of the invoiced receivable and the
creditor has sued for the receivables or an
enforced collection procedure is initiated due to
receivables.
 The receivables are registered in the bankruptcy
procedure of the debtor or an agreement has
been reached with the debtor who is not a
physical or related person in the bankruptcy or
liquidation procedure.
Banks or other authorised credit institutions are
entitled to deduction of maximum 20% of the tax
base for increase of reserves for usual losses due to
unpaid loans.
Insurance or reinsurance companies are entitled to
deduction for increase of reserves as recorded in
the accounting documents in accordance with the
relevant regulations.
In the event of insurance contracts pertaining to
reinsurance, reserves are to be reduced so that they
cover only part of the risk remaining with the
insurer, and the amount may not exceed 20% of the
tax base.
Charitable contributions
Contributions to public institutions and
humanitarian, cultural, and educational
organisations are deductible in an amount not
exceeding 3% of the fiscal year’s total revenue.
Other deductible expenses
Expenditures that are recognised and deductible
from revenue also include the following:
 30% of the cost of entertainment related to the
company’s business activity.
 Awards to employees, up to the prescribed
amount.
 Costs of business trips, meal allowance,
transportation, and holiday allowance, up to the
prescribed amount.
 Sponsorship expenses in an amount not
exceeding 2% of the fiscal year’s total revenue.
 Scholarships to students in an amount up to
75% of average monthly net salary in Brčko
District.
 Committee membership fees, up to 0.2% of total
revenue in the tax year.
 Expenses for research and development (R&D)
in accordance with the Rulebook.
Net operating losses
Losses may be carried forward and offset against
income in the following five years. Tax losses are
utilised on a FIFO basis.
Tax losses cannot be carried back.
Group taxation
Federation of Bosnia and Herzegovina
A company has the right to request tax
consolidation, provided condition that all
companies within the group are residents of
Federation of Bosnia and Herzegovina.
A main company and its branches form a group of
companies when there is a direct or indirect control
between them with minimum 90% of shares.
A request for tax consolidation has to be submitted
by the main company to the authorised office of the
Tax Authorities.
Each group member is required to submit its tax
balance, and the main company within the group
can submit a consolidated tax balance for the
group.
The consolidated tax balance may offset losses of
one or more companies against the profit of other
companies within the group.
Individual group members are liable for the tax
calculated on the consolidated balance
proportionately to tax profit from the individual tax
balance, and the main company is the payer of the
tax calculated on the consolidated balance.
49
Chapter 9 – Corporate Taxation
Once approved, tax consolidation shall be applied
for the consecutive period of minimum five years.
If one, several or all companies in the group later
opt for individual taxation, all group members shall
be obliged to proportionally pay the difference for
the tax privilege they have used.
Republika Srpska
An affiliated group of legal entities located within
Republika Srpska may elect to file a consolidated
annual tax return.
An affiliated group of legal entities is a group of one
or more legal entities from Republika Srpska that
are connected through the ownership on shares
with a common parent, provided that the common
parent owns at least 80% of the shares in a legal
entity included in the affiliated group. If the
common parent does not own at least 80% of
shares in a legal entity included in the affiliated
group, the parent may file a consolidated tax return
provided that one or more other legal entities in the
affiliated group own at least 80% of shares in such
legal entity.
Brčko District
An affiliated group of legal entities located within
Brčko District may elect to file a consolidated
annual tax return.
An affiliated group of legal entities is a group of one
or more legal entities from Brčko District that are
connected through the ownership in shares with a
common parent provided that the common parent
owns at least 80% of shares of a legal entity
included in the affiliated group.
Thin capitalisation
There are no thin capitalisation rules in Bosnia and
Herzegovina.
Tax credits and incentives
Federation of Bosnia and Herzegovina
Foreign tax credit
When a taxpayer generates income or profit
through business activities outside Federation of
Bosnia and Herzegovina (directly or through a
business unit) and pays profit tax on such income,
the tax paid abroad shall be credited up to the
amount of the profit tax that would have been paid
for the income or profit generated by the same
activities in Federation of Bosnia and Herzegovina.
Investment incentive
A taxpayer, who invests minimum BAM 20 million
in production in the territory of Federation of
Bosnia and Herzegovina in period of five
consecutive years, will be relieved from CIT for a
period of five years, starting with the first year in
which it has invested at least BAM 4 million.
Special needs employment incentive
A taxpayer who, within its company, employs more
than 50% of disable persons or persons with special
needs in a period of time longer than one year is
relieved from CIT for the year in which more than
50% of disable persons or persons with special
needs are employed within the company.
Export incentive
A taxpayer who realises more than 30% of annual
income by export will be relieved from CIT for that
year.
Republika Srpska
If a legal entity from Republika Srpska obtains
revenue from a foreign state and the revenue is
taxed both in Republika Srpska and in the foreign
state, then the tax paid to the foreign state, whether
paid directly or withheld and remitted by another
person, is to be credited from Republika Srpska’s
CIT, unless such legal entity from Republika Srpska
elects to treat the foreign tax as a deductible
expenditure in determining the fiscal year tax base.
In order to promote foreign direct investments in
Republika Srpska, and in accordance with the
amendments to the Law on Corporate Income Tax,
tax incentives have been granted for newly
employed workers. Moreover, CIT base for profit
tax is adjusted by the amount of tax paid on
income, and contributions for the newly employed
workers. A new employee is the worker who
concludes a contract for an indefinite period of
time, in accordance with the labour legislation.
Furthermore, a taxpayer who invests in equipment,
facilities and real estate to conduct its own
registered manufacturing activities, has the right to
deduct the tax base for the value of the
Brčko District
Foreign tax credit
If a legal entity from Brčko District obtains revenue
from a foreign state and the revenue is taxed both
in Brčko District and in the foreign state, then the
tax paid to the foreign state, whether paid directly
or withheld and remitted by another person, is to
be credited from the Brčko District CIT, unless such
legal entity from Brčko District elects to treat the
50
Chapter 9 – Corporate Taxation
foreign tax as a deductible expenditure in
determining the fiscal year tax base.
Investment incentive
For a taxpayer who invests in machines and
equipment for performing its own registered
business activity in the territory of Brčko District, a
deduction is allowed for the amount of the
investment.
Employment incentive
For a taxpayer who employs new employees for an
indefinite period of time during the tax period, a
second deduction is allowed for the total amount of
the gross salaries paid to the new employees.
51
Chapter 9 – Corporate Taxation
9.3. Withholding tax
Withholding tax in Federation of Bosnia and
Herzegovina
WHT in Federation of Bosnia and Herzegovina is
calculated on income that a non-resident generated
throughout the territory of Federation of Bosnia
and Herzegovina.
The base for calculation of WHT is the gross
amount paid by a resident of Federation of Bosnia
and Herzegovina to a non-resident for dividends,
interest, royalties and other intellectual property
rights, compensations for market research, tax
consulting services, auditors’ services, fun and
sports events, premium insurance for insurance or
reinsurance of risk in Federation of Bosnia and
Herzegovina, telecommunication services between
Federation of Bosnia and Herzegovina and other
countries, as well as all other services performed in
Federation of Bosnia and Herzegovina.
WHT in Federation of Bosnia and Herzegovina is
due at 10% rate. WHT on dividends is due at 5%
rate.
Withholding tax in Republika Srpska
Any legal entity or physical person from Republika
Srpska, as well as any non-resident legal entity or
physical person with PE in Republika Srpska, who
pays revenue to a non-resident legal entity is
obliged to withhold tax from the total payment of
revenue and to remit the withheld tax to the Public
Revenues Account of Republika Srpska.
The WHT applies to the following revenue
payments, regardless of whether the revenue is
received in Republika Srpska or abroad:
 Payment of interest or its functional equivalent
under financial instruments and arrangements
from a resident.
 Payment for entertainment or sporting activities
carried out in Republika Srpska, regardless of
whether the revenue is received by the
entertainer or sportsman or by another person.
 Payment for provision of management,
consulting, financial, technical, or
administrative services, if the revenue is from a
resident or if the revenue is paid by or included
in books and records of a PE in Republika
Srpska, or if such payment is deducted for the
purpose of determining the tax base.
 Payment in the form of insurance premiums for
insuring or reinsuring of risks in Republika
Srpska.
 Payment for telecommunication services
between Republika Srpska and a foreign state.
 Payment of royalties.
 Payment of lease for movable property.
 Payment for provision of other services in
Republika Srpska.
There is no WHT on dividend payments in
Republika Srpska.
The WHT rate in Republika Srpska is 10%.
Withholding tax in Brčko District
Any legal or physical person from Brčko District, as
well as any non-resident legal or physical person
with PE in Brčko District, who pays revenue to a
non-resident legal person is to withhold tax from
the total payment of revenue and is to remit the
withheld tax to the Public Revenues Account of
Brčko District.
The WHT applies to the following revenue
payments, regardless of whether the revenue is
received in Brčko District or abroad:
 Payment of interest or its functional equivalent
under financial instruments and arrangements
from a resident.
 Payment for entertainment or sporting activities
carried out in Brčko District, regardless of
whether the revenue is received by the
entertainer or sportsman or by another person.
 Payment for provision of management,
consulting, financial, technical, or
administrative services, if the revenue is from a
resident or if the revenue is paid by or included
in the books and records of a PE in Brčko
District or if such payment is deducted for the
purpose of determining the tax base.
 Payment in the form of insurance premiums for
the insuring or reinsuring of risks in Brčko
District.
 Payment for telecommunication services
between Brčko District and a foreign state.
 Payment of royalties.
 Payment of lease for movable property.
 Payment for provision of other services in Brčko
District.
There is no WHT on dividend payments in Brčko
District.
The WHT rate in Brčko District is 10%.
Double tax treaty network
Bosnia and Herzegovina has 38 effective double tax
treaties as at 1 January 2014.
52
Chapter 9 – Corporate Taxation
9.4. Transfer pricing
Transfer pricing requirements are imposed at the
entity level. Federation of Bosnia and Herzegovina,
Republika Srpska and Brčko District have different
transfer pricing regulations in place, including
different rules regarding applicable methods,
definitions of related parties, and documentation.
The regulations in place do not differ if the
transactions are within one entity, cross-border, or
international. Basically, this means that all
transactions can fall under the transfer pricing
scope.
With Bosnia and Herzegovina not being an EU or
an OECD member, the local legislation does not
have the same requirements with respect to
transfer pricing documentation as in EU countries
nor does the legislation refer to the OECD
guidelines.
Related parties
Under the applicable legislation in Republika
Srpska and Brčko District, related parties of a legal
entity are considered to be physical persons or legal
entities that possess more than 10% of active shares
with voting rights in the legal entity.
A legal entity can be a related party if it possesses
more than 10% of active shares in the other legal
entity indirectly or directly. Indirect ownership is
considered to be:
 if a legal entity person possesses more than 10%
of a dependant company, and that dependant
company possesses more than 10% in the other
legal entity,
 if two legal entities have a common shareholder
who possesses more than 10% active shares with
voting rights in both legal entities.
In Federation of Bosnia and Herzegovina, a related
party is considered to be an individual or a legal
entity that has the possibility of control or
significant influence on the business decisions of
the taxpayer. Ownership of more than half or
individually the most stocks or shares in a company
is considered to be enabled control.
Significant influence is considered to be mutually
high sales turnover, technical dependence, or
otherwise gained control over the management.
Prescribed methods
Federation of Bosnia and Herzegovina recognises
only two transfer pricing methods:
 Controllable price method (primary method)
 Cost plus method
The CIT Laws of Republika Srpska and Brčko
District prescribe the following five methods that
can be used in order to establish whether the prices
are in accordance with the arm’s-length principle:
 Comparable price method
 Cost plus method
 Resale price method
 Profit split method
 Transactional net margin method
Documentation requirements
The Republika Srpska Rulebook on Corporate
Income Tax briefly prescribes that the Tax
Authority will accept transactions between related
parties, if the tax payer possesses information on
related parties, such as:
 legal status and business activities of the tax
payer (especially if they fall under special
business regime) and their characteristics;
 identification of transactions between related
parties in terms of value and conditions under
which they have been conducted in the last five
years;
 breakdown of activities and data on business
partners, relevant for the transactions;
 description of the method used for determining
the price between related parties.
The documentation should be prepared and
available upon the request of the Tax Authority.
Federation of Bosnia and Herzegovina does not
currently have formal transfer pricing
documentation requirements per se. However, the
preparation of draft of the new CIT Law is in
progress and it will introduce other methods for
assessment of transfer pricing, as well as the
obligation of conducting a transfer pricing study. It
is expected the new CIT Law will came into force
next year.
The Tax Authorities will most likely first test the
reality or existence of the delivery and the benefits
received by the taxpayer. Therefore, supplier
documentation proving that the supplier was
involved in providing a service or generating
expenses from a service is accepted as valid only
after obtaining positive evidence on the actual
service delivery and receipt, the commercial
recognisability of the service, the quantity or
volume and the time of delivery.
53
Chapter 9 – Corporate Taxation
9.5. Value added tax
9.6. Excise duties
The standard VAT rate is 17% and the VAT regime
applies equally throughout the country of Bosnia
and Herzegovina. There is no reduced VAT rate in
Bosnia and Herzegovina.
There is a single excise regime throughout Bosnia
and Herzegovina which levies excise tax on the
following products: petroleum products, tobacco
products, non-alcoholic drinks, alcohol and
alcoholic drinks, beer and wine, and coffee
(unroasted, roasted, and ground coffee and coffee
extracts). The duties on petroleum products and
drinks are set at a specific amount per litre, and the
coffee excise is a specific amount per kilo.
Taxable persons are all individuals and legal
entities registered, or required to be registered, for
VAT. Any person making taxable supplies of goods
and services that exceeds or is likely to exceed a
threshold of BAM 50,000 (EUR 25,600) is required
to register as a VAT payer.
The export of goods is zero-rated.
Taxable transactions include supply of goods and
services for consideration in the territory of Bosnia
and Herzegovina, as well as the importation of
goods to Bosnia and Herzegovina. The following
transactions are also taxable:
 Transactions for no consideration or for a
consideration less than the market value.
 The private use of taxable goods by a taxable
person (self-supply).
9.7. Custom duties
The customs policy law and the rates of customs
tariffs to be applied exist and are largely based on
European Union (EU) standards. Bosnia and
Herzegovina has signed the Stabilisation and
Association Agreement (SAA) and the Central
European Free Trade Agreement (CEFTA).
The following services are exempt from VAT in
Bosnia and Herzegovina:
 The leasing and subletting of residential houses,
apartments, and residential premises for a
period of longer than 60 days.
 The supply of immovable property, except for
the first transfer of the ownership rights or the
rights to dispose of newly constructed
immovable property.
 Financial services.
 Insurance and reinsurance services.
 Educational services provided by private or
public educational institutions.
 Postal services.
The VAT period is one calendar month.
Any tax credit that has not been used after a period
of six months shall be refunded.
Registered exporters are to be refunded within 30
days.
54
Chapter 10
Individual Taxation
55
Chapter 10 – Individual taxation
10.1. Personal income tax
Residents
In Republika Srpska and Federation of Bosnia and
Herzegovina taxpayers of personal income tax are
residents, as well as non-residents who generate
income on the territory of Republika Srpska or
Federation of Bosnia and Herzegovina.
Federation of Bosnia and Herzegovina
In Federation of Bosnia and Herzegovina taxpayers
are considered to be:
 residents for their worldwide income;
 non-residents who perform independent
business activity through permanent place of
business activities in the territory of Federation
of Bosnia and Herzegovina, subjecting them to
tax on income generated from such permanent
place of business;
 non-residents who perform dependant business
activity in the territory of Federation of Bosnia
and Herzegovina, subjecting them to tax on
income generated from such dependant
business activity;
 non-residents who earn income from movable
and immovable property, royalties, patents,
licences, capital investments where ownership
of the underlying property is in the territory of
the Federation of Bosnia and Herzegovina,
subjecting them to tax on income earned from
such property.
In Federation of Bosnia and Herzegovina, a
resident is a physical person who:
 has domicile in Federation of Bosnia and
Herzegovina
 resides in Federation of Bosnia and
Herzegovina, continuously or in intervals for
183 days or more during one calendar year.
Republika Srpska
In Republika Srpska, a resident is a physical person
who:
 has domicile in Republika Srpska;
 resides in Republika Srpska, continuously or
with interruptions for 183 days in a 12 months
period that starts or ends in that calendar year.
Brčko District
Resident in Brcko District is a person who:
 has domicile in the territory of Brčko District,
 resides in the territory of Brčko District
continuously or with interruptions 183 or more
days in any tax period,
 Has residence in Brčko District, and obtains
income from the Brčko District budget based on
dependent activity performed outside of the
Brčko District territory.
Tax rates
 Republika Srpska - flat rate of 10%.
 Federation of Bosnia and Herzegovina – flat rate
of 10%.
 Brčko District – flat rate of 10%.
Income determination
Federation of Bosnia and Herzegovina
In Federation of Bosnia and Herzegovina, the
following income is subject to personal income tax:
 income from dependant business activities;
 income from independent business activities;
 income from property and property rights;
 income from capital investments; and
 income from chance and lottery games.
Republika Srpska
In Republika Srpska the following income is subject
to personal income tax:
 personal income;
 income from independent business activities;
 income from royalties and rights similar to
royalty rights and rights of industrial property;
 income from capital and income from capital
gain.
Brčko District
In Brčko District, the following income is subject to
personal income tax:
 income from dependant business activities;
 income from independent business activities;
 income from property and property rights;
 income from capital investments; and
 income from chance and lottery games.
56
Chapter 10 – Individual taxation
Deductions
Tax credits
Federation of Bosnia and Herzegovina
The following personal income tax deductions are
allowed in Federation of Bosnia and Herzegovina:
In Brčko District, Republika Srpska and in
Federation of Bosnia and Herzegovina tax credit is
granted for tax paid outside of territory of Brčko
District, Republika Srpska or Federation of Bosnia
and Herzegovina, respectively. The amount of tax
credit cannot exceed the amount of tax which
would be calculated when the same income would
be earned in Brčko District, Republika Srpska, and
Federation of Bosnia and Herzegovina,
respectively.
FBiH
BAM
monthly
300
Personal deduction
Dependant family member –
spouse
150
Dependant family member –
first child
150
Dependant family member –
second child
270
Dependant family member –
third and every next child
90
Dependant family member –
parent (whose monthly income
does not exceed BAM 300)
90
Interest paid on mortgage
loan
Full amount
Premium paid on life
Insurance
Full amount
In the event when Bosnia and Herzegovina has
signed a Double Tax Treaty with another state, then
provisions of the Tax Treaty apply.
Republika Srpska
The following personal income tax deductions are
allowed in Republika Srpska:
RS
Deduction for dependant
Family members
Personal deduction
Interest paid on mortgage
loan
BAM
annually
900
2,400
Full amount
Brčko District
The following personal income tax deductions are
allowed in Brčko District:
BD
BAM
annually
3,600
Personal deduction
Deduction for dependant family
members and person receiving
aliment based on the agreement
on life-long aliment (50% of
personal deduction)
1,800
Deduction for invalidity of
10% of personal
tax payer or dependant
deduction for every
family member
20%of invalidity
Additional pension insurance
(up to 50% of personal deduction)
up to 1,800
57
Chapter 10 – Individual taxation
10.2. Social security
contributions
Federation of Bosnia and Herzegovina
In Federation of Bosnia and Herzegovina
mandatory Social Security Contributions are due by
the following rates:
Employer
%
Pension and
invalid insurance
Health insurance
Insurance from
unemployment
Brčko District
Persons who are working in Brčko District can
choose to which fund of pension insurance, either
the fund of Republika Srpska or fund of Federation
of Bosnia and Herzegovina, they would like pay
pension and invalid insurance contributions.
Health insurance contributions are calculated in
the amount of 12% on gross salary.
Employee
%
6
4
17.00
12.50
0.5
1.50
Basis for calculation of Social Security
Contributions is the gross salary.
In Federation of Bosnia and Herzegovina employer
pays also 0.5% of contribution for protection from
natural and other disasters, as well as 0.5% of the
water protection charge, calculated on net salary.
Republika Srpska
In Republika Srpska, the following rates of
mandatory Social Security Contributions have to be
applied:
RS
% of gross salary
Pension and
invalid insurance
18.00%
Health insurance
12.50%
Insurance from
unemployment
1.00%
Contribution for child
protection
1.50%
In Republika Srpska mandatory Social Security
Contributions are calculated on gross salary, and
have to be withheld by the employer, as an income
payer.
58
Chapter 11
PwC in Bosnia and
Herzegovina
59
11.1. PwC worldwide
organisation
PricewaterhouseCoopers provides industry-focused
assurance, tax and advisory services to build public
trust and enhance value for our clients and their
stakeholders. More than 184,000 people in 157
countries across our network share their thinking,
experience and solutions to develop fresh
perspectives and practical advice
PricewaterhouseCoopers provides a full range of
business advisory services to leading global,
national and local companies as well as to public
institutions.
These services include audit, accounting and tax
advice; management, information technology and
human resource consulting; financial advisory
services including mergers and acquisitions,
business recovery, project finance, and litigation
support; business process outsourcing services; and
legal services provided through a global network of
affiliated law firms.
11.2. PwC in Bosnia and
Herzegovina
PwC in BiH provides a full range of assurance, tax
and business advisory services. Our clients are
drawn from the full spectrum of the business
community in BiH and include local state owned
and private enterprises, central government bodies,
and leading international corporations present in
BiH.
PwC BiH is fully incorporated into the PwC
Southeast Europe (SEE) cluster and Central and
Eastern Europe (CEE) region. We combine our
knowledge and experience with colleagues from
other countries in order to develop fresh
perspectives and practical advice to our clients.
11.3. Assurance services
The Assurance practice comprises internationally
trained local and foreign auditors and accountants.
All PwC staff are familiar with local and
international accounting practices.
As a part of our long-term development strategy,
PwC BiH requires its local employees to gain
internationally recognized professional
qualifications in accounting (UK ACCA), and to
specialize in IAS/IFRS.
Due to BiH’s transition to a market economy, the
country’s accounting and auditing legislation is
changing rapidly. We are well placed to understand
the practical implications of the new laws and
practices on your company’s activities, and we can
help you develop appropriate strategies to obtain
maximum benefit from each new situation.
Our services:
 Financial, operational and organisational audit
under international and statutory regulation;
 Financial and accounting review, investigation
and due diligence;
 Restatement of accounting records in
accordance with standards of BiH and in
compliance with IAS/IFRS;
 Accounting and consulting services in financial
audit, general and management accounting,
organisational restructuring;
 IAS/IFRS accounting training;
 Maintenance for setting up an efficient internal
audit department.
11.4. Advisory services
The key element of our success is the quality of our
people. Our BiH office is staffed with 21 local
specialists with knowledge of local conditions and
regulations.
PwC advisory services are provided by trusted
professionals with ample knowledge of business
processes and technology, financial and accounting
expertise, industry insight, and customer
relationship skills. Through the use of these
capabilities and the experience and resources
offered by a global organisation, we assist clients in
addressing many of the important business issues
involved in enterprise management.
Our staff combines PwC worldwide experience with
in-depth local knowledge to provide unparalleled
solutions for the local business environment.
Particular emphasis is placed on the priorities of
performance improvement, transactions and
forensic services.
The global PwC network enables our specialists to
solve problems, supported by experience from
different parts of the world.
Due to the close regional cooperation of PwC
Advisory Team we can provide assistance to all
those companies that are thinking of entering
South East Europe as a region and not only
60
individual countries. This differentiates us from
other competitors in the region.
PwC BiH has excellent knowledge of local market
and has strong relationships with the most
significant companies and state bodies in BiH.
These relationships enable us to resolve many
issues quickly and to identify reliable sources of
information.
We serve different type of clients.
 Foreign investors coming to BiH
 Foreign companies operating in the BiH market
 Local prospective companies
Deals
We help clients do better deals and create value
through mergers, acquisitions, disposals and
restructuring, working together to help them:
 Develop the right strategy before the deal;
 Execute their deals seamlessly;
 Identify issues and points of negotiation and
value;
 Implement changes to deliver synergies and
improvements after the deal.
We also help clients assess options, restructure and
help them maximise value from troubled financial
situations.
Consulting
We help organisations implement their business
strategies by consulting with them to:
 Build effective organisations;
 Innovate and grow;
 Reduce costs;
 Manage risk;
 Leverage talent.
Our aim is to support our clients in designing,
managing and executing lasting beneficial change.
11.5. Tax services
The Global Tax Monitor recognises PwC as the
leading firm globally for tax advice, by reputation,
with a very strong lead over the competition.
Our reputation as global market leader extends to
the various tax service areas, where we have a very
strong lead over the competition in domestic
corporate tax planning, transfer pricing,
compensation & benefits, expatriate tax planning &
compliance, tax risk minimisation, cross-border tax
compliance and tax accounting.
Our tax team acts for a significant number of local
companies and foreign entities with activities in
Bosnia and Herzegovina. The Department has a
broad knowledge of tax legislation, accounting,
customs and other regulations as well as extensive
experience in advising clients on Bosnian and
international legislation. They are able to provide
taxation and general business advice on all aspects
of inward investment into Bosnia and Herzegovina.
We also advise clients based on our knowledge of
Bosnian legislation and how this legislation interrelates with international laws and treaties.
Bosnian Tax and Legal regimes are complex and
evolving rapidly. Therefore it is vital to seek expert
tax and legal advice prior to making decisions. This
is where PricewaterhouseCoopers can help. Our
unique team of domestic and international tax
specialists works together on the cross-border
affairs of companies, individuals and their
businesses related to tax issues and is experienced
in providing advice on a wide variety of tax issues.
We are committed to providing our clients with a
service that meets their requirements and exceeds
their expectations. Our experience in Bosnia and
Herzegovina may benefit your company to
promptly assess and minimize the tax risk. We
understand the importance of expedient, high
quality service. Experts that know the specifics of
your industry can help you solve complex business
and tax issues.
Indirect Taxes
Although we specialise in VAT, we also consider the
impact of all other forms of tax. This
comprehensive approach gives you effective access
to the largest group of tax professionals in Bosnia
and Herzegovina. We can therefore help you to
streamline your operations to minimize VAT costs
and can provide you with the skills and the
foresight that you need to actually manage your
VAT, rather than just paying it.
We fully understand and appreciate the specific
needs of individual businesses. As part of a global
network, PricewaterhouseCoopers can offer
comprehensive solutions to all your VAT needs.
You could also choose to have access to our
GlobalVatOnline website, a constantly updated
database of important VAT information from over
70 countries.
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Core VAT services:
 Tax Planning and restructuring
 Assistance with VAT registration and
administration
 Preparation of VAT returns and effective
maintenance of VAT records
 Ensuring the correct application of VAT rates
 Review of VAT application within your business
 Analysis of business costs to optimize statutory
VAT entitlements
 Vision projects to provide you with an analysis
of potential cost savings
 Cash flow planning
 Analysis of import or acquisition VAT to
determine optimal cash flow
 Assisting you with any negotiations you may
have with the tax authorities
 Customs and International Trade
Corporate Income Tax
Corporate Tax Compliance and Outsourcing
 Specialisation in the preparation and
submission of corporate income tax returns.
 Liaising with the Tax and Financial Authorities
on behalf of our clients
 Managing annual compliance procedures
 Assistance with tax accounting
Corporate Tax Advisory
 This includes tax optimisation, tax modelling,
value extraction, intellectual property planning
International Tax Planning and Restructuring
 Outbound and inbound structuring
 Global tax optimisation
 Tax efficient holding locations
 Global profit repatriation
 International tax law interpretation
 Double Tax Relief
 Cross border transactions
Transaction Tax Advice
 Mergers and acquisitions tax services (due
diligence, tax structuring of transaction, debt
structuring)
Financial Services
 Local or international group refinancing
 Identification of risks involved in the tax,
accounting and legal aspects of various financial
products
 Re-capitalisation and balance sheet
restructuring
 Financial instruments and derivatives advisory
 Registration of foreign investment funds
Real Estate
 Tax structuring including advice on beneficial
holding locations, exit strategies, capital gains
optimisation, financing strategies.
Tax Planning and Restructuring
Regardless of the size of your organization, effective
tax planning and the establishment of an
appropriate corporate structure is essential to
minimize tax operational costs. Efficient tax
planning and corporate structuring can lead to
significant cost savings and increased profitability
for your company. However, to be truly effective
you need foresight and expertise.
PricewaterhouseCoopers has established an
experienced multi-disciplinary team of experts who
specialise in tax and corporate law. They can help
you to both structure your company to gain the
most advantageous position, and to devise an
efficient tax planning strategy to reduce your
overall tax liability.
 Advice on designing and implementing
International and Bosnian tax planning and
optimization strategies
 Advice and assistance on the benefits and
procedures of restructuring
 Advice on the application and interpretation of
international tax law
 A comprehensive review of existing contracts
and other arrangements for tax efficiency
 Advice on effective tax strategies for licenses,
software, and other intellectual property
Transfer Pricing
Our dedicated team of transfer pricing specialists
can consolidate your group’s transfer pricing policy
to correspond to your business objectives and
strategies. We can provide you with industry
specific benchmarking to determine an effective
arm’s length price for goods and services. This also
enables you to adjust your transfer pricing to
optimise your overall profitability. Furthermore, we
are able to assist you in providing transfer pricing
documentation that fully complies with the local
transfer pricing rules and corresponds to the OECD
guidelines.
This documentation is essential to prove that your
pricing structure complies with all the current rules
and regulations and to avoid penalties for not
producing the required documentation in time.
 Assessment of current transfer pricing
procedures
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 A full review of existing group transfer pricing
policies
 Assistance in the preparation of a new transfer
pricing policy
 Preparation of industry specific benchmark
analysis and comparable studies to support the
transfer pricing policy and methods
 Assistance in the preparation of all required
supporting documentation
 Complex transformation of your existing
business structure to a more tax and businesseffective model
 Assistance in any negotiations with the Tax
authorities.
identification of tax, and social security
implications; and providing advice on the
reimbursement of costs, such as daily food
allowance, travel allowance, business-related
travel costs, per diem allowance, etc.
 Employee share plans - Assistance with the
review, design, implementation, and ongoing
maintenance of share plans for both Bosnian
and foreign-national employees. This includes
analyses of both corporate and personal income
tax implications and international tax
implications
 Assignment policies for employees seconded to
work abroad
Personal Income Tax
Our International Assignment Solutions (IAS) team
can provide you with comprehensive advice and
assistance to meet the specific needs of expatriates
working in Bosnia and Herzegovina and for
Bosnian nationals working abroad.
Our Personal income tax solutions team can
provide you with comprehensive compliance
services, assistance with the interpretation of the
personal income tax legislation, preparation of
opinions and provision of the optimal solutions to
your day to day issues.
Our goal is to enable full-service support, that will
alleviate you of the problems involved with
administration, and allow you to concentrate on the
productivity of your workforce. We can regularly
inform you of changes in the field of personal
income tax by organizing seminars for bigger
groups as well as individually for companies with
specific problems.
 Monthly reporting – includes advice and review
of forms for calculating withholding tax for
income from employment and other contractual
relationships; from, renting property,
transferring property rights, or any other
income, as well as from capital gains, interest
and dividends
 Annual reporting – advice and review of the
form for reporting the salary data, changes in
the salary data, paid social security
contributions and the period of insurance,
including the summary of calculated personal
income per tax period
 Other contractual relationships – providing
advice and assistance with payments, according
to the contract on service performance,
authorial work or contract on management and
procurement
 Workforce cost management - A comprehensive
review of employee pay and benefits packages
and full assistance with the implementation of
an efficient remuneration scheme. These
includes reviews of the tax effectiveness of the
current salary and benefit packages;
We can also provide you with full-service support
with the preparation and filing of personal income
tax calculations and returns and social security
reports. This includes the handling of all
communication with the Bosnian tax, social and
health insurance authorities. This alleviates you of
the problems involved with administration, and
allows you to concentrate on the productivity of
your workforce.
 Monthly personal income tax returns –
Preparation of the monthly tax returns for
inbound and outbound expatriates that
includes: correspondence with the expatriate or
his employer to gather and check the
documentation necessary for the completion of
the returns; correspondence with tax
authorities; reviewing of the tax assessments
issued by the tax authorities, including the
proceedings relating to payment of the assessed
tax and filing the complaints with the tax
authorities, if any irregularities occur in the
issued assessment.
 Annual personal income tax return and review
of the informative calculation, preparation of
complaints – Gathering and checking of all
necessary documentation for preparation of the
annual personal income tax return for inbound
and outbound expatriates, including
correspondence with the tax authorities during
the process of assessing the total tax liability.
Reviewing the correctness of the received
informative calculation, preparation of
objections and filing the complaints with the tax
authorities, if any irregularities occur in the
issued assessment.
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 Personal tax advisory services - Comprehensive
advice for inbound and outbound expatriates to
optimise their personal tax position. Departure
and arrival advice as well as advice during their
stay in foreign country. Assistance with social
security insurance issues and planning of local
employee assignments so as to minimise the
negative impact of income tax and social
security obligations.
 Immigration services - Provision of a full service
to expatriates and their families on assignment
to Bosnia and Herzegovina. This includes
obtaining the necessary work and residence
permits, registration with the Foreigners’ Police,
and pre- and post-departure communications.
 Post - acquisition restructuring
 Assistance with implementation of mergers,
spin-offs and other status changes
11.6. Legal services
Banking/Insurance/Finance
 Mortgages, loans and other financial
transactions advice and documentation
 Advice on bank guarantees, promissory notes
and other collateral instruments
Our knowledge of local legislation and business
environment, experience in commercial
transactions and international education enable us
offer a variety of legal services and solutions for
your business in Bosnia and Herzegovina.
Legal team in PricewaterhouseCoopers creates a
powerful synergy between lawyers on one hand and
business advisors, tax specialists and auditors on
the other hand, allowing us to deliver integrated
business solutions.
We are providing high quality services in
accordance with International Standards and best
local practices to top tier companies and
organizations internationally.
Our goal is to link international expertise with
practical and realistic local experience. We made
significant investment in infrastructure and
training to provide up to date methodologies,
communication and research capabilities.
Corporate Law
 Incorporation of companies and representative
offices
 Advice on corporate governance structuring and
restructuring
 Legal drafting and reviewing of a company’s
corporate acts
Real Estate
 Real estate due diligence
 Advice on real estate investments
 Legal services regarding lease of real estate
 Acquisition and disposal support
Banking/Insurance/Finance
 Mortgages, loans and other financial
transactions advice and documentation
 Advice on bank guarantees, promissory notes
and other collateral instruments
Intellectual Property Rights
 Registration of intellectual property rights
 Protection in intellectual property rights
Labour and Employment
 Advising on and drawing up employment
agreements
 Advising on and drawing up internal labour
related acts of companies
 Dealing with redundancies and labour
restructuring
 Other employment related services
Securities Law
 Advice on and structuring of securities
transactions
 Advice on and implementation of
increase/decrease of capital
 Advice on acquisitions through takeover bid
Competition Law
 Competition clearance and advice on unfair
market practices legislation
Commercial Law and Foreign Investments
 Advice on and structuring of business
transactions
 Advice on commercial contractual matters
Privatisation, M&A and Corporate restructuring
 Legal Due Diligence Reports
 Preparation of Tenders and Auctions
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Office contact details
PricewaterhouseCoopers d.o.o.
Fra Anđela Zvizdovića 1
71000 Sarajevo
Bosnia and Herzegovina
Assurance Services
Jock Nunan
Partner
[email protected]
Telephone: +387 33 295 234
Fax: +387 33 295 235
Internet:
Emmanuel Koenig
Country Managing Partner
[email protected]
www.pwc.ba
Jasmina Hodžić
Senior manager
[email protected]
Alida Selimović
Manager
[email protected]
Advisory Services
Bojidar Neitchev
Partner
[email protected]
Tax and Legal Services
Branka Rajičić
Partner
[email protected]
Mubera Brković
Manager
[email protected]
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www.pwc.ba
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PricewaterhouseCoopers International Limited, each of which is a seperate legal entity.