Income tax in Bosnia and Herzegovina

November 09, 2011

INDIVIDUAL TAXATION

Bosnia and Herzegovina (BiH) consists of two main territorial entities and tax jurisdictions: The Federation of Bosnia and Herzegovina (FBiH), with 10 cantons, and the Republic Srpska (RS).

Residents are taxed on their worldwide income. Married couples are taxed separately.

INCOME TAX

In The Federation of Bosnia and Herzegovina (FBiH), taxable income is classified into the following categories: (1) income from independent business or professional activities, (2) income from dependent activities, (3) income from property and property rights, including capital gains, and (4) capital investments. Income and capital gains are taxed at a flat rate of 10%. Personal deduction in FBiH is BAM3,600 (€1,841) annually.

In the Republic Srpska (RS), taxable income is classified into the following categories: (1) income from independent business or professional activities, (2) income from dependent activities, (3) income from copyrights and similar rights, including industrial property rights, (4) income from capital investments, including income from renting movable and immovable property, interest on loans, etc, and (5) capital gains. Income and capital gains are taxed at a flat rate of 8%. Personal deduction in RS is BAM3,000 (€1,534) annually.

RENTAL INCOME
In The Federation of Bosnia and Herzegovina (FBiH), rental income is taxed at a flat rate of 10%. Instead of itemized deductions, a standard deduction is allowed, which is generally equal to 30% of the gross rent. In cases where the apartments and rooms are leased to tourists, a standard deduction of 50% of the gross rent may be used.

In the Republic Srpska (RS), rental income is taxed at a flat rate of 8%. Depreciation costs and income-generating expenses (such as financing, operational and investment maintenance) are deductible when calculating the taxable income. Taxpayers may choose either itemized deduction or a standard deduction of 20% of the gross rent.

CAPITAL GAINS
In The Federation of Bosnia and Herzegovina (FBiH), capital gains are taxed at a flat rate of 10%. Taxable capital gains are calculated as the different between the market value of the property and the acquisition costs, increased by the industrial price index. The same calculation method applies for the transfer of properties that has been received without consideration.

In the Republic Srpska (RS), capital gains are taxed at a flat rate of 8%. Taxable capital gains are calculated as the difference between the sales price or market value of the property and the acquisition costs. In cases of property received as an inheritance or gift, the tax base is the market value of the property.

PROPERTY TAXATION

Property Tax

In The Federation of Bosnia and Herzegovina (FBiH), property tax is levied at the cantonal and municipal level. Property tax is levied on buildings for recreation, office premises and garages under lease agreements. For example, in the canton of Saravejo, buildings are taxed at BAM3 (€1.53) per sq. m., offices are taxed at BAM4 (€2.05) per sq. m., and garages are taxed at BAM3 (€1.53) per sq. m.

In the Republic Srpska (RS), property tax differs by municipality where the property is located. Private dwellings and houses for recreation are taxed from BAM0.30 (€0.15) to BAM1 (€0.51) per sq. m.

Land Tax

In the Republic Srpska (RS), land tax differs by municipality where the property is located. The rates may fall between 0.05% and 0.5%, and is levied on the estimated value of the property.

CORPORATE TAXATION

INCOME TAX

Income and capital gains are taxed at a flat rate of 10% in both tax jurisdictions or territorial entities of The Federation of Bosnia and Herzegovina (FBiH) and the Republic Srpska (RS). Taxable income is computed by deducting income-generating expenses from the gross profits.

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