Understanding personal income tax regulations it is important for anyone who currently even lives in Bosnia and Herzegovina or is planning to move to the country. The Federation of Bosnia and Herzegovina is composed of three separate jurisdictions, including two governing entities – the Federation of Bosnia and Herzegovina and the Republika Srpska, and an autonomous administrative unit – the Brčko District. Each entity within Bosnia and Herzegovina imposes its own personal income tax rates and criteria for taxation, reflecting the unique administrative and legal frameworks present in this diverse nation. This article aims to provide a comprehensive overview of personal tax in Bosnia and Herzegovina.
Individual Tax Residency in Bosnia and Herzegovina
In Bosnia and Herzegovina, the requirements for individual tax residency differ between regions. In the Federation of Bosnia and Herzegovina, Republika Srpska and Brčko District, an individual is considered a tax resident if they either hold residency in the country or spend 183 days or more within the region in a calendar year. Additionally, in Republika Srpska an individual is qualified a resident for tax purposes if their primary home and life interests are in the region. For the Brčko District, residency will apply as well to those living in the district but earning income from its budget for work done elsewhere, or those living in either entity but earning income from an employer in the Brčko District.
Tax Rates of Personal Income Tax
Federation of Bosnia and Herzegovina
In the Federation of Bosnia and Herzegovina, the personal income tax on residents is levied on their worldwide income, whereas non-residents are liable only for the income generated in Bosnia and Herzegovina. Income tax includes income earned from independent business ventures via a permanent establishment, earnings from employment, as well as revenues from both movable and immovable property. Additionally, revenues flowing from royalties, patents, licenses, and capital investments situated in the Federation are also taxable. The personal income tax is levied at a tax rate of 10%.
Republika Srpska
In Republika Srpska, both residents and non-residents who generate income within its borders are subject to the personal income tax equally. Personal income tax rate is levied at a flat rate of 10%. Small entrepreneurs benefit from a reduced tax rate of 2% on their total annual revenue.
Brčko District
The personal income tax rate in the Brčko District is a levied at a flat rate of 10%.
Deductions
In Bosnia and Herzegovina, individual taxpayers can benefit from various deductions and allowances to reduce their personal income tax base, with specific provisions varying across the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District. In the Federation of Bosnia and Herzegovina, individuals can deduct the full amount of interest paid on mortgage loans and premiums paid on life insurance, along with receiving monthly allowances for themselves and dependent family members.
Republika Srpska offers similar deductions for mortgage interest and life insurance premiums, with the addition of deductions for contributions to voluntary retirement insurance and provides annual personal and dependent family member allowances.
In the BD, alongside deductions for mortgage interest and life insurance premiums, educational expenses for children are also deductible, with annual personal allowances and specific deductions for dependents, including those based on disability, available to taxpayers.
Foreign Tax Relief
In Bosnia and Herzegovina, across all its entities, taxpayers are eligible for a tax credit for taxes paid on income earned outside their respective territories. The amount of this tax credit is limited to the amount of tax that would be due if the same income were earned within the respective entity. Additionally, if Bosnia and Herzegovina has a Double Tax Treaty (DTT) with another country, the provisions of that treaty take precedence, potentially offering different or additional relief measures.
Bosnia and Herzegovina has a complex tax structure and it is important to have the correct information while you plan on living or investing in the country. Our firm specializes in international taxation, and our team is ready to assist with any related matters. If needed, we can connect you with top professionals to support your business activities in Bosnia and Herzegovina. Please feel free to contact us.
