Bosnia and Herzegovina: Amendments to the Profit Tax Law in Republic of Srpska of Bosnia and Herzegovina

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Bosnia and Herzegovina: Amendments to the Profit Tax Law in Republic of Srpska of Bosnia and Herzegovina

topic.jpg

Dajana Topic

The National Assembly of the Republic of Srpska (RS) adopted amendments to the Profit Tax Law on December 28 2016. The main changes entered into force on January 1 2017.

With the amendments, the Law clarifies the definition of "taxable person" and harmonises the concept of residence with the Profit Tax Law of the Federation of Bosnia and Herzegovina (FBiH) and Brcko District in order to avoid double taxation. Namely, a company is considered resident in BiH if it is registered as a legal entity there. An entity has a taxable presence in BiH if it carries out business activities in the jurisdiction that meets the criteria for a permanent establishment.

The sources of taxable income are as follows:

  • Profit derived from economic activities of both residents and non-residents in RS;

  • Profit derived from the sale of property located in RS and the sale of movable property if the sale is carried out within RS;

  • Dividends, profit shares and interest income;

  • Income from copyright and similar rights;

  • Income from rent and services paid by residents or permanent establishments in RS; and

  • Capital gains on transfers of securities and shares in equity of residents or permanent establishments based in the RS.

The taxable base is the profit determined by adjusting the profit stated in the profit/loss statement, except in cases prescribed by the law. In order to harmonise provisions of the RS Profit Tax Law with the Profit Tax Law of the FBiH, interest income on bank deposits is no longer tax exempt. Amortisation of goodwill is also a non-deductible expense.

According to the recent amendments, the annual withholding tax returns must be filed by January 31 of the current year for the previous tax year, instead of the previously set date of March 31. The gross amount of payments to non-residents, such as interest income, royalties, technical service fees, insurance premiums, payments for entertainment events, rental payments for movable property and fees for telecommunication services, are all subject to withholding tax at a rate of 10%.

Considering thin capitalisation, with effect from 2017, if a legal entity has taken out a loan from a related entity at an interest rate below the market interest rate, it may reduce its taxable base by deducting the amount of interest paid. Yet, the net interest expenses must not exceed 30% of the tax base.

The new amendments also bring several changes in terms of tax incentives, so there are no longer incentives related to new employment. However, taxpayers may reduce their tax liability by 30% if they invest in manufacturing equipment, real estate and plants if the value of which exceeds 50% of their tax base in the current tax year.

Dajana Topic (dajana.topic@eurofast.eu), Banja Luka and Sarajevo

Eurofast Global

Tel: +387 51 961 610

Website: www.eurofast.eu

more across site & shared bottom lb ros

More from across our site

The ruling is ‘well-structured’ in its references to the OECD TP guidelines, one expert says, while another argues it overlooks key technical issues
India also brokered its first-ever multilateral APA last year, the Central Board of Taxes announced
A global tax framework may not materialise anytime soon, but a common set of principles is becoming increasingly necessary, Rudolf Winkenius also tells ITR
Kingsley Napley’s claimants are arguing that taxing the provision of education breaches the European Convention on Human Rights
While pillar two can progress without the US, it won’t reach the same heights without American involvement, argues Renáta Bláhová, founding partner of BMB Partners Taxand
There are unanswered questions as to how foreign investors could reclaim money via tax credits, advisers suggested
Amid an ever-changing tax environment, India’s advisory market is bustling with competition ahead of the 2025 World Tax rankings and ITR Awards
The deal comes after PwC had accused Paul McNab of using confidential information; in other news, McDermott hired a new London tax head from a US rival
Looking at transfer pricing simplification is “obviously helpful”, but it should be done in line with current standards, a senior government figure reportedly said
The UK Government’s plans to close the tax gap via increased HM Revenue and Customs investment have failed to impress local tax advisers
Gift this article