Bosnia and Herzegovina has some of the lowest headline tax rates in Europe. For a foreign owner the question is less “what is the rate” than “which taxes apply to my company, and when”. This guide covers a d.o.o. registered in Sarajevo, in the Federation of BiH. Rates in Republika Srpska differ in places.
Overview
| Tax | Rate | Applies to |
|---|---|---|
| Corporate income tax | 10% | The company’s annual profit |
| VAT (PDV) | 17% | Sales, once turnover exceeds BAM 100,000 a year |
| Withholding tax on dividends | 5% | Profit paid out to a foreign owner, unless a tax treaty reduces it |
| Personal income tax | 10% | Salaries, plus social contributions |
Corporate income tax: 10%
The company pays 10% on its taxable profit for the year (Art. 31, Law on Corporate Income Tax of the FBiH). The tax return is filed together with the annual financial statements. Advance payments during the year are based on the previous year’s result.
What makes the effective rate low is not only the rate itself but also the simple base: ordinary business expenses that are documented with invoices are deductible.
VAT: 17%, but not from day one
VAT in Bosnia is levied at a single rate of 17% at state level (Art. 23, VAT Law). A company must register for VAT when its taxable turnover exceeds, or is likely to exceed, BAM 100,000 (Art. 57). Below that threshold, registration is voluntary.
Voluntary registration can make sense if you buy a lot of goods or services with VAT in Bosnia and want to deduct it, or if your clients are VAT-registered businesses. If you invoice mostly clients abroad, staying below the threshold is often simpler. Your accountant should look at your expected invoicing before deciding.
Paying profit to yourself: dividends
When the company pays out profit to a foreign shareholder, it withholds 5% tax on the dividend and pays it to the tax administration (Art. 38, Law on Corporate Income Tax of the FBiH). If your country has a double taxation treaty with Bosnia and Herzegovina, the treaty can reduce this, and you may be able to credit the Bosnian tax in your home country.
Bosnia has double taxation treaties with many European countries, including Germany, Austria, Hungary and the Netherlands, as well as with the United Arab Emirates and Turkey. Check the treaty that applies to you, and ask a tax adviser in your home country how the dividend is taxed there.
Salaries and directors
If you or anyone else is employed by the company in Bosnia, salary is subject to 10% personal income tax plus pension, health and unemployment contributions. A director who manages the company from abroad without a Bosnian employment contract does not create payroll in Bosnia.
A foreign director who lives and works in Bosnia needs a work and residence permit. This is also the most common route to residence for company owners.
Filing calendar
- Monthly: VAT return (if registered), withholding tax on payments abroad, payroll filings (if you have staff)
- Yearly: financial statements and corporate income tax return, filed in the first quarter for the previous year
Missing a deadline leads to fines even for a company with no activity. That is the main reason foreign owners use a local accountant from day one — see our accounting service.
Summary
For a small foreign-owned company in Sarajevo, the typical picture is: 10% on profit, no VAT until BAM 100,000 of turnover, and 5% when the profit is paid out to you — before any treaty relief. The rules above are general; your written quote includes a short note on how they apply to your business.
Sources
- Law on Corporate Income Tax of the FBiH (Zakon o porezu na dobit, Službene novine FBiH 15/16, 15/20) — rate (Art. 31), withholding tax (Art. 38)
- Law on Value Added Tax of BiH (Zakon o porezu na dodatu vrijednost, Službeni glasnik BiH 9/05 and amendments) — rate (Art. 23), registration (Art. 57)
- Tax Administration of the FBiH and Indirect Taxation Authority of BiH