Doing Business Guide BiH 2014 FIN 050814 1 - PwC · Business environment ... authoritarian control kept the ethnic enmity of his ... its 1992 independence and the 1995 Constitutional

July 2014

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Doing Businessin Bosnia and Herzegovina

2014 edition

Guide to Doing Businessin Bosnia and Herzegovina

The purpose of this guide is to assist PwC clients and other parties interested in doing business in Bosnia andHerzegovina. It does not exhaustively cover the subject, but is intended as a synopsis of some of the importantinitial 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. Itshould 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 LetterWelcome to the second publication in the series of guides to

“Doing Business in Bosnia and Herzegovina”

Emmanuel KoenigCountry Managing Partner

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 legislationand available information.

Although BiH has been affected by the externalenvironment, BiH economy managed to recordgrowth, consolidate macroeconomic stability andstrengthen the financial system.

The guide to “Doing Business in Bosnia andHerzegovina” 2014 edition will be of valuableassistance to domestic and foreign investors andpotential investors alike, regardless of the type, sizeand character of the investment.

It aims at providing up-to-date information onconducting business in BiH. This includescommentary on the latest legal developments, auditand accounting changes, major tax and investmentincentives and general economic and businessconditions.

Since 2003, PwC has been advising companies andindividuals on how to do business in Bosnia andHerzegovina. We draw on our significantexperience in the local market, as well as thestrength of our international network to help buildvalue, manage risks, and improve the performanceof your business in BiH.

With highly-qualified and experienced staff, PwCBosnia and Herzegovina can assist in your businessplans from commencement of operations toexpansion of business to multi-sector trading andinvestment enterprises.

A brief guide such as this cannot answer all yourquestions. However, it will provide you with somevaluable insight into the BiH market and make youbetter prepared to meet the challenges ahead. Moredetailed advice should be sought to from ourprofessionals in PricewaterhouseCoopers d.o.o. andPricewaterhouseCoopers Tax and Advisory d.o.o.We hope to be of service to you during this excitingperiod of new opportunities in Bosnia andHerzegovina.

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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

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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

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Chapter 1

Bosnia and Herzegovina– profile

Chapter 1 – Bosnia and Herzegovina, profile

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1.1. Introduction

Bosnia and Herzegovina (BiH) is a country locatedin South Eastern Europe, on the Balkan Peninsula.It is bordered by Serbia to the east, Croatia to thenorth, west and south, and Montenegro to thesoutheast. BiH has 21.2 kilometres of coastline onthe Adriatic Sea. The country is home to threeethnic groups (also known as constituent peopleswhich is a term unique to BiH) comprising ofBosniaks, Croats and Serbs. Regardless of ethnicity,a national of Bosnia and Herzegovina is identifiedin English as a Bosnian. The three official languagesare Bosnian, Croatian and Serbian.

Bosnia and Herzegovina declared sovereignty on 15October 1991. Bosnia and Herzegovina is aparliamentary republic, which has a bicamerallegislative branch and a three-member Presidencycomposed of a member of each major ethnic group.

The country is politically decentralised andcomprises of two governing entities, the Federationof Bosnia and Herzegovina (FBiH) and RepublikaSrpska (RS), with a third region, the Brčko District (BD), governed under local government.

HistoryBosnia and Herzegovina (BiH) has one of therichest histories in the region. It has been inhabitedat least since the Neolithic times. In the late BronzeAge, the Neolithic population was replaced by Indo-European tribes known as the Illyrians and it wascalled Illyricum. Celtic migrated to the country andmixed with the natives in the 4th and 3rd centuriesB.C.

Romans conquered the country in the late 2nd and1st centuries B.C. and the region of Dalmatia andPannonia were included in the Western RomanEmpire when the Roman Empire split.

The Ostrogoths conquered the region in 455 andembraced other tribes like the Alans and Huns.Emperor Justinian and the Byzantine Empireconquered the land in the late 6th century. ThenSlavs invaded the Eastern Roman Empire in the 6thand 7th centuries settling it now as Bosnia andHerzegovina and the surrounding lands.

The first notable Bosnian ruler was Ban Kulin (1163– 1204) who strengthened the country’s economyover nearly three decades and maintained peaceand stability throughout the country. The OttomanEmpire conquest of Europe in the first half of the15th century posed a major threat to the Balkans.

Bosnia fell in the year 1463 followed byHerzegovina in the year 1482. It marked a new erain the country that introduced another cultural,political, and religious framework. As the OttomanEmpire thrived and expanded into Central Europe,Bosnia was relieved of the pressures of being afrontier province and experienced a prolongedperiod of general welfare and prosperity. A numberof cities, such as Sarajevo and Mostar, wereestablished and grew into major regional centres oftrade and urban culture.

At the Congress of Berlin in 1878, following the endof the Russo-Turkish War (1877 – 1878), Austria -Hungary was given a mandate to occupy andgovern Bosnia and Herzegovina, in an effort byEurope to ensure that Russia did not dominate theBalkans. Although the provinces were still officiallypart of the Ottoman Empire, they were annexed bythe Austro-Hungarian Empire on 7 October 1908.As a result, relations with Serbia, which had claimson Bosnia and Herzegovina, became embittered.The hostility between the two countries climaxed inthe assassination of Austrian archduke FranzFerdinand in Sarajevo on 28 June 1914, by aSerbian nationalist. This event precipitated thestart of World War I (1914 – 1918). Bosnia andHerzegovina were annexed to Serbia as part of thenewly formed Kingdom of Serbs, Croats, andSlovenes on 26 October 1918. The name was laterchanged to Yugoslavia in 1929.

When Germany invaded Yugoslavia in 1941, Bosniaand Herzegovina were made part of Nazi-controlledCroatia. At the end of World War II, Bosnia andHerzegovina was reunited into a single state as oneof the six republics of the newly re-establishedCommunist Yugoslavia under Marshall Tito. Hisauthoritarian control kept the ethnic enmity of hispatchwork nation in line. Tito died in 1980, andwith growing economic dissatisfaction and the fallof the iron curtain over the next decade, Yugoslaviabegan to splinter.

A declaration of Bosnia and Herzegovinasovereignty on 15 October 1991 was followed by areferendum for independence from Yugoslaviaduring 29 February - 1 March 1992 and PresidentAlija Izetbegovic declared the nation anindependent state. Declaration of Bosnia andHerzegovina as independent state initiated the warin Bosnia and Herzegovina. The war was aninternational armed conflict that took place inBosnia and Herzegovina between April 1992 andDecember 1995. It was principally a territorialconflict, initially between the Serb forces mostlyorganized in the Army of Republika Srpska (VRS)


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on the one side, and the multi-ethnic Army of theRepublic of Bosnia and Herzegovina (ARBiH)which was largely, though not exclusively,composed of Bosniaks, and the Croat forces in theCroatian Defence Council (HVO) on the other side.The war was brought to an end after the signing ofthe General Framework Agreement for Peace inBosnia and Herzegovina in Paris on 14 December1995. Peace negotiations were held in Dayton, Ohio,and were finalized on 21 December 1995. Theaccords are known as the Dayton Agreement. Sinceits 1992 independence and the 1995 Constitutionalframework of the Dayton Agreement, Bosnia andHerzegovina has followed a path of state-building,while remaining under final internationalsupervision through the figure of the HighRepresentative for Bosnia and Herzegovina.

Bosnia and Herzegovina is a potential candidatecountry for accession into the EU. The EU-BiHStabilisation and Association Agreement weresigned in 2008. Its accession to NATO is in thephase of negotiation and the Membership ActionPlan has been signed in April 2010.

Geography and ClimateBosnia and Herzegovina is located in South-easternEurope, in the western Balkans. It lies betweenlatitudes 42° and 46° N, and longitudes 15° and 20°E. The country covers an area of 51,197 sq. km. Ithas a 932 km border with Croatia to the north andsouthwest, a 312 km border with Serbia to the east,and a 215 km border with Montenegro to thesoutheast.

The prevailing features of the local terrain arevalleys and mountains which measure up to 2,386m in height. The country is mostly mountainous,encompassing the central Dinaric Alps. The north-eastern parts reach into the Pannonia basin, whilein the south it borders the Adriatic.

According to the World Wide Fund for Nature(WWF), the territory of Bosnia and Herzegovinacan be subdivided into three eco regions: thePannonia mixed forests, Dinaric Mountains mixedforests 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, andalthough surrounded by Croatian peninsulas, it ispossible to get to the middle of the Adriatic fromNeum. By United Nations law, Bosnia has the right

of passage to the outer sea. Neum has many hotelsand is an important tourism destination.

Bosnia and Herzegovina does have distinct regionswhich have slightly different climates. The southernand western parts of the country have aMediterranean climate with an annual precipitationof 61 centimetres to 80 centimetres. The Centraland Northern areas of Bosnia and Herzegovinahave continental climate with gradual transitionbetween four seasons of the year – warm summersand snowy winters.

1.2. People

PopulationAccording to the 1991 census, Bosnia andHerzegovina had a population of 4,377,033, whilethe 1996 UNHCR census showed a decrease to3,919,953.

Even though the census was planned for March2013, it occurred in October 2013, after a longperiod of negotiations inside the government. Asalmost all of the post-war data were simply anestimate, a census was a statistical, inclusive, andobjective way to analyse the demographics ofBosnia and Herzegovina. No official results werepublished so far.

Please see in table below the population of the sixmajor cities in BiH:

Source: Agency for Statistics BiH

LanguageThe official languages in Bosnia and Herzegovinaare Bosnian, Serbian and Croatian, all practicallythe same language with minor differences. English,German and French are most commonly studiedforeign languages.

ReligionThe State Constitution of Bosnia and Herzegovina(BiH) and the entity Constitutions of the Federationof Bosnia and Herzegovina and the RepublikaSrpska provide for freedom of religion and theGovernment generally respects this right. The

Main cities PopulationSarajevo 305,242Banja Luka 195,692Zenica 127,105Tuzla 131,640Mostar 111,186Bihać 61,287


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state-level Law on Religious Freedom also providescomprehensive rights to religious communities.

EducationPrimary education is compulsory in BiH and it isfree for all children from ages 6 through 15 andlasts for nine years.

Total adult literacy rate is 97% and the rate is 100%among youth.

Secondary education in Bosnia and Herzegovina isfree as well. It is provided by general and technicalsecondary schools, where studies last for three orfour years. Most children in BiH start school at theage of six and complete high school at the age ofeighteen or nineteen.

Bosnia and Herzegovina's higher education systemcomprises eight universities with around 90faculties, which are treated as higher educationestablishments and art academies. Universitydegrees are acquired at the faculties and artsacademies. There are also 22 private highereducation institutions and the Law on HigherEducation (passed in July 2007) treats private andpublic higher education institutions equally.

According to the Agency for Statistics of Bosnia andHerzegovina, 18,132 students graduated in BiH in2013.

Number of students who graduated in BiH (source:Agency for Statistics BiH) has tripled in the lasteight years:

Living StandardsThe political impasse has had adverse effects foreconomic and social development. According to theIMF, the country has a modest GDP per capita ofEUR 3,430 for year 2012. The average estimatedmonthly gross salary in December 2013 was EUR700. Unemployment is exceptionally high andcorruption is a major challenge. In 2009 thecountry experienced sharp increases in socialspending and a fiscal crisis precipitated by theglobal economic downturn. The financial crisis isthus currently taking its toll on the country’seconomy.

Bosnia and Herzegovina's most immediate taskremains economic revitalization. The country needsmeaningful progress in structural reforms tostrengthen the basis for sustained growth. Privatesector growth – especially small and mediumenterprises (SMEs) – and increased foreign directinvestments (FDI) are needed to spur economicgrowth and job creation. The government’s topeconomic priorities are to accelerate EUintegration, strengthen the fiscal system, publicadministration reform, World Trade Organization(WTO) membership and securing economic growthby fostering a dynamic, competitive private sector.


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1.3. Governing Structures

Politics of Bosnia and Herzegovina takes place in aframework of a parliamentary representativedemocratic republic, whereby the Council ofMinisters of Bosnia and Herzegovina is the head ofgovernment and of a multi-party system. Executivepower is exercised by the government. Legislativepower is vested in both the government andparliament. Members of the parliament are chosenaccording to a proportional representation system.

The system of government established by theDayton Accord is an example of constitutionalism,as representation is by politicians who representthe country's three major groups, with each havinga guaranteed share of power. Bosnia andHerzegovina is divided into two Entities - theFederation of Bosnia and Herzegovina (“FBiH) andthe Republika Srpska (“RS”), which each havelargely autonomous political power, as well as theBrčko District which has own local government. Each of the entities has its own constitution.

The highest political authority in the country is theHigh Representative in Bosnia and Herzegovina,the chief executive officer for the internationalcivilian presence in the country. Since 1995, theHigh Representative has been able to bypass theelected parliamentary assembly or to removeelected officials.

The Chair of the Presidency of Bosnia andHerzegovina rotates among three members(Bosniak, Croat and Serb), each elected asincumbent of the Chair for an 8-month term withintheir 4-year term as a member. The three membersof the Presidency are elected directly by the people.The Presidency is the head of state institution and itis mainly responsible for the foreign policy andproposing the budget.

The Chairman of the Council of Ministers of Bosniaand Herzegovina is nominated by the Presidencyand approved by the House of Representatives. Heis then responsible for appointing ministers. TheCouncil is responsible for carrying out variouspolicies and decisions in the fields of diplomacy,economy, inter-entity relations and other mattersas agreed by the entities.

Each of the entities has its own Council ofMinisters, which deal with internal matters notdealt with by the state Council.

The Parliamentary Assembly is the law-makingbody in Bosnia and Herzegovina. It consists of two

houses: the House of Peoples and the House ofRepresentatives. The House of Peoples has 15delegates, two-thirds of which come from theFederation (5 Croats and 5 Bosniaks) and one-thirdfrom the Republika Srpska (5 Serbs). The House ofRepresentatives is composed of 42 Members, two-thirds elected from the Federation and one-thirdelected from the Republika Srpska.

The Constitutional Court of Bosnia andHerzegovina is the supreme, final arbiter of legalmatters. It is composed of nine members: fourmembers are selected by the House ofRepresentatives of the Federation, two by theAssembly of the Republika Srpska, and three by thePresident of the European Court of Human Rightsafter consultation with the Presidency.

1.4. Legal System

Bosnia and Herzegovina has a multi-layered anddecentralized judicial system.

Ministry of Justice of Bosnia and Herzegovina isthe central coordinating body in the judiciary fieldof Bosnia and Herzegovina. The Ministry iscompetent for drafting of proposals of laws andsub-law acts and other regulations at the state level,efficient administrative functioning of the judicialbodies of Bosnia and Herzegovina and cooperationwith international criminal courts.

Ministry of Justice of BiH ensures the legalconditions for the work of the judiciary institutionsat the state level: Court of BiH, Prosecutor’s officeof BiH, High Judiciary and Prosecutors Council andPublic Attorney’s Office of BiH. Beside the laws forestablishing of the judiciary institutions theMinistry is also competent for drafting of processand material laws in criminal and civil area at thestate level.

Federal Ministry of Justice executes administrative,expert and other tasks as set out by the laws, fallingunder competence of the Federation in the areas ofjudicial institutions and administration,administrative supervision of the judicialadministration and federal administration bodies,associating into political organizations and citizens’societies, office management, administrativesupervision and implementation of the penalsanctions. Federal Ministry of Justice carries outthe administrative tasks that do not fall underscope of any other administrative body of theFederation. There are 10 Cantonal Ministries ofJustice in FBiH.


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The Ministry of Justice of Republika Srpska carriesout administrative and other professional activitiesrelated to exercising of competencies of RS.Moreover, it carries out administrative and otherprofessional tasks related to sitting for the judicialexamination, processes the requests from domesticand foreign courts of law and from the other statebodies, which are related to delivery ofinternational legal assistance.

The Court of Bosnia and Herzegovina (State Court),has criminal, administrative and appealsdepartments and jurisdiction only over specifictypes of crimes, such as war crimes, financialcrimes (e.g. official corruption and humantrafficking), and crimes against the State (e.g.treason and terrorism). Unlike the BiHConstitutional Court, which is the final authority onquestions of constitutionality, the State Courtoperates alongside, not above, the Federation andRS Supreme Courts.

The Constitutional Court of Bosnia andHerzegovina decides any constitutional dispute thatarises between the Entities or between Bosnia andHerzegovina and an Entity or Entities. The BiHConstitutional Court also has appellate jurisdictionover issues related to the constitution arising out ofa judgment from another court in the country, andjurisdiction over issues referred to it by anothercourt concerning compatibility with theconstitution, the European Convention for HumanRights and its associated protocols, laws of BiH, orinternational law pertinent to a court decision.

The FBiH has the Constitutional Court of FBiH, theSupreme Court of FBiH, 10 cantonal courts, and 27municipal courts, as well as minor offense courts.The RS has the Constitutional Court of RepublikaSrpska, the Supreme Court of Republika Srpska, 4district courts, and basic courts, as well as minoroffense courts. Brčko District also has its own courts.

1.5. Economy

General overviewBosnia and Herzegovina is considered an upper-middle income economy by the World Bank with aGDP for 2013 of EUR 13.45 billion (EUR 2,439 percapita). Gross Domestic Product (GDP) has beenrising for years after the Balkan wars with averagereal growth rate of 5%. Negative effects of the globalfinancial and economic crisis on BiH economypeaked 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 conductprivatisation of the remaining state-ownedcompanies; however there is still no common voicein the government how to approach the process.Additional large investments are expected in theenergy sector through construction of new andrevitalisation of the existing facilities and plants.

BiH’s accelerated economic reform process hascontributed significantly to a greatly improvedbusiness climate, however many obstacles stillremain to be tackled. The aim of BiH is to eliminatelegal and administrative obstacles for doingbusiness in BiH, as well as create an attractivebusiness environment in the SEE.

One of the main strategic goals of BiH is EUmembership and it is a potential candidate countryfor EU accession. Bosnia and Herzegovina hassigned the Stabilization and Association Agreementwith the European Union, which is a step towardEU membership.

Bosnia and Herzegovina is a member of the CentralEuropean Free Trade Agreement (CEFTA), creatinga free trade zone with access to a large consumermarket. The process of negotiation to join theWorld Trade Organisation is underway (BiH isbeing an observer member at the moment).

Bosnia and Herzegovina has one of the most stablecurrencies in South Eastern Europe, which ispegged to the Euro. The country also has quite lowinflation rates comparing to the region.

In 2012, Bosnia and Herzegovina undertook anInternational Monetary Fund (IMF) standbyarrangement of EUR 529.6 million, necessary dueto sharply increased social spending and a fiscalcrisis precipitated by the global economicdownturn. The program aims to reduce recurrentgovernment spending and to strengthen revenuecollection.

Why invest in Bosnia andHerzegovina?Bosnia and Herzegovina has made considerableefforts to open its economy to more foreigninvestment.

Bosnia and Herzegovina has strong economicpotential and represents a good destination inSouth Eastern Europe (SEE) for foreign directinvestment due to:


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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.

CurrencyThe Bosnia and Herzegovina convertible mark(sign: KM; code: BAM) is the currency of Bosniaand Herzegovina. It is divided into 100 fenings. Thenames derive from German mark and Pfennig,hence the occasional local spelling of thesubdivision as pfennig.

The convertible mark was established by the 1995Dayton Agreement and replaced the Bosnia andHerzegovina dinar, Croatian kuna and RepublikaSrpska dinar as the currency of Bosnia andHerzegovina in 1998. Mark refers to the Germanmark, the currency to which it was pegged at par.Since the replacement of the German mark by theEuro in 2002, the Bosnian convertible mark usesthe same fixed exchange rate to Euro that theGerman mark has (1 EUR = 1.95583 BAM).

TransportBosnia and Herzegovina is situated in the WesternBalkans and enjoys a favourable geographiclocation in South-Eastern Europe.

The major obstacle to transportation in Bosnia andHerzegovina has always been the mountainoustopography. In addition, much of thetransportation infrastructure was destroyed in thewar. The railway system connects Sarajevo withmajor towns to the north and with Zagreb (Croatia)and Belgrade (Serbia). Another line runs southfrom Sarajevo to Mostar and on to Ploče on Croatia’s Adriatic coast. However, few lines aredirect, and as a result roads of variable quality havein many cases been the preferred means ofpassenger and freight transportation.The main railway is a 1-m gauge track. Thecountry's total railway track is 1,021 km. In 2010,there were 22,926 km of roadways, of which 19,426km were paved.

Ports include those at Bosanska Gradiška, BosanskiBrod, Bosanski Samac and Brčko. All are inland waterway ports on the Sava, however none is fullyoperational. There is no merchant marine.

There are 4 airports in BiH with a license forinternational aviation traffic (Sarajevo, Banja Luka,Mostar and Tuzla).

AgricultureBosnia and Herzegovina is richly endowed withnatural resources and conditions which createfavourable environment for agriculturalproduction, including availability of labour, landand other natural resources, as well as suitableclimate. The agricultural potentials are only partlyrealized, in spite of huge human and naturalresources.

Strong development and permanent productiongrowth, which characterized BiH agricultural sectoris considerably below its real potentials andexpected performances. For the most part,agriculture remains in private ownership, but farmshave been small and inefficient, and net foodimports increased dramatically in the aftermath ofthe war.

Poor financial resources, needed for modernisationof all segments of agricultural production(replacement of outdated technologies andequipment; upgrading of the existing structure ofagriculture sector, etc.) are one of the mainlimitations for faster development of this sector.

Automotive industryBosnia and Herzegovina has a long tradition andwidespread experience in the automotive industry.For decades, major brands have relied on theskilled workforce of BiH to assemble cars forwestern markets.

As a consequence of existing final vehicle assemblyand automotive components production, thepowerful and diversified supply chain andsupporting infrastructure had been establishedincluding education system, research &development institutions and specialized andcompetent labour force with metalworking,automotive and electrical engineering skills.

Within the past ten years, this industry hasexperienced dynamic development, and hasbecome strongly export-oriented, exporting onaverage 90% of production, to more than 30countries.


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Today BiH companies in the automotive sector areproducers of a wide spectrum of parts andcomponents, such as: engines and gears and theirparts, high-quality metal precision parts, driveshafts, brake parts and systems, clutches, steeringparts and systems, pumps, filters, automotiveelectric parts (signals, relays, electronic switches),textile and leather products, plastic injection parts,aluminium wheels, car batteries and various smallparts such as springs, screws, hoses andcomponents of metal, rubber or plastic.

Banking and Financial ServicesForeign banks have significantly invested in BiH.Unicredit Bank, Raiffeisen Bank, Intesa SanPaoloBank,Hypo Alpe-Adria-Bank, Nova Ljubljanskabanka, ProCredit Bank, Ziraat Bank and Sberbankare all present in the country.

Majority foreign-owned banks continued todominate the domestic banking system as theyaccounted for 87.3 %of the total equity and 91.9. %of average assets at the end of 2012. Bosnia BankInternational is the only bank operating in BiHunder Islamic banking principle.

Based on their analysis, in September 2013, agencyStandard & Poor's affirmed B- sovereign creditrating with stable outlook.

In December 2013, Moody's Investors Serviceaffirmed B- sovereign credit rating with stableoutlook.

Overview of current sovereign credit rating of BHissued by both agencies is provided in table below.

Moody'sInvestorsService

Standard &Poor's

RatingB3 / stableoutlook

B / stable outlook

Date July 10, 2012 September 27, 2013

StatusRating affirmed/ Outlookrevised

Rating affirmed

The introduction of a deposit insurance agency andcompetition between well-established internationalbanks in BiH has significantly influenced thegrowth of savings and lowered interest rates onloans. Meanwhile, the country’s stock exchangesare suffering a period of stagnation.

ConstructionBiH companies have acquired a solid reputation inall aspects of construction projects, ranging fromdesign to structural engineering, buildingconstruction, civil engineering and the productionof high-quality building materials.

The country abounds in natural resources such astimber, stone, gravel, sand, clay and metal ores. Thepotential for growth in Bosnia and Herzegovinaconstruction market is very high. First priority wasgiven to the repair and renovation of existingproperty and infrastructure.

More opportunities for growth in the BIH buildingindustry are to be found in the civil engineeringsector, where there are a number of schemes inaddition to Corridor Vc (cross country highway)under discussion for major road, rail and energyproduction developments. These are large-scaleconstruction projects requiring the creation ofconsortiums to carry out the range of tasks involvedand to be competitive at the international tenders.

WoodOut of all natural resources of BiH, its timber isbest known and 50% of the country is covered inforests that can serve the wood and furnitureprocessing industry. Forests and forest lands inBosnia and Herzegovina is spread over an area of2,709,800 hectares.

Given their self-regeneration, natural structure,composition and natural mixed rejuvenation, theforests are one of the basic resources in thedevelopment strategy of Bosnia and Herzegovina inthe future.

Given the geographical position of Bosnia andHerzegovina and the influence of theMediterranean, sub-Mediterranean, sub-continental and mountain climate, the forestcomposition consists of a number of forestcommunities with over 100 wood species.

Besides wood resources, BIH forestry has asignificant 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 andshrubs – commonly referred to as medicinal andaromatic plants (MAPs); mushrooms;

Endemic and scarce life forms; Briquettes, pallets, etc.


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Sales and exports of the BiH wood sector havetripled over the past five years.

Some 60% of wood sector production is exported,where the finished furniture is becoming more andmore important export product. In 2011, woodindustry exports accounted for 20% of total exports(including the furniture sector).

Information and communicationsBosnia and Herzegovina is committed to thedevelopment and capitalization of information andcommunications technologies, being aware that thiskey sector plays a vital role in any moderneconomic structure.

The ICT industry is developing and spreadingwithin BIH. The year 2010 recorded huge increasein number of IT companies to approximately 2,000compared with 2003 when this number wasapproximately 300. While the small enterprises (upto 10 employees) were predominant in 2003,average number of employees increased to 26 in2010.

MetalThe metal sector in Bosnia and Herzegovina has along history, great potential and it has a naturalcompetitive advantage mainly due to existing rawmaterial resources, low wages and a heritage of thepast. BiH metal processing offers strong humanand resources base.

The metal processing industry in BIH is quite large,covering the manufacture of basic metals: basiciron, steel and alloys and manufacture of fabricatedmetal products, such as forging, pressing, pressingand rolling of metals, powder metallurgy, treatmentand coating of metals, general engineering.Metalworking sector it is highly concentrated intwo large companies ArcelorMittal Zenica andAluminium Mostar.

Activities from the mining sector are aimed atserving local processing industries, electricitygeneration and export. This segment of the industryis in the process of revitalization and re-engineering. The oldest mining areas are in centralBosnia (Mount Vranica) and eastern Bosnia.

The most famous mines in Bosnia and Herzegovinaare located in central Bosnia (Kamenica, Olovo,Dusina, Dezevice) and eastern Bosnia (Srebrenicaand its surroundings).

TourismBosnia and Herzegovina is a land of breath-takingnatural beauty and everlasting historical andcultural heritage, which largely matches the newmarket travel trends particularly requirements ofthe travellers who are looking for new destinations,adventure and authenticity.

The country has much to offer for those people whoseek different experiences, away from the crowd,whether they are looking for skiing, rafting, huntingor patient bird-watching. Those who search formore cultural tourism will be able to relivecenturies of history by visiting many vestiges andheritage dating back to Roman, even prehistorictimes.

With its rich tourist offer BiH can satisfy the needsof the global travellers regardless of their budgetand preferences. Moreover, the tourists will enjoyBiH gastronomic offer of different traditional andorganic 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 potentialfor development, possessing all preconditions toplay a significant role within the country economy.Consequently, tourism development in BiH wasrecognized as one of the top priorities of an overallnational economic development policy.

TextileBosnia and Herzegovina has a long tradition and agood international reputation in textiles, clothingand footwear industry.

BIH has a satisfactory number of experienced andskilled workers with both academic and practicalexperience.

The proximity of BIH to both Western and EasternEuropean markets is a major asset. BIH has thepotential to attract companies wishing to relocatecloser to their main markets, able to provide a shortproduct delivery cycle to European retailers.


15

Development of the textile sector stimulates thedevelopment of other sectors and regionaldevelopment, thus conditions would be created tomove from “lohn” jobs, which currently representthe greatest share of exports, to the development ofown product range, own product assortments andmove gradually from “lohn” jobs to regular exports.

New partnerships are bringing in new equipmentand management know-how, as well as financing,to those companies that have already beenprivatised.

1.6. Trade

International relationsThe implementation of the Dayton Accords of 1995has focused the efforts of policymakers in Bosniaand Herzegovina, as well as the internationalcommunity, on regional stabilisation in the formerYugoslavia. However, donor resources for Bosniaand Herzegovina have diminished due tocompeting assistance priorities elsewhere in theregion and globally. Bosnia and Herzegovina'srelations with its neighbours Croatia, Montenegro,and Serbia have been fairly stable since the signingof Dayton in 1995.

When it comes to relations with internationalpartners, foreign policy of Bosnia and Herzegovinahas been based on the principles of openness andequal rights, on mutual respect for sovereignty andterritorial integrity, as well as on the principle ofpeaceful co-operation, with respect of mutualinterests. At the same time, while conducting theforeign policy activities, Bosnia and Herzegovinawill act in accordance with the obligations arisingfrom the concluded and accepted agreements andother international instruments and membership ininternational organizations and associations.

Bosnia and Herzegovina is a member of the UnitedNations (1992); the International Monetary Fund(IMF) (1992), the World Bank (1995), theOrganization for Security and Cooperation inEurope (OSCE) (1992); and the Council of Europe(2002). It also participates in regional cooperationthrough the Regional Cooperation Council (RCC),the Central-European Initiative (CEI), theSoutheast Europe Co-operation Initiative (SECI),the Southeast Europe Co-operation Process(SEECP), the Adriatic-Ionic Initiative (AII) andothers.

1.7. Energy

BiH has a natural resource base that is rich andextensive. As such, it holds great potential as one ofthe drivers of economic growth.

The energy sector is one of the most powerful inBIH, with huge potentials and opportunities forfurther development and investment. BIH is amember of the Energy Community of SEEestablished in November 2002 between EU andSEE countries in order to extend the EU internalenergy market to South East Europe and beyond.

According to the Foreign Investment PromotionAgency of BiH, the country is endowed with variousenergy 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, includingapproximately 1.5 million m3 of forest / woodindustry residues

Potential for exploitation of geo-thermal andsolar energy

Preliminary research surveys of oil and gas, hadindicated the presence of promising deposits ona number of sites in BIH (off-balance sheetreserves are estimated at about 50 million tonsof oil).

Own production of traditionalsources of energyBosnia and Herzegovina has abundant resources oftwo traditional energy sources: coal and water.Some 55% of generated power is thermo-electric,while the remaining 45% is hydro-electric. Coal isthe main source of energy in Bosnia, including darkcoal, lignite and treset. It is produced from localmines throughout the country and the estimatedreserves are more than six billion tons.

Hydropower has great possibility for furtherdevelopment, as only one-third of its potential hasbeen utilised. When it comes to the Europeancountries, Bosnia is in the 8th place with its hydro-potential.

However, at present small power plants are mostlybeing built and used. Foreign companies arelooking into utilizing the water wealth of BiH forpower generation.


16

Imported sources of energyDespite the presence of untapped energy resourcesin the country, BiH remains very much dependenton imported energy sources, particularly gas andoil.

Gas is imported by BiH from Russia, throughUkraine, Hungary and Serbia. It is widely used inthe cities, but it is also limited to those areas, whileoutside of them there is no infrastructure for gassupply.

Bosnia’s dependency on oil imports means that it isvulnerable to international energy fluctuationscenarios. Oil is imported mainly from Croatia,Serbia, Montenegro and Hungary.

The oil refinery in Bosanski Brod has recently beenrestored and privatised. Its majority owner isZarubezhneft (group headquartered in Russia). Therefinery enables BiH to have its own source of oilderivatives, which will impact positively the energysecurity, as well as the employment levels.

Investments in renewable energyBiH has various potential energy sources whichneed to be explored and utilised in order to avoidthe dependency problems.

In addition to hydro power, BiH possesses highpotentials for exploitation of renewable sources ofenergy, such as wind energy, solar energy, bio-massenergy and geo-thermal energy.

BiH, especially its southern part, has beenidentified as an excellent region for construction ofwind generation plants. According to recentresearch conducted by domestic and internationalexperts, wind potential of Bosnia and Herzegovinahas a 30% higher utility coefficient than the EUaverage and the highest potential in the Balkanregion.

The great potential from the renewable sources inBosnia and Herzegovina is still not exploited butseveral recent regulation activities give optimisticsigns that some legal barriers are being removed,which could attract potential investors.

17

Chapter 2

Business environment

Chapter 2 – Business environment

18

Source: International Monetary Fund, World Economic Outlook Database, September 2013

2.1. Main economic indicators

2.2. Business environment

Macroeconomic performance improved slightly in2012/2013. Real GDP growth is estimated to havereached 0.5%. The crisis in the European Union,the biggest exporting market for Bosnia andHerzegovina, has caused a decrease in export.However, domestic consumption has remainedsomewhat subdued, largely owing to both theausterity measures which have been implementedby the authorities in the past two years and tofalling remittances. More than 50% of thepopulation reported receiving reduced remittances,and almost 40% lower wages. Investments appearto have slowed, as import of capital goods in thefirst half of 2013 was slightly lower than in thesame period last year, while long-term bank creditto private enterprises increased. In the fourthquarter of 2013, inflow of direct foreigninvestments amounted to BAM 24.7 million, whichis by approximately 84.0% less on the annualBasis. Low value of direct foreign investments inthe fourth quarter of 2013 is a continuation ofnegative 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 previousquarter of 2013. The banking system remains liquidand well capitalised, but the ratio of non-performing loans (NPLs) to total loans is stillincreasing. The share of non-performing loans incommercial banks represented 15.1% of the totalloans at the end of 2013.

The government’s fiscal policies are anchored bythe 36-month Stand-By Arrangement (SBA) withthe IMF. Within this framework, the authoritiescommitted to implementing comprehensive fiscalausterity measures and structural reforms and to

focus on enterprise restructuring. In 2012 and 2013progress has been made concerning public finance,but more needs to be made in order to limitgovernment spending.The Parliament of BiH adopted the state budget for2014, in the amount of BAM 1.8 billion, in order forthe state to receive another payment from the IMF.

BIH signed a Stand-By Arrangement with the IMFin September 2012. In addition to fiscalconsolidation, the authorities committed toimproving the composition of public expenditure.All performance criteria on fiscal balances havebeen met and progress has been made towardimplementing structural benchmarks.

2.3. Inflation rate

In 2013, the annual inflation rate on an annualbasis was 1.8%.

For comparison, the annual inflation in the euroarea in 2013 was 1.4%, and annual inflation in theEU27 was 1.5%.

Subject Descriptor Units 2009 2010 2011 2012 2013

GDP Percent change -2.91 0.72 1.26 -0.70 0.50

GDP per capita, current price EUR 3,169 3,250 3.373 3,470 3,671

Inflation, end of period consumer prices Percent change -0.03 3.08 2.73 2.05 1.80

Unemployment rate Percent 24.07 27.20 27.20 28.00 27.00

General government revenue Percent of GDP 45.14 46.87 46.55 45.69 44.53

General government total expenditure Percent of GDP 51.00 50.75 49.18 48.45 46.08

General government net lending/borrowing Percent of GDP -5.86 -3.88 -2.63 -2.77 -1.56

General government net debt Percent of GDP 27.41 32.30 34.38 38.55 36.66

General government gross debt Percent of GDP 35.94 39.31 40.44 44.27 42.12

Current account balance Percent of GDP -6.58 -5.55 -9.51 -9.67 -8.75

Chapter 2 – Business environment

19

2.4. Wages andemployment

The average net monthly wage in BiH in December2013 was EUR 432, which represented the nominalincrease of 0.9% compared to December 2012.The sector of financial intermediation had thehighest average net monthly salary in the amountof EUR 666. The supply of electricity, gas, steamand air conditioning had the average net monthlysalary of EUR 661. Information andcommunication activities had the average netmonthly salary of EUR 599 and the sector of publicadministration, defence and compulsory socialinsurance had the average net monthly salary ofEUR 585. These four activities had the highestaverage wages in 2013.On the other hand, the lowest average net monthlywage was recorded in construction andaccommodation and food service activities, in theamount of EUR 272. Low salaries were recorded inwholesale and retail trade (EUR 296), repair ofmotor vehicles and motorcycles (EUR 296),administrative and support service activities (EUR296) and manufacturing (EUR 299).Newemployment strategies have been adopted. Both theFederation of Bosnia and Herzegovina and theRepublika Srpska have adopted EmploymentStrategies in 2010 outlining their objectives inreforming the labour market. The RS EmploymentStrategy 2011-15 in particular envisages a reform ofthe education system, and aims to encouragefemale participation in the labour force. Inaddition, both strategies aim to improveemployment protection legislation.

2.5. EU accession progress

Bosnia and Herzegovina has made a very limitedprogress in addressing the political criteria formembership in the EU.The country`s political representatives could notagree on a solution to implement the EuropeanCourt of Human Rights judgement in the Sejdic-Finci case regarding discrimination against citizenson grounds of ethnicity. On the other hand,progress has been made regarding processing warcrimes and reforming the judiciary at the statelevel.

2.6. Privatisation

The privatisation process continues to be stalled.

There is still lack of attractive privatizationopportunities in both, Federation of Bosnia andHerzegovina and Republika Srpska.In 2013, Agency for privatization in the FBiHcarried 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 technical-technological units in the ownership of “KTKVisoko” d.d. Visoko and state shares in thecompany UNIS d.d. Sarajevo was announced. Inthe Republika Srpska, the privatization plan for2013 envisaged sale of shares in 56 enterprises.

2.7. Interest rates on loans

As per publicly available information from theCentral Bank BiH the average interest rate onshort-term loans in BAM to private companies hadbeen continuously decreasing, and reached a levelof 7.0% in December 2013, whereas for thehouseholds, it had decreased, compared to theprevious year, reaching the level of 8.197%

In 2013, the share of short-term loans in total loanswas continuously decreasing, reaching the level of26.4%, with average interest rates on these loans of7.0% for private companies and associations, and8.197% for households.

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Chapter 3

Foreign investment

Chapter 3 – Foreign investment

21

3.1. Investmentbackground

The total amount of Foreign Direct Investments(FDI) between 2000 and 2013 is estimated toamount to EUR 5.8 billion. In 2007, Bosnia andHerzegovina attracted the highest amount offoreign direct investments of EUR 1.3 billion thanksto several large privatisation of state companies.The amount of investments has declined in therecent years due to the global recession.

Production and banking sector have been the mostinteresting to foreign investors attracting 35% and21% of total investments, respectively.

The Foreign Investment Promotion Agency ofBosnia and Herzegovina announced the plan forprivatising several state-owned companies, as wellas construction of new and revitalisation of existingenergy facilities and plants in the next period.

3.2. Equal treatment

All investors, whether foreign or domestic, have thesame rights over the ownership of local companies.The only exception are companies which produceand sell firearms, ammunition, explosives formilitary use, military equipment as well as mediacompanies whose ownership by non-residentscannot exceed 49% of total shares without priorapproval from authorised institution.

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 actof nationalization, expropriation, requisition ormeasures that have similar effects, except wherethe public interest may require otherwise.

3.3. Steps in registering acompany

There are several steps required in establishing alimited liability company, as the most common typeof legal entity in BiH (please note that certainprocedures might differentiate between FBiH, RSand BD):

1. Creation of a contract or decision on companyestablishment that has to be processed by anotary in BiH;

2. Payment of initial capital to temporary bankaccount;

3. Registration of a company at the Courtregister;

4. Creation of company’s stamp;5. Opening company’s official bank account;6. Registration of company and employees at

the tax administration;7. Obtaining permission from relevant authority

to commence business activity.

In FBiH, the whole process lasts up to 40 days. Theassociated registration costs depend on the amountof capital but are usually between EUR 500 to EUR1,500.

The World Bank Doing Business Report 2013 ranksBosnia and Herzegovina as being the 162 out of 183countries in starting a business.

3.4. Free trade zones

A free zone is a part of the customs area of Bosniaand Herzegovina and is managed by its founder(s).The free zone has the status of a legal entity and itacquires legal and business capability with theregistration of the Act on Establishing Free Zone atthe Court register.

A free zone can be founded by one or moredomestic or foreign legal and physical persons. Theuser of a free zone shall perform approved businessactivity in the zone based on the contract concludedwith the zone founders.

Establishment of a free zone is consideredeconomically justified if it is estimated that thevalue of exported or re-exported goods from thefree zone would be at least 50% of the total value ofthe goods produced within the free zone in a twelvemonths period.

Users of a free zone can be the zone’s founder orother domestic or foreign legal and physicalpersons. The users perform activities in the freezone under the same general conditions.

The users of a free zone do not pay value added taxand customs duty.

Equipment imported into the free zone to be usedfor performing the industrial activity within thezone shall be exempted from payment of customsduty.

Chapter 3 – Foreign investment

22

3.5. Investment incentives

The government has introduced several incentivesfor foreign investors. Some incentives areintroduced on the state level and the other on theentity level. There is no unified investmentattraction approach in the country.

Foreign Investor Support Fund was established in2007 by the BiH Ministry of Foreign Trade toencourage foreign investors for future businessdevelopment. The budget is 1 million EUR per yearand represents non-refundable funds supportingforeign investment projects that meet certaincriteria such as number of employees, investmentlocation, environmental protection, value ofinvestment and other. The maximum availableamount approved per project is 150 thousand EUR.

There are no import and custom duties onimported equipment (except passenger cars, slotand gambling machines), if they are imported forpurposes to create a part of registered share capitalof a company in Bosnia and Herzegovina.

The Corporate Income Tax Law of FBiH hasintroduced the following investment incentives: if 30% of total revenue is realised from exports,

the company is to be exempted from thecorporate income tax payment for that year.

if investments are higher than 10 million EURthe company is exempted from corporateincome tax for five years beginning from thefirst investment year in which minimum 2million 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 registeredbusiness activity on the territory of BD, the taxbase is decreased for the amount of investmentmade;

for a taxpayer who employs a new employed foran indefinite period of time during the taxperiod, a deduction is allowed for the totalamount of paid gross salaries for the newemployees.

Republika Srpska also has an investment incentiveregarding the corporate income tax.Under the Corporate Income Tax Law of RepublikaSrpska, a taxpayer who invests in equipment,facilities and real estate to conduct their ownregistered manufacturing activities has the right todecrease the tax base for the value of theinvestment.

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Chapter 4

Banking and finance

Chapter 4 – Banking and finance

24

4.1. Structure of the BiHfinancial services sector

The total assets of the financial services sector inBosnia and Herzegovina were BAM 24.6 billion in2012 (As of August 2014 no structure overview offinancial services sector for 2013 exists), having thefollowing 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 financialmarket as can be seen in the figures above. Thesector managed to preserve its stability, althoughthe effects of world economic and financial crisisare considerably strong, having impact on activitiesof the banks in BiH.

Share of other financial institutions in the structureof financial services sector in BiH is minor. Withthe aim of improving the financial market,strengthening of financial investors has asignificant role, especially strengthening ofinsurance companies and investment funds thathave direct impact on overall economic growth.

4.2. Structure of bankingsector in BiH

The banking system in Bosnia and Herzegovinacomprises of the Central Bank of Bosnia andHerzegovina (CBBH) as the only first tier bank,with second level banks, being the commercialbanks.

The Central BankThe Central Bank of Bosnia and Herzegovina wasfounded under the Dayton Peace Agreement and isheaded by the Governing Council. CBBH is the onlymonetary authority in the country.

The Country-wide currency Convertible Mark(Konvertibilna marka) or BAM (internationalcode), was introduced in June 1998 and replacesthe three different currencies used in the differentparts of BIH. It was formerly pegged to the GermanMark. In 2001 the peg was changed to the Euro at arate of BAM 1 = EUR 0.51129.

The main discretionary monetary policy toolavailable to the CBBH is the minimum reserverequirement rate. At this point the rate is 10% forshort term deposits, while the 7% rate is applied tolong term deposits.

Commercial banksThe commercial banks in BIH can conduct bankingactivities and operations as laid out in the Law onBanks. As at 31 December 2013, there were 17banks with banking license issued in the Federationof BiH, and 10 in Republika Srpska. The list of thecommercial banks operating in the Bosnia andHerzegovina in 2013 is given in Table 1A and 1B.

Table 1 A – Banks in the Federation of BiH

Table 1 B – Banks in the Republika Srpska

No. Name of Bank

1 BOR banka d.d.

2 Bosna bank International d.d.3 Hypo Alpe-Adria-Bank d.d.4 Intesa Sanpaolo Banka d.d.5 Investiciono-komercijalna banka d.d.6 Komercijalno-investiciona banka d.d.7 Moja banka d.d.8 NLB Tuzlanska banka d.d.9 Privredna banka Sarajevo d.d.10 ProCredit Bank d.d.11 Raiffeisen Bank d.d.12 Razvojna banka Federacije BiH13 Sberbank BH d.d.14 Sparkasse Bank d.d.15 ZiraatBank BH d.d.16 UniCredit Bank d.d.17 Union banka d.d.18 Vakufska banka d.d.

No. Name of Bank

1 Banka Srpske a.d. (former BalkanInvest Bank)

2 Bobar banka a.d.3 Hypo Alpe-Adria-Bank a.d.4 Komercijalna banka a.d.5 MF Bank a.d.6 NLB Razvojna banka a.d.7 Nova banka a.d.8 Pavlović International Bank a.d.9 Sberbank a.d.10 Unicredit Bank d.d.


25

By ownership structure 21 banks were foreign-owned, 6 banks were owned by domestic privateentities and 1 bank was majority government-owned. Overall, the main share of assets in BiHtoday is privately owned. Foreign-owned bankshave been the main drivers of credit growth.

If we analyse only foreign capital, based on thecriteria of the shareholders’ home country, as at 31December 2013, the situation has slightly changedcompared to the end of 2012: shareholders fromAustria owned 52.8%% of foreign capital, theshareholders from Italy owned 15.8% of foreigncapital, while other countries participated with lessthan 6.3%.

Supervision AgenciesWithin an institutional-based guidance of thebanking sector, the regulation and supervising isdistinguished from the systematic as in theEuropean countries. In BiH the monitoring andsupervisory authority is assigned to the BankingAgency of the Federation of BiH (FBA BiH), theBanking Agency of the Republika Srpska (BARS)and partly, the Deposit Insurance Agency of BiH(DIA). The maximum amount of an InsuredDeposit, including any accrued interest, to bereimbursed by the Agency per Depositor perMember Bank shall be the Eligible Deposit lesslegal or contractual debt owed to the Member Bankby the Depositor up to the amount determined bythe decision of the Management Board of theAgency or whichever is smaller. By the decision ofthe management Board from November, 2013, theamount of insurance coverage is BAM 50,000(EUR 25,565).The Banking Agencies are responsible for banklicensing and supervision. Both supervisoryagencies are conducting banking supervision inFBiH and RS as each entity is governed byindividual entity-level legislation. Both areauthorised to grant and revoke licenses andmonitor banks. The CBBH coordinates theactivities of the two entity agencies. A cooperationagreement exists between the FBA BiH, BARS andDIA.

4.3. Stock exchanges

By adopting the Law on Securities in 1998, FBiHand RS created a legal basis for establishment ofcapital markets in BiH.Sarajevo Stock Exchange (SASE) was created byeight brokerages in 2001. In 2004, the SarajevoStock Exchange became a full member of theFederation of Euro-Asian Stock Exchanges (FEAS),and on the 22 November 2007 it was givenmembership of the European Federation of StockExchanges (FESE).

The Banja Luka Stock Exchange was founded in2001 by eight banks and one company forconducting trade in securities. The Banja LukaStock Exchange (BLSE) has two stock markets: theofficial stock market (quotation) and the free-market stocks. In 1997 the Banja Luka StockExchange was admitted into a correspondencemembership of the World Federation of StockExchanges (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 Herzegovinaconsists of 23 companies registered forperformance of insurance and one for re-insuranceoperations, while two companies are underliquidation process. The list of the insurancecompanies operating in the Bosnia andHerzegovina in 2013 is given in Tables 2A and 2B.

The three largest banks in BiH are RaiffeisenBank BH, UniCredit Group and Hypo Group.Their assets weighting to the overall bankingsystem assets is more than 49%.


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Table 2A – Insurance companies in FBiH

Table 2B – Insurance companies in RS

Ownership structure and types ofinsurance operationsFrom the total of 23 operating companiesregistered for performance of insurance operations,13 have majority owners from BiH, while 10 haveforeign majority owners. Out of 13 companies withthe main business focus on non-life insurance, 12are in majority domestic ownership, while in onecompany there is majority of foreign ownership.

There are only two companies whose main line ofbusiness is life insurance, one in domestic and onein local ownership. Out of 9 companies operatingboth in the area of life and non-life insurance(composite companies), one is in majority domesticownership, while eight have foreign majorityowners. There is one re-insurance companyregistered in BiH and it is in majority domesticownership.The insurance companies where majority of thecapital is ownership of foreign entities increasedtheir 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 onleasing. The leasing service is relatively new to theBiH market as the first leasing companies wereintroduced in 2001.

At the end of 2008 the negative effects of the globaleconomic and financial crises stopped theexpansion of the growth of leasing companies,which had its peak in the period from 2006 to2008.

In 2010 the leasing companies came under thesupervision of the banking agencies. This stepresulted in increased reporting requirements andstricter lending and provisioning rules. The leasingcompanies were forbidden to give loans whichrepresented a significant part of the portfolio forcertain leasing companies.

There are in total 6 leasing companies registered inFBiH and one company registered in RepublikaSrpska as at 31 December 2013. The list of leasingcompanies operating in Bosnia and Herzegovina ispresented in tables 3A and 3B.

Table 3 A – Leasing companies inthe Federation of BiH

Table 3 B – Leasing companies inthe Republika Srpska

The leasing companies can perform businessactivity in the other state entity by registering abusiness unit.

No. Name of Insurance company1 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.

No. Name of Insurance company1 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.

No. Name of Leasing company1 ASA Leasing d.o.o.

2 NLB Leasing d.o.o.3 Raiffeisen Leasing d.o.o.4 S-Leasing d.o.o5 Unicredit Leasing d.o.o.6 VB Leasing d.o.o.

No. Name of Leasing company1 Hypo-Alpe-Adria Leasing d.o.o.

27

Chapter 5

Foreign trade andcustoms policy

Chapter 5 – Foreign trade and customs policy

28

5.1. Foreign traderegulations

Customs policy in BiH is governed by the BiH Lawon customs policy and its main implementingmeasure being the Decision on implementingmeasures of the BiH Law on customs policy.

Customs and tariff policy in BiH is the competenceof the BiH Ministry of Foreign Trade and EconomicRelations. BiH indirect taxation authorityimplements the law on customs policy. Customstariffs in BiH are fully harmonised with the EUcombined nomenclature.

The Indirect taxation authority is responsible for allother regulations related to customs and theirimplementation (the provisions related to customs,foreign trade, currency and other provisionsreferring to the customs policy). It is responsiblefor the collection of all customs duties, excise dutieson imported goods and road taxes as well as for theaccounting and collection of VAT on importation.

5.2. Trade agreements

BiH is currently in the negotiation process for WTOmembership (currently being an observer).

In 2008, BiH has signed the Stabilisation andAssociation Agreement (SAA) with the EuropeanUnion by which BiH gained a status of potentialcandidate for the EU. The agreement is still not inforce as BiH government has not yet implementedseveral EU requirements (i.e. adoption of state lawson state aids and on the national census, and theimplementation of the Finci and Sejdic ruling of theECHR requiring an amendment to the Constitutionto allow members of national minorities to beelected within the Presidency of Bosnia andHerzegovina and to gain seats in the House ofPeoples). However the interim agreement on trade(a part of SAA) is in effect from July 2008 and ithas enabled a decrease of customs duties to nil formany products in different time periods.

BiH has also signed the CEFTA agreement in 2006,which is being implemented since 2007. Based onthis agreement trade with Albania, Bulgaria,Croatia, Macedonia, Moldova, Romania, Serbia,Montenegro and Kosovo is not subject to customsduties. A separate bilateral free trade agreement isin force with Turkey. BiH also signed bilateralagreement with Islamic Republic of Iran onpreferential trade.

5.3. Custom and otherimport duties

Customs regulations are unique at the territory ofBiH. Customs duties on all commodities importedinto the customs territory of Bosnia andHerzegovina are paid ad valorem at rates of 0, 5, 10and 15 %.

From 14 September 2011, importers are not obligedto pay 1% for customs handling.

For certain agricultural products which areimported in BiH, the Law prescribed obligation forpayment additional charges in the amounts from0.08 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 certaincountries or group of countries, based on whichpreferential tariff procedure is granted;

• Special measures for specific tariffs for whichdecrease of customs or relief from payingcustoms is prescribed;

• Other measures which are envisaged by the Lawon foreign trade policy.

In accordance with the Law on Customs Tariff BiH,and with the objective of fulfilling the obligationswithin the framework of World Trade Organizationand other international agreements, the Council ofMinisters BiH is authorised to, by the end ofNovember of each year, harmonise the customstariffs in BiH and determine the customs tariffs inBiH for the following year. Customs tariffs in BiHare fully harmonised with the EU combinednomenclature.

Bosnia and Herzegovina follows the WCO customsvaluation principles. The 7th Article of GATT(Agreement on Implementation of Article 7 of theGeneral Agreement on Tariffs and Trade 1994) isapplicable in BiH.

Quality tests are performed by authorisedcompanies at the time of importation. Sanitaryinspection 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.

Chapter 5 – Foreign trade and customs policy

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5.4. Free zones

Customs and other import charges are not paid onimport to free zones. Currently there are four freezones in BiH:• Vogošca• Visoko• Hercegovina Mostar• Slobomir Bijeljina.

5.5. Customs relief

Relief from payment of import customs duties areprescribed for:• Equipment released for free circulation

representing an investment by a foreign person,except for passenger vehicles, entertainmentand slot machines;

• Goods released for free circulation for militaryand police forces and penitentiary institutionsand completely financed by donors shall berelieved from payment of import duty as well asgoods used for demining;

• Goods released for free circulation for projectsof rebuilding and reconstruction of BiH shall berelieved from payment of import duty if theproject:a) is adopted by the Council of Ministers of

Bosnia and Herzegovina;b) is completely financed by foreign donors or

financed by international developmentbanks;

c) is mainly financed by the foreign donatorsor international development banks.

• Equipment which is intended to be used forproduction in free zones;

• Goods imported to BiH for private purposes upto prescribed limited amounts.

BiH is also member of ATA and TIR carnet systems.

5.6. Foreign tradeindicators

Please see below overview of export and importamounts, as well as the export/import ratio duringthe 2012 – 2013 period.

Source: Agency for statistics

Major trading partners on the export and importside were Croatia, Germany and Serbia.

The countries of South-eastern Europe and EU27accounted for 87.3% of BiH exports and for 72.1%of BiH imports.

The following product groups continued to accountfor greatest shares in import: products of mineralorigin (21.2%), machinery, appliances, mechanicaland 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 basemetals 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%).

In EUR 000 2012 2013Export 4,018 8,380Import 7,799 15,169Export/ImportRatio 51.50% 55.24%

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Chapter 6

Business entities

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6.1. Company registration

In Bosnia and Herzegovina, foreign legal andphysical persons have the right to engage ineconomic activities, establish business entities andenjoy the same rights as local persons.

The easiest way to conduct business activity in BiHis by registration of a legal entity (company). Thereare several other possibilities to enter the marketsuch as the permanent establishment, registering abusiness unit and engaging tax representatives,however the process is burdened by the lack ofregulation.

Please note that in order to manage a business aforeigner needs to have both residency and workpermit that is regulated by the Law on Residence,Asylum and Movement of Foreigners in BiH.

The establishment, operation and liquidation of acompany are regulated by the Laws on Companiesof FBiH, RS and BD.

Foreign investors should be aware of the fact thateven if the laws and regulations relating to businessentities are similar across the country, there aresome differences that have to be considered. Thesteps required to register a company often dependon the location of the planned business.

FIPA (Foreign Investment Promotion Agency ofBiH) and the World Bank offer some generalinformation on starting and conducting business inBosnia and Herzegovina, but it is better always todouble-check the procedures with professionaladvisers for the specific application.

6.2. Forms of businessentities

Foreign investors may establish following forms ofcompanies: 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 aGeneral partnership (o.d. or d.n.o.)

In practice, foreign investors usually prefer toestablish a limited liability company (LLC ) becauseof its simple form, small amount of paid up capitalrequired (approx. EUR 1,000) and relatively easyestablishment.

Limited Liability Company (d.o.o.)LLC is a business entity that can be established byone or more individuals and/or legal entities inorder to perform certain business activity. Theindividuals and/or entities are treated as memberswho are also the shareholders of the company.

A member of LLC is responsible for company’sliabilities to the extent of their contributed capital.The LLC is fully liable for its commitments. Thebasic capital is constituted from member'scontributions. The contributions do not have to beequal from each member and each member shallacquire their share in the company in proportion totheir contribution.

The name of the LLC is always immediatelyfollowed by the words “društvo sa ograničnom odgovornošću” or the initials „d.o.o.“.

LLC shares may not be publicly traded. Company'sbusiness activity, rights and responsibilities of themembers, organisation, rules about basic capitalchanges and other topics are all defined by theStatue of the LLC unless otherwise defined by thelaw.

CapitalAccording to the law, the monetary part of thecapital for the LLC has to be no less than approx.EUR 1,000 on the payment day. The contributionto the LLC may be monetary, non-monetary, in theform of service and rights, and work provided. Thefounding capital may decrease and increase but itmay not fall below the minimum founding capitaldetermined by the law.

Managing LLCThe LLC has an Assembly composed of all membersof the company. The full amount of the capital ispresented by 100 possible votes and number ofvotes for each member is proportional to theircontribution. The decisions are made by themajority rule unless stated otherwise in theCompany Statue.

Joint-Stock Company (a.d or d.d)A joint-stock company (JSC) is a business entitywhose capital is appointed and divided into shares,and it can be established by one or more individualsand/or legal entities.

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In addition to the foundation act, joint-stockcompanies usually also have a statue that sets themanaging and business rules of the company. Thefounders of the JSC are obligated to beshareholders in the JSC. There are two types ofjoint-stock companies in FBiH and RS:

Closed JSC defined cannot be publicly tradedand has a limited number of shareholders asdefined by the law

Open JSC is a company that has publicly tradedshare

According to the Law on Companies of FBiH, anopen JSC has to fulfil one of the followingcriteria: 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 40shareholders.

Closed JSC can become open JSC by satisfying oneof the above mentioned criteria.

On the other hand, the Law on Companies of RSstates that a JSC is considered open if its foundingcapital is no less than approx. EUR 25,500 and ifnot stated otherwise.

The founding capital for closed JSC in RS can be noless than EUR 10,200.

The founding share capital of the JSC in FBiH isminimally EUR 25,500.

For both, privately and publicly offered JSC, thenominal 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 ofBrčko District, is minimum EUR 7,670 and the minimal nominal stock value is EUR 0.50.

Mandatory bodiesThe mandatory bodies of closed JSC are:Shareholders’ General Assembly and the ManagingDirector or Board of Directors. A closed JSC mayalso have an Executive Board and/or InternalAuditor/ Board of Auditors.

The mandatory bodies of and open JSC are:Shareholders’ Assembly, General Assembly,Supervisory Board, Executive Board, and theCompany Secretary.

Since the open JSC is listed on the stock exchange itmust also have Internal Auditor or Board ofAuditors.

Limited Partnership (k.d)Limited partnership is a business entity that can beestablished by two or more individuals and/or legalentities in which at least one partner's liability islimited (Limited partner –LP) to the amount oftheir contribution, while a liability of at least onepartner is unlimited (General partner –GP). Inlegal manner, GP's are considered partners aspartners in a conventional form.

ManagementIn addition to the founding act, a limitedpartnership may have a contract in which theorganisation and management policies of thelimited partnership are determined. One or moreGP's are entitled to manage business activities ofthe limited partnership. GP's are consideredmanaging partners, while the LP's have no right tomanage the limited partnership. The LP's have noright to bind the company unless they are assignedby all partners to be agents of the company.

LiabilityGeneral partners have unlimited liability meaningthat they are fully liable for the debts and thecommitments of the company. On the other hand,limited partners are liable in proportion to theircontribution to the company.

General Partnership (o.d) orUnlimited Liability Company(d.n.o)General partnership defined by the Law onCompanies of RS is similar to an UnlimitedLiability Company (ULC) defined by the Law onCompanies of FBiH and Law on Companies of BD.

This form of a business entity is established by twoor more individuals and/or legal entities that havejoint unlimited liability for the debts andcommitments of the company. In RS, members ofthe company are called partners, while in FBiH andBD they are considered members. On the wholeterritory of BiH, the contribution to the companyhas to be equal by all partners/ members of thecompany.

ManagementAll members (partners) have the right andobligation to manage the unlimited liabilitycompany (general partnership). If two or moremembers (partners) are entitled to manage the

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company, then they have the right to actindividually, unless there are objections.

The management can be defined by the Statue thatis made in addition to the foundation act of theULC (General Partnership).

LiabilityMembers (partners) are personally and jointlyliable for the debts and commitments of thecompany. The liability is unlimited.

Representative Offices andBranches of foreign legal entitiesForeign persons have the right to establish arepresentative office in BiH for performing marketresearch, informative and promotional activitiesand for its own representation. The representativeoffice does not have the status of a legal entity,meaning that the representative office may notconclude business deals in the name of the headcompany. There are some exceptions to this rule intransportation business. The representative officebecomes operational after being registered in theRegister of Foreign Representative Offices kept bythe Ministry of Foreign Trade and EconomicRelation BiH.

Foreign companies can establish a branch office inRepublika Srpska.

Recent amendments to the Company Law ofFederation BiH that came into force in October2013, introduced the possibility for the foreigncompanies to establish one or more branch officesin Federation BiH for performance of their businessactivities. However, in practice it is still not possibleto register a branch office in Federation BiH. Inorder to fully enable the registration procedure, it isnecessary to adopt amendments to the Law onRegistration of Business Entities in FBiH that willprescribe procedure for registration of branch officeof a foreign company at the registering municipalitycourt and the Tax Authorities of FBiH. Theamendments to the Law on Registration ofBusiness Entities are in parliament procedure andis expected they will be adopted soon.

Branch offices have no capacity of a legal entity,business with third parties is performed in thename and on behalf of foreign legal entity whichgains rights and obligations through activities ofthe branch office.

6.4. Regulatoryenvironment

Company Laws of Federation of BiH, RepublikaSrpska and Brčko District regulate trade secret. Competition rules on the BiH market are regulatedby the Competition Law.

Trade SecretAll information that are stated by the company tobe a trade secret and the information that wouldnegatively affect the business activities of the legalbusiness entity are considered confidential. Theymay not be shared with the third party withoutconsent of the legal business entity.

Information that are to be published due to lawrequirements and the information that reveal apossibility of corruption within the company cannotbe considered as secret.

If the management should violate the trade secretof the company, they shall be held liable for thedamage sustained as a result of that violation.

The related parties are obligated to follow theconfidentiality rules determined by the contractand the company statue.

Competition LawThe Competition Law regulates the rules, measuresand procedures for the protection of marketcompetition, and regulates the power and duties ofthe Council of Competition entrusted with theprotection and promotion of market competition inBosnia and Herzegovina.

The Competition Law applies to all individuals andlegal entities that, directly or indirectly, participatein the trade of goods or services and that, throughtheir actions, prevent, restrict or distort marketcompetition on the whole territory of Bosnia andHerzegovina or its relevant part. This law isapplicable on all forms of business entities,economic associations whether they are local orforeign.

Joining or merger of independent business entitiesor parts of business entities are considered to beconcentration as well as the acquisition of controlor prevailing influence of one or more businessentities over other business entity, or over otherbusiness entities.

A company requires permission for concentrationin following situations:

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total annual income of all participants to theconcentration achieved by selling goods and/orservices on the world market is more than EUR51,129,188 according to the financial statementsin the year preceding the concentration, and

total annual income of each of at least twoeconomic entities - participants to theconcentration realised by selling goods and / orservices on the market of Bosnia andHerzegovina is at least EUR 2,556,460according to the financial statements in the yearpreceding the concentration, or if their jointshare in the relevant market exceeds 40%.

The concentrations that could negatively influenceefficient market competition are prohibited.

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Chapter 7

Labour relations

Chapter 7 – Labour relations

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7.1. Labour

Since the end of the war in 1995, the country hasbeen facing multiple issues regarding the politicalclimate and economy. The war had a deep anddevastating social and economic impact on thepopulation involved. Around half of the pre-war 4.5million people were displaced, and the official post-war unemployment rate was at the 70-80% level.

Although one can question the relevance of theeconomic and statistical indicators because of thesignificantly large black labour market, few willargue that the steadily high unemployment rate thecountry has been experiencing in the last years isirrelevant. Even though the unemployment rate isnot even close to the post-war era, mostly due tothe creation of jobs in the growing public sector, therate is one of the highest in Europe. The majority ofunemployed people are displaced persons andrefugees. Below are the official InternationalMonetary Fund unemployment rates for BiH forthe period from 2006 till 2013.

Calendaryear

Unemploymentrate

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, WorldEconomic Outlook

The average net wage in December 2013 in Bosniaand Herzegovina was EUR 432.04, whichrepresents a increase of 1.08% comparing to theprevious month.

The sectorial distribution of employees inDecember 2013 constituted of 18.71% employed inthe processing industry (secondary sector) whilethe sector consisting of wholesale, retail and repairservices employed 18.13 %. Other service relatedsectors as public administration, defence, socialinsurance and education employed 19.77 %.

7.2. Employment contracts

According to the Labour Act of the Federation ofBosnia and Herzegovina, an employment contract

can be based on finite and indefinite period of time.This is also the case for Republika Srpska andBrčko District. An employment contract that does not specify any duration is considered as a contractof indefinite time. Further on, a contract with finiteperiod of time cannot be concluded for a periodlonger than 2 years.

The notice period cannot be shorter than 7 days incases when an employee terminates theemployment contract and 14 days for the employer.If an employee agrees to the employer’s request toend the employees work before the expiration of thenotice period, the employee shall be entitled to asalary compensation from the employer and allother rights as if he/she worked until the expirationdate of the notice period.

Additionally, there are also Contracts forTemporary and Occasional work and ServiceContracts. Both contracts can be concluded for amaximum time period of 60 days.

The Service Contract is regulated by the Law onObligations and stipulates that an employee isobliged to complete the tasks set out in thecontract. The employer is obliged to compensatethe employee for the work done. If there is asituation where the employee does not oblige withthe terms a warning can be given by the employer,and a deadline for the employee to adjust the workin accordance with the contract. If the employeefails to react to the warning, the employer shall beentitled to terminate the contract.


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7.3. Public holidays

Below are the public holidays in BiH:

Calendar Day National Holidays1st & 2nd January New Year’s Day7th of January* Christmas (Orthodox)9th of January** Republic Day1st of March Independence DayVariable date* Easter (Catholic)Variable date* Easter (Orthodox)1st of May Labour Day9th of May** Victory DayVariable date* End of Ramadan-Eid

al-FitrVariable date* Feast of Sacrifice – Eid

al-Adha21st of November Dayton Agreement

Day25th of November Statehood Day25th of December Christmas (Catholic)*Note According to Law of Labour („Official gazette ofFederation BiH“, no. 43/99, 32/00, 29/03) the employeehas the right to be absent in total 4 days per calendar yearrelated to religious/traditional practices.

**Note Only for RS

7.4. Employment of foreignpersons

VisasForeign citizens have the right to enter the boardersof Bosnia and Herzegovina with or without visa,depending on their nationality. A list of allcountries that are not required BiH entry visa canbe found on the web page of Foreign InvestmentPromotion Agency of Bosnia & Herzegovina(www.fipa.gov.ba).

Residence PermitsForeign nationals with an entry visa have the rightto stay in BiH territory for the period stated in thevisa. Foreign nationals who are exempt from thevisa requirement are allowed to stay in the countryfor a period no longer than 90 days within period of6 months following their first entry.

A foreign national is obliged to register theirresidence with the Service for Foreign Affairs- fieldoffices or competent organisational unit of Ministryof Internal Affairs. A foreign citizen who is applyingfor a temporary residence permit for the first timemust file the application to the Service for Foreign

Affairs of BiH. A person may apply for a temporaryresidence permit only if: If an individual enters with a visa for a long-

term stay; If an individual is a citizen of a country that is

exempt from the requirement of a BiH entryvisa.

A permanent residence permit can be issued to aforeign citizen only if he/she has resided in theterritory of BiH for at least 5 years uninterruptedlyprior to applying for the permanent residencepermit. It must be noted that a stay of maximum 90days outside BiH territory during the period of thetemporary residence permit is not considered as aninterruption of residence.

Work PermitsA foreign national who is seeking to work in Bosniaand Herzegovina must have a work permit. Thework permit is issued by the competentEmployment Service regional offices responsiblefor the region where the employer had registeredhead office. The issuance relies on the fact that theapplier must possess a valid residence permit in theterritory of Bosnia and Herzegovina or evidence ofpossession of a valid business visa.

The employer is obligated to submit an applicationfor a work permit on behalf of a foreign worker. Thework permit is issued to a specific person for aspecific job, for a specific employer and for aspecific period of time. The work permit isconsidered expired when employment ceases.Usually, the work permit is valid for a year, but itcan be extended.

The requirement for a work permit is disregardedwhen it comes to founders of a company with a seatin Bosnia and Herzegovina, who perform differenttasks in the company, which cannot be treated asemployment, and does not exceed a total of threemonths per year. They shall not be obliged toacquire a work permit in BiH.

But if the founder of the company is also a managerwho is receiving a salary for their work, such personmust have a work permit in accordance with theLaw of Employment of Foreign Nationals.


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Foreign Driving LicenseA foreign citizen who has a temporary residence inBosnia and Herzegovina is allowed to drive with aforeign driving license. The individual must alsohave an international driving license issued inaccordance with the Vienna Convention on RoadTraffic. But if it is concluded that the drivingcourses in the home country of the foreign citizenare significantly different from the practices andconventions in BiH, the Ministry ofCommunications and Transport can declare theforeign driving license invalid.

Foreign citizens who are issued a permanentresidence permit are allowed to drive with a foreigndriving license for a period no longer than 6months from the day the permit was granted. Afterthe 6 months one is required to change to adomestic driving license.Foreign registered vehicles are allowed in theterritory of BiH as long as they have the correctequipment prescribed by the internationalconventions and a valid certificate of registrationissued by the competent authority of the countrywhere the vehicle is registered.

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Chapter 8

Accounting and auditing

Chapter 8 – Accounting and audit

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8.1. Accounting

International Accounting Standards (IAS) andInternational Financial Reporting Standards(IFRS) are fully applicable in Bosnia andHerzegovina, provided they are locally translatedand published. Due to the unusual administrativestructure, BIH has a very complex organisation oflaws and regulations. The specific administrativeand political situation in BIH is also reflectedthrough accounting and auditing laws.

Territory of BIH consists of three administrativeunits, therefore BIH has three Laws on Accountingand Auditing and the framework Law at the statelevel: Law on Accounting and Auditing of Bosnia and

Herzegovina (2004) – mandatory on the entireterritory of BIH;

Law on Accounting and Auditing of Federationof BIH (2009) – mandatory on the territory ofFBIH;

Law on Accounting and Auditing of RepublikaSrpska (2011) – mandatory on the territory ofRS;

Law on Accounting and auditing in Brčko District of BIH (2005) – mandatory on theterritory of BD.

Still regarded as a transition economy, BiH’s long-term goal is EU membership. Due to theseeconomic and political goals, BiH is obliged to fulfilall EU demands, including harmonisation of localaccounting framework with IAS/IFRS.

Until 2011, accounting framework was notharmonised on the entire state territory, there weresome significant differences between the laws andregulations of administrative units, especiallybetween FBIH and RS. This fact often represented asignificant issue for both, domestic and foreigncompanies, especially if their business was notrestricted to only one administrative unit.

This meant that accounting work was oftenduplicated, which automatically implicated higheraccounting costs. Fortunately, such problems are

now left behind thanks to a new set of laws andregulations for accounting and auditing practice.

IFRS/IASs, as published by IASB and translatedinto one of official languages in BiH (Bosnian,Serbian, Croatian) are mandatory for all businessenterprises located in territory of BiH.

According to BiH laws, annual financial statementsinclude:

Balance sheet (Statement of financial position);

Income statement (Statement of comprehensiveincome) ;

Cash flow statement ;

Statement on changes in equity and Notes to financial statements.

This set of annual financial statements ismandatory for: Large business enterprise;

Medium-sized business enterprises.

As an exception to provisions of those laws - banks,microcredit companies, savings and loanscooperative ventures, insurance companies, leasingcompanies, companies dealing with investmentfunds, companies dealing with mandatory orvoluntary pension funds, stock exchanges,brokerage and dealership companies, and otherfinancial organisations are classified as largeenterprises.

Small enterprises present their annual reportsthrough: Balance sheet and Income statement.

Business enterprises are classified as laid out intable below. In order to be classified in a certaincategory, an enterprise has to fulfil two out of threegiven criteria.

Source: Law on accounting and audit

Criteria Small enterprises Medium enterprises Large enterprisesAverage number of employees < 50 50 – 250 > 250Total assets < 1,000,000 1,000,000 – 4,000,000 > 4,000,000Annual income <2,000,000 2,000,000 – 8,000,000 > 8,000,000


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Business enterprises classified as large andmedium-sized are obliged to compile and presentsemi-annual financial statements, that is, financialstatements prepared for the accounting period from1st January to 30th June. Business enterprisescompile and publish financial statements for abusiness year ended on 31st December of thecurrent year with prior year comparatives, whichare due by end of February.

The accounting year in BIH is generally thecalendar year.

Main professional accounting and auditinginstitutions in BIH: The Accounting and Auditing Commission of

BIH;

Association of accountants, auditors andfinancial workers in FBIH;

Association of accountants and auditors in RS.

The Accounting and Auditing Commission of BIHconducts a program for qualifications in theaccounting and auditing profession. In accountingand auditing profession in BIH, three titles areestablished, as follows: Certified Accounting Technician (CAT) ;

Certified Accountant (CA) and Authorised Auditor (AA).

IFAC (International Federation of Accountants) atits Council meeting held in Kuala Lumpur,Malaysia on 5 November 2010, accepted in fullmembership Association of Accountants andAuditors of Republika Srpska and the Associationof Accountants, Auditors and Financial Workers ofFederation of Bosnia and Herzegovina.

Business records are opened at the beginning of thebusiness year – calendar year or some other period,determined in line with the law, on the basis of thebalance sheet and closing balance sheet showingbalance of assets and sources of assets on the day ofconclusion of the previous accounting period.

Periods of time for which the business records andfinancial statements need to be kept, start upon thelast day of the business year they refer to. Financialstatements and auditor’s reports are kept for anindefinite period of time in their original form.Journals and general ledgers are kept for at leastten years in RS, and at least eleven years in FBIH.Despite of all progress that has been made duringthe last few years, accounting profession in BIH isstill facing some issues. Most of these issues can becontributed to constant changes in laws andregulations. For accounting professionals it gets

hard to keep up with all those changes. Also, theimplementation of IAS/IFRS is taking slow steps,because local accountants are not familiar andtrained for such regulations and the translationprocess takes some time.


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8.2. Audit requirements

The audit of financial statements in Bosnia andHerzegovina is done in accordance with local lawson Accounting and Auditing, and the InternationalStandards on Auditing (ISA). The ethics code isbased on the International Ethics Standards Boardfor Accountants and the rules of the auditprofession are also respected, as well as other rulesand regulations that define this profession.

All audits are done by licensed legal entities. Auditof financial statements is done by persons who havea valid licence issued by the Ministry of Financeand are a part of an audit company or engaged bythe audit company.

Auditing of the financial statements can beperformed by persons with professional title of anauthorised auditor, who possess a licence for workon financial statements auditing tasks and who areemployed or engaged by an auditing company.

Subject to mandatory auditing in FBIH are stand-alone and consolidated financial statements of: Large enterprises;

Middle-sized enterprises;

Financial statements of legal entities whosesecurities are traded or preparation for theiremission is made at an organized securitiesmarket.

Subject to mandatory auditing in RS are financialstatements of Public Interest Entities, defined bythe Law on Accounting and Auditing of RepublikaSrpska. According to the Law, Public InterestEntities are:

Financial statements of legal entities whosesecurities are traded or preparation fortheir emission is made at an organizedsecurities market;

Banks, microcredit companies, insurancecompanies, leasing companies, stockexchanges, brokerage and dealershipcompanies and other financialorganisations;

Public companies; All legal entities of particular importance

for RS, regardless of their legal form andorganizational frame.

Financial statements of business enterprises aresubject to the mandatory statutory audits if it hasbeen prescribed by their particular regulationsdefining their business operations.

One auditing company may audit the same entityfor five consecutive years. Exceptionally, anauditing company may audit the same company foranother two years, after expiration of the 5 yearterm, provided there is a rotation of signingauditor.The Office for Auditing of financial operations ofthe institutions of BIH - is an independent bodyresponsible for government and public sectorauditing in all the country.

Chamber of Auditors of FBIH is a professional bodyof auditors in FBIH. It was established in 2011. TheChamber has jurisdiction and performs tasks in thefield of audit and other professional areas inconnection with the audit. Also, the Chamberdetermines the amount of dues and other income,cares about the reputation of the auditingprofession, produces minimal methodology ofperforming quality supervision of work for auditfirms and licensed auditors and monitors thequality of the audit process and work of licensedauditors.

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Chapter 9

Corporate Taxation

Chapter 9 – Corporate Taxation

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9.1. Introduction

Bosnia and Herzegovina is politically decentralisedand comprised of two governing entities,Federation of Bosnia and Herzegovina (FBiH) andRepublika Srpska (RS), with a third region, Brčko District (BD) which is governed locally.

Direct taxes are imposed on entities at the districtlevel, while indirect tax regulations are imposed atthe state level.

9.2. Corporate income tax

Federation of Bosnia and Herzegovina, RepublikaSrpska and Brčko District impose corporate income tax to residents, to their worldwide income. Non-residents are taxed on income realized in theFederation of Bosnia and Herzegovina, RepublikaSrpska and Brčko District.

Taxpayer and rate

Federation of Bosnia and HerzegovinaA corporate income tax (CIT) payer in Federation ofBosnia and Herzegovina is a resident company orother legal entity performing independent andpermanent business activity through sale of goodsand provision of services on the market for thepurpose of generating profit.

A CIT payer in Federation of Bosnia andHerzegovina is also a non‑resident who generates

profits on territory of the Federation of Bosnia andHerzegovina through permanent establishment.

A non‑resident whose registered seat or

management is not in Federation of Bosnia andHerzegovina and who does not have a permanentestablishment in Federation of Bosnia andHerzegovina is subject to withholding tax (WHT)for income generated in Federation of Bosnia andHerzegovina.

The CIT rate in Federation of Bosnia andHerzegovina is 10%.

Republika SrpskaA CIT payer in Republika Srpska is:

A legal entity from Republika Srpska thatgenerates income from any source in RepublikaSrpska or abroad.

A business unit of a legal entity that generatesincome in Republika Srpska.

A non-resident legal entity that conductsbusiness activity and has a permanentestablishment (PE) in Republika Srpska, forincome that is related to that PE.

A non-resident legal entity that generatesincome from immovable property in RepublikaSrpska, for the income generated in RepublikaSrpska.

A non-resident legal entity that generatesincome in Republika Srpska, not mentionedabove, and is subject to WHT in accordance withthe CIT law of Republika Srpska.

The CIT rate in RS is 10%.

Brčko District A CIT payer in Brčko District is:

A legal entity from Brčko District that generates income from any source in Bosnia andHerzegovina or abroad.

A business unit of a legal entity withheadquarters in the Federation of Bosnia andHerzegovina or Republika Srpska, for incomegenerated in Brčko District.

A non-resident legal entity that conductsbusiness activity and has a PE in Brčko District, for income that is related to that PE.

A non-resident legal entity that generatesincome from immovable property in Brčko District, for the income generated in Brčko District.

A non-resident legal entity that generatesincome in Brčko District, not mentioned above, and is subject to WHT in accordance with theCIT law of Brčko District.

The CIT rate in Brčko District is 10%.

Corporate residence

Federation of Bosnia and HerzegovinaresidencyUnder the CIT Law of Federation of Bosnia andHerzegovina, a resident is a legal entity whoseregistered seat is in Federation of Bosnia andHerzegovina or whose management and control ofbusiness activities is located in Federation ofBosnia and Herzegovina.

A PE of a non-resident is a permanent place ofbusiness through which the non-resident performsactivity in whole or partially throughout theterritory of Federation of Bosnia and Herzegovina.


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Under the CIT Law of Federation of Bosnia andHerzegovina, the following is considered to be apermanent 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 aperiod exceeding six months.

Provision of consulting or business serviceslasting for a period exceeding three monthsconsecutively over a 12-month period.

A representative acting independently on behalfof a non-resident related to the activities ofsigning a contract or keeping supplies ofproducts delivered on behalf of a non-resident.

Republika Srpska residencyUnder the CIT Law of Republika Srpska, a residentis a legal entity registered in Republika Srpska.

A PE is considered to be a place of business of anon-resident in Republika Srpska (i.e. constructionworks, installation and assembly works,infrastructure used for research or exploitation ofnatural resources or supervisory on these works). APE shall also be considered to be a place of businesswhere an individual or legal entity has theauthorisation to conclude contracts for a foreignlegal 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 orexploitation of natural resources, or supervisoryon these works, or

a place of business where an individual or legalentity has the authorisation to concludecontracts for a foreign legal entity.

Representative office of a foreignlegal entityA foreign legal entity can establish a representativeoffice in Bosnia and Herzegovina for performanceof promotional, propaganda and market researchactivities and for representation of a foreign legalentity. A representative office of a foreign legalentity cannot perform other activities aimed atgenerating profit.

Based on the activities it ca perform, arepresentative office of a foreign legal entity doesnot create a PE in Bosnia and Herzegovina and theyare not considered to be CIT payers in Bosnia andHerzegovina.

Branch incomeFederation of Bosnia and HerzegovinaAs mentioned above, it is expected that theregistration of a branch office of a foreign legalentity will soon be fully enabled in Federation ofBiH. A branch office of a foreign legal entity inFederation of BiH will be a corporate incometaxpayer for the income realised on the territory ofFederation of BiH.

Republika SrpskaBranch office of a foreign legal entity is a corporateincome taxpayer for the income realised on theterritory of Republika Srpska.

Brčko District A branch office that an entity registered inFederation of BiH and Republika Srpska has inBrčko District is a corporate income taxpayer for the income realised on the territory of Brčko District.

Income determinationTaxable profit is determined by adjusting theaccounting profit, as presented in the profit andloss statement, in a manner prescribed by the CITlaw.

Federation of Bosnia and HerzegovinaincomeIncome for assessment of taxable profit inFederation of Bosnia and Herzegovina is incomefrom the sale of goods, services and materials, aswell as financial, extraordinary and other incomecalculated in the profit and loss account inaccordance with accounting regulations and theInternational Financial ReportingStandards/International Accounting Standards(IFRS/IAS).

Income from collected written-off debt shall not beincluded in the tax base, provided it was included inincome in the previous tax period and it was notsubject to tax allowable or recognised expenditure.

Inventory valuation

Inventories are valued using the average pricemethod.


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Capital gainsThe taxable base includes profit from liquidationand capital gain from the balance sheet.

Dividend incomeDividends from other taxpayers shall not beincluded in the tax base. Dividends are consideredto be participation in a profit of a company.

Republika SrpskaTaxable revenue for the purpose of assessing thetax base in Republika Srpska includes all revenue(domestic and foreign) from whatever sourcederived, whether in cash or in kind or whetherrelated or unrelated to the company’s economicactivity.

In the event of revenue received in kind (other thancash) or services, the amount of revenue shall beequal to the market price of a property orservices received.

Inventory valuationInventory includes goods used for resale, finalgoods produced by the taxpayer, semi-final goodsused for further production, as well as main andauxiliary materials for production.

Purchase value of inventories at the beginning andend of a fiscal year has to be expressed using thesame method for determination of purchase valueof inventories.

The purchase value of inventories can bedetermined by using the first in first out (FIFO)method or the weighted average cost method.

Capital gainCapital gain is realised through sale or other type oftransfer of capital or investment assets andrepresents a difference between the sales price andadjusted base of an asset. The sales price is thecontracted price (i.e. the market price establishedby the competent tax authority in case it finds thecontracted price to be lower than the market price).

Capital gains or losses realised during the fiscalyear can be offset, and the realised net gain or lossis added or subtracted from the taxable base, if theyare not already included in the income or expense.

Dividend incomeIncome from dividends is not included in thetaxable 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 theincome is related to the business activity of thecompany.

Inventory valuationThe purchase value of inventories can bedetermined using the first in first out (FIFO)method or the average cost method.

Capital gainCapital gain is realized by sale or transfer of capitaland investment goods and represents positivedifference between the sales price and adjustedproperty base.

Dividend incomeIncome from dividends is not included in thetaxable base.

Deductions

Federation of Bosnia and HerzegovinaIn general, only expenditures that directly relate torealised revenue can be considered as taxdeductible expenditures, when assessing the taxbase.

DepreciationDepreciation cost is deductible only if it relates tothe property subject to depreciation that is in use.

Depreciation of fixed assets is deductible up to theamount determined with the linear method byapplying the maximum depreciation rates asprescribed by the Government of Federation ofBosnia and Herzegovina, as follows:

Assets Rate (%)Buildings, except 10.00Management, administration, office,and other buildings for providingservice activities 3.00Apartment houses, hotels, restaurants 14.30Roads, communal objects, upper railwaysrail machine 14.30Equipment, vehicles, mechanicals except 20.00Equipment for water management,water-supply, and sewerage system 14.30Computers and equipment forenvironment protection 33.30Crops 14.40Livestock units 40.00Intangible non-current assets 20.00Source: FBiH Corporate Income Tax Law


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Property being depreciated, with purchase valueless than BAM 1,000, may be fully deducted in theyear when it was purchased, provided that theproperty was put in use.

The purchase value of computer hardware andsoftware may be fully deducted in the year when thepurchase was made.

Once depreciated, the depreciate assets shall not bere-included in the depreciation calculation for thepurposes of the tax balance.

Depreciation is allowed for increases in the value offixed assets due to revalorisation in accordancewith IFRS/IAS, up to the amount of calculateddepreciation on the revalorisation base and usingthe linear method prescribed by law.

Bad debtBad debt provisions are deductible if one of thefollowing 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 enforcedcollection procedure.

The receivable is registered in the bankruptcyprocedure

Agreement has been reached with the debtor inthe bankruptcy or liquidation procedure.

Tax provisionsThe following provisions are considered as taxdeductible: 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 contributionsCosts of humanitarian, cultural, educational,scientific, and sports purposes (except professionalsports) are deductible in the amount of up to 3% oftotal income.

Other expenses with limited deductibilityRepresentation costs are tax deductible in theamount of 30% of total business relatedrepresentation costs.

Expenses of membership fees to chambers aredeductible in the amount not exceeding 0.1% of

total income, with the exception of membershipfees regulated by the law.

Expenses of sponsorship are deductible up to theamount of 2% of total income.

Net operating lossesTax losses may be carried forward for five years.Tax base is always firstly decreased by an older taxloss.

Tax losses cannot be carried back.


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Republika SrpskaExpenditures are deductible in computing theRepublika Srpska tax base if they directly relate tothe realised revenue.

DepreciationDepreciation deductions are allowed only withrespect to depreciable assets that are being used.

A depreciable asset is any tangible or intangibleasset that is held for use in the production or supplyof goods and services, for rental to others, or foradministrative purposes. Land or any other assetthat does not decrease in value through wear andtear or obsolescence is not considered a depreciableasset.

The assets are depreciated using the linear methodof depreciation except for machines and equipmentwhich can be depreciated with acceleration (firstyear at 40%, second year at 30%, and third year at30%). The CIT Rulebook prescribes a wide range ofaccepted depreciation rates, depending on type ofassets, ranging from 1% to 50% annually.

Bad debtsA legal entity is entitled to a deduction when itcomes to bad debts and provisions.

Legal entities, other than banks, authorised creditinstitutions, or insurance companies, are entitled toa deduction of a bad debt that arose in connectionwith a sale of goods or provision of services,provided that revenue was previously included inthe tax base of that legal entity.

Bad debt provision is tax deductible if it is duemore than a year, and: the taxpayer has started court litigation for the

receivables or an enforced collection procedureis initiated

the receivables are registered in the bankruptcyprocedure of the debtor, or

an agreement has been reached with the debtorin the bankruptcy or liquidation procedure,provided that the debtor is not a physical orrelated person.

Banks or other authorised credit institutions areentitled to deduction of maximum 20% of the taxbase for increase of reserves for usual losses due tounpaid loans.

Insurance or reinsurance companies are entitled toa deduction for increase of reserves as recorded inthe accounting documents in accordance with therelevant regulations.

In the event of insurance contracts pertaining toreinsurance, reserves are to be reduced so that theycover only part of the risk remaining with theinsurer, and the amount may not exceed 20% of thetax base.

The tax savings resulting from a reduction orcancellation of any provision that is collected later,will be included in taxable revenue at the momentof collection.

Charitable contributionsContributions to public institutions andhumanitarian, cultural, and educationalorganisations are deductible in an amount notexceeding 3% of the fiscal year’s total revenue. Anyexcess contribution may be carried forward threeyears.

Other expenses with limited deductibilityExpenditures that are recognised and deductiblefrom revenue also include the following: 30% of the cost of entertainment, meals, and

amusements related to the company’s businessactivity.

Sponsorship expenses in an amount notexceeding 2% of the fiscal year’s total revenue.

Scholarships to students in an amount of up to75% of average monthly net salary per employeein Republika Srpska in accordance with thelatest published data from the body in charge ofstatistics.

Tax lossesLosses may be carried forward and offset againstincome in the following five years. Tax losses areutilised on a FIFO basis.


Brčko District Expenditures are deductible in computing Brčko District tax base provided they directly relate to therealised revenue.

DepreciationDepreciation deductions are allowed only withrespect to depreciable assets that are being used.A depreciable asset is any tangible or intangibleasset that is held for use in the production or supplyof goods and services, for rental to others, or foradministrative purposes. Land or any other assetthat does not decrease in value through wear andtear or obsolescence is not considered a depreciableasset.


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The assets are depreciated using the linear methodof depreciation except for machines and equipmentwhich can be depreciated with acceleration (firstyear at 40%, second year at 30%, and third year at30%). The CIT Rulebook prescribes a wide range ofaccepted depreciation rates, depending on type ofassets.

Calculation of depreciation for newly purchasedproperty starts the following month on the daywhen it was put to use. The calculation ofdepreciation for newly constructed buildings startsfrom the first day of the following year in which itwas put to use.

Bad debtsLegal entities, other than banks, authorised creditinstitutions, or insurance companies, shall beentitled to a deduction of a bad debt that arose inconnection with a sale of goods or services but onlyif the revenue from the sale was previously includedin the tax base of the legal person. For this purpose,a credit or trade receivable is considered a bad debtonly if one of the following is true: It is more than 12 months past the due date for

payment of the invoiced receivable and thecreditor has sued for the receivables or anenforced collection procedure is initiated due toreceivables.

The receivables are registered in the bankruptcyprocedure of the debtor or an agreement hasbeen reached with the debtor who is not aphysical or related person in the bankruptcy orliquidation procedure.

Banks or other authorised credit institutions areentitled to deduction of maximum 20% of the taxbase for increase of reserves for usual losses due tounpaid loans.

Insurance or reinsurance companies are entitled todeduction for increase of reserves as recorded inthe accounting documents in accordance with therelevant regulations.

In the event of insurance contracts pertaining toreinsurance, reserves are to be reduced so that theycover only part of the risk remaining with theinsurer, and the amount may not exceed 20% of thetax base.

Charitable contributionsContributions to public institutions andhumanitarian, cultural, and educationalorganisations are deductible in an amount notexceeding 3% of the fiscal year’s total revenue.

Other deductible expensesExpenditures that are recognised and deductiblefrom 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 theprescribed amount.

Sponsorship expenses in an amount notexceeding 2% of the fiscal year’s total revenue.

Scholarships to students in an amount up to75% of average monthly net salary in Brčko District.

Committee membership fees, up to 0.2% of totalrevenue in the tax year.

Expenses for research and development (R&D)in accordance with the Rulebook.

Net operating lossesLosses may be carried forward and offset againstincome in the following five years. Tax losses areutilised on a FIFO basis.


Group taxationFederation of Bosnia and Herzegovina

A company has the right to request taxconsolidation, provided condition that allcompanies within the group are residents ofFederation of Bosnia and Herzegovina.

A main company and its branches form a group ofcompanies when there is a direct or indirect controlbetween them with minimum 90% of shares.

A request for tax consolidation has to be submittedby the main company to the authorised office of theTax Authorities.

Each group member is required to submit its taxbalance, and the main company within the groupcan submit a consolidated tax balance for thegroup.

The consolidated tax balance may offset losses ofone or more companies against the profit of othercompanies within the group.

Individual group members are liable for the taxcalculated on the consolidated balanceproportionately to tax profit from the individual taxbalance, and the main company is the payer of thetax calculated on the consolidated balance.


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Once approved, tax consolidation shall be appliedfor the consecutive period of minimum five years.

If one, several or all companies in the group lateropt for individual taxation, all group members shallbe obliged to proportionally pay the difference forthe tax privilege they have used.

Republika SrpskaAn affiliated group of legal entities located withinRepublika Srpska may elect to file a consolidatedannual tax return.

An affiliated group of legal entities is a group of oneor more legal entities from Republika Srpska thatare connected through the ownership on shareswith a common parent, provided that the commonparent owns at least 80% of the shares in a legalentity included in the affiliated group. If thecommon parent does not own at least 80% ofshares in a legal entity included in the affiliatedgroup, the parent may file a consolidated tax returnprovided that one or more other legal entities in theaffiliated group own at least 80% of shares in suchlegal entity.

Brčko District An affiliated group of legal entities located withinBrčko District may elect to file a consolidated annual tax return.

An affiliated group of legal entities is a group of oneor more legal entities from Brčko District that are connected through the ownership in shares with acommon parent provided that the common parentowns at least 80% of shares of a legal entityincluded in the affiliated group.

Thin capitalisationThere are no thin capitalisation rules in Bosnia andHerzegovina.

Tax credits and incentives

Federation of Bosnia and HerzegovinaForeign tax creditWhen a taxpayer generates income or profitthrough business activities outside Federation ofBosnia and Herzegovina (directly or through abusiness unit) and pays profit tax on such income,the tax paid abroad shall be credited up to theamount of the profit tax that would have been paidfor the income or profit generated by the sameactivities in Federation of Bosnia and Herzegovina.

Investment incentiveA taxpayer, who invests minimum BAM 20 millionin production in the territory of Federation ofBosnia and Herzegovina in period of fiveconsecutive years, will be relieved from CIT for aperiod of five years, starting with the first year inwhich it has invested at least BAM 4 million.

Special needs employment incentiveA taxpayer who, within its company, employs morethan 50% of disable persons or persons with specialneeds in a period of time longer than one year isrelieved from CIT for the year in which more than50% of disable persons or persons with specialneeds are employed within the company.

Export incentiveA taxpayer who realises more than 30% of annualincome by export will be relieved from CIT for thatyear.

Republika SrpskaIf a legal entity from Republika Srpska obtainsrevenue from a foreign state and the revenue istaxed both in Republika Srpska and in the foreignstate, then the tax paid to the foreign state, whetherpaid directly or withheld and remitted by anotherperson, is to be credited from Republika Srpska’sCIT, unless such legal entity from Republika Srpskaelects to treat the foreign tax as a deductibleexpenditure in determining the fiscal year tax base.

In order to promote foreign direct investments inRepublika Srpska, and in accordance with theamendments to the Law on Corporate Income Tax,tax incentives have been granted for newlyemployed workers. Moreover, CIT base for profittax is adjusted by the amount of tax paid onincome, and contributions for the newly employedworkers. A new employee is the worker whoconcludes a contract for an indefinite period oftime, in accordance with the labour legislation.Furthermore, a taxpayer who invests in equipment,facilities and real estate to conduct its ownregistered manufacturing activities, has the right todeduct the tax base for the value of the

Brčko District Foreign tax creditIf a legal entity from Brčko District obtains revenue from a foreign state and the revenue is taxed bothin Brčko District and in the foreign state, then the tax paid to the foreign state, whether paid directlyor withheld and remitted by another person, is tobe credited from the Brčko District CIT, unless such legal entity from Brčko District elects to treat the


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foreign tax as a deductible expenditure indetermining the fiscal year tax base.

Investment incentiveFor a taxpayer who invests in machines andequipment for performing its own registeredbusiness activity in the territory of Brčko District, a deduction is allowed for the amount of theinvestment.

Employment incentiveFor a taxpayer who employs new employees for anindefinite period of time during the tax period, asecond deduction is allowed for the total amount ofthe gross salaries paid to the new employees.


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9.3. Withholding tax

Withholding tax in Federation of Bosnia andHerzegovinaWHT in Federation of Bosnia and Herzegovina iscalculated on income that a non-resident generatedthroughout the territory of Federation of Bosniaand Herzegovina.

The base for calculation of WHT is the grossamount paid by a resident of Federation of Bosniaand Herzegovina to a non-resident for dividends,interest, royalties and other intellectual propertyrights, compensations for market research, taxconsulting services, auditors’ services, fun andsports events, premium insurance for insurance orreinsurance of risk in Federation of Bosnia andHerzegovina, telecommunication services betweenFederation of Bosnia and Herzegovina and othercountries, as well as all other services performed inFederation of Bosnia and Herzegovina.

WHT in Federation of Bosnia and Herzegovina isdue at 10% rate. WHT on dividends is due at 5%rate.

Withholding tax in Republika SrpskaAny legal entity or physical person from RepublikaSrpska, as well as any non-resident legal entity orphysical person with PE in Republika Srpska, whopays revenue to a non-resident legal entity isobliged to withhold tax from the total payment ofrevenue and to remit the withheld tax to the PublicRevenues Account of Republika Srpska.

The WHT applies to the following revenuepayments, regardless of whether the revenue isreceived in Republika Srpska or abroad:

Payment of interest or its functional equivalentunder financial instruments and arrangementsfrom a resident.

Payment for entertainment or sporting activitiescarried out in Republika Srpska, regardless ofwhether the revenue is received by theentertainer or sportsman or by another person.

Payment for provision of management,consulting, financial, technical, oradministrative services, if the revenue is from aresident or if the revenue is paid by or includedin books and records of a PE in RepublikaSrpska, or if such payment is deducted for thepurpose of determining the tax base.

Payment in the form of insurance premiums forinsuring or reinsuring of risks in RepublikaSrpska.

Payment for telecommunication servicesbetween 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 inRepublika 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 personwith PE in Brčko District, who pays revenue to a non-resident legal person is to withhold tax fromthe total payment of revenue and is to remit thewithheld tax to the Public Revenues Account ofBrčko District.

The WHT applies to the following revenuepayments, regardless of whether the revenue isreceived in Brčko District or abroad:

Payment of interest or its functional equivalentunder financial instruments and arrangementsfrom a resident.

Payment for entertainment or sporting activitiescarried out in Brčko District, regardless of whether the revenue is received by theentertainer or sportsman or by another person.

Payment for provision of management,consulting, financial, technical, oradministrative services, if the revenue is from aresident or if the revenue is paid by or includedin the books and records of a PE in Brčko District or if such payment is deducted for thepurpose of determining the tax base.

Payment in the form of insurance premiums forthe insuring or reinsuring of risks in Brčko District.

Payment for telecommunication servicesbetween 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 networkBosnia and Herzegovina has 38 effective double taxtreaties as at 1 January 2014.


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9.4. Transfer pricing

Transfer pricing requirements are imposed at theentity level. Federation of Bosnia and Herzegovina,Republika Srpska and Brčko District have different transfer pricing regulations in place, includingdifferent rules regarding applicable methods,definitions of related parties, and documentation.The regulations in place do not differ if thetransactions are within one entity, cross-border, orinternational. Basically, this means that alltransactions can fall under the transfer pricingscope.

With Bosnia and Herzegovina not being an EU oran OECD member, the local legislation does nothave the same requirements with respect totransfer pricing documentation as in EU countriesnor does the legislation refer to the OECDguidelines.

Related partiesUnder the applicable legislation in RepublikaSrpska and Brčko District, related parties of a legal entity are considered to be physical persons or legalentities that possess more than 10% of active shareswith voting rights in the legal entity.

A legal entity can be a related party if it possessesmore than 10% of active shares in the other legalentity indirectly or directly. Indirect ownership isconsidered to be: if a legal entity person possesses more than 10%

of a dependant company, and that dependantcompany possesses more than 10% in the otherlegal entity,

if two legal entities have a common shareholderwho possesses more than 10% active shares withvoting rights in both legal entities.

In Federation of Bosnia and Herzegovina, a relatedparty is considered to be an individual or a legalentity that has the possibility of control orsignificant influence on the business decisions ofthe taxpayer. Ownership of more than half orindividually the most stocks or shares in a companyis considered to be enabled control.

Significant influence is considered to be mutuallyhigh sales turnover, technical dependence, orotherwise gained control over the management.

Prescribed methodsFederation of Bosnia and Herzegovina recognisesonly 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 thatcan be used in order to establish whether the pricesare 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 requirementsThe Republika Srpska Rulebook on CorporateIncome Tax briefly prescribes that the TaxAuthority will accept transactions between relatedparties, if the tax payer possesses information onrelated parties, such as: legal status and business activities of the tax

payer (especially if they fall under specialbusiness regime) and their characteristics;

identification of transactions between relatedparties in terms of value and conditions underwhich they have been conducted in the last fiveyears;

breakdown of activities and data on businesspartners, relevant for the transactions;

description of the method used for determiningthe price between related parties.

The documentation should be prepared andavailable upon the request of the Tax Authority.

Federation of Bosnia and Herzegovina does notcurrently have formal transfer pricingdocumentation requirements per se. However, thepreparation of draft of the new CIT Law is inprogress and it will introduce other methods forassessment of transfer pricing, as well as theobligation of conducting a transfer pricing study. Itis expected the new CIT Law will came into forcenext year.

The Tax Authorities will most likely first test thereality or existence of the delivery and the benefitsreceived by the taxpayer. Therefore, supplierdocumentation proving that the supplier wasinvolved in providing a service or generatingexpenses from a service is accepted as valid onlyafter obtaining positive evidence on the actualservice delivery and receipt, the commercialrecognisability of the service, the quantity orvolume and the time of delivery.


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9.5. Value added tax

The standard VAT rate is 17% and the VAT regimeapplies equally throughout the country of Bosniaand Herzegovina. There is no reduced VAT rate inBosnia and Herzegovina.

Taxable persons are all individuals and legalentities registered, or required to be registered, forVAT. Any person making taxable supplies of goodsand services that exceeds or is likely to exceed athreshold of BAM 50,000 (EUR 25,600) is requiredto register as a VAT payer.

The export of goods is zero-rated.

Taxable transactions include supply of goods andservices for consideration in the territory of Bosniaand Herzegovina, as well as the importation ofgoods to Bosnia and Herzegovina. The followingtransactions 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).

The following services are exempt from VAT inBosnia and Herzegovina: The leasing and subletting of residential houses,

apartments, and residential premises for aperiod of longer than 60 days.

The supply of immovable property, except forthe first transfer of the ownership rights or therights to dispose of newly constructedimmovable 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 periodof six months shall be refunded.

Registered exporters are to be refunded within 30days.

9.6. Excise duties

There is a single excise regime throughout Bosniaand Herzegovina which levies excise tax on thefollowing products: petroleum products, tobaccoproducts, non-alcoholic drinks, alcohol andalcoholic drinks, beer and wine, and coffee(unroasted, roasted, and ground coffee and coffeeextracts). The duties on petroleum products anddrinks are set at a specific amount per litre, and thecoffee excise is a specific amount per kilo.

9.7. Custom duties

The customs policy law and the rates of customstariffs to be applied exist and are largely based onEuropean Union (EU) standards. Bosnia andHerzegovina has signed the Stabilisation andAssociation Agreement (SAA) and the CentralEuropean Free Trade Agreement (CEFTA).

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Chapter 10

Individual Taxation

Chapter 10 – Individual taxation

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10.1. Personal income tax

ResidentsIn Republika Srpska and Federation of Bosnia andHerzegovina taxpayers of personal income tax areresidents, as well as non-residents who generateincome on the territory of Republika Srpska orFederation of Bosnia and Herzegovina.

Federation of Bosnia and Herzegovina

In Federation of Bosnia and Herzegovina taxpayersare considered to be: residents for their worldwide income; non-residents who perform independent

business activity through permanent place ofbusiness activities in the territory of Federationof Bosnia and Herzegovina, subjecting them totax on income generated from such permanentplace of business;

non-residents who perform dependant businessactivity in the territory of Federation of Bosniaand Herzegovina, subjecting them to tax onincome generated from such dependantbusiness activity;

non-residents who earn income from movableand immovable property, royalties, patents,licences, capital investments where ownershipof the underlying property is in the territory ofthe Federation of Bosnia and Herzegovina,subjecting them to tax on income earned fromsuch property.

In Federation of Bosnia and Herzegovina, aresident is a physical person who: has domicile in Federation of Bosnia and

Herzegovina resides in Federation of Bosnia and

Herzegovina, continuously or in intervals for183 days or more during one calendar year.

Republika Srpska

In Republika Srpska, a resident is a physical personwho: has domicile in Republika Srpska; resides in Republika Srpska, continuously or

with interruptions for 183 days in a 12 monthsperiod 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 moredays in any tax period,

Has residence in Brčko District, and obtains income from the Brčko District budget based on dependent activity performed outside of theBrčko 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 determinationFederation of Bosnia and Herzegovina

In Federation of Bosnia and Herzegovina, thefollowing 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 subjectto 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.


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DeductionsFederation of Bosnia and Herzegovina

The following personal income tax deductions areallowed in Federation of Bosnia and Herzegovina:

FBiH BAMmonthly

Personal deduction 300Dependant family member –spouse 150Dependant family member –first child 150Dependant family member –second child 270Dependant family member –third and every next child 90Dependant family member –parent (whose monthly incomedoes not exceed BAM 300) 90Interest paid on mortgageloan Full amountPremium paid on lifeInsurance Full amount

Republika Srpska

The following personal income tax deductions are

allowed in Republika Srpska:

RS BAMannually

Deduction for dependantFamily members 900Personal deduction 2,400Interest paid on mortgageloan Full amount

Brčko District

The following personal income tax deductions areallowed in Brčko District:

BD BAMannually

Personal deduction 3,600Deduction for dependant familymembers and person receivingaliment based on the agreementon life-long aliment (50% ofpersonal deduction) 1,800Deduction for invalidity of 10% of personaltax payer or dependant deduction for everyfamily member 20%of invalidityAdditional pension insurance(up to 50% of personal deduction) up to 1,800

Tax creditsIn Brčko District, Republika Srpska and in Federation of Bosnia and Herzegovina tax credit isgranted for tax paid outside of territory of Brčko District, Republika Srpska or Federation of Bosniaand Herzegovina, respectively. The amount of taxcredit cannot exceed the amount of tax whichwould be calculated when the same income wouldbe earned in Brčko District, Republika Srpska, and Federation of Bosnia and Herzegovina,respectively.

In the event when Bosnia and Herzegovina hassigned a Double Tax Treaty with another state, thenprovisions of the Tax Treaty apply.


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10.2. Social securitycontributions

Federation of Bosnia and Herzegovina

In Federation of Bosnia and Herzegovinamandatory Social Security Contributions are due bythe following rates:

Employer Employee% %

Pension andinvalid insurance 6 17.00Health insurance 4 12.50Insurance fromunemployment 0.5 1.50

Basis for calculation of Social SecurityContributions is the gross salary.

In Federation of Bosnia and Herzegovina employerpays also 0.5% of contribution for protection fromnatural and other disasters, as well as 0.5% of thewater protection charge, calculated on net salary.

Republika Srpska

In Republika Srpska, the following rates ofmandatory Social Security Contributions have to beapplied:

RS % of gross salaryPension andinvalid insurance 18.00%Health insurance 12.50%Insurance fromunemployment 1.00%Contribution for childprotection 1.50%

In Republika Srpska mandatory Social SecurityContributions are calculated on gross salary, andhave to be withheld by the employer, as an incomepayer.

Brčko District

Persons who are working in Brčko District can choose to which fund of pension insurance, eitherthe fund of Republika Srpska or fund of Federationof Bosnia and Herzegovina, they would like paypension and invalid insurance contributions.

Health insurance contributions are calculated inthe amount of 12% on gross salary.

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Chapter 11

PwC in Bosnia andHerzegovina

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11.1. PwC worldwideorganisation

PricewaterhouseCoopers provides industry-focusedassurance, tax and advisory services to build publictrust and enhance value for our clients and theirstakeholders. More than 184,000 people in 157countries across our network share their thinking,experience and solutions to develop freshperspectives and practical advicePricewaterhouseCoopers provides a full range ofbusiness advisory services to leading global,national and local companies as well as to publicinstitutions.

These services include audit, accounting and taxadvice; management, information technology andhuman resource consulting; financial advisoryservices including mergers and acquisitions,business recovery, project finance, and litigationsupport; business process outsourcing services; andlegal services provided through a global network ofaffiliated law firms.

11.2. PwC in Bosnia andHerzegovina

PwC in BiH provides a full range of assurance, taxand business advisory services. Our clients aredrawn from the full spectrum of the businesscommunity in BiH and include local state ownedand private enterprises, central government bodies,and leading international corporations present inBiH.

PwC BiH is fully incorporated into the PwCSoutheast Europe (SEE) cluster and Central andEastern Europe (CEE) region. We combine ourknowledge and experience with colleagues fromother countries in order to develop freshperspectives and practical advice to our clients.

The key element of our success is the quality of ourpeople. Our BiH office is staffed with 21 localspecialists with knowledge of local conditions andregulations.

Our staff combines PwC worldwide experience within-depth local knowledge to provide unparalleledsolutions for the local business environment.

The global PwC network enables our specialists tosolve problems, supported by experience fromdifferent parts of the world.

11.3. Assurance services

The Assurance practice comprises internationallytrained local and foreign auditors and accountants.All PwC staff are familiar with local andinternational accounting practices.

As a part of our long-term development strategy,PwC BiH requires its local employees to gaininternationally recognized professionalqualifications in accounting (UK ACCA), and tospecialize in IAS/IFRS.

Due to BiH’s transition to a market economy, thecountry’s accounting and auditing legislation ischanging rapidly. We are well placed to understandthe practical implications of the new laws andpractices on your company’s activities, and we canhelp you develop appropriate strategies to obtainmaximum 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 incompliance with IAS/IFRS;

Accounting and consulting services in financialaudit, general and management accounting,organisational restructuring;

IAS/IFRS accounting training; Maintenance for setting up an efficient internal

audit department.

11.4. Advisory services

PwC advisory services are provided by trustedprofessionals with ample knowledge of businessprocesses and technology, financial and accountingexpertise, industry insight, and customerrelationship skills. Through the use of thesecapabilities and the experience and resourcesoffered by a global organisation, we assist clients inaddressing many of the important business issuesinvolved in enterprise management.

Particular emphasis is placed on the priorities ofperformance improvement, transactions andforensic services.

Due to the close regional cooperation of PwCAdvisory Team we can provide assistance to allthose companies that are thinking of enteringSouth East Europe as a region and not only

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individual countries. This differentiates us fromother competitors in the region.

PwC BiH has excellent knowledge of local marketand has strong relationships with the mostsignificant companies and state bodies in BiH.These relationships enable us to resolve manyissues quickly and to identify reliable sources ofinformation.

We serve different type of clients. Foreign investors coming to BiH Foreign companies operating in the BiH market Local prospective companies

DealsWe help clients do better deals and create valuethrough mergers, acquisitions, disposals andrestructuring, 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 andhelp them maximise value from troubled financialsituations.

ConsultingWe help organisations implement their businessstrategies 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 theleading firm globally for tax advice, by reputation,with a very strong lead over the competition.

Our reputation as global market leader extends tothe various tax service areas, where we have a verystrong lead over the competition in domesticcorporate tax planning, transfer pricing,compensation & benefits, expatriate tax planning &compliance, tax risk minimisation, cross-border taxcompliance and tax accounting.

Our tax team acts for a significant number of localcompanies and foreign entities with activities inBosnia and Herzegovina. The Department has abroad knowledge of tax legislation, accounting,customs and other regulations as well as extensiveexperience in advising clients on Bosnian andinternational legislation. They are able to providetaxation and general business advice on all aspectsof inward investment into Bosnia and Herzegovina.We also advise clients based on our knowledge ofBosnian legislation and how this legislation inter-relates with international laws and treaties.

Bosnian Tax and Legal regimes are complex andevolving rapidly. Therefore it is vital to seek experttax and legal advice prior to making decisions. Thisis where PricewaterhouseCoopers can help. Ourunique team of domestic and international taxspecialists works together on the cross-borderaffairs of companies, individuals and theirbusinesses related to tax issues and is experiencedin providing advice on a wide variety of tax issues.

We are committed to providing our clients with aservice that meets their requirements and exceedstheir expectations. Our experience in Bosnia andHerzegovina may benefit your company topromptly assess and minimize the tax risk. Weunderstand the importance of expedient, highquality service. Experts that know the specifics ofyour industry can help you solve complex businessand tax issues.

Indirect TaxesAlthough we specialise in VAT, we also consider theimpact of all other forms of tax. Thiscomprehensive approach gives you effective accessto the largest group of tax professionals in Bosniaand Herzegovina. We can therefore help you tostreamline your operations to minimize VAT costsand can provide you with the skills and theforesight that you need to actually manage yourVAT, rather than just paying it.

We fully understand and appreciate the specificneeds of individual businesses. As part of a globalnetwork, PricewaterhouseCoopers can offercomprehensive solutions to all your VAT needs.You could also choose to have access to ourGlobalVatOnline website, a constantly updateddatabase of important VAT information from over70 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, debtstructuring)

Financial Services Local or international group refinancing Identification of risks involved in the tax,

accounting and legal aspects of various financialproducts

Re-capitalisation and balance sheetrestructuring

Financial instruments and derivatives advisory Registration of foreign investment funds

Real Estate Tax structuring including advice on beneficial

holding locations, exit strategies, capital gainsoptimisation, financing strategies.

Tax Planning and Restructuring

Regardless of the size of your organization, effectivetax planning and the establishment of anappropriate corporate structure is essential tominimize tax operational costs. Efficient taxplanning and corporate structuring can lead tosignificant cost savings and increased profitabilityfor your company. However, to be truly effectiveyou need foresight and expertise.PricewaterhouseCoopers has established anexperienced multi-disciplinary team of experts whospecialise in tax and corporate law. They can helpyou to both structure your company to gain themost advantageous position, and to devise anefficient tax planning strategy to reduce youroverall tax liability.

Advice on designing and implementingInternational and Bosnian tax planning andoptimization strategies

Advice and assistance on the benefits andprocedures of restructuring

Advice on the application and interpretation ofinternational tax law

A comprehensive review of existing contractsand 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 specialistscan consolidate your group’s transfer pricing policyto correspond to your business objectives andstrategies. We can provide you with industryspecific benchmarking to determine an effectivearm’s length price for goods and services. This alsoenables you to adjust your transfer pricing tooptimise your overall profitability. Furthermore, weare able to assist you in providing transfer pricingdocumentation that fully complies with the localtransfer pricing rules and corresponds to the OECDguidelines.

This documentation is essential to prove that yourpricing structure complies with all the current rulesand regulations and to avoid penalties for notproducing the required documentation in time. Assessment of current transfer pricing

procedures

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A full review of existing group transfer pricingpolicies

Assistance in the preparation of a new transferpricing policy

Preparation of industry specific benchmarkanalysis and comparable studies to support thetransfer pricing policy and methods

Assistance in the preparation of all requiredsupporting documentation

Complex transformation of your existingbusiness structure to a more tax and business-effective model

Assistance in any negotiations with the Taxauthorities.

Personal Income Tax

Our Personal income tax solutions team canprovide you with comprehensive complianceservices, assistance with the interpretation of thepersonal income tax legislation, preparation ofopinions and provision of the optimal solutions toyour day to day issues.

Our goal is to enable full-service support, that willalleviate you of the problems involved withadministration, and allow you to concentrate on theproductivity of your workforce. We can regularlyinform you of changes in the field of personalincome tax by organizing seminars for biggergroups as well as individually for companies withspecific problems.

Monthly reporting – includes advice and reviewof forms for calculating withholding tax forincome from employment and other contractualrelationships; from, renting property,transferring property rights, or any otherincome, as well as from capital gains, interestand dividends

Annual reporting – advice and review of theform for reporting the salary data, changes inthe salary data, paid social securitycontributions and the period of insurance,including the summary of calculated personalincome per tax period

Other contractual relationships – providingadvice and assistance with payments, accordingto the contract on service performance,authorial work or contract on management andprocurement

Workforce cost management - A comprehensivereview of employee pay and benefits packagesand full assistance with the implementation ofan efficient remuneration scheme. Theseincludes reviews of the tax effectiveness of thecurrent salary and benefit packages;

identification of tax, and social securityimplications; and providing advice on thereimbursement of costs, such as daily foodallowance, travel allowance, business-relatedtravel costs, per diem allowance, etc.

Employee share plans - Assistance with thereview, design, implementation, and ongoingmaintenance of share plans for both Bosnianand foreign-national employees. This includesanalyses of both corporate and personal incometax implications and international taximplications

Assignment policies for employees seconded towork abroad

Our International Assignment Solutions (IAS) teamcan provide you with comprehensive advice andassistance to meet the specific needs of expatriatesworking in Bosnia and Herzegovina and forBosnian nationals working abroad.

We can also provide you with full-service supportwith the preparation and filing of personal incometax calculations and returns and social securityreports. This includes the handling of allcommunication with the Bosnian tax, social andhealth insurance authorities. This alleviates you ofthe problems involved with administration, andallows you to concentrate on the productivity ofyour workforce.

Monthly personal income tax returns –Preparation of the monthly tax returns forinbound and outbound expatriates thatincludes: correspondence with the expatriate orhis employer to gather and check thedocumentation necessary for the completion ofthe returns; correspondence with taxauthorities; reviewing of the tax assessmentsissued by the tax authorities, including theproceedings relating to payment of the assessedtax and filing the complaints with the taxauthorities, if any irregularities occur in theissued assessment.

Annual personal income tax return and reviewof the informative calculation, preparation ofcomplaints – Gathering and checking of allnecessary documentation for preparation of theannual personal income tax return for inboundand outbound expatriates, includingcorrespondence with the tax authorities duringthe process of assessing the total tax liability.Reviewing the correctness of the receivedinformative calculation, preparation ofobjections and filing the complaints with the taxauthorities, if any irregularities occur in theissued assessment.

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Personal tax advisory services - Comprehensiveadvice for inbound and outbound expatriates tooptimise their personal tax position. Departureand arrival advice as well as advice during theirstay in foreign country. Assistance with socialsecurity insurance issues and planning of localemployee assignments so as to minimise thenegative impact of income tax and socialsecurity obligations.

Immigration services - Provision of a full serviceto expatriates and their families on assignmentto Bosnia and Herzegovina. This includesobtaining the necessary work and residencepermits, registration with the Foreigners’ Police,and pre- and post-departure communications.

11.6. Legal services

Our knowledge of local legislation and businessenvironment, experience in commercialtransactions and international education enable usoffer a variety of legal services and solutions foryour business in Bosnia and Herzegovina.

Legal team in PricewaterhouseCoopers creates apowerful synergy between lawyers on one hand andbusiness advisors, tax specialists and auditors onthe other hand, allowing us to deliver integratedbusiness solutions.

We are providing high quality services inaccordance with International Standards and bestlocal practices to top tier companies andorganizations internationally.

Our goal is to link international expertise withpractical and realistic local experience. We madesignificant investment in infrastructure andtraining 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

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

Post - acquisition restructuring Assistance with implementation of mergers,

spin-offs and other status changes

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

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

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Office contact details

PricewaterhouseCoopers d.o.o.Fra Anđela Zvizdovića 1 71000 SarajevoBosnia and Herzegovina

Telephone: +387 33 295 234Fax: +387 33 295 235

Internet: www.pwc.ba

Emmanuel KoenigCountry Managing [email protected]

Assurance Services

Jock [email protected]

Jasmina Hodžić Senior [email protected]

Alida Selimović [email protected]

Advisory Services

Bojidar [email protected]

Tax and Legal Services

Branka Rajičić [email protected]

Mubera Brković [email protected]

www.pwc.ba

© 2014 PricewaterhouseCoopers. All rights reserved. PwC or PricewaterhouseCoopers refers to the network of member firms of

PricewaterhouseCoopers International Limited, each of which is a seperate legal entity.

Documents

Doing Business Guide BiH 2014 FIN 050814 1 - PwC · Business environment ... authoritarian control kept the ethnic enmity of his ... its 1992 independence and the 1995 Constitutional