Israel – Bosnia and Herzegovina Tax Treaty

Business Activity in Bosnia and Herzegovina

Bosnia and Herzegovina is composed of two entities, the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS) along with a third unit under local governance known as the Brčko District (BD). Within this administrative structure, two primary tax jurisdictions exist, the Federation of Bosnia and Herzegovina, comprising 10 cantons, and the Republic of Srpska.

The economy of Bosnia and Herzegovina primarily relies on the services, industrial and tourism sectors, supported by the country’s favorable geographical location and presence of natural resources. These resources not only play an important role in shaping the country’s economic landscape, but also make Bosnia and Herzegovina an attractive business ally for foreign investors. Presently the foreign investments, which contribute to 3.2% of the GDP of BiH, are notably concentrated on key economy sectors including, but not limited to, industrial development, electricity production, banking sector, trade and telecommunications. Among the top investor countries in BiH are Austria, Croatia, Germany, UK and Italy.

Applicability of the MLI

Bosnia and Herzegovina and Israel have both signed the MLI accordingly in 2019 and 2017, simplifying the exchange of tax-related information between these two countries. The ratification of the MLI by Bosnia and Herzegovina in 2021 and Israel in 2019.

Residency for Tax Purposes in Bosnia and Herzegovina

Residence of an Individual

For tax purposes in Bosnia and Herzegovina, the residence of an individual is determined based on their presence or stay in the country. Individuals are considered residents if they have a permanent home or habitual abode in Bosnia and Herzegovina or if they spend more than 183 days in a tax year within its borders. This residency status affects their taxation obligations in the country.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

 Regulations in Bosnia and Herzegovina qualify for the residency purposes companies who meet the following criteria:

• A legal entity whose headquarters are registered with the Court Registry in the territory of Bosnia and Herzegovina.
• In the Federation of Bosnia and Herzegovina, legal entities whose actual management and control of business activities occur within the territory, are considered tax residents.

In the Republic of Srpska and Brčko District the following additional criteria are applied for residency of a company:

• Legal entities established in their jurisdiction, but they earn profit from any activity conducted in all the territory of the BiH.
• Subsidiaries of the legal entities that are established in either of the two other administrative divisions, but the subsidiarity itself is registered in the territory of the Republic of Srpska.
• Legal entities established in their jurisdiction, but earn income from the real estate property located in either of the two other administrative divisions.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Bosnia and Herzegovina

The Tax Authority institution in Bosnia and Herzegovina’s is called “Indirect Taxation Authority”. Since 2005 it functions as an authority with jurisdiction on the entire territory of Bosnia and Herzegovina regarding the VAT, customs and Excise Taxes. Click here for the official website of the BiH tax authority.

For the other categories of taxes, the following are the tax authorities based on administrative divisions:

The Federation of Bosnia and Herzegovina Tax Authority it is called FBiH Tax Administration, operating under the FBiH Ministry of Finance – Click here for the official website of the FBiH tax authority.

The Republic of Srpska Tax Authority it is called RS Tax Administration – Click here for the official website of the FBiH tax authority.

The Brčko District Tax Authority it is called Tax Administration – Click here for the official website of the Brcko District tax authority.

Income taxation: Fixed flat tax 10 % for FBiH, RS and Brčko District.

Taxation of companies and branches: Fixed flat tax 10 % for FBiH, RS and Brčko District

VAT: 17%

Capital gains tax: 10%

Withholding Tax

Inheritance Tax and Estate Tax in Bosnia and Herzegovina

When inheriting property, the residents of Bosnia and Herzegovina are liable for inheritance tax according to the local regulations of the administrative region they reside in. The inheritance tax varies between 2%-10%, depending on the cantonal regulations. The heirs of the first hereditary order aren’t liable to pay inheritance tax. In the Republic of Srpska the tax rates range from 3% to 10%. And there is no inheritance tax in the Brčko District.

Relocation to Bosnia and Herzegovina

Bosnia and Herzegovina is home to a vibrant community of Sephardic Jewish people, recognized as minority group in the country. There are 16 synagogues and cemeteries in Bosnia and Herzegovina, among of which the oldest preserved sites include the Old Sephardi synagogue and cemetery in Sarajevo.

If you are considering to move to Bosnia and Herzegovina, you will discover a rich cultural heritage influenced by its Ottoman and Austro-Hungarian history. Expect to enjoy the richness of the traditional cuisine, and the mountainous geography that offers an excellent opportunity to embrace unique exploration experiences. Moreover, you can enjoy these experiences and more on limited budgets, thanks to the affordability of the lifestyle in the country.

Israeli citizens can enter the country without a visa with a maximum stay of 90 days within any 180-day period. For prolonged stays, you can apply for one of Bosnia and Herzegovina’s visa regimes, tailored for tourism, business, education, employment, and other purposes. Click here to view the legal criteria for visa application requirements.

Real Estate Taxation in Bosnia and Herzegovina

Federation of Bosnia and Herzegovina

In the Federation of Bosnia and Herzegovina, the real estate tax is levied on the seller of the property, except for the Canton of Sarajevo and Herzegovina-Neretva where the tax is applied on the buyer. The tax regime is levied at the cantonal levels. In all 10 cantons the tax base is determined by the market value of the property. The taxes are paid in the range of BAM 0.5 to BAM 3 per square meter.

Republic of Srpska

In the RS the owner of the property is subjected to the real estate taxation. The tax regulations composed of taxation, exemption, tax base and method of payment are governed in hybridity by the Republic of Srpska and the local communities. The Tax Authority in the Republic of Srpska establishes the tax range (upper and lower limits), while the respective 64 (sixty-four) local communities will determine each the tax rate in between that range.

Paid on a yearly basis, the tax base will be a representation of the market value of the real estate as of 31 December of the preceding year. The tax rate is set at 0.10% of the estimated market value for real estate utilized in production, whilst for the other types of real estate, the tax rate is set between 0.05% and 0.20% of the estimated market value.

Brčko District

In the Brčko District the owner of the property is subjected to the real estate tax. However, If the owner of the real estate cannot be identified or located, the tax will be imposed on the person who utilizes or occupies the property.

Same as in the RS regime, in the Brčko District the tax base will be a representation of the market value of the real estate as of 31 December of the preceding year. Regarding the tax rate, it varies between 0.05% to 1.0%.

When transferring the property, in the Federation of Bosnia and Herzegovina the tax is imposed at the cantonal level and usually paid by the seller. The tax rate varies between 5% and 10%. In the Republic of Srpska and Brčko District there is no tax regime imposed on property transfers.

Transfer of Funds from Israel to Bosnia and Herzegovina

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Bosnia and Herzegovina

ֿ

Unlimited Joint Liability Company (d.n.o / o.d)

The establishment of an Unlimited Joint Liability Company requires the fulfillment of certain criteria, that includes: (i) at least two persons partners are needed, who can be either domestic or foreign. For FBiH the partner need only be natural persons, whilst for RS they can be either natural person or legal entity; (ii) partners can use all their assets, including personal property and, (iii) there is no range of contributions criteria, minimum or maximum.

Limited Liability Company (d.o.o)

The establishment of a Limited Liability Company requires the fulfillment of certain criteria, that includes: (i) at least one domestic or foreign natural persona/legal entity. In the Republic of Srpska up to 100 shareholders can establish the company; (ii) the shareholder is to be liable for the value of his/her investment. In the Republic of Srpska, the shareholder will not bear responsibility on the company’s debt, and (iii) the minimum initial capital is 1000 BAM (approx. 500 EUR) for FBiH or 1 BAM (approx. 0.5 EUR) for RS.

Limited Partnership (k.d)

The establishment of a Limited Partnership Company requires the fulfillment of certain criteria, that includes: (i) at least two partners are needed who can be either domestic or foreign; (ii) founders can be either natural person, or legal entity; (iii) a least one shareholder needs to have full liability and at least one shareholder needs to have limited liability, and (iv) there is no range of contributions criteria, minimum or maximum.

Joint-Stock Company (d.d / a.d)

The establishment of a Joint-Stock Company requires the fulfillment of certain criteria, that includes: (i) At least one partner is needed, who can be either domestic or foreign, natural person or legal entity with initial capital divided into shares; (ii) Joint- Stock companies are either Open or Closed Companies.

Regarding the Open Joint-Stock companies, regulations in BiH requires that one of the following conditions needs to be met in the entity of Federation of Bosnia and Herzegovina (FBiH):(i) the entity is bank / insurance company, or (ii) the shareholders ought to have an initial fund of 4 million BAM (approx. 2 million EUR) and at least be 40 shareholders. Whilst, in the entity of Republic of Srpska, the conditions to be met qualify legal entities, whose shares can be publicly traded, and who can invest an initial fund in the minimum 50,000 BAM (approx. 25,000 EUR).

Regarding the Closed Joint-Stock companies, regulations in BiH requires shareholders to be legal entities with an initial minimum capital of 50,000 BAM (approx. 25,000 EUR) in FBiH, or 20,000 BAM (approx. 10,000 EUR) in RS.

Incentive Laws in Bosnia and Herzegovina

Bosnia and Herzegovina is committed to attracting foreign investments, in alignment with its vision for economic development and prosperity, through establishing incentive policies. Supporting this vision, Bosnia and Herzegovina has enforced federal-level regulations that provide favorable treatment to foreign investors. Investors are entitled to the same rights and obligations as the residents of BiH and can transfer abroad their investments proceeds, freely and without delay, in convertible currency. Furthermore, foreign investors can own real estate in BiH and are entitled to the same property rights concerning real estate as legal entities within Bosnia and Herzegovina.

Moreover, Bosnia and Herzegovina has established four free trade zones, namely Vogošća, Visoko, Herzegovina-Mostar, and Holc Lukavac. The free trade zones offer customs benefits to foreign investors, including exemption from duties on imported equipment used as part of their share capital. Other benefits, include the opportunity for companies relocating to Bosnia and Herzegovina to bring in assets without paying import duties, whilst the production equipment that is not manufactured domestically can be imported duty-free for new or expanded production.

Bosnia and Herzegovina Double Tax Treaties