Bosnia & Herzegovina/May 2014
On February 3, 2014, the FYR Macedonian parliament has ratified the tax treaty with Bosnia & Herzegovina signed on September 24, 2013 in Sarajevo. The ratification law was published in the Official Gazette No. 29 of 6 February 2014. Pending ratification of the treaty by Bosnia & Herzegovina and its subsequent entry into force, the agreement provisions will be effective from the following calendar year.
The treaty covers the personal income tax, property tax and profit tax in FYR Macedonia and the tax on income of individuals, tax on profit and tax on property in Bosnia & Herzegovina. As usual, the agreement is mostly harmonized with the OECD model with the below specifics that are of interest in the treaty’s content.
Permanent establishments are deemed to arise when a building/construction site or an installation project (including any related site activity of supervisory nature) lasts for more than 12 months.
As far as withholding taxes are concerned, the treaty with Bosnia & Herzegovina stipulates rates which are slightly higher than what is fairly common in FYR Macedonian double tax treaties; dividends are taxed with 15% (a preferential rate of 5% is applicable when the beneficial owner holds at least 25% of the capital in the dividend-paying company). A standard 10% withholding tax rate on interest has been agreed, which is also applicable to royalties.
In regards to the provisions for the elimination of double taxation, the treaty stipulates that both FYR Macedonia and Bosnia & Herzegovina will allow deduction from taxes in the amount of tax paid to the other state. Bosnia & Herzegovina also reserves the right to take into account any exempted income or capital for which tax has been suffered in FYR Macedonia when calculating the amount of tax payable in B&H for the remaining income/capital.
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