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The amendments to the Corporate Income Tax Law of the Federation of Bosnia and Herzegovina (FBiH) entered into force on March 6, 2016. The new updates are effective as of January 1, 2016 and provide that non-resident companies are taxed on capital gains derived from the sale of shares,  immovable property or interests in equity, unless otherwise provided by a tax treaty.

The Federal Ministry of Finance was tasked with issuing a rulebook with detailed explanation on how to apply the new rules. The deadline for the issuance of the rulebook is 180 days after the Law has entered into force.

In general, non-resident companies are subject to profit tax on the profits derived from the FBiH. Business units of taxpayers resident in other parts of Bosnia and Herzegovina (BiH), either the Republic of Srpska (RS) and/or Brcko District (BD), are exempt from profit tax in the FBiH.

Non-resident companies are taxed on capital gains in the same manner as residents, meaning that capital gains which increase the accumulated or current income in the balance sheet are included in the ordinary taxable income.

Concerning RS and BD, a non-resident legal entity with a permanent establishment in the RS/BD is taxable on its income earned in the RS/BD. The profits, which include capital gains of a permanent establishment, are taxed under the rules generally applicable to resident taxpayers. The taxable base of business units of foreign legal entities with a permanent establishment in FBiH includes only profit earned in the RS/BD.

Non-residents operating without a permanent establishment in the RS/BD are taxed in respect of income from immovable property located in the RS /BD and income generated by using natural resources located in the RS/BD.

Generally speaking, corporate profits are subject to profit tax at the company level. There is generally no income or withholding tax on distributed dividends. Yet, the FBiH levies a 5% withholding tax on dividends paid to non-resident corporate shareholders.

Taxable persons are legal entities that have permanent establishments in BiH that derive profits there, including non-resident legal entities that have permanent establishments in BiH or derive profits from the FBiH, RS or BD.

Resident companies are legal entities created under the laws of the FBiH or BD. While there is no definition of resident in the RS law, but only the definitions of legal entities registered in the RS and business units of legal entities from the FBiH, BD and abroad.

Dajana Topic Banja Luka Office / B&H Tel.: +387 51 961 610