Bosnia and Herzegovina: Non-residents subject to capital gains tax
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, providing a 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 the 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 that increase the accumulated or current income in the balance sheet are included in the ordinary taxable income.
Concerning the RS and BD, a non-resident legal entity with a permanent establishment (PE) in these areas is taxable on its income earned there. The profits, which include capital gains of a PE, are taxed under the rules generally applicable to resident taxpayers. The taxable base of business units of foreign legal entities with a PE in FBiH includes only profit earned in the RS and/or BD.
Non-residents operating without a PE in the two regions are taxed in respect of income from immovable property located in the RS or BD and income generated by using natural resources located in the RS or BD.
Generally speaking, corporate profits are subject to profit tax at the company level. There is usually 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 PEs in BiH that derive profits there, including non-resident legal entities that have PEs 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. 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 (firstname.lastname@example.org)
Eurofast Global, Banja Luka Office / B&H
Tel.: +387 51 961 610