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Bosnia and Herzegovina: Bosnia and Herzegovina ratifies double tax treaty with Macedonia


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Pursuant to Article IV.4.d of the Constitution of Bosnia and Herzegovina (B&H), the Parliamentary Assembly of B&H on the 62nd session of the House of Representatives held on January 23 2014, and the 36th session of the House of Peoples held on March 12 2014, adopted the decision on approval for ratification of the agreement between B&H and the Republic of Macedonia for the avoidance of double taxation with respect to taxes on income and on capital. The agreement will apply to persons who are residents of one or both of the contracting states.

In B&H, the treaty covers the tax on income of individuals, tax on profit and tax on property.

On the other hand, in Macedonia the treaty applies to the personal income tax, property tax and profit tax. A resident of a contracting state is considered to be any person who is liable to tax based on his domicile, residence, place of incorporation, place of management or any other similar criterion.

A permanent establishment (PE) is meant to be a fixed place through which the business of an enterprise is wholly or partly carried out. Permanent establishment relates to a place of management, a branch, an office, a factory, a workshop and a mine, an oil or gas well, with installation projects or construction sites with duration of more than 12 months being considered as PE.

Dividends arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state and vice versa. The treaty states that the tax charged on dividends shall not exceed 5% (in cases of at least 25% participation) or 15% of the gross amount of the dividends.

As per interests, a standard 10% tax rate has been defined, which also applies to royalties. When it comes to the elimination of double taxation, both contracting states have agreed to allow deductions from taxes in the amount of tax paid to the other state. Additionally, B&H has reserved the right to consider any exempted income or capital for which tax has been paid in Macedonia in defining the amount of tax payable in B&H for the rest of the income or capital.

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