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Bosnia and Herzegovina: Income Tax Law amended


Dajana Topic

The amendments to the Law on Personal Income Tax that the Parliament of the Federation of Bosnia and Herzegovina (FBIH) adopted on December 20 2012, entered into force on February 2 2013. The tax rate remained unchanged at 10% and it applies to both residents and non-residents. The main changes affect the definition of residents, deductions and exempt income.

Resident individuals pay tax on their worldwide income, while non-residents are only taxed on income sourced in the territory of Bosnia and Herzegovina (BIH). An individual is considered to be a resident if his stay exceeds 183 days in a tax year and/or he has a residence, business, or centre of vital interest in the territory of BIH.

From February 2 2013, individuals who permanently reside in another entity or Brcko district, and work for an employer established in FBIH, are for income tax purposes considered to be residents of FBIH.

The tax base in the FBIH is calculated as total gross taxable income paid by the employer less employee contributions and deductible allowances (the monthly basic personal allowance, less dependent family member allowance(s) and invalidity allowance, where applicable).

In the Republic of Srpska (RS), the tax base is total gross taxable income paid by the employer less social security contributions and deductible allowances (monthly basic personal allowance, less dependent family member allowance(s) and invalidity allowance, where applicable).

Personal deductions in both the FBIH and RS are up to BAM 3,600 ($2,414) per calendar year.

Regarding FBIH, as of February 2 2013, even though the persons who permanently reside in another entity or Brcko and work for an employer established in FBIH are considered as resident of FBIH for income tax purposes, the only deductions allowable to them are the basic personal allowances and dependent family member allowance(s). They are not allowed to deduct expenses such as interest paid on housing loans, specific medical costs including medicaments, medical services and accessories for disabled persons, which are provided only for regular residents of FBIH.

In the RS, deductions include the dependent family member allowance, interest paid on housing loan and pension contributions paid for voluntary pension insurance up to BAM 1,200 per annum.

Along with changes effective as of February 2 2013, in relation to FBIH, was an exemption providing for the income from a life insurance or voluntary pension insurance paid by an insurance company established in the FBIH, for which the premiums were paid.

The most important items of exempt income in RS, FBIH and Brcko include: pensions, dividends, scholarships, compulsory social security contributions paid by employers, several types of social welfare and compensation payments, certain types of interest income, inheritances and gifts.

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