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Sead Dado Salkovic |
Slobodan Mihajlovic |
In an attempt to attract more foreign investment and to increase the capacity of its overall economy, the parliament of the Brcko district adopted on December 15 2010 a new corporate tax law. The law entered into legal force on January 1 2011.
The general tax rate of 10% on companies' income remained unchanged.
Likewise, taxpayers are the legal entities from the district which realised income from any source in Bosnia and Herzegovina (B&H) or in abroad, the legal entities from other parts of B&H for the income realised in the district, non-resident legal entities with permanent establishment or non-resident legal entities deriving income from certain sources in the district. On the other hand, public institutions, religious, political and humanitarian, sport and touristic organisations are exempt from taxation within the scope of their registered activities.
The law brought about changes to tax base treatment. Income from dividends received by legal entities in the district, income from written-off outstanding claims and income from interests on securities are excluded from the taxable base.
Included in the deductable expenses are: representation expenses up to 30% with relation to legal entities operation, employee's awards subject to conditions, business travel costs, meal allowances, bonuses, transportation to work, daily allowances, and use of private cars for official purposes. In addition, research expenses, donations for public institutions and humanitarian organisations, expenses for cultural, educational, scientific and sport purposes amounting up to 3% of total income in tax year as well as expenditures for sponsorship of up to 2% of total income in that tax year seen as deductible.
Additionally, the law introduced certain tax incentives for taxpayers who invest in machinery and equipment for the business purposes in the district. Also gross wages paid to newly hired employees recruited on an indefinite period are excluded from the tax base under the condition that the taxpayer or newly hired employees did not use any other employment incentives in the district.
Concerning international taxation, the law provides that the income of a non-resident legal entity with a permanent establishment in the district is taxed in same manner as a resident legal entity. However, the non-residents without permanent establishment are taxed only on the income derived from the immovable property in the district (including income from the lease, right to use and transfer of the ownership of the immovable property), income from transfer of shares of that legal entity or the income from usage of natural resources in the district (including the income of transfer of rights connected with that natural resources).
In case when a legal entity from the district generates the income that is taxable both in the district and abroad, the amount of tax paid in abroad can be credited against the income that is to be paid in the district or be treated as a deductible expense. This tax credits can be carried forward for a five year period.
Eventually, irrespective whether income was received in the district or aboard, the law introduces withholding tax at the rate of 10% on gross amount on following payments to non-residents:
Royalties,
Interests;
Sports and entertaining events;
Technical services consideration from auditing, consulting, management, engineering and administrative services;
Insurance premium and insurance and reinsurance from the risks;
Rental of movable property;
Other services consideration/fees performed in the district.
Notwithstanding the above, no withholding tax is applicable on dividends. Eventually, it is worth mentioning that if the beneficiary of income subjected to withholding tax, is a resident of the state that concluded double tax treaty on income with B&H, then the rates applicable can not exceed the tax rate of the double tax treaty.
Sead Dado Salkovic (sead.salkovic@eurofast.eu) & Slobodan Mihajlovic (slobodan.mihajlovic@eurofast.eu)
Eurofast Global Banja Luka Office/B&H
Tel: +381 63336398
Website: www.eurofast.eu
