New Corporate Income Tax Law in FBiH

The Parliament of the Federation of Bosnia and Herzegovina (FBiH) adopted the new Corporate Income Tax Law, which will come into force as of 5 March 2016. The most important provisions of the Law are as follows:

Withholding Tax:

• Withholding tax at the rate of 10% will apply to the gross amount of the interest received by the non-resident legal entities, unless otherwise is stipulated in the corresponding Double Tax Treaty. Interest income derived from the government bonds of FBiH remains tax exempt.
• The rate of the withholding tax on the dividend income received by the non-resident legal entities remains of 5%.
• The issuers of the corresponding financial instruments are obliged to calculate, withhold and pay the tax, as well as to submit the tax declaration.
• The issuers of the corresponding securities are not allowed to distribute dividend profits prior to settling their tax liabilities.
• Withholding tax with respect to trading with shares by foreign investors will be set at the rate of 10%, unless otherwise is stipulated in the corresponding Double Tax Treaty. The seller of the shares will be required to pay the tax and submit the tax declaration within 30 days after the transaction date.  If the seller fails to pay the tax and to submit the tax declaration, the buyer takes over such a liability.  Further clarifications for this provision will become available at a later stage.

Application of Double Tax Treaties:

• Withholding tax rates may not exceed the respective rates provided by the Double Tax Treaties. In order to exercise their right to apply lower tax rates or tax relief, foreign investors are required to provide the issuer of a financial instrument with a Certificate of Tax Residence (not older than one year) and a statement of beneficial ownership of the shares. The issuer submits the documents along with the prescribed form to the Tax Authorities of FBiH.  

Impact on investors: The new Corporate Income Tax Law in the Federation of Bosnia and Herzegovina will become effective as of 5 March 2016 introducing withholding tax on corporate bonds income and on trading with shares for the non-resident legal entities.