The Parliament of Republic of Srpska (RS) has adopted the new Law on Corporate Income Tax, which will become effective as of 1 January 2016.
The most important changes are as follows:
Introduction of the Withholding Tax:
- Withholding Tax at the rate of 5% will be applied to dividend income received by non-resident legal entities, unless otherwise specified by the relevant Double Tax Treaty.
- Withholding Tax at the rate of 10% will be applied to interest income received by non-resident legal entities, unless otherwise specified by the relevant Double Tax Treaty. Interest income from government bonds issued by Republic of Srpska and local self-governments in RS are tax exempt.
- Issuers are required to calculate, withhold and pay the tax, as well as submit the annual tax declaration.
- Issuers are not allowed to make dividend payment prior to settling their tax liabilities.
Application of Double Tax Treaties (DTT)
- Withholding tax rates may not exceed the rates specified by the applicable DTT. In order to exercise the rights to the application of lower tax rates or tax relief, foreign investors are required to provide the issuer with proof of eligibility. The relevant Ministry will adopt the Rule Book on conditions and methods of exercising the tax relief rights within 90 days after the new law comes into force.
Impact on investors: The new Law on Corporate Income Tax of Republic of Srpska, which becomes effective as of 1 January 2016, introduces withholding tax on dividends and corporate bonds income for non-resident legal entities.