Ministry of Finance of Federation of BiH has adopted the Rulebook on implementation of the Corporate Income Tax Law in FbiH which will come into force on 17 November 2016. The Corporate Income Tax Law in FBiH came into force on 01 March 2016.
The new rulebook clarifies the application of withholding tax (WHT) with respect to share trading which is set at the rate of 10% on income received by foreign legal entities.
According to the rulebook, withholding tax will be applied to the difference between the selling price and the purchase value. Transactions between related legal entities, where the selling price is lower then market price, WHT will be applied to the difference between the market value and the purchase value. The purchase value represents weighted arithmetic average of all purchases.
According to the Corporate Income Tax Law, non-resident legal entities (receivers of the income) or its representatives are required to calculate, withhold and report the tax within 30 days.
Application of Double Tax Treaties
The Rulebook prescribes documentation requirements for tax relief at source whereas the corresponding Double Tax Treaty stipulates application of lower rates or exemption from WHT on dividends, interests from corporate bonds and income from trading with shares received by non-resident legal entities.
In order to exercise their rights stated in DTTs, foreign institutional investors are required to provide the professional intermediary with a Certificate of Tax Residence (not older than one year), statement of beneficial ownership of the shares and a signed and stamped declaration for purposes of tax relief at source, which is prescribed by the Rulebook.
Impact on investors: Rulebook on implementation of Corporate Income Tax clarifies withholding tax with respect to securities trading, applicable to non-resident legal entities and tax relief at source.