Category: Bosnia and Herzegovina

Sajic has successfully represented the interests of Daniel Bubalo before the Supreme Court of the Federation of Bosnia and Herzegovina in a real estate dispute.

According to Sajic, “by the judgment of the Supreme Court of the Federation of Bosnia and Herzegovina, the review/appeal of the defendant, [gift recipient Bubalo] was adopted.”

The proceedings “related to the judgment of the Cantonal Court in Siroki Brijeg and the Municipal Court in Ljubuski” in a case where the “plaintiff requested the determination of the nullity of the real-estate gift contract due to the fact that the gift recipient’s attorney did not possess the power of attorney issued in the legally prescribed form.”

The Sajic team included Attorney at Law Zeljko Vlacic.

By an increasing development of digital technologies, and especially following the recent COVID-19 global pandemic, many employers in Bosnia and Herzegovina have started to implement remote working in their work regime. Depending on the needs of their businesses, some employers have implemented a hybrid regime (i.e., a combination of work from the employer’s premises and remote work), while some have completely switched to remote work regime. Generally, remote work in B&H is attractive for employers, due to cost cutting (e.g. lower lease fees, lower utility costs), but also due to higher employee satisfaction as it supports work-life balance.

Bosnia and Herzegovina has ratified the Home Work Convention (i.e., Convention no. 177) of the International Labour Organization, and as a result, both entity Labour Laws (in the Federation of B&H and in Republika Srpska) regulate the institute of “work outside of the employer’s business premises”. However, to legally implement remote work in B&H, requires navigating through a complex legal framework (e.g. differentiation between remote work, field work, business trip, secondment, etc., preparation of a work schedule that complies with law provisions, etc.), and following some important steps (e.g. alignment of employer’s general acts (if any) and individual acts, compliance with occupational safety and health regulations, etc.). In further text, I will address some of the remote work characteristics that should be considered and reminded of.

Additional mandatory elements of a remote work employment contract

Both laws (Art. 26 (2) of the Labour Law of the FB&H and Art. 44 (3) of the Labour Law of Republika Srpska) regulate additional mandatory elements that such contract should have, such as: working conditions and the manner of supervising an employee; using the employee’s equipment and respective remuneration*; remuneration* of other work expenses and the manner of their determination, etc.

*Remuneration of expenses is mandatory for remote working employees, but since the Labour Law does not regulate minimum or maximum amount, it is up to contracting parties to agree on the amount. With regards to tax treatment of remunerations linked to remote work, they are not tax exempt, meaning they share the tax treatment of the employee’s salary. On the other hand, the payment of travel and meal allowance (up to maximum nontaxable amount – FB&H) should be re-considered if the employee is working remotely.

Hybrid work regime

The Federal Ministry of Labour and Social Policy has published an opinion that employment contract can, at the same time, regulate that the employee’s place of work is at the employer’s premises and outside of the employer’s premises, provided that such contract also contains additional mandatory provisions for remote work contracts. In other words, “hybrid” work regime can be covered in an employment contract.

Of course, employers are obliged to keep their records on employee attendance, pursuant to the applicable rulebook, so that they reflect the actual attendance at work and remote work.

Occupational health and safety

Remote work can be agreed only for works that are not considered hazardous or detrimental to the health of the employee or other persons, and do not threaten working environment.

It is hereby important to remind employers on occupational health and safety requirements, since all employers are obliged to render an internal act on occupational health and safety, based on previously conducted assessment of risks, as regulated in the Law on Occupational Health and Safety. 

Also, the employee’s home or other place of remote work from where the employee works under indirect employer’s supervision, is considered a place of work in sense of provisions of the Law on Occupational Health and Safety. This means that the employer is required to provide the same occupational health and safety measures as if the employee has been working from the employer’s premises.

Specific provisions in Republika Srpska

The Labour Law of Republika Srpska, unlike the Labour Law of the Federation of B&H, with respect to remote work, regulates also the following:

• The employer is obliged to register remote work contracts with the competent authority (local self-government unit).
• The employee conducts their remote work in the name and on behalf of the employer, alone or together with their close family members. Since this provision lacks clarity, it is important to regulate confidentiality in an adequate manner; otherwise, close family members could have access to confidential information disclosed to the employee working remotely.

Digital nomads in Bosnia and Herzegovina

The Law on Foreigners of B&H has been recently amended and introduced the following novelty for so called digital nomads:

• Foreigners who work remotely for their foreign employers, or for their own companies registered abroad, provided that they do not provide services to local employers and that they have a regulated stay based on visa or non-visa regime, can work remotely in B&H without work permit up to 90 days within a 180-day period, by obtaining a work certificate at the Service for Foreigners’ Affairs.

In other words, digital nomads can work remotely in B&H up to 90 days within a 180-day period, under above stated conditions.

Key takeaways from this Article:

• Implementing remote work (fully or partially) in an organization, requires following some mandatory steps, such as concluding an employment contract with additional mandatory elements, registration of such contract (Republika Srpska), and compliance with occupational health and safety requirements.
• Employees who work remotely are entitled to additional remunerations linked to remote work.
• Foreigners can also remotely work in B&H without obtaining a work permit, up to 90 days in a 180-day period, under conditions regulated in the Law on Foreigners.

Many employers implement remote work in practice, but have not regulated the respective matter in their internal acts. It is strongly recommendable to act pursuant to law provisions, since there are numerous risks linked to remote work, that can be mitigated by its proper regulation.

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Disclaimer

The purpose of the materials and information provided herein is to provide general information on a topic or topics. These materials do not represent an exhaustive elaboration of these topics. Accordingly, the information in the material does not constitute legal advice.

This information is not intended as the sole basis for decisions that may affect you or your business. Before making any decision or taking any action, be sure to seek the advice from a qualified professional.

By Aida Hamur, Attorney at Law, Legal Partners

Schoenherr, working with Walder Wyss and the Law Office of Loren Richards, has advised Raiffeisen Bank International on its EUR 31 million project financing to borrower Energy Financing Team SE Bileca to develop a 60-megawatt solar power plant in Republika Srpska, Bosnia and Herzegovina.

According to Schoenherr, the borrower estimates 103 gigawatt-hours of energy will be produced in the first year of the power plant’s operation, with an annual carbon dioxide reduction of approximately 100,000 tons, when compared to electricity produced in coal-fired power plants. “This green energy loan project thus plays a crucial role in increasing the use of renewable energy in Bosnia and Herzegovina while having a minimal impact on the environment.”

The Energy Financing Team SE Bileca is part of the EFT Group, a player in power trading and investment in Central and Southeast Europe already delivering energy across 20 countries.

The Schoenherr team was led by Partners Martin Ebner, Matija Vojnovic, and Jelena Arsic and included Attorneys at Law Minela Sehovic, Vladimir Markus, and Mate Kovacs and Associates Marko Kostic and Nikolaus Muellner.

Bosnia and Herzegovina (B&H) is located in the so-called “Western Balkans” region, borders the EU, and has an area of 51,209 km2. Its highly favorable geographical location for harnessing energy potentials has positioned B&H as the only country in the surrounding area with a significant surplus in exporting electrical energy. The water potential is represented by a large number of rivers suitable for building hydroelectric power plants, and substantial potential exists in the areas of wind energy (due to the position of the Dinaric mountain range) and solar energy (averaging over 2000 sunny hours per year).

Currently, B&H has three operational wind parks, as well as numerous hydroelectric and solar power plants. However, in recent years there has been a significant increase in the development and construction of renewable energy facilities. According to data from the Independent System Operator of Bosnia and Herzegovina (NOS B&H), the issuance of 11,000 MW of pre-consent approvals for connection to the transmission grid for RES facilities are currently in the process.

1. From the perspective of EU Energy law: B&H is part of the European Transmission System Operators (ENTSO) and has concluded the “Energy Community Treaty” with the EU in 2006 – which represents the foundation for one of the largest electricity markets globally. In addition to this Treaty, B&H consistently adopts EU directives on energy and environmental protection within its legislation (e.g., (i) Regulation (EU) 2019/943 on the internal electricity market, (ii) Regulation (EU) 2016/1447 on establishing network codes, etc.).
2. From the perspective of investment and tax law: B&H has a well-regulated legal system with clear provisions regarding investment and investor rights protection. The key regulation is the Law on Foreign Direct Investment Policy (“Official Gazette of B&H,” No. 4/1998, 17/1998, 13/2003, 48/2010, and 22/2015), defining fundamental concepts of investment and reinvestment of profits, equalizing the rights of foreign investors with those of domestic residents. Furthermore, B&H boasts one of the lowest corporate income tax rates at 10% and the lowest VAT rate at 17%. Import of goods for investment in production is exempt from customs duties. Establishing a company in B&H is straightforward and typically takes around 1 month. A company can be founded by domestic or foreign legal or natural persons, and for the development and construction of renewable energy projects, a limited liability company (LLC) is usually established.
3. Feasibility assessments of investments and initial legal analyses: During the development and construction of renewable energy projects, a business plan is generally created to assess investment feasibility (e.g., the average investment cost for developing and building a solar power plant is approximately 700,000-900,000 EUR per MW, depending on location, equipment type, and land development requirements). The average development time from the project initiation to the “ready to build (RTB)” phase is around 9-12 months for solar plants and 18-24 months for wind farms. In the case of “greenfield projects”, three fundamental elements are examined: the possibility for construction according to spatial planning, regulation of land – property rights, and connection to the electrical grid. If an existing RES project is purchased, it can be done through “share purchase” or “asset purchase.” Before purchasing, a detailed legal, financial, and technical analysis of the project is typically conducted. The transfer of shares or permits requires previous approval from relevant authorities.
4. Permit timelines for the development and construction of renewable energy projects: Due to the legal and political structure, permits for the development of RES facilities are obtained at the B&H level, and/or at the level of the two entities (Federation of B&H and Republika Srpska) and the district (Brčko District B&H), depending on the project location.

Below is a basic overview of permits at all levels in B&H.

No.	FB&H	RS	BD B&H
1.	Concession – representing the right to conduct a specific economic activity using natural resources or public goods, or to engage in activities of general interest. Typically granted for a period of 30 to 50 years.	Concession – Regulated in the same manner as in the Federation of Bosnia and Herzegovina (FB&H)	Concession – Regulated in the same manner as in the Federation of Bosnia and Herzegovina (FB&H)
2.	Regulation of Ownership Relations on Project Land – The construction can be on the state land plots (on the basis of a concession) and/or on private land plots (on which the investor has ownership or a long-term lease)	Regulation of Ownership Relations on Project Land – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).	Regulation of Ownership Relations on Project Land – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
3.	Water acts – Depending on the type of facility, the competent authority decides on the need to obtain water acts.	Water acts – Depending on the type of facility, the competent authority decides on the need to obtain water acts.	Water acts – Depending on the type of facility, the competent authority decides on the need to obtain water acts.
4.	Registration in the registry of Renewable Energy Register – in the testing phase.	Registration in the registry of Renewable Energy Register – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).	Registration in the registry of Renewable Energy Register – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
5.	Preliminary Approval for Connection – for connection to the transmission grid or Preliminary Electro-Energy Approval for connection to the distribution grid.	Preliminary Approval for Connection – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).	Preliminary Approval for Connection – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
6.	Environmental Impact Assessment or Environmental Permit for specific RES facilities. (the competent Ministry decides whether environmental acts are needed)	Preliminary Environmental Impact Assessment or Environmental Permit, the application process is similar to FB&H, with the distinction that the environmental permit is obtained after Location Conditions.	Registration in the Renewable Energy Projects Registry – Regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
7.	Location Permit – represents the fundamental document from the perspective of spatial planning.	Location Permit – represents the fundamental document from the perspective of spatial planning.	Location Permit – represents the fundamental document from the perspective of spatial planning.
8.	Connection Conditions to the transmission grid – determined based on the Connection Elaborate.	Connection Conditions to the transmission grid – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).   Electro-Energy Approval for facilities connecting to the distribution grid.	Connection Conditions to the transmission grid – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).   Electro-Energy Approval for facilities connecting to the distribution grid – regulated identically as in Republic of Srpska (RS).
9.	Energy permit for facilities exceeding 1 MW.	–	–
10.	Building permit	Building permit	Building permit
11.	Registration in the registry of Renewable Energy Register – during the construction.	Registration in the registry of Renewable Energy Register – during the construction – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).	Registration in the registry of Renewable Energy Register – during the construction – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
12.	Electro-Energy Approval for facilities connecting to the distribution grid.	–	–
13.	Connection Agreement to the transmission grid or Connection Agreement to the distribution grid. (depending on which grid the project is connected)	Connection Agreement to the transmission grid or Connection Agreement to the distribution grid – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).	Connection Agreement to the transmission grid or Connection Agreement to the distribution grid – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
14.	Approvals for connection to the transmission grid.	Approvals for connection to the transmission grid – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).	Approvals for connection to the transmission grid – regulated identically as in the Federation of Bosnia and Herzegovina (FB&H).
15.	Contracts/Permits for temporary commissioning	Contracts/Permits for temporary commissioning	Contracts/Permits for temporary commissioning
16.	Use permit	Use permit	Use permit (preceded by Declaration for the connection of a power plant up to 1 MW).
17.	Registration in the Registry of Renewable Energy (OIE) Projects – for constructed facilities	Registration in the Registry of Renewable Energy (OIE) Projects – for constructed facilities	Registration in the Registry of Renewable Energy (OIE) Projects – for constructed facilities
18.	Electricity generation permit	Electricity generation permit	Electricity generation permit
19.	Status of a qualified electricity producer	Certificate for a production facility	Certificate for a production facility
20.	Power Purchase Agreement (PPA) (it’s possible to conclude a pre-contract in the earlier stages of project development, depending on the buyer’s conditions).	Power Purchase Agreement (PPA) (it’s possible to conclude a pre-contract in the earlier stages of project development, depending on the buyer’s conditions).	Power Purchase Agreement (PPA) (it’s possible to conclude a pre-contract in the earlier stages of project development, depending on the buyer’s conditions).

Investments in RES projects in Bosnia and Herzegovina have been ongoing for several years, and there is a clear and unambiguous approach to the market, investment, and investor rights protection. The Law firm “Ibrahimović&CO” successfully guides and advises domestic and international clients in RES investments, and at the beginning of 2024, it issues a detailed Investment Guide for RES facilities, practically containing identical provisions as this presentation, with detailed instructions on steps and guidance on practical circumstances that arise during the development of RES projects.

By Tomislav Tomas, Attorney at Law, Ibrahimovic & Co 

Karanovic & Partners has advised Burger King on entering the market of Bosnia and Herzegovina and the opening of its first restaurant in Sarajevo.

The Burger King Corporation is an American multinational chain of hamburger-focused fast food restaurants. The company is headquartered in Florida and was founded in 1953. It currently operates in 18,700 locations worldwide, over 99% of which are independently owned and operated.

The Karanovic & Partners team was led by Senior Associates Amina Dugum Brkanic, Lejla Ademovic, and Ferid Kapidzic.

In accordance with the Law on Foreign Direct Investment Policy in Bosnia and Herzegovina, foreign investors are guaranteed the following:

• Foreign investors have the same rights and obligations as residents of Bosnia and Herzegovina.
• Foreign investors can open bank accounts in any commercial bank in domestic or freely convertible currency.
• Foreign investors have the right to freely employ foreign nationals unless otherwise specified by the laws of B&H.
• Foreign investors have the same property rights over real estate as domestic legal entities.
• Foreign investors are protected against nationalization, expropriation, requisition, and measures with equivalent effect. Such measures can only be taken in the public interest, in accordance with applicable laws and regulations, and with payment of adequate compensation.
• Foreign investors have the right to repatriate profits resulting from their work in Bosnia and Herzegovina.
• The rights and privileges granted to foreign investors, as well as the obligations arising from the Law on Foreign Direct Investment Policy, cannot be abolished or invalidated by subsequently enacted laws and regulations. The rights and privileges granted to foreign investors, as well as the obligations arising from the Law on Foreign Direct Investment Policy, cannot be abolished or revoked upon the enactment of subsequently adopted laws and regulations.

AGREEMENTS ON THE PROTECTION OF FOREIGN INVESTMENTS

 After 2015, by signing the Stabilization and Association Agreement (SAA) between the European Union (EU) and Bosnia and Herzegovina (B&H), and in 2022, by obtaining candidate status for EU membership, Bosnia and Herzegovina is one step closer to aligning its legislative framework with EU legislation. This step has significantly increased the stability of trade and economic relations between the European Union and Bosnia and Herzegovina.

• In addition to the above, Bosnia and Herzegovina has concluded the Central European Free Trade Agreement (CEFTA) with Macedonia, Serbia, Albania, Moldova, Montenegro, and Kosovo in order to protect foreign investments and facilitate access to other European and global markets.
• Bosnia and Herzegovina has also entered into a Free Trade Agreement with the European Free Trade Association (EFTA) countries, including Switzerland, Norway, Iceland, and Liechtenstein.
• Furthermore, Bosnia and Herzegovina has signed a Free Trade Agreement with Turkey, providing access to a market of 70 million people.
• Bosnia and Herzegovina has a preferential trade system with New Zealand, Japan, Australia, and member countries of the Eurasian Economic Union.

Bosnia and Herzegovina applies Agreements on Promotion and Reciprocal Protection of Investments with: Albania, Austria, Belgium, Luxembourg, Belarus, Czech Republic, Denmark, Egypt, Finland, France, Greece, Croatia, Netherlands, Iran, Italy, Jordan, Canada, Qatar, China, Kuwait, Lithuania, Hungary, North Macedonia, Malaysia, Moldova, Germany, Pakistan, Portugal, Romania, USA, San Marino, Slovakia, Slovenia, Serbia, Spain, Switzerland, Sweden, Turkey, United Kingdom, and Ukraine.

Considering the aforementioned relationships that Bosnia and Herzegovina maintains with other countries, establishing a company in B&H represents an opportunity for exporting to a market of nearly 600 million people without paying customs duties.

CUSTOMS BENEFITS

Foreign investments will be exempt from paying customs duties and obligations, except for passenger vehicles, entertainment machines, and gambling devices.

Imported production equipment that is not produced in Bosnia and Herzegovina, and is imported for new or expanded production, production modernization, introduction of new or upgraded production technology directly related to production activities, is exempt from paying import customs duties.

Production assets and other equipment belonging to a company that definitively ceases its activities in another country and relocates to the customs territory of Bosnia and Herzegovina to engage in similar activities are exempt from paying import customs duties.

FREE ZONES

Currently, there are four free zones in Bosnia and Herzegovina: “Visoko” LLC – Visoko, “Vogošća” LLC – Vogošća, “Hercegovina” LLC – Mostar, and “Holc” LLC – Puračić (near Lukavac).

According to the Law on Free Zones of Bosnia and Herzegovina, a free zone can be established by one or more domestic or foreign legal and natural persons registered in Bosnia and Herzegovina.

The following are the fiscal benefits of a free zone:

• Free zone users are exempt from paying VAT and import duties on equipment used for production.
• Investments in free zones, profit transfers, and investment transfers are also free.
• Establishing a free zone is economically justified if, based on the submitted economic feasibility study of establishing the free zone, it can be assessed that the value of goods exported from the free zone will exceed at least 50% of the total value of produced goods leaving the free zone within a 12-month period.
• Exemption from paying VAT for the use of goods (excluding energy sources such as electricity, gas, etc.) in free zones, which are used for production and/or further trade of goods intended for export from Bosnia and Herzegovina.
• Exemption from paying VAT on equipment, facilities, and tools used in free zones for the production and/or further trade of goods intended for export from Bosnia and Herzegovina.
• Exemption from paying VAT for all services provided to free zone users directly related to the introduction of goods into free zones and the construction of facilities for conducting activities in free zones.

By Leila Salijevic, Attorney at Law, and Marija Plavsic, Business Development Manager, Ibrahimovic & Co 

Bosnia & Herzegovina has experienced a major government change leading to a focus on aligning with the EU, while a significant human rights ruling challenges the country’s ethnic-based voting system – potentially triggering constitutional reform and reshaping its political landscape – according to ODI Law Partner Mia Civic.

“A change in government has taken place following the latest elections,” Civic begins. “A new coalition has assumed power, and their initial focus has been on adopting laws to align with the EU stabilization agreement. This marks a crucial milestone, especially considering that progress in this regard has stagnated for the past years.”

According to Civic, this encompasses a series of new laws. “One such law is the Freedom of Access to Information Act, which holds immense importance as Bosnia & Herzegovina was previously criticized for its limited transparency. With this legislation, citizens now enjoy unrestricted access to information held within national institutions. While this Act existed before, it has now been harmonized with international and European standards.”

Additionally, Civic highlights the new law on aliens, which addresses migration issues and holds relevance for EU compliance. “Amendments have also been introduced to the law on the Ombudsman for human rights, expanding their powers,” she notes. “Furthermore, there have been efforts to enhance the operations of the High Judicial and Prosecutor’s Council of Bosnia & Herzegovina. These developments collectively make for a significant shift in the country’s governance and legislative landscape.”

“At the national level, Bosnia & Herzegovina has also taken steps to improve its business environment, which involves raising the threshold for VAT payers from BAM 50,000 to 100,000,” Civic continues. “Businesses often reached the lower threshold quickly, so this change is beneficial and results in reduced administrative burden and costs. However, it’s worth noting that the suggestion to allow businesses to pay VAT at the end of the month was not accepted, meaning they are still required to remit VAT regardless of whether they have received payment for their invoices. There was an opportunity to rectify this situation, but it was sadly not pursued, due to potential stability of the state concerns from the Republika Srpska side.”

“Additionally, a landmark human rights decision came from the European Court of Human Rights in the case of Kovacevic v. Bosnia and Herzegovina,” Civic says. “The court ruled that there had been a violation of Article 1 of Protocol 12 of the ECHR, which pertains to the general prohibition of discrimination. Consequently, the decision deemed our general voting system, which is based on ethnic factors, to be discriminatory.”

“At present, the voting system operates along ethnic lines, with Republika Srpska citizens voting for Republika Srpska delegates and the same in the Federation. Implementing this verdict would necessitate seismic changes, including constitutional reform,” Civic explains. Furthermore, garnering support for these changes is crucial, she says, “since the Dayton Peace Agreement has become one of the basic obstacles in the functioning of modern Bosnia & Herzegovina and its way towards Euro-Atlantic integration. This development may bolster the efforts of those advocating for establishing an actual constitution, and numerous aspects of the current system could undergo transformation.”

“Bosnia & Herzegovina’s ongoing legal reforms and commitment to aligning with EU directives demonstrate the country’s overall dedication to promoting transparency, economic growth, and human rights,” Civic concludes.

Critical legislative occurrences in Bosnia & Herzegovina – primarily focusing on the Constitutional Court, the electricity sector, as well as e-money – are the talk of the town, according to Dimitrijevic & Partners Partner Nina Vjestica.

“The passing of the Law on the Non-Application of Decisions of the Constitutional Court marks a watershed moment in Bosnia and Herzegovina’s legal history,” Vjestica begins. “This law stipulates that decisions emanating from the Bosnia & Herzegovina Constitutional Court will remain inapplicable within the confines of Republika Srpska until the Parliamentary Assembly of Bosnia & Herzegovina enacts a new law governing the operations of the Bosnia & Herzegovina Constitutional Court.” This move, designed to shield individuals who refuse to comply with the court’s decisions from criminal liability, sets in motion a legal and political domino effect, Vjestica reports.

Consequently, High Representative Christian Schmidt intervened and introduced a new layer of complexity to the situation. “His decision to annul the laws passed by the National Assembly has recalibrated the balance of power,” Vjestica reports. “Furthermore, Schmidt’s alterations to the Criminal Code now deem actions that infringe upon the constitutional order of the state as criminal offenses. However, the ruling coalition in Republika Srpska contends that Schmidt’s authority is compromised due to his appointment not being endorsed by the UN Security Council, casting doubt on his legitimacy,” she explains.

In addition, Vjestica reports that the “Assembly pushed the new law after the court changed its quorum regulations which were prescribing mandatory postponement of the session in case at least three judges who were elected by the House of Representatives of the Parliament of the Federation of Bosnia and Herzegovina and at least one judge who was elected by the National Assembly of Republika Srpska are not present.” And finally, she points out that “aside from its political effect, the legal effect of this law should be analyzed in detail, especially having in mind that the Constitutional Court has appellate jurisdiction over issues under the BiH Constitution arising out of a judgment of any court in Bosnia and Herzegovina.”

On a separate topic, Vjestica reports that a new Law on Electricity of the Federation of Bosnia and Herzegovina entered into force in August. “The enactment of the law signifies Bosnia and Herzegovina’s continued alignment with the Energy Community. This law propels the nation’s trajectory towards electricity market liberalization and cleaner energy practices,” she says. “By incorporating elements of the EU’s legal framework, the nation is taking measured steps towards a sustainable energy future.”

In addition, Vjestica highlights Bosnia and Herzegovina’s nascent fintech sphere gradually catching up with global trends – a new draft Law on Electronic Money in Republika Srpska is in the works. “Bearing in mind that the issuance of electronic money represents a new financial service on the domestic market, the draft proposes appropriate qualitative requirements regarding the ownership and management structure of companies that intend to engage in this activity,” she shares. Still, according to her, “in addition to security and privacy concerns, various legal risks could arise from violating this law which can include money laundering, privacy protection, etc.”

Finally, Vjestica reports that the “surge in foreign direct investments in 2022, totaling BAM 1.44 billion, is a beacon of promise. A major part of FDI growth is attributed predominantly to the reinvested earnings of existing foreign-affiliated enterprises,” she says. According to her, “noteworthy investments span various sectors, including electricity production, financial services, and base metal manufacturing.” In conclusion, Vjestica stresses that the country’s banking sector is “liquid, duly capitalized, and profitable, among others driven by improved management of non-performing loans – all of which bolsters investor confidence.”

A brief overview of value added tax and direct tax in Bosnia and Herzegovina, including specifics for direct tax in Federation of B&H, Republic of Srpska, and Brcko District of Bosnia and Herzegovina.

VALUE ADDED TAX (VAT)

The Value Added Tax Law provides for exemptions from paying VAT for certain transactions within specific activities listed in Articles 24 to 30 of the Law. Some of these include:

• Activities in the public interest.
• Insurance and reinsurance services, real estate transactions (excluding the first transfer of ownership or disposal rights of newly constructed real estate), leasing and subleasing of residential houses, apartments, and residential buildings for a period longer than 60 days, as well as leasing of agricultural and forest land registered in the land registers, financial services, stock trading, and management of investment funds.
• Final import of goods, where any subsequent transaction by the taxpayer would be exempt from VAT in Bosnia and Herzegovina, as well as goods exempt from customs duties, and services related to the import of goods.

It should be emphasized that this section of the Value Added Tax Law also includes taxation at a zero rate, for example, in terms of the export of goods from Bosnia and Herzegovina by or on behalf of the seller, the provision of services, including transportation and other ancillary services directly related to the export or import of goods. 

According to the regulations in Bosnia and Herzegovina, a VAT taxpayer is entitled to deduct the VAT that they are required to pay or have paid when purchasing goods or services from another taxpayer or upon importation of goods, provided that they use those goods or services for the supply of goods and services subject to VAT payment.

The VAT rate in Bosnia and Herzegovina is uniform and amounts to 17%.

The taxpayer may exercise the right to deduct input tax for the supply of goods and services made abroad, provided that the right to deduct input tax would exist if such supply were made in Bosnia and Herzegovina.

DIRECT TAXES

The application of regulations on direct taxes in Bosnia and Herzegovina (income tax and profit tax) depends on the place of business activity. Accordingly, direct taxes in Bosnia and Herzegovina are regulated at three levels – the Federation of Bosnia and Herzegovina, the Republic of Srpska, and the Brcko District of Bosnia and Herzegovina. The tax rate for profit or income tax is 10%.

Federation of B&H

Article 36 of the Corporate Income Tax Law introduces the possibility of the following incentives:

The taxpayer has the right to a reduction of profit tax payment based on investments made, subject to specific conditions listed exhaustively in the following paragraphs.

• The taxpayer who invests from their own funds in production equipment worth more than 50% of the current tax period’s profit is entitled to a 30% reduction of the calculated profit tax liability in the year of investment. Investing in production equipment refers to the purchase of fixed assets, including plants and equipment (excluding passenger vehicles), which the taxpayer purchases with their own funds for the purpose of conducting production activities. 
• The taxpayer who, over a period of five consecutive years, invests from their own funds a total amount of 20 million KM, with an initial investment of 4 million KM in the first year, is entitled to a 50% reduction of the calculated profit tax liability in the years of investment. Investing refers to investments in fixed assets, including real estate, plants, and equipment (excluding residential units and passenger vehicles), which the taxpayer will use for the purpose of conducting production activities.

Furthermore, the Corporate Income Tax Law has provided that the taxpayer has the right to a tax-deductible expense in the amount of double the gross salary paid to newly hired employees.

Withholding tax is calculated and settled based on:

1. dividends or profit distributions;
2. interest or its functional equivalent on financial instruments and arrangements;
3. royalties and other intellectual property rights;
4. fees for managerial, technical, and educational services (including fees for research, market consulting, auditing, and consulting services);
5. rental fees for movable and immovable property leasing;
6. fees for entertainment and sports events;
7. insurance premiums for insurance or reinsurance against risks in the Federation;
8. fees for telecommunication services;
9. other service fees, but only for non-residents from countries with which no double taxation agreement is signed.

The following are not subject to withholding tax:

1. interest on loans provided by suppliers for the purchase of equipment for production activities;
2. interest on government bonds;
3. reinsurance premiums against risks in the Federation paid by a reinsurer authorized by the supervisory authority.
4. Withholding tax is paid at a rate of 10%, unless a different amount is agreed upon in a double taxation agreement concluded between B&H and the relevant country.

Real estate transfer tax is paid at a rate of 5%.

Republic of Srpska

According to the Corporate Income Tax Law, a taxpayer who makes an investment in equipment and facilities for conducting registered production activities within the territory of Republic of Srpska is entitled to a reduction of the tax base by the value of the investment made.

Withholding tax is paid on the following income payments to non-residents:

1. dividends and profit shares,
2. interest,
3. remuneration for copyright and related rights, and intellectual property rights (rights to reproduce literary, artistic, scientific, and cinematographic works, patents, licenses, rights to use names, designs, models, trademarks, drafts, plans, and other similar rights),
4. for performing entertainment, recreational, artistic, or sports programs in Republic of Srpska,
5. for professional, scientific, technical, and educational services (market research, advertising and promotion, management, consulting, tax and business advisory, auditing, accounting, legal services, education, and other similar services),
6. insurance premiums for insurance or reinsurance against risks in Republic of Srpska,
7. for telecommunication services between Republic of Srpska and a foreign country, and
8. for the lease of movable property.

 Withholding tax is not paid on:

• Profits returned to a non-resident country related to their permanent establishment in Republika Srpska, where profits returned to the country refer to the remaining profit of the non-resident after paying the profit tax in Republika Srpska.
• Interest on loans and credits obtained from a legal entity in Republika Srpska and the permanent establishment of a non-resident in Republika Srpska for investments in equipment and facilities as defined in Article 26 of this law.
• Income in the form of interest or its functional equivalent on debt securities issued by Republika Srpska or a local self-government unit within its composition.

Withholding tax is paid at a rate of 10%, unless otherwise agreed upon in a double taxation avoidance agreement concluded between Bosnia and Herzegovina and the relevant country.

In Republic of Srpska, there is an obligation to pay property tax at a rate of 0.20%. However, an exception applies to properties where direct production activities are conducted, with a tax rate of up to 0.10%.

Brcko District of Bosnia and Herzegovina

The Brcko District of Bosnia and Herzegovina has its own tax system (excluding indirect taxes such as VAT at 17%) with the following specificities:

• There is no property transfer tax.
• The property tax rate is 0.05% of the assessed value and is paid annually.
• The corporate income tax rate is 10%.

Tax incentives for legal entities are provided in the Law on Corporate Income Tax and summarized in the following provisions:

• Tax exemption based on the share of export income in the total income. The taxpayer who has achieved a certain percentage of export income in the taxable year is exempt from paying corporate income tax on the base consisting of the determined profit, proportionally to the share of export income in the total income. This exemption applies cumulatively if the taxpayer is headquartered in the Brcko District of Bosnia and Herzegovina and is predominantly engaged in production (excluding profits derived from export of services and intangible assets).
• Deduction of the tax base, up to a maximum of 50% of the taxable base, for the amount of investment made in land, buildings, equipment, furniture, and transportation means for conducting own activities within the district.
• Deduction of the tax base in the amount of gross salaries paid to newly employed workers, as an incentive measure for employment by the taxpayer who has hired new permanent employees during the tax year.
• Possibility of submitting consolidated tax returns without time limitation.

In all three mentioned tax systems, there is a possibility of submitting a consolidated tax return, which entails submitting tax consolidation for the parent company and its subsidiary companies. In the consolidated tax balance sheet, the losses of one or more companies can be offset against the profits of other companies within the group. Once tax consolidation is approved, it is applied for a minimum of five years.

When determining the tax base, the calculated depreciation using the proportional method of depreciation is recognized for long-term assets and assets under the right of use. The tax-recognized depreciation rates for long-term assets are specifically listed in the Laws on Corporate Income Tax.

By Leila Salijevic, Attorney at Law, and Marija Plavsic, Business Development Manager, Ibrahimovic & Co 

Legislative updates across the board in Bosnia & Herzegovina – with talks of criminalizing defamation, introducing electronic money, and overhauling the renewable energy framework – keep lawyers talking, according to Nikolina Bajic, Attorney at Law in cooperation with BDK Advokati.

“A contentious debate is brewing in Republika Srpska that could have far-reaching implications for all Bosnia & Herzegovina, centering on the issue of defamation,” Bajic begins. “In a surprising move in March, the RS government proposed that defamation should once again be treated as a criminal offense, reversing the significant progress made in 2003 when it was decriminalized.” Specifically, Bajic reports that four new criminal offenses including “insult, defamation, disclosure of personal and family information, and public humiliation based on race, religion, or nationality are being discussed. The penalties associated with these offenses are notably steep.”

Bajic adds that these proposed amendments are an alarming blow to the freedom of expression in RS, “especially considering the already substantial pressure exerted by the government on the media. Lawyers, media professionals, and politicians are engaged in heated debates, recognizing the threat this poses to the fundamental right of free speech,” she says, noting the EU has expressed its strong disapproval of these developments.

“The Minister of Justice has promised to take some suggestions from the public debates into account, although it remains unclear which suggestions will be considered and to what extent they will influence the final decision,” Bajic continues. “If the intention is truly to take a legislative step back, it is crucial that it be done thoughtfully and not through heavy-handed measures. Especially so with citizens being increasingly prepared to voice their concerns and objections, buoyed by recent regional events that have inspired a heightened sense of activism.”

Another interesting legislative development in Republika Srpska, according to Bajic, is that “in a move to keep pace with the rapid growth of modern financial services, the government is set to pass a law on electronic money, a concept yet to be embraced in Bosnia & Herzegovina.” Although still in the draft stage, this legislation aims to establish a framework for the issuance of electronic money for banks and microcredit organizations throughout the country. “The draft also introduced specialized companies that will be authorized to issue electronic money,” Bajic notes.

However, as this groundbreaking legislation approaches implementation, questions arose regarding the country’s “preparedness for such a significant shift. Bosnia & Herzegovina is still grappling with e-document and e-signature challenges, making the introduction of electronic money an additional hurdle to overcome,” Bajic opines. “The operational capacity necessary to support this new financial landscape remains a concern, and devising a functional framework for its seamless operation could be a daunting task.”

Finally, Bajic reports that, after a while, the “Federation has formed a new government. One of the first items on its agenda is an update of the renewable energy framework.” This change comes after the adoption of a progressive law on renewable energy by RS in 2022, which left the “Federation reliant on an outdated 2014 law. The proposal includes a fresh framework and improved technical infrastructure designed to support the development of renewable energy sources as well as an overhauled incentive system ensuring the equitable allocation of incentives for both small and large producers,” Bajic explains. “With the potential to reduce carbon emissions, enhance energy efficiency, and contribute to a greener future, the pending renewable energy law holds considerable importance in the Federation’s transition towards a more sustainable energy system,” she concludes.