FOREIGN TRADE & INVESTMENT LEGISLATION GUIDE Excerpts from major laws and regulations governing business activities in Bosnia and Herzegovina
Having accepted the principles of the free market economy, Bosnia and Herzegovina is taking an active part in the global economic integration process. Significant social and economic reforms undertaken in this regard have resulted in signing the Agreement on Stabilisation and Accession with the European Union. The time has now come for Bosnia and Herzegovina to shift from the phase of post-war stabilisation to the phase of prosperity. During the past decade, thousands of new private companies have been established. The privatisation process is taking place. A stable currency pegged to the Euro, low inflation, as well as the liberalisation of regional trade relations, make the economy of Bosnia and Herzegovina a prospective business partner for many countries. In the following excerpts from the laws and regulations, the Foreign Trade Chamber of Bosnia and Herzegovina aims to highlight the most important legal aspects of the business environment in B&H, in order to assist both existing and potential business partners abroad.
The Law on foreign trade policy (hereinafter referred to as “the Law”) is pursuant to the Constitution of Bosnia and Herzegovina which defines the competencies of the state in matters of foreign trade policy. Bosnia and Herzegovina authorities have responsibility for determining foreign trade policy in collaboration with the respective entity authorities. Unilateral measures and treaties with third countries in relation to foreign trade, fall within the competence of the Bosnia and Herzegovina institutions. The entities have a duty to ensure that the requirements of the Law are implemented and may not pass measures which could endanger the achievement of the Law’s stated objectives. The Council of Ministers of Bosnia and Herzegovina may prohibit or restrict import, export or transit of particular goods in order to protect the environment, human lives and health, as well as the national wealth and industrial property. The Law comprises and regulates basic elements within the system of export and import of goods and services, and sets conditions for economic activities abroad and activities of foreign natural and legal persons in Bosnia and Herzegovina. The export and import of goods and services are free. However prohibitions or restrictions in justified situations defined by the Law are not excluded. In the trade of goods and services, foreign legal and natural persons benefit from the same treatment as domestic residents. Imported goods must conform to standards (including the standards set forth by the entities), attestations, technical and quality norms and are subject to the sanitary, veterinary, phyto-sanitary and ecological controls prescribed for particular types of goods. The Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina provides, with regard to the needs of the entities, the required number of bilateral and multilateral licenses, quotas, conditions and exceptions, which are allowed by international treaties. In accordance with customs regulations and the regulations on foreign investments, the Law on Foreign Trade Policy covers the following subjects: • export and import regimes, • temporary export and import of goods, • export and import of goods without payment, • export and import regimes in free zones, • international trade in services, • long-term production cooperation, • compensation deals, • lease of equipment, • aspects of the intellectual property rights, • protection measures. Long-term production cooperation between a domestic and foreign legal person refers to activities of development, production and mutual supply of products and components. The long-term contractual relationship is concluded for a period of at least three years. An enterprise or other legal person registered for performing foreign trade transactions may, by means of a contract on compensation deals, export the goods and services, the payment for which is effected by import of goods or services. Register of such contracts is kept with the Ministry of Trade of the entities. Services of foreign natural and legal persons in B&H are subject to taxation and regulations under identical conditions as apply to the same or similar services performed by domestic natural and legal persons. Foreign legal persons may perform services provided that they meet the requirements and enter the Register as legal persons with a head office in B&H. As set forth by the regulations of the Council of Ministers of B&H, domestic legal persons may, with the consent of the Ministry of Trade of the entities, establish an enterprise, a representation office, a business unit, or render banking, financial, insurance and re-insurance services using their own funds in a foreign country. Aspects of the intellectual property rights and international agreements in this sphere that are related to foreign trade fall within the competence of the Bosnia and Herzegovina institutions. Those agreements are copyrights, trade marks, patents, plans, drawings etc.
Protective measures The Council of Ministers of B&H may prescribe import protection measures for a limited period if increased import is deemed to cause damage or significant impairment to the local production position. Anti-dumping protection shall be applied if the prices for imported goods are lower than the prices prevailing on the market, or if these are lower than the production costs in the country of origin or in the country of export. Such protection shall also be applied in the event that such import delays the development of a specific branch of the economy or if it threatens to cause serious damage to the economy of Bosnia and Herzegovina. Protection against subsidised imports shall be applied in the event of financial support rendered by government or another institution in the country of origin or in the country of export, provided such import causes serious damage to the economy of Bosnia and Herzegovina.
The Law on customs policy of B&H regulates the basic elements of the customs protection system, the rights and obligations of all subjects in the customs clearance procedures for goods and the collection of customs duties. The Law defines customs area, customs line, customs border strip, customs control, customs clearing procedures, as well as other aspects of customs protection. The provisions of the Law on customs policy of Bosnia and Herzegovina are applied uniformly over the whole customs area, including territorial waters, inner water streams and air space of Bosnia and Herzegovina. The Customs area of B&H is delineated by the customs line, which coincides with the state border of Bosnia and Herzegovina.
Customs regulations consist of the Law on customs policy and the laws and regulations adopted by the Parliamentary Assembly of Bosnia and Herzegovina, the Council of Ministers and /or the Managing Board for their implementation in accordance with the EU regulations.
The Indirect Taxation Administration of B&H is responsible for implementing this Law. Customs duty, being an indirect tax, is defined by the Law regarding the indirect taxation system in B&H, while payment of customs duties is regulated by the Law on Payments into the Single Account and Income Allocation.
The Customs Tariff refers to: • nomenclature of goods based on the harmonised system and the Combined nomenclature used in the EU; • customs tariffs and other import duties levied upon goods from the nomenclature; • preferential tariff measures from the agreements by which the preferential tariff procedure is approved; • special measures (that can be postponed) for certain tariff items for which the decrease of customs rates or the exemption from payment of customs duty is prescribed; • other measures foreseen by other regulations of Bosnia and Herzegovina.
Exemption from customs duty The following items are exempt from payment of customs duty:
1. Equipment being imported on the basis of a foreign person’s investment, except private motor vehicles and gambling machines; 2. Goods put in free movement for military and police forces and penitentiaries/reformatories of the entities, and which are entirely financed by the donors; 3. Goods and equipment put in free movement for the projects of rehabilitation and reconstruction in Bosnia and Herzegovina, provided the projects were approved by the Council of Ministers of Bosnia and Herzegovina and the entity governments, or in cases where the projects are entirely financed by the donors or the international development banks; 4. Products and goods listed in the Annex of the Law on Customs Policy. The Annex prescribes the cases in which the goods are exempt from customs duty, as follows: • personal passengers’ luggage, • personal property of natural persons moving their place of residence to Bosnia and Herzegovina, • personal property acquired by inheritance, • household inventory for equipping a secondary residence, • fixed assets, industrial inventory and equipment imported for the purpose of the transfer of business activity from a foreign country to Bosnia and Herzegovina, or for the purpose of termination of activities in a foreign country, • agricultural, cattle-raising, bee-keeping, horticultural and forest products grown/raised on properties of BH farmers in foreign countries, • seeds, fertilisers and products for soil treatments being imported to be used in the B&H border areas, • goods imported by the entities or humanitarian organizations to be supplied free-of-charge to the victims of accidents in B&H, • goods for benevolent and humanitarian organisations, • goods for blind and handicapped persons, • passenger cars imported by handicapped persons, • objects of minor value which are occasionally received in letters or parcels, • various documents, forms, plans, drawings, slides, etc, • goods imported for trade promotion purposes, • printed and advertising material, • products for consumption or use in trade fairs and similar events, • deliveries (trade marks, models, designs) with protected copyrights, industrial property rights, or commercial patent rights, • goods imported to be examined, analysed or tested, • honorary decorations, awards and presents, • teaching and scientific materials, instruments and appliances, • laboratory animals, biological and chemical agents intended for research, • therapeutic substances and re-agents for detection of blood groups and tissue types, • pharmaceutical products to be used in international sports events, • medicines for personal use, • goods and household appliances and other presents on the occasion of marriage of the person who thus moves his/her place of residence to B&H, • coffins with remains, urns and other objects imported in B&H for funerals, • international conventions and agreements. The conditions under which the goods are exempt from customs duties are precisely determined for each of the items listed above. Exemption from customs duties is not permitted in the case where the goods are exported from the B&H customs area to undergo outward processing, unless those goods remain in the same state as when they are exported.
The Council of Ministers of B&H has passed the Decision regarding the implementation regulations of the Law on customs policy of Bosnia and Herzegovina.
The Law on customs tariff of Bosnia and Herzegovina regulates payment of customs duties and other import duties on goods being imported, brought in or received in the customs area of Bosnia and Herzegovina. Nomenclature of the harmonised system of customs tariff is an integral part of the Law on customs tariff and is applied across the whole customs and economic area of Bosnia and Herzegovina.
Goods are classified into 21 Parts with 97 Headings on the basis of the following principles: • origin of goods (animal, vegetal, natural, artificial) • types of material (paper, textile, metal) • economic activity (agriculture, industry, etc) • level of processing (raw materials, semi-products, finished products) • use of products (consumer’s goods, reproduction material, equipment etc).
Customs rates are expressed in percentage terms and are applied on the value of imported goods (ad valorem). For certain agricultural and food industry products, customs duties are collected on the basis of value and quantity (compound tariff). The Council of Ministers of B&H may propose to the Parliamentary Assembly a decrease in customs rates (or to apply “0” customs rate) on imports of equipment, devices, apparatus, vehicles and their parts, in cases where equipment and parts produced in Bosnia and Herzegovina were used in production of the above mentioned items. The customs rates for goods originating from a country or group of countries with which Bosnia and Herzegovina has concluded Agreements with “most favorable nation” status, or which confer this status upon goods of B&H origin, are specified in Part II of the Customs Tariff.
The Law on foreign direct investment policy regulates the policy and principles related to participation of foreign investors in the economy of Bosnia and Herzegovina. Individual foreign investments should also be registered with competent state authority (Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina - hereinafter referred as MOFTER B&H). The state assures, through by-laws, that the registration documents are in compliance with international standards. The MOFTER B&H is obliged to issue a registration certificate to the foreign investor within 10 days upon the submission of the request for inclusion in the Foreign Investment Register. The entities are responsible for implementation of the Law within their respective territories.
The Types and Modes of Investments Foreign investments can be made through: • founding one’s own enterprise, • investing in an existing enterprise, • founding a joint enterprise with other partners - long-term production cooperation, technical cooperation, joint venture, etc. (Law on Foreign Trade Policy of B&H, Official Gazette of B&H, No. 7/98, 35/04), • special types of investment (concessions, BOT agreements). The foreign deposit in an enterprise dealing with production and sale of weapons, ammunition, explosives for army needs, military equipment and public information may not exceed 49% of the capital in that enterprise. For such investments, previous consent of the competent authority in the respective entity must be obtained.
Rights, Benefits and Obligations of Foreign Investors • Foreign investors have the same rights and obligations as the resident investors of Bosnia and Herzegovina; • The foreign investor has the right to invest and reinvest the returns in any sector of economy of Bosnia and Herzegovina in the same form and under the same conditions as defined for the residents of Bosnia and Herzegovina, in conformity with the current laws; • Foreign investments are exempt from payment of customs duties and customs fees (except for those levied on customs records); • Equipment which represents the foreign person’s investment (except for personal motor vehicles and gambling machines) is exempt from customs duties (Law on Customs Policy, Official Gazette of B&H, No. 21/98, 34/00); • Foreign investors have the right to open accounts denominated in the domestic or any convertible currency with the commercial banks; • Conversion of domestic currency into a convertible currency is allowed for investment-related payments; • Transfer of returns abroad is allowed if realised in the form of profit, dividends, interests and other forms of returns on investment, such as owner’s rights after a partial or total liquidation; • Taxation of foreign investors and direct investments shall be carried out in accordance with the tax legislation of the B&H entities; • Foreign investors shall have the same owner’s rights on real estate as those accorded to Bosnia and Herzegovina nationals; • Foreign investors from one of the successor states of the former SFR Yugoslavia shall have the same rights provided the rule of reciprocity is applied; • Business books and financial reports shall be kept and conducted by foreign investors in accordance with international accountancy and auditing standards and the laws of the entities. • The foreign investor must conform to the laws and regulations of Bosnia and Herzegovina. • Limitations applied to domestic investments in the domain of the public sector, public health and environment protection shall be equally applied to FDIs. • Foreign investments shall not be nationalised, expropriated or requisitioned or subjected to any such actions to the same effect, except in the public interest and in accordance with established laws and upon payment of adequate compensation according to international standards. Rights and benefits granted to foreign investors and commitments arising from the Law may not be removed or annulled by supplementary laws, unless such laws would be more favorable for foreign investors. Disputes relating to foreign investments shall be settled by the competent courts in Bosnia and Herzegovina, except in cases where the parties mutually agree to another manner of dispute resolution (arbitration, etc.).
The Law regulates conditions for the establishment, the activities which can be performed in the free zone, work, termination of work in free zones and other issues according to the Law on Customs Policy of B&H.
A Free Zone is a part of the customs area of Bosnia and Herzegovina and is managed by its founder(s). Founders of the free zone may be one or more domestic or foreign legal and natural persons. The founder must draw up a Book of Rules for performing operations within the zone. Establishment of the free zone is considered economically justified if it is estimated that the value of exported or re-exported goods from the free zone would be at least 50% of the total value of the goods produced within the free zone in a 12-month period.
Users of the free zone may be the founder and other domestic or foreign legal and natural persons. The users perform the activities under the same general conditions. The users pay taxes and other duties according to relevant legislation of the entities and the Brcko District. A free zone becomes a legal entity when entered in the court register. The Council of Ministers of B&H, at the proposal of the Ministry of Foreign Trade and Economic Relations of B&H and with approval from the entity governments or the Brcko District government, approves the establishment of the free zone. Industrial and commercial activities and services (banking, insurance, reinsurance, etc.) are performed in free zones under the conditions determined by the Law. Industrial activities are those in which products have undergone a certain level of production processing or treatment in the free zone. Equipment imported into the free zone to be used for performing the industrial activity within the zone shall be exempted from payment of all customs duties (except for those levied on customs records), unless otherwise prescribed by the Law on Customs Policy of B&H. The entrance and exit of goods and services into and out of free zones are regulated by the Law on Customs Policy of B&H, the Law on Customs Tariff of B&H and by the Law on Foreign Trade Policy of B&H. Investing capital in the free zone area, transfer of revenues and retransfer of capital are free of taxes, in accordance with relevant legislation of Bosnia and Herzegovina and the entities. Relevant customs authorities can issue EUR 1 – certificate of origin for the goods produced in free zones. The free zone work permit can be cancelled if the founder or the user does not respect the regulation prescribed by the Law. In case of termination of work in free zones, the user retains property claims upon equipment, rights and money which he brought into the zone. The user also has the right to continue with business activities outside the zone, in accordance with the relevant legislation.
The Law on Concessions of B&H prescribes the modes and conditions for the allocation of concessions in Bosnia and Herzegovina, competence for the allocation of concessions, institutional structure, responsibilities and other issues related to the Commission for Concessions in B&H, tender proceedings, contents and application of the concession agreements, rights and obligations of concessionaires, etc. The purpose of the Law is to create a transparent, non-discriminatory and clear legal framework for determination of the conditions under which the concessions in B&H are allocated to domestic and foreign persons in order to stimulate foreign investments into sectors under the B&H State jurisdiction. Those sectors are: • maintenance of infrastructure and services • exploitation of natural resources and use of pertaining objects and equipment. The decisions on the types and subjects of concessions are made by the Council of Ministers of B&H and ratified by the Parliamentary Assembly of B&H. In case of shared competences, the competent bodies agree upon the conditions and means of the allocation of concessions. The Commission for Concessions of B&H is an independent regulatory body and operates as the Commission for the Allocation of Concessions and the Joint Commission for Concessions. The decisions of the Commission can be reviewed upon a request submitted not later than 60 days after the decision had been made. The allocation of concessions are usually made through tenders. The Law allows for the possibility of a self-initiated offer for the concession, which is to be submitted to the relevant Ministry. The Law prescribes financial penalties in the case of illegal actions. In the case of a dispute, the Court of Bosnia and Herzegovina is the competent authority.
This Law regulates the rules, measures and procedures for the protection of market competition, and defines the powers and duties of the Council of Competition, the body entrusted with protection and promotion of market competition in Bosnia and Herzegovina. This Law shall apply to all legal and natural persons (hereinafter: undertakings) that, directly or indirectly, participate in the trade of goods and services and that, through their actions, prevent, restrict or distort market competition within the whole territory of Bosnia and Herzegovina or any relevant part thereof. It also applies to all economic activities of the undertakings that have their seat or place of residence abroad, if their activities have a substantial effect on the market of Bosnia and Herzegovina or any significant part thereof. All agreements, contracts, single provision of agreements or contracts, concerted practices, explicit and tacit agreements between undertakings, as well as decisions by associations of undertakings (hereinafter: agreements) the objective of which is to prevent, restrict or distort market competition on a relevant market are prohibited. These agreements shall not be prohibited if they contribute to improving the production or distribution of goods and/or services within Bosnia and Herzegovina or if they contribute to promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit. The Council of Competition, as regards to this Law is the body with power to implement market competition protection.
As a part of the Council of Competition, the Offices for Competition in Federation of Bosnia and Herzegovina and Republic of Srpska act as the organising units outside the seat of the Council of Competition.
The Council of Competition is an independent entity obliged to ensure consistent implementation of this Law over the whole territory of Bosnia and Herzegovina.
The Council of Competition has authority to enact by-laws based on the provisions of this Law and other regulations necessary for its implementation; to regulate the definitions and calculation methods for specific activity areas; to regulate and provide interpretation of general and specific definitions of competition terms, as well as the calculation methods for the key competition terms; to decide on requests for the initiation and conduct of proceedings; to carry out administrative procedures to finalise proceedings before the Council of Competition; to provide opinions and recommendations on any aspect of competition; to make internal rules on the organisation of the Council of Competition, with the exception of the Rule Book on the internal organisation and systematisation which is to be made with the consent of the Council of Ministers of Bosnia and Herzegovina; to initiate changes and amendments to the Law on Competition and to draft a decision for the Council of Ministers of Bosnia and Herzegovina regarding the amount of administrative taxes to be levied regarding the practices placed before the Council of Competition. In relation to the draft versions and the proposals of the Act and the other regulations in the areas that influence market competition, the Council of Competition shall provide opinion on their consent to this Law.
The Council of Competition shall cooperate with international and national organisations and institutions in the area of competition, and, acting on this basis, it may provide and request all the data and information related to factual and legal issues, also including confidential data. In relation to the exchange of confidential data, the legitimate business interests of the undertakings in question must be protected in accordance with the regulations.
The Council of Competition is obliged to issue a final decision within the time limit of 6 (six) months following the day when the resolution authorising the institution of the proceedings is adopted, with the exception of those cases where it is deemed necessary to extend the time limit.
Decisions made by the Council of Competition are final and legally binding throughout the territory of Bosnia and Herzegovina and effective following the day of their publication in the Official Gazettes of Bosnia and Herzegovina, in the official gazettes of the entities and Brcko District of Bosnia and Herzegovina. The Council of Competition may request legal assistance from the competent bodies in order to enforce execution if the parties to a proceeding fail to implement or execute the decision.
The undertaking or natural person, shall be fined a maximum of 10 (ten) % of the value of its total annual income earned in the financial year preceding the year when the infringement is committed. The responsible persons of the undertakings shall be fined an amount up to 50,000 KM.
The Council of Competition may impose fines on legal and /or natural persons that are not parties to the proceedings where they fail to act upon the request or order of the Council of Competition.
On the basis of the Law on Competition, the Council of Competition has adopted twelve by-laws to define monopoly position category, joint exemption of an agreement concluded between economic subjects acting at different levels of production or distribution, relevant markets, periodic penalty payments, register of concentration, applications and the criteria for estimating economic concentration.
The Law on Industrial Property in Bosnia and Herzegovina determines acquisition, contents and protection of the following industrial property rights: patents, trade marks, brand names, industrial design and geographical designation. Upon recognition and registration of the industrial property rights, the holders can acquire material and moral rights arising therefrom. Requests for acquisition of industrial property rights are submitted to the Institute for Standards, Metrology and Intellectual Property of B&H (hereinafter referred to as the ‘Institute’) or to its Branch Offices. In special cases, the request can also be submitted to a relevant body outside B&H. For all the actions in the proceedings of acquisition, retention, trade and termination of the industrial property rights, there are taxes to be paid in the amounts determined in a special tariff adopted by the Ministry of Foreign Trade and Economic Relations of B&H. The Ministry is the competent authority for conclusion of international treaties in the field of industrial property. The decisions of the Institute are published in its Official Gazette. Foreign legal and natural persons can only enforce rights protected in this Law through proceedings before the Institute by their authorised representatives. All the recognized rights under this Law, excluding collective trade marks and geographical marks, can be transferred partly or fully to other parties. Such transfers shall be submitted in written form.
The Law determines: acquisition of copyrights in the fields of literature, science, arts (copyrights), acquisition of rights of artists - performers, rights of phonogram producers for radio-broadcasting service providers - radio-show producers (relating rights), rights of videogram producers, rights of data-base producers and protection of copyrights and relating rights.
Copyrights and relating rights can be acquired by the authors and other entitled persons, as well as other legal persons who specialise in acquiring those rights. In order to acquire the above rights, permission needs to be obtained from the Institute for Intellectual Property Rights of B&H.
The Law on Consumer Protection in Bosnia and Herzegovina regulates relations between consumers, manufacturers and traders in the territory of Bosnia and Herzegovina.
Relationships and cases that are not regulated by the Law on Consumer's protection will be regulated by the Law on Food (Official Gazette of B&H, No 50/04), the Law on General Safety of Products (Official Gazette of B&H, No 45/04) and other regulatory laws.
The institutions and bodies responsible for consumer protection in Bosnia and Herzegovina are: a) Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina b) Ombudsman, Human Rights Commission for B&H c) Council for Consumers’ Protection of B&H d) Council of Competition of Bosnia and Herzegovina e) Competent authorities at Entity level and Brcko distinct f) Offices for competition and consumers’ protection of the entities g) Consumers’ associations h) Educational institutions, media, printed publications i) Inspectorates and other bodies.
Supervision of the implementation of this Law shall be the responsibility of the authorised bodies listed under items a, b, c, d, e and i above in accordance with authorisations prescribed by special Laws and other regulations.
The institutions and associations listed above, except item h, are authorised to start legal proceedings before authorised courts.
This Law regulates the monitoring of products entering the B&H market, determines general principles and establishes the system for monitoring the market's organisation and functioning. It also detemines the rights and obligations of producers and distributors within the market monitoring system.
The Law also defines basic terms used in the text of the Law, such as: product, safe product, dangerous product, serious risk, producer, distributor, product recall, prevention of distribution, putting the product in the market, putting the product into use, technical regulation and market monitoring.
With the purpose of ensuring a functional and effective market monitoring system, to carry out the technical, co-ordinating and other activities determined by the Law or by binding international treaties, this Law also proclaims the formation of the Agency for Market Monitoring in B&H.
This Law regulates safety of products entering the B&H market. Provisions of this Law shall apply to products with safety requirements determined by other Law or by–laws when the risks for that product are not determined by that other Law or relating by-law.
Implementation of this Law shall be organised by the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina and relevant Entity Ministries will supervise and control some products and product groups.
The Law determines the method of setting technical requirements for products and the procedures for assessment of their conformity with those requirements, as well as the recognition of the documents on conformity and conformity signs issued abroad.
The Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina shall adopt relevant technical regulations based upon proposals by the Committee for Technical Regulations, with the aim of harmonising the technical regulations in Bosnia and Herzegovina with EU Directives. The Ministry also keeps the Register of appointed bodies for conformity assessment.
Documents on conformity and conformity signs issued abroad are recognised in Bosnia and Herzegovina, provided they are based on international treaties signed by Bosnia and Herzegovina regarding reciprocal recognition of documents on conformity.
The Law establishes the public procurement system in Bosnia and Herzegovina, determines rights, obligations and responsibilities of the participants in procurement procedures, as well as defining public procurement control procedures.
'Public procurement' refers to the procurement of goods, services and works, and is conducted by 'contracting bodies' (as in Article 3 of the Law) in accordance with the rules also determined by the Law as well as with relating regulations.
The Law establishes the Agency for Public Procurement as an independent administrative organisation with a Head-Office in Sarajevo and two Regional Offices in Mostar and Banja Luka. It also establishes the Office for Appeals as an appelate body in cases of breach of the Law on public procurement and relating regulations.
The roles of both the Agency for Public Procurement and the Office for Appeals are to ensure proper implementation of this Law. It is determined that both institutions should become operational by February 2, 2005 (three months after the adoption of the Law). In the meantime, the Ministry of Finance and Treasury of Bosnia and Herzegovina, as well as the Ministries of Finance of the entities shall be responsible for public procurement matters.
The Law on the indirect taxation system establishes the Indirect Taxation Authority in Bosnia and Herzegovina as the single body in Bosnia and Herzegovina authorised to implement the legal provisions on indirect taxation. The Law also prescribes for the collection and distribution of indirect taxes at state level in the territory of Bosnia and Herzegovina as a whole.
‘Indirect tax’, in terms of this Law, refers to import and export duties, excise duties, value added tax and all other taxes levied upon goods and services, including sales tax and tolls.
The Authority is authorised and obliged to prepare a Draft Law regarding the introduction of a single value added tax (VAT) for the whole territory of Bosnia and Herzegovina. The Authority is obliged, within the period of two years at the latest, to develop an operational system, which facilitates the application of VAT.
This Law regulates the supervision, organisation and management of the Indirect Taxation Authority (hereinafter: ITA), the rights and responsibilities of employees, human resource management and other. The Indirect Taxation Authority is an independent administrative organisation with rights and responsibilities determined by the Law on Indirect Taxation System in Bosnia and Herzegovina and other Laws that enshrine the legal and other provisions regarding indirect taxation. The ITA has its seat in Banja Luka. The ITA is responsible for the implementation of the legislation relating to indirect taxation and has the authority to make regulations regarding indirect taxation. ITA can provide an opinion to taxpayers on important indirect tax issues in accordance with the procedures prescribed by the Law on Indirect Taxation Procedure. Taxpayers shall be required to be registered under this Law and related regulations. Registered taxpayers shall be recorded in a single register. ITA shall issue a registration certificate with an identification number. ITA shall perform its activities from the head office and branch offices in the regions (Banja Luka, Mostar, Sarajevo and Tuzla).
This Law regulates procedures on determination, collection and control of indirect taxation and tax offences. Indirect taxation procedures apply on a national basis. Indirect taxation procedures shall apply to foreign persons and persons without permanent residence in Bosnia and Herzegovina, only if necessitated by the existence of international agreements undertaken by Bosnia and Herzegovina, where the principle of international reciprocity applies. ITA is obliged to ensure implementation of indirect taxation regulations across the whole territory of Bosnia and Herzegovina. Indirect taxation procedures are initiated by commercial activity or by the client’s demand in the form of application or other forms prescribed by the Law on Indirect Taxation. Books, records, documentation, invoices, vouchers, indirect taxation correspondence, data bases, programmes, other documentation regarding economic activities, goods or any other information regarding indirect taxation obliged to be provide to ITA will be required for audit purposes. Taxpayers who disregard their obligations to pay tax, completely or partly, as required by the Law, are committing an indirect taxation offence. An appeal may be made on every ITA original decision or action influencing the legal status of a person, except in the case where apportionments are made when indirect tax applications are not delivered in the time prescribed by the Law. An appeal can be made within 15 days from date of receipt of the decision, unless otherwise prescribed by this Law or other Laws relating to indirect taxation. The appeal does not delay execution of the decision in any other than exceptional cases. Following an appeal, the ITA shall make a first instance decision within one month from the date the appeal was submitted. The taxpayer has a right to apply to the second instance body for the review of a decision made by first instance body. The ITA director will make the decision on the second appeal within 3 months from the date the appeal was submitted. The second instance decision may be challenged by an appeal before the administrative department of the Court of B&H.
Indirect tax payers and their heirs are entitled to a refund of the paid unsubstantiated amount of the ITA, legal interest included, within a period of five years after the deadline expired, calculated from the date of payment of the unsubstantiated amount.
This law shall introduce the obligation and regulate the system of payment of value added tax (hereinafter: VAT) in the territory of Bosnia and Herzegovina.
VAT shall be calculated on supplies of goods and services (hereinafter: supply of goods and services) which a taxpayer, within the performance of his economic activities, makes for consideration within the territory of Bosnia and Herzegovina and on the importation of goods into Bosnia and Herzegovina.
Any person whose taxable supply of goods or services and supply of goods on credit within the previous year exceeds, or is likely to exceed, the threshold limit of 50,000 KM shall be required to be registered under this Law as a VAT taxpayer. Further regulations on taxpayer registration prescribe that the registrations stipulated under this Law shall be issued by the ITA and shall be recorded in a single register (hereinafter: “tax register“) kept by ITA.
A taxpayer not based in Bosnia and Herzegovina shall, if the taxpayer supplies goods or services in Bosnia and Herzegovina, be registered with a tax representative based in Bosnia and Herzegovina. The ITA may grant permission for voluntary registration.
VAT shall be charged, levied and paid at the place of the supply of goods and services and Bosnia and Herzegovina shall be considered as one place for performing the supply.
The tax liability on supply of goods shall occur at the moment of: dispatch or the beginning of transportation of goods to the recipient or third party; the taking ownership of the goods by the recipient in the case of installation or assembly of goods; the transfer of the right to dispose of goods to the receiver; the reading of the received water electric power, gas or heating energy for the purpose of calculating the consumption; or the importation of goods into the customs territory of Bosnia and Herzegovina.
A service shall be deemed to be supplied at the moment when the individual supply of the service is carried out.
If periodic invoices are issued for the supply of services, the supply of services shall be deemed as finished on the last day of the period for which an invoice is issued.
The tax base of the supply of goods and services shall be the taxable amount of consideration (in cash, in items or in services) which has been or is to be received by a taxpayer for supplied goods or services, including subsidies directly linked to the price of such goods or services, excluding VAT, unless otherwise provided for by this Law. The tax base on the importation of goods into Bosnia and Herzegovina shall be the value of the goods determined in accordance with customs regulations. On importation of goods, which the taxpayer temporarily exported for repair, processing, finishing or other processing from Bosnia and Herzegovina, the base shall consist of the value of that repair, processing, finishing or other processing.
Standard VAT rate on the taxable supply of goods and services and importation of goods into Bosnia and Herzegovina shall be 17% with exemption of some activities in the following areas: public interest, financial and monetary services, importation of goods, export of goods, international transport, diplomatic and international organisations and special exemptions.
The period for which VAT is to be calculated shall be one calendar month. A taxpayer shall be required to calculate VAT for a corresponding tax period on the basis of the total supply of goods or services shown in invoices in that tax period.
Taxpayers shall submit the return to the ITA by the 10th day of the month.
The form and content of any VAT return shall be prescribed by the ITA under regulations made under this Law.
The liability to pay VAT on the supply of goods and services relating to the construction of immovable property shall be transferred to the person for whom the supply related to the construction of that property was made (“Special Scheme”).
The charging, payment and collection of VAT shall be supervised by the ITA in accordance with a separate Law.
In respect of the importation of goods, the charging, levying, payment and collection of VAT shall be supervised by the ITA in accordance with customs regulations, as if VAT were an import duty/duty of customs.
Any taxpayer who by act or default commits an offence shall be subject to a fine for violation. Taxpayers, depending on the offence, will be fined an amount equal to 50% of the unpaid or wrongly calculated amount with a minimum of 100 KM. If the taxpayer fails to keep and store records he will be subject to a fine ranging from 300 KM to 10,000 KM. An authorised person working for a legal person shall be subject to the same fines.
This Law provides for appeal procedures on request, for review by the ITA. Those taxpayers whose appeals are disregarded may appeal to the Minor Offence Court. The Appellant or the ITA may apply to the Supreme Court for the review of a decision made by the Minor Offence Court. On the day this Law becomes applicable – 01.01.2007, the following shall cease to apply: Law on Sales Tax on Goods and Services of Entities Law on Excises and Sales Tax of Entities Law on Sales Tax on Goods and Services of the Brcko Disrtinkt
Annex 1 of this Law defines precisely works of art, collectors' items and antiques.
This Law shall regulate the taxation of trade in certain types of products with a special type of tax – excise duty in the territory of Bosnia and Herzegovina. The provisions of this Law shall also apply to road tolls.
Excise duty revenues shall be paid to the Single Account of the Indirect Taxation Authority and their allocation shall be carried out in compliance with the Law on Payments to the Single Account and Distribution of Revenues.
Excise products shall be deemed to be: oil products, tobacco products, non-alcoholic drinks, alcohol and alcoholic drinks, beer and coffee.
Export excise products and excise products that are destroyed or rendered useless under the tax authority’s supervision are exempt from excise duties.
The Indirect Taxation Authority has issued follow up regulations for implementation of this Law – Rulebook on application of Law on Excise Duties. It determines the manner of calculation and payment of excise duties, content and manner of keeping records, keeping and submitting of monthly and annual reports. The Rulebook shall also apply to road toll application.
Laws and Bylaws regarding Excise Duties and Sales Tax of Entities and Brcko District and Decisions on Amount of Road Toll shall cease to apply on the day this Law becomes applicable – 01.01.2005.
This Law regulates the manner of payment of indirect taxes, other revenues and fees (hereinafter: the revenues) for which the Indirect Taxation Authority (hereinafter: Authority) shall be responsible; the rules for keeping the Single Account for collection of indirect taxes, other revenues and fees; the allocation and distribution of collected revenues to Bosnia and Herzegovina, Entities and District Brcko; the accounting records for the Single Accounts; the duty to inform with respect to the collection, allocation and distribution of collected revenues; and annual Independent Exterior Audit of collection and distribution of collected revenues. This Law shall ensure the collection of all revenues for which the Indirect Taxation Authority shall be responsible as well as co-operation between the Authority, State, Entities and District in terms of the allocation and distribution of collected revenues. This Law becomes applicable as from 01.01.2005.
The aim of this Law is to determine ways of registration of companies / business entities in the Federation of B&H, Republika Srpska and the Brcko District, as well as to harmonise this Law, the laws of the two entities and the Brcko District with the relevant EU regulations, by creating a single registry of business entities.
The Law determines a short and unique registration procedure for companies within the territory of Bosnia and Herzegovina, which is applicable to all business entities established in Bosnia and Herzegovina both by domestic and foreign natural and legal persons.
Application of this Law should commence not later than 180 days after the date of its entry into force (18 September 2004).
The Decree prescribes the conditions for establishing and operating foreign persons' representaion offices in Bosnia and Herzegovina. The representaion office may be established for performance of the following activities: • market research • information and advertising • representation Such a representation office is legally a part of its founder - the foreign legal person, and does not have the status of a separate legal person. The representation office cannot conclude contracts in the name of the founder (exception: representaion offices of foreign air companies). The Register of foreign persons' representation offices is kept with the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina.
LAWS AND REGULATIONS AT THE LEVEL OF ENTITIES (FEDERATION B&H AND REPUBLIKA SRPSKA) AND THE BRCKO DISTRICT
The Laws regulate foundation, types of organization, functioning, governance and termination of companies in the Federation of Bosnia and Herzegovina, Republika Srpska and Brcko District. According to the Corporate law of Federation B&H, a company is a legal person, which independently performs business activity. A company may be founded by: • domestic legal and natural persons, • foreign legal and natural persons.
The types of companies are as follows: JOINT STOCK COMPANY (d.d.) It is founded by a Contract or Decision on Founding. The founders (one or several) are obligatorily the shareholders. A Joint Stock Company has unlimited liability for its obligations. The minimum amount of the founders’ capital is 50,000 KM. LIMITED LIABILITY COMPANY (d.o.o.) It is founded by a Contract concluded between the founders, or by a Decision, if there is only one founder. The minimum amount of founders’ capital for the Limited Liability Company is 2,000 KM (regardless of the number of founders). UNLIMITED JOINT LIABILITY COMPANY (d.n.o) It is founded by a Contract between a minimum of two persons who have unlimited joint liability for the company obligations. The founders’ deposits become the company property, and the value of deposits is determined in the Contract. LIMITED PARTNERSHIP (k.d.) It is founded by a Contract, also determining the kind and the amount of each founder’s deposit. The limited partners (one or several) have unlimited liability, while general partners (one or several) are liable to the limit of their deposits as registered in the Court.
The Corporate law of Federation B&H determines the manner and procedure of the company foundation, depending on the organisational type chosen by the founder. In the procedure of foundation it is necessary to: • adopt an act on foundation (Decision or Contract), • submit a request for entry into the Court Register, • register with relevant government authorities.
If the founders are foreign natural and legal persons, they should: 1. Obtain consent of the relevant Ministry for the location of the business office, 2. Obtain consent of the Ministry of Trade of Federation B&H on the act of foundation, 3. Enter the Company Register with the Ministry of Foreign Trade and Economic Relations of B&H.
The Corporate law of Republika Srpska and the Corporate law of Brcko District determine the types of companies that can be founded by natural, legal and foreign persons. The types of companies are: unlimited liability company, limited partnership, joint stock company, limited liability company, public company, company for employment of disabled persons. The above Laws regulate the amount of founder’s capital, entry into the court register, environmental protection and inter-entity company relationships (business associations, consortium, holding and other types of relationships).
The laws and regulations at the level of the entities and the Brcko District regulate banking operations and related matters. The Bank law of Federation B&H, the Bank law of Republika Srpska and the Bank law of Brcko District regulate the foundation, organisation, operation, governance, supervision and termination of legal persons which perform activities of receiving money deposits, loan allocation, as well as other activities in compliance with this Law. A Bank is founded and operates as a joint stock company. (in R. Srpska there should be at least 2 founders). The Banking Agencies of the entities – Federation B&H and Republika Srpska (hereinafter referred as ‘Agency’), i.e. the Banking Office of Brcko District, issue the license for performing banking operations on the basis of the written request by the founder(s). The license is a condition for entry in the Court Register. It also determines the scope of activities the bank can perform. The minimum amount of the founders’ capital and the lowest amount of the deposited net capital to be maintained by the bank are not less than 15 million KM. The Agency issues permission for the establishment of branches and representation offices to the banks with head offices outside the relevant entity. The branches and representation offices are not considered as legal persons, unless they are established by foreign banks that have the legal person status. The Agency issues permission for undertaking all important actions regarding: changes in the structure of voting rights of natural and legal persons and their share in the bank capital, status changes, changes in the Contract on Founding and the Bank Statute, changes in the name and head office of the bank, etc. The governing organs of the bank are: Assembly of Shareholders, Managing Board, Supervising Board and the Bank Manager.
Since the passage of the Law on indirect taxation system in Bosnia and Herzegovina (Official Gazette of B&H, No. 44/03), the Bylaws and the establishment of the Indirect Taxation Administration, only the direct taxation policy rests under the competence of the entities (Federation of B&H and Republika Srpska) and the Brcko District. The direct taxes are as follows:
Profit Tax Profit tax is regulated by the Law on corporate profit tax (Federation of B&H), the Law on company profit tax (Republika Srpska) and by the Law on income tax (Brcko District). Profit tax is paid by the taxpayers, i.e. legal persons, either resident or non-resident, who gain profits by selling goods and services in the market. The tax base is the assessable profit, which is stated in the tax balance sheet. The tax rate on profit varies from 10-30%, depending on the terrritorial unit in B&H. The attempts to achieve a single rate in the entire B&H economic space are expected to be finalised very soon in the form of new regulation.
Salary Tax Salary tax is regulated by the Law on salary tax (Federation of B&H), the Law on personal income tax (Republika Srpska) and by the Law on personal income tax (Brcko District). The Laws regulate taxation of salary earned by natural persons (taxpayers) on the basis of employment, self-employment or other basis. The Laws regulate tax subsidies, tax reduction and tax exemption, as well as the elimination of double taxation. The taxpayer is a resident or non-resident earning a salary within the territory of Federation of B&H, Republika Srpska and Brcko District. The tax base is the gross salary reduced by prescribed contributions. The salary tax rates are: in Federation B&H 5%, in Republika Srpska 10% or 15% (depending on the tax base level) and Brcko District 10%.
Other direct taxes In the Federation of B&H, other direct taxes (personal income tax, property tax, tax on turnover from real estate property, tax on proprietary rights -copyrights, patents, etc., tax on inheritance and gifts, tax on winnings from games of chance, tax on income from agricultural activity) as well as the tax on sales of real estate property, are regulated by cantonal taxation laws.
In Republika Srpska and the Brcko District B&H, the above taxes are regulated by the Laws on property taxes.
