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Country - Bosnia-Herzegovina
Corporate Vehicles
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INTRODUCTORY NOTE
Bosnia and Herzegovina ("BiH") consists of two main administrative districts, the Federation of Bosnia and Herzegovina ("FBiH") and Republika Srpska ("RS"). In addition, the Brčko District, in north eastern Bosnia, is also a self-governing administrative unit that is part of both the FBiH and RS. This guidance information covers investment in both BiH entities, excluding the Brčko District, as this is only a small unit within BiH.
The Law on the Foreign Direct Investment Policy of Bosnia and Herzegovina defines a foreign investor as an individual who is not a resident of BiH and who does not have his or her principal residence in BiH, or an entity established in accordance with foreign law with its registered office or principal place of business outside BiH.
The rights of foreign investors to invest in real estate in BiH are regulated by Article 12 of the Law on the Foreign Direct Investment Policy of BiH and Articles 87-91 of the Law on Legal Property Relations in BiH.
A. INVESTING IN REAL ESTATE IN BiH
Foreign investors may invest in real estate in BiH by acquiring all or part of an existing local legal entity, or by establishing a new company in BiH. The rights of foreign individuals acquiring real estate in BiH are regulated separately according to the circumstances of the acquisition.
In acquiring an existing legal entity, a foreign investor becomes the owner of the real estate held by that company. A foreigner cannot normally own real estate in BiH directly: exceptions to this require the grant of various administrative consents and are subject to reciprocity.
By establishing a new company, even where this is owned exclusively by a foreign individual or foreign entity, the foreign investor can acquire and own real estate in BiH directly, without any restrictions. Therefore, a foreign investor establishing a company in BiH effectively acquires the same legal rights and obligations as a BiH national and the new company is treated as a local BiH legal entity.
Occasionally the rights of foreign investors to acquire real estate in certain parts of the territory of the FBiH may be limited, or alternatively their rights may be restricted by the imposition of conditions of reciprocity. In this case the Ministry of Foreign Trade and Economic Relations must issue written consent.
Foreign investors can use four types of corporate vehicle for investing in real estate in BiH: a limited liability company; a joint stock company; a limited partnership; and an unlimited partnership. For a number of practical reasons (the cost of incorporation, simple incorporation procedures, straightforward management, limited liability etc.) the majority of foreign investments in real estate are conducted through limited liability companies.
Although very similar, the procedures for establishing legal entities are governed by separate laws in the FBiH and RS and some inconsistencies exist. Where the rules and regulations are not consistent throughout the territories of BiH the information below is presented for both BiH entities (the FBiH and RS) distinctly; where the same rules apply the information covers the entire BiH territory.
B. LIMITED LIABILITY COMPANY (d.o.o. - "LLC")
In the FBiH: An LLC may be established by one or more owners.
In RS: An LLC may be established by between one and 30 partners.
Minimum capital
The minimum capital is KM 2,000.00 (approximately EUR 1,009.00).
An LLC may be formed by decision (if there is only one founder) or by contract (if there is more than one founder).
Cost of incorporation
The costs for incorporating an LLC are:
- registration fees of approximately KM 55 (approximately EUR 28) for the registration of the foreign investment with the Ministry of Foreign Trade and Economic Relations of BiH;
- court fees of approximately KM 450 (approximately EUR 230) for registration in the registry court; and
- the costs of publishing the LLC administrative registration in the Official Gazette of the relevant administrative body: the amount depends on the number of printed lines, with one printed line costing approximately KM 4.50.
Time required to become operative
The registration of a foreign investment with the Ministry of Foreign Trade and Economic Relations of BiH takes from seven to 14 days.
Upon registration with the Ministry an application must be filed with the relevant court: which court depends on the location of the company's corporate seat. Since the time taken for the registration procedure varies between registry courts, this can take anything from 30 to 90 days, once all the required registration documents have been submitted.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of company, its business activities and the number of employees.
Corporate governance
The corporate bodies of an LLC are:
In the FBiH:
- a shareholders' assembly;
- a managing body; and
- a supervisory board (mandatory only under certain conditions).
The shareholders' assembly is the main corporate body and is entitled to make decisions regarding any issue relating to the company's activities. It must be convened at least once a year in order to adopt the annual financial statement and decide regarding the LLC's profits/losses. The assembly is given the right to decide and determine certain issues by the Law on Business Companies, the statutes of the company and the Articles of Association. All shareholders have a designated number of votes in proportion to the size of their shareholding.
The managing body is authorised to represent the company. It can have one or more members who are appointed by the shareholders' assembly. If the LLC has more than one member in its managing body, the company may be represented either by an individual or by collective representation. A sole shareholder may also act as a manager. A foreign individual can be appointed as a member of the LLC management body.
The supervisory board is the controlling body of the LLC. Establishing a supervisory board is mandatory for an LLC only in the following situations:
- if the company has more than 10 shareholders; or
- if the company's capital exceeds KM 1,000,000 and it has been established by at least two founders/shareholders.
Distribution of profits and transfer of shares
Profits made by the company are divided amongst its members in proportion to the size of each member's shareholding, unless otherwise agreed. Shares can be freely transferred, except where this has been agreed otherwise in the Articles of Association.
In RS:
- an assembly;
- a managing board (in cases where this is prescribed by the law);
- a supervisory board (in cases where this is prescribed by the law); and
- a director.
The assembly passes the company's statutes, defines business policy and makes decisions concerning those matters over which it has been given authority by law, establishment act or statute.
The director represents the company, manages the business and performs other duties determined by law, the statutes and other by-laws.
The managing board consists of at least three members and can make decisions if more than half its members are present.
The supervisory board can make decisions if the session is attended by at least two thirds of the members. Decisions are reached by the majority vote of the members attending.
Distribution of profits and transfer of shares
Profits made by the company are distributed amongst members in proportion to the size of their shareholding, unless otherwise agreed in the company's establishment act. Shares can be transferred freely, except where this is otherwise agreed in the establishment act.
Regulatory control
No specific regulatory controls apply to this kind of entity.
Taxation of current income
Corporation tax is levied in the FBiH at a rate of 10% and in RS at a rate of 10%.
Profits made by the company shown in its tax statement are subject to tax. The taxable amount includes revenues and capital gains, according to the accounting regulations. All expenditure must conform to recognised accounting standards.
In the FBiH, the Law on Corporate Income Tax provides a tax holiday for foreign investors. Specifically, in the case of a foreign capital investment which is at least 20% of the total share capital, the taxpayer's income tax is decreased for a period of five years from the day when the foreign investment has been made, and proportionately to the amount of that foreign capital.
Taxation of distribution of current income to investors
FBiH:
Resident shareholders pay tax on the company's profits both in the territory of the FBiH and abroad.
They also pay withholding tax on dividends, interest and other amounts paid to non-residents.
Non-resident shareholders pay tax on company profits realised in the territory of the FBiH. They also pay withholding tax on dividends, interest and other amounts paid to non-residents.
Profits are taxed at a rate of 10% and withholding tax at 10%. Withholding tax on dividends is 5%.
RS:
Resident and non-resident shareholders are subject to tax on company profits.
Tax is payable on the profit shown in the tax balance sheet, with the final amount being determined by an assessment of success in accordance with the Law on Profit of the RS. The tax rate on profit is 10%.
Individuals are liable to pay personal income tax at the rate of 10%. Withholding tax is payable on net income at the rate effective on the date of payment.
Taxation of capital gains
Taxable income includes capital gains.
Real estate transfer tax
In the FBiH, each canton has its own tax law relating to the transfer of property. Taxes therefore vary from one canton to another.
For example, under the Canton Sarajevo Law on Taxes for Transfer of Property and Rights, tax is payable at 5% of the market value of the property.
In RS, the tax rate for transfer of property is 3% of the market value of the property.
The transfer of property is generally exempt from VAT. VAT at 17% is only payable on the first transfer of ownership rights of, or rights to dispose of, newly constructed immovable property.
C. JOINT STOCK COMPANY (d.d. - "JSC")
In the FBiH: A JSC may be established by one or more shareholders, either simultaneously or successively.
In RS: A JSC may be established by between one and 50 stockholders in the case of simultaneously founded companies and by two or more stockholders for companies founded successively.
Minimum capital
In the FBiH:
The minimum capital is KM 50,000.
In RS:
The minimum capital for simultaneously formed companies is KM 10,000 and KM 20,000 for successively founded companies.
Set-up costs
The same as for an LLC.
Time required to become operative
The company founders are required to convene a general meeting of shareholders no later than 60 days from the date of receiving the decision from the Commission that the issuance of shares was successful. If the founding general meeting of shareholders is not convened within this period, the issuance of shares is made void and the JSC is deemed not to have been established.
Costs per annum for corporate and accounting compliance
The same as for an LLC.
Corporate governance
The corporate bodies are:
In the FBiH:
- a shareholders' assembly;
- a management body;
- a supervisory board; and
- an audit board.
The shareholders' assembly must be convened at least once a year. Under law and statute this has the right to make decisions on certain issues.
It can only make decisions if shareholders with more than 30% of the shares and voting rights are represented either in person or via a representative.
The managing body is authorised to represent the company and consists of a director and one or more executive directors. It is appointed by the supervisory board.
The supervisory board is the supervising body of the company.
The audit board audits the half-yearly and annual balance sheets and can audit all financial business operations upon the request of shareholders who hold at least 10% of the shares and voting rights. The audit board is required to deliver a report to the general meeting of shareholders no later than eight days after the audit's completion.
Shares can be freely transferred, except if otherwise decided by law or statute.
In RS:
The corporate bodies of a JSC founded without a public invitation for subscription and payment of shares are:
- a shareholders' assembly; and
- a director;
and where prescribed by law:
- a management board; and
- a supervisory board.
The corporate bodies of a JSC founded with a public invitation for subscription and payment of shares are:
- a shareholders' assembly;
- a management board; and
- a director;
and where prescribed by law:
a supervisory board.
The shareholders' assembly must be convened at least once a year. According to law and statute it has the right to make decisions on certain issues. The shareholders' assembly can make decisions on the basis of a majority of paid voting shares.
The director represents the company, manages the business and performs other duties determined by law, the statutes and other by-laws.
The management board consists of at least three members and can make decisions if more than half its members are present.
The supervisory board can make decisions if the session is attended by at least two thirds of the members. Decisions are reached by a majority vote of attending members.
A board of executive directors may also be established by the statutes and holds executive authority.
Regulatory control
Not applicable.
Taxation of current income
As for an LLC.
Taxation of distribution of current income to investors
As for an LLC.
Taxation of capital gains
As for an LLC.
D. LIMITED PARTNERSHIP ("LP")
In the FBiH: An LP is a partnership which has one partner with unlimited liability and at least one partner with limited liability.
In RS: One individual (the general partner "GP") has unlimited liability and the liability of at least one other person (the limited partner "LP") is limited to the amount of the agreed deposit.
Minimum capital
Minimum capital is not established by law.
Set-up costs
As for an LLC.
Time required to become operative
Upon registration of the LP with the commercial registry. Since the time taken for the registration procedure varies between registry courts, the registration can take anything from 30 to 90 days, once all the required registration documents have been submitted.
Costs per annum for corporate and accounting compliance
Management and accounting costs depend on the size of the LP, its business activities and the number of employees.
Corporate governance
In both the FBiH and RS:
- GPs manage business operations;
- LPs have a right of access to business registers and to the documents of the partnership, as well as to annual financial statements;
- each GP represents the limited partnership, unless the contract specifies otherwise;
- the profits of the LP are divided between the GPs and the LPs, according to the percentage specified in the contract;
- the profit that goes to GPs must be divided among them equally; and
- the profit that goes to LPs is divided among them in proportion to their paid contributions, unless the contract specifies otherwise.
Regulatory control
Not applicable.
Taxation of current income
As for an LLC.
Taxation of distribution of current income to investors
As for an LLC.
Taxation of capital gains
As for an LLC.
E. UNLIMITED PARTNERSHIP ("UP")
A UP is a partnership that has at least two partners with unlimited liability.
Minimum capital
There are no requirements for minimum or maximum investment.
Set-up costs
Not available.
Time required to become operative
Once all the documents have been filed with the company registry. Since the time taken for the registration procedure varies between registry courts, the registration can take anything from 30 to 90 days, once all the required registration documents have been submitted.
Costs per annum for corporate and accounting compliance
Not applicable.
Corporate governance
The UP is set up by a contract of establishment.
All members have a right and responsibility to manage the partnership in accordance with the contract.
Every partner can represent the general partnership, unless the contract specifies otherwise.
All partners share the profits and losses in equal amounts, unless the contract specifies otherwise.
Voting rights and profit shares can be freely allocated.
Regulatory control
Not applicable.
Taxation of current income
As for an LLC.
Taxation of distribution of current income to investors
As for an LLC.
Taxation of capital gains
As for an LLC.
F. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
There are no specific investment structures for indirect investment. In general, corporate vehicles are used for this kind of investment.
G. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
Under BiH law there is no collective investment vehicle available for real estate investments.
H. RULES ON LEVERAGE
1. Thin capitalisation rules
There are no specific regulations covering thin capitalisation in BiH. The interest on debt is always regarded as deductible, provided the interest rate is shown on the tax balance sheet.
2. Withholding tax on interest
In the FBiH withholding tax is payable at the rate of 10%, except for dividends where it is 5%.
In RS withholding tax is payable at the rate of 10%.
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