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Country - Bosnia-Herzegovina
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for an investment in real estate in Bosnia?
Four types of structure are available to the real estate investor:
- general partnership;
- limited partnership;
- joint stock company; and
- limited liability company.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
In the Federation of Bosnia and Herzegovina ("FBiH") the purchase of real estate is taxed at a level set by each canton individually. The tax rate is 5% of the value of the real estate, as determined by the municipal appraisal team.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No.
How is the purchase of shares in an SPV holding real estate taxed?
The purchase of shares is not subject to transfer tax.
Who normally pays the transfer taxes, the buyer or the seller?
According to a strict reading of the legislation, the seller pays the transfer taxes but, in practice, the buyer normally pays this.
Are there any other costs related to the purchase of real estate assets or SPVs?
Other costs include the fees for the municipal or court appraisal.
C. TAXATION OF CURRENT INCOME
How is income generated from the letting of real estate taxed in Bosnia?
(a) Direct investment:
Direct investment is not possible.
(b) Indirect investment through a partnership (a transparent entity):
This is subject to corporate income tax at the rate of 10%.
(c) Indirect investment through a corporation entity (a non-transparent entity):
This is subject to corporate income tax at the rate of 10%. According to corporate income tax law, non-residents are also liable to pay income tax on profit realised from the sale of property in the FBiH.
How can income generated by investment be transferred to a foreign investor?
Foreign investors are entitled to invest, and reinvest, their profits into the economy of Bosnia and Herzegovina, in the same way as residents of Bosnia and Herzegovina, under the applicable laws and regulations.
(a) Direct investment:
Not applicable.
(b) Indirect investment through a partnership:
Income generated by an investment can be freely transferred to the foreign investor. Withholding tax of 10% is payable for both RS and FBiH.
(c) Indirect investment through a corporation:
Income generated by an investment can be freely transferred to the foreign investor. Withholding tax of 10% is payable for both RS and FBiH, except in FBiH the withholding tax on dividends is 5%.
Are there local taxes on the possession of real estate assets?
Property tax is levied at the level of the canton. In the Canton of Sarajevo, for example, property tax is payable annually in amounts not smaller than:
- KM 2 per square metre for a building or apartment intended for rest or recreation;
- KM 3 per square metre for business premises; and
- KM 2 per square metre for garages.
In Republika Srpska ("RS"), the property tax is paid as follows:
- KM 0.5-KM 2 per square metre for a building or apartment, depending on location;
- KM 3 per square metre for business premises; and
- KM 2 per square metre for offices.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
The depreciable value of property is allocated on the basis of its useful life. The depreciation charge for each period is recognised as an expense, unless included in the carrying amount of another asset.
The FBiH and RS authorities publish a nomenclature of assets for depreciation, which is recognised as an expense for the purposes of the calculation of corporate income tax.
Can land be depreciated?
No.
Can a participation in an SPV holding real estate be depreciated?
No.
E. VAT
Is the purchase of real estate assets subject to VAT?
Yes. The transfer of the right to dispose of all, or part, of a newly built property is subject to VAT.
The transfer of the business assets of a taxpayer by an authorised person, including a liquidator, bankruptcy administrator or custodian, is also subject to VAT.
F. LEVERAGE, THIN CAPITALISATION RULES
Are there rules which limit the deductibility of interest for third party (bank) financing?
If a loan is provided by a related party, the interest and associated costs are tax deductible but must not exceed the market rate.
If there is a difference between the market rate and the interest agreed on the loan from the related party, then this is treated as a dividend payment.
Are there thin capitalisation rules in Bosnia and if so, how do they work?
Thin capitalisation rules are not applicable in the FBiH.
Does Bosnia apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
Withholding tax at 10% must be paid on dividends paid to non-residents in RS and 5% in FBiH, while withholding tax for interests and royalties paid to non-residents is the same for RS and FBiH, 10%.
G. TAXATION OF CAPITAL GAINS
How are capital gains deriving from the sale of real estate assets taxed in Bosnia?
In the case of companies, capital gains are generally taxed as profit at the rate of 10%.
(a) Real estate assets held directly by a foreign investor:
In the FBiH capital gains from property are taxed at the level of the canton: the tax rate is 20%.
(b) Real estate assets held directly by a foreign investor (corporation):
Capital gains are taxed as profit at the rate of 10%.
How are capital gains deriving from the sale of shares/interests in a corporate entity taxed in Bosnia?
This is taxed as profit at the rate of 10%.
Are there any rules regarding participation exemptions in Bosnia?
No.
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