The success of a business idea is influenced by many factors, including the environment itself, where we decide to realize our business goals. People’s culture, habits and way of life have a lot of influence. All these socio-demographic factors are difficult to measure and evaluated subjectively, without numerical indicators that could more tangibly dictate the lifestyle of people in a certain region. However, legal frameworks, tax burdens and incentives and other state regulations that shape the way of doing business in a certain country are unambiguously measurable.
About Bosnia and Herzegovina
Bosnia and Herzegovina is a country located in the heart of the Balkans and it belongs to the area of Western Balkan region of South-East Europe. Due to its history as part of the Yugoslav state, there are still strong links between the Balkan countries, which provide business opportunities and connections for companies.
Bosnia and Herzegovina became independent in 1992 when it declared its independence from the Socialist Federal Republic of Yugoslavia. Although Bosnia and Herzegovina is not yet a member of the European Union, it has been granted the status of an EU candidate country since December 2022 and is now embarking on a new growth model. The country has 2 entities (Federation of Bosnia and Herzegovina or Republika Srpska) and 1 self-governing administrative unit (Brčko District). The local currency is convertible mark – BAM.
The economy of Bosnia and Herzegovina is generally stable economy and safe for the development of business ideas and their implementation. Greater instability could be detected in 2009 and 2012 when GDP decreased, but in 2013 it rose again and remained stable. The COVID-19 pandemic also had a strong impact on the economy, but at the same time, it brought some new business opportunities and success stories. The economy recovered quickly, even if the previous few years was still partly marked by the pandemic and the following measures to contain the virus.
Why Should You Invest In the B&H Economy?
What are the qualities of the B&H economy that you consider when choosing an investor to support and, as a result, invest in the B&H economic space?
· QUALIFIED WORKFORCE
On average, B&H workforce is well educated and extremely qualified with good employability. The state also regularly distributes subsidies for the employment of people who are registered at the biro of unemployment, groups that are more difficult to employ, such as the elderly, young people or those who have been educated for another profession, people with disabilities.
· CLOSE TO FOREIGN MARKETS
Because of its position, Bosnia and Herzegovina attracts many investors who want to build a network of customers both in Southeast Europe and in Central Europe. With a supportive business environment and entrepreneurial growth in Bosnia and Herzegovina, such a plan is easier to reach potential investors.
Bosnia and Herzegovina boasts a modern infrastructure that enables individuals to quickly transfer goods and materials from one point to another. Due to the small size of the country, distances are relatively short.
· FOREIGN INVESTMENTS IN BOSNIA AND HERCEGOVINA
In Bosnia and Herzegovina, there are no restrictions on foreign investors entering the B&H market. Investments are allowed to both foreign legal entities and natural persons unless otherwise stipulated by the national and international legal framework.
Bosnia and Hercegovina treats companies equally at home and abroad.
· ESTABLISHING A COMPANY IN BOSNIA AND HERCEGOVINA
Within the framework of B&H legislation, it is possible to establish several different legal organizational forms of companies: limited liability company, company with unlimited joint liability, limited partnership, joint stock company, as well as branch offices of foreign companies. A representative office can also be established in BiH, which can do market research locally. It is also possible to register as an independent entrepreneur. The process of establishing a company is not complicated.
· REGISTRATION PROCESS FOR ESTABLISHING A COMPANY
Company registration usually takes up to 3 weeks and follows the following steps:
- Preparation of the Decision on incorporation, appointment of the manager, application of the registration of the company and other necessary documents and forms
- Payment of the capital for the incorporation
- Registration in the court register
- Company registration at the Statistical and Tax Office
- Opening a bank account at the selected local bank
Here are some documents that are absolutely necessary for company registration in the case of a founder of a legal entity:
- Necessary documents for the registration of the company, certified and translated to local language,
- A copy of the identification document of the designated manager or representative
- Verification of the founder’s/manager’s signature by a Notary/apostille stamp (if necessary)
- The authorization of the founder of the company, issued to the person who signs the founding document of the new company.
- Signed contract of incorporation.
However, if the company is founded by a natural person, i.e. an individual, he must submit a certified identification document, a certified signature of the director and an official Decision on incorporation.
· EMPLOYMENT OF FOREIGN WORKERS
All foreigners who have a work permit or other equivalent permit according to an international agreement can work in BiH without restrictions.
The work permit is issued by the state at the request of the employer. This enables foreigners to be employed by the applicant’s employer. Work permits are issued for a maximum of one year, and this permit can be extended. The employee who has work permit must also regulate his temporary residence in Bosnia and Herzegovina.
A taxpayer is any legal entity that generates income from business in Bosnia and Herzegovina, where the company has its registered seat. Depending on the location of the registered seat, the law of one of the 2 entities (Federation of Bosnia and Herzegovina – FBiH or Republika Srpska – RS) applies.
Corporate profit tax is 10%°in both FBiH and RS. Dividend tax rate is 5% (FBiH)/10% (RS) in case of a foreign corporation, otherwise it is 0%.
Personal income tax is paid at the rate of 10% in FBiH and 8% in RS. In both FBiH and RS – self-employment income tax is paid at a rate of 10%.
Tax on income from copyright, capital, capital income and other income is paid at the rate of 10% in FBiH and 13% in RS.
The standard rate of value added tax (VAT) of the taxable turnover of goods and services and the import of goods into Bosnia and Herzegovina is 17%. Business activities which are in the public interest such as medical care, postal services, education, culture and sports are excluded from paying VAT.
ACCOUNTING AND REPORTING
All companies in Bosnia and Herzegovina are obliged to submit annual financial statements according to local Law on accounting and audit and International accounting standards and International financial reporting standards. Some companies are also required to undergo an audit, especially large and medium-sized companies.
The size of the company is determined by taking into account 2 of the 3 criteria for determining the size of the company: a large company has more than 249 employees, revenues from operations exceed 40,000,000 KM or the book value of assets exceeds 20,000,000 BAM. Meanwhile, the qualification criteria for a medium-sized enterprise are as follows: employees between 49 and 249 employees, operating income ranging from 8,000,000 BAM to 40,000,000 BAM and assets in accounting documents between 4,000,000 BAM and 20,000,000 BAM.
Establishing a company in Bosnia and Herzegovina can be a big obstacle for some to expand their business to foreign markets. There is no doubt that this Southeastern European country is attractive to many investors who would like to expand their business to the Balkans, but also to Central Europe. In all of this, it is important for the investor to have a reliable and trustworthy advisor with him who knows how to broaden his horizons and help with possible employment of workers, obtaining funds or possible tax problems.
You can get all that at Unija Consulting, where a team of experts advises and helps in the entire business.