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7. maja, 2020

BOSNIA and HERZEGOVINA: Freelancing – rights and obligations

Freelancing could be translated into our language as an adjunct job, and a freelancer as an independent worker. These are temporary jobs, most often projects for non-residents of Federation of Bosnia and Herzegovina (FBiH), where the freelancer is not bounded by a contract of employment or a place of work. Therefore, from a tax point of view, this type of work is considered as an independent activity, where all obligations fall directly on the freelancer.

Although the real expansion of freelancing forms of work around the world started in 2011, various online jobs sites and platforms have erupted and people have begun to make significant profits, FBiH freelancers have often stood in front of a wall of ignorance of tax officials how to treat this income. This changed in 2018, when the Rulebook on the Application of the Income Tax was modified (Article 12, paragraph 4, item 3 of the Income Tax Act, and Article 70b of the Rulebook on the Application of the Income Tax).

The rulebook finally defines what every permanent or occasional freelancer should know about their rights, obligations and taxes, which they must declare after paying their income from abroad.

However, that change actually “raised a lot of brows” because it required retroactive calculation and payment of income taxes back to 2015, which caused freelancers to be dissatisfied. Today, however, it has been crystallized of how to treat freelancers and the income they generate.

But first let us clarify: The income taxpayer is a resident of the Federation and a non-resident who generates income – a resident who earns income in the territory of the FBiH and outside the territory of the FBiH. Earnings they have received from abroad were treated as their income from self-employment, and accordingly freelancers are required to self-report the amount of income earned, and pay taxes on it. For this reason, this tax must been paid not later than the day after receiving the cash inflow to the account.

Freelancers actually have to do tax returns on their own; taking into account that employers – who are residents of the FBIH do tax returns in the case of employment agreements and copyright licence agreements. In this case, the employers are non-residents, therefore this obligation passes to them and it is determined according to the regulations of the Income Tax Law with the recognition of withholding tax pay and the advance payment of income tax paid abroad.

It is important to mention that there is no minimum amount of income to be reported. Any and every income is taxable, regardless of its amount.

By not filing and failing to pay taxes, freelancers run the risk of paying a fine, which is quite big. According to Article 84 of the Law on Tax Administration of the FBiH: “A legal entity that does not file a tax return in the manner prescribed by this or any tax law of the FBiH will be fined in the amount of 2.000,00 to 20.000,00 BAM.”

For the misdemeanour referred to in paragraph 1 of this Article, the responsible person in the legal entity shall be fined in the amount of 500,00 to 3.000,00 BAM.

An individual who does not file a tax return to the Tax Authority in the manner prescribed by this or any tax law of the FBiH, will be fined in the amount of 300,00 to 3.000,00 BAM. For each application, which must be made by the Tax Authority on behalf of the taxpayer, a fine in the amount of 500,00 to 50.000.00 BAM is prescribed.

 

The tax return must be reported on the prescribed Form AMS-1035 – Akontacija poreza po odbitku na druge samostalne djelatnosti na prihod iz inozemstva (Withholding tax deduction for other independent activities on income from abroad). When submitting the AMS form to the Tax Authority, it is necessary to submit (except for the form) proof of income received, proof of tax and contribution paid, and proof of tax paid abroad (if any exist).

The calculation is based on the following principle:

Assuming that the income of a freelancer is, for example, 1.000,00 BAM.

  1. Income – 1.000,00 BAM
  2. Expenses recognized – 20%
  3. Health base – 800,00 BAM
  4. Health insurance contribution (4%) – 32,00 BAM
  5. Income tax base – 768,00 BAM
  6. Income tax (10%) – 76,80 BAM
  7. Total contributions and taxes: 108,80 BAM

 

If the income of the freelancer is 1.000,00 BAM and the income tax in the amount of 200,00 BAM is paid abroad, then in the calculation we use this as a credit:

  1. Income – 1.000,00 BAM
  2. Expenses recognized – 20%
  3. Health base – 800,00 BAM
  4. Health insurance contribution (4%) – 32,00 BAM
  5. Income tax base – 768,00 BAM
  6. Income tax (10%) – 76,80 BAM
  7. The amount of tax credit paid abroad – 200,00 BAM
  8. Total tax contributions: 200 > 76.80 – 0 BAM

 

You can find the Form AMS – 1035 HERE.  

It is important to note that expenditures in the amount of 20% or 30% can be recognized. It is in accordance with the Law on Income Tax when it comes to payments for performing other occasional independent activity or one that has the characteristic of royalties, and can use a tax credit if income tax is calculated and paid in the country of the provider of work.

The amount of tax credit must not exceed the income tax calculated by the tax rate in the FBiH. The tax credit is recognized on the basis of valid documentation certified by the relevant authorities of a foreign country. Amounts of tax paid abroad are converted into Convertible Marks (KM) using the middle exchange rate of the Central Bank of Bosnia and Herzegovina on the date of tax determination.

It is a legal obligation to calculate 4% of health insurance contributions at the expense of the recipient of benefits, however this obligation does not create an entitlement to health insurance.

You can pay income tax and health care contributions into the bank accounts found on the Tax Authority website HERE. The payment is transferred to the municipality of residence of the freelancer. The health care contribution is paid at the standard ratio: 89.80% to the Cantonal Health Insurance Fund and 10.20% to the Federal Fund.

 

The above-mentioned form does not use the personal deduction during the calculation, and every resident of FBiH who has a tax card has the right to use this deduction at the end of the year through the Form GPD-1051 – Godišnja prijava poreza na dohodak (Annual income statement). Ya can find this form HERE.

In this case, the income from self-employment, as well as the amount of tax paid at home and abroad, is also reported in the annual application.

 

We would like to remind you that the legal deadline for submission of GPD-1051 form is March 31st 2020, but due to COVID-19 situation, the deadline has been moved to April 30th 2020.

Therefore, please comply with the statutory deadline, file the form and thus obtain the right to a possible tax refund.

On this note, we advise you to use your tax card – you are able to gain tax deduction of minimum 300,00 BAM per month or 3.600,00 BAM if you work all year.

You can get your tax card by filing the form available HERE in the Tax Location according to the place of your residence.

For any additional information please contact: info.sa@unija.com

 

Author: Ana Marija Đerek, UNIJA BiH