Bosnia and Herzegovina

FBiH deductions

Tax deductible expenditures are all documented expenditures, decreased for the deductible VAT, that a taxpayer incurred for the purpose of generation of profit, provided they are properly presented in the financial statements. 

FBiH depreciation

Depreciation cost is deductible only if it relates to the property subject to depreciation and being used.

Depreciation of fixed assets is deductible up to the amount established by proportionate application of the highest annual depreciation rates using the linear method, prescribed by the FBiH government, as follows:

Property being depreciated with a value of less than BAM 1,000 may be fully deducted in the purchase year, on condition that that the property was put in use.

Depreciated assets, once depreciated, shall not be re-included in the depreciation calculation for the purposes of the tax balance.

Expenditure arisen from devaluation of fixed assets, which are determined as the difference between current net value and the estimated retrievable value, is tax deductible in the tax period when the assets are sold or destroyed by force majeure.

FBiH goodwill

Amortisation of goodwill is not tax deductible.

FBiH start-up expenses

Start-up expenses are tax deductible if the expenses occurred, were necessary and related to the registered company, and if original documentation with regard to those expenses are available for inspection.

FBiH interest expenses

Interest expense is generally tax deductible, except for interest from a related-party loan, which can be tax non-deductible if it does not meet the criteria set by the thin capitalisation rule (see Thin capitalisation in the Group taxation section).

FBiH bad debt

The expenses occurring based on the write-off of doubtful debts are tax deductible. Debts are considered doubtful under the following conditions:

• The debts have been included in the taxpayer’s revenue in the previous tax period and they have not been collected within 12 months from the due date.
• The taxpayer has started court procedures in regard to the receivable, started the enforced collection procedure, or the receivable has been registered in the liquidation or bankruptcy procedure.

FBiH charitable contributions

Costs of humanitarian, cultural, educational, scientific, and sports purposes (except professional sports) are deductible in the amount of up to 3% of total income.

FBiH tax reserves

The following costs related to provisions are tax-deductible costs:

• Provisions for future costs related to environment protection of up to 30% of taxable income before provision was made, provided there is a legal obligation for the taxpayer to undertake the measures for environment protection. The total provision for environment protection cannot exceed the amount of the taxpayer’s registered capital.
• Provisions for future costs in the guarantee period of up to 4% of the taxpayer’s annual turnover relating to products subject to guarantee in the tax period.

FBiH fines and penalties

Fines and penalties are not tax deductible.

FBiH taxes

Taxes are generally tax deductible expenses, except for paid CIT.

FBiH other significant items

Representation costs pertaining to business activity are deductible in the amount of 30% of representation costs.

Expenses of membership fees to the chambers are deductible in the amount not exceeding 0.1% of total income, with the exception of membership fees regulated by the law.

Expenses based on sponsorship are deductible in the amount of 3% of total income.

FBiH net operating losses

Tax losses may be offset against profits in a future tax period, not exceeding five years. Tax losses are utilised on a FIFO basis.

Tax losses cannot be carried back.

FBiH payments to foreign affiliates

Payments to foreign affiliates are generally allowed if they relate to realised revenue.

RS deductions

Expenditures deductible from revenue in computing the RS tax base are the expenditures presented in the income statement, with the exception of expenditures that have a different tax treatment under the provisions of the CIT Law.

RS depreciation

Depreciation deductions are allowed only with respect to depreciable assets that are owned by a taxpayer or acquired through a financial lease that are being used for performance of registered business activities.

Depreciation deduction is also allowed for investments made in fixed assets not owned by a taxpayer, under the condition that such investments increase purchase value of the asset and do not decrease rent from the lease agreement. 

A depreciable asset is any tangible or intangible asset (except goodwill) with useful economic life longer than 12 months. Land or any other asset that does not decrease in value through wear and tear or obsolescence is not considered a depreciable asset.

Assets are depreciated using the proportional method of depreciation by applying the annual depreciation rates in the following amounts:

• 3% for property and plant.
• 10% for intangible assets, except software.

Group of assets are depreciated using the digressive method of depreciation by applying the annual depreciation rates in the following amounts:

• 40% for computers, IT systems, software, and servers.
• 20% for equipment and other assets.

RS goodwill

Amortisation of goodwill is not tax deductible.

RS start-up expenses

Start-up expenses are tax deductible if the expenses occurred, were necessary and related to the registered company, and if original documentation with regard to those expenses are available for inspection.

RS interest expenses

Interest on loans used for generation of taxable revenue are generally tax deductible. The exceptions are interest that is not at arm’s length, interest on loans for private use, and interest on overdue tax payments.

Interest expense is not tax deductible for the amount in which net interest expense exceeds 30% of the tax base, in which are not included interest income and expense. Net interest expense represents a positive difference between interest costs and interest revenue.

RS bad debts and tax reserves

Legal entities, other than banks, authorised credit institutions, or insurance companies, are entitled to a bad debt provision that arose in connection with a sale of goods or services but only if the revenue from the sale was previously included in the tax base of the legal entity. The bad debt provision is allowed in the following manner:

• Up to 25% of amount receivable that is older than 12 months.
• Up to 50% of amount receivable that is older than 18 months.
• Up to 75% of amount receivable that is older than 24 months.

Exceptionally from this, a bad debt receivable will be considered in full as a tax deductible cost if such receivable has not been collected within 12 months from the due date and if the taxpayer undertook at least one of the following activities for collection of the receivable:

• the taxpayer started court litigation for the receivables
• the taxpayer requested execution of the receivable from the competent court
• the taxpayer initiated enforced collection procedures
• the receivables are registered in the bankruptcy procedures of the debtor, or
• an agreement has been reached with the debtor who is in the bankruptcy or liquidation procedures.

In the case of a bank or other authorised credit institution, a deduction is allowed for indirect write-off of placement presented in the income statement of a tax period, maximum to the amount prescribed by the Banking Agency of Republika Srpska, with exception for placements that have the most quality characteristics under those regulations. 

Insurance and reinsurance companies are allowed a deduction of costs of mathematical reserves that these companies are obligated to create under the regulations of the Insurance Agency of Republika Srpska, under the condition that the reserve was included in the income statement.

Costs arising from technical reserves of insurance companies are tax deductible at up to 20% of the amount of reserves created under the regulations of the Insurance Agency of Republika Srpska, under the condition that the reserve was included in the income statement.

RS charitable contributions

Contributions to public institutions and humanitarian, cultural, and educational organisations are deductible in an amount not exceeding 3% of the fiscal year’s total revenue. Any excess contribution may be carried forward three years.

RS fines and penalties

Fines and penalties are not tax deductible.

RS taxes

Taxes are generally tax deductible expenses, except for paid CIT.

RS other significant items

Expenditures that are recognised and deductible from revenue also include the following:

• 30% of the cost of entertainment, meals, and amusements related to the legal person’s economic activity.
• Sponsorship expenses in an amount not exceeding 2% of the fiscal year’s total revenue.
• Costs of reclamation of goods and services in the amount not exceeding 3% of the business revenue in that tax year.

RS net operating losses

Losses may be carried forward and offset against income in the following five years. Tax losses are utilised on a FIFO basis.

Tax losses cannot be carried back.

RS payments to foreign affiliates

Payments to foreign affiliates are generally allowed if they relate to realised revenue.

BD deductions

Expenditures are deductible from revenue in computing the BD tax base if the expenditures directly relate to the realised revenue.

BD depreciation

Depreciation deductions are allowed only with respect to depreciable assets that are being used.

A depreciable asset is any tangible or intangible asset that is held for use in the production or supply of goods and services, for rental to others, or for administrative purposes. Land or any other asset that does not decrease in value through wear and tear or obsolescence is not considered a depreciable asset.

Assets are depreciated using the linear method of depreciation, except for machines and equipment, which can be depreciated with acceleration (first year at 40%, second year at 30%, and third year at 30%). The CIT Rulebook prescribes a wide range of accepted depreciation rates, depending on type of assets.

The calculation of depreciation for newly purchased property starts the following month from the day when it was put to use. The calculation of depreciation for newly constructed buildings starts from the first day of the following year in which it was put to use.

BD goodwill

Amortisation of goodwill is not tax deductible.

BD start-up expenses

Start-up expenses are tax deductible if the expenses occurred, were necessary and related to the registered company, and if original documentation with regard to those expenses are available for inspection.

BD interest expense

Interest on loans used for business purposes are tax deductible. The exceptions are interest that is not at arm’s length, interest on loans for private use, and interest on overdue tax payments.

BD bad debts and tax reserves

Legal persons, other than banks, authorised credit institutions, or insurance companies, shall be entitled to a bad debt deduction that arose in connection with a sale of goods or services but only if the revenue from the sale was previously included in the tax base of the legal person. For this purpose, a credit or trade receivable is considered a bad debt only if one of the following is true:

• It is more than 12 months past the due date for payment of the invoiced receivable and the creditor has sued for the receivables or an enforced collection procedure is initiated due to receivables.
• The receivables are registered in the bankruptcy procedure of the debtor or an agreement has been reached with the debtor who is not a physical or related person in the bankruptcy or liquidation procedure.

In the case of a bank or other authorised credit institution, a deduction is allowed for increases in the reserve account for customary losses due to unpaid loans, and the amount may not exceed 20% of the tax base.

In the case of an insurance or reinsurance company, a deduction is allowed for increases in reserves as registered in accounting documents and as authorised according to applicable law. For insurance contracts pertaining to reinsurance, reserves are to be reduced so that they cover only part of the risk remaining with the insurer, and the amount may not exceed 20% of the tax base.

BD charitable contributions

Contributions to public institutions and humanitarian, cultural, and educational organisations are deductible in an amount not exceeding 3% of the fiscal year’s total revenue.

BD fines and penalties

Fines and penalties are not tax deductible.

BD taxes

Taxes are generally tax deductible expenses, except for paid CIT.

BD other significant items

Expenditures that are recognised and deductible from revenue also include the following:

• 30% of the cost of entertainment related to the legal person’s economic activity.
• Awards to employees, up to the prescribed amount.
• Costs of business trips, meal allowance, transportation, and holiday allowance, up to the prescribed amount.
• Sponsorship expenses in an amount not exceeding 2% of the fiscal year’s total revenue.
• Scholarships to students in an amount up to 75% of average monthly net salary in Brčko District.
• Committee membership fees, up to 0.2% of total revenue in the tax year.
• Expenses for research and development (R&D) in accordance with the Rulebook.

BD net operating losses

Losses may be carried forward and offset against income in the following five years. Tax losses are utilised on a FIFO basis.

Tax losses cannot be carried back.

BD payments to foreign affiliates

Payment to foreign affiliates is generally allowed if it relates to realised revenue.