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Corporate Income Tax Act of FBiH

Tax news, March 2016.

Corporate Income Tax Act of FBiH was published in the “Official Gazette of FBiH”, number 15/16, dated 26 February 2016.

The Act shall enter into force on the eight day as of its publishment in the “Official Gazette of FBiH”. As of commencement of application of the Act, the Corporate Income Tax Act of FBiH (“Official Gazette of FBiH”, no. 97/07, 14/08 and 39/09) shall cease to apply.

Some of changes of the Act are listed below:

  • Taxpayer for the profit realized in the territory of FBiH is a branch of the legal entity from Republika Srpska and Brčko District, with registered office in the territory of FBiH;
  • Tax incentives for export and employing more than 50% of disabled persons and persons with special needs are abolished. The provisions for decreasing amount of corporate income tax in respect of investments in production are prescribed in a modified form in comparison to the previous act. The new Act also prescribes tax incentive for newly employed staff;
  • Expenses incurred due to inventory adjustment to their net realizable value are recognized in the tax period in which these stocks are sold or written off or destroyed;
  • Change of rules for provisions. Under certain conditions, provisions for future expenditures related to environmental protection are recognized for tax purposes; also provisions made for future costs in a guarantee period are recognized up to 4% of the annual turnover of the taxpayer;
  • Special provision for financial institutions – expenses related to allowance of receivables of assets, which are estimated on the group basis and based on historical cost (latent losses -IBNR) are not tax deductible expenses;
  • Certain tax deductible rates of depreciation are amended;
  • Expenses from sponsorship are recognized as tax deductible expenses up to the amount of 3% of total income;
  • Terms related to tax deductibility of write-off of receivables have been changed; expenses are tax deductible if:
    • receivables were included in taxpayer’s income in the last tax period and were not collected within 12 months from the due date of payment or 
    • litigation proceedings have been commenced for receivables or the enforcement procedure was started or receivables were reported within liquidation or bankruptcy proceedings against the debtor;
  • The concept of related parties is expanded; it is prescribed that a taxpayer participating in transactions with related parties is required to have transfer pricing documentation in the moment of tax return filing, otherwise the taxpayer will face to fines. Also, the number of methods prescribed for transfer pricing analysis is increased;
  • The “thin capitalization rule” is introduced in the Act. By this rule financial expenses for interest or its functional equivalent from financial contracts and instruments taken from related parties are tax deductible expenses up to the amount determined by 4:1 ratio. The ratio represents total liabilities from financial contracts in comparison to the capital registered at the relevant court. This rule does not apply to banks and insurance companies.

The Act stipulates that the Federal Minister of Finance shall issue a Rulebook on Implementation of the Corporate Income Tax Act and a Rulebook on Transfer Pricing within six months.

If you would like to discuss the influence of this Act on your business, please feel free to contact us and make an appointment with one of our experts for corporate income tax.

Contacts

If you have any questions concerning this publication, please do not hesitate to contact us:

Samir Hadžić
Senior Consultant | Tax & Legal Practice
Deloitte Advisory Services d.o.o. Sarajevo
Jadranska bb, 71 000 Sarajevo, Bosnia and Herzegovina
Tel/Direct: +387 (0)33 277 560 | Fax: +387 (0)33 277 561| Mobile: +387 (0)61 796 067
shadzic@deloittece.com | www.deloitte.com\ba

Emir Ibišević
Manager | Tax & Legal Practice
Deloitte Advisory Services d.o.o.
Jadranska bb, 71000 Sarajevo, Bosnia and Herzegovina
Direct: +387 33 277 560 | Fax: +387 33 277 561 | Mobile: +387 61 396 047
eibisevic@deloittece.com | www.deloitte.com\ba

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