Tax services for foreign construction companies
Doing construction works in Bosnia and Herzegovina?
Have you considered your tax expenses?
The complexity of the tax system in Bosnia and Herzegovina (BiH) is, among other, reflected in the existence of several tax jurisdictions.
For purposes of direct taxes, BiH consists of three tax jurisdictions: Federation of BiH (FBiH), Republika Srpska (RS) and Brčko District (BD). In every of these tax jurisdictions there is a separate tax administration.
Indirect taxes (excise, customs and value added tax) are matter of the state of BiH. There is one tax authority on the state level competent for indirect taxes – Indirect Taxation Authority of BiH (ITA).
In order to be tax compliant when performing construction works in BiH, following should be taken into account:
I VAT (Value Added Tax)
- Supply of construction works in BiH is taxable with BH VAT.
- Foreign legal person exceeding the threshold of approx. EUR 25,000 within one calendar year is required to register in BiH for VAT via VAT Representative.
- When registered for VAT via VAT Representative, foreign legal person is eligible to deduct input VAT for purchases which will result in taxable supplies (such as construction works).
- When construction works involve services and material, special construction VAT scheme between the general contractor and their sub-contractors apply.
- Special Construction Scheme defers from Reverse Charge System as applied according to EU VAT provisions (payments directly to the relevant tax authority – ITA is required).
- In order for the investor to be entitled to input VAT deduction, one of the condition for them is to receive tax invoices from a taxable supplier (e.g. general contractor) with VAT shown for all the supplies subject to VAT.
II PE (Permanent Establishment) for CIT (Corporate Income Tax) purposes
- Performing supplies in BiH, such as construction works, can trigger PE registration.
- Applicable methods of cost allocation to the PE should be examined.
- According to legal provisions, PE can be registered via branch office.
- Branch office is not a separate legal entity in comparison to its founder.
Deloitte Advisory Services d.o.o. Sarajevo can help you assuring tax compliance.