Country report Bosnia and Herzegovina

Economic overview

In this phase of the accession process to the European Union, Bosnia and Herzegovina cooperates with the other countries of the Western Balkans in the context of the so-called Berlin Process, which represents a complementary aspect of the integration of Bosnia and Herzegovina and the Western Balkans into the Union. .

Following the Trieste Summit held on 12 July 2017, the “Multi-year Action Plan” was adopted for the establishment of the regional economic space of the Western Balkans (MAP REA). The plan is divided into 4 directions on which the regional economic space will focus: trade, investments, mobility and digital integration.

In accordance with the regional commitment, Bosnia and Herzegovina is involved in all European integration processes.

First of all, the Stabilization and Association Agreement (SAA) with the European Union was concluded.

Bosnia and Herzegovina has also concluded the Central European Free Trade Agreement (CEFTA), together with other Western Balkan countries, which are also involved in the stabilization and association process. The goal of CEFTA is the further liberalization of trade in the region, the complete elimination of all trade barriers and the preparation of future member states for accession to the European Union.

In addition, all CEFTA members, including Bosnia and Herzegovina, have signed free trade agreements with the European Free Trade Association (EFTA), which unites the markets of Switzerland, Norway, Iceland and Liechtenstein in the field of trade. EFTA should lead to the full inclusion of the CEFTA region, creating a single “European Economic Area” (EEA).

Membership and active participation in multilateral organizations, such as the World Trade Organization, is one of the key objectives of Bosnia and Herzegovina’s foreign trade policy in the coming period.

Main sectors of industry

The years of the civil war resulted in the destruction of infrastructure and the shutdown of the main production activities. The industrial sector, which before the war could count on a thousand plants employing over 450,000 people, has been halved, and the production capacity is still much lower than the previous one. The communication routes have been deprived of about 59 bridges and a third of the roads. The railways suffered damage estimated at US $ 1 billion. Electricity production is about 20% of that existing before the war, while the damage in the telecommunications sector is estimated at US $ 500 million. 63% of the houses were damaged, while 18% were completely destroyed. The huge aid from international communities has made a decisive contribution to the reconstruction of the country, although much remains to be done.

In addition to the traditional sectors that have always driven the local economy, such as wood, the metalworking industry, the agri-food industry, and the textile-footwear industry, the gradual process of integration of the country into the EU and adaptation to EU standards is adding new ones areas of activity that gradually open up new interesting opportunities for collaboration. Among these, the road and railway infrastructure sector, whose development, mainly focused on the implementation of the intermodal corridor Vc, is currently at the center of the interest of local governments as it is essential for the growth of the country’s global economy. The same can be said for the energy sector, in particular that from renewable sources, with enormous development potential, especially in hydroelectric, wind and biomass energy. Another area with great growth prospects is undoubtedly that of tourism, in its many segments, the ski and mountain one, eco-tourism, adventure tourism, SPA-tourism, in addition to that linked to cultural heritage and to religious tourism.

Taxation for businesses

The taxation system of Bosnia and Herzegovina is one of the most advantageous that exists in Europe.

The tax regime of Bosnia and Herzegovina is characterized by the following taxes:

• Tax on corporate income (IRES)

• Personal income tax (IRPEF)

• Value added tax (VAT)

• Property tax (IMU or TARI)

Corporate income tax

The rate is equal to 10%, calculated on the taxable basis, and obviously affects all companies that carry out a continuous economic activity by selling goods and offering services on the market. The same rate is present in the Republic of Srpska, and in the Brčko District.

The subjects who must pay corporate income tax are:

– a person resident in Bosnia-Herzegovina, who makes a profit in the territory;

– a non-resident subject who makes a profit in the territory.

There are also a number of tax breaks:

– usual exporters (more than 30% of export turnover during the fiscal year) will be entitled to exemption.

– other concessions concern companies that for five consecutive years invest 20 million KM (approx. 10 million Euros); the investment in the first year cannot be less than 4 million KM (approx. 2 million Euros);

– or they hire handicapped staff.

Joint ventures can take advantage of a subsidized regime for the first years of activity if they reach certain conditions: 100% for the first year, 70% for the second and 30% for the third. The Foreign Investment Law guarantees all foreign investors the repatriation of profits from their investments in Bosnia and Herzegovina.

The Bosnian law on foreign investments allows local and foreign companies to open current accounts with one or more local banks and to transfer profits without any limit.

Investing in Bosnia and Herzegovina

Bosnia and Herzegovina has created significant incentives for foreign direct investment. In addition, the country offers many attractive aspects to be chosen as an investment destination:

– The strategic position (access to the sea, rivers, railways and new road infrastructures) – Trieste is 360km from the border;

– Important tradition in various industrial sectors: mining, metal, aluminum and steel, wood, energy production, textile and leather industry, industry and defense (subject to restrictions);

– Preferential trade agreements;

– Educated and cost-competitive workforce;

– Favorable tax and customs system;

– Significant energy potential, the largest exporter country in the Balkans; New laws on renewable resources and the production of electricity;

– Foreign investors have the possibility to transfer the proceeds from their investment in Bosnia and Herzegovina abroad without restrictions and in convertible currency.

Furthermore, foreign and local investments suffer the same treatment.

The rights and benefits guaranteed to foreign investors and the obligations imposed by law cannot be extinguished or eliminated by the subsequent approval of laws or regulations. Indeed, if the approval of further laws and regulations will be more favorable to foreign investors, they will have the right to choose the regime applicable to the related investment.

There are no limits on the type of foreign direct investment in Bosnia and Herzegovina, except for the production and sale of weapons, ammunition, explosives for military use, military equipment and the media.

Foreign participation in the capital of these companies cannot exceed 49% of the investee company.