The National Assembly of the Republic of Srpska (RS) adopted
amendments to the Profit Tax Law on 28 December 2016. The main
changes have become effective as of 1 January 2017 and will be
briefly presented in this article.
With the amendments, the Law clarifies the definition of
"taxable person" and harmonizes the concept of residence
with the Profit Tax Law of the Federation of Bosnia and Herzegovina
(FBiH) and Brcko District in order to avoid double taxation.
Namely, a company is considered resident in BiH if it is registered
as a legal entity there. An entity has a taxable presence in BiH if
it carries out business activities in the jurisdiction that meet
the criteria for a permanent establishment.
The sources of taxable income are as
profit derived from economic
activities of both residents and non-residents in RS;
profit derived from the sale of
property located in RS and the sale of movable property if the sale
is carried out within RS;
dividends, profit shares and interest
income from copyright and similar
income from rent and services paid by
residents or permanent establishments in RS;"
capital gains on transfers of securities and shares in equity of
residents or permanent establishments based in the RS.
The taxable base is the profit determined by
adjusting the profit stated in the profit/loss statement, except in
cases prescribed by the law. In order to harmonize provisions of
the RS Profit Tax Law with the Profit Tax Law of the FBiH, interest
income on bank deposits is no longer tax exempt. Amortization of
goodwill is also a non-deductible expense.
According to the recent amendments, the annual
withholding tax returns must be filed by 31
January of the current year for the previous tax year, instead of
previously set date of 31 March. The gross amount of payments to
non-residents, such as interest income, royalties, technical
service fees, insurance premiums, payments for entertainment
events, rental payments for movable property and fees for
telecommunication services, are all taxed with withholding tax at a
rate of 10%.
Considering thin capitalization, with effect
from 2017, if a legal entity has taken out a loan from a related
entity at an interest rate below the market interest rate, it may
reduce its taxable base by deducting the amount of interest paid.
Yet, the net interest expenses must not exceed 30% of the tax
The new amendments also bring several changes in terms of
tax incentives, so there are no longer incentives
related to new employment. However, taxpayers may reduce their tax
liability by 30% if they invest in manufacturing equipment, real
estate and plants the value of which exceeds 50% of their tax base
in the current tax year.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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