The Law on financial business activities in FBiH was published in the Official Gazette of FBiH No. 48/16 in June 2016, while it became effective as of December 30, 2016.

The Law is the result of harmonization of BiH's legislation with the EU directives on combating late payments. The main purpose of the Law, however, is to attempt to protect and upgrade the position of small and medium-sized companies acting as creditors in financial transactions, by reducing the lack of liquidity of debtors. Deadlines for fulfilling financial obligations between taxpayers and public entities are also regulated by this Law, as are the consequences of missing those deadlines and the obligations of entrepreneurs in the event of lack of liquidity.

The Law applies to contracts concluded after the Law entered into force and to business transactions carried out after 30 December 2016.

Taxpayers to which the Law applies include all legal entities which carry out activities in FBiH, who are aiming to operate with certain profit, as well as natural persons who independently carry out business activities. The financial institutions, insurance and reinsurance companies, investment funds and pension funds are not affected by this Law.

Pursuant to Articles 8 and 9 of the Law, the management of a company is obliged to undertake necessary measures in case the capital of a company becomes inadequate. The inadequacy of capital occurs in case if, on the day of the drafting of the financial statements, the loss in the current year, together with accumulated losses from previous years, has reached half of the company's share capital.

As far as financial obligations are concerned, Articles 10 to 16 of the Law prescribe the following deadlines:

  • up to 30 days for the payment in case a payment deadline is not contracted;
  • up to 60 days if the payment period has been agreed in the contract;
  • a longer term (up to a maximum of 360 days) can be arranged in writing, provided that the debtor issues an irrevocable bank guarantee or bill of exchange to creditor.

If the debtor fails to meet above deadlines, a fine ranging from 5,000 to 15,000 BAM may be imposed.

Another important point has been covered by this Law, specifically in Articles 17 and 18, is the event of insolvency, which has been described as an event where the company/individual:

  • has delayed the payment of salaries and related tax obligations for more than 30 days;
  • has delayed over 20% of its short-term obligations disclosed in the last year financial report for a period exceeding 60 days.

The insolvent company/individual is not entitled to perform any kind of payments, except those that are regulated by Article 18 of the Law. Otherwise, the company/individual could be penalized with an amount ranging from 5,000 to 15,000 BAM.

The supervision of the enforcement of the Law will be conducted by the Tax Authority of FBiH, as well as by the Federal Ministry of Finance through budgetary inspection.

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.