Simple Flat 10% Income Tax System – Bosnia and Herzegovina

Salaries, wages, bonuses all taxed at 10%. Calculated after: subtracting employee social contributions (31%), subtracting personal allowances (BAM 300 or 500/month). Employer withholds monthly. Example: BAM 2,000 gross → minus BAM 620 contributions → minus BAM 300 allowance → BAM 1,080 taxable → BAM 108 tax → BAM 972 net.

Individual entrepreneurs, freelancers, sole proprietors: 10% tax on net profit (revenue minus expenses). Alternatively, small entrepreneurs can choose simplified 2% tax on total revenue (no expense deductions). Must register as entrepreneur. Pay own social contributions (full 31%+ as both employee and employer equivalent).

Interest income from deposits, bonds: 10% tax withheld at source. Royalties (patents, copyrights, licenses): 10% withholding. Rental income from property: 10% (after expenses or standard deduction). Same flat rate, very simple for passive income.

BiH residents pay 10% on worldwide income including foreign salaries, business profits, dividends (if applicable), interest. Must declare in annual return. Foreign tax credit available to prevent double taxation. Non-residents only pay 10% on BiH-source income.

Federation BiH: BAM 300 per month (BAM 3,600 per year). Republika Srpska: BAM 500 per month (BAM 6,000 per year). Brčko District: BAM 6,000 per year. Deducted from taxable base after social contributions. Higher allowance in RS means lower effective tax rate.

Spouse (not working/no pension): BAM 150/month. First child: BAM 150/month. Second child: BAM 270/month. Third and subsequent children: BAM 90/month each. Must provide documentation (certificates). Reduces taxable base significantly for families. RS has similar but different amounts.

Mortgage interest paid on home loans: fully deductible in Federation. Life insurance premiums: fully deductible. Must provide documentation from bank/insurer. Significant benefit for homeowners in FBiH. Not available in RS (but RS has higher base allowance to compensate).

Taxpayer with disability: increased allowances based on % of disability. Dependent family member with disability: additional deductions. Brčko: 10% of allowance for every 20% of determined disability. Varies by entity but all provide some relief for disability-related costs.

BiH 10% flat compares very favorably: Croatia 20-35.4% progressive, Serbia 10% flat but higher social (36.95% total), Montenegro 9-15% progressive, North Macedonia 10% flat (similar). Only Bulgaria matches at 10% flat. Combined with 0% dividends, BiH very competitive.

EU average personal income tax around 40%. BiH's 10% flat among absolute lowest in Europe (with Bulgaria, North Macedonia). However: must consider 31% social contributions - total burden comparable to EU when combined. Still, simplicity and predictability major advantages.

Because personal allowances deducted, effective rate often 5-8% on gross salary (before social contributions). Example: BAM 2,000 gross, after contributions and allowances, only ~5.4% effective income tax. Low gross earners pay almost no income tax. High earners still benefit from flat rate cap.

Income tax 10% + social 31% = 41% total from gross salary. Comparable to many EU countries' total burden. However, employer contributions much lower in RS (0%) or reformed FBiH (5%) versus EU norm (20-25%). Business-friendly despite employee burden.