The Federation of Bosnia and Herzegovina (FBiH), and particularly the Sarajevo Canton, offers one of the lowest corporate tax rates in the world, setting the region apart in terms of tax competitiveness.
With a corporate tax rate of just 10%, KS not only stands out within Southeast Europe but also in the broader global context.
This favorable tax policy is a key tool in attracting foreign investment, boosting local businesses, and stimulating economic growth.
Tax Incentives
Law on Corporate Income Tax enables foreign investors to enjoy the following benefits:
– The taxpayer who invests, from its own funds, in production equipment more than 50% of the total profit in the current tax period, shall be reduced of the obligation of the calculated tax for 30% of the amount in the year of investment.
– The taxpayer who in a period of 5 consecutive years makes investments from its own funds, in the total amount of 10 million €, starting with the first year when taxpayer has to invest at least 2 million €, shall be reduced of the obligations of the calculated income tax for 50% of the amount in the year of investment.
FBiH’s Corporate Tax Rate: Among the Lowest Globally
At 10%, FBiH has one of the lowest corporate tax rates in Europe, and it is globally competitive, especially compared to many developed economies. For context, countries across the world have significantly higher corporate tax rates:
- United States: The federal corporate tax rate is 21%, with additional state taxes that can bring the total rate to 25-30%.
- United Kingdom: The corporate tax rate is 25% (as of April 2023), although this rate is set to rise further in coming years.
- Germany: The combined corporate tax rate can reach 30-32%, including local trade taxes.
- France: The standard corporate tax rate is 32.02%, which is one of the highest in Europe.
- Italy: Corporate tax is 24%, but additional regional taxes and surcharges can push the effective rate to over 30%.
These examples highlight that FBiH’s 10% corporate tax rate is globally competitive, providing a significant advantage for businesses operating in the region.
Comparison with the Western Balkans and European Union
Corporate Tax Rates in the Western Balkans
When compared to other countries in the Western Balkans, FBiH’s tax rate is by far the lowest:
- Serbia: The corporate tax rate is 15%, higher than FBiH’s 10%, though still relatively competitive for the region.
- Montenegro: The corporate tax rate is 9% to 15%.
- North Macedonia: The corporate tax rate stands at 10%, matching FBiH, which places it in direct competition.
- Albania: The corporate tax rate is 15%, which is relatively high for the region compared to FBiH’s 10%.
- Kosovo: The corporate tax rate is 10%, which is aligned with FBiH, making it another regional competitor.
While countries like Montenegro and North Macedonia also offer low corporate tax rates, FBiH’s broader business advantages—such as the developed infrastructure in the Sarajevo Canton and relatively favorable investment conditions—enhance its competitiveness.
Corporate Tax Rates in the European Union
In the European Union, FBiH’s 10% corporate tax rate stands out as particularly low when compared to the EU average. Here are some examples of corporate tax rates across EU countries:
- Germany: The corporate tax rate is 15%, but additional taxes at the state and local levels increase the overall rate to around 30%.
- France: The corporate tax rate is 32.02%, one of the highest in Europe.
- Italy: Corporate tax is 24%, but additional regional taxes can increase the overall rate to over 30%.
- Spain: The standard corporate tax rate is 25%, though reduced rates are available for smaller companies.
- Poland: The corporate tax rate is 19%, with a reduced rate of 9% available for small businesses with annual revenue under €2 million.
- Hungary: Hungary offers a corporate tax rate of 9%, one of the lowest in Europe.
These examples demonstrate that, while there are some EU countries with competitive tax rates, such as Hungary, FBiH’s 10% rate is still highly attractive when compared to the higher rates typical of Western Europe.
Why This Low Corporate Tax Rate is an Advantage for FBiH
FBiH’s 10% corporate tax rate is a key element of the region’s strategy to attract foreign investments and foster business development. Countries with lower corporate tax rates tend to attract more foreign direct investment (FDI), especially from multinational corporations and businesses seeking to reduce their tax burdens. FBiH’s tax rate provides a competitive edge for companies seeking to expand in Southeast Europe, offering them more opportunities to reinvest their profits into business growth, job creation, and innovation.
Attracting Foreign Investment
The low corporate tax rate is a major incentive for foreign investors, especially those considering countries in the Western Balkans or Europe. Given the global competition for investment, countries like FBiH can leverage low taxes to create an attractive environment for companies in sectors such as manufacturing, IT, technology, and services. Foreign investors are often drawn to jurisdictions where the tax burden is manageable, enabling them to achieve better returns on investment.
Boosting Local Businesses and SMEs
In addition to attracting foreign investment, the low corporate tax rate is beneficial for domestic businesses, particularly small and medium-sized enterprises (SMEs). SMEs are crucial for job creation and economic growth, and FBiH’s low tax rate allows these businesses to retain more of their profits, which they can reinvest in innovation, expansion, and hiring. With more disposable income, these companies can scale up more quickly and compete in regional and global markets.
Sarajevo Canton: The Business Hub of FBiH
The Sarajevo Canton, as the capital region of Bosnia and Herzegovina, plays a central role in attracting investment within FBiH. Sarajevo has developed into a regional business hub, supported by its relatively well-developed infrastructure, skilled workforce, and growing startup ecosystem.
The Federation of Bosnia and Herzegovina, and particularly Sarajevo Canton, offers one of the lowest corporate tax rates in the world at just 10%.
When compared to both the Western Balkans and the European Union, this tax rate places FBiH in a highly competitive position, offering significant advantages for foreign and domestic businesses.
Although challenges remain in improving tax administration and regulatory processes, the low corporate tax rate provides a powerful tool for attracting investment, stimulating economic growth, and supporting the development of SMEs. By continuing to leverage its competitive tax advantage, FBiH can build on its position as a leading investment destination in Southeast Europe and beyond.