The Government of the Federation of Bosnia and Herzegovina, adopted the Draft Law on Amendments to the Law on Contributions, as proposed by the Federal Ministry of Finance. The draft law will now proceed to the Parliament of the Federation of BiH for further consideration and adoption under an expedited procedure.
Significant Reduction of Contribution Rates in Sarajevo Canton
The proposed legislative changes introduce a reduction in the total contribution rate by 13.25%—specifically, from 41.5% to 36%, representing a decrease of 5.5 percentage points. The reduction applies to both pension and disability insurance contributions (a decrease of 3.5 percentage points) and health insurance contributions (a decrease of 2 percentage points), both payable by employers.
This reduction will apply equally across the entire Federation of BiH, including Sarajevo Canton, which represents the economic and administrative heart of the Federation and a key hub for both domestic and foreign investment.
Strategic Importance for Investment Climate in Sarajevo Canton and Beyond
This measure is a crucial step in enhancing the overall investment climate in the Federation of BiH, and particularly in Sarajevo Canton, which serves as the primary economic engine and investment destination within the Federation. By directly lowering labor costs for employers, the government is creating a more competitive environment for both local businesses and international investors. High labor costs have long been cited as a barrier to greater foreign direct investment (FDI), and this reform directly addresses one of the most pressing financial burdens for businesses operating in the Federation and Sarajevo Canton.
Part of a Broader Fiscal Reform Package
The proposed amendments form part of a comprehensive fiscal reform agenda being pursued by the Federation’s Government. Alongside changes to the Law on Contributions, the government is also working on new laws governing income tax and broader taxation policies, all aimed at modernizing the fiscal system and fostering economic growth throughout the Federation, including in Sarajevo Canton.
Relief for Employers and Economic Growth
One of the primary goals of this legislative initiative is to ease the financial burden on businesses and reduce payroll costs, especially for employers who will face higher wage expenses in 2025 following the implementation of the new minimum wage regulation.
By reducing payroll taxes, the government is not only supporting the existing business community but also making Sarajevo Canton and the wider Federation more attractive for future investments.
Alignment with Constitutional Court Ruling
Additionally, the proposed changes ensure full compliance with the ruling of the Constitutional Court of the Federation of Bosnia and Herzegovina (U-22/21) dated March 21, 2023, further reinforcing legal certainty for businesses and investors.
Implementation Timeline
The proposed amendments will enter into force the day after publication in the Official Gazette of the Federation of BiH, with their application set to begin on July 1, 2025. This provides businesses in Sarajevo Canton and across the Federation with a clear timeline to plan and adjust their financial projections accordingly.
A Signal to Investors: Federation of BiH and Sarajevo Canton are Open for Business
By lowering labor costs and modernizing the fiscal framework, the Government of the Federation of BiH is sending a strong signal to investors—the region, including Sarajevo Canton, is actively working to improve its business environment, reduce administrative burdens, and enhance legal and fiscal predictability. These steps are vital to attracting new investments, stimulating job creation, and ultimately accelerating economic development across the Federation and in its capital region.
