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What global businesses need to know about payroll in Bosnia & Herzegovina
Bosnia & Herzegovina has made impressive strides in the business world following the challenges it faced during the 1990s conflict. Its GDP is now around five times what it was at the turn of the millennium, and in a sign of its ongoing stability, this country of around 3.2 million people became an official candidate for European Union membership in December 2022.
This Balkan nation still relies on heavy industry for nearly 30% of its GDP, with major presences in steel, raw materials and the automotive sector in particular. However, its services sector is becoming stronger all the time, supported by a greater influx of tourists from across Europe and beyond. And if this wasn’t enough to tempt foreign businesses, tax rates are low – income tax and corporation tax both run at 10%, while employer social security contributions are also relatively small.
But it isn’t all plain sailing. The country is split up into three distinct and largely autonomous territories: the Federation of Bosnia & Herzegovina, the Republika Srpska, and the District of Brcko. As you’ll read in this guide, there are some substantial differences in payroll and employment regulations between the different areas, which can make running payroll in Bosnia & Herzegovina especially complicated at times.
Getting Started
The exact registration requirements for companies in Bosnia & Herzegovina vary based on the district in which they choose to operate. However, all companies must draft an act of establishment stating their information and intentions, which must be notarized. Businesses will register with the Business Register Agency, and then the relevant tax administration of the region concerned to obtain a tax ID number.
Companies are required to open a local bank account, which can take up to five weeks to establish. Business owners will need their registration from both the court and tax administration, ID documents, and the signatures of those who will be allowed to access the account. You’ll also need to apply for any relevant licenses and permits that apply to your industry.
Generally speaking, you should expect to provide a minimum share capital of BAM 2000 (approx. £870; $1110; €1020), and allow up to three months to complete all the main procedures.
Employment Considerations
Written contracts are required between employee and employer. Collective bargaining is allowed in Bosnia and Herzegovina, though the exact influences will vary per industry. Many employees have weak relationships with their unions, which can lead to confusion and strife for employers if they are unfamiliar with the organizational structure.
The standard working week is in line with much of the rest of Europe, at 40 hours spread across eight-hour shifts, Monday to Friday. Overtime pay is regulated by contractual negotiations and collective bargaining, but there are statutory minimums of 125% in the Federation, and 130% in the Republika. Throughout the country, pregnant women and those with very young children can only work overtime with their written voluntary consent.
Notice periods are between 14 days and three months in the Federation, and a minimum of 15 days in the Republika. Probation periods are a maximum of six months nationwide.
Compensation, Bonuses & Severance
As of the start of 2024, the monthly minimum wage was BAM 1000 (approx. £435; $555; €510) in the Federation, and BAM 900 (approx. £395; $500; €460) in the Republika. However, collective bargaining agreements may stipulate additional compensation for specific employees.
Christmas bonuses are customary in Bosnia, but they are not required by the federal government. The bonus amount is usually a percentage of the basic salary, which will vary by industry.
Severance pay is a minimum of one-third of a month’s salary per year of service, up to a maximum cap of six months’ salary for those with 18 years’ service or more. Collective bargaining often determines higher per-year rates, meaning the maximum cap is reached much sooner.
Tax and Social Security
Income tax in Bosnia & Herzegovina is levied at a flat rate of 10%. Personal allowances vary across each territory, with extra allowances permitted depending on the number of dependent family members the employee has. Corporation tax is also levied at 10%, while VAT runs at 17%.
Social security also varies substantially across the three districts. Employers contribute 10.5% in the Federation, 6% in Brcko and nothing at all in the Republika. Employees contribute 31%, reducing to 30.5% in Brcko.
Holidays and Leave
Paid leave entitlement is a minimum of 20 and a maximum of 30 working days per year. At least 12 days should be taken in one block, and any unused holiday can be carried over into the first half of the following year. Employees are also entitled to four days off per year (two paid, two unpaid), for religious or traditional reasons.
Public holidays are largely separated between the Federation of Bosnia & Herzegovina, and the Republika Srpska. Only the New Year’s holidays (January 1 and 2), and the Labour Day holidays (May 1 and 2) are observed by both territories: the Federation has a further six days of public holiday, and the Republika has a further eight.
Minimum maternity leave is between 42 and 60 days post-birth, varying across different parts of the country, and is paid at 50-80% of regular wage by social security. Mothers have the right post-maternity leave to work half their regular hours until their child turns two. Paternity leave varies between three and seven days and is unpaid.
Paid sick leave entitlement is at full salary, but the amount the employer covers before social security takes over is variable: 42 days in the Federation, but only one month in the Republika.
In Summary
This guide ably demonstrates that running payroll in Bosnia & Herzegovina can often feel like dealing with two or even three different countries simultaneously. Add in the variables that collective bargaining can generate, and it’s easy to see why some businesses struggle to stay compliant with all their requirements. Of all the countries in Europe where you might be considering an expansion, this is one where the need for local expertise and a global payroll partner is especially important.
This article is for informational purposes only and is not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.