Bosnia and Herzegovina is small but beautiful country in heart of southeastern Europe with population of 3,2 million. Bosnia and Herzegovina is old European country with rich history and people here are very proud of it. In distant past, Bosnia and Herzegovina was independent medieval state and also part of great empires depending on the time we are talking about. In the recent past, after disintegration of the former Yugoslavia and war that we had here, Bosnia & Herzegovina is now independent state with legal structure of two entities, one is Federation of Bosnia and Herzegovina (FB&H) and the other is Republic of Srpska (RS). We have also third legal structure called Brčko District (BD). Bosnia and Herzegovina is not part of European Union (EU) but we are strongly on the way to become part of in following years.
Federation of Bosnia and Herzegovina has its own legal structure of ten cantons and the capital city Sarajevo is located in this entity. The process of setting up a new business in Bosnia and Herzegovina sometimes can be complex, and the requirements may vary based on the type of business and location where someone wants to invest. This is because jurisdiction is divided between state level and lower levels (entity canton or even municipalities). So, engaging with local partners and seeking professional assistance will greatly facilitate the process and help ensure a smooth establishment of your business in Bosnia and Herzegovina.
Setting up new companies, units, or sales offices in Bosnia and Herzegovina involves several steps and considerations. Market research is the first step. Possible investor should conduct thorough market research to identify the viability of his business idea in Bosnia and Herzegovina. In list of leading world-class foreign investors there are companies and banks such as Arcelor Mittal, Asamer Baustoffe, Coca-Cola, Heidelberg Cement, Henkel, Intesa Sanpaolo, Lactalis, MANN+HUMMEL, Meggle, Natron-Hayat, PepsiCo, Raiffeisen, UniCredit, Veritas,Volkswagen, among others. Also, in recent years there were very large investments in tourism and pharmaceutical industry everything related to those branches of economy.
Second step is to decide about legal structure of business such as a limited liability company (LLC), joint-stock company or maybe a branch office. The choice will depend on business needs, liability concerns, and ownership preferences. Registration of business could be accomplished in front of courts or in front of administrative authorities in their own special procedures. Bosnia and Herzegovina is small but open market, so, we welcome any foreigner investments and there are no limitations for foreigners regarding setting up new companies, so, legal rules are the same for Bosnians as for foreigners. Large percentage of companies in Bosnia and Herzegovina are LLC and if someone wants to start up with LLC in FB&H, minimum amount of start-up capital is 1.000,00 KM (500,00 Euros), while in RS minimum amount of start-up capital is 1,00 KM (0,5 Euros). At first is seams that in RS has better conditions for starting up companies, but after that 1,00 KM (0,5 Euros), very quickly investor needs to give more – less the same money that covers up those 1.000,00 KM (500,00 Euros) that are necessary for starting up companies in FB&H. So, basically it is the same conditions in all entities and Brčko District. Companies needs to have office premises, at least one employee – acting manager, bank account opened in local bank, accountant. In first month(s) of doing business in Bosnia and Herzegovina, investor should know that there could be only costs around 2.500,00 KM (1.250,00 Euros) up to 5.000,00 KM (2.500,00 Euros) (for example renting the office premises, paying an accountant, paying tax for the employee(s) and etc.). Suitable office space or commercial premises for company’s operations could be one of the biggest costs, so, investor should consider the location, accessibility, and infrastructure requirements for his business activities before even think about to rent office premises for the company needs.
If investor has good business plan which is third on my list, there are bigger
opportunities to develop a comprehensive business and even to ask some approvals and support from local authorities or potential domestic partners in business. A well-structured business plan, as we know, will be valuable when someone decide to invest in Bosnia and Herzegovina. That should be helpful for registration and licensing companies with the relevant authorities and also it would dictate the registration of potential business activities. This process will involve obtaining a unique identification number and necessary business licenses and permits.
Regarding taxation, Bosnia and Herzegovina has one of the lowest income tax rates and it is 10 %. Bosnia and Herzegovina has VAT tax rate of 17 % and companies are not obligated to be VAT payer until they reach limit of 50.000,00 KM (25.000,00 Euros) of taxable business turnover. These days, Assembly of Bosnia and Herzegovina should change the VAT law and that will up crease VAT limit to 70.000,00 KM (35.000,00 Euros) and maybe up to 100.000,00 KM (50.000,00 Euros). All businesses need to be registered in front of tax authorities for taxation purposes and Bosnia and Herzegovina has very strict rules for submitting monthly financial reports. Because of that investors should “familiarize” with the tax regulations and tax authorities in Bosnia and Herzegovina especially because high tax penalties for tax violations.
Bosnia and Herzegovina has large percentage of unemployment. Latest statistics say that it is 17 %. In past ten years Bosnia and Herzegovina lost thousands of her population because of emigration to the EU countries, so, that statistic number is not showing real picture of unemployment because major of those who went to EU are still listed as unemployed. If investors business requires employees, under the labour laws and regulations in Bosnia and Herzegovina he can employ local or foreigner worker without small limitations. For example, if workers are foreigners there are some strict rules regarding providing conditions for them to stay in Bosnia and Herzegovina and to get work licence for them. Also, hiring foreign worker implies that business owner already tried to find local worker but he did not find one.
Every worker needs to have employment contracts with specific working hours, with amount of wages, and other relevant information which needs to be submitted to tax authorities. Bosnia and Herzegovina has minimum wages around of 600,00 KM (300,00 Euros) and average wages are around of 1.300,00 KM (750,00 Euros). On that amount, employer pays tax contributions around 35 to 40 % and it depends on the level jurisdiction of tax authority.
The best advice for foreign investor is to seek professional support throughout the process of starting up business in Bosnia and Herzegovina. Investor should consider consulting with local legal and financial advisors (lawyers – accountants) who are familiar with the specific requirements for setting up businesses in Bosnia and Herzegovina. They can guide through the legal procedures and offer valuable insights. Investor should be aware
of the local language and cultural nuances. English is very often used in business communications, but having some knowledge of the local language can be advantageous.
When doing business with Bosnian counterparts, it's important to understand the cultural and business etiquette of Bosnia and Herzegovina. Bosnians are very friendly and open nation. In Bosnia and Herzegovina you can find Bosniaks (muslims), Croats (catholic) and Serbs (orthodox) who are living there for centuries. Establishing personal relationships and trust is crucial in Bosnian business culture. So, anyone who thinks to do some serious business in Bosnia and Herzegovina should take the time to build rapport and develop a friendly relationship with Bosnian counterparts before diving into business matters.
Initial business interactions in Bosnia tend to be more formal, but in fact they are not when time passes. Addressing to counterparts by using professional titles is not necessary, but it is usual to use surnames until you are invited to use first names in conversations. Bosnians appreciate direct and straightforward communication and by doing that it is important to maintain a respectful and polite tone during conversations. Avoid being overly aggressive or confrontational or to speak from above.
Bosnians may have a more relaxed attitude towards time. It’s not uncommon for meetings to start a bit late, so it’s advisable to be patient and flexible. For initial meetings, everyone should dress professionally in suits or formal dresses, but later, as you develop a relationship, the dress code may become more relaxed. Exchanging business cards is common in Bosnia but it is not necessary to have it. If business cards are printed in Bosnian and English that will be appriciated. Before putting it away, everyone should take a moment to study the card you received.
Many Bosnians speak English as their second language. Also German language is in use as well. If you know few basic greetings and phrases in Bosnian that should give you advantage among others foreigners for “small talks” which usually grows to bigger business talks. This effort is appreciated and shows respect for Bosnians.
Meetings often start with small talk and casual conversation before moving onto business matters. If someone offers coffee, you should ask for Bosnian coffee and it will be appreciated. Also, be prepared to first answer personal questions about your family, friends, trips that you had in your life, then about your company, its background, and your business experience.
Negotiations in Bosnia can be a slow and detailed process. Be patient and avoid pressuring your counterparts. It’s important to build trust and reach a mutually beneficial agreement. Do not be surprised if you get invitation for a lunch or dinner in the middle of negotiations. Sometimes that means that you got the job. After meetings, it’s customary to send some email or even to call your Bosnian counterpart and to thank them for their hospitality. This demonstrates your interest in them and will ensure that your propositions will be considered with much care than usual.
At the end, please remember that these are general guidelines and individual experiences may vary. It is always a good idea to adapt your approach based on the specific individuals you are dealing with. I hope that this review will help you in your project.
Article Written By
Lawyer Emir Šahinpašić
Branislava Đurđeva 8, 71 000 Sarajevo
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