Introduction of VAT in BiH was followed by basic principles:
- The single state level VAT system replaces the entity level sale tax
- Indirect Taxation Authority is the single institution responsible for calculation and collection of VAT
- VAT is paid to the Single Account open at the BiH Central bank
- BiH VAT Law is in accordance with the EU 6th Directive on VAT.
Value Added Principle
VAT registered traders are calculating VAT on performed taxable supplies of goods and services and that is considered output VAT. Traders deduct VAT charged by their suppliers and that is considered input VAT.
This means that the traders only pay VAT on the value that they add to their goods or services.
The following example clarifies collection of VAT in each supply phase.
Subject of the supply
Sales Value without VAT
VAT on added value
Amount of VAT for payment
|5=3 + 4
|102-34 = 68
|136-102 = 34
|170-136 = 34
|442-272 = 170
Generally, VAT is not a company cost since companies deduct the VAT they have paid on their purchases from the VAT they charge for their supply of goods and services. Therefore, the businesses are only paying the difference between the VAT they charge on their sales and the VAT they pay on their purchases. The total amount of VAT is a cost of the final consumer in the supply chain.
Taxable and non-taxable activities and deductions
Most of the goods and services are taxable. The taxpayers are obliged to charge VAT when supplying the goods and services. VAT must be calculated if the goods and services are used in non-business purposes.
Taxpayers selling VAT exempt goods or providing VAT exempt services neither can charge VAT nor can deduct the VAT paid on their purchases. In such cases input VAT is considered the cost of a taxpayer.
Special schemes and taxation procedures
Collection of VAT on supplies of goods and services related to the construction of immovable property is a subject of special scheme.
Special taxation procedures exist for the following as well:
- small companies
- services provided by travelling agencies and tour operators
- supply of second hand goods, works of art, collector’s items and antiques, and
- supply of goods on public auction
VAT on import and export
A taxpayer who purchases goods from abroad must pay VAT when the goods are imported.
A taxpayer that exports goods and services shall not charge VAT on those sales, but is entitled to request refund of VAT paid on his purchases.
A taxpayer is entitled to deduct the VAT paid on his purchases and on the importation of goods for the purpose of his business. The deductible amount is the amount of VAT shown on his purchase invoice. The deductible amount of imported goods is the amount of VAT paid at import.
A taxpayer is not entitled to deduct input VAT for the following:
purchase, production and importation of passenger automobiles, buses, motorcycles, vessels and aircraft and any spare parts for such means of transport, fuels and consumable materials for transportation purposes, as well as renting, maintenance, repairs and other services connected to the use of these means of transport, unless they use the means of transport and other goods exclusively for carrying out their business activity:
- expenses for business entertainment and accommodation;
- representation expenses of the taxpayer and employees;
- payments in kind to employees.
If the taxpayer only partially uses the goods and services in business purposes he is also entitled to partial deduction of VAT.
VAT Exempt Activities
Activities in the public interest:
- public postal services, except telecommunications services,
- medical and healthcare services,
- social security services,
- services of education,
- services in the field of sport and sports education, which are supplied to individuals by the persons whose activity is not focused on the acquisition of profit
Financial and monetary services:
- insurance and reinsurance services,
- the supply of immovable property, except for the first transfer of the ownership rights or the rights to dispose of newly-constructed immovable property,
- the leasing and sub-letting of residential premises for a period of longer than 60 days,
- financial services (the approval and management of credits; services relating to the management of deposits, savings and bank accounts, conducting payment transactions, trading in shares or other forms of participation in companies; investment fund management)
- current postage stamps, tax stamps, and administrative and court stamps, and
- games of chance.
- the supply of vessels with fuel and other goods used for sea rescue and assistance at sea and for navigation on the high seas which transport passengers for consideration or which are intended to perform commercial, industrial or fishing activities
- the purchase, repair, and lease of aircraft used by airlines for flights on international routes, the supply of fuel and other goods to the mentioned aircrafts.
BiH VAT rate is 17%.
The rate is charged to the price without VAT. The amount of VAT that should be added to the price of the item may be calculated by multiplying the price without VAT with the tax rate, as follows:
The price without VAT is 100 KM, and the tax rate is 17%. The amount of VAT that should be calculated is 100 KM x 17% = 17 KM. The price with VAT is 117 KM. If VAT is calculated on sales price with VAT included then recalculated tax rate should be applied as follows:
In that case applying the VAT recalculated rate to sales price (with VAT) results in VAT amount.
The price with VAT is 117 BAM, and the VAT rate is 17%.
VAT recalculated rate:
VAT amount = 117 x 14,53% = 17 BAM
Price without VAT = 117-17 = 100 BAM
The tax base services shall be the taxable amount of consideration which has been or is to be received by a taxpayer for supplied goods or services, including subsidies directly linked to the price of such goods or services. The tax base also includes excise duties, customs duties (except for VAT), indirect costs (commissions, costs of packaging, transport, insurance), costs of returnable packaging and any other costs charged to the buyer. The tax base shall be decreased for any discounts approved to the buyer.
Incurrence of tax liability
The liability to tax shall be incurred at the moment when one of the following activities is performed, whichever is the earliest:
- the delivery of the goods or the performance of the services;
- issuing of an invoice;
- payment or part-payment;
- incurrence of the liability to pay a customs debt on the importation of goods;
- on the expiry of the tax period during which the supply was performed in non-business purposes or in which the goods produced were used for producer’s own needs;
- when the invoice is issued and VAT amount corrected due to subsequent change of tax base.
Issuance of an invoice
For every supply of goods and services the VAT taxpayer is obliged to issue VAT invoice to the buyer containing all the elements specified in the Law.
VAT calculation period, submission of tax return and payment
VAT calculation period is one calendar month. VAT taxpayers are obliged to submit the return and pay VAT within the period from the 1st to the 10th of the month following the expiry of tax period. The difference between total amount of output and input VAT calculated in tax period represents the amount of VAT liability for payment or the amount of VAT refund.
VAT return forms are sent every month to registered VAT taxpayers to their company’s addresses, but they are also available in the ITA regional centres and this website.
Prompt and correctly completed returns are the best way to avoid trouble.
Accounting for VAT
In order to have all necessary information for submitting tax return the taxpayer must have a proper and consistent VAT accounting system. Different types of sales transactions (normal supply, exports, and non-taxable operations) and different types of purchases (taxable purchases, imports, exempt purchases, purchases of capital goods) must be booked in separate accounts. The reliability of the VAT calculation will be subject to audits by the ITA.