Double Taxation in Bosnia and Herzegovina – How It Arises and How to Legally Avoid It
Double Taxation in Bosnia and Herzzegovina arises when the same income becomes subject to taxation both in Bosnia and Herzegovina and in the country from which the income originates. In practice, it is often first noticed when the payment arrives: a company owner invoices a client in Germany or Austria, but the amount received is lower than the invoiced amount. The difference is not a mistake by the client—it is withholding tax deducted in the source country. That same income may then also become part of the taxable base in Bosnia and Herzegovina.
Fortunately, this issue can be resolved, but not automatically. Countries address it through bilateral agreements officially known as Double Taxation Agreements (DTAs) or Agreements for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital. In this guide, we explain how double taxation arises, the different forms it can take, who it affects, and how these agreements are applied in practice.
What Is Double Taxation and Why Does It Occur?
Double taxation occurs when two countries simultaneously have the right to tax the same income. Neither country is violating regulations in this situation — both are acting according to their own laws, and these laws regularly overlap in international business.
The principle of residence means that a country taxes the worldwide income of its tax residents, regardless of where that income was generated. If you are a resident of a particular country, that country claims the right to tax income earned abroad as well.
The source principle means that a country may tax income generated within its territory, regardless of who receives it. A payment made to a foreign service provider is still considered income whose source is in that country.
When a company from one country receives payment for services from a client in another country, both principles apply to the same amount. The source country withholds tax at the time of payment, while the country of residence includes the same income in the annual tax base. In that case, without applying a tax treaty, the same income is taxed twice.
Two Types of Double Taxation: Legal and Economic
The difference between these two forms is not merely academic — they are addressed through different mechanisms.
Legal double taxation exists when the same person pays tax on the same income in two countries. Example: a consulting company registered in Bosnia and Herzegovina invoices a client in Austria. The client withholds tax at source and pays it to the Austrian tax authority, while the company reports the same income as profit in Bosnia and Herzegovina. This type is resolved through international tax treaties.
Economic double taxation exists when the same money is taxed at two different levels or by two different entities. The most common example: a company pays tax on its generated profit, and then the owner pays an additional tax when that already-taxed profit is distributed to them. This type is not resolved through tax treaties, but through choosing a jurisdiction where the second stage of taxation does not exist or is lower.
Who Is Most Commonly Affected?
Companies providing services to foreign clients. IT companies, agencies, and consultants are the most exposed, as many countries apply withholding tax on payments made to foreign service providers. The client withholds a portion of the amount before payment, and you recover that money through a procedure in the foreign country — if you initiate it at all. In practice, most people do not.
E-commerce sellers. Once a sales threshold is exceeded in a particular country, an obligation to register for VAT and a local tax liability may arise, regardless of where the company is registered. Combined with obligations in the home country, managing operations becomes complex once several markets are involved.
Holding and group structures. Every payment between a subsidiary and a parent company passes through the tax systems of both countries. Without an agreement that reduces withholding tax rates, the overall tax burden may eliminate the financial rationale of the structure itself.
Owners who live in one country while having a company in another. Without clearly documented tax residency, both countries may claim that you are their tax resident. This is a common situation among business owners from the region who live in one of the EU countries.
If you receive payments from multiple countries, the company structure determines how much of the collected revenue you actually retain.
Having a registered office in the Brčko District provides access to the network of tax treaties applied by Bosnia and Herzegovina.
Double Taxation Agreements (DTAs)
Countries resolve this issue through bilateral agreements that allocate taxing rights in advance. Their official name is Agreement for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, and the two countries that conclude such an agreement are referred to in the text as the contracting states.
Bosnia and Herzegovina applies around forty such agreements — some were signed independently, while others were taken over through notification of succession. The network covers key partners, including Germany, Austria, Italy, the Netherlands, and Turkey. Among neighboring countries, Bosnia and Herzegovina has agreements with Serbia, Croatia, Montenegro, and North Macedonia, while Serbia and Croatia are also markets from which companies in the District most frequently receive payments. The current list is maintained by the Ministry of Finance and Treasury of Bosnia and Herzegovina.
Each agreement regulates four key areas:
Permanent establishment — under what conditions a company is considered to have a taxable presence in another contracting state. Without this rule, almost any activity abroad could create a local tax obligation.
Allocation of taxing rights by type of income — business profits, dividends, interest, royalties, and income from immovable property are treated separately. For each category, the agreement determines which country may tax that income and up to what amount. In the case of dividends and interest, both countries generally have the right to tax the same income, but the tax rate in the source country is limited by a maximum threshold.
Method of elimination — the exemption method or the credit method. Under the first method, the country of residence exempts income that has already been taxed in the other contracting state. Under the second method, that income is included in the domestic tax base, but the foreign tax paid is credited against the tax liability, so only the difference is payable.
Residency criteria — the sequence of rules used to determine which country you are considered a resident of when both countries claim that status.
Tax treaties have higher legal authority than domestic regulations. If a provision of a treaty differs from a rule in domestic legislation, the treaty provision applies. For the contracting states, the obligation works both ways — the same rule that protects a company from Bosnia and Herzegovina in Germany also protects a German company operating here.
How Are Double Taxation Agreements Applied in Practice?
The agreement does not apply automatically. In order for it to be applied, you must prove that you are a resident of a contracting state.
The main document is a tax residency certificate, issued by the competent authority. You provide it to the foreign payer before the payment is made. Based on this certificate, the payer applies the reduced tax rate from the agreement instead of the full domestic rate — meaning a larger portion of the income reaches your account directly, without the need for a subsequent refund procedure.
If part of the tax has nevertheless been withheld in another country, that amount is treated as a tax credit in the annual tax return, according to the method prescribed by the specific agreement.
The same principle applies in reverse: when a company from the District pays income to a foreign legal entity, the reduced tax rate applies only if the recipient provides proof of tax residency. Documentation is not a formality — it is a requirement in both directions.
The validity period of a tax residency certificate varies by country, so in practice it is usually obtained once a year. The most common mistake is submitting the certificate only after the tax has already been withheld. In that case, the only remaining option is a refund procedure in the foreign country — it can take months, requires translations and certifications, and due to the costs involved, it is often never initiated.
What Does This Mean for a Company in the Brčko District?
A company registered in the Brčko District is a fully recognized legal entity of Bosnia and Herzegovina and has the right to use the entire network of tax treaties applied by Bosnia and Herzegovina. This represents a concrete advantage for companies whose clients are located in countries with high withholding tax rates.
In addition, the Brčko District has its own tax legislation, separate from the entity-level regulations. The corporate income tax rate is 10%, and the treatment of payments made to owners differs from that in the Federation of Bosnia and Herzegovina and the Republika Srpska.
It is also important to understand the limitation: registration in the Brčko District resolves the issue of access to tax treaties and the local tax framework, but it does not eliminate obligations you may have in the country where you personally live. If you are a tax resident of another country, its regulations still apply to your personal income. Therefore, the decision on jurisdiction should always be considered together with the issue of personal tax residency, not separately.
For companies considering where to register their headquarters due to international business activities, both the legal framework and practical procedures are relevant — more about this is covered in the guide on offshore companies in the Brčko District.
The issue of jurisdiction and the issue of personal tax residency must be addressed together.
We take care of the documentation, communication with institutions, and the entire process.
Steps You Should Take
- Map your sources of income. Make a list of the countries from which you receive payments and check whether Bosnia and Herzegovina has a tax treaty with each of them.
- Determine the treaty rate. For each type of income — services, dividends, interest, royalties — the agreement sets a different limit.
- Document tax residency. Both the company’s tax residency and your personal tax residency, if you live in another country.
- Obtain the certificate and provide it to payers before the next invoice, not afterwards.
- Check the controlled foreign company (CFC) rules in the country where you live, as they may affect the tax treatment of a company registered abroad.
The next step is choosing a headquarters from which you can use that network of tax treaties.
We take care of the preparation of documentation, communication with institutions, and the entire process.
Frequently Asked Questions
Is Avoiding Double Taxation Legal?
Yes. The application of international agreements is a mechanism established by countries themselves and is used based on the required documentation. It differs from tax evasion, which involves concealing income or making false declarations.
Does Bosnia and Herzegovina Have an Agreement With My Country?
Bosnia and Herzegovina applies around forty agreements, including all key European economies. For a specific country and type of income, check the current list of the Ministry of Finance and Treasury of Bosnia and Herzegovina or contact us.
Who Issues a Tax Residency Certificate?
The tax authority responsible according to the company’s registered headquarters. For companies registered in the Brčko District, this is the Tax Administration of the Brčko District of Bosnia and Herzegovina.
What If Tax Has Already Been Withheld Abroad?
Then the method provided in the agreement is applied — credit or exemption. The withheld amount is documented with a certificate from the foreign payer and used in the annual tax return.
Can I Have a Company in the Brčko District While Living in Another Country?
Formally yes, but the tax treatment depends on the regulations of the country where you live. Some countries have controlled foreign company (CFC) rules — under these laws, a company registered abroad may be attributed to the owner, and its income may be taxed at the individual level. Check before registration, not after.