New tax convention with Bosnia-Herzegovina

In December 2008 Austria signed a Double Taxation Convention (DTC) with Bosnia-Herzegovina. Experts expect it to enter into force after its ratification by the two parliaments, at the earliest on 1 January 2010. Austria’s economy is one of the largest direct investors in this Balkan State. Compared with other states of the region, such as Serbia or Croatia, the country still lags behind. This is mostly due to its difficult political situation.

The convention aims at avoiding double taxation of incomes of natural and legal persons of both countries. Among other details it stipulates which state is competent for levying taxes on business profits, properties or incomes of natural persons. According to this convention profits of an Austrian company with a permanent Bosnian establishment are assed in Bosnia-Herzegovina, if they can be assigned to this permanent establishment. The DTC defines branches, works or factories as permanent establishments. Building or erection work only comes under this regulation if taking more than twelve months. 

Last year € 151 million of Austrian capital were invested in Bosnia-Herzegovina, which is about the level of 2007. In 2008 foreign direct investors invested about € 700 million in the country’s economy, which is less than half the amount of 2007. But in 2007 the Bosnian-Serbian telecommunications carrier Telecom Srpske was sold to the Serbian Telecom for
€ 640 million. Almost half of the investments went into the production sector, a quarter into trade and 13 per cent into the service sector.

Among other things the motorway construction is considered a possible economic impulse. At the end of 2008 the Austrian building concern Strabag fixed a building order worth about € 2,9 billion for the Serbian part of the country. It comprises the construction of a motorway network with a total length of 397 km which will also be operated by the building company for 30 years. The construction work shall already begin in the middle of 2009.

According to the recent Quarterly Report for Eastern Europe of the Italian UniCredit Bank Bosnia’s economy grew by 5,8 per cent last year. This year, due to the international economic crisis, the economy is expected to grow much more slowly – only by 2,5 per cent.

Even more than 13 years after the end of the war in Bosnia (1992-95) the country’s national structure is one of the most important political controversial subjects. Many observers consider the difficult present construction a stumbling block for the country’s political and economic development.

Basically the country is structured in two parts, so-called entities. The majority of inhabitants of the Federation Bosnia-Herzegovina are Bosnians and Croatians, who inhabit 51 per cent of the country’s territory, while the Republica Srpska is inhabited by a majority of Bosnian Serbs. As no agreement over the town Brcko could be achieved after the war, the town was defined a separate ”district” and was placed under the control of the state Bosnia-Herzegovina.

Further political development is concentrated in the hands of the two entities, but all-state reforms require the consensus of the two entities on the one hand and that of the three ethnic groups –Bosnians, Serbs and Croatians – on the other. Important political functions are filled according to a national distribution code.

Zitat:
Bosnia-Herzegovina consists of two constituent republics: the Republica Srpska with 49 per cent and the Federation of Bosnia and Herzegovina with 51 per cent of the territory. From the: Dayton-Paris Agreement, 1995; source: Wikipedia