How to Enter the Market of Bosnia and Herzegovina as a Czech Company

Doing Business in Bosnia and Herzegovina and Its Reality

However, the reality is more sobering, and lower direct taxes are offset by a high administrative burden. Entrepreneurs encounter inconsistent interpretations of regulations and high social security contributions. To configure tax impacts and related contribution obligations in practice, it can be relevant to use tax advisory services. The lawyers at ARROWS law firm deal with this issue daily and know how to avoid these risks.

Legal Division of Bosnia and Herzegovina

The first specific challenge for Czech entrepreneurs is the fact that Bosnia and Herzegovina is not a legally unified jurisdiction. The country is divided into two entities and one district, each with its own separate legal framework:

1. Federation of Bosnia and Herzegovina (FBiH)
2. Republika Srpska (RS)
3. Brčko District (BD)

Each of these parts has its own company law, tax administration, social security laws, and its own registers. This means that the labour law in the Federation differs from the law in the RS, and the procedures for company registration and the amount of court fees are also different.

A Czech entrepreneur often has no idea which rules apply to them, and the legislative fragmentation requires expert guidance. One cannot rely on general information, as the rules valid in Sarajevo (FBiH) may not apply in Banja Luka (RS). For cross-border structures and setting up responsibilities between a parent and subsidiary company, it typically pays to consult on corporate law, holdings, and structures.

Company Registration and Administrative Demands

Establishing a limited liability company (d.o.o.) appears to be financially undemanding. In Republika Srpska, the minimum share capital is 1 BAM, while in the Federation of BiH it is 1,000 BAM.

The currency exchange rate is fixed, which provides some stability. Registration is done through the courts, and in recent years, there has been partial digitalization, especially in the RS.

Hidden Pitfalls of the Process

The registration in the commercial register itself is only the first step, immediately followed by other obligations. Failure to comply with them is penalized.

The first problem is tax registration and the classification of activities. During registration, you must state the object of your business according to the local classification, which affects the need for other special permits. If you invoice for an activity that is not registered, you risk penalties from the market inspectorate.

The second problem is mandatory VAT (PDV) registration. The threshold for mandatory registration in BiH has been increased to an annual turnover of 100,000 BAM. If you exceed the threshold, you must become a VAT payer, and while voluntary registration is possible, it binds you for a minimum period.

The third problem involves bank accounts and AML rules. In connection with bank requirements and client verification, it may be useful to refer to the new article Online Marketplaces (Peer-to-Peer): AML Risks for Operators and How to Defend Against Them. Banks in BiH are subject to strict anti-money laundering rules and require extensive documentation on the ultimate beneficial owner. Without an account, you cannot deposit the capital or register the company with the tax authority.

ARROWS law firm helps entrepreneurs prepare the founding documents and handles communication with banks and courts. This ensures that the entire process runs smoothly and without unnecessary delays.

Tax Obligations and the Contribution System

The corporate income tax rate of 10% is the main attraction for investors. The absence of a dividend tax for residents is also a benefit in some cases, but the situation is more complicated for Czech shareholders due to withholding tax.

The first problem is tax-deductible expenses. The rules for tax-deductible expenses in BiH are stricter than in the Czech Republic, and incorrect calculations lead to tax reassessments. For example, representation costs or donations have specific limits.

The second problem is withholding tax on the payment of dividends or interest abroad. In the Federation of BiH, the rate is usually 5%, while in Republika Srpska it is 10%. Thanks to the Double Taxation Treaty, the tax can be credited, but the process requires perfect administration.

The third specific feature is the regime for small entrepreneurs in the RS. In Republika Srpska, there is a system for small entrepreneurs with an annual income up to a certain amount who pay tax on their total income. Exceeding the limits without reporting a change in regime is a frequent source of penalties.

The fourth problem is fiscalization, which applies in both entities. Every sale of goods and services must be recorded through a certified fiscal device. Failure to comply with the rules leads to the closure of the business premises and fines.

The fifth problem is high contributions. While the profit tax is low, social security contributions from wages are high and constitute a significant cost item. An error in wage calculation is a frequent reason for fines during labor inspections.

Social Security Contributions

The social security system is fragmented. In the Federation of BiH, approximately 31% is deducted from the gross wage, and the employer contributes an additional 10.5%. In Republika Srpska, contributions are paid from the gross wage at a rate of approximately 31%, but the definition of gross wage is different.

Labour Law and Employer's Obligations

Labour law in BiH is quite formalistic. Key obligations include:

1. Employment contract: It must be in writing and contain the statutory requirements. An oral agreement is considered an indefinite-term employment relationship.

2. Employee registration: The employee must be registered for insurance no later than the day before starting work.

3. Wage protection: Deductions from wages cannot be made without the employee's written consent or a court decision.

4. OHS: The regulations are harmonized with EU standards and require extensive documentation.

Specifics of Employing Foreigners

A major issue is the employment of foreigners, including Czech citizens. It is necessary to obtain a work permit and subsequently a residence permit, a process that takes several months. Working without a permit leads to deportation and a fine.

Another point is the minimum wage, which the governments of both entities regularly increase. Paying part of the wage off the books is a criminal offense and is strictly controlled by the authorities. In 2026, the net minimum wage is around 900–1000 BAM.

Terminating an employment relationship is also a complex process. Termination by the employer must have a legal reason and follow a formal process. Courts often rule in favor of employees and order compensation for lost wages.

Commercial Relationships and Enforceability of Law

The judicial system in BiH struggles with long-term problems and inconsistent case law. An average commercial dispute can last 3–5 years, and even longer in case of an appeal, which makes the enforceability of law very low.

Risks in Contracts

Relying on oral agreements or simple purchase orders is risky in BiH. If a dispute arises, the court will require written evidence, and Czech companies often underestimate the choice of law and jurisdiction.

Unless you specify otherwise in the contract, the dispute is governed by BiH law and decided by a local court. We recommend including an arbitration clause or the jurisdiction of a reliable court, if permitted by private international law. It is also important to use security instruments, such as bills of exchange or bank guarantees.

Debt Recovery

If a debtor fails to pay, there are several options for resolution:

1. Enforcement: A motion for enforcement based on an invoice, against which the debtor can, however, file an objection.

2. Out-of-court collection: Often a more effective method than court proceedings.

3. Court proceedings: A costly and lengthy process requiring payment of fees in advance.

In BiH, prevention and quality security are many times cheaper than subsequent dispute resolution. Investing in high-quality contractual documentation always pays off in this environment.

Cross-Border Business and Permanent Establishment

If a Czech company provides services in BiH on a long-term basis, it may create a permanent establishment. This creates an obligation to register for corporate income tax and pay taxes on income earned in BiH, and ignoring this obligation leads to penalties.

The issue of VAT on cross-border services is also complex. It is necessary to analyze each transaction and determine whether to pay VAT in the Czech Republic or to register for tax in BiH. The rules are governed by the place of supply and require a detailed assessment.

The lawyers at ARROWS law firm have experience with international taxation and the application of double taxation treaties. This allows us to set up your cross-border activities to be tax-efficient and secure.

Recommendations for Safe Business Operations

• Invest in preparation: The cost of a lawyer at the start is a fraction of the cost of resolving future disputes.
• Keep everything in writing: Contracts should ideally be bilingual.
• Respect the entities: Verify the validity of licenses for both the Federation and Republika Srpska.
• Monitor your accounting: Hire a local certified accountant.
• Secure legal support: ARROWS law firm provides comprehensive services from contracts to representation in disputes.

Law Firm's Liability Insurance

When doing business in riskier territories, it is crucial to have a partner who guarantees their services. ARROWS law firm is insured for up to CZK 350 million in case of professional malpractice. This insurance policy and our long-standing practice guarantee that your expansion into BiH will have a solid legal foundation.

Conclusion

Doing business in Bosnia and Herzegovina offers interesting opportunities, but the legislative environment is fragmented and demanding. Without knowledge of the differences between the entities and without high-quality contracts, a Czech entrepreneur is exposed to unnecessary risks.

The lawyers at ARROWS law firm deal with these problems daily. We help our clients set up their business structure to be secure and tax-efficient in accordance with the current legal order.

If you would like to consult on your specific situation, write to us at consultation@arws.cz .