IA Law Firm Bosnia has been monitoring since October 2023 a dramatic shift in legal practice that Director May Be Personally Liable for a Company’s VAT Debt, arising from the ruling of the Court of Bosnia and Herzegovina, which confirmed that the Indirect Taxation Authority (ITA BiH) may collect VAT directly from the personal assets of a director when the obligations of a company – a limited liability company (LLC) – cannot be settled through the company’s assets, reports Capital.ba. This case has sparked a debate on director liability, corporate governance, and the risks that may undermine entrepreneurial security and investor confidence. According to unofficial sources, extraordinary legal remedies have been initiated against the ruling, but proceedings are lengthy, with no foreseeable change in the practice adopted by the ITA.
Legal Basis and Individual Liability of Directors
In its decision, the Court confirmed that the ITA – after enforcement proceedings failed to result in debt settlement – acquired the right, under the Law on Enforcement of Indirect Taxes, to shift the burden of liability onto the director. The main reasoning of the judgment emphasizes that it was indisputably established that the plaintiff (the director) personally managed the business of the principal debtor, disposed of the company’s funds, made decisions on the payment of indirect taxes and on compliance with enforcement orders, and approved the spending of resources.
In other words, he made decisions in line with the provisions of indirect taxation and enforcement regulations but failed to take measures within his competence to settle the obligations of the principal debtor. Consequently, the legal conditions set out in Article 22 of the Law on Indirect Taxation Procedures were met, under which the plaintiff may be declared individually and jointly liable for the tax debt of the principal debtor.
The director challenged this decision, stressing that no act established him as an active participant in the violation of regulations and that the fact of being a founder or an authorized representative is not sufficient grounds for personal or joint liability – reports Capital.ba.
Such practice significantly impacts tax certainty and undermines basic standards of regulatory compliance, which are essential for both domestic and foreign investors.
Conflict with Fundamental Principle: Company Law and Limited Liability
According to the Company Law (e.g., FBiH Article 248, RS Article 220), a limited liability company is liable solely with its assets, and directors are not personally liable for the company’s obligations, except in cases of intent or gross negligence.
This judgment, however, goes beyond that framework – creating a risk that a director may face personal financial consequences without proof of such culpability. Experts warn that this seriously undermines the foundations of corporate law – the immunity of directors within the LLC structure – and creates additional legal uncertainty.
Conclusion and Call for Change
The ruling of the Court of BiH of October 12, 2023, represents an alarming legal precedent. Unless the legislation intervenes and clearly defines the complex circumstances under which liability can be transferred, the business system in BiH risks management hesitation, erosion of foreign investor confidence, and legal insecurity for local entrepreneurs.
IA Law Firm Bosnia emphasizes that the relevant institutions should urgently review this practice, initiate procedures for assessing the constitutionality and legality of the provisions applied by the ITA, and ensure that fundamental legal principles – such as limited liability – are preserved. Without reform, entrepreneurs could face a situation in which the LLC becomes a source of systemic problems, while the director carries the personal burden. This also opens the space for broader debates on fiscal reform, tax discipline, and alignment with EU standards.
More about IA Law Firm Bosnia’s tax law services can be found at: Tax law | IA Lawfirm
