Free zones in Bosnia and Herzegovina finally become free

On July 27, 2022, the Rulebook on Amendments to the Rulebook on the Application of the Law on Value Added Tax of BiH entered into force, which represents a turning point in development for all free zones in BiH. While the media in BiH in the previous period reported on the potential shutdown of existing free zones, due to restrictive legislation in relation to the countries of the region and the non-utilization of the potential that BiH has, the situation changes significantly with the entry into force of the Rulebook and BiH becomes an attractive investment area for investing in existing and the opening of new free zones.

The amendment of the Rulebook is based on the Initiative that the Law Firm “Ibrahimović & Co” submitted to the Directorate for Indirect Taxation of Bosnia and Herzegovina in November 2021, with the primary goal of facilitating the investment intention of the company’s clients – foreign investors whose intention is to establish and launch new free zones in Bosnia and Herzegovina, which inevitably leads to an increase in the competitiveness and operability of existing free zones in BiH compared to free zones in the countries of the region.

 „In the previous year, we received several inquiries from foreign investors about the procedure for starting free zones in BiH and the privileges that zones in BiH offer. Unfortunately, despite our best efforts to offer an affirmative answer about incentive benefits for investment, it was simply not possible, and interested investors went with the idea to neighboring Serbia, which has been making maximum use of the development potential of free zones for many years. This prompted us to, in cooperation with the free zones, recognize the key problems they face in their work and find the fastest way to implement the first in a series of steps that will enable the zones to operate more easily. This is how the idea of an initiative to amend the Rulebook on the Implementation of the Law on Value Added Tax of BiH was born. The amendment to the Rulebook abolishes the practice of charging VAT when importing goods originating in BiH into the free zone, which will affect greater interaction between users of the free zone and other businessmen in BiH. In addition to the above, the Rulebook brings as a novelty the exemption from paying VAT on equipment, plants, and tools used in free zones, as well as on services related to the import of goods and the construction of facilities in free zones. By encouraging free zones, in this way, the potential is created for further development, increasing work capacity, and greater use of procurement from local sources, all with the ultimate goal of increasing exports as a crucial factor in GDP development “, said Adi Ibrahimović, the leading partner in the Law Firm “Ibrahimovic & Co”.

In Bosnia and Herzegovina, free zones operate only in the Federation of Bosnia and Herzegovina, and from Republika Srpska, there are announcements about the establishment of new zones in Bratunac and Trebinje, and Gradiška is also mentioned as an interesting locality. The adoption of amendments to the Rulebook will surely speed up the further development of free zones, but also facilitate the business of existing ones, as it will make them competitive investment areas and enable equal status compared to free zones in the countries of the region.

At the moment of mass emigration and negative population growth in Bosnia and Herzegovina, the lack of a sufficiently educated workforce, and global economic changes, the state must implement systemic steps aimed at attracting foreign investments in order to generate further development. A professor from the Department of Legal and Economic Sciences at the Faculty of Law of the University of East Sarajevo, doc. dr Đorđe Marilović commented on the adoption of amendments to the Rulebook for our editorial office, emphasizing that – “The success of the free zone cannot be assumed on basis of the mere fact of its establishment and that the needs of foreign businessmen who would base their business in the free zone do not always have to coincide with the needs of a local businessman. Traditional instruments and facilities are not necessarily sufficient for a free zone to economically justify its existence. Certainly, the most significant round of reliefs in free zones is of a fiscal nature. Tax incentives, both those in the field of indirect taxation (customs duties, value added tax, etc.) and those in the field of direct taxes (especially duties related to work, such as income tax and contributions for mandatory social security) have a special place in establishment and success of the free zone. Bearing in mind the characteristics of the economy in Bosnia and Herzegovina – its dependence on imported capital, the immediate proximity and trade-partner importance of the European Union, negative migration and depopulation trends, relatively frequent changes, and some uncertainties in the area of tax and labor legislation, a complex structure and division of responsibilities – free zones should not be seen as just a desirable phenomenon, but rather as a much-needed measure of support for economic development in BiH. Certain losses, such as the renunciation of a part of public revenues due to the benefits provided and direct costs in the form of public expenditures necessary for the establishment, construction of infrastructure, and/or subsidization of free zones, can be compensated multiple times by the various competent authorities in Bosnia and Herzegovina with benefits in the mentioned areas.”

The day of entry into force of the amendments to the Rulebook is certainly of particular importance for all free zones, and judging by the statements of our interlocutors, the positive effects of the changes to the regulations could be felt by everyone in BiH on a long-term basis. By influencing the creation of positive changes in local legislation in BiH and promoting them, all socially responsible subjects (including the media) will contribute to the creation of an image of BiH that represents a new investment area, ready for the influx of new investments and their smooth implementation, with the aim of general and depoliticized economic growth of all territorial entities in the country.

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