The Parliament of the Federation of Bosnia and Herzegovina is considering a proposed amendments to the Income Tax Law, which is being fast-tracked for adoption. The amendments pertain to Article 10, Paragraph 4, adding a provision that exempts monetary allowances for employee performance bonuses from taxation, up to a monthly amount of 200 BAM. This measure is intended to be temporary, effective from January 1, 2025, to December 31, 2025.
Purpose and Rationale for the Amendments
The proposal’s authors cite the negative impact of the current economic situation on the population as the primary reason for these amendments. Key factors include insufficient GDP growth compared to neighboring countries and the ongoing trend of workforce emigration. To mitigate these issues, the proposed measure aims to provide immediate relief.
Practical Challenges for Employers
Employers face significant challenges in implementing the proposed amendments. Concerns stem from the definition of performance bonuses as outlined in the Labor Law of the Federation of Bosnia and Herzegovina (FBiH).
Understanding Performance Bonuses
Under Article 75 of the Labor Law, salaries consist of:
- A base salary,
- A performance-based component, and
- Additional pay as required by law.
Paragraph 4 of the same article stipulates that performance bonuses should be defined by employers in accordance with general regulations, collective agreements, or workplace rules. However, the general collective agreement in FBiH is no longer in force, leaving only specific sectoral agreements. In practice, this means that employers often regulate performance bonuses through workplace rules.
Impact on Smaller Employers
Article 118 of the Labor Law requires employers with more than 30 employees to adopt and publish workplace rules. Consequently, smaller employers (those with fewer than 30 employees) often have no formalized salary system for performance bonuses, as they are not legally obligated to implement workplace rules. In practice, performance bonuses are typically included in the overall net or gross salary specified in employment contracts.
Legal Basis for Tax Law Amendments
Critics argue that the proposed amendments to the Income Tax lack clear legal justification. It is unclear why performance-based salary components should be tax-exempt while base salaries remain taxable. Employers question the distinction between base pay and performance bonuses for tax purposes.
Additionally, the proposed changes could impose significant administrative burdens, such as:
- Revising salary calculations,
- Defining criteria for performance-based payments, and
- Adopting new internal policies.
These requirements could create challenges for employers, particularly those not previously obligated to formalize such systems under the Labor Law.
Key Considerations for Implementation
While the amendments aim to ease financial pressure on workers and employers, practical implementation requires clarity and alignment with existing legal frameworks. Employers without established performance bonus policies must act quickly to comply if the proposal is adopted. However, the legal and practical justification for the amendments remains a contentious issue.
For more details, you can access the full text of the proposed amendments here.
For additional information about IA Law Firm’s services in tax law, visit: IA Law Firm – Tax Law.
