Introduction to Bosnia

Bosnia-Hercegovina is a small economy and the weakest of the Western Balkan group of countries. The political landscape is strongly divided between the three main communities and the nationalist stance in each case is strong. As a result, political uncertainty is high.

The economy has few competitive advantages and is highly dependent on remittances (more than 10% of GDP) and on bi- and multilateral support. The main export product is aluminium, and economic activity is linked to growth in the Eurozone.

The budget has recorded surpluses since 2016 and the government debt is moderate (38% of GDP in 2019). The marka is pegged to the euro, and external liquidity is adequate to support the peg. External debt is high (75% of GDP in 2019), but is mostly owed to official creditors and benefits from long maturities and favourable interest rates.

The COVID-19 pandemic is likely to result in a significant economic recession and a large fiscal deficit. Access to official external financing and aid should help the economy to weather the consequences of the crisis.

Summary

BNP Paribas presence

Please contact your relationship manager for information on BNP Paribas' cash management and trade finance services in Bosnia.

Currency

Currency

Convertible Mark (BAM).

Exchange Rates

2016 2017 2018 2019 2020

Exchange rate: 1.77 1.74 1.66 1.75 1.72 EUR per USD

Source: IMF, International Financial Statistics, July 2021

Central Bank

The central bank is the Central Bank of Bosnia and Herzegovina (Centralna banka Bosne i Hercegovine – CBBH: www.cbbh.ba).

Bank supervision

There are separate banking agencies in the Federation of Bosnia and Herzegovina and the Republic of Srpska, each responsible for bank licensing and supervision. The CBBH coordinates the activities of the banking agencies.

Bank accounts

Resident / non-resident status

A company is considered resident in Bosnia and Herzegovina if it has its registered office, central administration or principal place of business in Bosnia and Herzegovina.

Bank accounts for resident entities

Within Bosnia Outside Bosnia

Local Currency Permitted without restriction, fully convertible Not permitted

Requires approval from Ministry of Foreign Currency Permitted without restriction, fully convertible Finance.

Bank accounts for non-resident entities

Within Bosnia Outside Bosnia

Local Currency Permitted without restriction, fully convertible Not permitted

Foreign Currency Permitted without restriction, fully convertible Not applicable

Lifting fees

Lifting fees are not usually applied on payments between resident and non-resident accounts. BNP Paribas Cash Management Capabilities

Liquidity Management

Physical cash pooling

Notional pooling - Balance compensation

Notional pooling - Interest optimisation

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas

Collections

Cash collections

Cheque collections

Direct debit collections

Domestic incoming transfers

Virtual IBAN

Virtual accounts

International incoming transfers

Card acquiring

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas Payments

Cash withdrawals

Cheque payments

Direct debit payments

Domestic outgoing transfers

Commercial cards

Virtual cards

International outgoing transfers

SWIFT gpi

Real-time international payments through BNP Paribas' network

Card issuing

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas

Channels

Local e-Banking

Global e-Banking - Connexis

SWIFT/ host to host

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas Payments & Collections

Market overview

Credit transfers are the most widely used non-cash payment instrument by companies to pay suppliers and employees. While the majority of credit transfers are initiated on paper, as much as a quarter of transactions are initiated electronically. Although debit card payments are becoming more popular for retail transactions, approximately 71% of card transactions (by value) are to withdraw cash from ATMs and just 28% via POS. Credit card usage is low. Mobile wallet schemes are available and mobile payments are popular.

Electronic banking services are available from all banks. Bank proprietary services are used, as well as the bank- independent MultiCash package. Multinational companies also use the SWIFT for Corporates messaging standards.

Intra-day transaction and balance reporting, automated end-of-day sweeping, and some transaction initiation services are available on a domestic and cross-border basis.

Online and mobile banking services are provided by 23 banks in Bosnia-Herzegovina. At the end of 2020, there were 879,607 registered individual users of mobile/internet banking and 76,994 registered legal entities. Mobile banking accounts for 61% of all digital banking use. However, 95% of legal entities use internet banking services, with just 5% using mobile banking services, while 66% of individuals use mobile banking services.

Payment systems

RTGS Type • Real-time gross settlement.

Participants • 25.

• High-value (above BAM 10,000) and urgent BAM- Transaction types processed denominated credit transfers.

Operating hours • 08:00 – 16:00 CET, Monday to Friday.

Clearing cycle details (e.g. cut- • Payments are cleared and settled in real time. off times)

• RTGS is closed at weekends and on all public holidays. System holidays • Bosnia and Herzegovina’s public holidays are: • 2022: 3 January, 2, 3 May.

Giro Clearing Type • Multilateral net settlement system.

Participants • 25.

• Domestic payments (credit transfers and direct debits) with Transaction types processed a value lower than BAM 10,000.

Operating hours • 08:00– 16:00 CET, Monday to Friday. • All payments are cleared and settled on a same-day basis. • Payments are settled in batches four times a day, at: 09:30, Clearing cycle details (e.g. cut- 11:30, 13:30 and 15:30 CET. off times) • Final settlement takes place via RTGS after each cut-off time.

• Giro Clearing is closed at weekends and on all public holidays. System holidays • Bosnia and Herzegovina’s public holidays are: • 2022: 3 January, 2, 3 May.

Credit transfers

The credit transfer (giro) is the dominant cashless payment instrument in Bosnia and Herzegovina in terms of both volume and value. Credit transfers can be paper based or automated. In 2020, 57% of intrabank orders and 45% of interbank orders were initiated by paper-based form. High-value (greater than BAM 10,000) and urgent credit transfers are cleared and settled via the national RTGS system in real time. Low-value (equal to or below BAM 10,000), non-urgent and high-volume credit transfers are processed via Giro Clearing on a same-day basis. The share of the number of RTGS transactions in the total transactions in 2020 was 2.45%, while the share in the value was 82.86%. Six banks in Bosnia and Herzegovina participate in international clearing, which allows EUR-denominated payments to be made to and received from Serbia.

Direct debits

Direct debits are available in Bosnia and Herzegovina and used for low-value, recurring payments such as utility bills. Direct debits are settled via Giro Clearing on a same-day basis.

Cheques

Cheques are not used in Bosnia and Herzegovina.

Card payments

The use of payment cards in Bosnia and Herzegovina, particularly debit cards, has increased rapidly in recent years. There were 2.17 million active payment cards in circulation in Bosnia and Herzegovina at the end of 2020: 1.8 million were debit cards, 229,542 were credit cards and 161,264 cards were deferred payment. Card payments in 2020 totalled BAM 11,535 million (11,166 million in 2019). There were 113.5 million transactions, up from 96.3 million in 2019. Contactless card transactions accounted for 49% of the total number of realised card transactions, and 35% of the value. Visa and MasterCard are the principal payment cards issued in Bosnia and Herzegovina, representing over 98% of the cards in issuance. BamCard, the domestic card provider, issues standalone cards as well as cards issued in conjunction with Visa or MasterCard. Approximately 23 banks and one card company issue Visa, MasterCard, American Express and Diners Club payment cards in Bosnia and Herzegovina. One bank issues BamCard debit and credit cards. BamCard, Visa and MasterCard payment transactions are cleared by the BamCard Switch and Card Processing Centre. American Express and Diners Club payment transactions are processed by their respective international card schemes.

ATM/POS

There were 1,627ATMs in Bosnia-Herzegovina at the end of 2020. There were 30,371 POS terminals in Bosnia-Herzegovina at the end of 2020. All ATMs and POS terminals are EMV-compliant.

Electronic wallet

Mobile wallet schemes are available and offered by leading banks. Mobiamo and Mint are widely used schemes.

Channels

Market overview

Liquidity management

Domestic: notional pooling

Domestic notional cash pools are not available.

Domestic: cash concentration

Domestic cash concentration structures are permitted, primarily via zero balancing. Resident and non-resident bank accounts can participate in the same cash concentration structure, as can different legal entities.

Cross-border notional pooling

Cross-border notional cash pools are not available.

Cross-border cash concentration

Cross-border cash concentration structures are not available. Short term investments

Market overview

Interest payable on credit balances

Interest-bearing current accounts are permitted for both residents and non-residents.

Demand deposits

Interest is paid on demand deposit accounts for residents and non-residents, while funds can be withdrawn at little or no notice.

Time deposits

Time deposits are available in BAM or major foreign currencies with terms ranging from one week to one year.

Certificates of deposit

Domestic banks issue certificates of deposit for a range of terms. ​Certificates of deposit can be issued paying fixed or variable interest.

Treasury (government) bills

The FBiH Ministry of Finance issues Treasury bills with maturities of three and 12 months. The RS Ministry of Finance issues Treasury bills with maturities of six and 12 months. Both institutions also issue government bonds for terms of over a year.

Commercial paper

Domestic commercial paper is available.

Money market funds

Money market funds are available in Bosnia-Herzegovina.

Repurchase agreements

Repurchase agreements are available in Bosnia-Herzegovina.

Banker’s acceptances

Banker’s acceptances are not used in Bosnia-Herzegovina. BNP Paribas insights

BNP Paribas Trade Finance Capabilities

Trade payments

Documentary credits

Documentary collections

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas

Guarantees

Bank guarantees

Standby letters of credit

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas

Supply chain management

Receivables

Payables

Inventory

Supported by BNP Paribas Not required / permitted in Bosnia or not supported by BNP Paribas

Trade channels

Connexis Trade

Connexis Supply Chain

SWIFTNet Trade for Corporates

Connexis Connect

Supported by BNP Paribas

Not required / permitted in Bosnia or not supported by BNP Paribas

International trade

General trade rules

Bosnia-Herzegovina is a member of the Central European Free Trade Agreement (CEFTA), so most imports from CEFTA countries are exempt from customs duties.

Trade agreements

Bosnia-Herzegovina is a member of CEFTA, along with Albania, Kosovo, Moldova, Montenegro, North Macedonia and Serbia. Bosnia-Herzegovina has FTAs in force with EFTA and Turkey. Bosnia-Herzegovina has a Stabilisation and Association Agreement with the EU.

Imports / exports

Refined Packaged Imports Cars Coals Elecricity petroleum medicines

Primary Serbia Germany Slovenia China Import Croatia (15.0%) Italy (9.0%) (13.0%) (10.0%) (7.0%) (6.0%) sources Insulated Exports Electricity Seating Leather shoes Furniture wiring

Export Germany Italy Serbia Slovenia Croatia (11.0%) Austria (9.0%) markets (14.0%) (12.0%) (11.0%) (8.0%)

Import / export volumes

2016 2017 2018 2019 2020

- goods USD m 4,354.5 5,410.5 6,285.5 5,825.9 5,498.2 Exports - services USD m 1,796.0 2,022.2 2,288.5 2,348.7 1,309.6

- goods USD m 8,365.3 9,701.3 10,821.2 10,384.5 9,192.0 Imports - services USD m 587.4 671.5 728.6 764.3 517.1

Current account as % GDP - 4.7 - 4.9 - 3.4 - 3.1 - 3.7

Sources: IMF, International Financial Statistics, July 2021.

Trade finance - imports

Documentation

The following documentation is usually required in order to import goods into Bosnia-Herzegovina: customs declaration commercial invoice bill of lading packing list certificate of origin (in certain cases).

Import licences

Import licences are required for weapons, ammunition and dual-use goods.

Import taxes and tariffs

Bosnia-Herzegovina applies import tariffs on an ad valorem basis, at rates ranging from 0% to 15%. Certain agricultural foodstuffs attract an additional import duty. Financing requirements

Cash payments for imports are allowed up to €3,000 a month. Cash payments exceeding this amount are subject to the approval of the respective finance ministry.

Risk mitigation

None.

Prohibited imports

There is no official list of prohibited imports.

Trade finance - exports

Documentation

The following documentation is usually required in order to export goods from Bosnia-Herzegovina: customs declaration commercial invoice bill of lading packing list certificate of origin (in certain cases).

Export licences

Exporters must be authorised to engage in trade. Licences are required for exporting certain products, including weapons, dual use goods, narcotics and works of art. A permit is required to export sugar to the EU.

Export taxes and tariffs

None.

Financing requirements

Proceeds from exported goods and services must be collected and repatriated in full within 180 (90 in the Brčko District) days of the date of exportation or delivery of services.

Cash proceeds for exports are allowed up to EUR 10,000 a month and BAM 1,000 per transaction. Larger cash payments require approval of the respective finance ministry. Risk mitigation

The Export Credit Agency of Bosnia-Herzegovina (IGA), Bosnia-Herzegovina’s national export credit agency, provides both state-subsidised export credit and state-supported export credit insurance. Export credit insurance is also available from private insurance companies. Export financing is available privately from commercial banks.

Prohibited exports

There is no specific list of prohibited exports.

Regulatory requirements

Reporting regulations

All transactions between residents and non-residents are reported to the CBBH on a monthly basis for balance of payments purposes.

Reporting method

Transactions data is collected via aggregate reports, which are submitted by banks in electronic format within 20 days of the end of the reporting period. Banks are responsible for submitting transactions data to the CBBH on behalf of their corporate clients.

Exchange controls

There are no foreign exchange controls. Export proceeds are required to be repatriated within 180 days (90 days in the Brcko District of Bosnia) of the export date. Participants in the securities markets require Securities Commission authorisation before they can engage in trade. Residents are not permitted to extend financial loans in BAM to non-residents, or financial loans with maturities below one year to non-residents. Non-resident investment is not permitted to exceed 49% of equity in businesses involved in producing or selling armaments, ammunition, explosives or military equipment.

Taxation

Resident / non-resident

A company in the Federation of Bosnia and Herzegovina (FBiH)/Republika Srpska (RS) is resident if it is registered as a legal entity in the relevant jurisdiction, or if the FBiH/RS is the place of effective management. An entity has a taxable presence in the FBiH/RS if it carries out business activities in the jurisdiction that meet the criteria for a permanent establishment, or if it carries out temporary business activities in the jurisdiction that are subject to withholding tax. Financial instruments

There are no specific tax rules for financial instruments. Capital gains, losses, revenues and expenses are included in the taxable base, including capital gains and losses that directly influence retained earnings.

Interest and financing costs

See Transfer pricing.

Foreign exchange

Foreign exchange rate differences are treated as intrinsic to, and embedded in, the primary transaction. Foreign exchange rate losses and gains are included in the taxable base.

Advance tax ruling availability

The tax authorities and the Ministry of Finance will issue rulings at the request of a taxpayer.

Capital gains tax

Capital gains generally are taxed as profits at a rate of 10%.

Withholding tax (subject to tax treaties)

Payments to: Interest Dividends Royalties Other income

Resident entities 0% 0% 0% 0%

Non-resident entities 10% 5% (FBiH)/ 10% (RS) 10% 10%

Interest paid to a non-resident company is subject to a 10% withholding tax, unless the rate is reduced or the payment is exempt from withholding tax under a tax treaty. Interest paid to residents or to non-resident individuals are exempt from withholding tax. Dividends paid to a non-resident company are subject to a withholding tax at 5% or 10% where the payer company is resident in the FBiH or RS, respectively, unless the rate is reduced under a tax treaty. Dividends paid to residents or non-resident individuals are exempt from withholding tax. Royalties paid to a non-resident company are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty. Royalties paid to residents or non-resident individuals are exempt from withholding tax. Fees for technical services paid to a non-resident company are subject to a 10% withholding tax, unless the rate is reduced or the payment is exempt from withholding tax under a tax treaty. Fees for technical services paid to residents or non-resident individuals are exempt from withholding tax. There is no branch remittance tax. A 10% withholding tax is levied on other payments to non-residents for services provided in FBiH/RS, unless the rate is reduced under a tax treaty. Tax treaties / tax information exchange agreements (TIEAs)

Bosnia and Herzegovina has 40 effective tax treaties. Bosnia-Herzegovina, as part of the OECD/G20 Base Erosion and Profit Shift (BEPS) initiative, is a signatory of a multilateral co-operation agreement (the MCAA). Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on some key indicators of economic activity within multinational enterprises (MNE). With country-by-country reporting, tax administrations of jurisdictions where a company operates will have aggregate information annually relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in. The information will be collected by the country of residence of the MNE group, and will then be exchanged through exchange of information supported by such agreements as the MCAA. The MLI entered into force on 1 January 2021.

Thin capitalisation

A thin capitalisation rule applies in the FBiH, under which interest expense relating to debt in excess of a 4:1 debt-to-equity ratio is non-deductible. In the RS, net interest expense above 30% of the tax base is non-deductible.

Transfer pricing

In both the FBiH and the RS, the difference between the price determined by applying the arm’s length principle and the transfer price must be included in the tax base and will be taxed. Both jurisdictions have prescribed the mandatory preparation of a transfer pricing study.

Stamp duty

There is no stamp duty.

Cash pooling

Bosnia and Herzegovina does not have specific tax rules dealing with cash pooling arrangements.

Financial transactions / banking services tax

There are no specific financial transactions/banking services taxes in Bosnia and Herzegovina.

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2021 (www.deloitte.com).

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Market data updated as of 01-10-20