Various amendments to the Labor Law, Income Tax Law, and laws relating to salaries in the public sector have been adopted in the Republic of Srpska (RS)—one of two self-governed entities within Bosnia and Herzegovina. The changes increase the non-taxable part of salary from KM 200 to KM 500 per month, a favorable change to employees who should pay less tax as a result.
The amendments to the RS Labor Law stipulate a new definition of salary and an obligation on employers to update existing employment contracts in line with these amendments—in particular to specify salary on a gross rather than net basis. Failure to update contracts may result in a fine of up to KM 12,000 for the employer.
In order to ensure that employers pass on the tax saving to employees, changes in tax legislation introduce sanctions of up to KM 9,000 on employers for nonpayment of the increased net salary. The changed amount of personal deduction must also be reported when completing income tax returns. If not, the tax return will not be recorded with the tax administration, which means that the tax will not be declared, and therefore will not be paid. In these cases, the sanction on the employer will include the amount of unpaid tax.
While the effect and implementation of these amendments remains to be seen in practice, it seems that they are aimed at reducing the administrative burden on employers, as well as stimulating economic growth and investment, creating new jobs, and ultimately improving living standards of citizens.
Written by Nihad Sijerčić and Nevena Tomić Lučić in cooperation with Karanovic & Partners Limited and Roger James of Ogletree Deakins
© 2019 Karanovic & Partners and Ogletree, Deakins, Nash, Smoak and Stewart, P.C.