IBDE

BOSNIA AND HERZEGOVINA has achieved a satisfactory political stability that guarantees security for the foreign capital and businesses following the 1990’s wars. The main goal of Bosnia and Herzegovina is EU membership and it is a potential candidate country for EU accession. In this respect, it is worth mentioning that Bosnia and Herzegovina has signed the Stabilization and Association Agreement (SAA) with the EU, establishing formal contractual relations between the EU and Bosnia & Herzegovina. The accelerated economic reform process in the country has greatly improved the business climate. In November 2010, the Council of EU granted visa liberalization to Bosnia’s citizens.

Bosnia and Herzegovina is located in the South Eastern Europe, in the centre of the Balkan Peninsula bordering the Adriatic Sea, Croatia to the north, west and south, Serbia to the east, and Montenegro to the southeast.  It has a diverse ethnic population of 3.4 million made of Bosnians, Serbs, Croatians and others. The country is gifted with natural resources mainly coal, iron ore, bauxite, copper, lead, zinc, cobalt, manganese, nickel, clay, gypsum, salt, sand, timber, and hydropower.  It enjoys a favourable climate for agriculture and tourism. Bosnia and Herzegovina has an educated workforce with relatively low labour wage costs.

Other attractive incentives for foreign investors are:

·         ​macroeconomic stability and low inflation 

·         attractive natural resources and potentials  (wood, hydro-energy potentials, minerals,   available agricultural and industrial land, construction industry)

·         significant tax incentives for foreign investors

·         protection for foreign investors

·         favourable foreign direct investment (FDI) laws, including national treatment of foreign   investors;

·         free trade

·         reformed and developed banking sector 

Macroeconomic stability 

According to the Foreign Investment Promotion Agency of Bosnia and Herzegovina (FIPA), the country has the most stable currency in South Eastern Europe, which is directly linked to the Euro. The country also has the lowest inflation in the region and privatization of the banking sector is almost completed. More than 98% of the capital is privately owned, of which 83% is foreign private capital.  As is the case with many other countries Bosnia’s economy has also been hit by the global financial crises in 2009. According to 2010 EU Progress Report on Bosnia and Herzegovina, the country endured recession with real GDP dropping by 2.9% after a 5.7% increase in 2008. The economic downturn was mainly caused by a drop in private domestic consumption, falling investments and a contraction of external demand. The report has concluded that in 2010 some signs of economic recovery can be noted as the volume of industrial production grew by 1.1% year-on-year in the first eight months and that of exports by 28.8%.

Foreign Direct Investments 

In 2007 Bosnia and Herzegovina experienced increased FDI inflow of 1.6 billion EUR, which is considered to be the highest amount recorded in the last 15 years. According to FIPA, in 2009 the global economic crisis hit the inflow of FDI, thus, FDI inflow decreased to 452 million EUR.  The vast majority of foreign investments in Bosnia and Herzegovina (90%) come from European countries. According to FIPA, most investments were realized by companies from Austria 26.3%, Serbia 14.7%, Slovenia 11.6%, Croatia 11.5%, Switzerland 6.5%, Germany 5.9%, Russia 3.8%, The Netherlands 2.3%, Italy 2.2%, Turkey 1.9%, and USA 1.7%. 

Protection for foreign investors 

Recognizing the importance of the foreign investments in the development of the country, Bosnia and Herzegovina has signed 35 Agreements on Promotion and Protection of Investments. The Law on the Policy of Foreign Direct Investment in Bosnia and Herzegovina treats foreign investors under the same conditions as those defined for local residents. In this context, foreign investors are entitled to invest in any sector of the economy in the same form as local residents. In practice, most business sectors in Bosnia and Herzegovina are fully open to foreign equity ownership. Foreign investors are protected against nationalization, expropriation, requisition or other measures. Foreign investors are also entitled to freely employ foreign nationals, subject to the labour and immigration laws in Bosnia and Herzegovina. 

Free Trade 

What makes the county more attractive to foreign investors is that it offers free trade zones which mean free transfer of profit and investment, relief from customs and other tariffs on imports and exports. Furthermore, the country has signed several agreements with different countries in order to eliminate quantitative restrictions and other barriers to the Bosnia’s exports. Bosnia and Herzegovina has signed the Central European Free Trade Agreement (CEFTA) with Albania, Serbia, Montenegro, Croatia, Macedonia, Kosovo and Moldova. The country has also signed a Free Trade Agreement with Turkey which provides additional free access to this consumer market with 70 million people and EU Association and Stabilization Agreement in 2008, which means that the products originated from Bosnia, can be imported to all EU countries without any quantitative restrictions and without paying customs and other similar duties. The country has also signed preferential agreements with other countries including Canada, Japan, Russia, Turkey and the USA.

Significant tax incentives for foreign investors 

Bosnia and Herzegovina offers an attractive tax package to foreign investors with only 10% corporate tax rate  (on the whole territory of Bosnia and Herzegovina), 10% withholding tax rate in FBiH (5% on dividends) and 10% in RS and only 10% on personal tax income. The country’s VAT tax rate stands at 17%.

Banking Sector

The banking sector of BiH is completely modernized and offers the full range of banking services. In conjunction with the Central Bank of BiH, this creates a sound base for the financial stability of the country. Foreign investors are entitled to open accounts in any commercial bank in domestic or any freely convertible currency on the territory of the Bosnia and Herzegovina. There are numerous foreign banks present in the country such as: Raiffeisen Bank, Hypo–Alpe-Adria Banka, Volksbank, HVB Central Profit Bank, UniCredit Zagrebačka banka, Ziraat Turkish Bank, and many others.