Bosnia and Herzegovina (B&H) is becoming a growing center for work and business investment. Its push to join the European Union drives reforms to improve the investment climate and bring local laws in line with EU standards. Despite the challenges of a transitioning economy, Bosnia & Herzegovina has shown resilience. Real GDP growth reached 2.6% in 2024, with forecasts of 2.7% in 2025 and 3.1% in 2026. 

With competitive tax rates and affordable operating costs, B&H offers a cost-effective option for doing business or hiring in the region. This guide explains the payroll and income tax system in Bosnia and Herzegovina, including social security duties and regional differences, to help you better understand how payroll works there. 

What is Payroll Tax in Bosnia and Herzegovina

Bosnia and Herzegovina has a unique structure made up of three separate areas: the Federation of Bosnia and Herzegovina (FBiH), the Republika Srpska (RS), and the Brčko District (BD). 

Each region has separate personal income tax (PIT) rules, social security contributions, tax deductions, and other payroll-related procedures. This means the laws and requirements for employers and workers vary depending on where the job is based.

A company with staff in Sarajevo (in FBiH) and Banja Luka (in RS) must follow different PIT rules, pay different social security rates, and file reports separately for each region. The asymmetry increases the risk of errors and requires strong payroll systems or local experts to stay compliant.

The tripartite tax system also affects employees’ take-home pay, the social benefits they receive, and the amount of tax they owe.

Employee and Employer Commitments

Employees and employers must pay social security contributions, which help fund pensions, health care, unemployment benefits, and, in Republika Srpska, child protection.

Federation of Bosnia and Herzegovina

In FBiH, major reform is coming into effect on July 1, 2025. The Law on Amendments to the Law on Contributions lowers total contributions from 41.5% to 36% to reduce employer costs and increase take-home pay. Most of the 5.5% reduction benefits employees, not employers. If gross salaries stay the same, employees will take home more pay. Employers may also save slightly, which could help offset the rising minimum wage.

Republika Srpska

Employers do not pay separate social security contributions in RS. Instead, the entire amount comes out of the employee’s gross salary. The employer withholds 32.8% from the employee’s gross and remits it to the authorities. Even though employers don’t make direct contributions, the total employment cost remains high.

Brčko District

BD uses a mixed model and offers employees a choice for pension coverage. Employees can contribute to either the FBiH or RS pension fund, with each choice determining whether the employer contributes. Two employees with the same salary could cost the employer different amounts, depending on their pension fund choice. Employers must ensure their payroll systems can handle both options and clearly explain the choices to employees.

Region Contribution Employee Rate (%) Employer Rate (%) Total Rate (%) Calculation Base
FBiH (Until June 30, 2025) Pension & Invalidity Insurance 17.0 6.0 23.0 Gross Salary
FBiH (Until June 30, 2025) Health Insurance 12.5 4.0 16.5 Gross Salary
FBiH (Until June 30, 2025) Unemployment Insurance 1.5 0.5 2.0 Gross Salary
FBiH (Until June 30, 2025) Protection from Natural Disasters 0.0 0.5 0.5 Net Salary
FBiH (Until June 30, 2025) Water Protection Charge 0.0 0.5 0.5 Net Salary
FBiH (From July 1, 2025) Pension & Invalidity Insurance 14.5 5.0 19.5 Gross Salary
FBiH (From July 1, 2025) Health Insurance 10.5 4.5 15.0 Gross Salary
FBiH (From July 1, 2025) Unemployment Insurance 1.0 0.5 1.5 Gross Salary
FBiH (From July 1, 2025) Protection from Natural Disasters 0.0 0.5 0.5 Net Salary
FBiH (From July 1, 2025) Water Protection Charge 0.0 0.5 0.5 Net Salary
RS Pension & Invalidity Insurance 18.5 0.0 18.5 Gross Salary
RS Health Insurance 12.0 0.0 12.0 Gross Salary
RS Unemployment Insurance 0.6 0.0 0.6 Gross Salary
RS Child Protection 1.7 0.0 1.7 Gross Salary
BD – FBiH Pension Fund Pension & Invalidity Insurance 17.0 6.0 23.0 Gross Salary
BD – FBiH Pension Fund Health Insurance 12.0 0.0 12.0 Gross Salary
BD – FBiH Pension Fund Unemployment Insurance 1.5 0.0 1.5 Gross Salary
BD – RS Pension Fund Pension & Invalidity Insurance 18.5 0.0 18.5 Gross Salary
BD – RS Pension Fund Health Insurance 12.0 0.0 12.0 Gross Salary
BD – RS Pension Fund Unemployment Insurance 1.5 0.0 1.5 Gross Salary

Personal Income Tax (PIT) in Bosnia and Herzegovina

In Bosnia and Herzegovina, whether someone pays PIT depends on their tax residency status. Tax residents must pay tax on all income earned in B&H and from abroad. In contrast, non-residents only pay tax on income earned within B&H.

You’re generally considered a tax resident if you spend more than 183 days in B&H during a calendar year. The Brčko District specifically says this period must be uninterrupted. It’s important for people working across areas or moving between entities to track where they spend their time and where their income comes from.

PIT Rates and Allowances by Region

Federation of Bosnia and Herzegovina

PIT rate is a flat 10%. The tax base is gross income minus employee social contributions and personal allowances

Allowances

  • Basic allowance of 3,600 konvertibilna marka (BAM)/year 
  • Spouse/former spouse (alimony) is 0.5 × basic allowance
  • Health costs for uncovered services, medications, and aids
  • Housing loan interest for a first home
Dependent Category Allowance Amount
First Child 0.5 × Basic Allowance
Second Child 0.7 × Basic Allowance
Third Child and Subsequent Children 0.9 × Basic Allowance
Other Dependents 0.3 × Basic Allowance
Disability (Per Disabled Person) 0.3 × Basic Allowance

Republika Srpska

Allowances

  • Basic allowance of 12,000 BAM/year
  • Each dependent family member gets 1,800 BAM/year
  • Housing loan interest
  • Voluntary pension contributions (up to a limit)
  • Life insurance premiums of up to 1,200 BAM/year with a licensed insurer
Income Type PIT Rate
Employment Income 8%
Self-Employment Income 10%
Other Income (Capital Gains, Royalties) 13%
Small Business Income (Gross Revenue-Based) 2%
Tax base is calculated as gross personal earnings.

Brčko District

PIT Rate is a flat 10%. Tax base is gross salary minus social contributions and personal allowances

Allowances

  • Basic allowance of 14,400 BAM/year
  • The allowance is increased by 50% for dependent spouse/children (up to age 27) 
  • Allowance increases by 10% for every 20% of determined disability for the taxpayer or a dependent family member
  • Allowance can be increased by 50% for a dependent family member with a determined permanent disability
  • Life insurance premiums of up to 1,800 BAM/year
  • Housing loan interest for a first property 
  • Children’s education costs

The basic personal allowances in Republika Srpska and Brčko District are much higher than in the Federation of Bosnia and Herzegovina. This makes a big difference in how much income tax people pay. Even though the PIT rate is similar across the regions, people in RS and BD may pay less tax because more of their income is tax-free thanks to the higher allowances.

Employees must keep detailed records of important documents, like loan interest statements, insurance policies, or education receipts, to claim deductions. These are usually submitted with a tax card or annual tax return.

Remote People’s EOR services in Bosnia and Herzegovina support employers by:

  • Handling local payroll processing, ensuring correct calculation and payment of salaries, taxes, and contributions.
  • Managing employment contracts and registrations, including social insurance and tax authority filings.
  • Staying compliant with country-specific labor, tax, and reporting laws—removing the need for the employer to set up a legal entity locally.

Reporting & Payment

Federation of Bosnia and Herzegovina

Employers must submit salary reports every month, including: 

  • Form 2001 for employees
  • Form 2002 for entrepreneurs
  • Form MIP-1023, monthly report on paid salaries and contributions

These forms are usually due by the 10th or 15th of the month for the previous month’s payroll. Social contributions must be paid by the end of the month the salary is due. Entrepreneurs must pay by the 10th of the following month.

The Annual Income Tax Return (Form GPD-1051) is due by March 31st or April 1st of the following year. FBiH is moving toward full digital tax reporting. Using qualified electronic certificates to submit tax returns becomes mandatory on June 1, 2025.

Republika Srpska

Employers must submit Form 1002 (Monthly declaration of withholding tax). Social contributions must also be paid when salaries are paid. Individual tax returns are due by March 31, 2025, for 2024/2025. RS has online systems for submitting Form PD3100 (contribution registration) and Form 1002. User guides are available to support electronic filing.

Brčko District

Key forms include:

  • Form PDN-1033 – tax return
  • Form MIP-1023 – monthly salary report
  • Form OLP-1021 – payroll calculation sheet

The corporate income tax return is due within 90 days after the end of the tax year.

Remote People’s global payroll calculator is helpful, especially in countries like Bosnia and Herzegovina, where contribution rates and tax rules vary by region. Our calculator helps businesses:

  • Estimate total employment costs by calculating gross salary, employer contributions, and local taxes
  • Understand net salary outcomes for employees based on country-specific tax rates and social security rules
  • Plan accurate payroll budgets and stay compliant with local withholding and reporting obligations.