Tax treatment of donations in FBiH

A donation is a voluntary giving of money, goods or services without any compensation or consideration.

Legal entities often donate funds, goods or services to various organizations, non-profit institutions, humanitarian organizations or other socially beneficial projects. Donations for humanitarian, cultural, educational, scientific and sports purposes are considered essential for the development of society and community.

However, before donating, it is important to familiarize yourself with the legal regulations and obligations that may arise from the donation process.

The legal entity (donor) needs to prepare the following documentation on the basis of which the donation will be recorded:

Donation decision

Transaction account statement

A consignment note, confirmation or other document if it is a donation of goods.

Tax treatment of donations

It is necessary to look at the tax treatment of donations from the perspective of the Law on Profit Tax, the Law on Income Tax and the Law on VAT.

Income tax

According to the provisions of Article 12, paragraph 3 of the Law on Profit Tax, donations for humanitarian, cultural, educational, scientific and sports purposes, which are given to legal entities that are not subject to profit tax or to individuals who have no other income, are recognized as a tax-deductible expense up to 31% of total income in the period for which profit tax is determined.

Income tax

According to the provisions of Article 3 of the Rules on the Implementation of the Income Tax Law, a donation made by a legal entity in a special manner, through a bank account opened for that purpose only, in favor of a natural person as financial assistance for the purpose of covering the costs of his/her treatment or surgery, purchase of medicines or purchase of orthopedic aids, if these costs are not sooner or later covered or reimbursed to the recipient of the donation from the funds of basic, supplementary or private health insurance, the funds collected in this way for the recipient of the donation are not considered income subject to the obligation to pay income tax.

VAT on donations

Donors of cash donations are not subject to VAT. In the case of a donation of their own products or services, VAT must be calculated and an internal output invoice must be prepared. Goods for which input VAT has not been deducted, because the company purchased them with the aim of donating them, in that case output VAT does not need to be calculated.

It is important to note that transparency and accountability are important principles in the donation process to ensure that donations are used correctly and that the desired social or humanitarian effect is achieved.