Tax treatment of compensation payments to employees

Income from non-independent activities is considered: the gross salary paid to the employee by the employer based on an employment contract or employment relationship or provided in kind, benefits, or counter-services.
(Article 10 of the Income Tax Law ("Official Gazette of the Federation of Bosnia and Herzegovina", No. 10/08, 9/10, 44/11, 7/13 and 65/13, Articles 16 – 20 of the Rules of Procedure for the Implementation of the Income Tax Law ("Official Gazette of the Federation of Bosnia and Herzegovina", No. 48/21))
 
Income that is not included in income from dependent activities and is not subject to taxation is:

• Assistance for losses caused by natural disasters and assistance based on injuries and illnesses paid by the employer to the employee or a member of his family, paid up to the amount determined by special regulations.
• Food provided by the employer to employees on its premises up to the value of the hot meal allowance, which is determined by special regulations.
• Reimbursement of transportation costs to and from work in the amount of the cost of a city, suburban or intercity transportation ticket.
• Accommodation provided by the employer to an employee at the place where the activity is performed if the use of accommodation is necessary for the employee to perform the work task.
• Gifts given by employers to employees once or more during the tax period on the occasion of state and/or religious holidays or company jubilees, the total value of which does not exceed the value equal to 30% of the average monthly net salary published by the Federal Bureau of Statistics for the month when the gift is given.
• Recourse according to the decision on the use of annual leave.
• Severance pay in case of termination of the employment contract.

The following are not considered income from non-independent activity:

• Special work clothes with the employer's sign.
• Special medical examinations based on special regulations.
• Systematic medical check-ups for all employees.
• Various forms of education and professional development related to the registered activity that are necessary for the employer to generate income, etc.
• Reimbursement of medical expenses for seriously ill employees and their immediate family members, pursuant to Article 24, paragraph (5) of the Income Tax Law, in the amount of actual expenses according to documentation.
• Compensation for funeral expenses in the event of the death of an employee or members of his or her immediate family, as well as the death of a retired employee, in the amount of actual funeral expenses, and a maximum of four average monthly salaries paid in the Federation for the previous four months prior to the decision on the payment of compensation.
• Group insurance premiums paid by an employer for its employees in cases of injuries at work and/or on the way to and from work.

Benefits for payments that require full contributions and tax to be calculated:

• use of vehicles and other assets or goods for personal needs
• use of other goods and services that are free or at a price lower than the market price
• approved interest-free loans or loans with an interest rate lower than the market interest rate
• reimbursement of personal expenses from the employer
• settlement or forgiveness of debt obligation from the employer
• assumption and settlement of employee obligations by the employer
• other gifts that exceed the value of 30% of the average monthly net salary during one year
• teambuilding, various employee get-togethers, organized joint employee meal
• gym membership fees
• individual medical examinations
• additional life insurance premiums
• children's packages
• allowance for the birth of an employee's child
• employee wedding allowance
• anniversary awards
• the shortfall for which the responsible person must be charged
• fines for misdemeanors of responsible persons/employees, etc.

The calculation of income tax and full contributions on "benefits" that are realized and determined during the month must be done monthly.

If the determined amount of the benefit is collected from the employee, then there can be no question of the existence of a benefit because the employee paid for the realized "benefit". If the amount of the "benefit" is collected from the employee in an amount that is lower than the calculated amount (at market value including VAT), in that case, "full" contributions and income tax must be calculated on the difference.

Compensation can be made by direct payment to the employee or by deduction from his/her salary. with the employee's consent – for every salary.