Rulebook on the application of the Income Tax Act

A new Rulebook on the Implementation of the Income Tax Law was published in the "Official Gazette of the Federation of Bosnia and Herzegovina, No. 48/21". This is a regulation that regulates certain parts of the practical implementation of the aforementioned Law, which concerns the part of the income that an employer provides to its employees, in addition to regular cash payments, through compensation in goods, services, benefits, etc.

This time we will look at the most common method of calculating taxable benefits for employees based on the use of company vehicles for private purposes.

The new regulation of 26.06.2021 allows employees' benefits from the use of a company vehicle for private purposes to be calculated as a fixed/lump sum. Therefore, when calculating benefits from the use of company vehicles for private purposes, employers now have the following options available:

If the vehicle is owned by the employer:

• 1% purchase value of the vehicle (increased for VAT) or
• according to the extent of actual use of the vehicle for private purposes, and according to records of mileage, by multiplying the mileage for private purposes by 15% of the average price of petroleum products.

If it is a rented vehicle:

• 20% monthly installments for operational leasing (increased for VAT) or
• according to the extent of actual use of the vehicle for private purposes, and according to records of mileage, in such a way that the mileage for private purposes is multiplied by 15% of the average price of petroleum products per kilometer traveled

For vehicles provided to employees (for whatever purpose), the employer is obliged to make a decision on the manner and conditions of such use, as well as the manner of determining the benefits of employees and other persons on this basis.

The decision may prescribe that different methods of calculating benefits will be used for different vehicles (persons), so it is not disputed that the employer decides to apply the actual mileage tracking method for some vehicles, and a fixed amount of benefits for others (1% of the vehicle's purchase value per month or 20% of the monthly rental fee).

It is important to note that all vehicles used for official purposes must have form PN4 for the purpose of monitoring vehicle use, travel routes, mileage and fuel and lubricant consumption (Regulation on the mandatory content and method of completing the travel order form "Official Gazette of the Federation of Bosnia and Herzegovina, No. 7/07").

According to the same regulation, travel orders are issued for vehicles every day, in order to provide insight into the actual situation on a daily basis. However, in practice, orders are not issued and monitored for passenger vehicles on a daily basis, but monitoring on a weekly or monthly basis is tolerated.

Also, in practice, it is very difficult to prove the actual mileage for private purposes because there is no such prescribed form for accurate records. There is only a general principle: provide documentation that will provide reasonable evidence to the tax inspectorate about how much the vehicles were used for official and how much for private purposes.

Approved use of a company vehicle for the purpose of transportation to and from work should not be treated as a benefit, unless it would amount to more than 1.5 monthly public transport tickets on that route.

When is there no taxable benefit?

In the event that the employee settles any benefit received to the employer, and also in the event that the employee pays/reimburses the employer for the costs of using an official vehicle for private purposes, the benefit did not even arise and there is no calculation of taxes and contributions.