When and How to Enter the VAT System in BiH? (A Guide for Entrepreneurs)

Mandatory Entry into the VAT System: What is the Legal Threshold?

According to the Law on Value Added Tax in BiH, any company (LLC / d.o.o.) or sole proprietor whose taxable turnover in the previous 12 months exceeds the legally defined threshold is required to automatically register for the VAT system.

Main facts about mandatory entry:

• Legal Threshold: The turnover limit for entering the VAT system is defined by applicable legal regulations in BiH.

• Notifying the ITA (UIO): As soon as you notice that an outgoing invoice will cause your turnover to exceed the prescribed limit, you are required to submit an application for registration to the Indirect Taxation Authority (ITA / UIO).

• Risks of Delay: Late registration entails retroactive VAT assessment on earned revenue and heavy financial penalties.

Voluntary Entry into the VAT System: When Is It Worth It?

Entering the VAT system does not necessarily have to wait for reaching the statutory turnover threshold. Companies can register voluntarily upon incorporation or during ongoing operations.

When is voluntary entry a good decision?

• Large initial investments: If you plan to acquire expensive equipment, machinery, or business premises, entering the VAT system allows you to claim a deduction (refund) of input VAT from suppliers' invoices.

• B2B Operations (Doing business with VAT-registered entities): If your clients are primarily other companies already in the VAT system, adding VAT to your invoices does not put them off, as they can claim it as an input tax deduction.

• Export-oriented businesses: Exporting goods and certain services outside of BiH is zero-rated for VAT, allowing companies in the VAT system to receive input tax refunds alongside significant financial savings.

Note: Voluntary entry obligates you to remain in the VAT system for a mandatory legal period (usually a minimum of 3 years), making it essential to conduct a financial analysis with your accountant prior to making this decision.

What Does the VAT Registration Procedure Look Like?

The registration process is conducted before the competent regional center of the Indirect Taxation Authority (ITA BiH / UIO BiH).

Basic steps in the procedure:

1. Preparation of documentation: Completing the registration application form (Form ZR1) along with attaching court registration decisions, articles of association, bank account confirmations, and premise lease agreements.

2. Proof of business activity: Providing evidence of actual business operations (client contracts, pro-forma invoices, purchase orders).

3. Payment of administrative fees: Paying fees for filing the application and issuing the registration decision/certificate.

4. Field inspection: Tax inspectors from the ITA typically perform an on-site verification of the company's premises prior to issuing the decision and VAT ID number.

The Role of Accounting in Managing VAT Payers

After entering the VAT system, your business compliance duties shift significantly. The tax period in BiH is a calendar month, which means you must submit your monthly VAT return by the 10th of each month for the previous month.

Professional accounting support ensures:

• Accurate calculation of output and input VAT.

• Timely and correct electronic submission of monthly VAT returns.

• Advisory on avoiding double taxation and exercising input tax deduction rights.

• Preparation of documentation for potential tax audits.

Conclusion

Entering the VAT system is a major business milestone that can offer substantial tax reliefs while also introducing additional administrative duties. Timely tracking of turnover and consulting with professional advisors prevent unexpected costs and ensure steady business growth.

Need advice or assistance with VAT registration and compliance?

Poslovnost d.o.o. Agency Sarajevo provides full support for companies and sole proprietors:

• Tax advisory for evaluating voluntary VAT entry

• Preparation of complete documentation and handling procedures before the ITA

• Monthly VAT calculation and filing

• Comprehensive bookkeeping and accounting services

Contact us for an introductory consultation or visit our office in Sarajevo. Leave the administration to the professionals!

🏢Agencija Poslovnost d.o.o.
📧info@poslovnost.ba
📞033/246-421
📍Kotromanića 48, Sarajevo