Bosnia And Herzegovina: A Tax Haven For Luxury Property Sellers

bosnia and herzegovina
The Federation of Bosnia and Herzegovina is a lesser-known tax haven for property sellers.

The Federation of Bosnia and Herzegovina (B&H) imposes one of the lowest tax rates in Europe, particularly for capital gains taxes.

Luxury property sellers pay a flat rate of 10% on income derived from divestments, according to KPMG. As of 2020, the Tax Foundation listed Denmark with the highest capital gains tax in Europe at 42%.

In B&H, real-estate-transfer taxes only account for 5% of the property’s estimated value. First-time luxury property sellers also pay a flat value-added tax (VAT) rate of 17%.

bosnia and herzegovina

In B&H, real-estate-transfer taxes only account for 5% of the property’s estimated value.

Why B&H Is A Tax Haven

B&H is a lesser-known tax haven for property sellers because many often think of western European countries such as Monaco or Switzerland.

Most people, however, also don’t know that some western European countries collect the highest property tax rates.

Take Italy for example. The Tax Foundation’s International Tax Competitiveness Index (ITCI) ranked the country at the bottom between 2019 and 2021.

The ITCI only gauged tax rates among 37 Organization for Economic Co-operation and Development (OECD) countries. Even so, luxury property owners in Italy pay more in taxes than their counterparts in B&H.

Aside from a high property tax rate, Italy ranked at the bottom of the ITCI because of taxes on property sales and inheritances. The country also levies wealth taxes if you own overseas properties.

Luxury property sellers in B&H would only pay a 5% tax rate, assuming that they aren’t first-time sellers. The country doesn’t impose stamp duties as well, further making it a cheaper place to buy or sell real estate.

While B&H implements low real estate taxes, Estonia is arguably better. The latter only collects real property tax based on land value, according to the ITCI. For this reason, Estonia ranked at the top of the index.

As B&H isn’t part of the OECD group as of February 2022, let’s compare its property taxes with other countries in southeast Europe.

Bosnia and Herzegovina

Luxury property sellers in B&H would only pay a 5% tax rate, assuming that they aren’t first-time sellers.

Taxes In B&H Vs. Taxes In Neighboring Countries

Citizens of southeast European countries avoid double taxation in B&H as per several treaties with the following nations:

  • Albania
  • Moldova
  • Montenegro
  • North Macedonia
  • Serbia

Luxury property sellers in Albania pay a 15% tax rate on capital gains from transactions. If you sell a property company via a share sale, the same rate applies for capital gains.

In Moldova, the country levies capital gains taxes on 50% of the income from a property sale. You would then subtract the number with the base value, which would be taxed at the standard rate of 12%, according to PwC.

Bosnia and Herzegovina

Montenegro imposes a lower income tax rate than B&H at a flat rate of 9%. The country, whose name translates to Black Mountain in English, taxes capital gains based on “the difference between the sale and purchase price,” according to KPMG.

In terms of capital gains from property sales, North Macedonia waives taxes based on certain conditions:

  • The Property Taxes Law exempts the sale because it was inherited or given as a gift.
  • The sale happened three years after the purchase date, subject to a residency rule.
  • The sale happened five years after the purchase date.
  • The sale happened between spouses or because of a divorce.

PwC also said that property sales “within a procedure for denationalization” are also exempt from capital gains taxes.

In Serbia, real-estate-transfer taxes account for 2.5% except when the transaction isn’t subject to VAT. Luxury property sellers also pay a 15% capital gains tax from applicable deals, according to KPMG.

Bosnia and Herzegovina

House prices in Bosnia and Herzegovina increased almost 6% in December 2020 year over year.

Real Estate Price Growth In B&H

Despite political discord in B&H, the country’s real estate sector fared well over the last 10 years. CEIC data showed that home prices in B&H rose 0.4% on average from 2009 to 2020.

House prices increased almost 6% in December 2020 year over year. The Agency for Statistics of Bosnia and Herzegovina also reiterated higher home prices in the country since the Covid-19 pandemic.

Based on the housing index, the price per square meter rose to BAM 1,812 (US $1,060) in the second quarter of 2021. The price-per-square meter amounted to BAM 1,651 (US $966) in the second quarter of 2020.

Home prices might only increase further in the foreseeable future, as indicated by more construction projects. Building permits rose to almost 370 in December 2021 from 330 in November 2021.

If you’d rather buy and sell luxury properties on more established markets, check out this list of curated brokers that can help you with maximizing prospective returns.

Author

Randolf Santos has covered different segments of the real estate industry since 2014. He worked at S&P Global Market Intelligence before joining Forbes Global Properties as a contributor. You can reach him at [email protected]

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