Running Payroll in Bosnia & Herzegovina: Employment Taxes & Setup

Payroll in Bosnia & Herzegovina is shaped by a complex, entity-based system split between the Federation of Bosnia and Herzegovina (FBiH), Republika Srpska (RS), and the Brčko District, each with its own rules for income tax withholding, social security contributions, and local levies. You must manage monthly withholding of personal income tax, mandatory pension, health, and unemployment insurance, plus regular payroll reporting to the tax authorities and social funds in the relevant entity. Your team needs clear internal rules on which entity’s legislation applies to each employee based on their place of work and registration.

Non-compliance can trigger back taxes, interest, and fines from the Indirect Taxation Authority and the entity-level tax administrations, as well as audits that disrupt operations and damage employee trust if salaries or benefits are delayed. This guide walks you through how to calculate payroll taxes, align with entity-specific rates, meet filing and payment deadlines, and set up compliant payroll whether you operate through your own entity or an Employer of Record. Where thresholds, exemptions, or procedures differ by location or business size, you will see what to double-check with the relevant entity tax office or social insurance institution.

Fiscal Year in Bosnia & Herzegovina

1 January - 31 December is the 12-month accounting period that businesses in Bosnia & Herzegovina use for financial and tax reporting purposes.

Payroll Cycle in Bosnia & Herzegovina

The payroll cycle in Bosnia & Herzegovina is usually Monthly, with employees being paid by the last working day of the month.

Minimum Wage in Bosnia & Herzegovina

As of 2026, Bosnia and Herzegovina's minimum wage is set at BAM 1,027 per month. The wage may vary slightly by entity, as the country has a decentralized wage-setting system.

Bonus Payments in Bosnia & Herzegovina

There is no statutory requirement to provide a 13th salary.

Payroll taxes in Bosnia & Herzegovina center on personal income tax, mandatory social security contributions, and local surcharges, with slightly different rates and rules in the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District. As of 2026, most employers in the Federation can expect combined employer social contributions of roughly 10%–12% of gross salary and employee contributions plus income tax of around 31%–33%, while RS and Brčko apply their own statutory percentages and bases.

Personal Income Tax (PIT)

Personal income tax is withheld at source by the employer on employment income, typically at a flat 10% rate on taxable income after allowable deductions in both the Federation and Republika Srpska. The employer calculates PIT on each payroll run, withholds it from the employee’s gross salary, and remits it monthly to the competent entity tax authority together with the payroll report.

Late or incorrect PIT withholding can result in penalties, default interest, and potential on-site inspections by the Tax Administration of the Federation of Bosnia and Herzegovina or the Tax Administration of Republika Srpska. Because PIT is closely reconciled with annual individual tax returns in some entities, under-withholding can create unexpected liabilities for employees and reputational issues for your company.

Social Security Contributions

Social security contributions finance pension, health, and unemployment insurance and are the largest payroll cost component in Bosnia & Herzegovina. In the Federation, employees typically contribute around 31% of gross salary (pension 17%, health 12.5%, unemployment 1.5%), while employers contribute about 10.5% (pension 6%, health 4%, unemployment 0.5%), whereas Republika Srpska applies a combined rate of roughly 32.8% mostly on the employee side with a minimal employer share.

Contributions are calculated on gross salary without a high cap in most cases and must be paid monthly to the relevant social funds via the tax administration’s payment system. Failure to pay on time can lead to blocked bank accounts, denial of health insurance coverage for employees, and fines imposed by the Pension and Disability Insurance Funds and Health Insurance Funds in each entity.

Local Surcharges And Other Payroll Levies

Some cantons and municipalities in Bosnia & Herzegovina apply local surcharges on income tax or specific payroll-related fees, particularly in the Federation’s cantonal system. These are usually small percentages, such as an additional 0.5%–1% on top of PIT, but they must be included in your monthly calculations and remittances where applicable.

Local levies are generally borne by the employee through withholding, but the employer is responsible for correct calculation, reporting, and payment to the appropriate local authority. Non-compliance can result in local-level penalties and complications when obtaining tax clearance certificates needed for public tenders or certain regulatory approvals.

Employees in Bosnia & Herzegovina are typically paid by bank transfer in local currency, the Bosnia and Herzegovina convertible mark (BAM), into a personal bank account registered in the country. Most employment contracts provide for monthly pay, and in practice salaries are usually paid by the end of the current month or no later than the first days of the following month, depending on the entity’s labor regulations and collective agreements.

If you do not have a local entity, you can engage staff through an Employer of Record, which becomes the legal employer and runs compliant payroll, or you can register a branch or subsidiary and work with a local payroll provider. Payslips must clearly show gross salary, each statutory deduction (pension, health, unemployment, income tax, and any local surcharges), net pay, and the payroll period, and they are commonly delivered electronically but must be accessible to employees for record-keeping.

• Payment Method: Use bank transfers in BAM to employees’ local bank accounts to align with banking and labor practice.
• Pay Frequency: Set a monthly payroll cycle and ensure funds are credited by the contractually agreed payday in line with entity labor rules.
• No-Entity Hiring: Use an Employer of Record if you lack a Bosnian entity but need to hire quickly and stay compliant with tax and social security rules.
• Local Entity Route: If you have a company or branch, register with the tax administration and social funds before running your first payroll.
• Payslip Content: Include gross pay, itemized social contributions, income tax, local surcharges, net pay, and employer identifiers on every payslip.
• Bank Documentation: Maintain payroll bank payment orders and reference numbers that match your tax and contribution filings for audit purposes.
• Foreign Currency Costs: If funding payroll from abroad, plan for FX conversion into BAM and any bank fees that affect net timing.

Getting payroll set up correctly in Bosnia & Herzegovina is essential because tax, social security, and reporting obligations attach to the legal employer in a specific entity and location. With your own entity, you handle registrations, calculations, filings, and payments directly, while with a no-entity model you rely on an Employer of Record to take on those obligations under local law.

Entity-based payroll gives you more control but also more administrative work, including dealing with different rules in the Federation, Republika Srpska, and Brčko District. A no-entity approach can be faster to launch and easier to maintain, especially if you are hiring in multiple entities or cantons with varying contribution rates and procedures.

• Determine Hiring Footprint: Decide in which entity (FBiH, RS, or Brčko) your employees will be registered, as this drives tax and contribution rules.
• Choose Payroll Model: Select between setting up a local entity with in-house or outsourced payroll, or partnering with an Employer of Record.
• Register With Authorities: For an entity, obtain tax numbers and register with the Pension, Health, and Unemployment Funds before onboarding staff.
• Open Payroll Bank Account: Set up a BAM-denominated bank account capable of domestic payment orders with correct tax and contribution references.
• Collect Employee Data: Gather personal IDs, residency details, bank accounts, and any documentation for tax allowances or dependants.
• Configure Payroll Software: Implement payroll tools that support entity-specific rates, local surcharges, and electronic reporting formats.
• Define Payroll Calendar: Align internal cut-offs with statutory payment deadlines for PIT and social contributions in the relevant entity.
• Document Policies: Establish written policies on overtime, bonuses, allowances, and benefits so they are consistently taxed and reported.
• Set Record Retention: Put in place secure storage for payslips, contracts, and filings for the minimum statutory retention period in each entity.

Example Of Salary Tax Calculation

Assume an employee in the Federation of Bosnia and Herzegovina earns a monthly gross salary of 2,000 BAM. You will first calculate employee social contributions (for example, 31% total) and subtract them from gross to get the taxable base, then apply the 10% income tax rate after any applicable personal allowance.

On the employer side, you add your social contributions (for example, 10.5% of gross) to understand the full employment cost. This step-by-step approach helps your team validate that net pay, tax, and contributions reconcile with the amounts reported to the tax administration and social funds.

• Step 1 – Employee Contributions: Calculate employee pension, health, and unemployment at the applicable combined rate on 2,000 BAM.
• Step 2 – Taxable Base: Subtract employee social contributions and any personal allowance from gross salary to determine taxable income.
• Step 3 – Income Tax: Apply the 10% PIT rate to the taxable income to find the income tax to withhold.
• Step 4 – Net Salary: Deduct employee contributions and PIT from gross salary to arrive at net pay.
• Step 5 – Employer Cost: Add employer social contributions at about 10.5% of gross to calculate the total monthly employment cost.

Submitting Employee Tax In Bosnia & Herzegovina

Employee taxes and social contributions are usually submitted monthly via the electronic systems or prescribed forms of the entity tax administrations, supported by bank transfers from your payroll account. You must have your company tax ID, employee identifiers, payroll period details, and the breakdown of PIT and each social contribution ready before initiating filings and payments.

• Tax Portal Filing: Use the Federation or RS tax administration e-portal where available to upload monthly payroll reports and confirm liabilities.
• Bank Transfers: Initiate separate bank payments for PIT and each social fund using the correct reference numbers and payment codes.
• Payroll Software Integration: Configure payroll software to generate XML or other accepted formats for direct upload to tax portals.
• Third-Party Provider: Engage a local payroll bureau or Employer of Record to handle filings and payments on your behalf if you lack in-house expertise.
• Reconciliation Process: Reconcile payment confirmations with portal balances and internal payroll reports each month to catch discrepancies early.

Payroll Tax Due Dates In Bosnia & Herzegovina

Understanding the tax obligations for both employers and employees is crucial when operating in Bosnia & Herzegovina's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Bosnia & Herzegovina.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 10% - 13% on top of the employee salary in Bosnia & Herzegovina. The exact percentage depends on whether the employee is registered in the Federation, Republika Srpska, or Brčko District and on any applicable local surcharges or special schemes.

Employee Payroll Tax Contributions

In Bosnia & Herzegovina, the typical estimation for employee payroll contributions cost is around 31%.

Individual Income Tax Contributions

Individual income tax in Bosnia & Herzegovina is generally levied at a flat rate on employment income after social contributions and certain allowances. Each entity sets its own rules, but a 10% rate on taxable income is common in both the Federation and Republika Srpska.

Pension in Bosnia & Herzegovina

Pension contributions in Bosnia & Herzegovina are mandatory and primarily funded through first-pillar social insurance contributions paid on employment income to the entity Pension and Disability Insurance Funds. Entitlement to an old-age pension depends on years of service and age, and contribution histories are tracked separately in the Federation, Republika Srpska, and Brčko District, so accurate payroll reporting is critical for employees’ future benefits.