Freelancing – Rights and Obligations

Freelancing could be explained as a part-time job. These are temporary jobs, most often projects for someone who is not a resident of FBiH, where the freelancer is not bound by an employment contract or place of work. Therefore, from the tax aspect, this way of doing business is considered an independent activity, where all obligations fall directly on the freelancer.

Although the real expansion of freelancing forms of work in the world started in 2011, various sites and platforms for online business exploded and people began to earn significant money, freelancers in FBiH often stood in front of the wall of ignorance of Tax Administration officials about how to treat this income. Until 2018, when the Ordinance on the Application of the Income Tax Act was amended (Article 12, paragraph 4, item 3 of the Income Tax Act, and Article 70b of the Ordinance on the Application of the Income Tax Act).

The amendment to the ordinance finally defined what every permanent or occasional freelancer should know about their rights, obligations and the tax they have to declare after paying their income from abroad.

However, that change actually raised a lot of dust as it required retroactive calculation and payment of income tax backwards until 2015, which caused dissatisfaction among freelancers. Today, however, it has become somewhat crystallized how and in what way to treat freelancers and the income they earn.

Let us first clarify: The taxpayer of income tax is a resident of the Federation and a non-resident who earns income, namely – a resident who earns income in the territory of the Federation and outside the territory of the Federation. Earnings received from abroad are treated as their income from self-employment, and accordingly freelancers are obliged to report the amount of income and pay tax on it. For this reason, after receiving the inflow of money on the account, the tax must be paid no later than the day after.

The reason why freelancers actually have to make their own tax returns, taking into account that it is usually done through the employer – in the case of employment contracts and copyright agreements where employers of occasional jobs are residents of the FBiH. In this case, the employers are non-residents, so this obligation passes to them and it is determined on the basis of the provisions of the Income Act with the recognition of withholding tax and advance payment of income tax paid abroad.

Please note that there is no minimum amount of income to report. Every income is taxable, regardless of its amount.

By not reporting and not paying taxes, freelancers risk paying fines, which are quite large; according to Article 84 of the FBIH Tax Administration Law: A legal entity that fails to file a tax return with the Tax Administration in the manner prescribed by this or any tax law of the Federation, will be fined in the amount of 2,000.00 KM to 20,000.00 KM.

For the misdemeanor referred to in paragraph 1 of this Article, the responsible person in the legal entity shall be fined in the amount of 500.00 KM to 3,000.00 KM.

A natural person who does not submit a tax return to the Tax Administration in the manner prescribed by this or any tax law of the Federation, will be fined in the amount of 300.00 KM to 3,000.00 KM. For each application that must be made by the Tax Administration on behalf of the taxpayer, a fine in the amount of 500.00 KM to 50,000.00 KM is prescribed.

The tax return is made on the prescribed form AMS-1035 – Advance payment of withholding tax on other independent activities on income from abroad. When submitting the AMS form to the Tax Administration, it is necessary to submit (except for the form), proof of realized inflow, proof of paid tax and contribution, and proof of paid tax abroad (if any).

The calculation is based on the following principle:

If we assume that the income of a freelancer is e.g. 1,000 KM.

  1. Income – 1.000,00 KM
  2. Recognized expenses – 20%
  3. Basics of health – 800,00 KM
  4. Health insurance contribution (4%) – 32,00 KM
  5. Income tax base – 768,00 KM
  6. Income tax (10%) – 76,80
  7. Total contributions and taxes: 108,80 KM

If the income of a freelancer is 1000.00 KM, and income tax has been paid abroad in e.g. in the amount of 200.00 KM, in the calculation we use it as a loan:

  1. Income – 1.000,00KM
  2. Recognized expenses – 20%
  3. Basics of health – 800,00 KM
  4. Health insurance contribution (4%) – 32,00 KM
  5. Income tax base – 768,00 KM
  6. Income tax (10%) – 76,80
  7. The amount of tax credit paid abroad – 200,00 KM
  8. Total contributions and taxes: 200>76,80 – 0 KM

Form AMS – 1035- direct link for PUFBiH

It is important to note that expenses in the amount of 20 or 30 percent can be recognized, which is in accordance with the Law on Income Tax when it comes to payments for other occasional self-employment or those that have the characteristics of royalties, and can also use the tax credit if the income tax is calculated and paid in the country of the employer.

The amount of the tax credit may not exceed the income tax calculated by the tax rate in the Federation. The tax credit is recognized on the basis of valid documentation certified by the competent authorities of the foreign state. Amounts of tax paid abroad are converted into convertible marks (KM) by applying the middle exchange rate of the Central Bank of BiH on the day of tax assessment.

It is a legal obligation to calculate four percent of health insurance contributions on the income from self-employment at the expense of the recipient of the benefit, but on the basis of this payment, the right to health insurance is not exercised.

Income tax and health contribution are paid into payment accounts which can be found on the website of the Tax Administration (direct link: ) and the payment goes to the county / canton of residence of the freelancer. The health contribution is paid in the standard ratio: 89.80% to the account of the cantonal HIF and 10.20% to the account of the Federal Fund.

The personal deduction is not used on the mentioned form during the calculation, and every resident of FBiH who has a tax card has the right to use this deduction at the end of the year via the form GPD-1051 – annual income tax return.

In that case, this income from self-employment is also entered in the annual return, as well as the amount of tax paid in the country and abroad.

Form GPD-1051:

We remind you that the legal deadline for submitting the GPD-1051 form is March 31, 2022

Therefore, we note you to respect the legal deadline, submit the form and thus exercise the right to a possible tax refund.

We also note that if you have not already, to get a tax card, since you provide relief through it, it is a minimum of 300.00 KM per month or 3,600.00 KM if you worked all year.

The tax card is made by submitting an application on the form: in Tax Administration according to the place of residence of the resident.

Author: Unija BiH