Bosnia and Herzegovina

Although still an unknown destination for major world markets, BiH has all the prerequisites for an extremely successful story when it comes to investing in the real estate sector of a developing country. It is an undeniable fact that BiH is still stuck in transition processes, but looking from investor's point of view opened for a slightly riskier portfolio, it could provide huge opportunities and great profits.

The main sector that drives destinations and destination real estate market is of course tourism. And destination tourism in BiH is the only economic sector that is recording constant growth by flow, without any government backing and policies, which is the opposite to worldwide happenings.

However, according to the World Tourism Organization, Bosnia and Herzegovina is defined as one of only three tourist destinations in the world with a total growth potential of the tourism market of more than 10% per year until 2020 and unwanted Covid encounter.

Natural resources and biodiversity in a relatively small area conducts the mainstay of Bosnia and Herzegovina's potential. The geographical location offers an ideal opportunity to attract both Western and Eastern guests, because within a few hours of flight it is possible to arrive equally from London and Kiev, for example.

Country profile
Land area	51.197 km²
Population	3.250.000
Population density	64
Tourist arrivals	1.198.000 (2019, before Covid measures)
Number of transactions	15.960 of properties (2020 for FBiH)

Pros and cons of buying real estate in Bosnia and Herzegovina

Pros

Just a few tens of kilometers from the distinct Mediterranean climate, you can enter to an area of idyllic mountain landscape that have recently become increasingly established as desired tourist destinations, not only as part of the winter tourist season, but also summer. Especially after the beginning of the COVID-19 pandemic, we are witnessing increased demand for such an environment and consequently higher interest in acquisition of real estate.
Improved real estate registration proceedings and greater availability of online cadastral information have helped develop transparent and more efficient property market. In addition, the backlog of unresolved cases has been reduced.
The biggest advantage is the simple and financially minimal maintenance of the purchased property. You will not have an annual real estate tax at all (except in Republika Srpska, although the amount is insignificant there), rental income tax is also minimal, and resale of real estate is taxed only if it's sold in first 3 years, and last, most importantly – generally great liquidity of urban properties, which means you can easily encash your brick investment.

Cons

We have to be honest and let you know from the very start that you could stuck by the difficulty of obtaining a building permit for your facility, regardless of which administrative-local unit you are in. Moreover, we all know that this is the number one reason why investors are turned down. What exactly is it about? The high share of the costs of obtaining a building permit in the total project costs, along with the fact of slow obtaining of the same (some analyzes also speak of an average of 175 days for building permit obtaining) are certainly a discouraging reason. You will need to obtain a building permit for the following type of work: construction of a new building, extension and reconstruction of an existing building, construction of a temporary or auxiliary building and change of purpose of the building.
Lands in the outskirts of towns / cities do not have overly adequate access to communal infrastructure (of course, it is stupid to generalize, but we like to warn), which certainly increases the initial costs of each project. In addition, you will usually be accompanied by poorer accessibility to plots, given the lack of clear urban plans and zoning in such parts of the city.

Suggestions for purchase proceedings

Bosnia and Herzegovina is a Mediterranean country that offers the least Mediterranean of them all, but that doesn’t mean you will be witholded from everything linked to the Mediterranean, and in addition, you can get a bonus. Apart from Neum town, which is a logical part of our offer, we monitor several locations in mountain surroundings as well, as the gravity of international demand is directed towards this type of destination of Bosnia and Herzegovina.

Real estate proceedings for foreign legal and natural persons

Foreign persons in Bosnia and Herzegovina may get title to real estate, with a rule of reciprocity. The notion of reciprocity means that foreign persons in Bosnia and Herzegovina can acquire the right of ownership over real estate under the same conditions that the country of their origin grants to the citizens of Bosnia and Herzegovina.

Foreigners may not own real estate in an area declared by law as an protected one from foreign acquisition, in order to preserve the interests and security of both the Federation and the Republika Srpska.

If a foreign person acquired the title to real estate in that area before the classification as such, the right of ownership of that real estate ceases, and the foreign person will be entitled to compensation according to the regulations on expropriation.

Taxes related with purchase of real estate - short overview

In Bosnia and Herzegovina, the acquisition of real estate is subject to real estate transfer tax or value added tax (VAT) at the national level.

VAT is calculated at the rate of 17% at the national level, when real estate transactions are performed by persons registered in the VAT system, in cases of the first real estate transaction.

The issue of determining the real estate transfer tax in the Federation of Bosnia and Herzegovina is regulated by cantonal legislation; while all ten cantons have a similar approach to the subject matter, with the only difference being the tax rate and the tax exemption. When it comes to the tax rate - in the Federation of Bosnia and Herzegovina (FBiH) it is up to 5% according to individual decisions of cantons.

Republika Srpska (RS) has not introduced this tax form.

Other tax liabilities

In the Federation of BiH, according to the Law on Income Tax, it stipulates that if the purchased property is sold within three years from the date of purchase, the capital gain tax on the alienation (sale) of real estate is paid with a 10% withholding tax. (tax ground is the difference between buy and sell property price)

Republika Srpska - The tax rate on capital gain from the alienation of real estate is 10%. (Law on Income Tax of the Republic of Srpska)

Annual property taxation is not regulated at the entity level in the FBiH either, as the cantons also prescribes property tax law.

In Republika Srpska, the owner of any form of property pays 0.20% of the value of the property per year.

Key takeaways

The possibilities of acquiring real estate in Bosnia and Herzegovina for a foreign person will depend primarily on the status of reciprocity rules, where there are different restrictions depending on the country of your origin and the type of real estate you want to acquire.
The big advantage of Bosnia and Herzegovina is certainly a good geographical location, a bridge between East and West. On the threshold of the European Union, Bosnia and Herzegovina as a destination is within reach by road for many tourists and investors who will recognize the current potential of natural peaceful environments.
The prices of real estate and cost of living are below average prices of all European countries as well as the Far and Middle East, which makes this country a destination recognized as good value for money.
The annual real estate tax in the Federation of BiH as a tax form does not exist, while in the Republika Srpska it is only 0.20%, which makes property in Bosnia and Herzegovina easy to maintain throughout the ownership period.