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White book publication 2010/11

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In order to stress the main obstacles to investment in Republic of Srpska and Bosnia and Herzegovina and to propose a program of priority reforms to eliminate these barriers the Foreign Investors …

In order to stress the main obstacles to investment in Republic of Srpska and Bosnia and Herzegovina and to propose a program of priority reforms to eliminate these barriers the Foreign Investors Council - FIC has created a publication entitled "White Paper 2010/11."

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  • 1. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 1 WHITE BOOK 2010/11 Editor: Bojana Škrobić Omerović 2010/11 Foreign Investors Council
  • 2. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 2 Copyright Notice Permission to use, copy, and distribute the contents of this document in any medium and without fee, royalty and formal request to the Board of Directors of the Foreign Investors Council is hereby granted, provided that copies are not made or distributed for profit and that the Foreign Investors Council’s copyright is acknowledged and attributed to the source given. The Foreign Investors Council does not warrant, guarantee or make any representation regarding the accuracy, reliability, or any other aspect regarding this document. The FIC gratefully acknowledeges the sponsorship from IFC, a member of the World Bank Group, for the print- ing of the White Book 2010/11. The views and opinions expressed in this publication reflect Foreign Investors Council’s point of view and not necessarily those of the IFC. Under no circumstances shall the Foreign Investors Council or its sponsors be liable for any direct, indirect, special, incidental or consequential damages, or for damages of any kind arising out of or in connection with the use of this document under any theory of liability even if we have been advised of the possibility of such damages.
  • 3. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 3 TABLE OF CONTENT 1. FOREWORD .............................................................................................................. 5 2. FIC IMPRESSIONS ..................................................................................................... 7 3. BiH BUSINESS CLIMATE OVERVIEW – 2010 .................................................................. 9 4. EXECUTIVE SUMMARY ............................................................................................... 11 5. OBSTACLES TO INVESTMENTS ................................................................................... 23 6. SECTIONS ............................................................................................................... 25 6.1. BUSINESS REGISTRATION .................................................................................. 25 6.2. TEMPORARY RESIDENCE AND WORK PERMIT ........................................................ 31 6.3. LAW ON EXECUTION PROCEEDINGS ..................................................................... 36 6.4. COMPANIES LAW ............................................................................................... 42 6.5. LAW ON SECURITIES MARKET ............................................................................. 48 6.6. TAXES .............................................................................................................. 52 6.7. CONSTRUCTION PERMITS ................................................................................... 62 6.8. FBIH LIQUIDATION LAW AND BANKRUPTCY .......................................................... 66 6.9. EXPORTS .......................................................................................................... 74 7. FIC MEMBERS .......................................................................................................... 79 8. ACKNOWLEDGMENTS ................................................................................................ 81 9. SUPPORT TEAM LEADERS AND TEAM MEMBERS ........................................................... 83 10. REFERENCES ........................................................................................................... 85 3
  • 4. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 4 TABLE OF ACRONYMS ASYCUDA Automated System for CUstoms Data ATA Carnet combination of French and English phrases "Admission Temporaire/Temporary Admission BATA Institute for Accreditation of BiH BH FMT BiH Ministry of Finance and Treasury BiH Bosnia and Herzegovina BU Business Unit CD Customs declaration CDM  Clean Development Mechanisms CEMT fr. Conférence Européenne des Ministres des Transports - The European Conference of Ministers of Transport District / BD District Brcko DNA  Designated National Authority EBRD European Bank for Reconstruction and Development EDMWS system Electronic Document Management and Workflow System EU European Union FBiH Federation of Bosnia and Herzegovina FDI Foreign Direct Investments FIC Foreign Investors Council GNI Gross national income HJPC BiH High Judicial and Prosecutorial Council of Bosnia and Herzegovina IFC International Finance Corporation ILO  International Labor Organization ITA BiH Indirect Taxation Authority of Bosnia and Herzegovina KS Canton Sarajevo MoFTER BiH Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina OECD Organization for Economic Co-operation and Development PARS Parlamentary Assembly of RS RS Republic of Srpska TIR Carnet fr. Transports Internationaux Routiers – Karnet TIR –International Road Transport VAT Value Added Tax * Recommendations from the previous White Book edition 4
  • 5. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 5 1 FOREWORD T he White Book is the most important in the local banking market. The Republic of publication produced by the Foreign In- Srpska entity approved a law authorizing PPPs vestors Council. In this annual publica- and FBiH still hasn’t adopted this law and we tion the FIC highlights the key obstacles our strongly believe that the government of this en- members are facing while doing business in tity as well as the state level will put in the ef- Bosnia and Herzegovina. The White Book 2010 forts to handle the issue of PPP. The EU progress is the most thorough edition the FIC has yet report for 2009 shows a small number of imple- published and contains only the most important mented reforms, as a result of which BiH is still issues as determined by our membership. pending on the EU membership process. Despite Bosnia and Herzegovina’s efforts to In the last year some limited improvements open its economy to more foreign investment, in the business environment were recorded, but foreigninvestors continue to face a number of the inadequate reforms were not sufficient to serious obstacles, including a complex legal and substantially foster private sector develop- regulatory framework, non-transparent busi- ments. We need more improvement and FIC ness procedures, and weak judicial structures. members are ready to assist the government in Given the fact that many of last years recom- developing an agenda for needed reforms, thus mendations still remain the same it is an obvi- contributing in their implementation. ous indication that very little has been acco- It is our hope that the recommendations mplished. We intentionally left the majority of provided in this edition of the White Book 2010 last years recommendations to emphasize the will pave the path for an improved business cli- necessity and actuality of the same. mate which will insure a better working envi- Privatization of state-owned enterprises has ronment for the present foreign companies and lagged behind the rest of the countries in the secure conditions that will attract investors will- region (including Croatia, Serbia, Montenegro ing to contribute to better employment of BiH and Macedonia). Government authorities at all citizens and the economic growth of the coun- levels have begun to address these obstacles as try. We are hopeful that the newly elected gov- part of the larger effort to transition to a market ernment will show more support to foreign economy; however, BiH is still in the early companies and in that way contribute to a bet- stages of this process. As a result, foreign in- ter business climate in Bosnia and Herzegovina. vestment (particularly greenfield investment) We would like to express our gratitude to all has shown only limited gains. Foreign invest- who contributed to the production of the White ment in the banking sector is the exception, Book 2010 edition, with a special thanks to our with Austrian banks taking a significant position devoted members. Tie Sosnowski FIC President 5
  • 6. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 6
  • 7. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 7 2 FIC IMPRESSIONS T he Foreign Investors Council aims to act The FIC is striving to maintain a con- as a single voice for all foreign investors stant flow of information to govern- in Bosnia and Herzegovina and seeks to ment authorities.  promote business-oriented initiatives and pro- One of these attempts may be reflected in vide practical support to all investors in order the FIC’s publication of the Open Letter to BiH to improve the business environment in the authorities, with the aim of emphasizing the im- country. By taking an active role in the transi- portance of the government endorsing foreign tion process, the FIC contributes to the im- investments in BiH. Through this communica- provement of the investment climate in Bosnia tion we have attempted to highlight the impor- and Herzegovina, engaging in dialogue with the tance of tax reform, construction and work stakeholders and voicing the position of the in- permits reform, further development of PPP, vestors. stressing and the significance of privatization.. In order to meet or accomplish goals, we In  order  to  channel  our  vision  and have so far conducted activities related to the aims we are in constant cooperation promotion of our members and their aspira- with representatives of foreign insti- tions, with the aim of pointing out important tutions and other foreign companies.  facts about our work in BiH as well as our influ- As a part of the Kyoto protocol, the CDM ence on the business climate. (Clean Development Mechanisms) is one of the Since 2007, we have been working on pro- most important elements that should be imple- moting our activities mostly through advocating mented in order to secure further development and lobbying for better conditions for foreign of the companies dealing with renewable en- and local investors. ergy sources. Our members, along with foreign When it comes to the implementation of the embassies and other foreign companies have recommendations from the White Book 2009, advocated for the forming of a DNA, a national some limited and slight improvements could be body for submitting the applications for CDM seen. According to data that we obtained, some certification, on a state level. In October 2010, modest improvements have been noticed in the the BiH Council of Ministers adopted the deci- area of business registration. As of 2008, FIC sion on forming this important body. The con- members along with other company represen- tinuation of these activities will follow during tatives were involved in working groups that this year. lobbied for these changes. In addition, the Law FIC members have also played a significant on Direct Foreign Investments have recently role in the process of promoting exports in been altered and improved in a way to reduce Bosnia and Herzegovina. This has been done the administration when it comes to registration through the cooperation with the EU funded of foreign capital in BiH. project for developing exports in BiH. FIC com- Some of the modest improvements have pany representatives were involved in develop- been noticed in the area of obtaining construc- ing the first National Export Strategy. tion permits, temporary residence permits, land In addition to the above,the Foreign In- and registry documents and court registration. vestors Council organized several events with Together with the municipal court in Sarajevo, the aim of promoting our membership and dis- our member companies have greatly con- cussing foreign investors issues with different tributed to land registry reform in Bosnia and representatives of government institutions, in- Herzegovina. ternational organizations as well as with others 7
  • 8. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 8 Foreign Investors Council who significantly contribute to the business cli- ronment, companies are not adequately infor- mate of BiH. Events such as these secured sig- med about the legal and regulatory changes that nificant feedback which was used to direct and have been made and how they will be enforced. guide further work of FIC members. In previous years BiH authorities have taken Representatives of the media played a cru- steps to improve the business climate in BiH. It cial role in covering and highlighting our events is necessary not only to continue these efforts during the year 2010. The media’s active in- but to do much more for the development of a volvement in our actions made it possible for us positive investment climate in the country as to spread our vision and aims throughout the well. Our current cooperation with authorities business community in Bosnia and Herzegovina has been quite satisfactory, but the new gov- and the region. ernment is expected to harmonize legislation, FIC members have demonstrated more than as well as to take concrete measures for reviv- once that they are socially engaged companies ing the investment cycle. responsible for local communities where they Given the fact that the newly elected BiH act. Actions such as: building parks, donating and FBiH Goverments have not been formed by schools, supporting the development of educa- the time this edition of the White Book is being tion, are common activities of our members, edited (end of February 2011), we are using which the society has recognized. this opportunity to stress once more that the The lack of a coherent policy by the govern- activities of our association as well as the activ- ment towards the economy and a clear vision ities of our members have been hindered pend- on how to set priorities and manage the needed ing the formation of the Government. reforms are the biggest obstacles for direct for- The future plans of the FIC are to maintain eign investments. The FIC is primarily con- and build new relations with newly elected gov- cerned with improving the legal and regulatory ernment officials and other important stake- framework in BiH. At the same time we would holders. We will continue our cooperation with like to emphasize the importance of practical other similar associations and foreign embassies steps that government officials can take in through the Cooperation Council, with the aim order to improve the work process within the of attracting new members and improving gen- Institutions. When it comes to business envi- eral conditions for conducting business in BiH. 8
  • 9. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 9 3 BIH BUSINESS CLIMATE OVERVIEW - 2010 B osnia and Herzegovina’s progress in The labour market remains relatively rigid, transition has been effectively stalled for which continues to encourage informality of some years, and as a result the country economic activities and employment, particu- lags behind all others in South-eastern Europe. larly during the time of crisis. High payroll con- The country’s complicated political and consti- tributions and high minimum wages remain key tutional structure is a major obstruction to re- factors in sustaining labour market rigidities. In form and good governance. As a result of the response to the pressures created by the crisis, reform paralysis, the country also lags behind the entity authorities introduced limited restric- other EU accession candidates or potential can- tions to the unemployment benefits. The em- didates in the region. ployment capacity is further damaged by the In recent years, policy reform efforts have failure of the country’s education system to been (greatly) inadequate and uncoordinated adapt to the market needs. An advanced draft and the business climate continues to suffer labour law has been prepared in FBiH, but was due to persisting structural rigidities. The lack of not discussed in the Parliament during the pre- political will combined with unfavourable mar- election period. According to the Labour Force ket conditions over the past year to prevent any Survey prepared in line with the ILO methodol- progress on privatization, particularly in FBiH. ogy, unemployment increased to 24.1% in In 2010 Inflows of foreign direct invest- 2009 and it even rose to 27,1% in 2010 . ments in BiH declined by almost 45% in com- Also, labour market issues are one of the parison to 2009. Annual average of foreign 1 key factors for not seeing the development investments inflow for BiH was 14.3 per cent in among foreign companies in BiH, followed by 2009 and beginning of 2010. The highway con- the difficulty to attract new investors. Our struction works on the Corridor Vc were members recognized this to be also a great stopped between September 2009 and March issue while conducting business in this country. 2010 due to political and legal problems. Bosnia and Herzegovina undertook some Graph below, shows FDI’s decline inflow: business environment reforms. The court-based 1 CBBiH, November 2010 – http://www.cbbh.ba/index.php?id=741&lang=bs 9
  • 10. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 10 Foreign Investors Council business registration system is in operation major reform. Return to a stronger and more since 2007 and at present permits this segment sustainable growth of economy demands reli- of the registration process to be completed in able public finance, a solid banking system and less than 10 days on average. The need for a better business environment double registration of foreign investors with the BiH is the country open to foreign invest- Ministry of Foreign Trade and Economic Rela- ments, especially, when it comes to natural re- tions was recently replaced by an electronic sources, energy and tourism. However, legal connection to the court-based database. obstacles, constitutional reform and tax admin- Regarding the construction permits, some istration are the most significant reason why improvements can been see in comparison to BiH remains unattractive to foreign investors.4 previous year. A construction permit can now be Graph below shows top three business envi- obtained faster, with the average time down ronment obstacles in the SEE region (relative from 296 to 255 days.2 severity of constraint). Although BiH felt the impact of the global fi- We believe it is high time that all le- nancial crisis, the banking system has remained vels of government take concrete steps sound, and by early 2010, the total level of de- and assign highest priority to impro- posits returned to pre-crisis levels. The Vienna ving environment for foreign and pri- Initiative agreement among the main banks vate investments.  succeeded in preventing outflows of funds back New governments have a precious opportu- to foreign parent banks. In order to counter a nity to reverse the negative trends of economic rise in non-performing loans, regulations re- decline and to take clear and strong actions to garding debt restructuring were loosened in motivate foreign investors to come in Bosnia both entities early in 2010. and Herzegovina. The economy growth in BH is expected to be FIC members will spare no efforts in striving up this year by 2.2 per cent,3 and more signif- towards achieving this particular goal for benefit icant progress is not to be expected without of both foreign investors and local companies. 2 World Bank “Doing business report for 2011”. 3 IMF Global Economic Outlook - BiH 4 EBRD Transition Report 2010. 10
  • 11. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 11 4 EXECUTIVE SUMMARY BUSINESS REGISTRATION ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBiH and RS FBiH and RS • Instituting a Lien on Shares in • Registration laws need to be amended • Ministries of Justice of FBIH a Limited Liability Company to provide for registration courts’ re- and RS (d.o.o.) gistering liens instituted on shares. FBiH FBiH • Unclear Definition of the Cases • More specific definition of the facts • Ministry of Justice of FBIH that May Result in a Suspen- that may result in a suspension of re- sion of Registration Procedure gistration procedure • Participation of Notaries in the • Amend the Notaries Law and registra- • Ministry of Justice of FBIH Registration Procedure in FBiH tion regulations such that notaries’ • Registration courts participation is completely reduced in the processing of company’s founding acts and articles of association, as well as any amendments. Practical aspects Practical aspects FBIH and RS FBIH and RS • Inadequate Availability of Ge- • Post information on the registration • Competent registration neral Information on Registra- procedure on web pages of all institu- courts tion Procedure tions involved in the procedure or in- • Competent Ministries of Ju- dicate contact details where the required stice information is available. • Lack of Consistency in Proces- • Remove the unnecessary red tape from • Competent registration sing Registration Applications laws and practices. courts in Courts • Competent Ministries of Ju- stice • Application of the Principle of • Access to basic company information • Competent registration Public Access to the Court Re- should be enabled on the website of courts gistry Records each court that maintains a company’s registry. • Failure to Honor Statutory Ti- • Courts’ operation needs to organize • Ministries of Justice of FBIH meframes and Unnecessary De- such that they provide continuous re- and RS lays in Registration Procedure gistration services. • Competent registration courts 11
  • 12. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 12 Foreign Investors Council ISSUES RECOMMENDATIONS INSTITUTION FBiH FBiH • Hours for Consultation with Re- • Since hours for consultation are sche- • Municipal Court in Sarajevo gistration Judges in the Muni- duled in other courts as a matter of cipal Court in Sarajevo typical practice, this practice should also be reinstated in the Municipal Court in Sarajevo. TEMPORARY RESIDENCE AND WORK PERMIT ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBiH, RS, BD FBiH, RS, BD • Work Permit Cannot Be Issued • There are two solutions to this pro- • BiH Parliamentary Assem- in Specific Cases Without an blem: (i) amend Article 84 of the BiH bly and FBiH Parliament Employment Contract Signed Law on Movement and Residence of • Competent Ministries Aliens and Asylum, or (ii) amend the FBiH Law on Hiring Foreign Nationals. Practical aspects Practical aspects FBiH, RS FBiH, RS • Failure to Comply with Applica- • The Department for Alien Affairs • BiH Ministry of Security ble Regulations Regarding the needs to act in accordance with the • Competent Department for Length of the Procedure for BiH Law on Movement and Residence Alien Affairs with the BiH Approving and Extending Tem- of Aliens and Asylum when deciding Ministry of Security porary Residence on an application for approval or ex- tension of temporary residence that was submitted directly to the compe- tent unit with the Department and to issue a decision within 30 days. FBiH, RS, BD FBiH, RS, BD • Inconsistent Enforcement of • A practice of mutual communication • BiH Ministry of Security Laws and Lack of Coordination and coordinated operation needs to be • Competent courts Among State Bodies and Insti- established between the Department • Competent Department for tutions in Exchanging Informa- for Alien Affairs and courts in charge Alien Affairs tion of business registration. FBiH FBiH • Lack of Harmonization of Laws • The BiH Law on Movement and Resi- • Competent Ministries and Practices Relating to the dence of Aliens and Asylum and the • KS Employment Department Procedure of Issuing a Work FBiH Law on Hiring Foreign Nationals 12
  • 13. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 13 W H I TE   BO O K ISSUES RECOMMENDATIONS INSTITUTION Permit Before Approving Tem- need to be harmonized with respect to porary Residence in the Sara- the first issuance of a work permit to jevo Canton (FBiH) foreign nationals. • Failure to Comply with Applica- • Practices need to be harmonized and • FBiH Parliament ble Regulations Regarding applicable laws need to be complied • FBiH Ministry of Labor and Working Hours of a Foreign Na- with. Another option is to adopt a rule Social Policy tional in the Sarajevo Canton defining the lower limits of full wor- • KS Employment Department king hours of foreign nationals. LAW ON EXECUTION PROCEEDINGS ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBIH and RS FBIH and RS • The Process of Identifying Deb- • The Law needs to be expanded to inc- • BiH Ministry of Justice tor’s Property Does Not Include lude authentic documents in addition • Entity Ministries of Justice Authentic Documents to enforceable documents. • Abuse of proceedings in case • The Law needs to preclude such stal- • BiH Ministry of Justice of objections submitted against ling of collection of claims, and anot- • Competent courts a writ of execution her possible solution would be to prevent the debtor from making arbi- trary and groundless allegations in his/her objections. • The rules for preparing and • The Law needs to define the course • BiH Ministry of Justice managing an auction are not of auction in detail because currently • Competent courts defined each court determines the terms and course of auction on its own. • Different Interpretation of the • The Law needs to clearly define the • BiH Ministry of Justice Provision Concerning Sale of meaning of the provisions that a real Real Property property “may be sold without restric- tions on the lowest price”. • Imprecisely defined deadlines in the following areas: o Satisfaction of claims o Clearly define a deadline to satisfy pe- • Competent courts titioner’s claims (within 15, 30 or 60 days). 13
  • 14. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 14 Foreign Investors Council ISSUES RECOMMENDATIONS INSTITUTION o Hearing to split the sale pro- o Define a specific timeframe within • Competent courts ceeds which the court must schedule a hea- ring to split the sales proceeds. o Decision on satisfaction of o Define a specific deadline and replace • Competent courts claims the term “without delay” with 15 or 30 days • Unclear definition of the pro- • Define more precisely the meaning of • Parliaments of cantons/en- cess of appraising the value of “a part of the creditor’s claim”, i.e. tities /People’s Assembly of real property specify an exact amount/ percentage the RS- PARS of the claim, (e.g. 1/3 or the like) • BiH Ministry of Justice • Entity Ministries of Justice Practical aspects Practical aspects FBIH and RS FBIH and RS • Execution against movable • Regulations should provide for recor- • Competent Ministries of the property (motor vehicles) ding a pending execution on a passen- Interior FBiH and RS ger motor vehicle in the vehicle • Competent Ministries of Ju- records with the competent Ministry of stice FBiH I RS the Interior and in the vehicle regi- stration certificate or license. • Abuse of the procedure of de- • These cases need to be defined such • Competent courts termining the sales price that a mechanism is ensured to pre- vent these identified abuses. • Different practices in courts in • The Law needs to clearly define the de- • BiH Ministry of Justice issuing a decision on satisfac- cision detailing satisfaction of claims. tion of claims • Incomplete information on the • The Law needs to specify that emplo- • Ministries of Justice FBiH I debtor’s level of debt yers are required to list all present RS debts of the employee. • Competent courts • Authentic documents do not • The definition of an authentic docu- • Competent courts include an invoice and a state- ment needs to be expanded to include ment from business books for invoices and statements from busi- all legal entities ness book for all legal entities, without exception. 14
  • 15. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 15 W H I TE   BO O K COMPANIES LAW ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBiH, RS, BD FBiH, RS, BD • Establishing a Branch Office of • Harmonize the FBiH Law with the RS • Ministry of energy, mining a Foreign Legal Entity and BD Laws and provide for an op- and industry of FBiH tion for foreign legal entities to esta- blish branch offices in FBiH. FBiH FBiH  • Prohibition of Share Purchase • The issue of financing a purchase of • Securities Commission of Financing equity shares/stakes should be defi- BiH ned more specifically in the FBIH Companies Law. FBIH  FBIH  • Convening and Advertising the • Amend Article 242 of the FBiH Law • Securities Commission of Shareholders’ Meeting and specify the minimum required cir- FBiH culation of a daily newspaper issued in FBiH in which the notice on a Share- holders’ Meeting is advertised. • Provision of Materials to Share- • In these cases, the person submitting • Securities Commission of holder for the Shareholders’ the request and having authority to FBiH Meeting directly convene the Shareholders’ Meeting should also be required to prepare draft resolutions. • Making Copies of Materials • Amend provisions of Article 247 of the • Securities Commission of Available to Shareholders for FBiH Law and add a provision accor- FBiH the Shareholders’ Meeting ding to which every shareholder who requests so, must have copies of the documents made available to him/her. • Vote of Confidence for Super- • Amend provisions of Article 259 of the • Securities Commission of visory Board Members FBiH Law, defining the need to con- FBiH vene a Shareholders’ Meeting for mandatory vote of confidence for Su- pervisory Board Members following the first two years of their term. • Age Limit for Supervisory • The Law needs to extend the age limit • Securities Commission of Board Members for Supervisory Board Members to at FBiH least 70 years of age. • Limitations Regarding Appoint- • Amend provisions of Article 264(1), • Securities Commission of ment as Supervisory Board and exempt affiliated companies from FBiH Member this limitation. 15
  • 16. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 16 Foreign Investors Council LAW ON SECURITIES MARKET  ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBiH FBiH • Stock Subscription and Pay- • The wording of the FBiH Companies • FBiH Ministry of Finances ment Law and the FBIH Securities Market • FBiH Securities Commissi- Law needs to be harmonized such that on the FBiH Companies Law refers to the FBiH Securities Market Law, instead of setting a time period. • Deadline to Submit Applica- • The deadlines in the FBiH Companies • FBiH Ministry of Finances tions for Approval of Public Law and the FBIH Securities Market • FBiH Securities Commissi- Share Offering Law need to be harmonized such that on the FBiH Companies Law refers to deadlines specified in the FBiH Secu- rities Market Law. RS RS RS • Registration of Securities • Transfers of securities resulting from • RS Ministry of Finances Transfers errors in entering transfer orders in • RS Securities Commission the stock exchange system should be exempted from the mandatory clea- ring. • Inability to Manage a Portfolio • The solution would read: “A stockbro- • RS Ministry of Finance in Other Markets ker that provides securities portfolio • RS Securities Commission management services shall keep its client’s securities that are traded in markets outside the Republika Srpska in a custody account – in its own name and for client’s account.” Practical aspects Practical aspects FBIH and RS FBIH and RS • Brokerage Services • Allow for implementation of the prin- • FBiH/RS Ministry of Finance ciple of reciprocity to banks and pro- • FBiH/RS Securities Commi- fessional brokers that hold brokerage ssion licenses in BiH, provided that full con- trol of the competent Commissions 16
  • 17. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 17 W H I TE   BO O K ISSUES RECOMMENDATIONS INSTITUTION over the work of professional brokers is ensured. RS RS RS • The Issue of Publishing a Pro- • Introducing a “preliminary prospec- • RS Ministry of Finance spectus tus” would allow the general public to • RS Securities Commission get to know the company that plans a public share issue. TAXES ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBiH, RS, BD FBiH, RS, BD • BiH Ministry of Finance and • Complicated Procedure for Ap- • All data on international agreements Treasury (BiH MFT) plying International Agree- to be stored in a single database and • FBiH Tax Administration ments for BiH made publicly available • Federation Ministry of Fina- nce • RS Ministry of Finance • Unclear legal provisions of the • Precisely define the obligation to pay • Entity Ministries of Finance personal income tax and social social security contributions for indivi- security contribution for indivi- duals residing in FBiH, RS and the Dis- duals residing in FBiH, RS and trict and earning their income in BD and earning their income in another administrative unit, and har- another administrative unit monize Laws. • Lack of harmonization between • Harmonize regulations at state level. • FBiH/RS Ministries of Fina- Personal Income Tax Laws with nce respect to tax exemptions and the amount of personal deduc- tion at entity and BD level • Unclear legal provisions regar- • Precisely define taxation of foreign in- • FBiH and RS Ministries of ding taxation of foreign natio- dividuals and their rights to a reduc- Finance nals who are employed in their tion in tax base, and develop a system home country and were sent in FBiH that will be linked with institu- on duty to BiH, and who pay tions authorized to carry out payment their social security obligations transactions. in their home country 17
  • 18. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 18 Foreign Investors Council ISSUES RECOMMENDATIONS INSTITUTION Practical aspects  Practical aspects FBiH and RS FBIH and RS • VAT Refund for Persons Who • Under the Regulation on VAT Law, cla- • BiH Ministry of Finance and Do Not Have a Registered Bu- rify in detail the right to a VAT refund, Treasury siness in BiH in accordance with EU directives and • BiH Indirect Taxation Aut- publish a list of countries from which hority VAT refund is possible. • Issuance of Opinions by BiH • Allow requests for opinion to be sub- • BiH Indirect Taxation Aut- Indirect Taxation Authority mitted in such a way that an opinion hority may be sought in all cases up to the moment when an inspection control procedure begins. • Inefficient Forced Collection on • The present entity laws governing • FBiH and RS Ministries of Debtors’ Bank Accounts (RS payment transactions should be up- Finance and FBiH) graded by including mechanisms whe- reby all bank accounts of a client would be blocked. RS RS • CORPORATE INCOME TAX o The Law does not clearly define o Clearly define in the Law gains/losses, o RS Ministry of Finance the meaning of unrealized income/expenses not included in the o RS Tax Administration gains/losses, income/expenses tax base. not included in the tax base o Depreciation of newly-acquired o Allow depreciation one month after o RS Ministry of Finance buildings is not possible the building was put into use. o RS Tax Administration o Different practices of taxation o Harmonize legislation regarding taxa- o RS Ministry of Finance of business units which have tion of business units in the other en- o RS Tax Administration their registered address in tity and BD. another entities and BD • Fiscal cash register software • Harmonize the Fiscalization Law and • RS Ministry of Trade and does not support any rebates the Trade Law and their related regu- Tourism or other discounts in retail lations and other regulations. • RS Ministry of Finance sales or requires a very com- plex tracking of such rebates or discounts, which is quite nonsensical in a computer age 18
  • 19. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 19 W H I TE   BO O K CONSTRUCTION PERMITS ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation RS RS • Unclear and Incomplete Urban • Amend the Urban Planning and Con- • Legislative and executive Planning and Construction Law struction Law such that clear cause- authorities in the RS effect relationships may be established between different provisions of the Law. FBiH, RS FBiH, RS • The RS Urban Planning Law needs to • Law Does Not Define Treat- incorporate more detailed telecommu- • Legislative and executive ment of Telecommunications nications infrastructure provisions. In authorities in the entities Sector FBiH, laws need to be further harmo- and cantons nized within the Federation framework (FBiH and cantons) Practical aspects  Practical aspects FBiH FBiH • Transfer of Construction Permit • Relevant laws need to define the con- in the Sarajevo Canton ditions for transferring a construction • Legislative and executive permit from one investor to another. authorities in the Federa- In addition, a new Construction Law tion and cantons needs to be enacted at FBiH level as well as a new law at cantonal level. FBiH, RS FBiH, RS • Inefficient Processing of Appli- • It is important to have professional, • Municipalities in FBiH and cations trained and responsible staff, capable the RS of managing all the changes made. Improvements would also require set- ting up networked databases. FBIH LIQUIDATION LAW AND BANKRUPTCY ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBIH and RS FBIH and RS • Vague Wording of Liquidation • The Liquidation Law needs to more • FBiH Parliament / PARS Procedure adequately address the course of the 19
  • 20. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 20 Foreign Investors Council ISSUES RECOMMENDATIONS INSTITUTION liquidation procedure as well as the • Ministries of Justice of FBIH position, rights and obligations of the and RS liquidator; alternatively, the Law should include a provision allowing for an adequate application of provision of the Bankruptcy Proceedings Law to those aspects of the liquidation proce- dure that have not been defined. • Inability to Access a List of • The obligation to record the liquidation • FBiH Parliament / PARS Companies Being Liquidated in procedure with the Companies Regi- • Ministries of Justice of FBIH the Court Registry ster and to include words “under liqui- and RS dation” in the company name during liquidation should be defined by law. • Qualifications and certification • Specific measures needed to improve • FBiH Parliament / PARS of receivers in BiH confidence in the implementation of • Ministries of Justice of FBIH the bankruptcy law should include: (i) and RS amend the present law to set some minimum requirements regarding past experience and define a specific profession that would correspond to the nature of duties of a receiver. • Treatment of company’s real • Entity level property laws should ex- • FBiH Parliament / PARS property after the liquidation pressly provide for this option. • Ministries of Justice of FBIH procedure is completed and RS • Different Practices in Courts • The Liquidation Law needs to include • FBiH Parliament / PARS Regarding Submission of Docu- a list of all the documents that a liqui- • Ministries of Justice of FBIH ments for Liquidation dation petitioner is required to submit, and RS and also to precisely define the mo- • Competent courts ment when each of the documents is to be submitted. Practical aspects Practical aspects FBIH and RS FBIH and RS • Different practices in courts re- • Practice in courts regarding this issue • FBiH Parliament / PARS garding submission of a certifi- needs to be harmonized, and relevant • Ministries of Justice of FBIH cate proving payment of tax regulations need to define that the tax and RS liabilities during the institution administration shall have the same • Competent courts 20
  • 21. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 21 W H I TE   BO O K ISSUES RECOMMENDATIONS INSTITUTION of a liquidation procedure position as all other creditors of a com- pany being liquidated. • Penalties for company mana- • The Bankruptcy Proceedings Law • FBiH Parliament / PARS gers who do not file for ban- should include, by way of amend- • Ministries of Justice of FBIH kruptcy on time ments to it, a higher fine and even a and RS criminal penalty for company mana- • Competent courts gers/administrators who do not file for bankruptcy on time. • Payment of a 5% lump sum to • The lump sum payment for the costs • FBiH Parliament / PARS the bankruptcy estate from the of maintenance would only be justified • Ministries of Justice of FBIH sale of movables and real pro- if the real property was in the posses- /RS perty sion of the bankruptcy debtor bet- ween the institution of bankruptcy proceedings and the sale of real pro- perty, which means that in such case all the maintenance costs would be borne by the bankruptcy debtor. • The issue of the right to dis- • Specify the meaning of the right of • FBiH Parliament / PARS pose of real property in ban- disposal, i.e. whether it is the transfer • BiH Ministry of Finance and kruptcy proceedings of possession or something else. A Treasury collision between the Bankruptcy Pro- • Ministries of Justice of FBIH ceedings Law and the VAT Law needs and RS to be resolved in terms of the legal ef- fects of such disposal. EXPORTS ISSUES RECOMMENDATIONS INSTITUTION Legislation Legislation FBIH and RS FBIH and RS • Issuing and Recognition of Cer- • Provide for signing bilateral agree- • BiH Ministry of Foreign Trade tificates in Countries in the Re- ments with neighboring countries (BiH, and Economic Relations gion and EU Croatia, Serbia, Montenegro). Mutual • Institute for Accreditation recognition of certificates. of Bosnia and Herzegovina - BATA/ • Implementation of TIR and ATA • The Ministry of Foreign Trade and Eco- • BiH Ministry of Foreign Trade Carnet Conventions nomic Relations should immediately and Economic Relations 21
  • 22. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 22 Foreign Investors Council ISSUES RECOMMENDATIONS INSTITUTION prepare the documents required to ra- tify the ATA Carnet agreement and start implementing it. • Automation of the Process of • The Ministry of Transport and Commu- • BiH Ministry of Transport Awarding ECMT Licenses nications should amend the regulation and Communications in order to formulate the entire pro- cess of awarding an ECMT license. Practical aspects Practical aspects FBIH and RS FBIH and RS • CUSTOMS AND ISSUES EXPO- RTERS FACE IN CLEARANCE: o Waiting for the green lane – o Automation of the ASYCUDA system • BiH Indirect Taxation Aut- often takes too long should enable automatic clearance hority through the green lane after 45 min. o Short office hours of the cu- o Organize customs operation 0-24h (or • BiH Indirect Taxation Aut- stoms offices and the obliga- at least 7-21), especially regarding in- hority tion to provide the CP form two house clearance, and shorten the dea- hours before the end of office dline to provide the form to 0,5-max hours for approved exporters 1 hour before the end of office hours o Too high price for correcting a o Reduce the price to a reasonable level • BiH Indirect Taxation Aut- CD (very often due to a trivial (KM 2.00-5.00) hority technical error) o Individual payment of duty for o Allow collective completion of monthly • BiH Indirect Taxation Aut- each export generates additio- declaration with a single duty or at hority nal bank charges least collective payment of all duties on a single payment slip. o Collecting a copy of 3 ex decla- o Placing mailboxes at all border cros- • BiH Indirect Taxation Aut- rations stamped by competent sings for forwarders to put certified hority authority at a border crossing copies of ex declarations and submitting it to the com- petent institution is a compli- cated procedure, especially for large exporters. 22
  • 23. White Book 2010-11 f2:White Book 2010 21.4.2011 13:19 Page 23 5 OBSTACLES TO INVESTMENT T he 2010/11 edition of the White Book is • Law on Execution Proceedings looking into nine areas that are impor- • Companies Law tant for the future inflow of investments • Securities Market Law in the country. The issues presented in this pub- • Taxes lication reflect experiences that our Members • Construction permits are facing in the business environment. In cer- • Liquidation Law and Bancruptcy tain sections we are only emphasizing issues • Exports our Members are facing in one BiH entity, but it does not mean that the same or similar prob- Each section provides (i) narrative overview lems do not exist in another BiH entity or the of the key issues,(ii) summary of major recom- District. mendations for reforms (iii) table summarizing The following areas are covered: key issues, recommendation, and key institu- • Business Registration tion (government authority). • Temporary Residence and Work Permit 23
  • 24. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 24
  • 25. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 25 6 SECTIONS EXPERIENCES: ISSUES AND RECOMMENDATIONS 6.1. BUSINESS REGISTRATION Inadequate Availability of General Information on Registration Procedure* INTRODUCTION FBIH and RS: ISSUE Due to the crisis and the country’s focus on The registration procedure for legal entities elections in October 2010, reforms in the busi- in Bosnia and Herzegovina would have to be ness environment proceeded at a somewhat simpler, faster and cheaper in order to boost the slow pace. economy in general, and foreign investment in The latest amendments to the BiH Law on particular. The enactment of the Framework Law Policy of Foreign Direct Investment disconti- on Business Registration in BiH was aimed at nued the obligation of foreign investors to regi- introducing a simple and rapid procedure for re- ster their individual investments with the BiH gistration of businesses. In practical terms, ho- Ministry of Foreign Trade and Economic Rela- wever, legal entities still encounter problems in tions. Instead, competent registration courts the registration procedure because legislation are now required to act ex officio and forward and in particular practices vary from admini- information to the BiH Ministry of Foreign Trade strative unit to administrative unit in Bosnia and and Economic Relations regarding registered Herzegovina. In some cases, practices are dif- companies that include foreign investments. ferent even within one and the same court, de- The steps required to start a business in Bo- pending on which judge handles the case. Cha- snia and Herzegovina include 12 procedures, nging the present legislation is a lengthy pro- taking 60 days, and the cost are equivalent to cess. It would therefore be useful if the courts/ 15.75% GNP per capita for every start of busi- relevant Ministry of Justice, and even Chambers ness in Bosnia and Herzegovina. of Commerce, could make information related Over the previous year the situation in this to registration of companies publicly available. field has even worsened because the procedure This information should be available on websi- became more complex and expensive. This was tes of courts of law, Ministries or Chambers of primarily due to the fact that decisions made by Commerce, and should be updated as neces- bodies of the company must be now notarized, sary. What is important is that this information which extends the registration process and should be available for review in a single loca- makes it more expensive. We cannot but won- tion to facilitate and shorten the process of gat- der whether this participation of notaries in the hering required information such as documents registration process is merely a matter of for- to be submitted to the court for examination, mality and whether it boils down to "rewriting" amount of duties, contact details, etc. Further- decisions of the bodies that actually passed more, it would help if there were a list of the those same decisions. countries signatories to the Apostille Conven- In spite of the reforms implemented or star- tion and of the countries that had signed bila- ted in this field, there still remain numerous teral agreements with BiH according to which obstacles faced by foreign investors, in parti- the Apostille authentication is not needed. cular with respect to registration of their busi- nesses. FBIH and RS: RECOMMENDATION Below are only some of the obstacles faced Information on the registration procedure by our members in this area. needs to be posted on websites of all institu- 25
  • 26. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 26 Foreign Investors Council tions involved in the procedure if they have a fense Laws (Article 80), which should be modi- website, or bulletin boards in these institutions fied. We believe this should only include such should be used to post contact details of the de- minor offenses for which the company and the partment/person where the required informa- responsible person in the company were sub- tion is available. Parties would find it much ject to an appropriate sanction in relation to easier to understand the procedure if instruc- minor offenses committed while performing tions were posted, reference laws were identi- one’s duties related to the company operation, fied and all information relating to the registra- and certainly not for minor offenses committed tion process was provided. In addition, registra- as private individuals. tion instructions should be harmonized among all courts and end users should be able to sim- FBIH and RS: RECOMMENDATION ply input information in these instructions. The laws need to be consistently applied and the unnecessary red tape should be removed Lack of Consistency in Processing Registration from both the laws and practices. If a party has Applications in Courts* failed to provide full documentation with its ap- FBIH and RS: ISSUE plication the first time, the court should issue a While Business Registration Laws are clear single conclusion listing all the shortcomings in and specify the documents required registering the submitted documents. a company, it is often the case that additional This would avoid unnecessary delays in the documents not required by law are requested procedure that are now present when several by courts or that a judge will make conflicting requests are made for different alterations in a conclusions in one and the same case. For single case, in spite of the fact that all the example, the Managing Director of a company shortcomings could have been noted in just one has changed. In addition to a certificate confir- conclusion. ming no outstanding fines issued against the company, the party is requested to provide the Application of the Principle of Public Access to same certificate for the person being relieved of the Court Registry Records the duty. Even though regulations do not re- FBIH and RS: ISSUE quire a certificate of no criminal record to be According to the relevant laws, data entered provided for the person being relieved of in the court registry records are public and his/her duty, such document can be asked for anyone may examine such data without the in practice. need to prove they have a legal interest in This seems unnecessary, particularly be- doing so. In practice, however, the principle of cause the persons being relieved of their duty such public access generally involves only re- do not have to be employed with the company quests for information (certificates, etc.) by re- at the time their names are removed from the gistered companies themselves. court registry records. We can see no reason for the certificate of no outstanding fines to include FBIH and RS: RECOMMENDATION details of traffic and other violations that are Access to this information should be enabled unrelated to the company itself, which these on the website of each court that maintains a persons committed as private individuals or as company’s registry (name and address, registe- citizens-amateur drivers (parking tickets, etc.) red business activity, capital and persons aut- The bases for these are FBiH and RS Minor Of- horized to represent the company) 26
  • 27. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 27 W H I TE BO O K Instituting a Lien on Shares in a Limited Liability even longer. In addition to other factors that af- Company (d.o.o.) fect the honoring of these statutory deadlines, FBIH and RS: ISSUE unwarranted delays in the registration proce- Registration courts are the only institutions dure are also due to the registration judge’s that manage records on shares in limited liabi- being on an annual leave/sick leave/training/ lity companies, and it would appear logical that seminar/internship. This results in the registra- they should also register any liens instituted on tion procedure not being conducted and the re- such shares. There have been several attempts gistration case remains pending. Likewise, while to register such liens with the court, but the Business Registration Laws are clear and spe- courts refused these requests because there cify the documents required to register a com- was no explicit legal provision defining such re- pany, it is often the case that additional docu- gistration. This situation affects legal certainty ments not required by law are requested by because potential buyers of such shares cannot courts, or that judges will take different posi- use public records to obtain information on any tions and make different conclusions, which liens instituted on the shares. This is in contrast leads to insecurity and uncertainty in each pro- to purchasers of stocks, because entity securi- cedure. There are also frequent cases that a ties registries have been successfully registe- judge will make several requests for different ring liens instituted on stocks. alterations in a single case, in spite of the fact that all the shortcomings could have been noted FBIH and RS: RECOMMENDATION in just one conclusion. This artificially extends Registration laws need to be amended such the statutory periods to complete the registra- that information on liens instituted on shares tion procedure, which start at the moment all are maintained by registration courts. the relevant documents have been submitted. FBIH and RS: RECOMMENDATION Failure to Honor Statutory Timeframes and Unne- Courts’ operation needs to organize such cessary Delays in Registration Procedure that they provide continuous registration servi- FBIH and RS: ISSUE ces. In case of absences of more than a few Under the law, the procedure of company re- days, registration cases need to be reassigned gistration is an urgent and uniform procedure to other judges in order to honor statutory ti- applicable to all companies established in Bo- meframes. Laws need to be consistently applied snia and Herzegovina both by domestic and in- and only the documents required under law ternational legal entities or individuals. Accor- should be requested. If a party has failed to dingly, the Business Registration Law in the Fe- provide full documentation with its application deration of Bosnia and Herzegovina and the Bu- the first time, a judge should issue a single siness Registration Law in the Republika Srpska conclusion listing all the shortcomings in the stipulate that competent registration courts are submitted documents. This would avoid unne- required to issue a registration decision within cessary delays in the procedure. five days of an application being duly filed. Un- fortunately, this statutory timeframe is not ho- Unclear Definition of the Cases that May Result nored in practice, with registration procedures in a Suspension of Registration Procedure* taking most often 5 – 20 days for companies FBiH: ISSUE being registered for the first time, while regi- The FBiH Business Registration Law provides stration of status changes in the company takes that if a competent registration court suspects 27
  • 28. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 28 Foreign Investors Council the existence of a fact that may decide whether FBiH: RECOMMENDATION the registration application is in line with this or Since hours for consultation are scheduled other laws, and if another court of law is to de- in other courts as a matter of typical practice, termine such fact, the registration procedure this practice should also be reinstated in the will be suspended until a final resolution is pas- Municipal Court in Sarajevo. sed ending the procedure before the other court. There were cases when this provision was Participation of Notaries in the Registration Pro- interpreted in very broad terms and the registra- cedure tion procedure was suspended even in cases FBIH: ISSUE when the company was involved in a parallel li- Council members believe that notaries’ par- tigation that was unrelated to the status change ticipation in the processing of company deci- being registered. Due to the length of time re- sions is needless and boils down do copying- quired to end litigation proceedings, such and-pasting of company decisions. This raises groundless suspension of the registration pro- the issue of the justification for such formalism cedure results in irreparable losses and creates and the contribution of a notary who, for exam- difficulties in company’s everyday operation. ple, notarizes a decision on establishing a new branch office (which is required under the law) FBiH: RECOMMENDATION or appointment or removal of a head of branch Since the Law does not specify which facts office in a company with 50 or 100 such branch are decisive for registration with a court regi- offices (this is not required under law, but is re- stry, there should be a more detailed definition quested in practice). Why would a notarized de- of the facts that may lead to a suspension of re- cision carry a greater legal force or be more gistration procedure. authentic in any way than a decision made by the management of a company that appoints Hours for Consultation with Registration Judges the head officer in its own branch? What is the in the Municipal Court in Sarajevo* contribution of a notary, for example, in notari- FBiH: ISSUE zing a decision on capital increase, in which The Municipal Court in Sarajevo has cance- case a corporation must anyhow submit to the led consultation hours. Businessmen believe registration court a certificate issued by the de- these hours are valuable in cases when court pository bank certifying payment of capital, etc? decisions or conclusions ordering supplementa- tion and/or correction of the application and FBIH: RECOMMENDATION submitted documents are not clear or when Amend the Notaries Law and registration re- they need to check what the general position of gulations such that notaries’ participation is the registration court is on certain issues that completely reduced, except in cases of authen- have not been clearly defined by laws and have ticating signatures of persons authorized to re- not been dealt with by courts previously. present the company. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Inadequate Availability of Ge- • Information on the registration proce- • Competent Ministries of Ju- neral Information on Registra- dure needs to be posted on web pages stice tion Procedure of all institutions involved in the pro- 28
  • 29. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 29 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION cedure if they have a web page, or • Competent registration bulletin boards in these institutions courts should be used to post contact details of the department/person where the required information is available. In addition, registration instructions should be harmonized among all courts and end users should be able to simply input information in these instructions • Lack of Consistency in Proces- • Laws need to be applied consistently. • Competent Ministries of Ju- sing Registration Applications If a party has failed to provide full do- stice in Courts cumentation with its application the • Competent registration first time, a judge should issue a sin- courts gle conclusion listing all the shortco- mings in the submitted documents. This would avoid unnecessary delays in the procedure that are now present when several requests are made for different alterations in a single case, in spite of the fact that all the short- comings could have been noted in just one conclusion. • Application of the Principle of • Access to this information should be • Competent registration Public Access to the Court Re- enabled on the website of each court courts gistry Records that maintains a company’s registry. (name and address, registered busi- ness activity, capital and persons aut- horized to represent the company) • Instituting a Lien on Shares in • Registration laws need to be amended • Ministries of Justice of FBIH a Limited Liability Company such that information on liens institu- and RS (d.o.o.) ted on shares is maintained by regi- stration courts. • Failure to Honor Statutory Time- • Courts’ operation needs to organize • Ministries of Justice of FBIH frames and Unnecessary De- such that they provide continuous re- and RS lays in Registration Procedure gistration services. In case of absen- • Competent registration ces of more than a few days, registra- courts tion cases need to be reassigned to 29
  • 30. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 30 Foreign Investors Council KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION other judges in order to honor statu- tory timeframes. Laws need to be consistently applied and only the documents required under law should be requested • Unclear Definition of the Cases • Since the Law does not specify which • Ministry of Justice of FBIH that May Result in a Suspen- facts are decisive for registration with sion of Registration Procedure a court registry, there should be a more detailed definition of the facts that may lead to a suspension of regi- stration procedure. • Hours for Consultation with Re- • Since hours for consultation are sche- • Municipal Court in Sarajevo gistration Judges in the Muni- duled in other courts as a matter of cipal Court in Sarajevo typical practice, this practice should also be reinstated in the Municipal Court in Sarajevo. • Participation of Notaries in the • Amend the Notaries Law and registra- • Ministry of Justice of FBIH Registration Procedure tion regulations such that notaries’ • Registration courts participation is completely reduced, except in cases of authenticating si- gnatures of persons authorized to re- present the company 30
  • 31. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 31 W H I TE BO O K document, a certificate of no criminal record, is- sued by the competent Ministry of the Interior. In cooperation with the ten cantonal em- 6.2. TEMPORARY RESIDENCE AND ployment departments, the Federation Employ- WORK PERMIT ment Institute launched an initiative to develop a common procedure for issuing work permits, INTRODUCTION which will ensure that this procedure is defined Entry into force of the BiH Law on Movement in the same way across the entire F BiH. This and Residence of Aliens and Asylum and the 5 will make the procedure of issuing work permits relevant secondary legislation , and of the RS 6 uniform and will close the present gaps regar- Law on Hiring Foreign National and Stateless ding the lack of coordination between the FBiH Persons7, facilitated the process of being gran- Law on Hiring Foreign Nationals and the BiH ted temporary residence and work permit for Law on Movement and Residence of Aliens and foreign nationals in certain respects, depending Asylum. on the entity in which the foreign national ap- What remained an obstacle in 2010 was the plies for the work permit. failure to comply with applicable regulations re- The FBiH Parliament has not enacted propo- garding the length of the Department for Alien sed amendments to the FBiH Law on Hiring Fo- Affairs’ procedure for approving and extending reign Nationals , and therefore the present FBiH 8 temporary residence. Law on Hiring Foreign Nationals is yet to be har- Summarizing all the issues identified in the monized with the BiH Law on Movement and last year’s White Book, in the section Temporary Residence of Aliens and Asylum. Residence and Work Permits for Foreign Natio- During 2010, an improvement was made in nals in BiH, we can conclude the these issues the work of authorities that issue work and re- remain and they have therefore been included sidence permits, such that the KS Employment in this White Book for 2010/11: inconsistent en- Department and the Department for Alien Af- forcement of laws and lack of coordination fairs now accept certified copies of court regi- 9 among state bodies and institutions in exchan- stry certificates for the purposes of extending ging information; specific cases where a work one’s temporary residence, rather than requi- permit cannot be issued without an employ- ring certified copies of all registration decisions ment contract signed; lack of harmonization of for the company. In addition, another improve- laws and practices relating to the procedure of ment is that it is now sufficient to submit a cer- issuing a work permit before approving tempo- tificate of no pending criminal proceedings rary residence in BiH; and failure to comply with against a foreign national to the Department for applicable regulations regarding working hours Alien Affairs for the purposes of extending one’s of a foreign national. temporary residence. This certificate is issued Below are the problems faced by FIC mem- by the competent court according to the foreign bers and recommendations for improving the national’s place of residence in BiH. Earlier, the procedure, starting with the new issues in foreign national had to provide an additional 2010: 5 Official Gazette of BiH 36/08 6 Regulation on Entry and Stay of Foreign Nationals, Official Gazette of BiH No. 81/08, 7 Official Gazette of RS 24/09 8 Official Gazette of FBiH 8/99 9 BiH Ministry of Security 31
  • 32. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 32 Foreign Investors Council EXPERIENCE: the same documents that were provided the ISSUES AND RECOMMENDATIONS previous year(s). In addition, Article 86 of the BiH Law on Movement and Residence of Aliens TEMPORARY RESIDENCE and Asylum stipulates that the registration Failure to Comply with Applicable Regulations courts need to automatically forward, immedia- Regarding the Length of the Procedure for Ap- tely and no later than within seven days of the proving and Extending Temporary Residence day the company was registered or changes to FBiH and RS: ISSUE company data were registered, full information Article 60(6) of the BiH Law on Movement on the registration/change of data to the De- and Residence of Aliens and Asylum provides partment for Alien Affairs. Changes in the com- that the Department for Alien Affairs needs to pany’s registry referred to in the Business decide on an application for approval and ex- registration Laws (BiH, FBiH, RS and BD)10 re- tension of temporary residence and issue the late to the following: changes in shareholders, decision to the party as soon as possible, no members on Management Board/procurators later than within 60 days of the application and members on the Supervisory Board of the being duly submitted via a BiH Diplomatic-Con- registered company. In practice, however, these sular Mission, or within 30 days if the applica- state institutions fail to act in accordance with tion was submitted directly to the competent this Law and to exchange information. Past ex- unit within the Department. In practice, howe- perience has not shown that competent courts ver, decision on approval or extension of a tem- either honor or follow this practice, which is porary residence application filed with the their legal obligation. This would resolve the si- competent unit with the Department most often tuation where the parties are required to submit takes more than 30 days. certified copies of registration decisions for the company or court registry certificates that had FBiH and RS: RECOMMENDATION already been provided to the Department for The Department for Alien Affairs needs to Alien Affairs the previous year(s). act in accordance with the BiH Law on Move- ment and Residence of Aliens and Asylum when FBiH and RS: RECOMMENDATION deciding on an application for approval or ex- The Department for Alien Affairs has already tension of temporary residence that was sub- established certain registers of foreign nationals mitted directly to the competent unit with the and entered in them the data about their func- Department and to issue a decision within 30 tions in companies. In line with this, a practice days. of mutual communication and coordinated ope- ration needs to be established between the De- Inconsistent Enforcement of Laws and Lack of partment for Alien Affairs and courts in charge Coordination Among State Bodies and Institu- of business registration. The courts have a legal tions in Exchanging Information* obligation to provide full information on regi- FBiH and RS: ISSUE stration/change of data to the competent De- When extending a temporary residence per- partment for Alien Affairs. This would resolve mit, a foreign national needs to provide to the the situation where the parties are required to Department for Alien Affairs certified copies of submit certified copies of registration decisions 10 Official Gazette of BiH, No. 42/04; Official Gazette of FBiH 27/05, 68/05 and 43/09; Official Gazette of RS, 42/05; Official Gazette of Brčko DC, No. 15-05 B 32
  • 33. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 33 W H I TE BO O K for the company or court registry certificates not last longer than 6 consecutive months or that had already been provided to the Depart- more than a total of two years with breaks”, or ment for Alien Affairs the previous year(s). (ii) amend the FBiH Law on Hiring Foreign Na- tionals and allow issuance of work permits in WORK PERMIT BiH based on a certificate of temporary posting Work Permit Cannot Be Issued in Specific Cases from the home country that is issued by the Without an Employment Contract Signed competent Ministry of Labor, without the foreign FBiH and RS: ISSUE national being forced to first sign an employ- International invitations for bids for con- ment contract with an employer based in BiH. struction and installation works advertised by legal entities in BiH are most often awarded to Lack of Harmonization of Laws and Practices Re- foreign legal entities that do not have a registe- lating to the Procedure of Issuing a Work Permit red address in BiH. The reason for this is that Before Approving Temporary Residence in the specific industries in BiH do not have a qualified Sarajevo Canton workforce, which necessitates hiring of foreign FBiH: ISSUE nationals whose knowledge is required to im- Articles 77 and 80 of the BiH Law on Move- plement such projects. These projects may take ment and Residence of Aliens and Asylum do a few years and for their duration foreign legal not require that a foreign national must first entities need to hire their own staff, foreign na- come personally to BiH and report his stay in tionals, to work in BiH because they have cer- order initiate the procedure for obtaining the tain specific skills. In order for these employees work permit before being granted a temporary of the foreign legal entity to obtain a work per- residence permit. Therefore, the employer can mit, who are staying for more than 3 months in initiate the work permit procedure instead. On BiH, the FBiH Law on Hiring Foreign Nationals the other hand, Article 7 of the FBIH Law on Hi- requires them to first sign an employment con- ring Foreign Nationals and the practices of the tract with an employer based in BiH. Sarajevo Canton Employment Department re- quire that the application for a first work permit FBiH and RS: RECOMMENDATION needs to include a certificate of residence, In other countries, there is a possibility of is- which is stated on the Department’s official ap- suing a work permit on the basis of the assi- plication form11 for a work permit. In relation to gnment/posting from the home country where this, in December 2008 the FBiH Ministry of the foreign national is based on a permanent Labor and Social Policy sent a document to12 all employment contract and, if necessary, may be cantonal employment departments stating: engaged in projects implemented by his compa- “The Federation Ministry of Labor and Social Po- ny in another country. There are two solutions licy believes that until the Law on Hiring of Fo- to this problem: (i) amend Article 84, para- reign Nationals is harmonized, provisions of the graph “o” of the BiH Law on Movement and Re- Law on Movement and Residence of Aliens and sidence of Aliens and Asylum such that it reads Asylum apply both in cases of issuing a work “foreign national who perform tasks related to permit before approving a temporary residence delivery, installation and servicing of machinery and in cases of exemptions from the possession and equipment, provided that their work does of the same”. 11 http://www.juszzks.com.ba/ba/zahtjev-za-izdavanje-radne-dozvole.html 12 Letter No. 03-34/10-1979/08 33
  • 34. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 34 Foreign Investors Council FBiH: RECOMMENDATION other country also needs to be provided. A fo- The BiH Law on Movement and Residence of reign national who has been issued a work per- Aliens and Asylum and the FBiH Law on Hiring mit is registered for a 20-hour workweek only Foreign Nationals need to be harmonized with if they provide evidence that the foreign natio- respect to the first issuance of a work permit to nal is also employed abroad. If such evidence foreign nationals. In the interim period, the Sa- is not provided, the foreign national must be re- rajevo Canton Employment Department needs gistered as working 40 hours per week. This to act in compliance with the document provi- practice contravenes applicable laws. The FBiH ded by the FBiH Ministry of Labor and Social Po- Law on Hiring Foreign Nationals does not define licy. required working hours of a foreign national for issuing a work permit. Article 29 of the FBiH Failure to Comply with Applicable Regulations Labor Law13, which governs labor relations, pro- Regarding Working Hours of a Foreign National vides that full working hours of an employee in the Sarajevo Canton* cannot be more than 40 hours per week, which FBiH: ISSUE is the upper limit of the full working hours. Full In its practices to date, the Sarajevo Canton working hours cannot be more than 40 hours Employment Department has refused to extend per week; however, there are no obstacles to the work permit to a foreign national whose full defining shorter full working hours under the working hours are less than 40 hours per week. collective agreement, labor regulation or em- A foreign national may obtain a work permit for ployment contract. There are no legal restric- a working time of 20 hours per week only if the tions regarding working hours being less than redistribution of his/her working hours is such 40 hours per week because this issue is left to that he/she will perform tasks in two different be decided solely at employer’s discretion. positions in two different countries. A decision, to be made by the founder, on redistributing the FBiH: RECOMMENDATION working hours of a foreign national must clearly Practices need to be harmonized and appli- explain that his/her physical presence in the cable laws need to be complied with. Another workplace in both countries is possible and lo- option is to adopt a rule defining the lower li- gical. In addition, proof of employment in the mits of full working hours of foreign nationals. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Failure to Comply with Applica- • The Department for Alien Affairs needs • BiH Ministry of Security ble Regulations Regarding the to act in accordance with the BiH Law • Competent Department for Length of the Procedure for on Movement and Residence of Aliens Alien Affairs with the BiH Approving and Extending Tem- and Asylum when deciding on an ap- Ministry of Security porary Residence plication for approval or extension of temporary residence that was submit- ted directly to the competent unit with the Department and to issue a deci- sion within 30 days. 13 Official Gazette of FBiH 43/99 34
  • 35. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 35 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Inconsistent Enforcement of • A practice of mutual communication • BiH Ministry of Security Laws and Lack of Coordination and coordinated operation needs to be • Competent courts Among State Bodies and Insti- established between the Department • Competent Department for tutions in Exchanging Informa- for Alien Affairs and courts in charge Alien Affairs with the BiH tion of business registration. Ministry of Security • Work Permit Cannot Be Issued • There are two solutions to this pro- • BiH Parliamentary Assem- in Specific Cases Without an blem: (i) amend Article 84 of the BiH bly and FBiH Parliament Employment Contract Signed Law on Movement and Residence of • Competent Ministries Aliens and Asylum, or (ii) amend the FBiH Law on Hiring Foreign Nationals and allow issuance of work permits in BiH based on a certificate of tempo- rary posting from the home country that is issued by the competent Mini- stry of Labor, without the foreign na- tional being forced to first sign an employment contract with an em- ployer based in BiH • Lack of Harmonization of Laws • The BiH Law on Movement and Resi- • Competent Ministries and Practices Relating to the dence of Aliens and Asylum and the • KS Employment Department Procedure of Issuing a Work FBiH Law on Hiring Foreign Nationals Permit Before Approving Tem- need to be harmonized with respect to porary Residence in BiH the first issuance of a work permit to foreign nationals. In the interim pe- riod, the Sarajevo Canton Employment Department needs to act in compliance with the document provided by the FBiH Ministry of Labor and Social Po- licy • Failure to Comply with Applica- • Practices need to be harmonized and • FBiH Parliament ble Regulations Regarding Wor- applicable laws need to be complied • FBiH Ministry of Labor and king Hours of a Foreign National with. Another option is to adopt a rule Social Policy defining the lower limits of full wor- • KS Employment Department king hours of foreign nationals 35
  • 36. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 36 Foreign Investors Council 6.3. LAW ON EXECUTION PROCEEDINGS EXPERIENCE: ISSUES AND RECOMMENDATIONS INTRODUCTION In Bosnia and Herzegovina, the execution The Process of Identifying Debtor’s Property proceedings are defined by laws on execution Does Not Include Authentic Documents* FBIH and RS: ISSUE proceedings which are enacted at entity level, Under the law, a petitioner may request, as as follows: Law on Execution Proceedings of the a part of his/her petition for execution that is Federation of Bosnia and Herzegovina (Official based on an enforceable document, that the Gazette of FBiH No. 32/03, 52/03, 33/06, 39/06 court orders the judgment debtor or other per- and 39/09), Law on Execution Proceedings of sons to submit to the court details of judgment the Republika Srpska (Official Gazette of the RS debtor’s property before a writ of execution is No. 59/03, 85/03, 64/05 and 118/07) and Law issued. This option is not available if the petition on Execution Proceedings of the Brčko District for execution is based on an authentic docume- (Official Gazette of the Brčko District Nos. 8/00, nt, which means that the petitioner cannot re- 1/01, 5/02, 8/03, 19/07 and 2/08). quest the court to seek information on debtor’s Even though this matter is governed at en- property from the debtor and other persons. In tity level, the texts of these three laws are vir- practice, however, it is authentic documents tually identical. There are only some minor that are frequently used to institute execution differences between these entity-level laws. proceedings (in particular promissory notes). The execution proceedings in BiH are still not receiving the attention they deserve, and the FBIH and RS: RECOMMENDATION institutions themselves are one of the major is- The Law needs to be expanded to include sues. Specifically, there is an issue of a large authentic documents in addition to enforceable backlog of unresolved cases, which grows from documents for the purposes of identifying judg- year to year instead of being reduced, even if ment debtor’s property. the so-called utility cases are not taken into ac- count. Considering that the execution proceedings Abuse of Proceedings in Case of Objections Sub- are treated as urgent proceedings per se, the mitted Against a Writ of Execution* FBIH and RS: ISSUE deadlines and their honoring are also one of the Article 50 of the Law defines that, in case a major issues of the Law because they are ge- writ of execution was passed based on an aut- nerally not honored. hentic document, the debtor may challenge As an example, the Law states that the court such writ of execution by submitting objections is required as a rule to decide on a petition for that must include a “reasoning”. Paragraph 4 of execution within eight days, and on any objec- this Article states that, in case a writ of execu- tions within 15 days of the day when all the re- tion is challenged in full or only in the part where quirements have been met to decide on such the claim was found to be valid, a petition for exe- objection (Law on Execution Proceedings of cution will be considered to constitute a legal FBiH). action. In such a case, the court has to act pur- Below we have identified some of the short- suant to provisions of civil procedure, which ef- comings of the Law on Execution Proceedings fectively means that the case in question will be in both FBiH and the RS that FIC members forwarded to the court’s civil procedure depart- would like to note. 36
  • 37. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 37 W H I TE BO O K ment for decision. According to Paragraph 5 of the words “a part of the claim” lead to different in- same Article, in case a debtor submits such an terpretation by courts. objection, the court will defer execution and will continue with the execution instituted on the cre- FBIH and RS: RECOMMENDATION ditor’s petition only after the writ of execution To avoid any dilemmas regarding suspension becomes final if the creditor wins the civil ac- of executions proceedings, the law needs to de- tion. This legal solution has proven inadequate fine more precisely the meaning of “a part of in practice because it leaves room for debtors to the creditor’s claim”, i.e. it needs to specify an submit groundless objections and stall payment exact amount/percentage of the claim, such as of their obligations, needlessly prolonging court 1/3 or the like. proceedings. Specifically, the Law does not spe- cify the way and the degree in which an objec- Abuse of the Procedure of Determining the Sales tion submitted by the debtor must provide rea- Price* sons. Therefore, the debtor may state all kinds FBiH and RS: ISSUE of allegations in the reasoning of an objection The Law also provides that persons collec- regardless of their grounds and accuracy. This ting their claims through the sale may agree, in legal solution is particularly deficient in cases of a statement made for the court record, that the promissory notes and checks, whose purpose is real property may be sold in an auction for a to ensure a quick collection of claims. price lower than the price defined in certain pa- ragraphs of the Law. In practice, this frequently FBIH and RS: RECOMMENDATION leads to abuse and prearranged auctions among The Law needs to preclude such stalling of ranked creditors. collection of claims, primarily for promissory notes and checks. For example, in case an ob- FBiH and RS: RECOMMENDATION jection is submitted against a writ of execution, These cases need to be defined such that a the execution proceedings should continue mechanism is ensured to prevent these identi- while the debtor (not the petitioner-creditor) fied abuses. should be instructed to file civil action instead. Another possible solution would be to prevent Execution Against Movable Property* the debtor from making arbitrary and groun- FBIH and RS: ISSUE dless allegations in his/her objections by limi- In cases of execution against movable pro- ting the civil procedure only to allegations made perty, it is often a case in practice that the deb- in the related objection. tor will sell the movable to avoid execution. In practice, this problem is particularly common Unclear Definition of the Process of Appraising when execution proceedings are instituted on the Value of Real Property* motor vehicles. To avoid payment of debt, the FBIH and RS: ISSUE defendant may sell the motor vehicle before the This Law provides that persons who qualify execution proceedings and thereby avoid mee- for satisfaction of their claims from sale pro- ting his/her obligations to the petitioner. ceeds of a real property may ask that execution be discontinued if the appraised value of the FBIH and RS: RECOMMENDATION real property in question does not cover even a Regulations should provide for recording a part of the petitioner’s claim. In practice, the pending execution on a passenger motor ve- 37
  • 38. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 38 Foreign Investors Council hicle in the vehicle records with the competent FBIH and RS: RECOMMENDATION Ministry of the Interior and in the vehicle regi- The Law needs to clearly define the meaning stration certificate. This would prevent sale of a of the provisions that a real property “may be vehicle before a petitioner’s claim is satisfied, sold without restrictions on the lowest price”. as well as a factual transfer of a vehicle by granting a power of attorney to other persons Different Practices in Courts in Issuing a Deci- to use the car. sion on Satisfaction of Claims* FBIH and RS: ISSUE The Rules for Preparing and Managing an Auc- Some courts pass decisions detailing satis- tion Are Not Defined* faction of claims according to which the buyer FBIH and RS: ISSUE is satisfied for an amount of KM 1 (i.e. they per- The Law defines the method of sale and the mit purchases for KM 1), while other courts scheduling of a court hearing for auction and pass decisions according to which the buyer is sale; however, articles of the Law do not include satisfied in the amount of the appraised value provisions on rules for preparing and managing of the real property in question, regardless of an auction. It happens in practice that out of the price that was paid for the property. five interested buyers, three “buyers” immedia- tely bid for a price that is substantially below FBIH and RS: RECOMMENDATION the appraised value. Following this, a list of The decision detailing satisfaction of claims three best bidders is produced which will not needs to be clearly defined in the Law by deter- include bids made by other prospective buyers. mining the extent to which a creditor has been Later on, the three best bidders will withdraw satisfied in cases where the creditor is also the their bids and in the third hearing the court will buyer of the pledged real property. have to issue a decision to suspend the execu- tion proceedings, including all the consequen- Incomplete Information on the Debtor’s ces which a restarting of execution entails (e.g. Level of Debt* statute of limitations). FBIH and RS: ISSUE The Laws provide that a debtor may sign a FBIH and RS: RECOMMENDATION certified document to give permission to collect To avoid abuses in the auctioning procedure, a creditor’s claims by garnishing a part of the Law needs to define the course of auction his/her salary and by paying such money di- in detail because currently each court determi- rectly to the creditor as described in the docu- nes the terms and course of auction on its own. ment. Such document has the legal effect of a writ of execution (signed and stamped, and Different Interpretation of the Provision Concer- sent by registered mail with a return receipt). ning Sale of Real Property* In addition to cases when employers simply do FBIH and RS: ISSUE not act in accordance with this permission, the The Law also provides that at the third hea- greatest problem in practice has proven to be ring, “a real property may be sold without re- the fact that employers sign and stamp certifi- strictions on the lowest price”. Different courts cates of monthly salary for an unlimited number interpret this provision differently, permitting of loans for a single employee, and also the fact purchases for KM 1 in some cases and prohibi- that for each new loan, employers do not pro- ting such purchases in other cases. vide the new creditor with information on em- 38
  • 39. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 39 W H I TE BO O K ployee’s present level of debt. This results in a provide a specific timeframe within which the situation where the creditor who was issued the court must schedule a hearing to split the sales first certificate of monthly salary and the certi- proceeds. fied permission is unable to enforce an activated permission because subsequent permissions FBIH and RS: RECOMMENDATION have already been activated for the purpose of The Law needs to define a specific timeframe garnishment. This situation is further complica- within which the court must schedule a hearing ted in case of guarantors (once activated, a po- to split the sales proceeds. tential obligation becomes a real obligation). Decision on Satisfaction of Claims* FBIH and RS: RECOMMENDATION FBIH and RS: ISSUE The Law needs to specify that employers are The Law stipulates that after the hearing is obligated to list all present debts of the em- completed, the judge will, without delay, issue ployee, whether actual or potential, in the cer- a decision to satisfy petitioners and other per- tificate of employee’s salary, and also the Law sons who quality for satisfaction of their claims. needs to ensure that the creditor who was first issued a certified permission will have prece- FBIH and RS: RECOMMENDATION dence in garnishment. The Law needs to define a specific timeframe within which the court must schedule a hearing Imprecisely Defined Deadlines in the Following to split the sales proceeds. Areas: Satisfaction of Claims* Authentic Documents Do Not Include an Invoice FBIH and RS: ISSUE and a Statement from Business Books for All The Law stipulates that in the process of sa- Legal Entities tisfying petitioner’s claims, the petitioner will be FBIH and RS: ISSUE satisfied immediately after the court issues a Under the Law on Execution Proceedings in decision on the best bidder. Since the Law does FBiH and the RS, in addition to promissory not provide a specific timeframe, this leaves notes and checks, authentic documents also room for varying interpretations in practice. include invoices and statements from business books, but this only applies to the prices of uti- FBIH and RS: RECOMMENDATION lity services such as water supply, heating and The Law should clearly define a deadline to waste disposal. These restrictions were not pre- satisfy petitioner’s claims, such as within 15, 30 sent in earlier laws, and it is unclear why utility or 60 days. companies have been made privileged relative to other legal entities. Hearing to Split the Sale Proceeds* FBIH and RS: ISSUE FBIH and RS: RECOMMENDATION After certain conditions defined in the Law The definition of an authentic document are met, the court will schedule a hearing to needs to be expanded to include invoices and split the sales proceeds if there is more than statements from business book for all legal en- one petitioner or third parties who qualify for tities, without exception. satisfaction of their claims. The Law does not 39
  • 40. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 40 Foreign Investors Council KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • The process of identifying deb- • For the purposes of identifying judg- • BiH Ministry of Justice tor’s property does not include ment debtor’s property, the Law needs • Entity Ministries of Justice authentic documents to be expanded to include authentic documents in addition to enforceable documents. • Abuse of Proceedings in Case • The Law needs to preclude such stal- • Competent courts of Objections Submitted Against ling of collection of claims, primarily a Writ of Execution for promissory notes and checks. For example, in case an objection is sub- mitted against a writ of execution, the execution proceedings should continue while the debtor (not the petitioner- creditor) should be instructed to file civil action instead. Another possible solution would be to prevent the debtor from making arbitrary and groundless allegations in his/her objections by li- miting the civil procedure only to alle- gations made in the related objection. • Unclear Definition of the Pro- • To avoid any dilemmas regarding su- • Parliaments of cantons/en- cess of Appraising the Value of spension of executions proceedings, tities /People’s Assembly of Real Property the law needs to define more precisely the RS- PARS the meaning of “a part of the credi- • BiH Ministry of Justice tor’s claim”, i.e. it needs to specify an • Entity Ministries of Justice exact amount/percentage of the claim, such as 1/3 or the like. • Abuse of the Procedure of De- • These cases need to be defined such • BiH Ministry of Justice termining the Sales Price that a mechanism is ensured to pre- • Competent courts vent these identified abuses. • Execution Against Movable Pro- • Regulations should provide for recor- • Competent Ministries of the perty ding a pending execution on a passen- Interior FBiH and RS ger motor vehicle in the vehicle records • Competent Ministries of Ju- with the competent Ministry of the In- stice FBiH I RS terior and in the vehicle registration certificate. This would prevent sale of a vehicle before a petitioner’s claim is satisfied, as well as a factual transfer of a vehicle by granting a power of at- torney to other persons to use the car. 40
  • 41. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 41 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • The Rules for Preparing and • To avoid abuses in the auctioning pro- • BiH Ministry of Justice Managing an Auction Are Not cedure, the Law needs to define the • Competent courts Defined course of auction in detail because currently each court determines the terms and course of auction on its own. • Different Interpretation of the • The Law needs to clearly define the • BiH Ministry of Justice Provision Concerning Sale of meaning of the provisions that a real Real Property property “may be sold without restric- tions on the lowest price”. • Different Court Practices in Is- • The decision detailing satisfaction of • BiH Ministry of Justice suing a Decision on Satisfac- claims needs to be clearly defined in tion of Claims the Law by determining the extent to which a creditor has been satisfied in cases where the creditor is also the buyer of the pledged real property. • Incomplete Information on the • The Law needs to specify that em- • FBiH and RS Ministries of Debtor’s Level of Debt ployers are obligated to list all present Justice debts of the employee, whether actual • Competent courts or potential, in the certificate of em- ployee’s salary, and also the Law needs to ensure that the creditor who was first issued a certified permission will have precedence in garnishment. • Imprecisely Defined Deadlines in the Following Areas: o Satisfaction of Claims • The Law should clearly define a dea- • Competent courts dline to satisfy petitioner’s claims, such as within 15, 30 or 60 days. o Hearing to Split the Sale Pro- • The Law needs to define a specific time- • Competent courts ceeds frame within which the court must sche- dule a hearing to split the sales proceeds. o Decision on Satisfaction of • The deadline for a decision on satis- • Competent courts Claims faction of claims needs to be specific instead of “without delay”, e.g. within 15 or 30 days. • Authentic Documents Do Not • The definition of an authentic document • Competent courts Include an Invoice and a Sta- needs to be expanded to include invoi- tement from Business Books ces and statements from business book for All Legal Entities for all legal entities, without exception. 41
  • 42. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 42 Foreign Investors Council 6.4. COMPANIES LAW that the RS Companies Law and the Brčko Dis- trict BiH Companies Law provide for this option, INTRODUCTION the legal framework in FBiH should be harmo- Since the publication of the 2009 White nized with the regulations of the other entity Book, there have been no amendments to the and the Brčko District. FBiH Companies Law or the RS Companies Law. As a result, there have been no progresses in Prohibition of Share Purchase Financing remedying the shortcomings identified in the FBiH and BD: ISSUE 2009 White Book. The present Companies Law in FBIH defines Therefore, some of the issues listed below prohibition of share purchase financing in a sin- had already been identified in the 2009 White gle provision of Article 237, prohibiting a cor- Book, in addition to some new issues that FIC poration from issuing or guaranteeing advances, members face in their everyday operations. short-term or long-term loans to sell its own equity shares. This prohibition does not explicitly EXPERIENCE: refer to limited liability companies; however, app- ISSUES AND RECOMMENDATIONS lying provisions of this Law by way of analogy to limited liability companies, this prohibition Establishing a Branch Office of a Foreign Legal appears to also apply to this form of company. Entity* The situation is similar in Brčko District BiH. FBiH: ISSUE The new RS Companies Law defines this issue Under the current regulations in the Federa- with a somewhat higher degree of precision for tion of BiH, foreign investors are able to esta- both a corporation and a limited liability com- blish either a subsidiary company or a repre- pany. This imprecise prohibition of share purc- sentative office (whose operations are limited hase financing, especially in FBiH, creates legal to market research, advertising and communi- uncertainty as to whether certain legal transac- cation, and representation of the foreign en- tions are permitted, in particular those carried tity). The FBiH Companies Law, unlike the RS out during take-over/acquisition of companies. Companies Law and the Brčko District BiH Com- panies Law, does not provide an option for fo- FBiH and BD: RECOMMENDATION reign legal entities to establish a branch office. The issue of financing a purchase of equity In FBiH, the option to establish branch offices shares/stakes should be defined more specifi- is only provided to domestic legal entities. cally in the FBIH Companies Law. In addition to a clear and precise wording as to whether this RS and BD prohibition also applies to limited liability com- The RS Companies and the BD Companies panies, the Law needs to clearly specify the Law provide for an option for foreign legal enti- cases in which share purchase financing is pro- ties to establish branch offices. hibited, and also under what conditions such fi- nancing is permitted. In addition to advances, FBiH: RECOMMENDATION short-term and long-term loans, the Law needs The FBiH Companies Law should provide a to define the notion of providing “security” to legal framework for foreign entities to establish third parties to purchase equity shares. Further- a branch office, as is provided for in other ju- more, a clear stipulation of what direct fina- risdictions in the world and in the region (Croa- ncing and indirect financing include would tia, Serbia, Macedonia, etc.). In addition, given additionally contribute to legal certainty. 42
  • 43. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 43 W H I TE BO O K Convening and Advertising the Shareholders’ ted by authorized persons; (ii) five months after Meeting the end of a business year, the Supervisory FBiH: ISSUE Board has failed to convene the Shareholders’ Under Article 242 of the FBiH Companies Meeting to decide on the annual report. Law, a notification of the agenda, place, date and time of the Shareholders’ Meeting, and also RS of the method of issuing a proxy and voting at In the Republika Srpska, Article 272 of the the Shareholders’ Meeting must be advertised Companies Law defines that a written notifica- in at least one daily newspaper issued in the Fe- tion for a regular Shareholders’ Meeting must deration of BiH, no later than 20 days before be provided no later than 30 and no earlier than the date set for the Shareholders’ Meeting. 60 days before the date of the Shareholders’ Meeting, or no later than 15 and no earlier than RS 30 days in case of an extraordinary session. The Article 272 of the RS Companies Law provi- notification must also include financial state- des for such advertising of the notification only ments, auditor’s report, management’s report as an exception for public corporations, provi- on operations or draft amends to the Articles of ded that such option was provided for under the Association. Notwithstanding personal delivery, company’s Memorandum of Association, and it is possible to advertise the notification and such notification must also be advertised on the the materials on the company’s website and company’s website. also to advertise the notification in newspapers, in which cases the company makes available at FBiH: RECOMMENDATION the company’s registered address during regu- Article 242 needs to be amended by expan- lar office hours a copy of the financial state- ding the above provision, specifying the mini- ments, auditor’s report, management’s report, mum required circulation of a daily newspaper etc., to every shareholder who requests them. issued in the Federation of BiH. Such provision Therefore, this issue is effectively not present would ensure better informed shareholders and in the RS. their active participation in the Shareholders’ Meeting and the exercising of their legal right. FBiH: RECOMMENDATION In these cases, the person submitting the Provision of Materials to Shareholders for the request and having authority to directly con- Shareholders’ Meeting* vene the Shareholders’ Meeting should also be FBiH: ISSUE required to prepare draft resolutions, ensuring Article 244 of the FBiH Companies Law fails thereby that the right of access to these docu- to define fully the need to provide, in addition ments as defined under Article 247 of the FBiH to providing a draft agenda, draft resolutions Companies Law may be exercised in full. that are listed under items on the agenda for the Shareholders’ Meeting. The problem of Making Copies of Materials Available to Share- exercising one’s right to examine materials pre- holders for the Shareholders’ Meeting pared for the Shareholders’ Meeting is present FBiH: ISSUE in the following cases: (i) the Supervisory Board Article 247 of the FBiH Law fails to define has failed to advertise the convening of the fully the need to ensure, in addition to allowing Shareholders’ Meeting upon a request submit- examination of documents for the Sharehol- 43
  • 44. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 44 Foreign Investors Council ders’ Meeting, that copies of such documents RS are made available to a shareholder who requ- In contrast to this, Article 302 of the RS ests them. Companies Law provides that the term of Mem- bers on the Management Board (in the RS there RS is no Supervisory Board, but the Management As stated earlier, under the RS Companies Board has the same powers) can cease at each Law, in case of personal delivery of the notifi- annual Shareholders’ Meeting if the annual bu- cation, the notification must be accompanied by siness report is not approved. In addition, Ar- copies of the materials for the Shareholders’ ticle 318 provides that a Member on the Meeting, whereas in case the notification is Management Board may be relieved of duty by advertised on the company’s website or in a ne- a resolution of the Shareholders’ Meeting with wspaper, copies of the materials for the Share- or without stating the reasons, if the sharehol- holders’ Meeting are made available, to every ders believe this is in the best interest of the shareholder who requests them, at the compa- company. ny’s registered address during regular office hours. FBiH: RECOMMENDATION Amend Article 259(2) of the FBiH Companies FBiH: RECOMMENDATION Law and delete provisions defining the need to Article 247 of the FBiH Companies Law convene a Shareholders’ Meeting for manda- needs to be expanded by adding a provision ac- tory vote of confidence for Supervisory Board cording to which every shareholder who re- Members following the first two years of their quests so, must have copies of the documents term. made available to him/her. This would ensure that shareholders can fully exercise this right. Age Limit for Supervisory Board Members At the same time, this would harmonize the FBiH: ISSUE legal frameworks in FBiH and the RS. Article 260 of the FBiH Companies Law defi- nes an age limit for appointment as a Member Vote of Confidence for Supervisory Board Mem- on a Supervisory Board at 65 years of age. Con- bers* sidering that Supervisory Board Members have FBiH: ISSUE a specific role, their primary duty being to su- Article 259(2) of the FBiH Companies Law pervise, and considering the fact that years of provides that the Chairperson and Members on service have generally been increasing, the age a Supervisory Board are appointed for a period limit for Supervisory Board Members should be of four years; however, two years after their ap- extended. The FBiH Labor Law provides an op- pointment, the Shareholders’ Meeting is to hold tion for employment beyond 65 years of age, a vote of confidence for Members on the Super- while state-level regulations on appointment of visory Board. Given that the second paragraph justices and prosecutors set the final age limit in the same Article of the Law provides for an at 70. option to remove the Chairperson and Members on the Supervisory Board even before the end RS of their term, this mandatory vote of confidence There is no age limit for appointment as a following the first two years of their term ap- Member on a Management Board in the Repu- pears unnecessary. blika Srpska. 44
  • 45. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 45 W H I TE BO O K FBiH: RECOMMENDATION sent the shareholder on the Supervisory Board Given the increasing years of service and of his/her subsidiary or on several Supervisory other applicable laws in FBiH, the Law needs to Boards in his/her subsidiaries, in case of affilia- extend the age limit for Supervisory Board ted companies. Members to at least 70 years of age. RS Limitations Regarding Appointment as Supervi- The issue of conflict of interest in the Repu- sory Board Member* blika Srpska has been resolved under Article 36 FBiH: ISSUE of the RS Companies Law, which limits options Article 264 (1) of the FBiH Companies Law for membership on the Management Board of provides that a Managing Director and a Mana- another competing company, unless they are ging Board Member in a corporation cannot act given approval by the Shareholders’ Meeting as a Chairperson or Member on the Supervisory after the Shareholders’ Meeting has been infor- Board or Managing Board of a company or in- med of the existence of a possible conflict of in- stitution, including but not limited to: funds, terest. banks, agencies, commissions. This provision was probably intended to prevent conflict of in- FBiH: RECOMMENDATION terest, which certainly makes sense if this con- The above-mentioned provision needs to be cern a single company. However, the way this amended and affiliated companies should be provision was conceived makes it very restric- exempted from this limitation, taking into acco- tive, needlessly limiting the rights of a share- unt specific features of state and private owner- holder to nominate one/same person to repre- ship. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Establishing a Branch Office of • The FBiH Companies Law should allow • Ministry of energy, mining a Foreign Legal Entity foreign entities to establish a branch and industry of FBiH office, as is provided for in other juris- dictions in the world and in the region (Croatia, Serbia, Macedonia, etc.). In addition, given that the RS Compa- nies Law and the Brčko District BiH Companies Law provide for this op- tion, the legal framework in FBiH should be harmonized with the regu- lations of the other entity and the Brčko District • Prohibition of Share Purchase • The issue of financing a purchase of • Securities Commission of Financing (FBiH and BD) equity shares/stakes should be defi- FBiH ned more specifically in the FBIH Companies Law. In addition to a clear and precise wording as to whether this 45
  • 46. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 46 Foreign Investors Council KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION prohibition also applies to limited lia- bility companies, the Law needs to cle- arly specify the cases in which share purchase financing is prohibited, and also under what conditions such fina- ncing is permitted • Convening and Advertising the • Article 242 needs to be amended by • Securities Commission of Shareholders’ Meeting expanding the above provision, speci- FBiH fying the minimum required circula- tion of a daily newspaper issued in the Federation of BiH. Such provision would ensure better informed shareholders and their active participation in the Shareholders’ Meeting and the exerci- sing of their legal rights. • Provision of Materials to Share- • In these cases, the person submitting • Securities Commission of holders for the Shareholders’ the request and having authority to FBiH Meeting directly convene the Shareholders’ Mee- ting should also be required to pre- pare draft resolutions, ensuring the- reby that the right of access to these documents as defined under Article 247 of the FBiH Law may be exercised in full. • Making Copies of Materials Ava- • Article 247 of the FBiH Companies Law • Securities Commission of ilable to Shareholders for the needs to be expanded by adding a FBiH Shareholders’ Meeting provision according to which every shareholder who requests so, must have copies of the documents made available to him/her. This would en- sure that shareholders can fully exer- cise this right. At the same time, this would harmonize the legal frame- works in FBiH and the RS • Vote of Confidence for Super- • Amend Article 259(2) of the FBiH • Securities Commission of visory Board Members Companies Law and delete provisions FBiH defining the need to convene a Share- 46
  • 47. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 47 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION holders’ Meeting for mandatory vote of confidence for Supervisory Board Members following the first two years of their term. • Age Limit for Supervisory • Given the increasing years of service • Securities Commission of Board Members and other applicable laws in FBiH, the FBiH Law needs to extend the age limit for Supervisory Board Members to at least 70 years of age • Limitations Regarding Appoint- • The above-mentioned provision regar- • Securities Commission of ment as Supervisory Board ding prevention of conflict of interest, FBiH Member which is too restrictive, needs to be amended and affiliated companies should be exempted from this limita- tion, taking into account specific fea- tures of state and private ownership 47
  • 48. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 48 Foreign Investors Council 6.5. LAW ON SECURITIES MARKET harmonized such that the FBiH Companies Law refers to the FBiH Securities Market Law, in- INTRODUCTION stead of setting a time period. The legal framework for the capital market A review of the regional legislation has in Bosnia and Herzegovina, which concerns se- shown that this time period in Croatia was set curities markets, is provided in the legislation to three months starting on the day when the of the Federation of Bosnia and Herzegovina subscription period begins, which effectively (FBiH) and the Republika Srpska (RS). This le- shortens the procedure for registering corpora- gislation governs core issues including defini- tions. In addition, 3 months is a sufficient time tions of terms, participants, institutions and period for investors who wished to participate their bodies, rights and obligations in respect of in the capital increase to make their payments. the capital market in BiH, and it includes the FBiH Securities Market Law and the RS Securi- Deadline to Submit Applications for Approval of ties Market Law. Public Share Offering The presence of foreign investors in this ca- FBIH: ISSUE pital market necessitates harmonization of Article 143(2) of the FBiH Companies Law these laws with other markets where such in- provides that the supervisory board of a com- vestors are present. pany is required to submit to the FBiH Securi- Some of the shortcomings of the FBiH Secu- ties Commission an application for approval of rities Market Law and the RS Securities Market a public share offering not later than 30 days of Law, which affect professional brokers and in- the resolution on share capital increase being vestors, are identified below. adopted. The FBiH Securities Market Law defi- nes the deadline to submit an application for EXPERIENCE: approval of a public share offering as 90 days ISSUES AND RECOMMENDATIONS from the day the resolution on share issue was adopted, or 60 days prior to the day defined Stock Subscription and Payment under the resolution as the day when the sub- FBiH: ISSUE scription and payment of shares begins. Article 135 of the FBiH Companies Law pro- vides that a cash payment for shares of a new FBiH: RECOMMENDATION issue may be made in installments, within a The deadlines in the FBiH Companies Law time period that cannot exceed “six months” and the FBIH Securities Market Law need to be from the day the FBiH Securities Commission harmonized such that the FBiH Companies Law passes a Decision on a successful share issue. refers to deadlines specified in the FBiH Securi- Under the FBiH Securities Market Law, a share ties Market Law. issue is deemed a success if the amount defined by the resolution on share issue as the lowest Registration of Securities Transfers amount for a successful issue has been subscri- RS: ISSUE bed and paid. Under the Securities Market Law, a transfer of securities related to transactions completed on FBiH: RECOMMENDATION the stock exchange or another regulated public The wording of the FBiH Companies Law and market cannot last longer than three working the FBIH Securities Market Law needs to be days from the day the transaction was completed. 48
  • 49. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 49 W H I TE BO O K RS: RECOMMENDATION be issued an approval by the Securities Com- Transfers of securities resulting from errors in mission to provide the same services in the Re- entering transfer orders in the stock exchange publika Srpska in order to implement the system should be exempted from the manda- principle of reciprocity provided for under both tory clearing in order to protect investors. laws, and to enable full control of the Commis- sions over the work of professional brokers. Brokerage Services RS: ISSUE The Issue of Publishing a Prospectus Under the Republika Srpska Securities Mar- RS: ISSUE ket Law, brokerage services may be provided In a share issue through a public offering, by a corporation which has a registered address there is a problem of informing the general pu- in the Republika Srpska and was issued a bro- blic of the past and future operation of the is- kerage license by the Securities Commission. suer and of the plans in the share issue. Brokerage licenses issued to stockbrokers in Consequently, the issuer cannot make a good the Federation of Bosnia and Herzegovina and assessment of the level of interest among the the Brčko District are also valid in the territory general public in investing in the securities of- of the Republika Srpska, under the condition fered. The issuer is prohibited from publishing that the stockbroker meets the conditions rela- a prospectus before being approved by the ting to the incorporation and operation require- Commission, and therefore the general public ments defined under the Law and subject to the can examine the prospectus only after a deci- principle of reciprocity. sion has been made on the number of shares and the price at which they will be issued. In FBiH: ISSUE this way the issuer cannot formally test public Under the Federation of Bosnia and Herze- interest in the new share issue it prepares. govina Securities Market Law, a professional broker or bank holding a license issued in BiH, RS: RECOMMENDATION but outside the Federation, may apply for a bro- Introducing a “preliminary prospectus” would kerage license with the Securities Commission allow the general public to get to know the in order to provide brokerage services in the Fe- company that plans a public share issue and to deration of Bosnia and Herzegovina. express interest in investing before a request is In other words, a license issued in the RS is submitted to the Securities Commission. The is- also valid in the Federation of BiH; however, suer would thus be able to assess the level of brokers are not required to register a corpora- public interest. The preliminary prospectus tion and have a registered address in the Fede- would include the same data as the prospectus, ration of BiH, subject to the principle of reci- except for the price, the number of shares is- procity. sued and the period of issue. The Commission would approve the preliminary prospectus and FBIH and RS: RECOMMENDATION the issuer would not be allowed to publish the Harmonize the Republika Srpska Securities preliminary prospectus before receiving Com- Market Law with the Federation of BiH Securi- mission’s permission. Having assessed the pu- ties Market Law. Banks and professional bro- blic interest, the issuer would decide on the kers that hold brokerage licenses in BiH, but remaining parts of the prospectus (the price, outside the Republika Srpska, should be able to the number of shares issued and the period of 49
  • 50. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 50 Foreign Investors Council issue) and would submit the prospectus to the brokerage houses that manage portfolios from Commission. This would not be a mandatory purchasing securities in foreign markets for provision and issuers would be allowed to pro- their clients because such securities cannot be duce prospectuses without the need to prepare held in an account with the RS Central Securi- preliminary prospectuses. ties Registry. Specific recommendation for the amendment Under Article 14, Paragraph 2 shall be added, RS: RECOMMENDATION which reads: “The preliminary prospectus shall Under Article 126, Paragraph 7 shall be include the same elements as the prospectus, added, which reads: “A stockbroker that provi- except for elements defined under Article 16(a), des securities portfolio management services (v), (g), (e) and (ž), as well as Article 18. shall keep its client’s securities that are traded in markets outside the Republika Srpska in a Inability to Manage a Portfolio in Other Markets custody account – in its own name and for RS: ISSUE client’s account.” The present Article 126 of the Law prevents KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Stock Subscription and • The wording of the FBiH Companies • FBiH Ministry of Finances Payment Law and the FBIH Securities Market • FBiH Securities Commission Law needs to be harmonized such that the FBiH Companies Law refers to the FBiH Securities Market Law, instead of setting a time period. • Deadline to Submit Applicati- • The deadlines in the FBiH Companies • FBiH Ministry of Finances ons for Approval of Public Share Law and the FBIH Securities Market • FBiH Securities Commission Offering Law need to be harmonized such that the FBiH Companies Law refers to deadlines specified in the FBiH Secu- rities Market Law. • Registration of Securities Trans- • Transfers of securities resulting from • RS Ministry of Finances fers errors in entering transfer orders in • RS Securities Commission the stock exchange system should be exempted from the mandatory clea- ring in order to protect investors • Inability to Manage a Portfolio • Under Article 126, Paragraph 7 shall • RS Ministry of Finance in Other Markets be added, which reads: “A stockbroker • RS Securities Commission that provides securities portfolio ma- nagement services shall keep its client’s securities that are traded in 50
  • 51. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 51 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION markets outside the Republika Srpska in a custody account – in its own name and for client’s account.” • Brokerage Services • Harmonize the Republika Srpska Se- • FBiH/RS Ministry of Finance curities Market Law with the Federa- • FBiH/RS Securities Commi- tion of BiH Securities Market Law. ssion Banks and professional brokers that hold brokerage licenses in BiH, but outside the Republika Srpska, should be able to be issued an approval by the Securities Commission to provide the same services in the Republika Sr- pska in order to implement the princi- ple of reciprocity provided for under both laws, and to enable full control of the Commissions over the work of professional brokers. • The Issue of Publishing a Pro- • Introducing a “preliminary prospec- • RS Ministry of Finance spectus tus” would allow the general public to • RS Securities Commission get to know the company that plans a public share issue and to express in- terest in investing before a request is submitted to the Securities Commis- sion. The issuer would thus be able to assess the level of public interest. The Commission would approve the preli- minary prospectus and the issuer would not be allowed to publish the preliminary prospectus before recei- ving Commission’s permission. Having assessed the public interest, the is- suer would decide on the remaining parts of the prospectus (the price, the number of shares issued and the pe- riod of issue) and would submit the prospectus to the Commission. 51
  • 52. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 52 Foreign Investors Council 6.6. TAXES was discontinued; the taxation rate was increa- sed from 8% to 10%; and the contribution rate INTRODUCTION was increased from 30.6% to 33%. Such fre- The inconsistency and complexity of the ta- quent amendments to laws create uncertainty xation system remains one of the major issues for foreign investors. faced by foreign investors in investing in Bosnia To facilitate operation of companies that and Herzegovina. The lack of harmonization operate across Bosnia and Herzegovina, tax re- among tax regulations at different levels is par- gulations need to be harmonized at state level. ticularly readily apparent to those investors that Apart from taxes, the operation of foreign do business across Bosnia and Herzegovina. investors in Bosnia and Herzegovina is further When it comes to the ease of tax payment, Bo- complicated and burdened by a number of dif- snia and Herzegovina ranks 154 among a total ferent Cantonal and municipal duties. Specifi- of 181 countries.14 cally, there is a large number of individual Unfortunately, no significant improvement in duties paid at municipal and Cantonal level and the field of taxation has been made over the regulations on payment of duties vary from mu- last year. nicipality to municipality and from Canton to A few noticeable improvements include the Canton, creating problems and generating high following: costs to foreign investors that operate across • The District has enacted the Corporate In- Bosnia and Herzegovina. come Tax Law and the Personal Income Tax Law. It is therefore necessary to also harmonize They began applying as of 01 January 2011. these regulations on duties and to review and • Under the RS Regulation on Taxpayer Re- reduce the amounts of duties. gistration and Identification15 it is possible to re- Below are the specific taxation issues faced gister a foreign legal entity that operates and by FIC members, as well as related recommen- has a permanent place of operation in the RS dations. with the Tax Administration. • By amending the Regulation on Identifica- EXPERIENCE: tion Numbers and Tax Registration for Tax- ISSUES AND RECOMMENDATIONS payers in FBiH16, it has now become possible to register business units of non-resident legal en- Application of International Agreements* tities for taxation purposes. FBiH: ISSUE In spite of this complexity of the taxation sy- The Corporate Income Tax Law in the Fede- stem, however, the RS decided to amend the ration of BiH provides for application of interna- Personal Income Tax Law in July 2010. One si- tional treaties on avoidance of double taxation gnificant amendment was a reduction in the which have priority over the provisions of that personal deduction from KM 300 to KM 250. In Law. However, according to instructions of the December 2010, further amendments were FBiH Tax Administration, in order to exercise a made to the Personal Income Tax Law and the tax relief provided for under an international Salary Contribution Law to be applied as of 01 Double Taxation Avoidance Agreement, tax- February 2011, whereby the personal deduction payers are required to seek approval of the BiH 14 PricewaterhouseCoopers Study: Paying Taxes 2009 15 Official Gazette of RS No. 25/10 16 Official Gazette of BiH No 83/10 52
  • 53. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 53 W H I TE BO O K Ministry of Finance and Treasury for every bu- certificate of residency and a declaration by the siness situation in which a certain tax relief may foreign supplier that it is the actual beneficiary of apply. This has resulted in a large number of re- income, setting aside the currently used form. quests being sent to the BiH Ministry of Finance The use of the instruction of the FBiH Tax and Treasury seeking approval for the applica- Administration should be discontinued accor- tion of these agreements and the long taxpayer ding to which taxpayers are required to seek waiting lists to be issued such approval. approval of the BiH Ministry of Finance and Treasury for every business situation in which a RS certain tax relief may apply as provided for In order to exercise a tax relief provided for under an international Double Taxation Avoi- under international double taxation avoidance dance Agreement. agreements, a complicated procedure needs to be followed. The taxpayers need to use a form PERSONAL INCOME TAX LAW titled “Request for lower tax rate, tax exemp- Unclear Provisions on Personal Income Tax and tion or tax refund for income from services, in- Social Security Contributions* terest and royalties, in accordance with the FBiH and RS: ISSUE double taxation avoidance agreement between The major issues in the implementation of BiH and .....”, which then needs to be submitted the F BiH and RS Salary Contribution Laws are to the income beneficiary to be stamped by the in cases where the employer headquartered in competent authority, and then this stamped one entity employs an individual residing in the form is sent by the income beneficiary to the in- other entity. come payer. It is also necessary to provide a document confirming that the foreign supplier RS is registered for the invoiced activities, however, The RS Salary Contribution Law stipulates it is often the case that the country signatory that the payer of contributions is an individual to the agreement does not have this type of do- – RS resident who is employed with a legal en- cument and the competent authority there can- tity or with an individual who is an RS resident, not fill in the form completely. or with a legal entity or an individual headquar- tered in the other entity, the District or the FBiH and RS: RECOMMENDATION state. If the payment of personal income is sub- The BiH Ministry of Finance and Treasury ject to payment of contributions, the contribu- needs to publish all applicable Double Taxation tions are reported and paid according to the Avoidance Agreements, Agreements with other place where the personal income was earned, countries signed but not yet ratified as well as which leads to issues in exercising certain rights Agreements that are being adopted. All the bi- that payers of contributions are entitled to. This lateral Agreements should be stored in a single is particularly pronounced among persons register/central database and should be publicly whose place of work is in one entity and whose available to all taxpayers. In addition, we re- residence is in the other entity. The personal in- commend simplifying the procedure to apply in- come tax is paid according to the place of resi- ternational agreements in the Republika Srpska. dence in case of a resident taxpayer, or A sufficient condition to be exempt from the according to the place where the personal in- withholding tax or to use a lower rate for tax come was earned in cause of a non-resident assessment purposes should be to provide a taxpayer. Amendments made to the Personal 53
  • 54. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 54 Foreign Investors Council Income Tax Law have added Paragraph 6 to Ar- • health insurance contribution is to be paid ticle 5, according to which the above rule does as follows: 9% to the FBiH Solidarity Fund, and not apply to non-resident payers of the perso- 91% to the RS Health Insurance Fund; nal income tax from FBiH and BD who earn their • unemployment insurance contribution is to be personal income in BiH common institutions paid as follows: 30% to the Federation Institute and public companies that are located in the and 70% to the RS Employment Institute. territory of the RS. This provision is discrimina- However, this method of paying contribu- tory because it discriminates between tax- tions is not in line with the Republika Srpska payers depending on their employer. The Salary Contribution Law, and employees resi- personal income tax is paid according to the ding in this entity cannot exercise their insu- municipality of taxpayer’s residence such that rance-related rights. the payment is made to a single public revenue The Republika Srpska Employment Institute account, using the same revenue code and the has sent an official letter to the Federation of same tax period, the only difference being the BiH Employment Department stating that the municipality code. This method of making pay- Institute would not acknowledge the right to the ments and filing tax returns forces payers to payment of unemployment allowance to per- maintain extensive parallel records, which leads sons who were employed with employers in the to additional costs, reduces efficiency and opens Federation of BiH and were residing in the Re- up the possibility of errors, both for payers of publika Srpska, in spite of the fact that the em- income and for banks. ployer had paid the unemployment insurance contribution to the account of the RS Employ- FBiH ment Institute. The RS Institute will acknow- Federation regulations define that payers of ledge the right to the unemployment allowance contributions include an individual who is a non- only in cases where the employer has paid all resident in FBiH and is employed in the territory the contributions (such as in the case of staff of of FBiH with a legal entity or an individual who BiH common institutions) is a Federation resident. If contributions are as- sessed according to FBiH regulations, em- FBiH and RS: RECOMMENDATION ployees residing in the RS are unable to The contribution system needs to be defined in exercise their right to health insurance and une- such a way that it primarily ensures that emplo- mployment insurance. If the assessment and yees are able to exercise their insurance-related payment of contributions is done partially ac- rights, which can be achieved by directing the cording to FBiH regulations and partially accor- contributions according to the employee’s place ding to RS regulations, this effectively violates of residence. FBiH, RS and BD Salary Contribu- FBiH regulations. tion Laws need to precisely define the obligation to The Federation Ministry of Finance has is- pay social security contributions for individuals sued an interpretation according to which an residing in FBiH, RS and the District and earning employer with a registered address in FBiH their income in one of the other two administra- should pay contributions for its employees re- tive units, as well as where and how these per- siding in the RS in the following way: sons may exercise their social rights (health • retirement-disability insurance contribu- care, retirement benefits, child allowance, une- tion is to be paid to the F BiH Retirement and mployment allowance). The procedure for filing Disability Insurance Fund; tax returns in the RS needs to be simplified. 54
  • 55. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 55 W H I TE BO O K Lack of Harmonization between Personal Income Tax Laws with Respect to Tax Exemptions, Amount of Personal Deduction and Tax Rates at Entity and BD Level RS, FBiH and BD: ISSUE REPUBLIKA SRPSKA FEDERATION OF BOSNIA BRČKO AND HERZEGOVINA DISTRICT • Meal Allowance • Taxable; nontaxable if the meal • Nontaxable, 2% of the • Taxable is prepared in own restaurant average net salary in or is supplied by a person regi- FBiH stered for catering services, up to KM 3.5 per day and KM 77 per month • Commuting • Nontaxable up to the amount • Nontaxable up to the • Taxable defined under the relevant re- amount defined under gulation, or in the amount of the relevant regulation the actually paid costs of using public transportation for com- muting • Annual Leave • Taxable • Nontaxable up to 70% of • Taxable Bonus the employee’s salary or the average three-month net salary in FBiH • Monthly amount • As of 01 February 2011, there • KM 300 Only for • As of 01 January of personal is no personal deduction residents 2011, a KM 300 deduction deduction • % of personal • As of 01 February 2011, the • 10% • 10% income tax tax rate is 10% RECOMMENDATION which contributions paid in his/her home coun- Harmonize regulations at state level! try by an employee on duty in BiH may be re- cognized as tax-deductible expenses in FBiH or Foreign Nationals Who Are Employed in Their the RS. Home Country and Are On Duty in BiH* According to FBiH and RS Personal Income FBIH and RS: ISSUE Tax Laws, aliens are considered resident for tax FBiH and the RS have unclear legal provi- purposes and are entitled to the same tax de- sions regarding taxation of foreign nationals ductions as other taxpayers who are resident in who are employed in their home country and FBiH and RS. were sent on duty to BiH, and who pay their so- cial security obligations in their home country. FBiH Due to different social security systems in The Regulation on Identification Numbers their home country, it is not clear whether and and Tax Registration for Taxpayers in FBiH17 in- 17 Official Gazette of FBiH 39/02, 1/03 55
  • 56. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 56 Foreign Investors Council troduced temporary tax identification numbers. to in the Regulation. This gives precedence to Unfortunately, this system did not take hold be- the Regulation, as an implementing piece of le- cause tax ID numbers are not included in the gislation, over the VAT Law, which carries grea- CIPS system and therefore payments cannot be ter legal force. By doing so, the Indirect realized. Taxation Authority does not consider what these other “similar” legal entities are that this provi- FBiH and RS: RECOMMENDATION sion of the Regulation applies to. Furthermore, Harmonize the Personal Income Tax Laws at there is no publicly available list of countries or entity and BD levels. Define clear procedures procedure according to which domestic legal for taxation and the right to a reduction in tax entities, VAT payers, may receive VAT refunds. base for foreign individuals – nonresidents. A system needs to be developed in FBiH and lin- FBiH and RS: RECOMMENDATION ked with institutions authorized to carry pay- The Indirect Taxation Authority should act in ment transactions to ensure that these persons accordance with the VAT Law and approve VAT can pay their tax obligations without any admi- refund to all entities that do not have a registe- nistrative obstacles and that their payments are red business in BiH and that meet requirements properly registered by the relevant tax autho- defined under the Law. All possible restrictions rity. regarding VAT refunds to foreign entities should be defined under the VAT Law and only further Vat refund for persons who do not have a regi- developed and clarified under the Regulation on stered business in Bosnia and Herzegovina* VAT Law. The BiH ITA should also clearly iden- RS and FBIH: ISSUE tify “similar” foreign legal entities that are re- Article 53 of the BiH VAT Law provides an ferred to in the Regulation as entities entitled option for a refund of the input tax assessed on to refunds of VAT assessed and paid in Bosnia sale of goods and provision of services by a BiH and Herzegovina. The explanation should be in taxpayer or tax assessed on goods imported line with EU directives on indirect taxation and into BiH for foreign legal entities who do not the method of VAT refunding used in EU coun- have a registered business in BiH. Article 93 of tries that apply these directives. Publish a list the Regulation on VAT Law further provides that of countries from which VAT refund is possible foreign legal entities that do not have a registe- for domestic legal entities – VAT payers. red business in BiH (freight companies, persons displaying goods in fairs, airlines and the like), Issuance Of Opinions By Indirect Taxation Autho- and that buy goods or receive services from rity (BiH ITA) taxpayers in BiH, related to transaction of busi- FBIH and RS: ISSUE ness abroad, are entitled to VAT refunding to be Article 50 of the Indirect Taxation Law and exercised by submitting a request to the BiH In- Article 4 of the Instruction on Requirements and direct Taxation Authority (hereinafter: BiH ITA). Procedure for Issuance of Opinions define a ti- As this Regulation only covers freight compa- meframe within which to submit an application nies, persons displaying goods in fairs, airlines for issuance of an opinion. According to this ti- and the like, there have been cases that the meframe, such application cannot be filed once BIH ITA refused VAT refund requests submitted a particular action has already been taken, or by foreign legal entities on the grounds that when the VAT return has already been filed in such legal entities were not specifically referred relation to a particular action. This denies tax- 56
  • 57. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 57 W H I TE BO O K payers the opinion and the position of the BiH ced collection actions, the blocking of a debtor’s ITA regarding resolution of certain dilemmas transaction account does not mean that all of because their application for opinion must inc- its bank accounts with other banks will be blo- lude certain supporting documentation, and this cked automatically. An additional problem is in turn means that certain actions have already that forced collection against a debtor company been taken. Opinions and positions are not po- is not enforced in a single place, in only one of sted on the BiH ITA website, which makes im- the debtor’s banks. In such cases, the insolvent plementation of the law more difficult; in company is able to chose personally which out- addition, positions issued by different ITA de- standing obligations will be satisfied and in partments (sectors) frequently vary, causing di- which order. This contravenes provisions of en- lemmas and misleading taxpayers. tity Financial Payments Laws, which provide a precise order of payment for obligations of an FBiH and RS: RECOMMENDATION insolvent debtor. Once a single account of a Article 50 of the Indirect Taxation Law and debtor is blocked, the company should be trea- Article 4 of the Instruction on Requirements and ted as an illiquid participant in payment tran- Procedure for Issuance of Opinions should be sactions in all other banks where the company amended in such a way that an opinion may be has bank accounts, and all these bank accounts sought in all cases up to the moment when an should be blocked until full satisfaction of all inspection control procedure begins, whether obligations that are part of the forced collection. complete or partial. The more accounts an illiquid debtor has with Issued opinions, including a summary of the different banks, the more complicated and ine- question, should be published on the ITA web- fficient is the procedure of collecting creditors’ site, provided that the ITA does not have to claims, thus creating legal uncertainty. identify the taxpayer who received the opinion. This would help achieve one of the functions of FBiH and RS: RECOMMENDATION the ITA, which is that its work should be tran- The present entity laws governing payment sparent, and it would also result in better infor- transactions should be upgraded by including med taxpayers and more consistent application mechanisms whereby all bank accounts of a of tax laws. client would be blocked. Inefficient Forced Collection on Debtors’ Bank CORPORATE INCOME TAX LAW Accounts* The Law does not clearly define the meaning of FBIH and RS: ISSUE unrealized gains/losses, income/expenses not The fact that companies may have more included in the tax base than one transaction account with different RS: ISSUE banks causes problems in cases of forced col- The Corporate Income Tax Law (hereinafter: lection. Frequently a debtor company that is the Law) refers to an accounting method in de- subject to a forced collection procedure has termining taxable income and expenses, which only one of its transaction accounts blocked. is in accordance with accounting regulations. This makes it possible for such company to con- However, Article 6 of the Law defines that for tinue meeting its financial obligations to other the purposes of determining the tax base, all companies without any problems using its re- incomes from any sources are to be included maining accounts with other banks. During for- except for incomes defined under Article 7, and 57
  • 58. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 58 Foreign Investors Council no difference was made between realized and Regulation differently define the place where a unrealized income. service was rendered). It is only income/expenses arising from ac- counting for foreign exchange gains and losses Different practices of taxation of business units (as one type of unrealized income/expense) which have their registered address in another that are exempt from inclusion in taxable in- entities and BD come or expenses (Article 14 of the Law), citing Taxation of business units of legal entities “actually received income or paid costs of fo- which have their registered address in the other reign exchange differences”. The issue here is entity is done in the entity where the business the inconsistency between Article 14 and Article unit generates taxable income, such that the 6 of the Law. Other unrealized income/expen- total tax obligation of the legal entity at its re- ses or gains/losses are not clearly defined gistered address is reduced by the amount of under the Law, albeit they are clarified through the tax obligation paid. Article 13(5) of the Law the Regulation on the Implementation of the defines that a tax loss realized in the territory Law. of FBiH or BD cannot be deducted from the tax base of the legal entity in the RS. Under the Depreciation of newly-acquired buildings is not Corporate Income Tax and the Regulation on possible the Implementation of the Law in the Federa- Article 25(1) of the Regulation on the Imple- tion, business units (BU) are exempt from cor- mentation of the Law defines that the deprecia- porate income tax, however there is an tion for acquired buildings begins as of 01 obligation to submit tax returns for each busi- January of the year following the year in which ness unit; in the BD, BUs are taxed at a rate of the asset was activated. According to accoun- 10% in such a way that business books need to ting rules, depreciation is accounted for in the be maintained according to the cash method in month following the month in which the asset accordance with the Personal Income Tax Law, was put into use. which further complicates the operation of com- Given that these assets are real property panies. which generally has a long useful life, this in- consistency between tax and accounting rules RS: RECOMMENDATION in depreciation accounting results in deferred Harmonize provisions of the Law (Article 6 tax assets with the taxpayer that require tra- with Article 14) and amend the Law by speci- cking for a long period of time. fying all unrealized income/expenses or gains/ Since the start of depreciation accounting for losses not included in the tax base. all other assets is the same for both tax and fi- Amend Article 25 of the Regulation by dele- nancial statements, this exclusion of buildings ting the exclusion of newly acquired buildings necessitates additional records to be maintai- from the beginning of (regular) depreciation, ned, which leads to additional costs and has no making the start of depreciation the month fol- significant influence on public revenues. In the lowing the month in which the asset was put Regulation on the Implementation of the Law, into use. Harmonize Article 28(1)(ž) of the Law certain provisions are defined differently than and Article 60(2) of the Regulation, i.e. harmo- in the Law, which causes dilemmas in the im- nize the Regulation with the Law by using the plementation of these pieces of legislation. (Ar- Regulation to develop provisions of the Law, ticle 28(1)(ž) of the Law and Article 60(2) of the rather than having the Regulation define somet- 58
  • 59. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 59 W H I TE BO O K hing not defined under the Law or define so- Value Added Tax Law and the Consumer Protec- mething in opposition to the Law. Discontinue tion Law, which allow such rebates or discounts. taxation of business units of legal entities head- In addition, there is a similar issue related to quartered in the other entity or in the BD, or the implementation of the Trade Law, which ensure application of Article 48 of the Corporate provides for an instrument called a trade book Income Tax Law by filing a single tax return ac- that prevents application of the Value Added cording to the place of registered address of the Tax Law and the Consumer Protection Law or it legal entity, while the corporate income tax at least prevents their simple application. would be paid on a pro rata share of gross in- come generated by the taxpayer in the territory RS: RECOMMENDATION of the other entity or the BD. Harmonize the Fiscalization Law and the Trade Law and their related regulations and Fiscalization in RS other regulations by ensuring that they do not RS: ISSUE restrict or hinder application of the VAT Law and Fiscal cash register software does not sup- the Consumer Protection Law. port any rebates or other discounts in retail sales or requires a very complex tracking of FBIH: ISSUE such rebates or discounts, which is quite non- As of the time of writing, fiscalization has not sensical in a computer age. This means that the yet started applying in FBiH, and therefore Fiscalization Law directly interferes with the there is no recommendation for this entity. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Application of International • All data on international agreements • BiH Ministry of Finance and Agreements for BiH to be stored in a single database and Treasury (BiH MFT) made publicly available • Federation Ministry of Simplify the procedure for reporting the Finance withholding tax and exercising relie- • RS Ministry of Finance ves under international agreements; • Tax Administration of the in FBiH, discontinue the order accor- Federation of BiH ding to which the BiH MFT must give its approval for each individual case • Unclear Provisions on Personal • Precisely define the obligation to pay • Entity Ministries of Finance Income Tax and Social Secu- social security contributions for indivi- rity Contributions duals residing in FBiH, RS and the Dis- trict and earning their income in another administrative unit, as well as where and how these persons may exercise their social rights Payment of contributions according to the employee’s place of residence. Harmonization of the Personal Income Tax Laws at entity and BD levels. 59
  • 60. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 60 Foreign Investors Council KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Lack of harmonization between • Harmonization of regulations at entity • Entity Ministries of Finance Personal Income Tax Laws with and BD levels respect to tax exemptions, amo- unt of personal deduction and tax rates at entity and BD level • Unclear legal provisions regar- • Precisely define taxation of foreign in- • FBiH and RS Ministries of ding taxation of foreign natio- dividuals and their rights to a reduc- Finance nals who are employed in their tion in tax base home country and were sent Develop a system in FBiH that will be on duty to BiH, and who pay linked with institutions authorized to their social security obligations carry out payment transactions to en- in their home country sure that these persons can pay their tax obligations without any admini- strative obstacles • VAT Refund for Persons Who • Under the Regulation on VAT Law, cla- • BiH Ministry of Finance and Do Not Have a Registered Bu- rify in detail the right to a VAT refund, Treasury siness in Bosnia And Herzego- in accordance with EU directives. • BiH Indirect Taxation Aut- vina Publish a list of countries from which hority VAT refund is possible • Issuance of Opinions by BiH • Issuance of opinions should be amen- • BiH Indirect Taxation Aut- Indirect Taxation Authority ded in such a way that an opinion may hority (BiH ITA) be sought in all cases up to the mo- ment when an inspection control pro- cedure begins, whether complete or partial, and opinions should be publis- hed on the official ITA website • Inefficient Forced Collection on • The present entity laws governing • Entity Ministries of Finance Debtors’ Bank Accounts (RS payment transactions should be up- and FBiH) graded by including mechanisms where- by all bank accounts of a client would be blocked. • RS CORPORATE INCOME TAX o The Law does not clearly define • Clearly define in the Law gains/losses, • RS Ministry of Finance the meaning of unrealized gains/ income/expenses not included in the • RS Tax Administration losses, income/expenses not tax base. included in the tax base 60
  • 61. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 61 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION o Depreciation of newly-acquired • Allow depreciation one month after • RS Ministry of Finance buildings is not possible the building was put into use. • RS Tax Administration o Different practices of taxation • Harmonize legislation regarding taxa- • RS Ministry of Finance of business units which have tion of business units in the other en- • RS Tax Administration their registered address in ano- tity and BD. ther entities and BD • Fiscal cash register software • Harmonize the Fiscalization Law and • RS Ministry of Trade and does not support any rebates the Trade Law and their related regu- Tourism or other discounts in retail lations and other regulations by ensu- • RS Ministry of Finance sales or requires a very com- ring that they do not restrict or hinder plex tracking of such rebates application of the VAT Law and the or discounts, which is quite Consumer Protection Law. nonsensical in a computer age 61
  • 62. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 62 Foreign Investors Council 6.7. CONSTRUCTION PERMITS ned through the general administrative proce- dure. The location information is obtained for INTRODUCTION the location that already has the detailed plan- According to the World Bank’s Doing Busi- ning documents in place (zoning plan, regula- ness Report for 2011, Bosnia and Herzegovina tion plans, urban planning projects). ranks 139 according to the ease and time re- In addition to entity laws in FBIH, there are quired to obtain a construction permit, while also cantonal laws governing the issue of per- last year it ranked 136. In other words, in spite mits and approvals, which further complicates of amendments to the urban planning laws the process for the investor because experience made by entity governments in an attempt to gained in one municipality cannot be relied on improve and accelerate the procedure of issuing when obtaining permits in another municipality. a permit, the participants in a study which pre- The amendments made to the law at entity ceded the Doing Business publication believed level have not yet been implemented in all the that in terms of the ease and time required to cantons by harmonizing cantonal laws with the obtain permits, BiH was even somewhat worse entity law. than last year. In addition, Doing Business 2011 The Republika Srpska also enacted new le- found that the investor had to complete 16 pro- gislation in this field during the year. The Urban cedures to obtain a construction permit, requi- Planning and Construction Law19 did not intro- ring around 255 days on average. duce any substantial changes over the previous Both entities have made certain changes to law. Given the relatively short period of its imple- the procedures for issuance of construction per- mentation, as in the Federation of BiH, we can- mits. Both entities amended the relevant legi- not be specific about its results in practice so far. slation, introducing new terms with a similar Development of all the plans provided for meaning: “location information” in FBiH and “lo- under the Law is financed from budgets of the cation requirements” in the RS. relevant territorial units. Essentially, the pro- During the period between 2009 and 2010, blem is that these plans are often non-existent Federation of BiH enacted three amendments to or are incomplete and/or not harmonized, yet the Urban Planning and Use of Land Law.18 it is only based on these plans that investors Through these amendments, the Federation of may be issued location requirements within an BiH Government attempted to simplify the pro- optimum timeframe. cedure for issuing a construction permit. Under With respect to differences between the new the amended law, there are two alternative pro- and the old law, there are several changes in- cedures which precede the application for a troduced by the new law: construction permit in FBiH: issuance of either 1. The new RS law also introduced a new term an urban permit or location information. – location requirements; The procedure for obtaining an urban permit 2. Provisions were introduced governing safety remains the same. The new procedure is the zones aimed at ensuring uninterrupted ope- one relating to location information. Unlike ration of infrastructure systems and structu- FBiH, where this location information is obtai- res, and these zones are the following: road, ned through a simplified procedure, in the RS railroad, airport, transmission line and pipe- the equivalent location requirements are obtai- line zones; the zone for radio-transmission 18 Official Gazette of FBiH 2/06, 72/07, 32/08, 4/10, 13/10, 45/10 19 Official Gazette of RS” No. 55/10 62
  • 63. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 63 W H I TE BO O K plants and communications; safety zone for are more willing to support the investor, while water springs, watercourses and water ma- in more developed municipalities one has to nagement structures; safety zone for sensi- wait longer to be issued permits due to the tive areas (explosives and flammable mate- overload. In general, the main issue in the pro- rials and liquids); cessing of applications is the frequent lack of 3. If the authority in charge of issuing the lo- harmonization between planning documents, cation requirements fails to issue them wit- meaning that investors cannot obtain permits hin 30 days, which constitutes the so-called within an optimum timeframe. There are still is- “failure to respond”, the location require- sues with inconsistent interpretation of laws, ments are not deemed to be issued; rather, unclear procedure, inadequate staff efficiency the investor may then file an appeal as if his and the number of staff, no coordination in data application was denied. sharing among institutions/officials, and a lack of understanding regarding investors’ needs. Improvements in this area cannot be achie- Variation in the time required is considerable: ved without adequate financial resources and some municipalities take 15 days, while others harmonization of legislation for the both entities need a whole year to issue certain approvals/ and the Brčko District. To implement these permits. The new Republika Srpska law defines changes, it is equally important to have profes- that location requirements need to be issued sional, trained and responsible staff, capable of within 30 days (provided that there is a regula- managing all these changes. Furthermore, ne- tion plan in place); in case there is no regula- tworked databases are also required to enable tion plan, the deadline is 30 days from the day swift and easy processing of all the requests. the application is complete. If the requirements Comparing this with the earlier law and the are not issued within the specified timeframe, recommendations made in the previous issue of the investor may file an appeal as if his appli- the White Paper, we can conclude that, regar- cation was denied. Unfortunately, investors-FIC dless of the amendments made to the laws, members have not noticed any improvements there remain the issues of vague wording and since the law started applying. In practice, mu- lack of harmonization in procedures, non-tran- nicipal authorities often do not honor the dea- sparent procedures and inefficient administra- dlines defined by law. tive staff that is supposed to provide an adequ- ate and timely support to investors. FBiH and RS: RECOMMENDATIONS Improvements in this area cannot be achie- EXPERIENCE: ved without adopting and harmonizing all the ISSUES AND RECOMMENDATIONS plans provided for under the law, and also wit- hout harmonizing the legislation for both enti- Inefficient Processing of Applications* ties and the Brčko District, in order to ensure FBIH and RS: ISSUE legal certainty for the investor in the entire ter- The problem of the too slow processing of ritory of BiH. To achieve optimum efficiency in applications for permits remains even after the application processing, it is equally important to new laws were enacted in both entities. Inve- have professional, trained and responsible staff, stor treatment varies from municipality to mu- capable of managing all the changes made. Im- nicipality. Officials in smaller municipalities, whe- provements would also require setting up ne- re there are less applications to be processed, tworked databases to enable swift and easy 63
  • 64. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 64 Foreign Investors Council processing of all the requests. Since pilot pro- permit, which was issued based on urban-tech- jects launched in some cities have yielded great nical requirements. The previous law fully des- results, these good practices need to be imple- cribed the procedure required to obtain a mented in all municipalities and the system construction permit. It also provided a clear de- needs to be improved on a continuous basis, as finition of how to prepare full technical docu- was recommended in the 2009 White Paper. ments based on the requirements specified in the urban permit and what needed to be done Transfer of Construction Permit in the Sarajevo to obtain the construction permit. The new law Canton* does not provide such clear definitions, howe- FBiH: ISSUE ver. Under the new law, the entire procedure is In case the title to the building being con- divided into several phases and there are indi- structed is transferred during construction, the vidual deadlines specified for each phase. After transfer of the construction permit is not clearly a careful review of the law, it appears that the defined either under the FBiH Urban Planning procedure to obtain a construction permit will and Use of Land Law or the Sarajevo Canton now be significantly longer and much more Urban Planning Law. The vague working of the funds will be needed for these purposes. Like- Law leads to varying practices from municipality wise, the new law does not make it quite clear to municipality. Such inconsistent procedures as to what the purpose of preparing the urban- are an obstacle to an efficient transfer of the technical requirements is. construction permit for a building. RS: RECOMMENDATION FBiH: RECOMMENDATION The law needs to be amended so that clear To eliminate any ambiguities regarding the cause-effect relationships may be established transfer of a construction permit, the relevant between different provisions of the law, inclu- laws need to define the conditions for transfer- ding removing of all ambiguities and shortening ring a construction permit from one investor to of the deadlines for obtaining a construction another. In addition, the construction-related permit. legislation at FBiH and cantonal levels needs to define streamlined procedures for issuing all Law Does Not Define Treatment of Telecommuni- permits related to construction, as well as the cations Sector* method and conditions for transferring a con- RS: ISSUE struction permit from the moment the permit is The RS Urban Planning law does not include issued to the moment a certificate of occupancy the telecommunications sector and fails to is issued and the finished building is included in clearly define landline infrastructure and mobile planning documents. networks. Since the field of telecommunications infrastructure has not been defined by the Law, Unclear and Incomplete Urban Planning and municipalities have no clear procedure gover- Construction Law ning the issuance of permits in this field. This is RS: ISSUE the reason some municipalities need 15 days Under the previous urban planning law, the while others require as much as one year to procedure for obtaining a construction permit process all documents required for a permit. An was much more clearly defined. The entire pro- additional problem is the fact that installation cedure was based on obtaining a prior urban of a base station is not provided for in the spa- 64
  • 65. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 65 W H I TE BO O K tial plan, but some municipalities do provide for FBiH and RS: RECOMMENDATION it in their master and regulation plans, which To resolve any dilemmas in obtaining per- further complicates the procedure. mits, the RS Urban Planning Law needs to in- corporate telecommunications infrastructure FBIH: ISSUE provisions to cover set up of network, equip- The treatment of the telecommunications ment and facilities. In FBiH, legislation at local sector in FBiH is defined similarly to that in the and cantonal levels requires further regulation, RS; in other words, it is quite unclear. The si- and laws need to be harmonized within the Fe- tuation is further complicated by the fact that deration framework. The RS and FBiH laws need each canton has its own law, and when combi- to include more precise specific provisions go- ned with different interpretations of the same verning the setup of telecommunications ne- institutes in different cantons, this causes addi- tworks, equipment and facilities. tional problems to investors. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Inefficient Processing of Appli- • It is important to have professional, • Municipalities in FBiH and cations trained and responsible staff, capable the RS of managing all the changes made. Improvements would also require set- ting up networked databases to ena- ble swift and easy processing of all the requests • Transfer of Construction Permit • Relevant laws need to define the con- • Legislative and executive in the Sarajevo Canton, FBiH ditions for transferring a construction authorities in the Federa- permit from one investor to another tion and cantons • Unclear and Incomplete RS • The law needs to be corrected so that • Legislative and executive Urban Planning and Construc- clear cause-effect relationships may authorities in the RS tion Law be established between different Ar- ticles of the law, including removing of all ambiguities related to shortening the deadlines for obtaining a construc- tion permit • Law Does Not Define Treat- • To resolve any dilemmas in obtaining • Legislative and executive ment of Telecommunications permits, the relevant entity laws need authorities in the entities Sector to incorporate more detailed telecom- and cantons munications infrastructure provisions to defined set up of network, equip- ment and facilities. In FBiH, laws need to be further harmonized within the Fede- ration framework (FBiH and cantons) 65
  • 66. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 66 Foreign Investors Council 6.8. FBIH LIQUIDATION LAW AND at which the liquidator may start converting BANKRUPTCY company’s assets into cash and which conver- sion method is to be applied, etc. In practice, FBIH LIQUIDATION LAW this gives rise to numerous difficulties and re- sults in legal uncertainty. In order to address INTRODUCTION legal gaps they face, some courts of law in FBiH While the procedure of liquidation (winding- have been applying corresponding provisions of up) of a company is conducted when the com- the Bankruptcy Proceedings Law to aspects of pany has enough financial assets to cover all its the liquidation procedure that were not defined liabilities, this procedure may be lengthy in FBiH under the Liquidation Law and the Companies due to imprecise regulations and different prac- Law. However, there is no legal basis for this sub- tices used by different courts. sidiary application of the Bankruptcy Procee- In the past year since the publication of the dings Law, which leads to different interpreta- 2009 White Book, nothing has changed when it tions in practice and to application of provisions comes to this Law. Investors face the same is- of the Bankruptcy Proceedings Law to liquidation. sues and we therefore make the same recom- mendations and solutions in this section, with FBiH: RECOMMENDATION minor changes. Below we have identified short- The Liquidation Law needs to more adequa- comings in the FBiH Liquidation Law that FIC tely address the course of the liquidation pro- members would like to note for 2009 and 2010. cedure as well as the position, rights and obli- gations of the liquidator; alternatively, the Li- EXPERIENCE: quidation Law should include a provision allo- ISSUES AND RECOMMENDATIONS wing for an adequate application of provision of the Bankruptcy Proceedings Law to those aspe- Vague Wording of Liquidation Procedure* cts of the liquidation procedure that have not FBiH: ISSUE been defined. Liquidation of companies in FBiH is governed by the Liquidation Law and the Companies Law. Different Practices in Courts Regarding Submis- Present regulations do not provide adequately sion of Documents for Liquidation* for the liquidation procedure itself, nor do they FBiH: ISSUE provide adequately for the position of the liqui- Applicable regulations do not include a com- dator during the procedure and for the activities prehensive list of documents the petitioner a liquidator may or must take. For instance, needs to submit to the court along with the pe- there are no rules defining the moment at tition for initiating a liquidation procedure. This which the liquidator may terminate employ- has lead to great variations in practices used in ment contracts of employees of the company different courts. Some documents, which are being liquidated; there are no rules defining considered mandatory by certain courts and which legal transactions the liquidator may ef- without which these courts will not even receive fect on behalf of the company, and which tran- a petition for initiating a liquidation procedure, sactions are not permitted (this relates prima- are not at all required by other courts. In addi- rily to incurring new liabilities on behalf of the tion, it is not clear when and what types of do- company unrelated to the liquidation proce- cuments need to be submitted in the course of dure); there are no rules defining the moment the procedure20. 20 Which documents must be submitted along with the petition, and which documents are to be submitted later in the procedure. 66
  • 67. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 67 W H I TE BO O K FBiH: RECOMMENDATION stic legal entities and individuals in terms of The Liquidation Law needs to include a list acquisition of property rights including real pro- of all the documents that a liquidation petitioner perty, there have been several cases where, fol- is required to submit, and also to precisely de- lowing completion of the liquidation procedure, fine the moment when each of the documents a foreign investor was denied the right to regi- is to be submitted. ster his/her title to real property remaining as part of liquidation estate after creditors have Different Practices in Courts Regarding Submis- been paid. sion of a Certificate Proving Payment of Tax Lia- bilities During the Institution of a Liquidation FBIH and RS: RECOMMENDATION Procedure* While there are no obstacles in the current FBiH: ISSUE laws to transfer title to real property to the fo- Certain courts of law in FBiH require that, reign investor once the liquidation procedure is along with the liquidation petition, a certificate completed (provided, of course, that the credi- must be submitted proving payment of compa- tors have been paid off from the liquidation ny’s tax liabilities, issued by the relevant tax estate), we believe the entity level property authority. The court in Sarajevo refuses to receive laws should expressly provide for this option to any liquidation petition lacking this certificate. avoid different interpretations in future court However, this practice currently has no adequate proceedings. legal basis. Other courts in FBiH do not require this certificate to prove payment of tax liabilities Inability to Access a List of Companies Being Li- of the company before liquidation is instituted: quidated in the Court Registry* instead, the tax administration, together with FBiH and RS: ISSUE all other creditors of the company, registers its One of the latest amendments to the Com- claims against the company and collects them panies Law21 was deletion of the paragraphs22 in the course of the liquidation procedure. which defined that the liquidation procedure had to be recorded in the Companies Register FBiH: RECOMMENDATION and that the company name during liquidation Practice in courts regarding this issue needs had to include the words “under liquidation”. to be harmonized, and relevant regulations The purpose of these provisions was to ensure need to define that the tax administration shall that companies under liquidation could be easily have the same position as all other creditors of recognized and that the general public was in- a company being liquidated. formed of the company’s liquidation. After these provisions were removed from the Companies Treatment of Company’s Real Property After the Law, a legal gap was created in this respect be- Liquidation Procedure Is Completed cause other provisions of the Companies Law FBIH and RS: ISSUE and the Liquidation Law do not provide for a si- Even though the BiH Law on Policy of Fo- milar obligation to record the initiation of the li- reign Direct Investment fully equates property quidation procedure with the Companies Regis- rights of foreign investors with those of dome- ter and to inform the public thereof. 21 Official Gazette of FBiH 84/08 22 Article 73, Paragraphs 2 and 3. 67
  • 68. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 68 Foreign Investors Council FBiH and RS: RECOMMENDATION take too long, rendering them purposeless in The obligation to record the liquidation pro- terms of being an urgent procedure. cedure with the Companies Register and to inc- While receivers are all certified by the Mini- lude words “under liquidation” in the company na- stry of Justice, the actual quality of their per- me during liquidation should be defined by law. formance varies greatly. The Law that governs bankruptcy is generally good, however its im- plementation is slow and there is still a lack of BANKRUPTCY knowledge, even in the judiciary. Furthermore, bankruptcy proceedings carry an accompanying INTRODUCTION stigma: the general society views them as a Bankruptcy in BiH is defined under the FBiH "disaster". The governing structures have done Bankruptcy Proceedings Law and the RS Ban- nothing to change this perception. kruptcy Proceedings Law. In our circumstances, Below are only some of the problems faced bankruptcy is frequently and unduly very lengthy. by our members when it comes to bankruptcy In spite of all the inconvenience it entails, ban- proceedings in BiH. kruptcy should not be seen as an end, but rat- her as a new beginning. EXPERIENCE: The Bankruptcy Proceedings Law defines in ISSUES AND RECOMMENDATIONS detail the requirements to institute bankruptcy proceedings, and in particular the legal effects Penalties for Company Managers Who Do Not of instituting bankruptcy proceedings. However, File for Bankruptcy on Time there is a problem with the implementation of FBIH and RS: ISSUE the Law in the process of instituting and imple- Penalties for managers who do not file for menting bankruptcy proceedings, particularly bankruptcy on time are totally inadequate (the for the following reasons: (i) bankruptcy is in- penalties are misdemeanor penalties, i.e. fines). sufficiently promoted as something that can In most cases, at the time the manager/admi- help in the recovery of a company, satisfaction nistrator files for bankruptcy, the conditions are of creditors and settlement of other debts; (ii) already inadequate and the company is typi- education and training aimed at participants in cally beyond recovery and the value of its busi- bankruptcy proceedings in BiH are insignificant ness and assets is significantly reduced. (judges, lawyers, receivers and other partici- pants require more training); and (iii) the role FBIH and RS: RECOMMENDATION of the state (entities) in bankruptcy cases is still The Bankruptcy Proceedings Law should inc- minor or non-existent. lude, by way of amendments to it, a higher fine Unfortunately, it is quite rare that ban- and even a criminal penalty for company ma- kruptcy proceedings are instituted on time, nagers/administrators who do not file for ban- when the company’s recovery is both possible kruptcy on time. By acting in such a way, they and effective. directly cause irreparable damage to company Judges in charge of bankruptcy proceedings assets and they bring the company itself (its most often lack the required expertise, and employees, creditors and all other participants another issue is inconsistent enforcement of the in bankruptcy proceedings) into a position Law. In addition, courts lack resources, which where it cannot satisfy the claims, causing los- in turn means that most of the bankruptcies ses to third parties. 68
  • 69. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 69 W H I TE BO O K Qualifications and Certification of Receivers in BiH make a 5% lump sum payment to the ban- FBIH and RS: ISSUE kruptcy estate from the proceeds of the sale of In terms of practical implementation of ban- a movable which the receiver conveyed to a kruptcies, receivers in BiH are not competent creditor. According to practices of courts in the enough for their job. To become a receiver, the RS and the Federation of BiH, receivers and only requirement a candidate must meet is to bankruptcy judges arbitrarily interpret these pass a test administered by the BiH Ministry of provisions and often order secured creditors to Justice, which then issues the license. Any citi- pay this lump sum even in case of a sale of real zen having a university degree may apply, and property that was passed on to secured credi- there is no minimum experience required. The tors for liquidation in accordance with Article BiH Ministry of Justice has the authority to re- 107 of the RS Bankruptcy Proceedings Law, ne- voke licenses, yet this has never been done. glecting the fact that such secured creditor is The Ministry of Justice has no control over the the only party who has actual expenses related work of receivers, which results in their perfor- to liquidation of such property (appraisal costs, mance varying considerably. costs of execution proceedings, costs of sale and marketing of the real property, etc.). It is FBIH and RS: RECOMMENDATION not infrequent that a real property is entrusted Specific measures needed to improve confi- to the secured creditor for keeping (and the se- dence in the implementation of the bankruptcy cured creditor has to pay the maintenance law should include amend the present law to set costs, which can be considerable) and on top of some minimum requirements regarding past that the bankruptcy court may order the credi- experience and define a specific profession that tor to pay the lump sum of 5%. would correspond to the nature of duties of a receiver, which would be a requirement to be- FBIH and RS: RECOMMENDATION come a receiver. The Association of Receivers This issue must be clearly defined and clari- should take on a supervisory role and conduct fied in the entity Bankruptcy Proceedings Laws training for bankruptcy personnel, such as jud- by amending the above Articles, which would ges and receivers. This should be done both ensure harmonized practices among different through the law and through the regulation on courts and would prevent courts from making the award of vocational titles (Ministries of Ju- arbitrary decisions. We believe that the lump stice at entity level). The criteria for being sum payment for the costs of maintenance, in awarded the title of a receiver should be made a maximum amount of 5% of the sales price, stricter. Amendments to the law that deal with which would be contributed to the bankruptcy qualifications and competencies of receivers are estate by the secured creditor, would only be being prepared. justified if the real property was in the posses- sion of the bankruptcy debtor between the in- Payment of a 5% lump sum to the bankruptcy stitution of bankruptcy proceedings and the sale estate from the sale of movables and real pro- of real property, which means that in such case perty all the maintenance costs would be borne by FBIH and RS: ISSUE the bankruptcy debtor. Otherwise, this raises Article 105 (in conjunction with Article 103) the issue of the justification for imposing this of the RS and the Federation of BiH Bankruptcy lump sum payment on the secured creditor and Proceedings Laws provide for an obligation to the issue of equitable allocation of costs incur- 69
  • 70. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 70 Foreign Investors Council red by the institution of bankruptcy proceedi- Proceedings Law and the VAT Law needs to be ngs. resolved in terms of the legal effects of such disposal, because under the VAT Law a transfer The Issue of the Right to Dispose of Real Pro- of the right of disposal incurs a VAT obligation. perty in Bankruptcy Proceedings The receiver should first attempt to sell the FBIH and RS: ISSUE real property to be transferred to the secured Since the right of disposal under our ban- creditor for the amount of the secured claim re- kruptcy proceedings laws most often concerns gistered in the land-registry records in the form secured creditors, this issue needs to be har- of a lien or mortgage. If the sale at the apprai- monized and specified through the FBiH and RS sed value is not successful, the receiver should Bankruptcy Proceedings Laws. Solutions provi- offer the real property to the secured creditor ded by amendments to the laws would facilitate for the amount of claim plus applicable interest the realization of secured rights by secured cre- and the amount of the real property sales tax. ditors, in particular the sale of property. The At the same time, the bankruptcy court would main issue that arises is the imprecise and in- issue a decision on the award of the real pro- sufficient emphasis on this problem in our legi- perty, including removal of all land-registry slation. charges, which would be used by the Land-Re- gistry Office to register the title and also for tax FBIH and RS: RECOMMENDATION assessment purposes. This solution has been The meaning of the right of disposal needs accepted in other legislations (such as the legi- to be made more specific, i.e. whether it is the slation of the Republic of Croatia) as it ensures transfer of possession or something else; furt- better liquidation than lengthy execution pro- hermore, a collision between the Bankruptcy ceedings. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION Liquidation FBIH • Vague Wording of Liquidation • The Liquidation Law needs to more • FBiH Parliament / PARS Procedure adequately address the course of the • Ministries of Justice of FBiH liquidation procedure as well as the and RS position, rights and obligations of the liquidator; alternatively, the Liquida- tion Law should include a provision al- lowing for an adequate application of provision of the Bankruptcy Procee- dings Law to those aspects of the li- quidation procedure that have not been defined. • Different Practices in Courts • The Liquidation Law needs to include • FBiH Parliament / PARS Regarding Submission of Do- a list of all the documents that a liqui- • Ministries of Justice of FBiH cuments for Liquidation dation petitioner is required to submit, / RS and also to precisely define the mo- • Competent Courts 70
  • 71. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 71 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION ment when each of the documents is to be submitted. • Different Practices in Courts Re- • Practice in courts regarding this issue • FBiH Parliament / PARS garding Submission of a Certi- needs to be harmonized, and relevant • Ministries of Justice of FBiH ficate Proving Payment of Tax regulations need to define that the tax / RS Liabilities During the Institu- administration shall have the same po- • Competent Courts tion of a Liquidation Procedure sition as all other creditors of a com- pany being liquidated. • Treatment of Company’s Real • While there are no obstacles in the • FBiH Parliament / PARS Property After the Liquidation current laws to transfer title to real • Ministries of Justice of FBiH Procedure is Completed property to the foreign investor once / RS the liquidation procedure is completed (provided, of course, that the credi- tors have been paid off from the liqui- dation estate), we believe the entity le- vel property laws should expressly pro- vide for this option to avoid different interpretations in future court procee- dings. • Inability to Access a List of • The obligation to record the liquidation • FBiH Parliament / PARS Companies Being Liquidated in procedure with the Companies Regi- • Ministries of Justice of FBiH the Court Registry ster and to include words “under liqui- / RS dation” in the company name during liquidation should be defined by law. Bankruptcy FBIH and RS • Penalties for Company Mana- • The Bankruptcy Proceedings Law should • FBiH Parliament / PARS gers Who Do Not File for Ban- include, by way of amendments to it, • Ministries of Justice of FBiH kruptcy on Time a higher fine and even a criminal pe- / RS nalty for company managers/admini- • Competent Courts strators who do not file for bankruptcy on time. By acting in such a way, they directly cause irreparable damage to company assets and they bring the company itself (its employees, credi- tors and all others) into a position whe- re it cannot satisfy the claims, causing losses to third parties. 71
  • 72. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 72 Foreign Investors Council KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Qualifications and Certification • The criteria for being awarded the title • FBiH Parliament / PARS of Receivers in BiH of a receiver should be made stricter. • Ministries of Justice of FBiH Specific measures needed to improve / RS confidence in the implementation of the bankruptcy law should include: (i) amend the present law to set some minimum requirements regarding past experience and define a specific profession that would correspond to the nature of duties of a receiver, which would be a requirement to be- come a receiver. The Association of Receivers should take on a supervi- sory role and conduct training for ban- kruptcy personnel, such as judges and receivers. • Payment of a 5% lump sum to • The lump sum payment for the costs • FBiH Parliament / PARS the bankruptcy estate from of maintenance would only be justified • Ministries of Justice of FBiH the sale of movables and real if the real property was in the posses- / RS property sion of the bankruptcy debtor bet- ween the institution of bankruptcy proceedings and the sale of real pro- perty, which means that in such case all the maintenance costs would be borne by the bankruptcy debtor. • The Issue of the Right to Dis- • The meaning of the right of disposal • FBiH Parliament / PARS pose of Real Property in Ban- needs to be made more specific, i.e. • Ministries of Justice of FBiH kruptcy Proceedings whether it is the transfer of posses- / RS sion or something else; furthermore, • BiH Ministry of Finance and a collision between the Bankruptcy Treasure Proceedings Law and the VAT Law needs to be resolved in terms of the legal effects of such disposal, because under the VAT Law a transfer of the right of disposal incurs a VAT obliga- tion. The receiver should first attempt to sell the real property to be trans- ferred to the secured creditor for the amount of the secured claim registe- 72
  • 73. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 73 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION red in the land-registry records in the form of a lien or mortgage. If the sale at the appraised value is not success- ful, the receiver should offer the real property to the secured creditor for the amount of claim plus applicable interest and the amount of the real property sales tax. At the same time, the bankruptcy court would issue a decision on the award of the real pro- perty, including removal of all land-re- gistry charges, which would be used by the Land-Registry Office to register the title and also for tax assessment purposes. 73
  • 74. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 74 Foreign Investors Council 6.9. EXPORTS (iii) The piece of statistical data according to which BiH exports rose by 30% in 2010 appears INTRODUCTION very optimistic. However, it should be noted When discussing exports, we need to review that such exports consist of ore and timber (raw not just the legal framework but also its econo- materials). mic aspect, which is of primary importance. To A general recommendation that could be ad- improve the rules that regulate this industry, we dressed at executive authorities is to define an need to address its economic side. In other economic policy that will best protect the inte- words, we need to increase the volume of ex- rests of Bosnia and Herzegovina and its citi- ports, because that is the only way to ensure zens, but this should also include: resources required to make any kind of pro- • Recognition of these interests and an un- gress. On the other hand, to increase exports, compromising commitment to achieving them the volume of real economy, i.e. production, • Legislation that will protect national pro- needs to increase. In this respect, the state duction so that it can be competitive (entities) need to play a role. • Protection of national natural resources Looking back at the specific steps taken by • Certification and standardization of BiH entities in this field, we can note that the Repu- products so that they are ready for export blika Srpska has adopted a strategy to stimu- late exports, whereas such strategy in FBiH and EXPERIENCE: at BiH level is still being developed, with imple- ISSUES AND RECOMMENDATIONS mentation expected to start in June 2011. It is necessary to harmonize standards and Issuing and Recognition of Certificates in Coun- certificates with EU standards and, in particular, tries in the Region and EU with countries in the region that most of BiH’s FBIH and RS: ISSUE cooperation and trade relates to. The difficult relations among countries for- The operation of the BiH Export Council med following the collapse of the former Yugo- needs to be more efficient. Its effectiveness is slavia are burdened by their mutual non-reco- hampered by political influences and its main gnition of certificates or national certifying in- task is to serve as a link between state institu- stitutes that issue certificates for products that tions and businesses (exporters). seek to find buyers in neighboring countries. (i) Institutional reform: Improving policies This is the reason we need to certify one and and the legal, institutional and regulatory fra- the same product in the same way, but by each mework. This would help achieve alignment national certifying body, depending on the ne- with the EU acquis related to trade, for all types ighboring country where we want to export the of business. Restructuring in order to reduce product. For example, a certificate for cement complexities and ambiguities regarding respon- sibilities of the state and entity levels. that is in line with the requirements of harmo- (ii) It is very important to note that BiH In- nized EU standards or norms (EN) and is issued stitutions are working together with the BiH by the national institute in BiH is not recognized State Veterinary Office on addressing the issues in Croatia; on the other hand, the same certifi- concerning the exporter code number and the cate issued by the Croatian institute according regulations on exporting milk, meat and milk to the requirements of the same EN norm is not and meat products, and on harmonizing them recognized in the EU! An additional problem in with EU regulations. BiH is the fact that at BiH level there is no insti- 74
  • 75. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 75 W H I TE BO O K tute or a similar body that can issue a certificate avoid duplication or multiplication of the certifi- or CE mark for a product that will be valid in the cation procedure, which requires a lot of funds countries in the region and in EU members states. and time from everyone, makes the product more expensive and reduces its competitive- FBIH and RS: RECOMMENDATION ness in the neighboring countries’ markets. In this respect, additional efforts should be made to ensure that at least the neighboring CUSTOMS AND ISSUES EXPORTERS FACE IN CLEA- countries (BiH, Croatia, Serbia, Montenegro) RANCE: start mutually recognizing certificates issued by FBIH and RS competent national institutions. This would Specific proposals relating to customs: ISSUE RECOMMENDATION • Waiting for the green lane – often • Automation of the ASYCUDA system should enable automatic takes too long clearance through the green lane after 45 min • Short office hours of the customs offi- • Organize customs operation 0-24h (or at least 7-21), especially ces and the obligation to provide the in light of in-house clearance, and shorten the deadline to pro- CP form two hours before the end of vide the form to 0,5-max 1 hour before the end of office hours office hours for approved exporters • Too high price for correcting a CD (very • Too high price for correcting a CD (very often due to a trivial often due to a trivial technical error) technical error) • Individual payment of duty for each • Allow collective complete monthly declaration for those who export generates additional bank char- have the status of an approved exporter or at least collective ges payment of all duties on a single payment slip when submitting documents for the complete declaration • Collecting a copy of 3 ex declarations • Placing mailboxes at all border crossings for forwarders to put stamped by competent authority at a certified copies of ex declarations in addressed envelopes sup- border crossing and submitting it to plied by exporters would significantly facilitate this important the competent institution is a compli- and complex operation. This practice has been used in EU cated procedure, especially for large countries for a long time. exporters. Liberalization of deadlines for submitting the documents would also be very beneficial to exporters. 75
  • 76. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 76 Foreign Investors Council Implementation of TIR and ATA Carnet Conven- Automation of the Process of Awarding ECMT Li- tions. censes. FBIH and RS: ISSUE FBIH and RS: ISSUE BiH is the only country in the extended re- The award of ECMT licenses is not fully tran- gion that does not implement TIR Carnet, and sparent at the moment, in part due to the fact one of the few countries in the region that are that the present regulation does not include a not signatories to the ATA Carnet Convention. specific formula for the license award. Difficulties related to this issue and the costs imposed by forwarders, agents and dealers are FBIH and RS: RECOMMENDATION: an additional burden to the economy of BiH. The Ministry of Transport and Communica- tions should amend the regulation in order to FBIH and RS: RECOMMENDATION formulate the entire process of awarding an BIH would have to implement the TIR Carnet ECMT license through the use of algorithmic Convention it signed. The Ministry of Foreign award software. This would prevent discretio- Trade and Economic Relations should immedia- nary award of licenses and would ensure full tely prepare the documents required to ratify the transparency. ATA Carnet agreement and start implementing it. KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION • Issuing and Recognition of Cer- • In this respect, additional efforts should • BiH Ministry of Foreign Trade tificates in Countries in the Re- be made to ensure that at least the and Economic Relations gion and EU neighboring countries (BiH, Croatia, • Institute for Accreditation Serbia, Montenegro) start mutually re- of BiH- BATA cognizing certificates issued by com- petent national institutions, to avoid duplication or multiplication of the certification procedure • CUSTOMS AND ISSUES EXPO- RT ERS FACE IN CLEARANCE: o Waiting for the green lane – o Automation of the ASYCUDA system • BiH Indirect Taxation Aut- often takes too long should enable automatic clearance hority through the green lane after 45 min o Short office hours of the cu- o Organize customs operation 0-24h (or • BiH Indirect Taxation Aut- stoms offices and the obliga- at least 7-21), especially in light of in- hority tion to provide the CP form house clearance, and shorten the dea- two hours before the end of of- dline to provide the form to 0,5-max fice hours for approved expor- 1 hour before the end of office hours ters o Too high price for correcting a o Reduce the price to a reasonable level • BiH Indirect Taxation Aut- CD (very often due to a trivial (KM 2-5) hority technical error) 76
  • 77. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 77 W H I TE BO O K KEy ISSUE KEy RECOMMENDATION KEy INSTITUTION o Individual payment of duty for o Allow collective complete monthly • BiH Indirect Taxation Aut- each export generates additio- declaration for those who have the hority nal bank charges status of an approved exporter or at least collective payment of all duties on a single payment slip when submit- ting documents for the complete dec- laration o Collecting a copy of 3 ex dec- o Placing mailboxes at all border cros- • BiH Indirect Taxation Aut- larations stamped by compe- sings for forwarders to put certified hority tent authority at a border copies of ex declarations in addressed crossing and submitting it to envelopes supplied by exporters the competent institution is a would significantly facilitate this im- complicated procedure, espe- portant and complex operation. This cially for large exporters. practice has been used in EU countries for a long time.Liberalization of dea- dlines for submitting the documents would also be very beneficial to expor- ters • Implementation of TIR and • BIH would have to implement the TIR • BiH Ministry of Foreign Trade ATA Carnet Conventions Carnet Convention it signed. The Mi- and Economic Relations nistry of Foreign Trade and Economic Relations should immediately prepare the documents required to ratify the ATA Carnet agreement and start im- plementing it • Automation of the Process of • The Ministry of Transport and Commu- • BiH Ministry of Transport Awarding ECMT Licenses nications should amend the regulation and Communications in order to formulate the entire pro- cess of awarding an ECMT license through the use of algorithmic award software. This would prevent discre- tionary award of licenses and would ensure full transparency. 77
  • 78. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 78 Foreign Investors Council 78
  • 79. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 79 7 FIC MEMBERS 79
  • 80. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 80 Foreign Investors Council 80
  • 81. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 81 8 ACKNOWLEDGMENTS T he White Book 2010/11 has been developed by joint efforts of the numerous Foreign Investors Council Members. FIC members contributed their resources and time to the preparation and development of this document. The FIC Support Team Members contributed greatly in the drafting process. We wish to acknowledge the following companies and organizations for their con- tributions to the White Book 2010/11: • Wolf Theiss (in local cooperation) • Xella BH • Unicredit Bank • Triland Development • SHP Celex a.d. • Raiffeisen Bank • PricewaterhouseCoopers • Meggle • Messer BH • m:tel • Maric & Co Law Firm • Karanovic & Nikolic (in local cooperation) • Joint Law Office Sarajevo • Hypo Alpe-Adria-Leasing • HTL d.o.o. – Novomatic Group • Heidelberg Group – Cement Factory Kakanj • EFT Group • European Bank for Reconstruction and Development • Advantis Broker a.d. Banja Luka • AllClean d.o.o. Foreign Investors Council wishes to acknowledge the support provided by IFC - member of World Bank Group for production and printing of the White Book 2010/11. The FIC would also like to acknowledge the EBRD for providing a special support in developing the Bankruptcy and Liquidation section. Special thanks go to Mr. Nicholas Brainsby, EBRD legal consultant and the staff in the Sarajevo Office. 81
  • 82. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 82
  • 83. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 83 9 SUPPORT TEAM LEADERS AND TEAM MEMBERS BUSINESS REGISTRATION Mr. Vojislav Puskarević - Raiffeisen bank - Team Leader Mr. Franjo Marjanović - AllClean d.o.o.Sarajevo Mr. Dino Sabrihafizović and Ms. Mirna Milanović-Lalić - Law Office Sarajevo Ms. Amra Isić - Marić & Co Law Firm Ms. Snježana Tadić - SHP Celex a.d. TEMPORARY RESIDENCE AND WORK PERMIT Ms. Alma Pupo - HTL d.o.o.Sarajevo - Team Leader Mr. Nikola Dubajić - EFT Group Ms. Azra Uzunović - Heidelberg Cement Group Ms. Belma Zorlak - Marić & Co Law Firm Ms. Dragica Janković - SHP Celex a.d. Ms. Aida Samardžić - Triland Development LAW ON EXECUTING PROCEEDINGS Ms. Višnja Dizdarević - Marić & Co Law Firm - Team Leader Mr. Fahrudin Gvožđar - Hypo Alpe-Adria-Leasing Mr. Harun Gadžo - Messer BH Gas Mr. Željko Budimir - m:tel Mr. Vladimir Runić - SHP Celex a.d. COMPANIES LAW Ms. Amra Isić - Marić & Co Firm - Team Leader Mr. Branko Kecman - Advantis Broker Banja Luka Ms. Šejla Bakić - Heidelberg Cement Group Mr. Dino Sabrihafizović - Law Office Sarajevo Mr. Đorđe Lazić - SHP Celex a.d. Mr. Adnan Šećibović - Unicredit bank LAW ON SECURITIES MARKET Mr. Branko Kecman - Advantis Broker - Team Leader Mr. Adnan Šećibović - Unicredit Bank TAXES Ms. Mubera Brković - PricewaterhouseCooper - Team Leader Mr. Franjo Marjanović - AllClean d.o.o. Sarajevo Ms. Alma Pupo - HTL d.o.o. Sarajevo Mr. Fahrudin Gvoždjar - Hypo Alpe-Adria-Leasing Ms. Ilinka Gavrilović - m:tel Ms. Enisa Jašarević - Unicredit bank 83
  • 84. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 84 Foreign Investors Council CONSTRUCTION PERMITS Mr. Nihad Sijerčić - Karanović & Nikolić (in local cooperation) - Team Leader Mr. Nikola Dubajić - EFT Group Mr. Fahrudin Gvožđar - Hypo Alpe-Adria-Leasing Mr. Harun Gadžo - Messer BH Gas Ms. Nataša Laketa - m:tel Mr. Vladimir Runić - SHP Celex a.d. FBiH LIQUIDATION LAW AND BANKRUPTCY Mr. Sead Miljković - Wolf Theiss (in local cooperation) - Team Leader Mr. Tamir Mostarac - EBRD Mr. Fahrudin Gvožđar - Hypo Alpe-Adria-Leasing Mr. Nihad Sijerčić - Karanović & Nikolić (in local cooperation) Mr. Harun Gadžo - Messer BH GAS Ms. Zinaida Zečević - Raiffeisen bank Mr. Đorđe Lazić - SHP Celex a.d. EXPORTS Mr. Stevan Dimitrijević - Karanović & Nikolić (in local cooperation) - Team Leader Mr. Stefan Dušanić - Karanović & Nikolić (in local cooperation) Mr. Almir Bajtarević - Heidelberg Cement Group Mr. Kaled Hašimbegović - Meggle Mr. Luka Macanović - SHP Celex a.d. 84
  • 85. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 85 10 REFERENCES Directorate for Economic planning www.dep.gov.ba World Bank Doing Business Report 2011 www.doingbusiness.org Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina www.mvteo.gov.ba Ministry of Security of Bosnia and Herzegovina www.msb.gov.ba PricewaterhouseCoopers Survey: Paying Taxes 2009 www.pwc.com Council of Ministers of Bosnia and Herzegovina www.vijeceministara.gov.ba Central Bank of Bosnia and Herzegovina www.cbbih.com EBRD Transition report 2010 www.ebrd.com/transitionreport EU progress Report for BiH 2010 www.delbih.ec.europa.eu IMF Global Economic Outlook – BiH in focus www.imf.org 85
  • 86. White Book 2010-11 Sections f2:White Book 2010 21.4.2011 13:20 Page 86 White Book 2010/11 Publisher: FIC – Foreign Investors Council Editing: Bojana Škrobić Omerović - Executive Director Maša Kotur – Assistant Lector: FIC Office Design: Ekrem Kapić DTP: Proprint, Sarajevo Number of copies: 500 pieces Foreign Investors Council Hotel Holiday Inn Zmaja od Bosne 4/X, Office 1015 Sarajevo, Bosnia and Herzegovina Telephone/Fax: +387 33 288 015 Email: info@fic.ba www.fic.ba

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