Tax Rates and Thresholds
After we deduct contributions and your personal tax-free deduction from your gross salary, the remaining amount is your Tax Base. It is on this base that the percentages we call "tax rates" are applied. The tax systems of most countries are designed to be progressive – the more you earn, the higher the percentage you give to the state on that highest top part of your earnings.
Progressive Taxation in Bosnia and Herzegovina
This rate is applied to the tax base of workers in the Federation of BiH. Since the system in BiH is primarily proportional (flat tax), this rate is applied to the entire base regardless of the worker's earnings level.
In Republika Srpska, a rate of 8% is applied to the net base (gross minus contributions minus deduction). The system is linear, meaning the same rate is applied to all levels of income from non-independent work.
* Unlike some neighboring countries, the system in BiH is simpler regarding location – tax is paid according to entity laws regardless of which city in BiH the worker resides in.
Earnings when Changing Jobs
Due to different rates depending on cities, employees must be extremely careful when negotiating. Negotiating a "Gross amount" ensures you a fair starting point regardless of whether you are registered in a major city or a smaller town (so that the employer does not discriminate against you through remaining a cheaper cost if you sign a fixed Net).