CSOs are exempt from paying tax on donations, grants, membership fees and also any profits from economic activities directly related to the achievement of the organizations goals. For all other economic activities, CSOs are treated the same as any profit‐making enterprise and revenue from all activities not related to the organization’s goals or not, are liable to tax on profits at the standard rate.
CSOs are exempt from charging VAT (payable at the standard rate of 17%) on goods and services directly related to the achievement of their statutory objectives which they offer to their members as a means of paying membership, so long as the exemption does not cause unfair advantage within the wider market. In effect, this allows CSOs to provide its core services free of VAT. Otherwise, CSOs pay VAT on goods and services they themselves receive. The threshold for registering for VAT is an annual turnover of 50,000 KM (approximately 25,000 EUR). As the majority of CSOs have revenues lower than this amount, they are not in the VAT system and are therefore not able to claim VAT refunds.
Concessions available for charitable giving are different in the two entities, with the Law on Income in the RS offering individuals and businesses considerably more encouragement to support charitable and non‐profit organizations, including CSOs. In FBiH, charitable donations from both individuals and registered businesses may be deducted against tax up to a limit of only 0.5% of individual earnings and corporate profit. In the RS, the limit is raised to 2% of earnings and profit. CSOs complain these concessions are too low to stimulate a culture of giving. As far as individual giving is concerned, as the scheme is only available to individuals who submit annual tax returns (in effect the self‐employed), it is far too restricted in scope to generate significant revenues for CSOs.
The state Law on Associations and Foundations of BiH provides the opportunity for a registered CSO to gain the status of a public benefit status. Public benefit relates to activities in a wide range of social fields including, health, education, science, social protection, civil society, human rights and minority rights, assistance to the poor and socially endangered, assistance to the disabled, children and older persons, environmental protection, tolerance, culture, amateur sports, religious freedoms, assistance to the victims of natural disasters and other similar aims. Public benefit status is conferred on a CSO by the ministry most relevant to the organization’s field of operation, but the process is not carried out according to clear criteria and transparent procedures. In theory, public benefit status qualifies an organization for certain tax exemptions and financial incentives from the state, but these concessions are not defined in law and in practice it is not clear how the status provides tangible benefits to the organization.