As a result of different legal frameworks in the entities, there are two distribution areas in BiH: one in the Federation and one in the Republika Srpska. Although some effort has been made to harmonize the entities’ legal systems, there are still significant differences. Consequently, many manufacturers have developed multiple distribution channels and contracts with multiple distributors to cover both the Federation and the Republika Srpska.
There are three primary types of distribution channels in BiH:
For consumer goods
- Producer to wholesaler to retailer to consumer
For industrial goods
- Producer to industrial user; or
- Producer to distributor to industrial user
- Service provider to consumer or industrial user
Wholesaling: Wholesalers offer the best channel for providing transportation, product storage, market information, financing, and risk management. Most wholesalers are independent, full-service merchant wholesalers that import and distribute goods. There is a significant degree of specialization in the wholesale sector by industry. Foreign companies control their distribution channels in BiH in a variety of ways.
Some manufacturers have opened representative offices in order to control distribution channels and supervise/manage marketing efforts. For example, one major U.S. corporation relies on three distributors and several wholesalers to service the market. The company’s sales offices, located across the country, coordinate marketing efforts. Several U.S. IT companies cover the market directly and through a network of business partners, usually smaller IT companies. Finally, some U.S. companies utilize a single distributor that covers the entire country.
Retailing: The most significant development in the retail market is the appearance of large retailers, many of them foreign-owned, including Konzum (Croatian supermarket chain) and Mercator (Slovenian supermarket chain), as well as locally-owned retail companies Bingo, Tropic Centar, and Robot Komerc. In addition, the continued expansion of the shopping mall concept - including the Sarajevo City Center mall that opened in 2014 and Delta Planet in Banja Luka in 2019 - has changed consumers’ habits.
Using an Agent or Distributor to Sell U.S. Products and Services
Finding a good agent and/or distributor is the most effective means of market entry in BiH. Reliable and capable partners can be found, but it may take some time and effort to locate them. Local partners can be located through the Foreign Trade Chamber of BiH, which maintains a business registry and features an electronic goods and services exchange. It is strongly recommended that the creditworthiness and local reputation of your future partner be verified before signing legal documents or conducting any business transactions.
U.S. Embassy Sarajevo can assist in locating potential partners and assessing their creditworthiness. Through a partnership with the U.S. Foreign Commercial Service, the Embassy provides the International Partner Search (IPS) and the International Company Profile (ICP) services to U.S. companies. The American Chamber of Commerce in Bosnia and Herzegovina is also a useful source of information on potential partners.
Establishing an Office
Establishing a business in BiH can be an extremely burdensome and time-consuming process for investors. In its “2020 World Bank Doing Business” report, the World Bank ranked BiH 90 out of 190 countries, a decline of six spots from its ranking the previous year. The World Bank estimates there is an average of 13 procedures, taking a total of 81 days, to complete registration of a new business in the capital city, Sarajevo. Certain administrative procedures can be especially time-consuming; for example, obtaining a construction permit can take as long as one year. In 2013, the RS established a one-stop-shop for business registration in the RS. This reduces the required processes dramatically and the time to register a business in the RS is approximately one or two weeks. Registration in BiH can sometimes be expedited if a local lawyer is retained to follow up at each step of the process. Investors in the Federation may register their business as a branch office in the RS and vice versa.
All three sub-national levels of government (entity, cantonal, and municipal) establish laws and regulations affecting businesses, creating redundant and inconsistent procedures that encourage corruption. It can be difficult to understand all the laws and rules that might apply to certain business activities, given overlapping jurisdictions and the lack of a central information source. It is therefore critical that foreign investors obtain local assistance and advice.
The most common U.S. business presence found in BiH is the representative office. A representative office’s activities are limited to market research, contract or investment preparations, technical cooperation, and similar business facilitation activities. The BiH Law on Foreign Trade Policy governs the establishment of a representative office. To open a representative office, a company must register with the Registry of Representative Offices, maintained by the BiH Ministry of Foreign Trade and Economic Affairs (MoFTER), and the appropriate entity’s ministry of trade. Applications must contain the following information:
1. A document indicating the decision of the founding or parent company to establish a representative office, to include:
- Name and address of the branch office (if such exists)
- Name and address of the founder
- Name and address of the office (in BiH)
- Names of persons managing the office
- Scope of activities of the office
- Terms of reference of the office
2. A certified document proving registration of the parent company in the home country;
3. A certified statement of liability for all liabilities that stem from activities of the office;
4. Appointment of the person in charge of the office (in BiH); and
5. Employment information including the number of employees in the local office and a list of foreign employees.
All documents must be originals and an authorized court translator must translate the documents into the local language. If the documentation is complete and correct, the registration procedure should be completed within 30 days. The BiH Ministry of Foreign Trade and Economic Relations (MoFTER) will appoint the office by a decree published in the Official Gazette. After receiving the decree, the new representative office must notify MoFTER within 90 days of the beginning of operations. If the representative office fails to do so, the appointment will be cancelled.
A representative office is allowed to have both foreign and local currency accounts with local banks. Office equipment can be imported free of customs duties, based on a temporary permit with the possibility for extensions. Office vehicles may be imported but only for expatriates. Expatriates are required to obtain residence and work permits and to pay local income taxes.
Other forms of establishing a business in BiH include:
Unlimited Joint Liability Company
An Unlimited Joint Liability Company is a company of at least two persons who bear unlimited mutual liability of the company. The company is founded by a founding contract of two or more domestic/foreign legal entities. Every member has the right and obligation to manage the company. The company has no statute and no management bodies because members manage the company directly, including representation of the company.
Limited Liability Company
A Limited Liability Company (LLC) is founded by an establishment act or establishment contract by one or more domestic/foreign legal entities with basic capital divided in parts. A member in a limited company is liable for the value of his investment in that company. Minimum basic capital is KM 2,000 (approximately $1,300).
A Limited Partnership is a company in which one or more members has unlimited solidarity liability for the liabilities of the company including members’ private assets. Risk of one or more members is limited by the value of their share in that company. A Limited Partnership is founded by a contract of two or more domestic/foreign legal entities. General partners manage the business of the company and the company is represented by each general partner.
A Joint–Stock Company is founded by the establishment contract of one or more domestic/foreign shareholders with basic capital divided into shares. A Joint-Stock Company is not liable for the obligations of shareholders and can be established by one or more founders. The minimum basic capital is KM 50,000 (approximately $30,000).
The following steps are required to establish a limited liability company (the most frequent business entity form). The steps are uniform for the whole territory of BiH:
1. Establishment of contract
2. Initial capital payment
3. Registration at the competent court
4. Registration of a company stamp
5. Opening of a bank account in a commercial bank
6. Registration at the tax administration
7. Registration at the local municipality
8. Initiation of business activity
Additional English-language information on the registration process can be obtained from:
BiH Ministry of Foreign Trade & Economic Relations (MoFTER)
Bosnia and Herzegovina
BiH Foreign Investment Promotion Agency (FIPA)
Grbavička 471000 Sarajevo
Bosnia and Herzegovina
Phone: ++ 387 33 278 080
Fax: ++ 387 33 278 081
*(Currency exchange rate: $1 = KM 1.82 on 6/8/2022)
Franchising has yet to make a significant mark on the economy of BiH, though signs of progress can be found. The first McDonald’s franchise arrived in 2011 and there are now four McDonald’s restaurants in BiH. Marriott opened the Residence Inn Sarajevo in 2014, a Courtyard in Sarajevo in 2015, and a Courtyard in Banja Luka in 2019. A Marriott hotel is under construction in Mostar. Caribou Coffee recently opened three stores in Sarajevo. KFC plans to open several outlets during 2022 and 2023 in Sarajevo and other larger cities throughout the country. Car rental companies (Hertz, National, Budget, Alamo) also have developed local franchising operations. BiH has no specific franchise laws.
Direct-response selling remains popular in BiH. With the steady growth in credit card usage, there are attempts to market consumer goods through catalog sales, direct response advertising (TV, radio, and print media), and e-commerce. Marketing is usually carried out via formal or informal multi-level marketing groups or direct sale chains. Often, informal gatherings are used to promote the products and encourage sales.
Joint ventures are rare in BiH. The BiH Law on the Policy of Foreign Direct Investment and the Law on Companies regulate the establishment of joint ventures, investment in companies with mixed ownership, as well as other types of foreign or domestic investment. Establishing a joint venture requires a local lawyer and registration with the local court.
The Law on Obligations (“Commercial Code”) addresses contract law. The licensing contract covers intellectual property rights issues (trademark, model, patent or copyright), payments/royalties, the term of the contract, restrictions on using trademarks, among other topics. A local lawyer should be consulted to ensure that provisions of the contract do not contravene BiH law.
There are several express delivery, courier, and shipping services available to companies operating in the country, including FedEx, UPS, DHL, and other local and international express couriers. The average transit time for document shipments from large U.S. cities to BiH is about three to four business days.
The complex legal environment in BiH dictates the need for a local attorney. The legal framework is sometimes contradictory or overlapping, creating confusion and uncertainty. Bosnian attorneys’ experience base is still limited with respect to legal questions and the issues that arise in a market-oriented economy. However, local lawyers are quickly gaining experience in working with international organizations and companies that are operating in BiH. Companies’ in-house legal counsel should be prepared to oversee their in-country counsel, with explicit explanations and directions regarding objectives. U.S. Embassy Sarajevo maintains a list of local lawyers willing to represent U.S. Citizens in BiH. The list can be accessed at the U.S. Embassy Sarajevo’s website. The U.S. Embassy Sarajevo can assist you in locating requested professional services as available. The Economic/Commercial Section can be reached at +387 (33) 704-000.