The Court of Bosnia and Herzegovina in Sarajevo set a precedent in October 2023 by issuing a verdict confirming that the Indirect Taxation Authority of Bosnia and Herzegovina can collect VAT personally from the assets of the director, who is also the founder and a person authorized to represent the company, in the case when the obligations of the company – a limited liability company – cannot be settled from the company’s assets.
In this particular case, the principal debtor is a limited liability company, which, according to the Law on Trade Companies of the Federation of Bosnia and Herzegovina and Republika Srpska, is liable for its debts exclusively with its assets.
However, according to the opinion of the Court of Bosnia and Herzegovina in its verdict of October 2023, the Law on the Procedure for the Forced Collection of Indirect Taxes entitles the Indirect Taxation Authority of Bosnia and Herzegovina to shift the burden of liability to the director in special cases, after the procedure for the forced collection of indirect taxes will not result in the settlement of the company’s debt. Consequently, the director may be declared individually and jointly liable for the tax debt of the principal debtor – the limited liability company.
The court’s main argument for reaching such a verdict is that it was indisputably established that the plaintiff (director) personally managed the operations of the company (principal debtor) and its assets, made decisions on the payment of indirect taxes and on acting upon orders for forced collection and approved the spending of funds, i.e. made decisions on acting in accordance with the provisions of the regulations in the field of indirect taxation and in the field of forced collection of indirect taxes, whereby in all of the above, he did not take measures within his jurisdiction to settle the obligations of the principal debtor. Consequently, according to the court, the legal conditions provided for in Article 22 of the Law on Indirect Taxation Procedure have been met, according to which the plaintiff (director) can be declared individually and jointly liable for the tax debt of the principal debtor.
The plaintiff (director) had previously contested this decision, and after the Indirect Taxation Authority of Bosnia and Herzegovina rejected his appeal as unfounded, he filed a lawsuit with the Court of Bosnia and Herzegovina in Sarajevo, claiming that the fact that he is a founder and a person authorized to represent the principal debtor cannot be a sufficient argument for establishing individual and joint liability, i.e. that the law itself refers to an active action that causes or participates in the commission of any violation of the laws and regulations in the field of indirect taxation.
Consequently, individual and joint liability for debt on the basis of indirect taxation, in accordance with the law, lies with the persons who cause or actively participate in the violation of the laws and regulations in the field of indirect taxation, and in the specific case, according to the allegations of the Plaintiff (the director), no act has established that it was the Plaintiff, as the director of the company, who violated or participated in the violation of the laws.
This case in Bosnia and Herzegovina opened a debate on the liability of directors, corporate governance and the risk of endangering entrepreneurial security not only in Bosnia and Herzegovina, but also beyond.
This practice significantly affects tax certainty and seriously undermines the foundations of corporate law – the immunity of directors within the LLC structure who are now faced with the risk of personal financial consequences without proof of their guilt.
All this creates additional legal uncertainty and undermines basic legal principles such as limited liability, opening up space for broader debates on fiscal reform, tax discipline and alignment with EU standards.