The Adventure of Incorporating

Long lines, silly rules and a needlessly complex 12-step procedure that only a lawyer could understand make an ordeal of getting a new business officially recognized in BiH.
Businesswoman Almira Šabić stands in front of the Ciglani premises for which she has been paying 800 KM a month in rent while maneuvering through the long process of legally incorporating her future computer business.

High-level criticism and a 2.7 million KM reform project have not done much to streamline the ordeal that Bosnia and Herzegovina (BiH) imposes on anyone who wants to start a new business.

Just ask Amira Šabić, a 41-year-old Sarajevan, who’s been trying since September to register and acquire all the licenses necessary to open her shop, The Club Computers. She describes her efforts as ‘this adventure’ and has spent more than 7,300 KM on it so far. She’s not finished.

A recently released World Bank report comparing 178 countries found that BiH makes entrepreneurs walk through a dozen steps to gain official status. This is likely to take 54 days and it is expensive.

While it is true that some other Balkan countries require even more steps, they offer enough support that applicants spend much less time. For example, though Montenegro requires 15 steps for a business to register, the process takes only 24 days. In contrast, Slovenia requires only nine steps, but it takes 60 days to maneuver your way through them all.

The World Bank says Australia, where it takes two days to register, and Denmark, where businesses are not charged for registering, show how incorporation should work.

Logically, officials should make it as convenient as possible for new businesses to register because this allows them to keep track of these sources of tax revenue.

But difficult registration is just one of the ways in which small businesses are discouraged here. The Center for Investigative Reporting in Sarajevo (CIN) has found that taxes, red tape, difficulty getting loans and collecting debts, smuggling and extortion combine to ensure that BiH ranks near the bottom of Europe in generating small business.

Computerized Registration Still Buggy

The British Department for International Development gave money three and a half years ago to computerize 16 registry courts in the entities and the Brčko District. In linking the courts, reducing the number of forms and opening a website that would explain procedures to the public, there were high hopes that the time needed to register would fall to five days.

The electronic system was supposed to be up and running in mid-June. But software bugs and other problems have stalled improvements.

To date, only the courts in Sarajevo and Bihać are using the electronic system, and even they are not registering companies in five days.

Nataša Miskin, coordinator of the Company Registration Project, says it was too ambitious to think that a new system could be brought up in so many places simultaneously so fast. She said registration will become easier once technical difficulties are smoothed out and better communication is set up between the courts and the Federation of BiH (FBiH) Tax Administration. She could not say when that might be. She also said that the system will be introduced court by court.

Judge Asaf Daupović, who heads the Registry Department of the Sarajevo Municipal Court, said applicants who turn in forms with errors are causing delays. He also blamed the tax administration for taking far too long to assign tax number to registration applications. That number is required before the court can give final approval to a firm. Director Midhat Arifović said his tax administration is doing its part of the job in three days.

But Sarajevo notary Merdžana Škaljić said she can see ways court procedures could be speeded up that don’t require millions of KM.

She said it takes even longer than the usual 10 to 15 days to move paperwork through the courts when a company with foreign investments is registering. In those cases, the Ministry of Foreign Trade and Economic Relations BiH also gets involved, which unnecessarily duplicates the procedure.

She also said that if court officials simply picked up a telephone instead of writing a letter every time applicants needed to amend or correct an application, registration would proceed more quickly. Škaljić said the law allows the court discretion in cases when it notices errors in an application, but officials seem unwilling to fix minor errors that should not interfere with issuing a decision on company registration. Applicants could simply approve corrections when they accept decisions.

Šabić said her close encounter with the complex bureaucratic apparatus of the registry department was discouraging – and exhausting. She gave CIN the rundown.

Steps to Incorporate

She spent 20 days rounding up documents to be verified and collecting certifications that proved she’d paid all her taxes and was not being criminally prosecuted. Each certificate took seven days to secure.

From the Citizens Identification Protection System (CIPS), she chased down a copy of her ID and a certificate of residence. She also needed a certificate to show that she had deposited the required 2,000 KM in ‘founding capital’ which is supposed to ensure that businesses can meet their liabilities.

When in late October she received from the court a formal decision on registration, she submitted a request for a tax id number to the FBiH Tax Administration. It took three days to get it.

She next went searching at the Indirect Taxation Authority (ITA) office for customs and VAT (value added tax) numbers. Šabić knows that the procedure for getting those two numbers has been simplified, because one request was good enough to apply for both.

It still takes 15 days to secure them, according to ITA employee Olivera Šuka.

Then she needed company bank accounts. Šabić said that this meant another round of waiting in line for documents. Depending on the bank, seven to 12 documents are needed to open a company account. Šabić plans to open accounts in three banks.

Next, business premises must be inspected – repeatedly. She has to have a sanitary inspection of her 62-square-meter shop in the Ciglane neighborhood of Sarajevo. She also needed a labor inspection, a fire protection inspection and an energy inspection. After submitting requests to the various cantonal and municipal institutions in charge of these inspections, you can expect to wait up to seven days for an inspector and a 1,000 KM bill from each.

Throughout this process of incorporating she’s had to pay rent on a shop she hasn’t opened yet. She also had a lawyer friend assist her in understanding the forms and wait in line for documents on her behalf. Other people without such friends have to pay for this service. In the meantime, when not waiting around for approvals, she has been collecting documents.

Her shop, she told CIN, will be open in January.

‘God willing’ she added.

Readers’ support helps CIN reveal corruption and organized crime.
Your donation supports investigative journalism as a public good.