2019 Tax Guideline for Slovakia https://accace.com/tax-guideline-for-slovakia/
Corporate income tax – rates
Income and capital gains
Corporate income tax is levied at a rate of 21%. This is the final tax burden on 2019 corporate profits in some cases because dividends paid out of 2019 profits are not taxed in the hands of shareholder if the shareholders are corporate and based in other than non-contracting state.
Starting January 1st, 2018, a minimum corporate tax (so-called tax licenses), which was introduced in 2014, is abolished.
Withholding tax on domestic payments
Withholding tax of 19% is levied on income from participation certificates, certain debentures, vouchers and investment coupons; and interest from bank deposits and current accounts in general. Withholding tax of 7% shall apply to dividends paid out from profits derived from January 1st, 2017 by domestic companies to individual shareholders.
With effect from January 1st, 2011 the tax withheld is considered to be a final tax rather than an advance payment of tax. The only exemption from this rule applies to income from participation certificates.
Corporate income tax – general information
A company is treated as resident if it has its legal seat or place of effective management in the Slovak Republic.
Calendar year or the business/financial year
Resident companies are taxable on their worldwide income, including capital gains, unless exempted from tax. The taxable income is computed on the basis of the accounting profits and is adjusted for several items as described in the tax law.
Tax returns and assessment
The taxpayer has to calculate the tax due in the corporate income tax return (self-assessment). The deadline for filing the return is by the end of third month following the end of the tax period. The filing deadline may be extended by maximum 3 or 6 months (if part of a taxpayer’s tax base consists of foreign-source income).
Quarterly, if tax paid for previous year was between EUR 2,500 – EUR 16,600. Monthly, if tax paid for previous year was higher than EUR 16,600. A new business entity established during the tax year (except if it is established by conversion, merger or division) is not required to make advance tax payments.
As a general rule, expenses incurred in obtaining, ensuring and maintaining taxable income are fully deductible, unless they are listed as non-deductible items or items which are deductible only up to a limit set by the law.
Carry-forward of losses
Tax losses derived after January 1st, 2014 may be carried forward uniformly for 4 tax years. Tax losses derived before 2014 cannot be carried-forward anymore.
Dividends paid out of profits derived from January 1st, 2004 are not subject to any tax in the hands of the shareholders. Other dividends are taxed at the standard tax rate of 21% if distributed after December 31st, 2013.
Special taxes on corporate income
Regulated industries (energy, insurance and reinsurance, public health insurance, electronic communications, pharmaceutics, postal services, rail traffic, public water and sewer systems, air transport and health care services under special legislation)
With effect starting September 1st, 2012 a temporary special contribution applies. The special duty has to be paid, even after 2016, despite the fact that it should be effective only until the end of that year.
The definition of the taxable base for special duty was amended with effect from January 1st, 2017 so that the duty applies only if the accounting result of at least EUR 3 million is reached and only on income from regulated activities.
The monthly rate was temporarily increased to 0.726% for the period from 2017 to 2018. Then the rate will be gradually decreasing so that in the period from 2019 to 2020 the monthly rate will be 0.545% and in the period from 2021 the rate will be again 0.363%.
With effect from January 1st, 2012, Slovak banks and branches of foreign banks operating in the Slovak Republic, established according to special legislation on banks, are subject to a bank levy. The rate of 0.2% annually shall not change during the period from 2017 to 2020. Starting 2021, the rate will be zero.
Special levy on all forms of non-life insurance for insurance companies operating in Slovakia was introduced from 2017. The levy of 8% from the received insurance premiums became effective as of January 1st, 2017.
According to the law effective until 31 December 2018, levy concerns only the agreements concluded after 1 January 2017. Starting from 1 January 2019, there is a new legislation according to which the special levy will apply on all insurance agreements, regardless the date of the concluding of the agreement, if the insurance period starts to lapse after 31 December 2018.
Generally, the person liable to pay the Insurance Premium Tax shall be the insurance company, however, this obligation may concern also to policyholder (any person who concluded the agreement with the insurer), if this person pays the premium to a third-country insurance undertaking, which does not have a branch in the territory of the Slovak republic or to a legal person to which the costs of such insurance are recharged.
For further details, please see our eBook on Tax on non-life insurance premium from 1 January 2019: “New tax on non-life insurance premium introduced in Slovakia”.
Starting from 1 January 2019, certain retail chains shall be obliged to pay an extra tax of 2.5% of their net turnover. This tax shall be paid quarterly.
It concerns retail chains, which have at least 25% of their net turnover from selling food to the final consumer and if they have their operations in at least 15% of the districts of the Slovak republic.
At the same time this extra tax does not apply to mass catering facilities, small and medium-sized enterprises, factory stores with net turnover coming from the sale of one class food and factory stores that are food producers and sell food to the final consumer.
Corporate income tax relief can be provided under the Law on Investment Incentives. Certain corporate income tax relief can be provided also under the Law on Research and Development Incentives. The relief is subject to approval of the Ministry of Economy or Ministry of Finance, as the case may be. If a taxpayer does not claim corporate income tax relief under the Law on Research and Development Incentives, a special regime for research and development expenses, introduced with effect from January 1st, 2015, can be claimed if certain conditions are fulfilled.
In addition to the above mentioned, a special scheme was introduced with effect from January 1st 2018 for companies having income from commercial use of intangible assets (e.g. registered patents, software) developed by themselves or of so called embedded intangible assets (e.g. income from sale of products in which registered patent developed by the taxpayer is used). Such income shall be exempted up to 50% during the period of amortization of such intangible asset provided certain conditions are met.
For employers involved in vocational training of students, specific tax incentives were introduced with effect as of September 1st, 2015.
Foreign income and capital gains – Resident companies are subject to tax on their worldwide income and capital gains. Taxable amount is generally calculated in the same way as in the case of domestic income.
Foreign losses – Losses of foreign permanent establishment (calculated based on Slovak tax rules) may be offset against domestic profits unless, on the basis of an applicable double tax treaty, the exemption method applies for double tax relief.
Dividend income paid by non-resident company – Dividends paid out of profits generated starting January 1st, 2004 until December 31st, 2016 are not subject to any Slovak tax. Dividends paid out of profits generated before January 1st, 2004 are included in the taxable base of the recipient and taxed at a standard tax rate of 21% unless rules implementing EU Parent-Subsidiary Directive applies. Dividends paid out of profits generated from January 1st, 2017 shall be included to a separate tax base and taxable at 35% tax rate; this applies only if the distributing company is based in a non-contracting state, otherwise exemption applies.
Double taxation relief – No unilateral double taxation relief is provided. Double taxation is relieved only on the basis of tax treaties.
Taxable income – Non-resident companies are taxed only on income derived from Slovak sources. They are generally taxed according to the rules applicable to residents. Income attributable to a Slovak permanent establishment is generally taxed at 21% rate through a tax return (self-assessment).
Withholding tax – Generally, 19% withholding tax or tax security is levied (unless limited under a tax treaty); an increased tax rate of 35% applies if the recipient is a resident of a non-contracting state (i.e. a state not on the “white list” published by the Slovak Ministry of Finance). For interest and royalty payments EU Interest and Royalties Directive was implemented.
Dividend paid by resident companies to non-resident – There is no withholding tax on dividends paid to non-resident companies out of profits derived by the distributing company as from January 1st, 2004 until December 31st, 2016. Dividends paid out of profits generated before 1 January 2004 are (unless rules implementing EU Parent-Subsidiary Directive apply) subject to a 19% final withholding tax, unless a reduced rate applies under a tax treaty. Dividends paid out of profits generated from January 1st, 2017 shall be subject to a 35% withholding tax however only if the recipients are foreign companies based in non-contracting state.
Applicable on interest expenses arising in the tax period starting January 1st, 2015. All resident legal entities and non-resident legal entities having a permanent establishment in Slovak Republic are covered, with the exception of financial institutions and leasing companies. The deduction of interest expenses (including of other related expenses) on loans from related parties exceeding 25% of a company’s earnings before interest, taxes, depreciation, and amortization is prohibited.
With effect starting January 1st, 2015, the transfer pricing rules apply also between resident related parties. Until December 31st, 2014, transfer pricing rules applied only to transactions concluded by residents with foreign related parties.
Mandatory transfer pricing documentation requirements exist, which generally follow the recommendations contained in the OECD Guidelines on Transfer Pricing and the EU Code of Conduct on Transfer Pricing Documentation.
For more detailed information read also our “2019 Transfer Pricing Overview for Slovakia”.
As a result of the implementation of the Council Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (this Directive is further referred to as “ATAD”), the rules on hybrid mismatches were introduced in the national income tax law with effect from January 1st, 2018. The aim of these rules is to prevent a situation between related parties that leads to double deduction or deduction without inclusion.
Introduction of rules on exit tax with effect from January 1st, 2018 was part of the implementation of the ATAD, too. Exit tax at rate of 21% shall apply to legal persons in the case of taxpayer’s property transfer, taxpayer’s leaving or transfer of their business abroad.
In the case of taxation, the fiction of a property sale, or sale of the enterprise or its part should apply. The aim of taxation is to ensure that in the case of taxpayer’s property transfer or changing tax residence abroad, the taxpayer will tax an economic value of all capital gains earned in Slovakia, even though this gain is not realized in the moment of leaving.
Controlled foreign company
In 2017, when implementing the ATAD, the CFC legislation was approved, as well, and this with effect from January 1st, 2019.
The CFC rules consist of assigning the income of a low-taxed controlled subsidiary company to its parent company. Part of the parent company’s tax base will be the income of controlled foreign company to the extent to which the assets and risks are attributable to that income that are connected to main functions of the parent company.
As a controlled foreign company shall be treated the company or subject:
- in which the tax residence company by itself or together with associated enterprises has the holding of more than 50% or
- the proportion of the voting rights of more than 50% or
- profit-shares of more than 50%.
Concurrently, the corporate income tax paid by the controlled foreign company abroad is lower than 50% of the corporate income tax that the controlled foreign company would pay in the Slovak Republic after the tax base has been calculated in accordance with the Slovak law.
As the controlled foreign company is considered also the permanent establishment, while the first condition is not examined in this case.
Foreign source income – Resident individuals are subject to tax on their worldwide income. Taxable amount is generally calculated in the same way as in the case of domestic income.
Dividend income – Foreign dividends are generally exempt if paid from profits derived by the distributing company starting January 1st, 2004 until December 31st, 2016. Dividends paid out of pre-2004 profits and profits derived starting January 1st, 2017 are taxable at 7% or 35% if dividends are from foreign sources of non-contracting state.
Double taxation relief – Income earned from employment performed abroad is exempt in Slovakia if the taxpayer can prove that such income has been taxed abroad. There is no other unilateral double taxation relief, but relief may be obtained under a tax treaty.
Taxable income – Non-resident individuals are taxed only on their income derived from Slovak sources. Employment income derived by non-residents from employment performed in Slovakia for a period not exceeding 183 days in 12 consecutive months is exempt. The exemption does not apply to activities performed by artists or sportsmen, or through a permanent establishment. The income of non-residents is generally taxed according to the rules applicable to residents, unless a law or a tax treaty provides otherwise.
Personal allowances – Non-residents are entitled to the basic personal allowance (see above). In case their income from Slovak sources in the tax year is at least 90% of their total income, they are entitled also to the dependent-spouse allowance and tax credits.
Withholding tax – Generally, 19% withholding tax or tax security is levied (unless limited under a tax treaty); an increased tax rate of 35% applies if the recipient is a resident of a non-contracting state.
Dividend income – There is no withholding tax on dividends paid to non-resident individuals out of 2004-2016 profits. With respect to profits derived from January 1st, 2017 the withholding tax of 7% shall apply unless otherwise stated in the treaty; if the recipient is from non-contracting state the rate of 35% applies.