Taxes in Slovakia, Taxation in Slovakia, Taxes system in Slovakia
Slovakia personal Income Tax
Personal income tax rate in Slovakia is a flat 19%.
The personal allowance is reduced on a sliding scale to zero when taxable income is more than 176 times the subsistence wage (in 2009 this was €31,498.92).
Personal income tax is payable by permanent residents within the Slovak Republic individually on their worldwide income. Non-residents are only subject to tax on Slovak-sourced income. If an individual spends 183 days or more of the relevant calendar year in the Slovak Republic, that person is deemed to be resident in the Slovak Republic.
Under Slovak law, employees hired under an employment contract pay contributions for social security, retirement and health insurance totalling 13.4%. This is withheld by the employer. The rate of contributions is as follows:
Health insurance and hospitalisation 5.4%
Different rates apply to contributions made by self-employed persons.
Tax returns are due by 31 March of the following year. Provisional tax payments on income from employment are made monthly. Provisional payments on income from business operations, rental income, etc, are paid quarterly or monthly depending on the last known tax liability (between €1,659.70 and €16,596.96)/over €16,596.96) and as a single payment if the last tax liability did not exceed €1,659.70).
Individuals can request the tax authorities to donate 2% of their Slovak personal income tax liability to an eligible Slovak non-profit organisation. The Act sets out who can receive such charitable contributions, for example, civic associations, foundations and religious organisations. These recipients must meet several conditions.
Real property tax is paid on land and buildings, with the tax rate depending on the quality of land and location of the buildings (number of citizens).
Basis – Slovak residents are taxed on worldwide income, while nonresidents are taxed only on Slovak-source income.
Residence – An individual is resident if he/she has a permanent address or spends more than 183 days of the calendar year in Slovakia.
Tax Filing status – Individuals must file separate tax returns; joint filing is not permitted.
Taxable income – Employment income, including most employment benefits, is taxable. Profits derived from the carrying on of a trade or profession generally are taxed in the same way as profits derived by companies. Investment income in the form of dividends is not subject to Slovak tax.
Capital gains – Capital gains generally are taxed at a rate of 19%.
Tax Deductions and tax allowances – Subject to certain restrictions, deductions are granted for compulsory social and health contributions, supplementary pension insurance, etc., up to specific limits. Personal allowances are available to the taxpayer and his/her spouse, children and dependents if certain requirements are met.
Other taxes on individuals:
Stamp duty – Fees are levied on the transfer of real estate, but are insignificant.
Real property tax – Tax is levied by municipal authorities on the ownership/occupation of real property.
Inheritance/estate tax – Inheritance and real estate transfer tax have been abolished.
Social security contributions – The social security system consists of social security and health insurance contributions. If an individual is on the Slovak payroll, the employer withholds social security on a monthly basis. The selfemployed also must make pay-related insurance contributions, with the amount based on the individual's "salary".
Capital duty – No
Capital acquisitions tax – No
Net wealth/net worth tax – No
Slovak Republic Tax year – Slovakia tax year is the calendar year
Tax Filing and payment of tax – Tax on employment income is withheld by the employer and remitted to the tax authorities. In general, income other than employment income is self-assessed. Individuals must file a tax return and make monthly or quarterly prepayments during the calendar year totalling 100% of the final tax.
Penalties – Penalties apply for failure to comply.
Slovakia Corporate Tax
Slovakia corporate income tax rate is a flat 19%.
Slovak resident companies are subject to corporate income tax on income derived from worldwide sources, while non-residents are subject to corporate income tax only on income sourced in the Slovak Republic. Since 1 January 2004, the new Income Tax Act (No. 595/2003 Coll.) has, in effect, brought significant reforms favouring taxpayers.
Resident companies are those which have their legal seat or place of effective management in the Slovak Republic.
The company tax rate is 19%, which is the flat rate for all persons paying tax, without exception. The fiscal year is the calendar year or the business year of the taxpayer (subject to notification to the tax authorities). Tax is due and payable in a single payment if the previous tax liability was less than €1,659.70; in quarterly instalments if the previous tax liability was between €1,659.70 and €16,596.96); and in monthly instalments if the previous tax liability was over €16,596.96). Tax returns are due within three months of the end of the fiscal year.
A taxpayer may, of their own accord, postpone the filing of a tax return for up to three months. If a part of the taxed income is also from sources from outside the Slovak Republic, the taxpayer may postpone filing a tax return for up to six months. Taxpayers can donate 2% of their paid taxes to non-profit organisations. Based on a written request, the tax authorities will provide the donated amount to the designated non-profit organisation.
There is an opportunity to inform the tax authorities in writing about any change of the tax period from the calendar year to a fiscal year.
CAPITAL GAINS TAX
There is no separate capital gains tax. Gains from sales of assets are incorporated into taxable income when determining the company's tax liability.
BRANCH PROFITS TAX
There is no separate branch profits tax in the Slovak Republic. The income of Slovak branches of foreign companies is subject to taxation in the Slovak Republic at the flat rate of 19%.
FRINGE BENEFITS TAX
Fringe benefits (goods or services) to employees are taxed as part of their total taxable amount at a flat rate of 19%. Any tax levied on an employee is deducted by the employer.
The main local taxes that a municipality can levy are property tax (on land, buildings and flats), hotel tax, tax on the operation of vending machines and machines that do not offer cash prizes, as well as local fees on community waste disposal and low value construction waste.
Self-governing regional authorities may also levy taxes on M, N and O category motor vehicles used for business purposes or for activities where the income derived is subject to income tax.
Local taxes paid are a recognised deduction from income tax.
An annual tax is levied on the owner or beneficial owner of a building situated within the Slovak Republic. The rate of tax depends on the size, quality, type and location of the property. This tax is deductible on a cash basis for income tax purposes. There is no inheritance tax, gift tax or real estate transfer tax levied in the Slovak Republic.
Employers pay contributions to social security and health insurance amounting to 32.5% of gross payroll shown on the pay slip, with no assessment above a salary cap set by law. This tax is deductible when determining taxable income. Tax rates are as follows:
Health insurance and hospitalisation 11.4%
Retirement insurance 14.0%
Accident insurance 0.8%
DETERMINATION OF TAXABLE INCOME
A company's taxable income is determined by ascertaining assessable income according to official accounting and then subtracting all deductions. Generally, to be deductible, expenditure must be wholly and exclusively incurred for the purposes of the business. Income that is already subject to withholding tax is not included in taxable income (except interest). Special additional conditions apply to deductions of some expenses. For example, special expenses defined by tax law are tax-deductible only for the period in which they are fully paid and special income (eg contractual penalties, late fees) is taxable only for the period in which it is received.
The tax law prescribes the rules by which business assets are depreciated. Property, plant and equipment are divided into four groups according to their expected useful life (periods ranging from four to 20 years). The taxpayer may choose either straight-line or accelerated (declining-balance) depreciation. The choice of method is carried out on an asset-by-asset basis and, once the method is selected, it cannot be changed. Intangible assets can be amortised according to accounting principles. Amortisation may be postponed without the taxpayer losing the right to amortise in future periods.
All trading stock on hand is valued at purchase price including any additional procurement costs incurred. Internally generated inventory must be valued on the basis of production costs. In the event that a temporary impairment in inventories is found during stocktaking, an allowance is made. Accepted valuation methods include FIFO, average acquisition costs or pre-defined (planned) prices, but not LIFO.
CAPITAL GAINS AND LOSSES
Capital gains are considered taxable income and taxed at the 19% tax rate. Losses from the sale of stock or a share of a limited liability company are recognised as a tax deduction only up to the amount of income. There are three exceptions when the loss is fully recognised for tax purposes: a loss from the sale of specially quoted stock on an exchange; a loss from the sale of bonds to the extent of income received from the bond included in its price; and a loss from the sale of stock certified by a broker.
In the Slovak Republic, dividends are subject to neither personal nor corporate income tax.
For profits earned and not paid out as dividends prior to 2004, the undistributed profits are taxed at a rate of 19% when they are paid out, without exception. There is an exemption for dividends paid out by companies to corporate shareholders resident in an EU Member State who have a direct holding of at least 25% of the capital of the distributing company.
Interest paid by a company is treated as an ordinary business expense. The Slovak Republic is not planning any thin-capitalisation related restrictions on deducting interest from loans.
Losses in a year may be carried forward and set off against profits in the subsequent five years without requiring the losses deducted to be reinvested. The losses may be set off non-uniformly over the five-year period.
FOREIGN SOURCED INCOME
Slovak authorities levy taxes on all foreign income received by Slovak residents.
Incentives for investors are governed by legislation on government subsidies (No.231/1999 Coll., as amended), under which tax benefits may also be an incentive to invest. Tax benefits have to be negotiated with the Economics Ministry.
FOREIGN TAX RELIEF
Tax paid in a foreign country is set off against tax liabilities in the home country in accordance with double taxation treaties with the applicable country (either by a deduction or exemption).
Income earned by individuals (ie from wages and salaries) is exempt from taxation where proof is given that the income will be taxed abroad and where the Slovak Republic has no double taxation treaty with the other country which has taxed the income. If a double taxation treaty exists, the treaty method of exemption takes precedence.
There is no concept of corporate groups in the Slovak Republic. For tax purposes, profits and losses of holding and subsidiary companies may not be consolidated.
RELATED PARTY TRANSACTIONS
All transactions between related companies realised across borders must be conducted at an arm's length basis with the meaning of arm's length price depending upon each individual transaction. Any difference arising between the price of the actual transaction and that regarded as the arm's length price will be adjusted for tax purposes.
As the flat tax rate of 19% is generally applied within the Slovak Republic, this rate also applies to withholding taxes at the income source (with the exception of dividends, which do not suffer withholding tax). This tax rate is reduced to the tax rate set in the relevant double taxation treaty.
No withholding tax is charged on interest and royalty payments paid to a legal entity that has its registered office in an EU Member State provided that: - the payer holds directly 25% of the capital of the payee or vice versa; or - a third legal entity, which also has its registered office in an EU Member State owns 25% of the capital of both companies. The relevant capital holding condition must have been met throughout the previous two years.
The Foreign Exchange Act allows Slovak currency to be used freely to pay for business and other costs, for direct investment and reinvestment and for purchase of real estate property abroad. Also, it is legal to accept financial credit (ie receive loans) from companies with no registered office within the Slovak Republic but, in certain circumstances, there is a requirement to report such credit.
The Foreign Exchange Act partially restricts the ability for companies without a registered office in the Slovak Republic to acquire real property in the Slovak Republic.
Capital transfers are regulated and there is a duty to report and obtain a special permit or licence from the central bank.
Slovakia vat (Value added tax) rate
The standard rate of VAT in Slovakia is 19%, with a reduced rate of 10% for medicines, books and other printed matter. Goods and some services exported from the Slovak Republic are exempt from tax.
There is also a special excise tax imposed on selected commodities such as petroleum, wine, spirits, tobacco, beer, electricity, coal and natural gas.
VAT is paid on the supply of goods and services within the country, the intra-community acquisition of goods, and on the importation of goods from countries outside the EU.
With the accession of the Slovak Republic into the European Union on 1 May 2004, the current VAT Act (No. 222/2004 Coll.) entered into effect. The Act is harmonized with similar laws in other EU Member States (based on Council Directive 2006/112/EC).
VAT Registration – All individuals or legal entities that perform economic activities in Slovakia are regarded as taxable persons. The registration threshold for VAT purposes is EUR 49,790 within the preceding 12 calendar months. Taxable persons below the threshold can apply for voluntary VAT registration. Nonresidents that make taxable supplies of goods or services in Slovakia must register before the supply is made, unless the reverse-mechanism is applied by the recipient of the supply.
Filing and VAT payment – The standard assessment period is the calendar month or calendar quarter. VAT returns must be submitted by the 25th day of the month following the relevant tax period. When returns are submitted monthly or quarterly, payment in full must accompany the return, i.e. VAT for a relevant tax period is payable by the 25th day of the following month. For services with a place of supply outside Slovakia and in respect of intra-community supplies of goods, EC Sales Lists should be filed.