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Doing Business in Slovakia 2013 and Guidelines to Taxation

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Doing Business in Slovakia 2013 and Guidelines to Taxation Doing business in Slovakia 2013 and guidelines to taxation www.praxity.com www.bmbleitner.sk © BMB Leitner No reliance should be placed on nor should decisions be taken on the basis of the contents of this book. Neither BMB Leitner nor any individual involved in the preparation of this book is responsible for the results of any actions taken on the basis of information herein, including errors and omissions. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or disclosed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BMB Leitner. INTRODUCTION Dear readers, partners and investors, Slovakia is one of the most attractive markets for foreign investments in Central Europe, mainly due to its flexible and efficient workforce, favourable geopolitical location and membership both in the Eurozone and in the Schengen area. In terms of economic performance, Slovakia belongs to the most successful EU Member States. Foreign investors traditionally praise the business environment in Slovakia. The country’s simple tax and law system these guidelines focus on has always been of great importance. In terms of taxation, Slovakia enjoys a high degree of popularity among the EU Member States. Even though, additionally to the personal income tax rate of 19% applicable in the past, with effect since 1 January 2013 a new tax rate of 25% was introduced for individuals with annual income over EUR 34 thousand and the corporate income tax rate increased to 23%, the tax system is still simple and transparent when compared to the neighbouring countries: The income is taxed only once, i.e. the dividends are not subject to taxation. Both the inheritance tax and the gift tax have been abolished. In addition, no tax is imposed on the transfer of real estate. To sum up simply, the whole taxation system is transparent. We believe that these guidelines will help you take your investment-related decisions. I wish you every success! Renáta Bláhová, FCCA, LL.M Founding Partner of BMB Leitner BMB Leitner – 2013 International Tax Firm of the Year in Slovakia www.leitnerleitner.com CONTENT 3. Customs duties 35 4. Other excise duties 36 I. INVESTMENT ENVIRONMENT IN SLOVAKIA 10 5. Special duty in regulated sectors 36 A. GENERAL INFORMATION 10 6. Environmental taxes 37 1. Opportunities for foreign investors 10 7. Advertising duty 37 2. Area and population 10 III. SPECIAL AREAS OF TAXATION OF BUSINESS-RELATED 3. Government and law 11 ACTIVITIES 38 4 Key economic indicators 12 A. HOLDING STRUCTURES 38 B. PRACTICAL INFORMATION 14 1. Participation exemption 38 1. Transport 14 2. Dividends 38 2. Language 14 3. Interest deduction and thin capitalization 38 3. Time relative to Greenwich Mean Time (GMT) 15 4. Non-resident shareholders 39 4. Business hours 15 5. Tax Group 39 5. Public holidays 15 B. REAL ESTATE INVESTMENTS 40 II. TAX FRAMEWORK FOR DOING BUSINESS IN SLOVAKIA 16 1. Resident investors 40 A. LEGAL FORMS 16 2. Non-resident investors 41 B. INCOME TAX ASPECTS 17 3. Real estate taxes 42 1. Sole entrepreneurs 17 4. VAT on real estate 42 2. Corporations including partnerships 23 5. Real estate investment funds 43 3. Reorganizations 24 6. Structuring of real estate investments 43 4. Specific aspects for foreign investors 25 IV. EMPLOYEES AND BOARD MEMBERS 45 C. INTERNATIONAL BUSINESS-RELATED ISSUES 26 A. EMPLOYEES 45 1. Tax treaties 26 1. Resident employees 45 2. Transfer pricing 26 2. Non-resident employees 46 3. Controlled foreign companies 26 B. BOARD MEMBERS 47 D. VALUE ADDED TAX (VAT) 27 1. Executives 47 1. Taxable persons 27 2. Non-executives 47 2. Taxable transactions 28 3. Non-resident board members 47 3. Place of supply 29 C. MUNICIPAL TAX 48 4. Taxable amount 30 D. SPECIFIC PROVISIONS FOR CROSS-BORDER EMPLOYMENT 48 5. Tax rates 31 1. General provisions 48 6. Exemptions 31 V. TAX ASPECTS FOR PRIVATE INVESTORS 50 7. Input VAT deduction 32 A. CAPITAL INVESTMENTS 50 8. VAT liability 33 1. Resident capital investors 50 9. Tax assessment 34 2. Non-resident capital investors 51 E. OTHER BUSINESS-RELATED TAXES 35 3. Investment Funds 52 1. Capital duty 35 B. INHERITANCE AND DONATION TAX PLANNING 52 2. Stamp duties 35 C. HEALTH INSURANCE CONTRIBUTIONS ON DIVIDENDS 52 8 9 I. INVESTMENT ENVIRONMENT IN SLOVAKIA the EU Shengen Agreement in 2008. In addition, Slovakia joined the Eurozone on 1 January 2009. A. GENERAL INFORMATION Thanks to its location, the Slovak Republic offers a good access to markets of 1. OPPORTUNITIES FOR FOREIGN INVESTORS the European Union Member States as well as eastern European countries. The territory of the Slovak Republic is covered by important European transport According to some international surveys, the Slovak market remains a very routes, oil and gas pipelines. Many foreign investors have chosen the Slovak attractive target market for foreign investments in the EU, mainly due to the Republic due to its unique location. following positive features: ¬ EU membership; The Slovak Republic has an estimated population of 5.4 million (as at 31 ¬ Transparent and simple tax system; December 2012). The population density is 110 inhabitants per square kilometre. ¬ Flexible and reliable workforce. The total area of Slovakia is 49,035 square kilometres and is divided into eight administrative regions. In our experience, apart from these key strengths, other attractive advantages and characteristics include: The capital Bratislava, with a population of approximately 431,000, can be easily ¬ Since 2009 the official currency has been the Euro; reached by motorway from Vienna in less than an hour. Further important Slovak ¬ Favourable geopolitical location and member of Shengen Agreement; cities include Košice (population 235,000), Prešov (population 93,000), Žilina ¬ Improving infrastructure; (population 84,000), Nitra (population 84,000), Banská Bystrica (population ¬ Economic stability; and 83,000) and Trnava (population 70,000). As there are significant regional ¬ Transparent Investment Aid Act. disparities in the Slovak Republic, potential investors may find very interesting locations for their business. From a tax point of view, the Slovak Republic has still a simple and transparent tax system with a low income tax burden and not many tax categories. The workforce is highly educated and labour productivity per person employed in the Slovak Republic is the third highest (after Cyprus and Malta) among the new The inheritance and the gift tax were abolished on 1 January 2004, as was the members of the European Union.2 On the other hand, the Slovak Republic is one real estate transfer tax on 1 January 2005. of the eight EU countries in which the estimated hourly labour costs for 2012 are below EUR 10.3 The official language is Slovak, although many people also speak The tax rate of 19% is still applicable to personal income tax. However, since 1 German or English. January 2013 a second personal income tax rate of 25% has been applicable to annual income exceeding EUR 34,000. As for the corporate income tax rate, it has 3. GOVERNMENT AND LAW been increased from 19% to 23% with effect since 1 January 2013. Foreign investors regularly praise the Slovak business environment, recognising Slovakia is a parliamentary democratic republic with a multi-party system. The the long-term investment opportunities that lie within the region. Slovak head of state is the President, elected by direct popular vote for a five-year term. Most executive power rests with the head of government, the Prime Minister, 2. AREA AND POPULATION1 who is usually the leader of the winning party, but who has to form a majority coalition in the parliament. The Prime Minister is appointed by the President. The The Slovak Republic is located in Central Europe, bordered by Austria, Hungary, rest of the cabinet is appointed by the President, with recommendations from the Poland, the Czech Republic and Ukraine. Slovakia has been part of the European Prime Minister. Union since its accession on 1 May 2004. It has only a very short border with Ukraine, the only non-EU country with which Slovakia has a border. The remaining neighbouring countries have been freely accessible since Slovakia’s accession to 2 Source: Eurostat. http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pco- de=tec00116&plugin=0 3 Source: Eurostat. http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-10042013-AP/EN/3-10042013- 1 10 Source: Statistical Office of the Slovak Republic. AP-EN.PDF 11 The highest law-making body of the Slovak Republic is the National Council 4. 2. Inflation (parliament), comprising only one chamber. Delegates for the National Council are elected for a four-year term, based on proportional representation. Since 2009 the inflation rate has been calculated according to the Eurostat methodology (HICP index). In 2009 - 2012 the inflation rate reached 0.9%7, 0.7%8, Slovakia’s highest judicial body is the Constitutional Court of Slovakia (Ústavný 3.9%9 and 3.6%10, respectively. For 2013 an inflation rate of 2.3% is estimated.11 súd), which rules on constitutional issues. The 13 members of this court are appointed by the President. 4. 3. Unemployment In terms of administrative division, Slovakia is subdivided into eight regions (kraje), After a few favourable years, the unemployment rate increased as a result of the each named after its principal city. Regions have enjoyed a certain degree of economic crisis. In 2010 the unemployment rate reached over 14.4%. In 2011 it autonomy since 2002 and are run by self-governing bodies. fell to 13.5%12, however, in 2012 it has risen again to 14%.13 This is still one of the highest unemployment rates within the European Union.
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