guidelines to taxation 2019 slovak republic slovak republic I TAX FRAMEWORK FOR DOING BUSINESS II SPECIAL AREAS OF TAXATION OF BUSINESS-RELATED IN THE SLOVAK REPUBLIC 382 ACTIVITIES 412 A LEGAL FORMS 382 A HOLDING STRUCTURES 412 1 Participation exemption 412 B INCOME TAX ASPECTS 383 2 Dividends 413 1 Sole entrepreneurs 383 3 Interest deduction and thin capitalization 414 2 Corporations including partnerships 390 4 Non-resident shareholders 415 3 Tax relief 392 5 Tax group 415 4 Reorganizations 393 5 Specific aspects for foreign investors 394 B REAL ESTATE INVESTMENTS 416 1 Resident investors 416 C INTERNATIONAL BUSINESS-RELATED ISSUES 398 2 Non-resident investors 417 1 Tax treaties 398 3 Real estate taxes 418 2 Transfer pricing 398 4 VAT on real estate 418 3 Controlled foreign companies 399 5 Real estate investment funds 418 4 Exit taxation 399 6 Structuring of real estate investments 419 D VALUE ADDED TAX 400 III EMPLOYEES AND BOARD MEMBERS 420 1 Taxable persons 400 A EMPLOYEES 420 2 Taxable transactions 401 1 Resident employees 420 3 Place of supply 403 2 Non-resident employees 422 4 Taxable amount 405 5 Tax rates 405 B BOARD MEMBERS 422 6 Exemptions 405 1 Executives 422 7 Input VAT deduction 406 2 Non-executives 423 8 VAT liability 407 3 Non-resident board members 423 9 Tax assessment 408 C MUNICIPAL TAX 423 E OTHER BUSINESS-RELATED TAXES 410 D SPECIFIC PROVISIONS FOR CROSS-BORDER EMPLOYMENTS 424 1 Capital duty 410 1 General provisions 424 2 Stamp duties 410 3 Customs duties 410 IV TAX ASPECTS FOR PRIVATE INVESTORS 425 4 Other excise duties 410 5 Special taxes on regulated industries 410 A CAPITAL INVESTMENTS 425 6 Environmental taxes 411 1 Resident capital investors 425 7 Advertising duty 411 2 Non-resident capital investors 427 3 Investment funds 428 B INHERITANCE AND DONATION TAX PLANNING 428 C INSURANCE CONTRIBUTIONS IN RESPECT OF DIVIDENDS 428 380 leitner leitner guidelines to taxation 2019 guidelines to taxation 2019 leitner leitner 381 I TAX FRAMEWORK FOR DOING BUSINESS IN THE B INCOME TAX ASPECTS SLOVAK REPUBLIC 1 Sole entrepreneurs A LEGAL FORMS 1.1 UNLIMITED TAX LIABILITY Business activities in Slovakia are carried on by sole entrepreneurs (indivi- If a sole entrepreneur has his domicile, place of residence or habitual place of duals) or legal entities (companies). The Slovak Commercial Code contains abode in Slovakia, he is subject to unlimited personal income tax liability (i.e. following legal forms of companies; these are commonly used for establishing resident taxation) on his worldwide income in Slovakia. Thus, income from a business in Slovakia: business activities carried on in Slovakia or elsewhere in the world is subject ¬ General partnership – verejná obchodná spoločnosť (v.o.s.) to tax at the level of the individual (subject to tax treaties). ¬ Limited partnership – komanditná spoločnosť (k.s.) An individual is deemed having a domicile when he has a registered perma- ¬ Limited liability company – spoločnosť s ručením obmedzeným (s.r.o.) nent stay in Slovakia. An individual having an available home in Slovakia, ¬ Joint stock company – akciová spoločnosť (a.s.) whereby both personal and economic relations are taken into account, is ¬ Cooperative – družstvo deemed to be resident in Slovakia. ¬ Simple joint-stock company – jednoduchá spoločnosť na akcie (j.s.a.) An individual has his habitual place of abode where he is physically present Some information about the legal and tax framework of sole entrepreneurs under circumstances indicating a permanent presence or stay. The habitual (SEnt) and companies is provided below: place of abode is deemed to be established in Slovakia if the individual stays in Slovakia for more than 183 days in a calendar year (with the exception of individuals who stay there for their studies or for medical treatment, or who cross the border of the Slovak Republic on a daily basis or in the agreed upon intervals exclusively for the purpose of performance of dependent activity in FORMS LIABILITY MINIMUM REGISTRATION TAX TAX the territory of Slovakia). OF SHAREHOLDERS CAPITAL IN COMMERCIAL TREATMENT RATES (EUR) MINIMUM OF FOUNDERS AND SHAREHOLDERS REGISTER Individuals who are not Slovak residents are allowed to claim certain SEnt no shares, personal 1 not obligatory tax liability 19% allowances as if they were residents if their income from Slovak sources in liability of the sole of sole or 25% the tax year is at least 90% of their total income. entrepreneur entrepreneur v.o.s. unlimited 2 obligatory tax resident; how- 19% / Sole entrepreneurs running an operating business in Slovakia may derive ever, tax base is 25% 1 income in the following categories: transferred to or partners 21% 2 ¬ income from business; ¬ income from independent (professional) services; k.s. unlimited for general 250 2 obligatory tax resident; how- 19% / partners and limited per ever, tax base 25% 1 ¬ income from rentals; and for limited partners limited attributable to or ¬ income from the use of work or art performance. partner general partners 21% 2 is transferred to and In the following, we refer only to the category »income from business« (also general partners 21% 3 referred to as »business income«) as this category is the most important one s.r.o. limited 5,000 1 (max. obligatory non-transparent, 21% in Slovak tax practice. 50) dividends 4 35% a.s. limited 25,000 1 legal obligatory non-transparent, 21% entity dividends 4 35% or 2 indivi- duals coope- unlimited 1,250 5 indi- obligatory non-transparent, 21% rative viduals dividends 4 35% 1 Progressive personal income tax rates (19%, 25%) apply, insofar as the general partners are individuals. or 2 2 Corporate income tax rate (21%) applies, insofar as the general partners are corporations. legal 3 Tax base attributable to limited partners is taxed at the level of the partnership at 21% corporate entities income tax rate. 4 For individuals, DIVIDEND INCOME is subject to tax (7% if resident in Slovakia or a contracting j.s.a. limited 1 1 obligatory non-transparent, 21% state, and 35% if a non-contracting state is concerned). For corporations, only dividends paid from dividends 4 35% or to non-contracting states (35%) are subject to taxation. If dividend income is paid by a Slovak legal entity, the withholding tax system applies. 382 leitner leitner guidelines to taxation 2019 guidelines to taxation 2019 leitner leitner 383 Income from business includes income from agriculture production, forestry Valuation of assets and debts and water resources management, income from trade, income from other The valuation of assets and liabilities is indirectly required for the entrepreneurial activities according to special regulations as well as the profit determination of business income. The following principles apply: shares of general partners in general and limited partnerships. Depreciable fixed assets, non-depreciable assets and current assets Please note that individuals can also derive income from non-operating acti- are reported at their acquisition or production cost less depreciation. vities, such as real estate or capital investments. For these types of activities, The value of the assets on the balance sheet at the end of the busi- see II.B and IV. ness year may not exceed their balance sheet value at the beginning of the business year. 1.2 PRINCIPLES OF DETERMINATION OF THE BUSINESS INCOME Income taxation normally requires realization. Specific rules apply TAX BASE for exchange rate differences. Currency exchange gains or losses For business income, the concept of »profit« applies when determining the from revaluation (unrealized F/X differences) are included in the tax net amount of business income. base; the taxpayer may, however, decide to follow the realization principle upon announcement within the tax return. Methods Receivables are accounted for and valued at their acquisition cost, As far as the methods for determining the tax base are concerned, which is the nominal value. Irrecoverable receivables may be written the primary method for individuals is in general the cash method or down for tax purposes from their net amount under the following what is known as the single entry accounting method. However, the conditions: Slovak Income Tax Act (hereinafter »ITA«) does not explicitly deal with these methods in more detail. ¬ up to 20% if overdue for more than 360 days; ¬ up to 50% if overdue for more than 720 days; and CASH METHOD (TAX EVIDENCE) ¬ up to 100% if overdue for more than 1,080 days. For taxpayers who are not so required and who do not voluntarily use double entry bookkeeping, the cash method applies (i.e. single entry Liabilities are valued at their nominal value. Unpaid liabilities must bookkeeping). Under this method, profit is computed as the excess of be written up for tax purposes under the same time/percentage business receipts over business expenditures. Receipts are taxed in conditions as for receivables. the calendar year in which they are received by the taxpayer; expendi- For accounting purposes, withdrawals are valued at their market tures are deducted in the calendar year in which they are paid (un- or nominal value at the time of withdrawal; contributions, at their less certain exceptions such as that for capital expenditures apply). market value at the time of the transfer. Received or paid advance payments have to be included into the tax base in the calendar year in which they are received/paid by the Depreciation taxpayer. Intangible and tangible assets are, with some exceptions (e.g. land, DOUBLE ENTRY ACCOUNTING FOR REGISTERED ENTITIES works of art), depreciable. Depreciation starts at the beginning of Under the Act on Accounting, registered corporations such as joint use in the business. In general, assets are depreciated by the owner, stock companies and limited liability companies are obliged to use with some exceptions.