Proposed Amendment to the Slovak Income Tax Act
The Amendment to the Slovak Income Tax Act should become effective from 1 January 2011. The Amendment is currently undergoing the legislative procedure during which further modifications may still be adopted.
Below, we summarize the main important changes which it introduces:
01 CORPORATE TAXATION
01/01 Depreciation of tangible assets acquired through financial lease
The depreciation of tangible assets acquired through financial lease is going to be unified with other forms of assets acquisition. Tangible assets acquired through financial lease are to be depreciated over the period stipulated by the law, not over the period of the lease.
This should be applied to tangible assets acquired under financial lease agreements concluded after 31 December 2010. In accordance with the transitional provisions of the Amendment, the financial lease agreements concluded until 31 December 2010 should continue to be governed by the current rules, i.e. depreciated over the period of lease.
01/02 Change in definition of intangible assets
The Amendment extends the definition of intangible assets by referring to intangible assets as defined by the Act on Accounting. Based on this change, valuable rights are also to be considered as intangible assets. Thus, the depreciation of valuable rights may be included in the tax base. However, this definition will apply to intangible assets put into use after 31 December 2010.
The Amendment further stipulates that the definition of intangible assets for tax purposes covers also intangible assets recognized by the legal successor of the tax payer dissolved without liquidation, if these intangible assets were separated from goodwill or badwill in accordance with the Slovak Accounting legislation and the respective merger/division was performed at real values.
01/03 Tax deductibility of certain types of expenses
The Amendment specifies tax deductibility of certain types of expenses:
- Travel allowances are tax deductible only if paid up to the limits stipulated by the Act on Travel Allowances.
- VAT paid abroad if the taxpayer does have the right to claim the VAT refund should be considered as tax deductible only if the goods or services on which the VAT was incurred can be considered as tax deductible expense and the VAT refund request was filed. The VAT should be considered as tax deductible expense in the tax period in which the VAT refund claim is entered in taxpayer´s book-keeping.
- VAT paid abroad if the taxpayer does not have the right to claim the VAT refund (did not fulfill the minimum tax which can be refunded) should be considered as tax deductible only if the goods or services on which the VAT was incurred can be considered as tax deductible. The VAT is tax deductible based on the cash basis principle, i.e. in the tax period when the goods or services including VAT were paid.
- Contributions to foreign supplementary pension savings fund will be also considered as tax deductible.
01/04 Slovak-sourced income of a Slovak tax non-resident
Income from the sale, rent or other use of immovable property situated in Slovakia will be considered to be Slovak-source income of a Slovak tax non-resident, regardless of whoever pays the income. Under the current legislation, only income received from a Slovak tax resident or from the permanent establishment of a non-resident is taxed. This income will be subject to the tax guarantee mechanism if paid to the taxpayer from third countries.
02 TAXATION OF INDIVIDUALS
- Tax exemption of income from the sale of immovable property after two years of permanent residence is to be abolished. The tax exemption of income from the sale of immovable property after five years of ownership or in case of inherited property should remain unchanged. These provisions should relate to the assets acquired after 31 December 2010.
- Tax deductible items such as specific purpose savings, life insurance premiums and supplementary pension savings which reduced the tax base up to the amount of EUR 398.33 are to be abolished. Also the personal and spousal allowance will apply only to active income – employment income, business income and income from independent activities. These changes should be applied from the 2011 tax period.
- The exemption of certain types of income (such as income from rental of immovable property, income from transfer of options, securities, etc.) up to the amount of five times the subsistence minimum is to be changed to the limit of the fixed amount of EUR 500.
- Income tax prepayments are to be made also from the income not exceeding EUR 165.79 in the respective calendar month.
- The amount of the flat expense deduction for self-employed persons is proposed to be unified at 40%.
Feel free to contact us for any further details or clarifications:
Mrs. Lýdia Kvokačková, tax consultant, Tel: +421 2 3255 3032, [email]firstname.lastname@example.org[/email]
Mr. Peter Pašek, tax manager, Tel: +421 23255 3009, M: +421 905 998 828, [email]email@example.com[/email]