In summer 2019, the National Council of the Slovak Republic approved several significant changes in the income tax with effectiveness as of 1 January 2020. Inter alia, the changes bring new measures for SMEs, the assessment of electric cars and rules to implement the Council Directive (EU) 2017/952 as regards hybrid mismatches (ATAD 2).
Some changes have deferred effectiveness from 1 January 2021, or 1 January 2022.
You will find a brief overview of the most important changes in this tax eBook. Download it as a PDF or read more below:
Changes effective as of 1 January 2020
Decrease of tax rate
Business income of taxpayers – both natural and legal persons – not exceeding EUR 100 000 will be subject to a reduced tax rate of 15%.
Amendments to thresholds for a natural person’s entitlement to the tax allowances
The thresholds for entitlement to the tax allowances for the taxpayer per year will be changed in favour of the taxpayer and this for the first time in the tax year 2020.
Extension of tax exempted income of employees
- The employee’s income in kind in the form of provided education (also increasing the qualification by completing an additional comprehensive study program), which is a prerequisite for the execution of employer’s business activity, will be exempted. This is conditional on a working relationship of at least 24 months to the beginning of the relevant academic year. For the employer, the cost of such employee training will be a tax deductible expense.
- Contributions from the employer’s social fund to preventive medical examinations of employees beyond the limits set by special regulations will be considered as an exempted income for the employee.
- The maximum amount of the employee’s exempted income from performance in kind in the form of provided accommodation increases from the current EUR 60 per month to EUR 100 per month. The exemption in question applies only to production companies with multiple shifts.
- Tax exempted will be also employee´s income provided to him/her by the employer in line with the Labour Code in the form of contribution for sport activities of child. This will apply on contribution up to maximum 55% of the qualified expenses, however, not more than EUR 275 per calendar year and for all employee´s children. For the employer, the costs on such contributions will be tax deductible expenses.
Amendments to tax loss deduction rules
The condition of equality of tax loss deduction will be abolished and at the same time, the period for its deduction is extended from the current 4 years to 5 years. It is also introduced that, during the tax period, tax deduction of up to 50% of the tax base will be possible (for natural persons up to 50% of the partial tax base of business income).
These new rules will apply to tax losses reported for the tax period beginning no earlier than 1 January 2020.
Tax deductible expenses
Introduction of special rules for electric cars
There is a new tax depreciation category “0” with a depreciation period of 2 years. To this category will belong personal cars – electric cars (battery electric cars and plug-in hybrid electric cars).
For the first time, the new rules will be applied for tax returns submitted after 31 December 2019, and this also with respect to electric cars purchased before 2019, while applied tax depreciation charges for previous periods will not be adjusted.
Abolishment of some limits for tax deductible expenses
The expenses on commissions for mediation will not be limited for tax deduction purposes by the percentage of the value of the mediated transaction. The payment condition however still remains.
The expenditures related to obtaining standards and certificates shall be included to the tax expenditures when disclosed in the P/L. The spread of tax deduction over the certificate validity period will not be required any more. Neither payment condition will apply anymore.
Contractual fines, late charges, late interests, flat-rate compensation expenditures related for applying receivables in a debtor as well as severance pay at the beneficiary according to § 355 of the Commercial Code will be the tax expenditures, if the payment condition is met.
Business and management services
Services sorted to the code Classification products 70.1 a 70.22 will also fall under payment condition for the tax expenditure purposes.
Introduction of a fiction of receivable that is not time-barred
For the purposes of claiming adjustments to receivables and expenses arising from write off of receivables in the tax deductible expenses, a specific definition of receivable, which is not considered to be time-barred, will be introduced. As a receivable that is not time-barred to the end of the tax period will be considered a receivable, which was in the tax period at least one calendar day not time-barred.
Amendments related to loan for use agreements
To the loan for use agreements, similar rules as for the rental of assets will be used.
Expenditures on research and development
A tax advantage, which consists of “super deduction” of expenditures on research and development from the tax base is increasing from 100% to 150% for the year 2019 and 200% since 1st January 2020. Furthermore, the carry forward period for “super deduction” (for example due to tax losses) will be extended from 4 years to 5 years.
At the same time, the documentation requirements of project on research and development will be amended.
Payment of interest and royalties to a foreign related person
The 24-month time test under Section 13 of the Income Tax Act for the tax exemption of interest and royalties arising from a source in the Slovak Republic and received by legal entities that are resident in the EU will be examined prospectively. If the minimum holding period of 24-months is met after the day when the payment has been made, a taxpayer may request the tax administrator to refund the withheld tax on a separate form.
This procedure will be applied to the revenues paid after 31 December 2019.
A definition of the non-resident’s income with the source in Slovakia will be extended in order to cover also the following incomes:
- Unrealized exit earnings, which are subject of the special exit tax;
- Income from redistribution of the “capital fund of contributions”;
- A difference from the revaluation of the assets contributed outside the registered capital to a company seated in the Slovakia;
- Income from paid out revaluation difference from revaluation in case of merger, fusion or division of the companies.
Extension of exemption to sales of shares in simple joint stock company (“j.s.a.”)
Subject of the tax-exemption according to Section 13c of the Income Tax Act will be also legal person´s income from the sale of the common shares or shares with special j.s.a. shareholder´s rights, if defined conditions are fulfilled. Under some conditions, this exemption can be applied also on income from the sale of shares acquired before 1 January 2018.
Extension of the definition of “dividend”
As share on profit (dividend) is also considered:
- Usage of retained earnings after tax for creation of “capital fund of contribution”
- And redistribution of reserve fund resources among shareholders, in the same part as they were created from retained earnings after tax.
Introduction of new measures regarding the action against tax avoidance
A list of non-cooperating countries
Instead of the term “taxpayer of a non-contracting state”, a term “taxpayer of a non-cooperating state” will be used. The new term will cover also a taxpayer from the state, which is listed in the so-called black list of the EU as non-cooperative in tax matters.
ATAD 2 implementation for hybrid mismatches
The approved changes also include measures implementing the Council Directive (EU) 2017/952, which aims to prevent the use of hybrid elements as a result of different tax assessments of financial instruments and taxpayers, particularly in the international context, leading to reduction of the tax liabilities.
Amendments to rules on advance tax payments
The current threshold for the payment of tax advances for natural and legal persons will increase from EUR 2 500 to EUR 5 000.
At the same time the rules for stipulation of the last known tax liability for tax advances has been amended.
The tax bonus on a child
- For tax bonus on child purposes, in chosen cases, it won ´t be necessary to enclose to a personal income tax return a confirmation of visiting school or confirmation of receiving a dependent child allowance. This shall already apply for filing of the tax return for 2019.
- The documents for granting of the tax bonus on child (e.g., a birth certificate) won´t be needed to re-attach to the tax return if it was attached in the past and the data hasn´t changed.
A depended activity
- Under particular conditions, selected documents will be allowed to be submitted to an employer by the employee by electronic means (it is possible to withdraw from the printed form). Stated is valid also in reverse for the selected documents issued by the employer to the employee.
- Employee won´t be annually obliged to declare to the employer the same facts by 31 January (e.g., for purposes of application of the tax allowances), if no change occurs.
Changes effective as of 1 January 2021
Specific rules for micro-taxpayers
The definition of “a micro-taxpayer” will be introduced into the law. The micro-taxpayer will be an individual with business income up to EUR 49 790 (VAT registration threshold) for the tax period. A legal entity with income up to the stated amount will also be considered a micro-taxpayer. The definition also includes a negative definition, e.g. for related parties conducting a controlled transaction.
Taxpayers with the status of “micro-taxpayer” will be entitled to several benefits, such as:
- Preferable regime for tax depreciation of movable property
- Preferable regime for claiming adjustments as tax expenses
- Preferable rules for amortization of tax losses
Employee´s benefit in-kind from the employer to ensure transport to and from work
The calculation of benefit in-kind will be amended. It will be established that exemption from taxation may be up to a total amount of EUR 60 per month.
Automation of taxpayer registration
Automatic registration of individuals and legal persons authorized to do business in Slovakia for income tax purposes will be introduced. In addition to registration obligations, notification obligations will be amended, too, e.g. in connection with the creation of a permanent establishment by a non-resident in the Slovak Republic.
Changes effective as of 1 January 2022
Exemption for benefits in-kind provided to the employee
It will be explicitly stated in the law that a benefit in-kind provided to the employee which is not an employer’s tax expense (e.g., corporate parties) will be exempted from taxation for the employee up to the total amount of EUR 500 from all employers for the tax period.