The Value Added Tax (VAT) Act will be subject to several major amendments from 2025. These upcoming changes to the VAT Act in Slovakia are part of several government amendments of the VAT Act. Below, we’ve summarized all the changes that VAT payers will need to prepare for from 2025.

Changes to the VAT Act in Slovakia as part of the consolidation package

The consolidation package, approved under an abbreviated procedure, makes only major changes in the wording of the VAT Act. However, because the changes include changes to the current VAT rates, they are crucial for all business owners.

VAT Rates

In Slovakia, two reduced VAT rates of 5% and 10% are in effect until the end of 2024. From 1 January 2025, the standard VAT rate will increase to 23%, with reduced rates set at 5% and 19%. Below is a table outlining the changes to tax rates.

Sports facilities (except fitness centres and sports events) and pool entries are no longer eligible for reduced rates. Restaurant services will have to be differentiated depending on whether food (5%), non-alcoholic beverages (19%), or alcoholic beverages (23%) are served.

Changes to the VAT Act in Slovakia submitted to the National Assembly of the Slovak Republic

Another amendment, which was submitted to the National Assembly of the Slovak Republic on October 4, 2024, changes two important areas: VAT obligations for free-of-charge supplies and adjustment of input VAT deduction on investment assets. This is a government proposal which has not yet been approved but has already been subject to extensive comment of expert public.

Free-of-Charge Supply of Goods

In line with the European Court of Justice’s rulings, the method of determining the tax base for free-of-charge supply of goods is changed. The taxable amount will be the purchase price of the goods or similar goods at the time of supply, rather than the acquisition cost. The taxable person may determine that price on the basis of various factors, for example, by comparing prices on the market or by an expert´s opinion. This replaces the previous method of calculating the tax base based on the acquisition cost or, in the case of depreciated assets, the residual value.

A similar calculation of output VAT is also applied in the case of illegal appropriation of goods by another person. The previous possibility of gradually reducing the VAT on depreciated goods by a proportional part corresponding to the amount of depreciation is completely deleted from the VAT Act. The taxable person will be obliged to calculate the output VAT on the purchase price of that or similar goods at the time of the theft or misappropriation, up to the maximum amount of initially deducted VAT.

Adjustment of proportional VAT Deduction Rules

The possibility of a partial input VAT deduction when using investment property for non-business purposes is being extended to a new category of intangible investment property. This means taxpayers will no longer have to tax the use of this property for non-business purposes as a free supply of goods or services. For subsequent changes in the use of this property, an adjustment mechanism for the deductible VAT will apply.

For goods and services that do not meet the revised definition of investment property under the VAT Act, taxpayers will be able to claim a proportional input VAT deduction, corresponding to the extent of their business use, if used partially for business purposes. The taxpayer will determine the proportion of the use of goods and services for business and other purposes based on the amount of business income and other income, the duration of use of the goods and services for business and other purposes, or according to other criteria that objectively reflect the extent of the use of goods and services for business and other purposes, similar to the current practice. The original version of the amendment also included the removal of the possibility to claim a proportional input VAT deduction of up to 80% when applying so-called flat-rate expenses for fuel consumption. However, after comments from the Ministry of Finance, this part was ultimately retained in the current version.

Initial use and correction of the tax base

A new Section 52a is introduced which modifies the definitions of key terms in relation to the adjustment and correction of VAT deduction. “Initial use” refers to the first actual use of goods and services for supplies with the right to deduct VAT and is shall be considered as a criterion for the start of the period of adjustment of the VAT deduction in the future. “Investment assets of the VAT payer” means assets with a useful life of more than one year, which have not been acquired for resale. VAT deduction adjustment periods are aligned at 5 or 20 calendar years, respectively, including the year in which the property is initially used.

Following these new concepts, a new situation has been introduced requiring the correction of the VAT deduction in the case of investment assets, where the taxable person initially deducted input VAT at a higher rate than justified by the initial use. If the taxable person has deducted tax at a lower rate than he could have done on the basis of the initial use, he will have a right to correct the deduction which he does not have to make use of. The taxable person shall make the correction of the deduction in the taxable year in which the initial use occurred or in which the taxable person knew or should and could have known that there would be no initial use.

Adjustment of VAT deduction on investment assets

The definition of investment assets, for the purposes of the VAT Act, is aligned with the definition of tangible fixed assets in the Income Tax Act, with the introduction of a new category of investment assets as well:

• Movable investment assets with an acquisition price of more than EUR 1,700, while the existing limit of EUR 3,319.39 is substantially tightened
• Immovable investment assets (buildings, building land, flats, non-residential premises, superstructures, extensions to buildings and building alterations to buildings, flats and non-residential premises requiring a building permit) remain unchanged
• Intangible assets with an acquisition price of more than EUR 2,400 (new category of investment assets)

The adjustment of the VAT deduction shall only be made in the period following the period in which the initial use of investment assets occurred. If there is a change in the period between the acquisition of the assets (when the VAT payer claimed the input VAT deduction) and the initial use of the assets, the VAT payer will be obliged to make a correction of the input VAT deduction instead of an adjustment of the deducted VAT.

It will no longer always be the VAT payer’s obligation to adjust the VAT deducted; if the VAT has been deducted at a lower rate than it could have been, the VAT payer will have the right to make such an adjustment, which may or may not be exercised. Until now, the adjustment of the VAT deducted has been compulsory in all cases where the legislative conditions have been met.

The same procedure for adjusting the deducted tax will be applied in the case of a change in the scope of use of investment assets for business and other purposes, as well as in the case of a change in the purpose of use for supplies eligible for VAT deduction and for supplies exempted from VAT without the right to deduction. All adjustments to the deduction of investment assets shall only start in the year following the year in which the initial use of those assets took place. The obligation to adjust the deduction shall remain in the last tax period of the calendar year; in the case of a taxable person who applies a financial year, the financial year shall be used.

In connection with the adjustment of the deducted VAT, the method for calculating potential adjustments is being completely changed. The VAT adjustment is to be spread over several years, always only up to the amount of VAT attributable to the given calendar year. The adjustment will be made based on changes in the right to deduct VAT in the subsequent periods compared to the period of the initial use of the investment assets. For example, if in the third year of use there is a change in the purpose of use compared to the initial use of the investment assets, and this ratio remains the same until the end of the adjustment period for the deducted VAT (5 or 20 years), the VAT payer will be obliged to adjust the respective annual portion of the deducted VAT each year until the end of this period.

If the adjustment period for the deducted VAT started before 31 December 2024, according to the transitional provisions, any adjustment of the deducted VAT will follow the legislation valid until 31 December 2024.

Amendment to the VAT Act Published in the Collection of Laws of the Slovak Republic on 17.5.2024

At the end of year 2023, we informed you through our news flash about a draft amendment that was under public consultation. This amendment was published on May 17, 2024, in the Collection of Laws of the Slovak Republic, with the original proposal prepared in the spring of 2023. Below is a final summary of the changes this amendment will bring to Slovak tax legislation, with most changes taking effect from 1 January 2025.

Mandatory VAT Registration

• The amendment changes the limit for mandatory VAT registration of domestic entities to EUR 50,000 (from EUR 49,790), while for the purposes of registration any period of 12 consecutive months will no longer be tracked, but always only the period of one calendar year with effect from 1 January 2025. The initial transitional provision valid for 2024 on mandatory registration has completely disappeared from the approved text of the Amendment.
• The application for registration will have to be submitted within 5 working days from the date on which the fact giving rise to the obligation to register occurred, and the taxable person will become a VAT payer on 1 January of the calendar year following the year in which the turnover exceeded EUR 50,000 (with a few exceptions). This replaces the current situation where a person becomes liable for VAT according to the date set in the decision of the tax authority. However, the VAT payer will have the option in the registration form to choose whether he wants to become a VAT payer already at the moment of exceeding the turnover or only on 1 January of the following calendar year.
• In certain cases, an exception will apply for mandatory VAT registration, and the taxable person will become a VAT payer on a different date than the first day of the calendar year, such as:
  • The moment the turnover of EUR 62,500 is exceeded in the current calendar year
  • The day taxable person becomes the legal successor of a payer dissolved without liquidation
  • Under certain circumstances, the day of acquisition of a business or its part; and the effective date of a merger by split
  • The day of delivery of a building or building land (including receipt of payment before delivery), if the delivery exceeds the turnover of EUR 50,000
• For foreign VAT registration, instead of the obligation to register before starting activities in the Slovak Republic, the obligation changes to apply for VAT registration within 5 working days from the day the person becomes a VAT payer according to the legal definition.
• A taxable person exceeding the turnover threshold of EUR 50,000 or EUR 62,500 exclusively from VAT exempt supplies according to Section 37 to 39 of the VAT Act will also have the obligation to register. However, the obligation to submit VAT returns and control statements will arise only in selected cases and not on a regular basis (for example the occurrence of a taxable transaction that is not VAT exempt).

Voluntary VAT registration

The option of voluntary VAT registration remains as before, while the taxable person becomes a VAT payer on the date specified in the decision of the tax authorities.

Late VAT registration

Significant changes compared to the currently applicable legislation occur in the case of VAT payers who have not fulfilled their registration obligation on time or have fulfilled their registration obligation late. Since a taxable person will no longer become a VAT payer only on the date specified in the decision of the tax authorities, but on the date of fulfilment of the conditions defined in the VAT Act, in the case of late registration, a single tax return will not be filed for the period when the person should have been a VAT payer.

The VAT payer will be obliged to file all tax returns and control statements in chronological order, for all tax periods starting from the first one in which he fulfilled the conditions and became a VAT payer. Thus, late submissions will result in a penalty for late submission of VAT returns and control statements. At the same time, the VAT payer will also be entitled to claim input VAT deductions in the taxable periods concerned, in the taxable period in which this right arose, provided that the other standard conditions for entitlement to the deduction are met.

The right to deduct input VAT on supplies which the taxable person acquired before becoming liable for VAT and used for his taxable supplies, shall be claimed exclusively in the first VAT period.

The above changes will be effective from 1 January 2025, while according to the transitional provisions, the current procedure will be applied, if the application for registration is submitted by 31 December 2024 (or if the tax office finds that the obligation to submit an application has not been fulfilled).

In addition to the above changes, a new definition is introduced into the legislation – a VAT payer with an allocated VAT number.

Leasing contracts

Following the decisions of the European Court of Justice, the tax treatment of the transfer of goods based on lease contracts, which did not clearly indicate that the ownership of such goods would be acquired at the latest upon payment of the last instalment, will be changed. Under the new wording of the VAT Act, the transfer of goods under a lease agreement or similar agreement with a negotiated purchase option will also be treated as a supply of goods if, at the time of its conclusion, the exercise of the purchase option represents the only rational choice for the lessee. This is to apply to contracts concluded from 1 January 2025 onwards. This will apply in case a car will be handed over on the basis of a leasing contract, where most of the benefits and risks of ownership will be transferred to the lessee, the sum of the contractual repayments will correspond to the value of the goods, including the financing costs, and the lessee will not be required to pay a substantial additional amount when exercising the option to purchase the leased item.Top of Form

This change may significantly change the nature of the provision of finance leases from a VAT perspective. If the transaction constitutes a supply of goods, it will transfer the VAT liability and therefore the payment of VAT from the moment the goods are handed over to the lessee, rather than, as has been the case with many forms of leasing to date, gradually in monthly instalments as a supply of a service. Determining the boundary between the supply of a service and the supply of goods can be quite difficult depending on the agreed terms of the transaction and it can be assumed that the actual application of the new provision will raise a number of issues in practice.

Self-taxation on importation

With effect from 1 July 2025, VAT on imports of goods from third countries will no longer be levied in all cases by the customs authority, but in some cases the tax administrator is the tax authorities. In practice, this means that if the statutory criteria are met, the VAT payer will be able to use the so-called self-taxation on import, i.e., he will declare the VAT on import in the VAT return, and at the same time, he will be able to deduct this input VAT. This is a transposition of an EU directive, but the effectiveness of this measure has been postponed several times in the past, mainly due to the negative cash impact on the state budget in the first year of its introduction.

A significant positive of this measure is the impact on the cash flow of VAT payers, as VAT will be deductible in the same tax period as the tax liability on imports arises. However, the negative is that the VAT payer will only be able to apply this procedure if the following conditions are met:

• the VAT payer is considered as domestic entity
• the VAT payer is registered for VAT within the meaning of Section 4 or 4b of the VAT Act
• the VAT payer has been granted the status of an approved economic operator under the customs regulations
• the VAT payer intends to use the imported goods for the pursuit of an economic activity

In the event of a finding of a breach of the above conditions, the tax administrator shall impose on the VAT payer a penalty of 1.3% of the amount of VAT on the import of the goods that would have been levied by the customs office if self-assessment had not been applied to the import.

Special arrangements for small enterprises

With effect from 1 January 2025, an EU directive introducing a special arrangement for small businesses will be transposed into Slovak legislation, the aim of which is to eliminate the administrative burden on small businesses and to achieve equal VAT treatment for both domestic and foreign persons.

The essence of the special regulation is that a small enterprise of a foreign person is entitled to supply goods or services exempt from VAT in the same way as a domestic taxable person who is not subject to VAT, once it has been assigned an individual identification number with the suffix EX for the Slovak Republic in the Member State of establishment.

A small enterprise of a foreign person may be a taxable person which in the current calendar year did not exceed a domestic turnover of EUR 62,500 (in the previous calendar year it did not exceed a turnover of EUR 50,000) and, at the same time, did not exceed a turnover in the EU of EUR 100,000 in the current calendar year (in the previous calendar year it also must not exceed a turnover of EUR 100,000).

At the same time, the small enterprise will be required to submit quarterly statements in the country of establishment, including data on goods and services supplied withing the EU territory. A small enterprise may decide to terminate the special scheme at any time. The special scheme (i.e., the exemption) will also be terminated if the annual domestic turnover exceeds EUR 62,500 if the foreign person has a permanent establishment for VAT purposes in the country, or the annual EU turnover exceeds EUR 100 000. If the annual domestic turnover exceeds EUR 50,000 and at the same time neither EUR 62,500 nor the annual turnover in the EU territory exceeds EUR 100,000, it may not apply the special scheme as of 1 January of the following calendar year.

Inputs used by a VAT payer applying the special scheme for small businesses in connection with supplies of goods and services to another Member State will not give rise to a right to deduct input VAT.

Further changes in the Amendment to the VAT Act:

• The limit for a receipt from e-casa client and a receipt from an unattended refuelling machine to be treated as a simplified invoice is reduced to EUR 400 (from the previous EUR 1,000 for payment in cash and EUR 1,600 for payment by other means of payment substituting cash).
• With effect from 1 January 2025, it is proposed, that the place of supply of services consisting in the virtual approach or broadcasting of cultural, educational or entertainment services (e.g. virtual attendance at an event), where these are provided to non-taxable persons, should be deemed to be the customer’s place of residence or domicile. In practice, this may create the VAT obligations in other EU Member States for business owners, for example, for taxable persons providing online trainings to non-taxable persons.
• When goods are acquired from another EU Member State, an invoice from the supplier will no longer be required to claim the input VAT. The acquirer will also be able to prove the right to deduct input VAT by other reliable documents proving the domestic acquisition of goods from another Member State and the incurrence of the tax liability. The data from this other document shall be in the VAT control statement.
• In addition to theft, the refund of input VAT is extended to theft or misappropriation of goods, which corresponds to criminal law terminology. This rule will apply to all cases of unlawful removal of goods from the disposal of the taxable person, which prevents him from using such goods for business purposes.
• We are monitoring the progress of the legislative process for you and will keep you informed of any changes.

If you would like to know more about any of the upcoming issues, please do not hesitate to contact us.

Michaela Salayová

Senior Tax Manager | Accace Slovakia

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