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With its geographical location in the middle of Europe, euro currency, emerging start-up ecosystem, competitive taxation system, cost-effective and skilled labour, doing business in Slovakia is becoming increasingly attractive. The country represents a lot of potential and opportunities both for established and new investors. The inflow of investments with higher added value and large-scale investments from various countries are one of few factors proving Slovakia’s attractiveness.
Despite Slovakia having ongoing problem with lack of support and investment for start-ups from state, there are many talented start-ups that have successfully exited or raised capital. For example, GymBeam, Pixel Federation, CloudTalk and companies successfully acquired by international leader, such as DNA ERA acquired by Diagnose.me, Slido acquired by Cisco Systems, Exponea acquired by Bloomreach, minit data process mining acquired by Microsoft or Photoneo acquired by Brightpick Group. Only during 2015 and 2021, Slovak start-ups raised 159 mil. EUR in VC funding (Source: Dealroom). Besides support from various VC funds, there are many individuals, or incubation/acceleration programs helping Slovak start-ups succeed globally.
Automotive industry and related sectors (machinery and electronic) play a vital role in Slovakia. The automotive industry is the largest and most important sector (with 10,4% share on GDP) when it comes to export and employment. It is also a source of many foreign direct investments. Slovakia is the leading car manufacturer in the world, and it ranks among the top producers of electric cars in Europe.
Other largest industries include:
The automotive industry has the strongest workforce in Slovakia. The labour is no longer low cost, but it is categorized as cost-effective, highly productive and skilled. The largest four car manufacturers and Tier 1 suppliers (Volkswagen, Stellantis, Kia and Jaguar Land Rover) employ directly approx. 170,000 employees. Overall, the automotive industry employs directly and indirectly around 255,000 people, and it is constantly growing. Slovakia is producing also Battery Electric Vehicles (including planned models from Volvo and Porsche) and Plugin-Hybrid Electric Vehicles.
Regional investment incentives can be granted to SMEs, large companies, new or existing investors doing business in Slovakia. Besides, research and development super-deductions or preferential tax regimes are among other support mechanisms.
In general, there are four categories of projects that can be supported by the investment incentives:
industrial production
technological centres
shared service centres
tourism
Each category has specifically defined conditions which have to be met in order to apply for the investment incentives. In general, the incentives are provided in the form of:
Further, certain corporate income tax relief can be provided also under the Act on Research and Development Incentives.
The relief is subject to approval of the Ministry of Economy or Ministry of Finance, as the case may be.
If a taxpayer does not claim corporate income tax relief under the Act on Research and Development Incentives, a special regime for research and development expenses can be claimed if certain conditions are fulfilled.
R&D super-deductions allow companies located in Slovakia to deduct additional 100% of their R&D costs from their CIT base. The super-deduction has no industry limitation, but the project must meet the definition of R&D, as stipulated in accounting practices. The legislative framework is set in Section 30c of the Income Tax Act.
Examples of some of the investment incentives in Slovakia
The provision of the state aid is governed in particular by the European Union law that establishes the basic legal framework also for the Slovak authorities.
The most common legal form for doing business in Slovakia is the limited liability company (or LLC in short). The incorporation time usually takes up max. 2 weeks, counted from when the necessary documentation is signed.
There are no limitations for foreign investors when it comes to setting up companies doing business in Slovakia, they enjoy identical rights and obligations as Slovak persons.
The fees for establishing an LLC are:
At least one shareholder (natural or legal person) is required for setting up a limited liability company, in which case anti-chaining rules apply (i.e., LLC with only 1 shareholder cannot be a sole shareholder in other LLC), or two or more persons (the maximum number of shareholders is limited to 50).
The minimum registered capital is of EUR 5,000. The minimum contribution of each shareholder must be of EUR 750. If the Limited Liability Company is founded by a single entity, the registered capital must be paid up in full.
A limited liability company doing business in Slovakia acquires legal personality status upon its registration in the Commercial Register. A company shall have registered seat in the territory of Slovakia. It is not possible to register the company in the Commercial register without document proving the seat in the premises. The premises owner´s signature on the consent to the establishment of a registered seat must be verified by a notary public.
The LLC is also required to have at least 1 executive director. Only a natural person can be appointed as an executive director. If there are more executive directors, each of them is entitled to act individually on behalf of the company doing business in Slovakia unless stipulated otherwise in the Articles of Association/Foundation Deed.
The Commercial Register in Slovakia is administered by the Registry (District/Municipal) Courts, and it is public. The website is accessible at www.orsr.sk.
The corporate income tax is levied at a rate of 21% in Slovakia for taxpayers with annual taxable revenues between EUR 100,000 and EUR 5 million. For taxpayers with annual taxable revenues exceeding EUR 5 million a 24% CIT rate is applied. A 10% rate applies to taxpayers with annual taxable revenues below EUR 100,000.
If the taxpayer´s annual tax liability is lower than the minimum tax or if the taxpayer reports tax loss, the following minimum tax amounts apply:
With respect to profits derived from January 1st, 2017, the single taxation system applies (i.e., exemption of profit distribution payments from tax) in the case of corporate shareholder only if the shareholder is based in other than non-cooperating state.
The tax period in Slovakia can be either the calendar or the fiscal year.
The deadline for filing the corporate income tax return in Slovakia is by the end of third month following the end of the tax period. The filing deadline may be extended by maximum 3 months. If part of the taxpayer’s tax base consists of foreign-source income, the filing deadline may be extended by additional 3 months.
A company doing business in Slovakia is treated as a Slovak tax resident if it has its legal seat or place of effective management in the Slovak Republic.
Tax losses generated from 2020 can be carried forward and deducted from up to 50% of the tax base over 5 years.
The standard VAT rate is 23%, the reduced rate is 19% and 5%. The reduced rate of 19% is applicable for specific categories of food products for human consumption, electricity, and certain restaurant and catering services related to the serving non-alcoholic beverages. The reduced rate of 5% is applicable for certain basic food products such as fresh meat, fish, bread, milk, milk products, vegetables, fruits, etc; medicinal products; books; accommodation services; restaurant and catering services; admission to sports events and fitness centres; services of social enterprises; delivery of a building or construction works on a building that meets the conditions for state-supported rental housing.
The export of goods and services is zero rated. The intra-community supplies of goods are zero rated under certain conditions.
If a resident company, doing business in Slovakia, exceeds an annual turnover of EUR 50,000 in the current calendar year, the taxable person becomes a VAT payer from the first day of the following calendar year. However, if the annual turnover exceeds EUR 62,500 in the current calendar year, the taxable person will become a VAT payer immediately on the day on which the turnover was exceeded. The deadline for filing a VAT registration application is five working days from the day when the threshold was exceeded.
Taxable persons supplying property (buildings, building land) have to register for VAT purposes only if certain conditions are met. Voluntary VAT registration is also possible.
In case of intra-community acquisition of goods from other EU member states, the taxable person has to register for VAT before the cumulative value of transactions exceeds EUR 14,000 within a calendar year.
Furthermore, a taxable person has to register and pay VAT or report the supply of service in EC Sales List if the place of delivery for that service is:
VAT registration is mandatory for non-resident companies doing business in Slovakia when they supply goods or services subject to VAT. The VAT registration must be completed within 5 working days from the day the taxable transaction takes place.
VAT returns must be filed, and VAT liability paid within 25 days from the end of the taxable period. The taxable period is a calendar month or a calendar quarter under specific circumstances. An essential and inseparable part of the VAT return is so called control statement through which the VAT payer provides the tax authority with specific information about all transactions carried out with business partners. Both the VAT return and the control statement must be filed with the tax authority electronically.
Financial transaction tax
Excise duties, applicable to mineral oil, beer, wine, spirits, electricity, coal, natural gas, tobacco products
Motor vehicle tax
Real estate tax, including land tax, building tax, apartment tax and other local fees
Special levies for regulated industries, such as energy, insurance and reinsurance, public health insurance, electronic communications, pharmaceutics, postal services, rail traffic, public water and sewer systems, air transport and health care services under special legislation
Non-life insurance premium tax
Customs duties
In Slovakia, any natural person who is over 15 years old and has completed a compulsory education is entitled to work. However, non-EU citizens have to have a working permit.
Employing foreigners of EU or EEA is possible based on the same conditions as employing Slovak citizens, since they have the right to free entry and stay in the Slovak Republic. The employer must inform a respective Office of Labour, Social Affairs and Family (ÚPSVaR, in short) about hiring such employee.
The conditions of employment of foreigners who are citizens of third countries varies depending on the type and duration of their residence in Slovakia, for example, blue card, temporary residence for the purpose of employment, national visa, etc., the type of work performed and other factors.
The employment relationship is established by an employment contract, which may be concluded
In Slovakia, there is also possibility to conclude agreements on works performed outside the employment relationship, such as:
Slovak tax residents are taxable on their worldwide income while Slovak tax non-residents are taxed on their Slovak-source income.
The personal income tax is levied at the following rates in Slovakia:
The tax period for personal income is the same as the calendar year.
The tax return deadline falls on March 31, but it may be extended with written notification by up to 3 calendar months or by up to 6 calendar months, if part of the taxable income is from foreign sources.
In Slovakia, tax residency is based on fulfilling at least one of the following criteria:
Individuals who are Slovak tax residents are taxable on their worldwide income. Taxable income of an individual is usually calculated by aggregating the separate net results of the following income categories:
Income from capital, dividend income and income from business activities are not aggregated, but on each income category a separate tax base is to be calculated.
Non-resident individuals are taxed only on their income earned from Slovak sources. In case the seat of the company doing business in Slovakia is situated outside of Slovakia and the employee has not been present in Slovakia for more than 183 days in 12 consecutive months, the income from such employment is exempt from tax. However, this exemption does not apply to artists or sportsmen, or to permanent establishments. The income of non-residents is generally taxed according to the rules applicable to residents unless a law or a tax treaty specifies otherwise.
The income of natural persons is subject to further deductions in Slovakia, if falling under Slovak social security system, specifically due to contributions. The employer pays 25.2% of the social security contributions while the employee pays 9.4%. Regarding health insurance contributions, 11% is paid by the employer and 4% is paid by the employee.
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