Recently, during August and September 2016, a governmental package of proposed amendments to tax law including amendments regarding income tax and VAT was submitted to the parliament. Please find the main proposed changes summarized below. The mentioned changes are proposed to become effective from January 1, 2017, unless otherwise specified below. To become law, they must be approved by the National Council of the Slovak Republic, afterwards signed by the President and published in the Collection of Laws of the Slovak Republic. Until the date of publishing of these News some draft amendments were already approved by the National Council of the Slovak Republic and in such case it is noted below.
Income Tax
Tax on dividends
Starting January 1, 2017 dividends paid to individuals, residents and non-residents, by domestic companies should be subject to withholding tax at the rate of 7% if the applicable double tax treaty does not determine otherwise. If the recipient is an individual from the non-contracting state, the tax rate of 35% will apply.
In case that the individual will receive dividends from abroad, those dividends will be taxed within the separate tax base at rate either of 7% or of 35% if the dividends will be from foreign sources of the non-contracting state.
As a consequence of the introduced taxation of dividends paid to individuals at a rate of 7% or 35% will be that these dividends will not be subject to healthcare insurance contribution.
Dividends paid to employees who do not own shares in the company will be subject to the tax, too and taxed under regime applicable to wages and salaries.
Dividends paid to domestic companies will be taxed within the separate tax base at rate of 35% and only if the distributing entity is based in a jurisdiction that does not have a tax treaty in force with the Slovak Republic. Dividends paid by domestic companies to foreign companies based in jurisdictions that do not have a tax treaty in force with the Slovak Republic will be subject to a 35% withholding tax.
Introduced taxation shouldn´t have retroactive effect, meaning that the dividends paid from the profit from 2004 until 2016 shall not be subject to tax.
Increased rate of lump-sum expenses which can be claimed by a sole entrepreneur
The rate of lump-sum expenses which can be claimed by a sole entrepreneur as tax deductible expenses will be increased from 40% of the income to 60% of income as of January 1, 2017. The maximum amount of such lump-sum expenses can not exceed EUR 20,000.
Reducing of the corporate income tax rate Proposed changes cover also the reduction of the corporate income tax from the current 22% to 21%. New rate shall be applied in the tax calculation for the tax period starting earliest as of January 1, 2017.
Licence fees as tax expenses only after payment
Licence fees will be added to the list of expenses that fall under payment condition. Expenses falling under payment condition can be claimed as tax deductible expense only if paid. This change shall apply for tax periods for which tax returns shall filed on or after January 1, 2017.
Testing and demonstration vehicles
If the holder of a new vehicle (car manufacturer, representative of the manufacturer, authorized retailer) will not transfer possession of the vehicle to another person up to 1 year and 15 days after that date will not pay the full amount of the registration fee pursuant to a special regulation, he/she will be obliged to increase the tax base by related tax depreciation charges, cost of operation, technical improvements or repairs.
Above mentioned shall apply to motor vehicles registered in Slovakia as of February 1, 2017.
Expenses for material humanitarian aid provided abroad
Material humanitarian aid provided abroad, that will be free of charge granted to the Ministry of the Interior based on deed of covenant, will be considered to be a tax expense as of January 1, 2017.
Cancelation of the payment for the tax licences
Rules on payments of tax licences (i.e. the minimum amount of tax) were proposed to be cancelled from 2018 by some members of the parliament. However, in the course of October the proposal was abandoned.
Stricter penalties for breaching of an arm’s length principle between related entities
A taxpayer who is by means of transfer pricing deliberately decreasing the tax base or increasing the tax loss shall pay stricter penalties. Such taxpayer shall in this case pay twice as much. However, if the taxpayer recognizes the breach and pays up the rest of the assessed tax in the given amount, the stricter penalty will not apply.
Stricter rules shall apply on the additionally assessed tax from the tax control which starts after December 31, 2016.
Fees payable in connection with advance pricing agreements (APA) applications will be amended
The fee for applying for APA will as of January 1, 2017 no longer depend on the value of the business case, but is to be set as follows:
- for unilateral APA: 10 000 EUR,
- for bilateral and multilateral APAs: 30 000 EUR.
VAT
(note: proposed changes were already approved by the Parliament on October 12, 2016)
Interest payment in favour of a taxable person in the case a VAT refund is postponed due to a tax inspection
The introduction of an interest payment in favour of a taxable person in the case a VAT refund is postponed for more than 6 months due to a tax inspection. The taxable person should receive the interest payment for each day of delay after the end of the 6-month period. The annual interest rate should be double than the basic interest rate of the European Central Bank and not lower than 1,5%.
The above mentioned shall apply also on the cases when the tax control started before January 1, 2017 but will not be finished until January 1, 2017.
Reverse-charge mechanism when providing construction works
With regards on the issues arising from practical application of classification of construction works under particular sections of the CPA classification according to the Guideline of European Commission (EU) No. 1209/2014 the implementation of a legal fiction was introduced that shall be effective as of January 1, 2017. In case that there will be a legitimate assumption of the supplier that provided supply of construction work shall fall under the reverse-charge mechanism he/she will state in the invoice „application of reverse-charge mechanism“. In such case the taxpayer, who is the recipient of a supply, shall be obliged to pay the tax without further verification whether the activity was classified correctly in accordance with the CPA classification, or not.
Also an amended version of the VAT control statement shall be introduced in connection with this change.
Excise duties
(note: proposed changes were already approved by the Parliament on October 12, 2016)
Increase of the excise duty on tobacco and tobacco products
Rates for the excise duty on tobacco and tobacco products will be gradually increasing, initially from February 1, 2017 and later from February 1, 2019.
Special duty on business activities in regulated sector
Change of the taxable base and the rate of the duty
The special duty has to be paid, even after 2016, despite the fact that it should be effective only until the end of this year.
The definition of the taxable base for special duty will be amended so that the duty applies only if the accounting result of at least EUR 3 million is reached and only on income from regulated activities. For this purpose the taxable base will be comprised of the accounting result multiplied by the coefficient, while this coefficient will be calculated as the profit from regulated activities divided by total profit of the accounting period.
The monthly rate will temporarily increase from the current rate of 0.363% to 0.726% for the period from 2017 to 2018. Then the rate will be gradually decreasing so that in the period from 2019 to 2020 the monthly rate will be 0.545% and in the period from 2021 the rate will be again 0.363%.
Special levy on selected financial institutions (Bank levy)
(note: proposed changes were already approved by the Parliament on October 12, 2016)
Changing the rate of levy
The bank levy of 0.2% annually will not change during the period from 2017 to 2020. Starting 2021, the rate will be zero.
Contact:
Katarína Balogová
Tax Director, Accace Slovakia
