Slovakia’s tax system is similar to those of other EU member states. Its key features are:
- 19% flat rate income tax for individuals with proportionate allowance for deductible items from earned salary between SKK 48000 – 96.000. No allowance for salaries exceeding latter income.
- 19% flat rate corporate income tax payable on profits, including capital gains
- Liberalised use of tax losses within 5 years
- 19% VAT (excluding particular medical material and equipment, medication and reagents to which a 10% VAT rate applies)
- No tax on dividend distributions or liquidation surplus
- No thin capitalisation restrictions
- Municipality taxes (primarily real estate tax and vehicle tax)
- Excise duties
Slovakia operates a system of self-assessment, with tight filing deadlines. The tax authorities may perform detailed audits. Significant interest and penalty costs can be payable for under-declaration or late payments of tax.
Corporate income tax
Companies resident in Slovakia are subject to corporate income tax on their worldwide pre-tax profits. Non-resident companies are taxed on pre-tax profits earned in Slovakia. The business year is normally the calendar year but companies may adopt their parent company’s business year. Only expenses incurred to generate, assure and maintain the taxable income of a company are tax deductible. There is a detailed list containing examples of the types of expenses which are tax deductible and those which are not.
Transfer pricing generally follows OECD guidelines in requiring an arm’s length price to be set for foreign related-party transactions (such as loans) and specifying methods for setting transfer prices. The taxable base can be adjusted by the Slovak tax authorities where the parties fail to apply arm’s length prices.
The thin capitalisation rule has been introduced again. From 1 January 2008 these changes have been applied to foreign related parties which are financed by inter-company loans. It applies 6:1 debt/equity ratio for the loans exceeding SKK 100,000,000 in a current tax period.
Recipients of dividend distributions or liquidation surplus from Slovak-based companies are not liable to any withholding or other tax as the amounts have already been subject to corporate income tax. However, foreign recipients may be liable to tax in their country of residence.
Tax losses can be carried forward for a maximum of five consecutive tax periods following the tax period in which it was incurred. It is up to the taxpayer to decide when and how much of the loss to offset against his tax base in any tax period.
Personal income tax
Slovak tax residents are subject to personal income tax at 19% on their worldwide income. They may, however, be exempt from taxation on foreign source income under double-tax conventions. Non-residents are only liable to tax on their Slovak income, such as from employment performed in Slovakia.
Value added tax
The VAT system follows the EU model. Businesses must register for VAT when their turnover in a 12-month period reaches SKK 1.5 million (c. €35,000). Voluntary VAT registration is possible below this threshold. The VAT rate is 19%, except for some goods, to which a 10% rate applies. Goods imported from non-EU countries are subject to VAT on the aggregate of their customs value and any customs duties, fees and consumption tax.
Certain transactions are exempt from VAT, such as postal services, financial services, apartment rentals and sales, rentals and leasings of land (except building land). Businesses providing exempt services cannot recover input VAT in full. Services and goods provided free of charge are also subject to VAT where input VAT is deductible in full or in part. VAT can be refunded under special procedures for foreign corporations and individuals.
The system underwent fundamental change in 2005. Taxes on real estate include land tax, building tax and flat tax. Rates are set per square metre by the municipal authority responsible for the area where the real estate is located.
From 1 January 2008 the new Act on investment incentives came into force. Tax subjects who qualify for approved investment help in the nature of tax relief can apply for the right of exemption (in the form of a tax credit) if all the compliance conditions are satisfied. They can apply for this right in a maximum of five tax periods. There is no legal right to the tax credit, and the number of qualifying investments is limited depending on the particular region and amount of available relief under state aid legislation. In addition, the scope of the incentive is subject to approval by the European Commission.