Slovakia’s new Financial Transactions Tax to impact cash pooling

On 1 January 2025, the Slovak Financial Transactions Tax (FTT) went into effect after passage of Act no. 279/2024 Coll. on Financial Transactions Tax and on changes and amendments of certain acts (FTT Act), with the first tax period scheduled to start on 1 April 2025. Tax collected for the second quarter of 2025 (i.e. April, May, June) must be paid to the Tax Authority by 31 July 2025, and the paid tax will be considered a tax expenditure.

Entities subject to the FTT

The FTT applies to legal entities, branches of foreign legal entities and individual entrepreneurs (e.g. self-employed individuals conducting business on the basis of a trade or other licence). Public entities such as the Social Insurance Company, municipalities and state budgetary organisations are exempt from this tax.

Transactions subject to the FTT and tax rates

The FTT applies to financial transactions involving debiting funds from a transaction account, using a payment card linked to a transaction account, recharging expenses related to financial transactions conducted in Slovakia, and withdrawing cash from a transaction account. Received payments are not subject to the FTT.

A transaction account is any checking account of an entity subject to the FTT that was established with a payment services provider (e.g. a bank). If the entity has a transaction account with a payment services provider or the provider’s branch in Slovakia, the payment services provider or bank branch must pay the FTT. If the entity does not have such an account, the entity is then responsible for calculating, collecting, and paying the tax, and fulfilling any administrative obligations.

The tax rates differ based on the specific transaction subject to the FTT. Debiting funds from a transaction account is subject to a 0.4 % rate (with a cap of EUR 40 per payment). Cash withdrawals from a transaction account is subject to 0.8 % rate (with no cap applicable). Recharging expenses related to financial transactions conducted in Slovakia is subject to 0.4 % rate (with no cap applicable). Using a payment card at least once a calendar year is subject to a fixed flat-fee rate in the amount of EUR 2.

The tax base is the total amount of debited funds or recharged expenses. The tax period is a calendar month, except for payment card usage, which has tax period corresponding to a calendar year.

Entities cannot avoid the obligation to pay the tax by using foreign bank accounts or accounts held by foreign third parties. Transactions related to conducting the business in Slovakia executed abroad using foreign bank accounts or through third parties must still be reported by entities subject to the FTT, and the FTT must be paid accordingly.

Cash pooling exemption

The FTT Act introduces exemptions for various transactions, including the cash pooling exemption and the exemption for intra-bank transactions between accounts of the same entity executed within the same bank. The cash pooling exemption applies to transactions within a single bank relating to the offsetting of account balances of entities subject to the FTT who are members of a consolidated group. To qualify for this exemption, the entities must be members of a consolidated group, the accounts must be held with the same bank or the branch of such bank and the transaction must be carried out for cash pooling purposes.

Cash pooling is particularly relevant for multinational corporations with multiple subsidiaries, as it allows for efficient management of liquidity across the group. The FTT Act's cash pool exemption is designed to facilitate this practice by exempting certain transactions from the tax invoked by the regulation. The following conditions must be met for the exemption to apply:

• membership in a consolidated group: The entities involved in the cash pooling must be members of a consolidated group for which consolidated financial statements are mandatorily prepared. This ensures that the entities are financially integrated and their cash management practices are coordinated.
• single bank requirement: The accounts of group members must be held with the same bank. This means that all cash-pooling transactions must occur within the same financial institution. The FTT Act and its Explanatory Report clarify that branches of a single legal entity are not considered separate legal entities, whereas subsidiaries are. Therefore, if the accounts are held with different (i.e. self-operating) banks, even if they belong to the same banking group, the exemption does not apply (see the explanation on intra-bank transactions below).
• cash-pooling transactions: Transactions must involve the offsetting of account balances, which is the core function of cash pooling. This includes the transfer of surplus funds from subsidiaries with excess cash to those with cash deficits, thereby optimising the overall liquidity of the group.

If a transaction does not qualify for the cash-pool exemption, the FTT applies to outgoing payments, cash withdrawals, and charges for costs related to financial transactions conducted in Slovakia.

Intra-bank transactions

The FTT Act offers an exemption for transactions within the same bank. The accounts must be opened within the same bank or the respective branches of this bank. Subsidiaries of a bank are formally considered separate legal entities and therefore such an exemption would not apply. For instance, if the accounts are held within the bank network by a Slovak (i.e. non-branch) subsidiary and its foreign shareholder, the transaction would be subject to the FTT.

Because the FTT Act is new and there are no established practices or authoritative opinions, entities should seek opinions from the relevant Tax Authority or from the Slovak Ministry of Finance for further clarification on specific issues.

Conclusion

The introduction of the FTT brings significant changes to the financial landscape and may also impact entities engaged in cash pooling. Understanding the implications of the FTT and ensuring compliance with the new regulation is crucial for effective financial management.

For information on how the FTT could affect your Slovakia-based business, contact your CMS client partner or these CMS experts: Oliver Göndör, Martin Melicher