Taxes in Slovakia
Taxes in SlovakiaUpdated on Thursday 16th September 2021
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An EU member state since 2004, with a strong, growing economy, Slovakia has a tax system that resembles other EU states' taxation bodies. This means that the taxes are taken up by the local and federal governments.
The tax system in Slovakia includes a range of perceived taxes:
- personal income taxes;
- corporate tax;
- value-added tax (VAT);
- special taxes.
Below, our Slovak lawyers explain the main regulations related to taxation in this country. If you need assistance in any tax legislation matter, our law firm can help you.
Tax residency in Slovakia
Taxation in Slovakia is determined based on the residency of the taxpayer in the case of individuals and companies. This means that a person or business must have a place of residence, respectively legal seat in Slovakia. These will be taxed on their worldwide income. For those who don’t have residency in Slovakia, the taxes will be levied on the income they generate in this country.
There is also the matter of taxation of Slovak citizens and companies on income generated outside the country. These are imposed in accordance with the type of income obtained and whether double taxation agreements with the countries in which the profits were gained are in place.
If you have any questions about the taxation system in Slovakia, our lawyers can answer them.
Taxable income for natural persons and companies in Slovakia
In the case of natural persons with Slovak residency or citizenship, the taxable income is made of the following elements:
- income from employment which includes the salary, but is not limited to this;
- independent activities performed by natural persons are also taxed in Slovakia;
- director’s fees, income from services and interests obtained in Slovakia are also taxed;
- income from the sale or renting properties located in the country are also taxed here.
In the case of companies, profits are imposed with the corporate tax based on their accounting profits from which deductible, non-deductible and non-taxable incomes, expenses, or other items are adjusted. In order to have a correct picture of how Slovak companies are taxed, annual accounts and financial statements must be filed with the tax authorities. An important aspect to consider about the taxation of companies in Slovakia is their size. While small and medium-sized businesses benefit from special tax deductions, large companies must file audited accounts which must respect the International Financial Reporting Standards (IFRS). In certain cases, the national reporting standards will suffice. Financial companies are subject to specific taxation rules.
Our lawyers in Slovakia can offer detailed information on the taxation regulations imposed on companies.
The main taxes in Slovakia are presented in the infographic below:
Personal income tax in Slovakia
The country has abolished its flat tax rate, therefore, the current personal income tax rate in Slovakia is progressive, with 19% for up to EUR 34,401.74 and 25% for what exceeds that amount. This is in effect as of the first month of 2015, having reached the highest point of 42% in 1996 and the lowest of 19% in 2004.
The income tax is imposed on various sources of income, such as work, interest, dividends or pensions. Non-residents have to pay only the tax on income and also on capital gains in the Slovak Republic. In some cases the double taxation treaty can be applicable to individuals who do not have a Slovakian residence. Our Slovak lawyers can provide further information on the subject, so feel free to contact our team.
Corporate income tax in Slovakia
The current corporate income tax rate is 21%, with each company having a registered office in Slovakia. In the case of companies, there are also other taxes to consider among which the payroll tax which is paid when the remuneration is made to an employee. Slovak companies are also subject to the real estate property tax, however, these can be deducted from the corporate income tax. Social security contributions must also be paid, and they represent 35.2% from an employee’s gross salary.
The great advantage of foreign companies operating in Slovakia through branch offices is that they are not subject to remittance taxes. You can rely on our law firm in Slovakia if you want to create a branch or a subsidiary for your foreign company.
Our law firm can provide you with assistance concerning taxes in Slovakia.
The corporate income tax must be submitted within three months of the date on the balance sheet. However, this period can be extended if the tax office is announced.
Our Slovak lawyers can also help with VAT registration in Slovakia.
VAT in Slovakia
The value added tax in Slovakia is levied on the local legislation, but it also enables the European Council’s Directive 2006/112 on the Common System of Value Added Tax. Both natural persons and companies are imposed with the VAT if they supply taxable goods or services. Imports and intra-Community acquisitions are also subject to the VAT in Slovakia.
In order to collect the VAT, a company or person must register and obtain a VAT number. It is worth noted that upon starting of the business operations, a Slovak company is not required to register for VAT, however, it can do that voluntarily. On the other hand, once a business reaches a turnover of 49,790 euros during a 12-month period, VAT registration becomes mandatory.
There are also a few special regulations that apply to companies selling real estate and which must register for the VAT if certain conditions are met.
For intra-Community acquisitions from other EU states, companies and persons must register only if the value of goods in a calendar year exceeds 14,000 euros.
In the case of foreign companies operating in Slovakia are required to register for VAT before they start VAT-taxable supplies or sales.
The standard value-added tax rate is currently 20%, but it can be calculated either on sales prices or on the customs value, thus there are two rates: one of 20% and one of 10%. The VAT in Slovakia is imposed on the consumption of services or goods.
Our law firm in Slovakia can handle the VAT registration process alongside the business incorporation procedure for those interested. We can also assist once the registration becomes mandatory.
Taxes in Slovakia for foreign companies
Being a member of the Organization for Economic Co-operation and Development (OECD), the corporate tax system in Slovakia commonly abides by the rules and regulations of the OECD. Therefore, foreign companies in Slovakia which are considered non-resident are taxed only on their revenues which originate from Slovakia.
The corporate tax rate for revenues generated in Slovakia is set at 22% since 2014. Our lawyers in Slovakia can provide further details on this subject.
What are the revenues originating from Slovakia?
Since the taxation of foreign companies in Slovakia is applied only on their income generated in the country, it is perhaps recommended to understand exactly what Slovak generated income implies.
Slovak generated revenues refer to the business revenues of permanent establishments and passive income, for example interests, royalties and revenues from asset disposal.
The term permanent establishment is utilized in the local tax legislation and refers to a fixed place of taxable business in Slovakia. A permanent establishment could represent a branch which must be registered in the Slovak Commercial Register, or an unregistered entity with no legal standing. Our Slovak lawyers can offer more information on this matter.
A permanent establishment in Slovakia has the following characteristics:
• it can represent an individual acting on behalf of a foreign business entity and signing agreements on a regular basis in this position, with a power of attorney;
• it effectuated business activities within the territory of Slovakia for more than six months in one calendar year;
• a specific place through which the business endeavors of the foreign business are undertaken in the country.
Non-resident businesses in Slovakia
A company is considered a non-resident in Slovakia if its legal seat or location of its effective management is outside the country’s territory, therefore being exempt from the worldwide taxation of foreign companies in Slovakia.
The location of effective management refers to the place in which the management and business decisions of the supervisory and executive levels of the organization are effectuated, even when the location is not registered as such.
For counselling or further information on the taxes in Slovakia or on how to establish a business entity in this country our solicitors in Slovakia can help you.
Withholding taxes in Slovakia
When it comes to the withholding taxes that need to be paid in Slovakia, the most important ones are the dividend, the interest and the royalties levies. The following rates apply when it comes to income obtained under these forms:
- dividends obtained after 2017 from a non-treaty country are taxed at a rate of 35%;
- dividends obtained from a treaty country are taxed at a rate of 7% or lower, depending on the provisions of the double tax agreement;
- interest paid to a non-resident are imposed with a 19% withholding tax, where a tax deduction or exemption applies, and 35% in all other cases;
- royalties are also levied with a 19% tax rate under special circumstances and a 35% where no deductions or exemptions apply.
The Slovak government supports entrepreneurs through various incentives. Among these, investment incentives are the most common. These are offered in various industries, such as tourism, services, and information technology. Research and development (R&D) activities are also stimulated by the government through special grants. The latest is a super-deduction of costs related to such activities that can be deducted from the tax base as follows:
- 100% of R&D costs incurred in the tax period for which a tax return is submitted;
- 150% after the 1st of January 2019 for R&D costs;
- after the 1st of January 2020, these costs can be deducted for up 200%.
Our Slovak lawyers can offer more information on the incentives offered by the government for various industries.
Taxation of capital gains in Slovakia
Capital gains are included in the corporate tax base and are imposed with the same rate of 21%. In certain cases, capital losses can be deducted, however, they depend on the type of assets they have arose from. Income obtained from share sales in joint stock companies, private equity in limited liability companies or limited partnerships can be exempt from the corporate tax under specific circumstances.
Our lawyers can offer more information on the taxation of capital gains.
Other taxes levied in Slovakia
Apart from the income taxes applied to natural persons and companies, there are also other levies that need to be considered. Among these, Slovak taxpayers must also consider the immovable property tax which is categorized into:
- the land tax;
- the building tax;
- the apartment tax.
This levy is computed based on the surface of the property, the type and location. The tax is imposed at regional level and the rates differ from one region to another (it usually ranges between 0,66 and 8,3 euros per square meter).
When it comes to Slovak companies, it should be noted that in certain industries specific taxes apply. This is the case of financial institutions, mainly banks, which are imposed with a special tax which is calculated based on its liabilities found in the balance sheet.
Companies operating in industries like energy, insurance and re-insurance, public health, pharmaceuticals, communications, public transport, public water distribution and sewage are also liable to a special tax if their profits exceed 3 million euros per year. The rate can reach up to 8.7% in 2020, however, starting with 2021 it will be reduced to 4.3%.
Non-life insurance companies are also subject to an insurance premium tax which is levied at an 8% rate.
Employment contributions in Slovakia
Apart from the income tax which levied on the salaries of natural persons working in Slovakia, there are also specific contributions that must be paid by both the employer and employee. For this purpose, they must register with specific authorities.
The following contributions must be made by employers and employees in Slovakia:
- for sickness insurance;
- to the pension fund;
- for unemployment insurance;
- for health insurance;
- for disability insurance;
- for the guarantee insurance (only employers contribute to this fund);
- to the work accident scheme (another contribution levied on employers only);
- employers must also contribute to the reserve fund.
Payroll contributions are levied at different rates on employers and employees. The total contributions of employees represent 13.40% of the monthly salary, while those of employers represent 35.20%.
It is good to know that starting with 2020, the minimum wage in Slovakia was modified and the annual income is taxed at two different rates: the lower one is 19% and applies to income of up to 37,163 euros, while the higher one, of 25%, applies to annual income exceeding 37,163 euros.
Our lawyers in Slovakia can offer more information on the Employment Law, contributions and obligations of employers and workers.
For further information about the taxes in Slovakia or about the economical system, please contact our law firm. For advice on the fee system, please address to us. Our lawyers can also charge fees for immigration procedures in Slovakia.