The Financial Directorate of the Slovak Republic has published the Information on the exemption of income from the sale of shares and capital shares under the provisions of Section 13c of Act No. 595/2003 Coll. on Income Tax. This provision may be applied upon the subject of conditions – to selected legal entities or permanent establishments of taxpayers with limited tax liability located in the territory of the Slovak Republic.

Due to extensive list of various conditions for application of the new exemption, we bring You with a comprehensive overview.

▢ Exempt revenues

Exemption from taxation of income from the sale of shares and capital shares applies to the sale of:

• shares in a shareholder of a limited liability company
• ordinary shares or shares representing rights similar to those of a shareholder of a limited company in shares
• a share of a shareholder in a limited liability company or a limited partner in a limited partnership (including similar partnerships abroad) and shares of tax resident or permanent establishment of a foreign corporation in Slovakia

At the same time, it is specified that the exempt incomes include only such income from the sale of shares or capital shares which is owned by a tax resident or a permanent establishment located in Slovakia.

The Tax Directorate specifies in the published Information that exempt income does not include income which represents:

• a membership right in a cooperative society, which is not exempt due to its absence in the exhaustively defined scope of exempted income
• a business interest in a foreign company when the taxpayer exit the territory of Slovakia and if it is part of the assets and liabilities of that taxpayer (the change of residence and transfer of interest abroad does not generate income and there is no change of ownership or legal transfer)

▢ Conditions for claiming the exemption

The exemption from taxation for shareholders, partners and limited partners located in Slovakia can only be claimed after several tests have been met, all conditions must be met at the same time. These are:

Test	Conditions
Time test	The incomes from the sale of the financial investment are tested to be earned no earlier than 24 consecutive calendar months after the acquisition of the share
	This is based on the date on which the sale is accounted for in the accounting (the basis for this is the contract for sale of shares or capital share)
Minimum shareholding test	Condition of holding at least 10% of the share capital
Function and risk tolerance test	The performance of the essential functions (the exercise of shareholder and voting rights), the management and bearing of risks associated with the ownership of shares and capital shares including the disposition of the personnel and material equipment used to perform the rights and functions, are tested
	This is based on accounting or IFRS records and cannot be a “shell company – passive company” or a “third party” that performs functions and management on behalf of the owner of the share or shareholding

The above tests of minimum shareholding and bearing of functions and risks shall be tested over a period of 24 months from the acquisition of the shareholding.

The above test of exemption of income and application of exemption shall not be used:

• in the case of a securities dealer
• for a dealer in liquidation
• on the sale of ordinary shares by a shareholder of a limited company of share or a business interest by a taxpayer in liquidation, bankruptcy or restructuring
• on the sale of treasury shares

The Tax Administration clarifies that for tax purposes, only the actual execution of the restructuring plan is considered – the restructuring is completed after the plan is executed and the sale during that execution (if the exemption tests are met) – is not exempt from taxation.

The intent is to apply the exemption only to “healthy” companies that employ employees and report activity or have proceeded with a turnaround plan (going concern rule).

▢ Holding of a direct shareholding

For purposes to meet the conditions for application of the exemption of income from the sale of shares from taxation, it is also necessary to verify (test) the date of acquisition of the direct shareholding according to the conditions summarised below:

Date of acquisition of the direct holding	Conditions
Full repayment of the cash deposit	The date of registration in the Commercial Register is verified
Repayment of the non-monetary contribution
Completion of a plan to purchase, donate or inherit shares or capital shares	–          Day of registration of shares in the records of the central depository –          Day of transfer by endorsement and delivery of the certificated share –          Effective date of the agreement on the transfer of shares to a limited liability company / limited partnership
Acquisition of shares or capital shares in a business combination or corporate reorganisation if: –          the successor sells the shares or capital shares acquired from the dissolved company without liquidation in a business combination after 1 March 2024 –          a shareholder or member of the dissolving company without liquidation sells shares or an capital shares acquired in a business combination after 1.3.2024	The date of registration in the Commercial Register is verified
Relocation of the company’s headquarters to Slovakia	The date of registration in the Commercial Register is verified
The effects of the conversion of the company have occurred and the shares or capital shares acquired by the spin-off are sold	The date of registration in the Commercial Register is verified
Change of legal form (not valid for period of cooperative society)	The date of registration of the change in the Commercial Register is verified

Taxpayers need to beware of when the date of acquisition of shares is not considered to be the date of holding a direct interest – and therefore the ownership condition is not met:

• Entering into a contract where the shares or capital shares are transferred in the future or after other conditions precedent have been met
• the purchase of an option
• acquisition of a pre-emption right over the share

In general, the rule is not possible to verify that the condition of holding a direct interest for period of 24 month has been met because of the conclusion of contract in future (short period of shareholding) – the exemption to time test does not apply.

▢ Tax deductibility of costs of sale

It remains the case for corporate taxpayers that costs equal to the cost of the shares or capital shares are not treated as a tax expenses in the taxable year in which the sale of the shares occurs.

Implication of exempted incomes on the tax base is shown in table below:

Row	Item	Impact on tax base
130	Expenses (costs) that are not considered as a tax expenses	The purchase price of the shares or capital shares increases the tax base in the year of sale of the shares or interests
		Interest arising from the provision of a loan or credit for the acquisition of shares increases the tax base in the year of the sale of the shares
260	Exempt income booked in the accounts	Recognised sale proceeds decrease the tax base in the year the shares are sold

The rule of exemption from taxation of income from the sale of shares or capital share can be applied in the tax return for 2020 and later, however, the holding period of direct shareholding is tested for ownership retrospectively before 2018.

▢ Impacts on holding companies

The updated Information regarding the exemption of proceeds from the sale of shares and capital shares does not considers the practical consequences of holding companies operating in the ownership structure of its subsidiaries that sell shares.

The practical considerations of holding companies are primarily related to the test of bearing the functions and risks of owners of shares as defined by the Slovak law, while having the necessary material and staffing facilities necessary for this exercise.

The Slovak Commercial Code defines among the essential functions associated with the ownership of shares in particular:

• the right to attend general assembly of the company
• to vote at general assembly
• to request information concerning the affairs of the company or of persons controlled by the company
• information relating to the management and financial affairs of the company

The practical area of holding company operations has therefore defined holding companies which hold shares in subsidiaries from which they derive only passive income:

• income from the sale of dividends
• gains on the sale of shares
• income from loans in the form of interest
• income from the sale of royalties

Parent holding companies usually own only the tangible or intangible assets of the subsidiary, while the subsidiaries carry on the business (they use the assets under a fee-based lease with the parent company). The risk is transferred from the business activity to the subsidiaries.

Since holding companies only use the assets in order to legally protect the assets and control the specific business risk, while the (underlying) risk itself is borne by the subsidiaries – the basic test of bearing the risks and functions is not met and the above exemption cannot be adequately applied to the holding company.

Reasons for not-applying exemption

In our experience, the most common reasons for the tax authorities not to accept the exemption from taxation of holding company include, in particular, the absence of:

• Defining the nature of a pure holding company (one that bears no business risk)
• The application of only extensive material and personnel provision for the performance of functions
• Proof of tax residency (exempting the rule conditioning all holding companies to be shell companies)
• Inclusion of assessment and testing of specific functions and risks that correspond to the nature of the holding company
• Assessing the activities of other group companies within the jurisdiction

Trade in goods between the Slovak Republic and other EU Member States as well as third countries is subject to a strict statistical reporting obligation in Slovakia – Intrastat reporting on the receipt and dispatch of goods.

Considering that data from statistical surveys are used by various business and non-business associations to obtain information about various markets and their position on them, we bring You with a detailed overview of the Intrastat obligation applicable in Slovakia.

▢ Intrastat reporting threshold

For the purpose of fulfilling reporting obligation, importers and exporters (traders in goods), regardless of their status as Slovak or foreign persons, are obliged to monitor the exemption threshold for transactions carried out within the EU.

The current thresholds for the Intrastat reporting obligation are:

General threshold for all industries
Import of goods within the EU	1 000 000 EUR
Export of goods within the EU	1 000 000 EUR
Specific threshold for the agriculture and food industry
Import of goods within the EU	200 000 EUR
Export of goods within the EU	400 000 EUR

Once the above limits are exceeded, traders with goods are obliged to register with the Statistical Office of the Slovak Republic. The lower exemption thresholds apply to entities that are listed in the Register of Organizations of the Statistical Office with the main activity according to SK NACE Code:

• 01 Cultivation of crops and animal husbandry, hunting and related services
• 02 Forestry and logging
• 03 Fishing and aquaculture
• 10 Food production
• 11 Production of beverages
• 12 Production of tobacco products

Please note that the Statistical Office additionally verifies the fulfilment of the main condition – the performance of an activity subject to the category of agriculture and food industry according to the data in the Commercial Register.

▢ Subject of Intrastat obligations

The subject of the Intrastat reporting is the import and export of goods physically transported between the Slovak Republic and EU Member States or third countries. When reporting the Intrastat obligations, a distinction is made whether it is:

• Import of goods within the EU – goods enter the territory of the Slovak Republic from another EU Member State
• Export of goods within the EU – goods leaving from the territory of the Slovak Republic for destination in another EU Member State
• Union goods – goods entering or leaving the territory of the Union, being any goods which are in movement between Member States but are not under the customs control of the Union. Goods which are not Union goods but are placed under the inward processing customs procedure are also entered in Intrastat declarations.

▢ Exemptions from Intrastat obligations

It is important to note the exceptions to the Intrastat reporting obligation which are not reported and do not affect the statistical records of the importer and exporter. These exceptions to Intrastat reports include:

• monetary gold other that investment gold
• means of payment that are legal tender and valuables other than collectible means of payment and valuables
• customized information carriers including software
• goods supplied free of charge in the form of advertising material and business (commercial) samples
• goods for repair or maintenance purposes
• means of transport on the move in the pursuit of their activities
• goods intended for temporary use (e.g. rent, loan, operating lease)
• goods in transit which are only being transported through the territory of the Slovak Republic or which are only there for transport reasons
• goods subject to customs procedures (customs clearance) which are in movement between the Member States and the country of entry of the goods into the territory of the Union
• goods imported or exported to countries that not applying the VAT system (e.g. French overseas departments, Canary Islands, Mount Athos, Campione d’Italia, Aland Islands)
• goods imported or exported from territories outside the customs regime of their country and between territorial enclaves in another Member State (e.g. French Polynesia, New Caledonia, the island of Heligoland and the territory of Büsingen in Germany, Ceuta and Melilla in Spain, the Faroe Islands and Greenland, the Netherlands Antilles and Aruba)
• goods imported or exported from the territory of San Marino.

Following on from the above, items such as agricultural products, medicines and pharmaceutical products, food and non-food commodities and many others are also covered by Intrastat reporting.

▢ Creation of Intrastat obligation

In order to be obliged to register for Intrastat reporting, a Slovak or foreign entity must track the value of goods imported and exported within EU countries for the period 1 October 2022 to 30 September.

Summary of the rules for the reporting obligations

Monitoring period	Exceeding the import and export threshold	Intrastat obligation	Additional verification
1 October – 30 September	Not exceeded	Not arises	Obligation to monitor the exceeding of the limit (exemption threshold) during the year
	Exceeded	Arises	Obligation to specify which goods flow (entry/exit) the report relates to
From 1 January	Exceed	Arises	Obligation to report by the 15th day of the following calendar month

The deadline for submitting the Intrastat report is the 15th day of the calendar month following the month in which the limit was exceeded.

▢ Termination of Intrastat obligation

Summary of the rules for the termination of the reporting obligation

Monitoring period	Exceeding the import and export threshold	Intrastat obligation	Additional verification
1 October – 30 September	Not exceeded	Expires as from 1 January of the following year	Automatic termination of Intrastat reporting
31 December of the year concerned	The set limit has not been cumulatively exceeded	Expires as from 1 January of the following year	Notification of the change to the Statistical Office and approval of the termination of Intrastat reporting
Mergers of reporting agents	Not verified	Expires as from 1 January of the following year	Notification of the change to the Statistical Office and approval of the termination of Intrastat reporting

Upon notification to the reporting unit (trader in goods) and not exceeding the established exemption threshold for Intrastat reporting, the Statistical Office shall notify in writing the termination of the reporting obligation.

Amendment of the Act No. 530/2023 Coll., which amends certain acts in connection with the improvement of the state of public finances, it should not be forgotten that there is a new obligation for legal entities for the tax period 2024 in the form of – minimum tax of a legal entity.

As the minimum tax applies to both profit and loss making corporations, we bring You with a detailed overview of the minimum tax conditions for the year 2024.

▢ Determination of the minimum tax

The minimum tax is defined as a tax after the deduction of allowances (investment aid and tax incentives), credit tax paid abroad which the taxpayer pays for each tax period in which the tax liability calculated is less than the amount of minimum tax.

The amount of the minimum tax depends on the taxable income (revenue) booked by the taxpayer for the tax period as shown in the table below:

Taxable income threshold for determining the minimum tax
Income up to 50 000 EUR	340 EUR
Income over 50 000 EUR to 250 000 EUR	960 EUR
Income over 250 000 EUR to 500 000 EUR	1 920 EUR
Income over 500 000 EUR	3 840 EUR

The minimum tax is also payable by the taxpayer who has reported a tax loss – the minimum tax is payable within the limit applicable for the income threshold (up to EUR 50,000) in the amount of EUR 340.

If the taxpayer registers on average at least 20% of employees consisting of disabled individuals his minimum tax amount is reduced to half as follows:

Taxable income threshold for determining the minimum tax
Income up to 50 000 EUR	170 EUR
Income over 50 000 EUR to 250 000 EUR	480 EUR
Income over 250 000 EUR to 500 000 EUR	960 EUR
Income over 500 000 EUR	1 920 EUR

The minimum tax is payable by the due date for filing the corporate tax return – for the tax period 2024 as follows:

• by the regular tax return deadline of 31 March 2025
• in the extended period of 3 calendar months by 30 June 2025
• for taxpayers with foreign incomes by 30 September 2025
• Minimum tax credit

The minimum tax may be set off against tax liability in subsequent tax periods under the following conditions:

Tax liability in the tax return	Entitlement to credit	Extinction of entitlement to credit
Positive difference between minimum tax and tax liability for 2024	in max. 3 consecutive tax periods following the period of positive difference	If the tax liability does not exceed the amount of the minimum tax
	Paid tax prepayments excess the current tax liability	If the positive difference between the paid tax prepayments and the tax liability is refunded or set off against future tax prepayments
Dissolution of the taxpayer without liquidation or entry into bankruptcy	–	Entitlement to credit ceases

These rules may change depending on the resulting tax liability and the settlement of the overpayment of tax payments for the respective tax period.

▢ Exceptions where no minimum tax is payable

• a newly established legal entity filing a tax return for the first time for the tax period of its establishment (does not apply to successors in title of a taxpayer dissolved without liquidation)
• civic associations, foundations, non-profit organisations and interest associations, political parties, special purpose-oriented organisation and legal persons of public interest
• organisations operating a sheltered workshop or sheltered workplace
• land trusts, where their income from a taxable activity does not exceed EUR 10 000
• a taxpayer who has received notice of the opening of winding-up proceedings (in the tax year in which the company is being wound up)

▢ Impact of minimum tax on foreign legal entities

The new institution of the minimum tax of legal entities also has special impacts on foreign legal entities since they operate in Slovakia through their organisational units (branches) or permanent establishments.

In this respect when assessing the minimum tax, it is necessary to consider whether the foreign legal entity is from a treaty-cooperating or a treaty non-cooperating tax jurisdiction. Therefore we distinguish:

• foreign entities from treaty states (application of the Double Tax Treaty) which tax only income earned from a source in Slovakia and such income is subject to the minimum tax. However the following applies to:
• income which is subject to taxation in Slovakia by means of a tax return
• a Double Tax Treaty does not exempt income from taxation

In relation to the income earned in Slovakia, the following types of foreign legal entities are classified:

Type of foreign legal entities	Income assessment	Minimum Tax
Organisational unit (branch) which is a permanent establishment	Income is taxable in Slovakia	If the tax liability is less than the minimum tax – minimum tax liability
Organisational unit (branch) which is not a permanent establishment	Income is taxable in Slovakia	No minimum tax is payable (even if a tax return is filed)
Permanent establishment without the existence of an organisational unit (branch)	No revenue is generated	If the tax liability is less than the minimum tax – minimum tax liability
Foreign person without permanent establishment and organisational unit (branch)	Income is taxable in Slovakia	Minimum tax liability

• foreign persons from non-contracting states (Double Tax Treaty do not apply) who file a tax return in Slovakia although they do not earn taxable income – they are obliged to pay the minimum tax when filing the tax return (regardless of the establishment of a permanent establishment).