In Moore Slovakia, our tax experts everyday monitor Slovak tax legislation for you, our business partners and clients. In this respect, we would like to draw your attention to an important change in the area of withholding tax that affects payments for the use of software acquired from foreign suppliers, we informed you in our recent article.
This change results from the fact that the Slovak Republic has withdrawn its reservation to the interpretation of the OECD Model Tax Convention. Until the end of 2025, this reservation allowed a distinction between standardised software and customised software for the taxation of royalties.
▢ The impact of new guidance to Slovak business
From 1 January 2026, payments for the right to use any software, including customised or non-standard software, are treated as “royalties” for withholding tax purposes in Slovakia.
This applies even where there is no full transfer of ownership rights and the customer receives only the right to use the software. Such payments may therefore be taxed under the applicable double tax treaty.
This means:
- payments for the right to use software may be treated as royalties under the relevant double tax treaty.
- this applies regardless of whether the software is standardised software that is commercially available or customised software.
▢ What is impact for Slovak companies?
If a Slovak company pays a foreign supplier for the right to use software, these payments may be treated as royalties and may be subject to withholding tax under the applicable double tax treaty.
If you receive and pay invoices for standardised software, it is necessary to review the relevant double tax treaty.
If Article 12 (Royalties) of the treaty includes software within the definition of royalties, payments for the right to use software will be subject to withholding tax from 2026.
For example, the double tax treaty between Slovakia and the Czech Republic provides the following definition:
The term “royalties”, as used in this Article, means payments of any kind received as consideration for the use of, or the right to use:
(a) any copyright, patent, trademark, design or model, plan, secret formula or process, computer software, or any industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
Under the Slovakia–Czech Republic double tax treaty, payments for the use of standardised software are subject to withholding tax because software is expressly included in the definition of royalties in Article 12.
If you are involved in cross-border software licensing transactions, we recommend identifying these transactions and reviewing the relevant double tax treaty, as the withholding tax treatment must be assessed on a case-by-case basis.
We will be happy to assist you with this analysis. If you have concerns about the current taxation of royalty payments or are unsure how to correctly set up the applicable tax treatment, please do not hesitate to contact us.
