The Ministry of Finance has submitted legislative amendments for inter-ministerial comment. If the amendments are approved, they will become effective either on 1 January 2017 or 1 January 2018.
Income tax
Tax rate
The main changes being prepared in taxation of income include a clear reduction in the corporate tax rate to 21%, which will be first applied in tax returns to be submitted for the tax period beginning 1 January 2017. Taxpayers whose tax period is a fiscal year apply the tax rate for the first time in the tax period which begins during the 2017 calendar year.
Dividends
Dividends and profit sharing are subject to another proposed amendment to personal income tax. Dividends paid to individuals, irrespective of its source, would be taxed at a rate of 15%, while health insurance premiums will no longer be deducted from dividends. The same changes will apply to entities with limited tax liability. If the amendment is approved, it would enter into effect on 1 January 2018, which means that any dividends paid out after 31 December 2017 would be taxed.
The amendment would subject dividends and other income to corporate income tax at taxable entities with unlimited tax liability only when income is earned in countries with no tax treaty. Dividends and other income paid to a taxable entity whose owner is located in a country with no tax treaty will be equally subject to tax, if paid by a legal entity in Slovakia. The proposed tax rate is 35%. This measure is primarily aimed at combating tax evasion and post office box companies. Tax will be withheld at the source.
Transfer pricing
The amendment also increases penalties for taxable entities whose transfer pricing intentionally reduces their taxable income or increases their tax losses.
Furthermore, any drafted wording which violates the arm’s length principle will not automatically result in forfeiture of the right to apply tax relief provided in Sec. 30a and Sec. 30b, but the difference (between tax relief in the additional tax return and aggregate tax relief in the annual tax return for any and all violated conditions) will need to be examined at the level of 5% of total tax relief approved in the relevant decision, although at most €10,000.
The amendment modifies the method of determining taxable income if any transfer pricing within Slovakia is self-taxed, i.e. a taxable entity itself adjusts taxable income by the difference between the prices charged by related parties and prices used between independent parties in comparable transactions. In such a case, another related party (established in the Slovak Republic) can correspondingly reduce taxable income without having to submit a request to the tax administrator for permission to make such an adjustment. The proposed measures contained in the amendment to the tax code introduce an accelerated levy to be applied when a taxable entity fails to remedy at least two violations impacting tax due or a claim for a refund by the deadline specified by the tax administrator in a notice, where the tax administrator has yet to start auditing the taxpayer. The amendment also simplifies conditions for permission to defer payment of tax or to pay tax in instalments. The scheduled effective date of the amendment is 1 January 2017.
VAT
Refunds
A new feature in VAT law should be a uniform procedure for foreign entities claiming inbound VAT when civil engineering and construction is provided in Slovakia through the reverse charge procedure or in other reverse charge transactions. This means a request for a tax refund will in such a case take precedence over the tax return. The scheduled effective date of the act amending the code is 1 January 2017.
Compensation of retained excess deduction during tax audits
Something else new is compensation for any excess deduction retained during a tax audit. Taxable entity will be entitled to interest of 1.5% p.a. on excess deduction to be refunded for each day starting six months from the expiry of the deadline for refunding the excess deduction until it is refunded. The legislation should enter into effect on 1 January 2017.
Tax code
Expedited assessment
An expedited assessment procedure is being envisaged in the proposed introduction of a new tax assessment method. Either tax can be assessed or a request for an expedited assessment will be granted only if a taxpayer fails by the legally prescribed deadline to remedy errors found in its tax return which affect either the amount of tax owed or a claim for a refund, where the tax administrator has yet to start auditing the taxpayer. The taxpayer has the option to file an objection to the assessed levy, initiating instead the standard tax assessment process (tax audit and assessment). Unless the taxpayer files an objection, consent to the assessment of tax is assumed.
Correction of tax return errors
A proposed change is for the tax administrator to correct all errors that have no impact on tax or entitlement to a refund, when they are able to be corrected.
There is also a proposal to proceed with tax returns that have not been signed or were signed by an ineligible person as if they had not been filed.
Deferred payment of tax
An amendment repeals the required security for deferred payment of tax or to pay tax in instalments when the amount of tax due or the underpayment is less than €3,000.
Liens
There is an option proposed of pledging property or having the tax guaranteed by someone else besides the tax debtor (who may then be subject to enforcement of the tax), such as a VAT guarantor, members of VAT group and the like.
If the above amendment is approved, the effective date should be 1 January 2017.
Excise tax
In regard to consumption taxes, the Ministry of Finance is proposing an increase in the excise tax on tobacco products. Starting in 2017, the cigarette tax will rise to €61.80 per thousand cigarettes, with a further two euros to be added after 2019. The tax will climb for tobacco by about three euros a kilo from 2017 and for cigars by almost seven euros a kilo in 2019. The main aim is to protect public health and also stabilise tax revenues. If the amendment is approved, it will enter into effect on 1 January 2017.
Regulated industries
Changes are likely to have an impact also on businesses in regulated sectors. Presently, 0.363% of these companies’ profits are taxed to raise revenue, covering power companies, postal services, insurance and telecommunications. The Minister of Finance is proposing to double the levy to 0.726 percent. This amendment should become effective on 31 December 2016.
As the amendment is still being discussed in inter-ministerial review, our team will be closely monitoring developments on the amendment and we will inform you on the approved laws.
