Corporate tax in Slovakia

Summary

Corporate Income Tax Rate (%) 22 (a)
Capital Gains Tax Rate (%) 22 (a)
Branch Tax Rate (%) 22 (a)
Withholding Tax (%) (b)
Dividends 0
Interest 19/35 (c)(d)
Royalties 19/35 (b)(d)(e)
Income from Media 19/35 (d)(f)
Net Operating Losses (Years)
Carryback 0
Carryforward 4 (g)

a) This rate applies for tax years beginning on or after 1 January 2014.

b) The rates may be reduced by an applicable double tax treaty.

c) See Section B.

d) The 35% rate applies to income paid to residents of non-treaty countries or countries that have not signed the Convention on Mutual Administrative Assistance in Tax Matters.

e) This tax applies to nonresidents only. For resident companies, royalties are included in taxable income subject to corporate tax.

f) This tax applies to income received by authors (individuals) for contributions to newspapers, radio and television. It is possible for the author and the payer of the income to agree that no withholding tax be applied; in such case the income is taxed through the tax return of the author.

g) The tax loss may be carried forward proportionally during a period of four consecutive years.

Taxes on corporate income and gains

Corporate income tax. Slovak (resident) companies are subject to corporate income tax on their worldwide income. Slovak compa­nies are those incorporated or having their place of management in the Slovak Republic. Foreign (nonresident) companies are sub ject to corporate income tax only on their Slovak-source income, such as income attributable to a permanent establishment.

Under Slovak law, a permanent establishment is a fixed place or facility for nonresidents to carry out activities in the Slovak Repub­lic. A permanent establishment includes an administrative loca­tion, branch, office, workshop, sales location, technical facility or location for research and extraction of natural resources. The fixed place or the facility is considered to be permanent if the activities are carried out continuously or repeatedly. In the case of one-off activities, the place or facility is considered to be perma­nent if the duration of the activities exceeds six months, either continuously or divided into 2 or more periods in the course of 12 consecutive calendar months. A building site, construction site or assembly works site (as described in the Commentary to Article 5, Paragraph 3 of the Organisation for Economic Co-operation and Development [OECD] Model Tax Treaty) is regarded as a perma­nent establishment only if the duration of the activities exceeds six months. A permanent establishment also includes the activity of an agent who negotiates or enters into agreements on behalf of a nonresident company under a power of attorney. The provision of services in the Slovak Republic by an enterprise through its employees or other personnel is considered to create a “service permanent establishment” if the provision of services exceeds 183 days in any consecutive 12-month period.

Rates of corporate tax. The corporate income tax rate is 22%, except for withholding tax (see Section A).

Tax license. A concept of a minimum tax, which is in the form of a tax license, is payable by legal persons in three different amounts, depending on the annual turnover. The following are the amounts:

  • Non-value-added tax (VAT) payers with annual turnover of EUR500,000 or less: EUR480
  • VAT payers with annual turnover of EUR500,000 or less: EUR960
  • All legal persons with annual turnover exceeding EUR500,000, regardless of VAT status: EUR2,880

Incentives. To promote investments, the Slovak government pro­vides potential local and foreign investors with investment incen­tives that are proportionate to their activities in the Slovak Republic. The maximum limits for state aid are determined by the European Union (EU) regulations and are driven by the rela­tive development of the country or region in which an investment project is located and the unemployment rate in that region. The limits are set as a percentage of eligible costs of an investment project.

The Slovak Republic provides the following indirect forms of incentives:

  • Tax relief
  • Transfer of immovable assets owned by the state or municipal­ity at a price lower than the market price

The Slovak Republic provides the following direct forms of incentives:

  • Cash grants on acquisitions of fixed assets
  • Cash grants on newly created jobs
  • Cash grants on training

Tax relief. Under the Investment Aid Act, companies may apply for a 100% tax reduction (full tax relief) for 10 consecutive tax years. The tax relief can be provided for newly established com­panies (new production) and also for existing companies (exten­sion of existing production).

Transfers of immovable assets owned by the state or municipality at a price lower than the market price. In exceptional circum­stances, as part of regional aid, the government may award a financial grant or discount from the market price with respect to a transfer of immovable assets (usually land and buildings) to investors by the state or municipalities.

Cash grants for the acquisition of fixed assets. Cash grants can be made for the acquisition of tangible fixed assets (for example, land, buildings, and plant and machinery) and intangible fixed assets (for example, patents, licenses, know-how or unpatented technical knowledge).

Cash grants for newly created jobs. Cash grants for newly cre­ated jobs are made based on the anticipated wage costs related to newly created jobs and the regional location of the project (taking into account the regional unemployment rate).

Cash grants on training. The amounts of cash grants for training are expressed as a percentage of eligible training costs and vary according to region (grants for the Bratislava region are lower than grants for the rest of the country) and type of training (gen­eral or specific).

General conditions. To qualify for investment aid, applicants must meet the general and specific conditions under the Slovak Invest­ment Aid Act and the European legislation. The following are the general conditions:

  • An applicant must submit its investment intention (plan) before the start of the projected works.
  • An applicant must prove its ability to co-finance the project costs (at least 50%) through its own resources (free of any investment aid or subsidy).
  • The project must be completed within three years.
  • The project must comply with all conditions attached to the ap­proval of the investment aid within three years after the issu­ance of the approval.
  • All subsidized job positions must be filled within three years after the completion of the projects and maintained for a period of five years.
  • The project operation must be maintained for a minimum peri od of five years from its completion without change of its location.

Specific conditions. The specific conditions vary according to the type of project.

The following are the specific conditions for manufacturing projects:

  • Fixed assets with a total value of at least EUR10 million (lower thresholds apply in regions with high unemployment) must be acquired, and at least 50% of the value of the assets must be covered by the applicant’s own resources.
  • New machinery for production purposes must be acquired, and must represent at least 60% of the overall costs of the acquired assets. The machinery must be bought on arm’s-length condi­tions, must not have been depreciated before the acquisition and must not be older than two years.
  • The realization of the investment results in the creation of at least 40 new jobs.

The following are the specific conditions for technology centers:

  • Fixed assets with a total value of at least EUR500,000 must be acquired, and at least 50% of the value of the assets must be covered by the applicant’s own resources.
  • The realization of the investment results in the creation of at least 30 new jobs.
  • At least 60% of the total number of employees must have a university degree.

The following are the specific conditions for shared-service centers:

  • Fixed assets with a total value of at least EUR400,000 must be acquired, and at least 50% of the assets must be covered by the applicant’s own resources.
  • The realization of the investment results in the creation of at least 40 new jobs.
  • At least 60% of the total number of employees must have a university degree.

Approval of the aid. No legal entitlement to any investment aid exists. An applicant must submit an investment aid intent to the relevant authorities (that is, the Ministry of the Economy and other relevant aid providers), which review compliance with both the general and specific conditions under the Investment Aid Act. Effective from 2015, a pre-approval from the Ministry of Econo­my to begin the project is not needed. An applicant can begin work on the project as soon as the investment aid intent is submitted to the respective authority. If the conditions are met, the Ministry of Economy may issue an official offer to the applicant. Following receipt of the official offer, the investor may submit an invest­ment aid application. The investment aid application is submitted to the Slovak government for approval. If the project capital expenditures exceed EUR50 million, approval of the European Commission is also required.

Other national and local incentives. The Slovak Republic is en­titled to draw support from the Structural Funds and Cohesion Fund during the period of 2014 through 2020. Most of the funds will be drawn by public institutions (for example, municipalities, cities, nonprofit-making companies), while only a minor part will be available for businesses. The incentives available for compa­nies are mainly focused on tourism, enhancing research and de­velopment (R&D) and employee training.

Investors may benefit from infrastructure (for example, electricity, water, gas and sewage) fully or partially financed by the state and/ or municipality. The municipality may also offer minor tax exemp­tions (real estate tax and other local taxes). In general, most of this support qualifies as regional state aid.

Municipalities are entitled to use state budget funding for the development of industrial parks. At the predevelopment stage, investors are typically requested to sign a letter of intent with the relevant municipality. Benefiting from advantages offered by in­dustrial parks does not, in general, qualify as state aid.

Capital gains. Capital gains are subject to income tax at a rate of 22%.

Administration. The tax year is usually the calendar year. However, if a company informs the tax authorities in advance, it may change its tax (accounting) year.

Tax returns for each tax year must be filed within three months after the end of the tax year. The filing period may be extended by a maximum of three months based on a written announcement filed with the tax authority before the expiration of the regular filing deadline. Another extension of an additional three months is possible if the company received income from foreign sources.

In general, monthly or quarterly prepayments of tax are required, depending on the amount of tax liability for the preceding year.

Dividends. Profits distributed by companies to their shareholders are not subject to tax in the Slovak Republic unless either of the following circumstances exists:

  • The distribution is deductible for tax purposes at the level of the subsidiary.
  • The distribution is a transaction (or part of a series of transac­tions) that is (are) not business driven, and the purpose or one of the main purposes is to gain a tax advantage.

Special rules apply to dividends distributed out of profits realized before 2004.

Interest and royalties. Under Slovak law, interest and royalty pay­ments satisfying the conditions contained in Council Directive No. 2003/49/EC are exempt from Slovak withholding tax.

Foreign tax relief. Under applicable double tax treaties, a foreign tax relief is available to Slovak residents for foreign tax paid on income earned abroad.

Determination of trading income

General. Corporate tax is based on the statutory accounting profit as adjusted for certain items prescribed by the tax law.

In general, dividends are not included in the tax base.

Items that are specifically deductible for tax purposes include, among others, tax depreciation (see Tax depreciation) and certain expenses relating to health and safety at work and environmental protection.

Nondeductible items include the following:

  • Entertainment and travel allowances in excess of the statutory limits
  • Penalties and fines
  • Taxes paid on behalf of other taxpayers
  • Damages exceeding compensation received, unless the damage arose as a result of natural disaster, or it was caused by a person or persons unknown and this is confirmed by the police
  • Most accruals and provisions (see Provisions)
  • Write-offs of debts, unless specific conditions are met

Inventories. Inventories may be valued using the first-in, first-out (FIFO) or average-cost methods. Costs include all costs neces­sary to convert the inventory to its current condition and to trans­port it to its current location. Shortages and damages are not tax deductible, unless the damage resulted from a natural disaster, or it was caused by a person or persons unknown and this is con­firmed by the police.

Provisions. Accruals and provisions are generally not deductible, with certain exceptions specified by law.

Special rules apply to banks and insurance companies.

Tax depreciation. Under the Income Tax Act, tangible assets are divided into six categories, each of which specifies a period (a specified number of years, which range from 4 to 40) over which all assets in the category are depreciated. Intangible assets are depreciated over their actual useful life.

It is possible to split assets and depreciate separable parts of the assets. Each separable part must have an acquisition price higher than EUR1,700, and separate evidence must be maintained. Only parts of assets specified by the Corporate Income Tax Act can be depreciated based on separate parts (for example, specific build­ings and machinery).

Tax depreciation may be calculated by using either the straight-line method or the accelerated method. A company chooses the method on an asset-by-asset basis and, after the method is chosen, it cannot be changed during the depreciation period.

Research and development. To support entities performing re­search and development (R&D), an allowance is available, effec­tive from 1 January 2015. This allowance consists of the following:

  • 25% of real costs incurred for R&D
  • 25% of wage costs for newly hired graduates, deductible in the year in which the graduates are hired
  • 25% of the year-to-year increase of costs incurred for R&D

Relief for losses. Companies may carry forward losses and offset them against income proportionally during a period of four con­secutive years following the tax year of the loss. If the tax period is shorter than 12 months (for exam ple, if the company changes its financial year), the tax loss that would normally be deductible is fully deductible in that tax period.

Groups of companies. Slovak law does not contain any provisions regarding the corporate taxation of groups in the Slovak Republic.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax
Pharmaceutical products, books and
selected food products
10
Other 20
Social security contributions; imposed on
monthly wages with a monthly cap on
wages of EUR4,290; contributions are
deductible for employers; paid by
Employer 35.2
Employee 13.4
Local taxes (tax on land, tax on buildings and apartments, and motor vehicle tax);
rates vary depending on location
Various

Miscellaneous matters

Thin-capitalization rules. Thin-capitalization rules apply to domes­tic and foreign related parties, effective from 1 January 2015. The maximum amount of tax-deductible interest is set at 25% of earn­ings before interest costs, tax, depreciation and amortization. These rules also apply to contracts signed before 1 Janu ary 2015. They do not apply to financial institutions.

Transfer pricing. If the price agreed between related parties differs from the usual market price and if this difference cannot be sat­isfactorily justified, the tax authorities may adjust the tax base to reflect the usual market price.

The transfer-pricing rules apply to personally or economically re­lated persons, as well as to other related persons.

Persons are economically or personally related if one person par­ticipates in the ownership, control, or administration of another person, if such persons are under the control or administration of the same person, or if the same person has a direct or indirect equity in terest in the persons. Participation in ownership or con­trol exists if the direct or indirect participation in the basic capi tal of, or voting rights in, one company by another company is higher than 25%. Participation in the administration is a relationship between members of statutory bodies or supervisory boards of the companies. Other relationships are defined as relationships cre­ated for the purpose of decreasing the tax base or increasing the tax loss.

Under the Slovak transfer-pricing measures, an advance ruling on the transfer-pricing method may be obtained through an agree­ment with the tax authorities at least 60 days before the tax year in which the transfer-pricing method will be used.

The Slovak transfer-pricing measures specify the acceptable transfer-pricing methods, which conform to the methods includ­ed in the OECD Transfer-Pricing Guidelines.

Taxpayers must provide transfer-pricing documentation within 15 days after an official request by the tax authorities.

Tax regime for business combinations. Effective from 2010, the Slovak Corporate Income Tax Act addresses in more detail the taxation of the sale of all or part of an enterprise, the taxation of non-monetary contributions to registered capital and the taxation of mergers and divisions of companies.

Treaty withholding tax rates

The Slovak Republic honors the bilateral tax treaties that were con­cluded by the former Czechoslovakia. The withholding rates under these treaties, and the treaties entered into by the Slovak Republic are listed in the following table.

In general, treaty rates apply if the recipient is the beneficial owner of the income. To obtain the benefit of the reduced treaty rates, the beneficial owner must be in a position to provide a tax residency certificate.

In general, dividends are exempt from tax. Consequently, the treaty rates do not apply to dividends paid by Slovak companies.

Dividends

%

Interest

%

Royalties

%

Australia 15 10 10
Austria 10 0 0/5 (l)
Belarus 10/15 (d) 0/10 (c) 5/10 (l)(m)
Belgium 5/15 (d) 0/10 (s) 5
Bosnia and
Herzegovina 5/15 (d) 0 10
Brazil 15 0/10/15 (c)(k) 15/25 (p)
Bulgaria 10 0/10 (c) 10
Canada 5/15 (b) 0/10 (c) 0/10 (l)
China 10 0/10 (c) 10
Croatia 5/10 (d) 10 10
Cyprus 10 0/10 (c) 0/5 (l)
Czech Republic 5/15 (a) 0 10
Denmark 15 0 0/5 (l)
Egypt 5/15 (d) 0/12 (c) 15
Estonia 10 0/10 (c) 10
Finland 5/15 (d) 0 0/1/5/10 (l)(w)
France 10 0 0/5 (l)
Georgia 0 5 5
Germany 5/15 (d)(e) 0 5
Greece – (x) 0/10 (c) 0/10 (l)

 

Hungary 5/15 (d) 0 10
Iceland 5/10 (d) 0 10
India 15/25 (d) 0/15 (c)(s) 30 (f)
Indonesia 10 0/10 (c) 10/15 (l)
Ireland 0/10 (d) 0 0/10 (l)
Israel 5/10 (b) 2/5/10 (t) 5
Italy 15 0 0/5 (l)
Japan 10/15 (g) 0/10 (c) 0/10 (l)
Kazakhstan 10/15 (cc) 0/10 (c) 10
Korea (South) 5/10 (d) 0/10 (y) 0/10 (l)
Kuwait 10 0/10 (ii) 10
Latvia 10 0/10 (c) 10
Libya 0 10 5
Lithuania 10 0/10 (c) 10
Luxembourg 5/15 (d) 0 0/10 (l)
Macedonia 5 10 10
Malta 5 (u) 0 5
Mexico 0 0/10 (c) 10
Moldova 5/15 (d) 10 10
Mongolia (z) 0 0 0
Montenegro 5/15 (d) 10 10
Netherlands 0/10 (d) 0 5
Nigeria 12.5/15 (b) 0/15 (c) 10
Norway 5/15 (d) 0 0/5 (l)
Poland 0/5 (n) 0/10 (c) 5
Portugal 10/15 (d) 10 10
Romania 10 0/10 (c) 10/15 (r)
Russian
Federation 10 0 10
Serbia 5/15 (d) 10 10
Singapore 5/10 (b) 0 10
Slovenia 5/15 (d) 10 10
South Africa 5/15 (d) 0 10
Spain 5/15 (d) 0 0/5 (q)
Sri Lanka 0/6/15 (h) 0/10 (o) 0/10 (i)
Sweden 0/10 (d) 0 0/5 (l)
Switzerland 0/15 (gg) 0/5 (j) 0/10 (hh)
Syria 5 10 12
Taiwan 10 0/10 (ff) 5/10 (l)
Tunisia 10/15 (d) 0/12 (c) 5/15 (l)
Turkey 5/10 (d) 0/10 (c) 10
Turkmenistan 10 0/10 (c) 10
Ukraine 10 10 10
United Kingdom 5/15 (v) 0 0/10 (l)
United States (bb) 5/15 (b) 0 0/10 (l)
Uzbekistan 10 10 10
Vietnam 5/10 (dd) 10 5/10/15 (ee)
Non-treaty countries 0 19/35 (aa) 19/35 (aa)

 

a) The 5% rate applies to dividends paid to a company that owns more than 10% of the capital of the payer of the dividends.

b) The lower rate applies if the beneficial owner is a company that controls at least 10% of the voting power of the payer.

c) The lower rate applies to interest on government loans.

d) The lower rate applies if the recipient is a company that directly holds at least 25% of the capital of the payer of the dividends.

e) If the corporate tax rate in a contracting state on distributed profits is 20% lower than the corporate tax rate on undistributed profits, the withholding tax rate may be increased to 25%.

f) This rate also applies to fees for technical services.

g) The 10% rate applies if the recipient is a company that owns at least 25% of the voting shares of the payer during the six-month period immediately pre­ceding the date of payment of the dividends.

h) The 15% rate applies to dividends paid by Slovak companies to Sri Lankan recipients. The 0% rate applies to dividends paid by Sri Lankan companies to Slo vak ian recipients, except for Sri Lankan income tax and additional tax under Sri Lanka’s tax law. A maximum tax rate of 6% applies to the addi­tional tax.

i) The 0% rate applies to royalties relating to copyrights and films derived from sources within one of the contracting states.

j) The 0% rate applies the following:

  • Interest paid on bank loans
  • Interest paid on loans for the purchase of goods or industrial, trade and scientific equipment
  • Other interest paid if, for a period of at least two years before the interest payment, the payer and recipient of the interest are mutually connected by a direct share of at least 25% in ownership or if a third entity has a direct share of at least 25% in both the payer and recipient for a period of at least two years before the interest payment

The 5% rate applies to other interest payments.

k) The 10% rate applies if the recipient is the beneficial owner of the interest and if the interest is paid on a loan granted by a bank for a period of at least 10 years in connection with the sale of industrial equipment or the installation or furnishing of scientific units or public works.

l) The lower rate applies to cultural royalties, which are defined as the right to use copyrights of literary, artistic or scientific works, including cinemato­graphic films.

m) The higher rate also applies to payments for the right to use transport vehicles.

n) The lower rate applies if the recipient is a company (other than a general partnership) directly holding at least 10% of the capital of the payer.

o) The 0% rate applies to interest paid to banking institutions, interest paid on government loans and interest paid by the government or other state institutions.

p) The 25% rate applies to royalties paid for trademarks.

q) The 5% rate applies if the royalties are taxable in Spain. Otherwise, the rate is determined in accordance with the law of the source country. The 0% rate applies to cultural royalties, except for royalties for films.

r) The lower rate applies to industrial royalties.

s) The lower rate applies to the following types of interest:

  • Interest paid on commercial debt claims (including debt claims represented by commercial paper) that result from deferred payments for goods, mer­chandise or services supplied by an enterprise
  • Interest paid on loans made, guaranteed or insured by public entities that are intended to promote exports
  • Interest paid on current accounts or loans that are not represented by bearer instruments between banks or public credit institutions of the con­tracting states
  • Interest paid to the other contracting state, public subdivision or local authority

t) The 2% rate applies to interest on government loans. The 5% rate applies to interest paid to financial institutions.

u) The tax in Malta on dividends may not exceed the tax on the profits out of which the dividends are paid.

v) The 5% rate applies to dividends paid to a company that owns more than 25% of the voting power of the payer of the dividends.

w) The 1% rate applies to payments under a financial lease of equipment. The 5% rate applies to payments under an operating lease of equipment, as well as to payments for the right to use cinematographic films and software for personal computers.

x) Dividends may be taxed in both contracting states in accordance with the domestic laws in the states.

y) The 0% rate applies to interest on government loans and on loans for the purchase of goods or industrial, trade and scientific equipment.

z) These rates are based on a multilateral treaty, which the former Czechoslovakia entered into with the other members of the Council for Mutual Economic Assistance (Comecon or CMEA).

(aa) See Section B.

(bb) The lower rates apply only if the recipient is one of the following:

  • An individual
  • A contracting state or a political subdivision or local authority of the state
  • A recipient engaged in the active conduct of a trade or business in the United States (other than the business of making or managing invest­ments, unless these activities are banking or insurance activities carried on by a bank or insurance company) if the income derived from the Slovak Republic is derived in connection with, or is incidental to, that trade or business
  • A company whose principal class of shares is substantially and regularly traded on a recognized securities exchange or is wholly owned, directly or indirectly, by a resident of the company’s state whose principal class of shares is substantially and regularly traded on a recognized securities exchange
  • A not-for-profit organization
  • A person who satisfies both of the following conditions:

— More than 50% of the beneficial interest in such person is owned, directly or indirectly, by persons entitled to the lower rates according to the treaty.

— Not more than 50% of the gross income of such person is used directly or indirectly, to meet liabilities (including liabilities for inter­est or royalties) to persons not entitled to the lower rates according to the treaty.

(cc) The lower rate applies if the recipient is a company that holds directly at least 30% of the capital of the payer of the dividends.

(dd) The 5% rate applies if the recipient is a company that holds directly at least 70% of the capital of the payer of the dividends.

(ee) The 5% rate applies to royalties paid for patents. The 10% rate applies to royalties paid for trademarks. The 15% rate applies in all other cases. (ff) The 0% rate applies to the following types of interest:

  • Interest paid to the other contracting state, public subdivisions or local authorities with respect to loans, debt-claims or credits
  • Interest paid on loans made, guaranteed or insured by public entities that are intended to promote exports

(gg) The lower rate applies if the recipient is a company that directly holds at least 10% of the capital of the payer of the dividends.

(hh) The 0% rate applies to cultural royalties, which are defined as the right to use copyrights of literary, artistic or scientific works, including cinemato­graphic films. The 0% rate also applies to other royalties if, for a period of at least two years before the royalty payment, the payer and recipient of the royalty are mutually connected by a direct share of at least 25% in ownership or if a third entity has a direct share of at least 25% in both the payer and recipient for a period of at least two years before the royalty payment.

(ii) The 0% rate applies to the following types of interest:

  • Interest paid on loans made, guaranteed or insured by the government, a local authority or national bank of a contracting state
  • Interest paid on loans made, guaranteed or insured by institutions estab­lished according to public law whose assets are fully owned by the govern­ment of a contracting state
  • Interest paid on loans made, guaranteed or insured by Eximbank SR, Slovak Guarantee and Development Bank (Slovakia), Kuwait Investment Authority, Kuwait Petroleum Corporation, Public Institution for Social Security or the Kuwait Fund for Arab Economic Development (Kuwait)