Slovakia Personal Income Tax

Slovak residents are subject to tax on their world­wide income. Nonresidents are subject to tax on their Slovak-source income only.

Individuals who have permanent residency in the Slovak Republic are considered tax residents in the Slovak Republic. In addition, any person physically present (that is, usually staying) in the Slovak Republic for at least 183 days in a calendar year is con­sidered resident for tax purposes. For purposes of the 183-day test, each whole or partial day spent in the Slovak Republic dur­ing the calendar year counts toward the number of days. The 183-day test does not apply to the following individuals:

  • Individuals staying in the country to study
  • Individuals present in the country for medical treatment
  • Individuals who earn Slovak-source income from dependent activities and enter the Slovak Republic daily or at agreed-upon time periods only for the purpose of performing such activities

Individuals assigned by a foreign employer to the Slovak Republic who continue to be employed and paid by the foreign employer and who perform work for and under the instruction of a Slovak resident individual or legal entity are deemed to be employed by the Slovak resident individual or legal entity and subject to monthly withholding of personal income tax from their employ­ment income.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Employment income includes salaries, wages, bonuses, other regular, irregular or one-off compensation of a similar nature and most benefits-in-kind. Employment income also includes fees paid to directors and partners of limited liability com­panies and to limited partners of limited partnerships. Effective from 1 January 2016, income received by a professional sportsperson on the basis of a player contract is also considered to be employment income.

Self-employment and business income. Taxable self-employment and business income consists of income from business activities and professional services. This income may be decreased by deductible expenses. Nonresidents are subject to tax on their Slovak-source business income only.

Rental income, including income from the rental of real estate and movable assets representing appurtenances of the real estate is taxed as self-employment and business income. As a result, expenses can be deducted from such income.

Investment income. Investment income from Slovak sources, in­cluding interest and other income derived from securities, and payments made from supplementary pension insurance schemes is generally subject to a 19% withholding tax. This withholding tax is considered a final tax, and the income is not included in the tax base.

Effective from 1 January 2016, income received from the sale of securities that are traded on a regulated market or similar foreign market is exempt from tax if the period between acquisition and sale of the securities exceeds one year and if such securities had not been included in the business assets. The exemption also ap­plies to income derived from the sale of options and income from derivative transactions from “long-term investment savings,” which is income that is paid 15 years from the beginning of a long-term investment, if such items had not been included in the business assets of the taxpayer.

In general, dividends are not subject to tax in the Slovak Republic. Exceptions are described below.

Dividends paid from profits earned in an accounting period be­ginning before 31 December 2003 are subject to a 19% tax.

Residents and nonresidents are exempt from tax on dividends and on other profit distributions from limited liability companies if certain conditions are met.

Effective from 1 January 2016, a new tax base for investment income from foreign sources is introduced. This income is not included in the tax base subject to the progressive tax rates (see Rates). It constitutes a separate tax base (few exemptions appli­cable), which is subject to a flat tax rate of 19% (that is, without application of tax progression).

Taxation of employer-provided stock options. For employer-provided stock options granted after 31 December 2009, the taxable amount equals the higher market price of the stock at the exercise date (that is, on the day on which the option is actually exercised) minus the sum of the following:

  • The guaranteed exercise price of the employee’s stock
  • The price paid by the employee for the option (if any)

The above amount is taxable on the exercise date. Employer-provided stock options are treated as employment income and taxed through payroll withholdings at the regular income tax rate in the month of exercise.

The income from stock options granted by employers before 31 Decem ber 2009 is taxed on the vesting date (that is the date on which the option can be exercised) under the rules applicable until 31 December 2009.

Capital gains derived from the sale of shares acquired under an option plan are calculated as the difference between the sales price and the market price on the exercise date (vesting date for options granted before 31 December 2009). These gains are sub­ject to tax at the regular rate (see Capital gains).

Capital gains. Capital gains derived from the sale or exchange of property are taxed as ordinary income at the regular income tax rate (see Rates). In general, capital gains derived from the sale of real estate or personal property are exempt from income tax if relevant conditions stipulated in the law are met (for example, the minimum required holding period). Business assets generally do not qualify for exemption.

Deductions

Deductible expenses. Mandatory sickness insurance, health insur­ance, old-age insurance, disability insurance and unemployment insurance contributions paid by employees (see Section C) are deductible from employment income.

Personal allowances and deductions. All taxpayers, including nonresidents, are entitled to a personal allowance. Taxpayers whose tax base for the calendar year does not exceed 100 times the subsistence minimum (EUR19,809 for 2016), can deduct a non-taxable amount equal to 19.2 times the subsistence mini­mum per taxpayer EUR3,803.32 for 2016). For taxpayers whose tax base for the calendar year exceeds 100 times the subsistence minimum, the non-taxable portion of the tax base gradually decreases depending on the taxpayer’s income. Taxpayers who have a tax base for the calendar year higher than EUR35,022.32 are not entitled to any general allowance. Slovak tax residents and Slovak tax nonresidents whose Slovak-source income repre­sents more than 90% of their worldwide income may also claim a spousal allowance for a spouse who has no or limited income of his or her own, who lives with them in the same household and who takes care of infant children living with the taxpayer or the following persons:

  • A person receiving compensation for care
  • A person who is registered with the Labour Office (unem­ployed)
  • A person considered to have a severe disability

The spousal allowance also gradually decreases depending on the taxpayer’s and the spouse’s income.

The above personal allowances are deductible from the tax base reported for employment income and self-employment and busi­ness income only.

In addition, tax residents and Slovak tax nonresidents whose Slovak-source income represents more than 90% of their worldwide income are entitled to a tax bonus (credit) in the amount of EUR21.41 per month per dependent child for 2016.

Taxpayers are entitled to an annual employment tax bonus. The principle of the employment bonus is similar to the tax bonus applicable for a child. To qualify for the employment bonus, several conditions must be satisfied, including, among others, the following:

  • The taxpayer must earn income amounting to at least six times the minimum wage (currently, the minimum wage is EUR380 per month).
  • The taxpayer must work for at least six months.

The amount of the employment bonus equals 19% of the part of the personal allowance that exceeds the tax base, but not more than EUR50.34 per year.

An individual’s tax base can be reduced by the amount of volun­tary contributions to pension insurance (second pension pillar; see Section C), up to a maximum of 2% of 60 times the average monthly wage in the Slovak economy in the second preceding year.

Business deductions. In general, costs and expenses incurred to generate, assure and maintain taxable income are deductible, including mandatory contributions for social and health insur­ance. Expenses of a capital nature, penalties other than payments of contractual penalties, income tax and expenses incurred to generate tax-exempt income are not deductible.

Instead of deducting actual expenses, individuals other than those who are value-added tax (VAT) payers for the entire tax year may deduct a lump-sum amount equal to 40% of gross revenues, up to a maximum of EUR5,040 annually or EUR420 monthly.

Rates. The basic tax rate is 19%. The annual tax base exceeding EUR35,022.31 is taxed at a rate of 25%.

Relief for losses. An individual may carry forward losses incurred in the tax years immediately preceding the year in which he or she first declares a positive tax base. Effective from 2014, his­torical tax losses incurred in the 2010 through 2013 tax years may be carried forward for a maximum period of four years, proportionally each year. The same rules apply to losses gener­ated in 2014 and future years. In general, losses may not be offset against employment income. Losses incurred after 31 December 2011 can be offset only against self-employment and business income of the taxpayer. Effective from 2012, losses incurred from renting a property cannot be used to offset other profits.

Inheritance and gift taxes

The inheritance and gift taxes were eliminated in 2004.

Social and health insurance

Contributions. If an employee is subject to the Slovak social secu­rity system, both the employer and the employee must pay social security contributions. Slovak social security contributions consist of sickness, old-age, disability, unemployment, guarantee and accident insurance, and contributions to the reserve fund. In general, every person performing an income-generating activity for which he or she is entitled to a regular monthly compensation (and also irregular for the purposes of pension insurance) subject to income tax is deemed to be an employee for Slovak social security purposes. Rental, capital or other income is not subject to social insurance.

Slovak health insurance contributions are for health care. Indi­viduals having income subject to income tax (including divi­dends paid to employees not participating in the registered capital of a company that are generated from profits for accounting pe­riods beginning after 1 January 2011, and capital or other income on which the Slovak withholding tax does not apply) is subject to health insurance. Persons acting as members of statutory or super­visory bodies for employers, with a registered seat in the Slovak Republic, are not subject to Slovak health insurance if they are not permanently resident in the Slovak Republic and are subject to a health insurance system in a non-European Union (EU) state.

The combined rate for the employee’s social and health insurance contribution is 13.4% of his or her assessment base, which is, in general, his or her monthly taxable employment income. The em ployer’s contribution rate is 35.2% of the employee’s assess­ment base. The maximum monthly assessment base for all types of insurance (excluding accident insurance) equals the average wage in the Slovak economy multiplied by five. The minimum monthly assessment base for health insurance is linked to the minimum wage in the Slovak Republic (the minimum assessment base is not set for other types of insurance). The assessment base for accident insurance is not limited.

The following social security and health insurance rates apply for 2016:

  Employer Employee Self-
employed
individuals
Benefit % % %
Sickness insurance 1.4 1.4 4.4
Health insurance 10.0 4.0 14.0
Old-age insurance (a) 14.0 4.0 18.0
Disability insurance 3.0 3.0 6.0
Accident insurance 0.8 (b) 0.0 0.0
Guarantee fund 0.25 0.0 0.0
Reserve fund 4.75 0.0 4.75
Unemployment insurance 1.0 1.0 0.0          (c)
Total 35.2 13.4 47.15

a) The Slovak old-age contribution consists of two pillars. The contributions are paid to two different social security institutions, which are the state Social Insurance Agency and one of the commercial pension life agencies. The rates shown are the total rates of contributions.

b) Employers remit accident insurance contributions of 0.8% of the employee’s assessment base (no limit applicable).

c) Self-employed individuals are not required to make contributions for unem­ployment insurance. If they elect to be insured, they make contributions at a rate of 2% of a self-determined assessment base (within statutory bounds).

Dividends from profits generated in accounting periods begin­ning after 1 January 2011 are subject to health insurance. For dividends from profits generated in accounting periods begin­ning between 1 January 2011 and 31 December 2012, a 10% rate and the common maximum assessment basis applies. For divi­dends from profits generated in accounting periods beginning on or after 1 January 2013, the rate is 14%.

An exemption from health insurance contributions is introduced with respect to dividends paid by joint stock companies (or simi­lar entities established abroad) whose shares are traded on a regulated market (including a foreign market). Dividends paid after 2 January 2016 are not subject to health insurance contribu­tions if they meet the above criteria.

The EU regulations on social and health insurance are binding in the Slovak Republic. Consequently, the respective regulations for European Economic Area (EEA) and Swiss citizens, and the applicable totalization agreements for other foreigners (see Totalization agreements) must be taken into account when deter­mining the social and health insurance obligations of foreign in­dividuals working in the Slovak Republic.

Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, the Slovak Republic has entered into totalization agreements with the following juris­dictions.

Australia                      Iran (a)                            Serbia

Austria                         Israel                               Spain

Bulgaria                       Korea (South)                  Switzerland

Canada                         Luxembourg                    Turkey

Croatia                         Netherlands                     Ukraine

Cyprus                         Poland                             United Arab

Czech Republic            Quebec                            Emirates (b)

France                          Romania                          United States

Germany                      Russian Federation          Yugoslavia (c)

Hungary

a) This agreement was signed 19 January 2016 and is subject to the ratification process.

b) This agreement was signed on 21 December 2015 and is subject to the ratifica­tion process.

c) This agreement was entered into between the former Czechoslovakia and the former Yugoslavia in 1957. The Yugoslavia agreement applies to Bosnia and Herzegovina, Macedonia and Montenegro.

Totalization agreements with EU member states continue to be valid. However, effective from 1 May 2004, the EU regulations superseded these agreements.

Under a strict interpretation of the Slovak law, employers from non-EU and non-EEA countries (without a registered seat or a branch in the Slovak Republic) that have employees in the Slovak Republic are required to register for social security purposes in the Slovak Republic, to remit employer and employee contribu­tions to the Slovak social system and to handle the related admin­istration (unless their employees’ income is exempt from tax in the Slovak Republic or unless the Slovak Republic has entered into a bilateral agreement with the respective country).

Tax filing and payment procedures

In general, individuals who receive income exceeding 50% of the personal allowance (that is, EUR1,901.67 for 2015; see Section A) are required to file a tax re turn. An exception applies if individuals receive only employment income and/or other income and if all of such income is subject to withholding tax.

Tax returns must be filed by individuals who receive any of the following types of income:

  • Income from an employer that is neither a Slovak taxpayer nor a foreign taxpayer under the Slovak tax law
  • Foreign-source income (with certain statutory exemptions)
  • In-kind compensation, if tax prepayments could not be with­held
  • Income other than employment income

In addition, individuals having only employment income who did not request that their employer perform the annual tax reconcili­ation of their employment income and tax withholdings must file a tax return.

The tax year for individuals is the calendar year. Tax returns for each tax year must be filed within three months after the end of the respective tax year (that is, by 31 March of the year following the tax year). This deadline can be extended by three months on the filing of an announcement with the respective tax authority. If an individual who is a resident for tax purposes in the Slovak Republic receives foreign-source income, the deadline can be extended up to six months (that is, until 30 September) on the fil­ing of an announcement.

Employment income received by 31 January of the following year that relates to the preceding year is regarded as income of the preceding year.

Advance tax payments are withheld monthly by Slovak employ­ers or foreign persons that qualify as foreign payers of tax from all employment compensation paid by or through them. Indi­viduals must make quarterly or monthly advance tax payments for rental and business income, if their last known tax liability exceeded EUR2,500. However, no advance tax payments from such income are paid if an individual also receives employment income that represents more than 50% of his or her personal income (if employment income represents a smaller share, half of the regular amount of advance tax payments is paid).

Individuals performing dependent activities in the Slovak Republic for neither Slovak nor foreign payers of tax must make monthly Slovak tax prepayments based on the actual income received.

In general, married persons are taxed separately on all types of income. The income from joint property, such as interest income or income from the sale or renting of the property, is generally divided between married persons equally, unless agreed other­wise. Related expenses are divided in the same percentage as income.

Tax treaties

The Slovak Republic has entered into double tax treaties with the following jurisdictions.

Australia                        Israel                           Russian Federation

Belarus                          Kazakhstan                 Singapore

Belgium                         Korea (South)             Slovenia

Bulgaria                         Kuwait                        South Africa

Canada                           Latvia                          Switzerland

Croatia                           Libya                          Syria

Czech Republic              Lithuania                     Taiwan

Egypt (a)                        Macedonia                  Turkey

Estonia                           Malta                          Turkmenistan

Finland                          Mexico                       Ukraine

Georgia                          Moldova                     United States

Hungary                        Poland                        Uzbekistan

Iceland                           Portugal                      Vietnam

Indonesia                       Romania                     Yugoslavia (b)

Ireland

a) This treaty has been ratified by Egypt, but it is not yet in effect.

b) The treaty signed with Yugoslavia applies to Montenegro and Serbia.

The Slovak Republic honors the double tax treaties entered into by Czechoslovakia with the following jurisdictions.

Austria                           India                           Spain

Brazil                             Italy                            Sri Lanka

China                             Japan                          Sweden

Cyprus                           Luxembourg               Tunisia

Denmark                        Mongolia                    United Kingdom

France                            Netherlands                Yugoslavia

Germany                        Nigeria                        (former)*

Greece                           Norway

* The Yugoslavia treaty that was signed in 1981 applies to Bosnia and Herzegovina.

The method of elimination of double taxation is applied based on the tax treaty entered into between the Slovak Republic and the source country. However, for employment income from foreign sources, regardless of the method for the elimination of double taxation provided in the respective tax treaty, Slovak tax residents may apply the exemption method if both of the following condi­tions are satisfied:

  • The income was provably taxed abroad.
  • Such treatment is more favorable for the individual.

If the Slovak Republic has not entered into a double tax treaty with the source country, the exemption method can be used for employment income if it is proven that the income was taxed in the source country.

Entry visas

Foreigners coming from EU and non-EU jurisdictions must com­ply with the immigration requirements.

Citizens of the EU/EEA and Switzerland. Citizens of the EU/EEA and Switzerland holding a valid identification card or passport or any other document proving their identity are entitled without any conditions or formalities to stay in the Slovak Republic for three months from the date of entry into the Slovak Republic. They are only required to notify the Foreigner Police about the stay in the Slovak Republic within 10 workdays after their entry into the Slovak Republic. For a stay exceeding 90 days, citizens of EU/EEA or Switzerland must register with the Foreigner Police. This registration needs to be submitted to the Foreigner Police within 30 days after the end of the three-month period beginning on the date of entry into the Slovak Republic. No visa or work permits are required for citizens of EU/EEA or Switzerland.

Non-EU nationals. Foreign nationals residing in jurisdictions for which a visa is not required can enter the Slovak Republic with­out a visa and stay in the Slovak Republic for up to 90 days dur­ing a 180-day period. After their arrival in the Slovak Republic, they must register with the Foreigner Police within three days (unless they stay in a hotel; in such case, the hotel automatically processes the registration).

This possibility of staying in the Slovak Republic without a visa does not apply to non-EU nationals who work or perform other economic activities in the Slovak Republic. These individuals need a proper type of work or entrepreneur visa unless they meet certain conditions to avoid this obligation.

For all non-EU nationals, a stay longer than 90 days in a 180-day period is possible only with a long-term visa or relevant resi­dence permit.

Foreign nationals residing in jurisdictions for which a visa is required must have a valid visa to enter the Slovak Republic. These non-EU nationals must submit an application for a visa three months before arrival in the Slovak Republic at the earliest. The visa process takes 15 days from the submission or accepta­tion of application. However, in specific situations, the process might take up to 60 days from submission or acceptance.

Schengen visa. A Schengen visa is a short-term visa issued by the appropriate authorities to an individual for visiting or traveling within the Schengen area. Depending on the type of visa issued by the embassy or consulate of a Schengen country, different restrictions may apply to the particular visa based on the nature of the travel and other relevant circumstances. The most common type of visa issued to travelers can have a duration of a maximum of 90 days in every 6-month period beginning from the date of entry. The Schengen visa can be issued for single, double or multiple entries. It cannot be used for employment activity.

Long-term visa. A long-term visa or national visa is granted for the purpose of granting temporary residence in the Slovak Republic. This visa allows the individual to travel to Schengen countries under the condition that the presence of the individual does not exceed 90 days within a 6-month period.

Working in the Slovak Republic

Work permits. The Act on Employment Services regulates the employment of foreigners in the Slovak Republic. Non-EU nationals must request permission to work in the Slovak Republic at the locally competent Office of Labour, Social Affairs and Family of the Slovak Republic. The office may require from the employer a written request for permission to employ a foreigner. An employer must report a job vacancy to the Central Labour Office at least 30 working days before applying for the job per­mission.

EU Blue Card. The Blue Card is a type of temporary residence, which is issued to non-EU nationals for the purpose of highly qualified employment in the Slovak Republic. The basic require­ment for acquiring the Blue Card is higher professional qualifica­tion in the form of university education. A Blue Card entitles an individual to enter, reside and work in the Slovak Republic and to travel abroad and back. The application for the Blue Card gener­ally must be submitted at the diplomatic mission of the Slovak Republic for a non-EU national’s country of citizenship or his or her country of residence. If a non-EU national resides legally in the Slovak Republic, the application may be submitted at the competent Foreigner Police for the place of residence. An employer must report a job vacancy to the Central Labour Office at least 30 working days before applying for the Blue Card. The Blue Card is issued for a maximum period of three years. If the duration of the employment relationship is shorter than three years, the Foreigner Police issues a Blue Card for the duration of the employment relationship extended by 90 days.

Self-employment. To engage in activities that have the character­istics of a trade, an individual must apply for a trade license. This is an authorization to conduct activities that fall into the scope of a trade or business and is valid for the entire territory of the Slovak Republic. A sole trader is personally liable without limit for all debts incurred by his or her business. This applies to all of his or her assets (including private property). The acquisition of a trade license does not always enable an individual to legally start running a business in the Slovak Republic. Depending on the individual’s citizenship and type of residence in the Slovak Republic, in certain cases, an individual may not start conducting a business until he or she obtains temporary residence for the purpose of business and/or registers with the Commercial Register.

Temporary and permanent residence permits

Temporary residence. Various types of temporary residence are available for foreigners, depending on the type of their activity in the Slovak Republic (for example, study, research and develop­ment activities or employment). Family members joining a non­EU national for a period longer than 90 days must request tem­porary residence for the purpose of reunion of the family. This request must be submitted at an embassy of the Slovak Republic or at the Foreigner Police in the Slovak Republic. On the granting of a temporary residence permit, the foreigner must arrange for health insurance to cover any medical costs and expenses. This must be proved within three days from the granting of the permit.

Permanent residence. A permanent residence permit grants a foreign national right to reside in the Slovak Republic and to travel abroad and back to the Slovak Republic. Foreign nationals with a permanent residence permit enjoy the same rights and duties as all Slovak citizens in most areas of life (for example, employment, health care and social affairs). The following are the three types of permanent residence:

  • Permanent residence for five years
  • Permanent residence for an unlimited time period
  • Long-term residence

One of these types of permanent residence may also be obtained for the purpose of family reunion.