Tax Alert: Changes in the Slovak taxation from 2020
The Ministry of Finance released into the legislative process the proposal of the amendment of the Income Taxes Act. A month ago the Ministry claimed that they are preparing a completely new Income Taxes Act, however, it seems they changed the opinion. The proposed law will have to be approved by the Slovak Parliament, nevertheless, we expect that the technical matters introduced by the amendment will not change.
A positive news - we are in the pre-election year, thus, the amendment introduces mainly positive changes for taxpayers. And authors of the alert believe that this is not the end of good days for taxpayers and we expect a big competition during the legislative process how to further improve the law for the taxpayers.
Taxation of individuals
Tax exemption of non-monetary benefits of the Employee up to EUR 500 per year if these are paid from the non-taxable costs of the Employer - this exemption will be effective from 2022;
Tax exemption of the non-monetary benefits of the Employee in the form of the organized transport to the work-place within the limit of EUR 60 per month. There will be introduced also a condition for the tax deductibility of related expenses of the Employer if the capacity of the transport vehicle is used for less than 70% - this exemption will be effective from 2021;
The tax exemption of the sale of securities which are traded on the regulated market will be stricter and will be applicable 12 months after the purchase of securities but also at least 12 months after their listing on the regulated stock market;
New rules for the settlement of the tax prepayments of the foreign employees who are considered to be “economic” employees of a Slovak company;
Some technical payroll processes will be simplified, the employee will not be obliged to sign every year a request for the application of the general tax allowance and child credit;
The limit of the tax liability for the payment of tax prepayments of the individual will be increased from EUR 2,500 to EUR 5,000.
We do appreciate the proposed changes, however, in our opinion, the scope of tax advantages for the employees could be bigger. In any case, a competition for employees – electors/voters will likely continue and the tax-free amount could be higher than in EUR 500 at the end of the process. The curiosity of the proposed amendment is the Explanatory note regarding the tax exemption of the non-monetary benefits. Based on this, the aim is to release the administration in the case of non-monetary benefits, such as „parking in Employer’s premises, teambuilding events and Firm parties“. So far we had no idea that the teambuilding events are considered to be non-monetary taxable benefit of the employees.
The tax exemption of the profit of the company from the sale of the business share will apply also on the sale of the ordinary shares and various types of shares of Simple company on shares;
The amendment increases the Extra deduction of the eligible R&D costs from 100% to 200% of the amount of eligible costs; already in 2019 the 150% Extra deduction will be applicable.
The scope of costs tax effective upon the settlement is amended; It will cover also services related to management of companies and advisory related to the management of the companies. It will not cover the costs related to the purchase of norms and certificates.
Provisions of Directive ATAD 2 regarding the hybrid mismatches are implemented;
Contractual penalties, sanction interests and lump-sum reimbursement of costs related to application of the receivable will be (again) considered to be taxable costs, however, only upon their settlement;
Positive change should be introduced in respect of tax losses; The taxpayers will be entitled to deduct the tax loss during 5 consequent tax periods, starting in the tax period following the tax period in which the tax loss has been reported. The current rules based on which the tax losses could be utilized regularly during 4 consequent periods will be replaced. However, the new rules should apply only on tax losses reported for 2020 and later periods.
The limit of the tax liability for the payment of tax prepayments of the corporates will also be increased from EUR 2,500 to EUR 5,000.
We consider positively that the tax loss utilization rules are finally released as the current law is very strict. The support of research and development – extra 200% of eligible costs is quite enough for every financial or technical manager to consider the potential R&D project in their company. In the future we may comments on this topic in more detail as it becomes very interesting option for the tax optimization.
A term “Microtaxpayer” is introduced into the law with the effect from 2021– an individual or a corporation with the annual business income up to EUR 49,790 (VAT registration threshold). This cannot be applied in the case of the taxpayer which is considered to be related person for income tax purposes. The Microtaxpayer will be entitled to apply the tax deduction of the assets freely during the depreciation period. Moreover, it will have no limits regarding the tax loss utilization and creation of tax deductible provisions on receivables.
A new tax depreciation group 0 with the depreciation period of 2 years will be introduced and applied on the cars with the fuel/energy source BEV or PHEV, i.e. electric and hybrid cars.
Finally some real support of the small entrepreneurs and ecology. Let’s see how it will work in practice.