Currently, the Ministry of Finance of the Slovak Republic is putting forward a draft amendment of the act on income tax that reinforces the existing measures for the protection against tax fraud. The draft amendment is extended of the rules for the protection against aggressive tax planning as well as the rules against tax base violation and income transfer outside the territory of the Slovak Republic. Furthermore, the proposed changes also include advantages conditions supporting the sector of the domestic spa and tourism sector.
All proposed changes follow especially from the Manifesto of the Government of the Slovak Republic and the 2017 Plan of the Legislative Tasks of the Government of the Slovak Republic as well as the Anti-Tax Avoidance Directive (ATAD) that the Slovak Republic is obliged to implement no later than 31 December 2018 (with an exception of acceptable exemptions); they will become valid on 1 January 2019. The described periods will be extended by one year for transfer taxation rules.
If the draft amendment of the act on income tax were approved, the introduced changes would also affect the Act No. 483/2001 Coll. on banks and on changes and the amendment of certain acts, as amended, Act no. 90/2016 Coll. on housing loans and amending certain laws, as amended, as well as the act on tax administration.
The most important proposed changes in the act on income tax:
- New institute of disencumbrance by way of bankruptcy and repayment plan
The amendment of the act on bankruptcy and restructuring, effective from 1 March 2017, enables natural persons to enter the process of disencumbrance. This process also includes liabilities that are not business-related. The debtor – natural person – can choose one of the disencumbrance options – either repayment plan or bankruptcy. It is suggested that the depreciation of the liabilities that the debtor is obliged to pay will represent a tax-exempt income of the debtor. Furthermore, tax expense will also include the formation of an adjusting entry to the claims vis-a-vis the debtor who has been ordered a repayment plan by a decision of the court.
- Tax bonus for paid interests on housing loans
It is proposed that a new article is incorporated in the act. Based on this article, the tax-payer is entitled to a tax bonus for the interests paid in a respective period of taxation and calculated from the amount of the given housing loan per one housing loan contract, however no more than 50,000 EUR per one domestic residential real estate, being an apartment or a family house. The act will define the terms and conditions for the establishment of a claim on the tax bonus as well as the amount of the tax bonus for the paid interests.
- Extended definition of permanent establishment
The proposed amendment extends the definition of the pursuit of activities and established place that represent the basic requirements for the taking-up of a permanent establishment on the territory of the Slovak Republic. The pursuit of activities with an established place on the territory of the Slovak Republic also includes the pursuit of activities via a digital platform on the territory of the Slovak Republic. Such digital platform activities first and foremost include the mediation of contracts among movable or immovable asset holders or service providers and end users.
- Support for the spa industry
The amendment of the act also supports the domestic spa care and tourism industry.
It proposes to introduce a new non-taxable part of the base for the tax-payer related to the demonstrably paid expenses for spa care (meals, accommodation, and spa treatments not covered by the health insurance company). The deductible item is limited to 50 EUR per annum, while the tax-payer is entitled to claim another 50 EUR for the demonstrably paid expenses for his or her spouse, and yet another 50 EUR for his or her dependent child. There is a limitation that the aforementioned non-taxable part of the base may only be claimed by one of these tax-payers.
- Special tax treatment for the commercial use of intangible assets
It is proposed that the exemption of specified incomes will introduce a special tax scheme for the commercial use of intangible assets. This concerns the exemption of license fees related to the provision of granted patents (registered in the Slovak Republic and in the European Union), utility models and designs, but also to the provision of computer programs (software). To lay a claim to these two forms of exemption it is required that the items of intellectual property in question be a result of the tax-payer’s own activity pursued on the territory of the Slovak Republic. The exemption from tax in the amount of 50 % of the payments can only be claimed for the license fees related to the patents, utility models and designs, and software that are activated as the intangible assets of the tax-payer. However, the amount of the income for which the exemption can be claimed is limited depending on whether the provision from a dependent person was necessary to develop the activated intangible assets.
- Introduction of another form of a special tax scheme for the commercial use of so-called embedded royalties in production processes
There is now the exemption for a part of the earnings (revenues) from the sale of the products that use a registered patent or a utility model or design. The exemption is claimed in the amount of 50 % of that part of the earnings (revenues) from the sale of the products that fall to the sale price of the product, after the deduction of the real direct costs and the indirect costs, including manufacturing, administrative and commercial overhead expenses, as well as the deduction of the price surcharge that the supplier would claim in relation to independent persons regarding the performed functions and market conditions. To lay a claim to this form of exemption it is required that the items of intellectual property in question be a result of the tax-payer’s own activity pursued on the territory of the Slovak Republic.
- Precising of the taxation on shares in profit and other shares
The proposed adjustments refine the taxation on shares in profit, shares in liquidation balance, and countervailing equities belonging to partners of public business companies and to limited partners of limited partnerships in cases when they receive these earnings because of the companies in question having a capital participation in a limited company, a joint stock company or a co-op. The adjustment in question needs to be implemented especially because the current tax legislation does not equally treat the shares in profit paid to partners of business companies and to those of public business companies.
- Non-monetary deposits in real values only
After the amendment of the act is accepted, non-monetary deposits will, from a tax perspective, be done in real values only. More particularly, this will concern not only the deposits done as part of Slovak transactions but also individual deposits as well as the deposits of a company or its part outside the Slovak Republic. The act will also define an exception when the original values can be used for monetary deposits.
- Exit taxation
The main purpose of the new article will be to make sure that the tax-payer who is moving their property of changing their tax residence to a territory outside of the Slovak Republic has been imposed a tax in the Slovak Republic on the economic value of all capital profits made on our territory, although this profit might not have been achieved at the time of the exit. This concerns the situations when property is moved from the headquarter on the territory of the Slovak Republic to a permanent establishment abroad, including the situations when the tax credit method has been applied and/or the property of a permanent establishment in the Slovak Republic has been moved to the headquarter or to another permanent establishment abroad. The object of the taxation will be the property moved outside the Slovak Republic, if it is not effectively sold. This means that there is no change in the legal owner of this property, but the Slovak Republic loses its right to tax this property due to the exit. The amendment of the act also determines that a tax loss cannot be shown as a whole with respect to exit taxation. It is proposed that the exit taxation rate will be 21 %.
Since this is an unrealized profit tax, it will be possible to pay the tax in installments over 5 years, however, only if the property is moved to a country where the recovery of claims can feasibly be ensured. In other cases, the tax duty corresponding to the exit taxation is due within the period for filing a tax return.
- Dependant-related expenses
The aim of this adjustment is to prevent the situations that can emerge among dependants with the same tax expense being claimed according to both the law and a legal regulation in another country (double deduction of the same expense), or with such a tax expense being claimed in the Slovak Republic that does not represent the taxable income to be included in the tax base in another country. A solution to these situations is to reject the tax expense to protect the tax base in the Slovak Republic.
- Extension of the period for paying the withholding tax for the owners of apartments and non-residential premises
The proposed adjustment seeks to unify the period for paying the withholding tax and for submitting the notice of withholding and payment of the tax imposed on the apartment and non-residential premise owners’ association or to the natural or legal person with whom the owners of apartments and non-residential premises in the house made a contract on the pursuit of management with the tax-payers who have not been founded or established to pursue business. It is proposed to postpone the deadline from 15 days to the end of the calendar month following the calendar month when the income subject to the withholding tax was remitted or credited to the account for the operation, maintenance and repairs fund.
It is proposed that this act, once passed, becomes effective as of 1 January 2018, except for several points that will become effective as of 1 January 2019.
