On 4 May 2021, the National Council of the Slovak Republic adopted Act No. 215/2021 Coll. on Compensation for Reduced Working Hours and on amendments to certain acts with effect from 1 January 2022, which amends Sections 9 and 13 of Act No. 595/2003 Coll. on Income Tax, as amended.
Under this amendment, compensation for reduced working hours also falls under the tax-exempt income of natural persons.
Compensation paid to a legal entity for reduced working hours is also considered tax-exempt income.
Compensation for reduced working hours refers to the provision of a subsidy to partially compensate employer costs for employee wage compensation during the period of a restriction of the employer’s business activities caused by an external factor. Compensation for reduced working hours is to be granted to an employer who meets the conditions defined in the Act on Compensation for Reduced Working Hours and is to be provided by the Centre of Labour, Social Affairs and Family or the Office of Labour, Social Affairs and Family.
Under Section 2(c) of Act on Compensation for Reduced Working Hours, an external factor is of a temporary character, cannot be influenced or prevented by the employer and has a negative impact on the assignment of work to employees, for instance, state of emergency, extraordinary circumstances, or force majeure. However, it does not include war, state of war, seasonal work, restructuring, planned shutdown or reconstruction.
As the compensation for reduced working hours provided to the employer to partially reimburse the costs incurred to pay the employees’ wage is considered tax-exempt income, expenses (costs) incurred for income not included in the tax base are not considered tax expenses under Section 21(1)(j) of the Income Tax Act.
