Draft amendment to the VAT Act and carbon duty regulation

The Slovak Ministry of Finance has published a draft amendment to the Slovak VAT Act for comments. The most significant changes are related to the VAT treatment of financial leasingand the introduction of a reverse-charge on imports. Below, you can read about other proposed changes in the VAT area. The changes are set to take effect from 1 July 2024, except for the provisions related to small enterprises, which are proposed to take effect as of 1 January 2025. It is also worth mentioning that the EU Commission intends to introduce a carbon duty, which will initially affect carbon-intensive products imported from non-EU countries.

Registration requirements

Domestic taxpayer will become a registered VAT-payer after reaching the turnover threshold, which shall be increased to EUR 50,000 and will be calculated on a calendar year basis instead of a 12 month period. Taxpayers will be required to register for VAT within 5 days following the day, on which the reason for registration arises. The tax authority shall issue a decision on the VAT registration within 10 days and will be obliged to confirm the registration ex tunc (i.e., from the day on which the reason for the registration arose). The conditions of voluntary VAT registration shall remain unchanged.

Foreign taxpayer (without any registered office or fixed establishment in Slovakia) will become a registered VAT-payer by conducting a taxable transaction, which is subject to VAT in Slovakia, except for certain transactions as prescribed by law. Taxpayers will be required to register for VAT for purposes without delay from the day, on which the foreign person became a VAT-payer. The tax authority will be obliged to register and to assign a VAT number immediately after receiving the application.

If a taxable person currently applies for late VAT registration, he is required to submit a special VAT return including all transactions for the entire period, for which the person should have been a VAT-payer. New rules introduce the requirement to submit monthly VAT returns and Control Statements for this period. The proposed change will increase the administrative burden, and higher penalties for late VAT registration will be imposed.

Reverse-charge on imports

Currently, import VAT is generally levied by the customs authority. A reverse-charge mechanism has been proposed for imported goods in the following circumstances:

• goods are released into free circulation, or temporary admission with partial relief from import duty is allowed,
• the VAT-payer is established in Slovakia and has a valid VAT number when the import VAT liability arises,
• the VAT-payer has been granted an Advanced Economic Operator (AEO) license, i.e., AEOC type for simplified customs proceedings or a combined AEOF license, and
• goods will be used for business activities.

The new rules will bring a cash flow advantage as the VAT-payer will be able to deduct the import VAT in the same period.

Financial leasing as a supply of goods

The proposed amendment to the VAT Act contains the implementation of the CJEU judgments in relation to financial leasing. If approved, it would result in a fundamental change in the VAT treatment of financial leasing activities. The transfer of a leased item under a lease agreement with a right of purchase shall be considered a supply of goods if the exercise of the purchase option represents the only economically rational choice for the lessee. VAT will not be payable in respect of the agreed payments during the lease period, but in its entirety at the beginning of the lease. For more information, please refer to our Mailing from August 2023.

Other proposed VAT changes

• VAT deduction from IC acquisitions without invoice: Taxpayer acquiring goods from another EU Member State will be entitled to deduct input VAT (in the period when the VAT becomes chargeable) even if it has no invoice from the supplier. In this case, the taxpayer is required to prove the right of deduction based on other relevant documents that show the acquisition of goods and the amount of VAT liability to be reported.
• Small enterprises: Special scheme for small enterprises with low turnover shall be implemented. The scheme aims on simplification of the VAT compliance for small enterprises (registration and charging VAT only after exceeding a certain turnover) and shall ensure equal treatment of domestic and foreign entities.
• Cut of the threshold for issuing simplified invoices: Currently, a simplified invoice can be issued for supplies of goods or services up to EUR 1,000 (without VAT). The draft amendment proposes to reduce this threshold to EUR 400 (without VAT). The aim is combating tax evasion and harmonization with the EU rules.
• Revision of the place of supply of services for virtual events: It is proposed to amend the rules on the place of supply of services related to virtual events, aligning them with evolving business practices in the digital age. In the case of a virtual event (e.g., granting the right to participate in an online educational event) provided for a taxable person, the place of supply will be determined according to the basic B2B rule.
• Considered changes in the VAT rate: The Slovak Ministry of Finance has proposed an increase in the standard VAT rate from 20 % to 22 %. It has been also proposed to abolish most reduced VAT rates (e.g., on food, recreation, sport, printed publications, accommodation services, etc.). However, the proposal does not yet have the approval of the newly elected parliament and will be considered later this year.

Carbon duty (Carbon Border Adjustment Mechanism CBAM)

The new rules will initially affect carbon-intensive goods imported from non-EU countries, namely specified goods in the cement, electricity, fertilisers, aluminium, iron, steel and hydrogen sectors. After implementation of the CBAM, the EU Commission plans to extend the scope of application to all sectors subject to EU emissions trading by 2030.

During the transitional phase (from 1 October 2023 to 31 December 2025), affected companies are subject only to a reporting obligation. EU importers are obliged to prepare a quarterly CBAM report with information on the imported quantity of CBAM goods as well as any carbon taxes effectively paid in the country of production. Starting from 1 January 2026, only registered declarants will be allowed to import CBAM goods. Customs authorities will be required to monitor the movement of CBAM goods and to deny import if undertaken by non-registered declarants. Importers who will be subject to this registration may apply for authorization from 1 January 2025.