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Leasing – important changes to VAT

Newsletter – 14.09.2023

Dear Clients and Partners,

The Slovak Financial Administration is changing its VAT approach to leasing in Slovakia pursuant to the conclusions of the Court of Justice of the European Union (CJEU). Specifically, this concerns the assessment of various payments on early termination and the assessment of sale and leaseback.
In addition to the above changes, which did not require legislative amendment, the Slovak Ministry of Finance has proposed an amendment to the VAT Act intended to change the VAT regime for financial leasing.

We would be pleased to assist if you need additional information.

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Payments on early termination of leasing contracts

Until recently, various types of payments such as fines, compensation, and interest on overdue payments have not been subject to VAT. However, under EU law, such payments should generally be included in the tax base for VAT purposes and are subject to VAT, regardless of their formal designation. However, in certain circumstances, payments such as interest on late payment or compensation for damage of goods may not be subject to VAT.

In the Slovak Republic, the new approach is to be implemented after 31 March 2023. No legislative change is required.

We also note the possibility of correcting the tax base if a customer has not paid for a supply and the supplier’s outstanding invoice has become a bad debt. In such a case, there is a possibility to reduce the output VAT liability, and thus the loss on the unpaid invoice is partially eliminated. There is a change in this area as of 1 January 2023.

Sale and leaseback

In the case sale and leaseback transactions in Slovakia, the first delivery is generally considered a supply of goods whereby a supplier is obliged to charge local VAT. The subsequent lease is considered a supply of goods or a supply of services, depending on the agreed contractual terms.

The Court of Justice of the European Union (CJEU) has concluded that a leaseback constitutes a financial transaction intended to increase the lessee’s liquidity. The financial transaction is exempt from VAT, resulting in a pro rata deduction of input VAT on the invoices received.

The Slovak Financial Administration accepts the above conclusions of the CJEU, while the change of interpretation will be applied to contracts concluded after 31 January 2023. In this case, no amendment to the law is necessary either.

Financial leasing as supply of goods

The proposed amendment to the VAT Act represents the implementation of the CJEU judgments in the area of financial leasing. If approved, it would result in a fundamental change in the VAT treatment for financial leasing. The transfer of a leased item under a lease agreement with a right of purchase will be considered a supply of goods if the exercise of the option to purchase 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. The amendment is proposed to take effect from 1 July 2024.

In conclusion, no generalisation can be made from the changes described above. However, we recommend seeking an individual assessment of the specific contracts and the agreed contractual conditions.


  • Anna Fábryová
    Tax Advisor | Partner | Shareholder
  • Miroslava Čevanová
    Tax Advisor | Manager

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