mailingLeitner Slovakia 1 quarter 2024

Our first 2024 edition of the mailingLeitner Slovakia addresses the most important income tax news, in particular,

• the higher tax on dividends
• the minimum corporate taxation
• tax issues with respect to employee stock option plans (ESOP)
• tax bonus on interest and on increased payments
• levy in regulated industries
• proof of the beneficial owner of income
• spin-off as a new form of reorganization
• global minimum tax and
• public Country-by-Country Reporting

We would be happy to assist if you need more information.

The changes approved last year to encourage investments will not be implemented, as both the new exemption for the sale of securities and shares as well as changes to the taxation of virtual currencies were cancelled by the new government at the end of the year. Instead, the government introduced the “Consolidation Package”, which was published in the Collection of Laws of the Slovak Republic on the 30 December 2023, an act to amend several laws with the aim of improving the state budget.

The following is a brief overview of some income tax amendments applicable as from 1 January 2024:

Withholding Tax on dividends

Dividends paid to individuals will be subject to a new increased 10 % withholding tax on income. The same applies for payments of the liquidation surplus, settlement shares or shares of profits paid to silent partners.

If a taxpayer paying income abroad is unable to prove the beneficial owner of income, a 35 % withholding tax must be applied. In the summer of 2023, the Tax Administration published the information on the manner, form, scope and frequency of the beneficial owner test, which defines the minimum documentation requirements.

Minimum Corporate Taxation

The minimum corporate tax has been reintroduced in the form of a tax license as we have known it in the past. The amount of the minimum tax will range from EUR 340 to EUR 3,840, depending on the taxable income (revenue). It will apply for the first time for tax periods beginning no earlier than 1 January 2024.

Small enterprises with taxable income below EUR 60,000 will be able to apply the 15 % income tax rate (comparable to the previous income limit of approximately EUR 50,000).

Increase in health insurance contributions

Health insurance contributions made by employers has been increased by 1 % (from 10 % to 11 %), which results in higher labour costs. Health insurance contributions for self-employed as well as self-payers have also been increased by 1 % (from 14 % to 15 %). This increase shall apply only for a period from 2024 to 2027.

Tax bonus for housing

The new rules for the tax bonus on interest paid will apply to new loan agreements signed after 31 December 2023. In these cases, the maximum amount of the tax bonus shall be up to EUR 1,200. At the same time, an incentive for increased repayments will be introduced. From 2024 onwards, it will be possible to receive a social benefit in the form of an allowance for the increased repayment of a mortgage. For 2023, individuals have the possibility to claim this relief in the form of a tax bonus on the increased repayments. If their repayments have increased in 2023 as compared to 2022, individuals can claim a tax bonus of 75 % of this difference, up to a maximum of EUR 1,800, provided that certain conditions are met.

Levy in regulated industries

The levy in regulated industries has been extended to all companies authorized by the National Bank of Slovakia, while the rate remains the same as in 2023. This means that the planned degression of the levy rate will not apply. At the same time, the rate for banks is temporarily increased to a rate of 0.025 (compared to the standard rate of 0.00363). The rate for banks will be gradually reduced to the same level as other entities in regulated industries.

Solidarity contribution – oil, gas, coal, refinery

This solidarity contribution was last due for 2023, but the new government has extended it also for 2024.

Employee stock option plans (ESOP)

From 1 January 2024, the non-cash benefits provided in the form of employee shares or shares in a limited liability company will be exempt from personal income tax. This exemption will be available not only to employees but also to individuals with income from business and other self-employed if the shares were acquired in connection with the performance of their activities for the company providing the ESOP.

Spin-off – as a new form of reorganization

As of 1 March 2024, the new Act on Company Conversions will come into force. The Act, introduces a new form of reorganization, a spin-off, where only a part of the company is divided or spun-off, without the company ceasing to exist. This conversion must be notified to the tax administration and entered in the commercial register. The conversion project must be verified by an independent auditor. At the same time, a cross-border division as well as a cross-border change of legal form are introduced.

In connection with the new Act on Conversions, the Income Tax Act has been amended as well and the same rules will apply to spin-offs as to other forms of reorganization. Domestic spin-offs will be performed at fair values. Only cross-border spin-offs will be possible at their original book values if legal conditions are met.

Global minimum tax

At the end of 2023, the Act on the domestic top-up tax ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups implementing the EU Council Directive was approved in Slovakia. Such companies will be required to monitor as to whether their effective tax rate is 15 %. For 2024, the first tax return will be filed and the minimum top-up tax will apply. The obligation to calculate the top-up tax will also arise for entities that will not actually have to pay the top-up tax in the end.

Public Country-by-Country Reporting

Finally, we would like to remind you of the newly introduced reporting obligation, Report on Income Tax Information, which arises from the Act on Accounting, as we have informed in last year’s mailing.

Ultimate parent entities and separate entities with a cross-border aspect whose revenue has exceeded EUR 750 million. in two consecutive accounting periods, will be required to prepare a Report on Income Tax Information and file it with the Register of Financial statements and the Collection of Deeds of the Commercial Register. Large subsidiaries and selected accounting entities will also be required to file a Report on Income Tax Information in respect of their foreign ultimate parent or foreign separate entity.

In June 2023, the Ministry of Finance of the Slovak Republic published a measure (MF/006455/2023-74) setting out the exact details of the report. In addition to the amount of taxes paid, the Report on Income Tax Information will also contain other information such as the identification of the entities in the group, a description of the companies’ activities, the number of employees and various financial indicators.