mailingLeitner Slovakia – November 2022

Dear clients and partners,

The time between Christmas and #GivingTuesday, this year on 29 November, is time of generosity, giving and volunteering.

Giving Tuesday creates an opportunity for corporate volunteering and charity donations. Many socially responsible businesses volunteer within their communities, often through financial or material donations. For inspiration of what you can do even after Giving Tuesday, click here: https://www.givingtuesday.sk/

Below we bring the overview of tax implications of donating as well as other tax-optimal options in the area of charity and socially responsible business.

We for you,

Anna Fábryová

Volunteering and charity donations from tax perspective

Financial donations

From the perspective of the Income Tax Act, financial donations to charities, provided either directly or through an intermediary such as a civic association, are not tax deductible. On the other hand, financial donations allow companies to assign 2 % of the tax paid to non-profit organizations compared to assignation of 1 % of the tax paid without such financial donation.

Material donations

Only expenses incurred by a taxpayer in the form of donations provided as a material humanitarian aid to a foreign recipient can be considered as tax deductible expenses. Further requirement is a donation agreement concluded with the Ministry of the Interior of the Slovak Republic. Also, food donations to the Food Bank of Slovakia or to entities established for non-business purposes, are considered as tax deductible expense. However, a taxpayer is required to prove that he has handed over food supplies without consideration and based on a donation agreement with a civic association.

If goods or services are supplied without consideration, the taxpayer is, under the rules of the Value Added Tax Act, obliged to declare and pay value added tax if the input VAT deduction was claimed when the goods were purchased or created by his own activity. Similar to corporate income tax, the taxpayer is released from the obligation to pay VAT if goods are supplied without consideration and based on a donation agreement concluded with the Ministry of the Interior of the Slovak Republic for the purpose of export outside the territory of the European Union as part of humanitarian aid, or in case of food donations to the Food Bank of Slovakia, with the unit price below EUR 17.

Give a second chance to tax-depreciated assets

Does your company have used functional office equipment, furniture or computers? These can be further used, in addition donating them is an environmentally friendly way to a company for asset disposal. Donating tax-depreciated assets does not result in any additional tax liabilities for companies.

Assignation of 2 % or 3 % of tax paid

Donations by companies also affect the assignment of 2 % of the tax paid as compared to 1 %, which can be assigned by all taxpayers. The assignment of 2 % of the tax paid is possible if company has made financial donations in the amount of at least 0.5 % of tax to non-profit organisations. Only financial donations are considered; other donations such as for humanitarian purposes do not allow for a higher tax assignment. You can assign 2 % of tax paid to different organisation as the one, to which the financial donation was made.

The company can also support its employees to volunteer. If employees volunteer for at least 40 hours in a tax year and have written confirmation of their volunteering activities, they can themselves assign 3 % of their tax paid instead of 2 %.

“Decide for Yourself, Who Needs Your Taxes” here: https://rozhodni.sk/

Charity advertising

Companies can also support the non-profit sector through charity advertising. For his purpose, income from charitable advertising is, up to an amount of EUR 20,000 per tax period, tax exempt for selected legal forms of non-profit organisations (i.e., civic association, foundation, non-investment fund and non-profit organisation providing services of general economic interest). Additional requirements set by the law must be, however, observed. For the advertising company, such expenditures are tax deductible following the payment.

Dual education

Another way, in which your company can contribute to social responsibility, is participating in a dual education system, which brings employers and secondary schools together to train future employees. Linking vocational education and the labour market brings a synergetic effect where the school curriculum is adapted to the requirements of employers. If an employer decides to enter the dual education system, he can benefit from a tax incentive based on the number of students and the training contract concluded between student and employer, amounting to EUR 3,200 or 1,600 per student. Expenditures of employers for the material and financial provision of students are tax deductible. Employers can also request contributions for the provision of dual training in the amount of EUR 700 (large employers) or EUR 1,000 (small and medium-sized employers) per student per one school year.

For more information on dual education, see here: http://dualnysystem.sk/

We believe that charitable activities within the business are not a matter of marketing, but it is socially desirable and should be part of every corporate strategy.

Currently, companies are not subject to ESG (Environmental, Social, and Corporate Governance) reporting, with the exception for public interest entities with more than 500 employees. Nevertheless, companies can voluntarily set their ESG strategy together with its reporting and thus, declare their social responsibility not only towards their investors, but also towards their customers, employees, the planet and communities.