On 2 December 2020, the National Council of the Slovak Republic approved an amendment to Act No 595/2003 Coll. on income tax. The most important approved changes are listed below:
- the definition of the registered office and place of actual management, as one of the criteria for determining the tax residence of a legal entity in the Slovak Republic, is made more precise;
- the exception for those individuals who cross the borders of the Slovak Republic on a daily basis for the purpose of performing dependent activity in Slovakia is omitted from the criteria for determining the residence of an individual. The purpose of such arrangement is to ensure that the tax residence of individuals is determined according to the delimitation criteria in the relevant agreement on avoidance of double taxation;
- legislation on hybrid mismatches is being extended, e.g. the definition of transparent entity and reverse hybrid entity is introduced, and the rules for the taxation of income of these entities are introduced;
- the application of the CFC rules (rules for controlled foreign persons – so far valid in law only for legal entities) is extended also to individuals; the aim of these rules is to prevent tax evasion and to tax the income of a CFC company in the Slovak Republic as early as at the moment of achieving the income in the CFC company and not as late as when dividends are paid out (postponing the effect of this change until 1 January 2022);
- implementation of new tax rate for personal income from a controlled foreign company at 25% on income from cooperating countries, and 35 % on income from non-cooperating countries;
- refrain from settling the corporate income tax advances paid, which are paid from the beginning of the tax period to the deadline for filing the tax return in a lower amount than that based on the tax return filed;
- extend the benefits provided by the financial administration to taxpayers, namely by including the obligation of the tax administrator to notify the taxpayer filing the tax return of the amount and due date of the income tax advance no later than five days bevor the date for payment of income tax advance (postponing the effect of this change until 1 January 2022);
- for the sake of simplification and legal certainty, an employee is allowed to request the annual settlement from any employer who is a taxpayer and who paid a taxable salary to the employee during the tax period;
- define more precisely the taxpayer of the non-cooperating country;
- abolish the exemption of cash income which the employer may grant to an employee for work on the occasion of the summer leave period and the Christmas holidays (exemption of 13th and 14th salaries);
- abolish the possibility of applying the non-taxable part of the tax base for spa care in the amount of EUR 50;
- delete the preferential tax depreciation of technical improvements and repairs carried out on the building used to provide spa care;
- delete the preferential tax depreciation of buildings used to accommodate own employees;
- extend the tax bonus for children from 6 to 15 years, from 1 July 2021 to 31 December 2021 the taxpayer may claim 1.7 times the basic tax bonus and from 1 January 2022 even 1.85 times the tax bonus;
- for the purposes of defining the position of the so-called micro-taxpayer, only taxable income (and not all income from business and from other self-employed activities, as under the current valid wording of the law) will be included in the income (revenues);
- 15 % tax rate will by applicable only for the “micro-taxpayers”;
- postpone the deadline for mandatory electronic delivery of financial administration submissions to individual taxpayers due to the unpreparedness of the FS and NASES information systems by one year, until 31 December 2021.
Although the amendment to the Income Tax Act enters into force on 30 December 2020, most of the provisions have been postponed to 1 January 2021, the provisions on the tax bonus will be applied from 1 July 2021 and the provisions concerning e.g. CFC rules for natural persons, reverse hybrid entity, registration and notification obligations do not take effect until 1 January 2022.
Act No. 595/2003 Coll. on income tax was also amended as part of the amendment to Act no. 57/2018 Coll. on regional investment aid on 1 December 2020. For further information, please see a separate article in this Newsletter.