New Tax on Financial Transactions from 2025: How to prepare?

The government has passed a law on a new tax - Financial Transaction Tax, which should be effective from 1 January 2025 and will apply to both legal persons and natural persons - entrepreneurs. The new tax has not been approved by the Parliament yet. The businesses will be required to have a business account (transaction account) to carry out financial transactions related to their business in Slovakia. The law introduces new tax rates and deadlines for filing notifications and remittance of tax.

The law introduces new tax rates and deadlines for filing notifications and remittance of tax. In this article, we look at the key points and potential risks of this proposal. The proposal has already passed on by the Parlement in the first reading.

• Taxpayers will be banks or other financial institutions and, in some cases, taxpayers with the obligation to have a transaction account from which the taxes will be paid.
• The tax rate will be 0.40% for debit transactions with a maximum limit per transaction of €40 and 0.80% for cash withdrawals, with no maximum tax limit on withdrawals. In the case of costs recharged from another person who has made payments on behalf of the taxpayer, a rate of 0.40% will apply with no maximum limit.
• The first tax period will start in April 2025 and businesses will be required to pay tax on a monthly basis based on their transactions.

The draft law on the tax on financial transactions was approved by the government and is currently awaiting discussion in the parliament in II. reading. However, it is still undergoing various modifications and raising many questions and uncertainties, but it is clear that the Financial Transaction Tax will have a significant impact on the business environment.

1. Who will be affected by the new Financial Transaction Tax?

The new Financial Transaction Tax Act will apply to legal entities, organisational units and entrepreneurs, however, it is not clearly defined from the wording of the Act whether it will apply to all activities under Section 6 of the Income Tax Act (e.g. attorneys, notaries, authors, artists, consultants, bankruptcy trustees, etc.). It is absolutely crucial that the legislator adds a definition of entrepreneur or a reference for a specific law in order to remove legal uncertainty. The new tax does not apply to the state bodies.

2. Which transactions will be taxed?

The aim is to tax transactions that taxpayers carry out in the conduct of their business by means of bank transfers. These transactions will be identified by being carried out exclusively in a so-called transaction account (business account). For legal persons, these are accounts belonging to that legal person. Each natural person entrepreneur will be required to set up a separate business bank account (a transaction account separate from private bank accounts) by 31 March 2025 at the latest. The tax will not be avoided even by an entrepreneur who fails to comply with this obligation.

Specifically, the law proposes to tax the following transactions:

• Payment debited from the taxpayer's bank account
• withdrawal of cash
• recharging the cost of payments made by the taxpayer to another person on his behalf

The new transaction tax will therefore also apply to funds already taxed once, e.g. wage payments, dividend payments, etc. The new tax will also apply to loan repayments.

The bill further lists transactions on which the tax will not apply, these include payments of taxes and levies, card payments (via a physical terminal or online payment gateway) and other. 

3. Who will be liable for the tax?

Taxpayers will be banks and payment service providers based in Slovakia, or organisational units of foreign financial institutions.

The businesses can also become the liable for the tax. A businesses becomes a liable for the tax when:

• making payments from their foreign bank accounts that are related to their activities in Slovakia (please note that the draft text of the Act does not limit the territorial scope of business in Slovakia, but this is indirectly implied by the explanatory memorandum),
• the costs are passed on to him by the person who makes payments on his behalf in connection with his activities carried out in Slovakia,
• carrying out transactions related to their business in an bank account other than a transaction account.

4. Tax base, rates and tax period

The Financial Transaction Tax will operate as a new form of withholding tax, where the bank will deduct the tax in a similar way to bank charges from the taxpayer's account. The tax is at the businesses’ expense and will not be passed on to the recipient of the payment.

• Ordinary debit transactions: 0.40 % of the transaction amount, maximum tax amount of EUR 40 per transaction.
• Cash withdrawals from a transaction account: 0.80 % of the withdrawal amount, excluding the maximum amount of tax.
• Cost recharges: 0.40 % of the amount of the cost recharged, excluding the maximum amount of tax.
• Debit/Credit card use: €2 per year for each card, if used at least once in a year.

The taxpayer (the bank or the businesses to whom the taxpayer's obligation passes) must always remit the tax no later than the end of the month following the end of the tax period. There are two tax periods for the new tax:

a. Calendar month: the tax on debit transactions and cash withdrawals will be paid monthly, for the first tax period in April 2025 it is possible to pay the tax by the end of July 2025.

b. Calendar year: a tax of €2 per credit/debit card is applied once a year, even to cards that have been cancelled during the year, if used as least once.

The new tax will be a tax-deductible cost for the businesses.

The bill also requires businesses accepting cash only from 1 July 2025 to allow customers to pay by card as well, which will impose additional costs on those businesses.

The current version of the law contains ambiguities, new undefined terms and loopholes.

The draft on Financial Transaction Tax poses several risks, mainly stemming from inconsistencies in information and insufficient definitions - issues that should normally be addressed in the context of the comment procedure, but which the government has from their point of view "successfully" shortened.

Among the other problematic parts we have identified, several types of transactions are not currently excluded from the proposal, the taxation of which would place an additional burden on those affected:

• Staff salaries: Although smaller businesses (with an average number of employees of up to 49) make up the majority of all companies in Slovakia, in terms of financial impact, large businesses (250 or more employees) will be the most affected, as these businesses carry out the highest volume of financial transactions. The largest employers in Slovakia are foreign investors - Volkswagen, U.S. Steel and Kaufland.

Imagine a situation where company XY with 10,000 employees pays a minimum net wage of €615 . At the currently proposed rate of 0.40% per month, this would result in a financial transaction tax of approximately €295,200 per year for company XY. If we assume the average wage in Slovakia, which is currently €1,520 (gross), the annual financial transaction tax for our company XY would be approximately €554,366.

The new tax could make foreign investors reluctant to do business in Slovakia, and not only through additional taxation of labour, which is already one of the highest taxes in Slovakia. 

• Tax on payments between your accounts: companies often have several accounts in different banks. Under the new law, these companies would pay tax at a rate of 0.40%, up to a maximum of €40, on each transfer between their accounts. This situation is not taken into consideration by the law.
• Additional obligations for banks: Banks will be responsible for the collection and remittance of tax as well as for complaints the amount of withheld tax. The law even explicitly obliges banks to respond to every client’s complaint within 30 days. The state thus adds to the banks additional administrative duties and financial responsibility for the correct payment of the tax. The bank is obliged to perform all these activities free of charge for the state under the threat of a fine.

The Financial Transaction Tax Act will have a significant impact on business costs. In addition, the additional administrative costs associated with the maintenance of accounts and records will place a significant burden not only on businesses but also on the banks themselves, which will have to bear the administration associated with the new law. The financial transaction tax will mostly tax both income that has already been taxed and income that is exempt from tax.

All these changes may make foreign investors reluctant to do business in Slovakia. By planning to also tax wage payments, this may cause a reduction in the number of employees, which may negatively affect employment rate in Slovakia.

The biggest concern, however, stems from the encouragement of the grey economy, where entrepreneurs would switch to a cash-based form of doing business

Grant Thornton will keep you up to date on further developments on the new transaction tax law to help you prepare for the upcoming changes. We will be glad to provide you with tax consulting in regards to the new obligations and help you with the correct maintenance of accounts and transaction records to meet all legislative requirements. Don't hesitate to contact us for an efficient and seamless implementation of new policies.