Legislative changes regarding taxes as of January 1st 2024

Changes to income tax

These changes are part of the consolidation package of Act No. 530/2023 Coll., which was approved by the National Council of the Slovak Republic on 19.12.2023.

 

1. Extension of micro-taxpayers' benefits

 

With effect from 1st of January 2024, the 15% income tax rate for entrepreneurs on turnover up to EUR 49 790 will be extended to EUR 60 000 (tax periods starting from 1 January 2024 at the earliest), when it will be possible to obtain the status of a micro-taxpayer after meeting the conditions, who can subsequently claim various tax benefits resulting exclusively from this status.

A micro-taxpayer can be a natural person with income from business and other self-employment (sole traders, notaries, interpreters, etc.), as well as a legal person, if their taxable income for the tax period does not exceed EUR 60 000. Other conditions to be met are defined in the Income Tax Act. However, the taxpayer's total taxable income must include all taxable income earned, even if it is settled by withholding or deduction of a tax-security amount.

 

Taxpayers who will have micro-taxpayer status in 2024 will be able to benefit:

• favourable conditions for depreciation of tangible assets,
• favourable tax loss deduction rules,
• the introduction of the possibility of making tax allowances for unpaid debts in line with accounting ones,
• preferential depreciation of receivables and accessories,
• 15% income tax rate.

 

2. Tax licences (LP) are introduced

 

The new consolidation package reintroduces a measure in the form of a minimum tax for legal persons, also known as a tax licence. In the past, tax licences have proved to be an effective means of combating corporate tax optimisation.

Almost every legal person will now have to pay this tax after deduction of the relevant tax reliefs for each tax period for which:

• the tax liability calculated in the tax return will be lower than the amount of the minimum tax, which is set differently for each legal entity, or
• the legal entity reports a tax loss.

 

In other words, the new minimum tax for legal persons also applies to situations where the company has no activity or is in a loss-making situation. If the amount of the tax liability in the tax return is higher than the minimum tax, there is no obligation to pay this minimum tax.

 

The amount of the minimum tax should be between €340 and €3 840 depending on the taxable income (for the tax period) as follows:

Taxable income (revenue)	Minimum tax amount
Up to EUR 50 000	EUR 340
EUR 50 000 - EUR 250 000	EUR 960
EUR 250 000 - EUR 500 000	EUR 1 920
More than EUR 500 000	EUR 3 840

 

The minimum tax can be halved if the taxpayer employs individuals with disabilities at least 20% of the total average number of employees.

 

3. Increase to the health insurance contribution rate

 

The consolidation package also brings an increase in health contributions for employers from 10% to 11% of an employee's gross wages. While this levy increase may not seem like a dramatic change at first glance, in reality it is a step in the wrong direction. Slovakia has for a long time the highest levy burden on employers and not only among the V4 countries, to add, the burden on labour is also higher in Slovakia compared with wealthy countries such as Austria and Germany. This step will increase the burden again, which will further worsen the situation of companies and weaken Slovakia's competitiveness. In addition, health contributions remain uncapped.

In response to this situation, companies need to take measures to minimise the adverse effects of increased levies. A key element should be an analysis that assesses how the change in levies will affect the costs and profitability of the business. Based on this analysis, it is appropriate to integrate the increased costs into budget planning and financial strategies for the coming period. In addition, companies should consider cost optimisation options and look for effective ways to mitigate this negative impact on their budgets.

 

4. Dividend tax increase

 

The Slovak dividend rate is the second lowest in the EU and the lowest in the V4. The current withholding tax rate on the payment of profit shares (dividends), or shares in liquidation proceeds, or settlement shares to natural persons is 7%. Dividends from activities after 1st of January 2024 are to be subject to an increased dividend tax of 10%. This increase will affect both Slovak and foreign owners (natural persons) of Slovak companies, if taxation is allowed by a double taxation treaty. Dividends from profits before 2024 would continue to be taxed according to the legislation that was in force in the year to which the retained earnings are linked.

 

5. Employee shares given as a benefit will be entirely tax free (NP)

 

Starting January 2024, the Income Tax Act will exempt the acquisition of employee shares and business shares in start-ups at a preferential price (Section 5(7)(q) of the Income Tax Act). This applies to employee shares and business shares acquired after 31st of December 2023. Non-cash income from employee shares will be exempt if:

• The business shares have been granted to the employee in connection with the performance of a dependent activity carried out for the employer who provides such non-cash benefit;
• The employer has not yet paid a profit share (dividend);
• The employee shares have not been and are not admitted to trading on a regulated market (stock exchange).

The same exemption will also apply if the taxpayer held the shares as a sole trader (Section 6(1) and (2) of the Income Tax Act (ITA). This change will help in particular in the quantification of non-cash income and its valuation for start-up companies, where such quantification was administratively demanding.

In Slovakia, the low number of patents and the low interest of workers in the development of companies has been a problem for quite some time. Abolishing the taxation of employee shares for start-ups would be a positive step that could encourage greater employee involvement in the process of growth and development of companies in Slovakia. Employee shares could represent a significant benefit that could act as a catalyst to help Slovak companies remain competitive in a dynamic market environment.

 

Situation model:

The company provides its employees with a benefit in the form of a non-cash benefit - a discounted "purchase" of the company's shares. An employee of a joint stock company acquired a share on 10.01.2024, and thus acquired a real equity interest in the company. Is the employee liable to tax on such "income" in the form of acquisition of the share at a discounted price?

Answer:

Due to the new legislation effective from 1st of January 2024 applicable to non-cash benefits provided to employees after 31st of December 2023, this non-cash income of the employee is exempt from tax if the conditions of the Income Tax Act are met.

 

​6. Taxation of active income of sports professionals (NP)

 

Sport professionals, like other individuals with royalties (actors, writers...), have the option to choose the form of taxation from 1st of January 2024:

• Withholding tax;
• Through the tax return (obligation to enter into a written agreement with the person who pays the income to the taxpayer).

This change is defined in Section 6(2)(e); Section 43(3)(u); Section 43(14) ITA.

 

Situation model 1: Withholding tax

The football coach has a gross monthly salary of EUR 2 200. What amount do they actually receive on their account?

The company or person paying the salary withholds 19% tax of EUR 418 from the coach. The net salary for the trainer will therefore be EUR 1 782. The tax withheld annually will amount to a total of €5 016. The annual net income of the trainer comes to EUR 21 384. They no longer declare this income on their tax return and do not deduct tax on it.

 

Situation model 2: Through the tax return after an agreement

A football coach is paid a gross monthly salary of EUR 2 200 and claims a flat rate. They pay a minimum health levy of EUR 91.28 and do not yet pay social security contributions. How much tax will they pay?

Of the annual income (taxable annual income) of EUR 26 400, lump-sum expenses are EUR 15 840 and health insurance contributions are EUR 1 095.36. The partial tax base for the trainer comes to EUR 9 464.40 and after deduction of the non-taxable tax base (EUR 5 646.48) the adjusted tax base comes to EUR 3 817.92.

At the reduced income tax rate of 15%, the tax liability amounts to EUR 572.69. The annual net income of the trainer in this variant comes to EUR 24 731.95.

 

7. Increase in the exempt amount for charitable advertising

 

The amount of income exempt from income tax in the case of advertising for charitable purposes is increased from EUR 20 000 to EUR 30 000. This income exemption may be claimed by civic associations, foundations, non-investment funds, non-profit organisations providing services of general utility, special-purpose establishments of the church and religious society, organisations with an international element, as well as the Slovak Red Cross and non-profit organisations carrying out research and development.

In practice, this change means that companies and individuals can contribute funds to these non-profit organisations without having to pay tax on them. At the same time, these contributions can be claimed as a tax expense once paid, which can be a welcome alternative to traditional tax-deductible donations. In order to qualify for this option, a charitable advertising agreement must be entered for the purpose of presenting the company, goods, products, services, company name, etc.

 

8. Repeal of certain measures adopted in 2023

 

• As part of the consolidation package, these changes adopted in 2023, set out in the text below, are repealed.
• Abolition of the exemption for income from the transfer of a participation (share) in a limited liability company after three years from its acquisition. The condition was the acquisition of the interest after 31.12.2023.
• Abolition of the exemption of gains from the sale of securities not traded on a regulated market after three years from the date of their acquisition
• Abolition of the exemption for income from the redemption of units after three years from the date of issue, i.e. on the redemption of units.
• Repeal of the definitions and new rules for the taxation of virtual currencies introduced in 2023.

 

 

9. Global minimum tax of 15% for multinational companies (LP)

 

Multinational companies in European Union member states have started to face a new minimum effective tax rate of 15%. The aim is to achieve a more fair and more stable tax environment. The transposition of the EU Council Directive into Slovak legislation (Section 39 and 40 of the Tax Code Act) will apply the global minimum tax rule for companies with consolidated revenues of at least EUR 750 million in two accounting periods in 4 years. This measure responds to a global initiative to set a minimum tax of 15% for multinational companies and at the same time to prevent speculative transfer of capital and business to countries with low taxation rates. In the event that the group's effective tax is less than 15%, the tax difference will be equalised. This legislative change will come into effect from the tax period starting from 1st of January 2024 and thus represents an important step towards the implementation of global standards in the field of tax law in Slovakia.

 

Carbon duty for importers of goods into the EU

 

Imports of goods such as cement, iron, steel, aluminium, hydrogen, electricity and selected fertilisers imported into the EU (the exact list of goods can be found here) will, among other things, require a declaration of the emissions generated in their production from 1st of October 2023. The first declaration will be due by 31.1.2024. The obligation applies to the importer or to the indirect customs representative in case the importer is not established in an EU Member State.

In the transition period (1.10.2023 - 31.12.2025), emissions are reported quarterly by submitting a declaration in the CBAM registry without the obligation to pay the duty itself. In the regular period (from 1.1.2026), companies will be obliged to file a statement and pay the carbon duty.

 

Changes to the transformation of commercial companies and cooperatives (effective from 1.3.2024)

 

Starting January 2024, there will be a single legal regime for domestic and cross-border conversions of companies and cooperatives, including changes to their legal form. In particular, the term "Dissolution of the taxpayer without liquidation" is replaced by the word "conversion". This is also linked to the exclusion of the following from the Commercial Code: provisions on mergers, amalgamations, divisions and changes of legal form.

A new feature in the Slovak legal system is the concept of a spin-off, which has not been known in our legal system so far. In the case of a spin-off of a part of a company, the original company does not cease to exist. This is different from a demerger, where the demerged company ceases to exist.

In addition, the new law does not allow the change of legal form from a personal company (k.s., v.o.s) to a capital company (s.r.o., a.s.) and vice versa, unlike the current legal regulation.

 

Additional reporting obligation for Slovak banks and other payment institutions

 

The European Union intends to introduce greater control over the correct collection of VAT in e-commerce. For this reason, an EU Directive, which imposes additional reporting obligations on payment institutions, has been adopted. The EU Directive should be implemented in all Member States by 1st of January 2024.

In addition, all payment institutions doing business in Slovakia and arranging cross-border payments for their clients will have to generate and send selected data to the Financial Directorate of the Slovak Republic on a quarterly basis. Thus, payment institutions will report data on selected cross-border payments they arrange. Data on recipients, volume of transactions as well as the time of their execution will be reported. Banks and non-bank institutions will report to the Financial Directorate of the Slovak Republic data on the recipient of a cross-border payment if there are more than 25 cross-border payments to the same recipient in one quarter. The Directorate General for Finance of the Slovak Republic will then send these data to the Central European System on Payments (CESOP) where they will be evaluated. The conclusions of this evaluation should be accessible to the relevant tax authorities in the Member States.

Suppliers who supply goods to another Member State or selected services to consumers should pay attention to the accuracy of the OSS VAT return or the registration obligation from 1st of January 2024. The tax authorities of all Member States will have a detailed overview of cross-border payments starting 2024. If the reported value of goods and services supplied in the OSS VAT return does not match the data from the banks, the tax authorities are likely to open a tax audit to check the difference.

 

VAT increase on alcoholic beverages

 

Starting 1st of January 2024, the serving of alcoholic beverages will be excluded from the application of the reduced tax rate of 10% of the tax base that applies to restaurant and catering services. The supply of alcoholic beverages, with an alcoholic strength of more than 0.5% by volume, in the context of the supply of restaurant and catering services will be subject to a standard rate of 20% of the tax base.

 

Further information on the changes starting 1.1.2024 can be found here