Taxation in Slovakia
Slovakia uses a typical European taxation system. It includes taxes on income and property for companies and individuals, VAT, various duties, and excise taxes. The country has some advantages, such as a low dividend tax and flexible business rules. To register for VAT, the tax authorities require a turnover of 50,000 euros in the domestic market, which may limit some companies. However, registration under a different clause is easy, allowing businesses to issue invoices abroad, although the input tax cannot be deducted. When a company orders services abroad with reverse payment, a VAT liability arises.
VAT in Slovakia is 20%, and when importing into the European , it is paid at the border point. VAT management in Slovakia is similar to other countries, but the VAT credit is returned to businesses with a one-month delay and regular inspections are carried out.
VAT in Slovakia is 20%, and when importing into the European , it is paid at the border point. VAT management in Slovakia is similar to other countries, but the VAT credit is returned to businesses with a one-month delay and regular inspections are carried out.
Tax Benefits
Slovakia has its own taxation system that may be of interest to entrepreneurs. In this country, the tax rate for businesses is 21%, and for individuals – 19-25%. This may seem high to some, but Slovakia has its advantages. One such advantage is that any self-employed person can deduct up to 20,000 euros as a fixed expense without any special justification.
Slovakia has signed conventions for the avoidance of double taxation. Corporations in this country are taxed only on corporate profit. Since 2017, there has been a seven percent tax on dividends at the shareholder level. Corporate shareholders do not pay this tax on profits. If a company's annual sales do not exceed 50,000 euros, the corporate income tax rate is reduced to 15%.
There are opportunities to optimize accounting policies and reduce tax expenses. For example, firms can deduct 150% of the costs for research and development. However, companies must consider restrictions on loss carryforward, which cannot exceed 5 years and 50% of profits, as well as a cap on expense deductions, which is limited to 5,000 euros. Another limitation is that expenses for services can only be deducted in the year of payment from taxable income.
If a company meets certain criteria, an audit is mandatory. However, if the activities are split into unrelated businesses, an audit can be avoided.
Slovakia has signed conventions for the avoidance of double taxation. Corporations in this country are taxed only on corporate profit. Since 2017, there has been a seven percent tax on dividends at the shareholder level. Corporate shareholders do not pay this tax on profits. If a company's annual sales do not exceed 50,000 euros, the corporate income tax rate is reduced to 15%.
There are opportunities to optimize accounting policies and reduce tax expenses. For example, firms can deduct 150% of the costs for research and development. However, companies must consider restrictions on loss carryforward, which cannot exceed 5 years and 50% of profits, as well as a cap on expense deductions, which is limited to 5,000 euros. Another limitation is that expenses for services can only be deducted in the year of payment from taxable income.
If a company meets certain criteria, an audit is mandatory. However, if the activities are split into unrelated businesses, an audit can be avoided.
Advantages of s.r.o. & k.s.
The establishment of an s.r.o. and k.s. association involves creating a limited liability company, usually with one owner who becomes a general partner in the subsequently created limited partnership. The sole owner of the LLC becomes a partner in the limited liability partnership.
It is possible to create small businesses between a shareholder and the parent company to use the lower 15% tax rate. These businesses do not require registration under the fourth VAT clause and issue only local invoices, which makes the management process more efficient. If such firms are structured as k.s., foreign owners pay only seven percent tax on dividends. The total tax burden in Slovakia is only 21%, allowing for significant savings.
Slovak law also allows firms to have a fiscal year different from the calendar year, which can be useful for deferring tax declarations when distributing profits to shareholders abroad. Entrepreneurs relocating their activities here may benefit from lower wages and costs. It should be noted that additional expenses may arise due to tax progression.
A holding function can be a good solution, allowing tax-free receipt and distribution of profits. An LLC with a permanent establishment can receive dividends from a subsidiary in another EU country and further distribute them to a limited partnership. However, it is necessary to consider the tax aspects in the country of residence.
If an LLC receives dividends, they are not subject to taxes, and there are no special restrictions on income from low-tax countries. The profits of a k.s. are not exempt from taxes in the country of residence if the business activity is conducted from that state.
Expense Reimbursement in Slovakia
Travel expenses for accommodation, public transportation, and fuel replacement are reimbursed upon receipt. If a personal vehicle is used, the cost is 0.18€ per kilometer.
Meal allowance for business trips within Slovakia: 4.8€ for a 5-12 hour trip; 7.1€ for a 12-18 hour trip; 10.9€ for a trip longer than 18 hours.
Meal allowance for trips abroad depends on the destination country.
Travel within EU countries is paid as follows: up to 6 hours – 25% of the daily rate; 6-12 hours – 50% of the daily rate; over 12 hours – full daily rate.
Representation expenses cannot be deducted from the taxable base, but the company can register them as non-deductible expenses on its account. Meal expenses can be deducted as expenses. Gifts to business partners can be up to 17€ per item.
Company cars:
Meal allowance for business trips within Slovakia: 4.8€ for a 5-12 hour trip; 7.1€ for a 12-18 hour trip; 10.9€ for a trip longer than 18 hours.
Meal allowance for trips abroad depends on the destination country.
Travel within EU countries is paid as follows: up to 6 hours – 25% of the daily rate; 6-12 hours – 50% of the daily rate; over 12 hours – full daily rate.
Representation expenses cannot be deducted from the taxable base, but the company can register them as non-deductible expenses on its account. Meal expenses can be deducted as expenses. Gifts to business partners can be up to 17€ per item.
Company cars:
- An employee who can use their company car for private purposes receives one percent of its price per month as additional income.
- A usage agreement with time and mileage restrictions can be made. Then the employee pays only the market price for use.
- If a logbook is maintained, the company can deduct fuel costs and claim advance VAT as a VAT payer.
- Without a logbook, 80% of the fuel price can be deducted.
VAT on transportation can be deducted as initial tax when purchasing. However, if the car is used for personal purposes, proportional reduction of the deductible tax is required.
All employees of the company can be reimbursed for work-related expenses if they were in the employer's interest.
Meals:
All employees of the company can be reimbursed for work-related expenses if they were in the employer's interest.
Meals:
- Company canteen: 55% of the meal price.
- Canteen abroad: at least 55% of the meal price.
To summarize expenses, a calculation based on average conditions, taking into account employee legal requirements, is required.