Amendments to tax deductible items in Slovakia now in effect
Technical update 6 minute read

Amendments to tax deductible items in Slovakia now in effect

19 January 2015

The amendment to the Act on Income Tax introduced essential changes in income taxing of natural persons as well as legal entities mainly in regard to tax-deductible expenditures and depreciation of tangible assets.

As of 1 January 2015, changes in regard to tax-deductible expenditures in Slovakia concern the areas detailed below.

Membership fees arising from voluntary membership

Based on this change, the possibility to provide a voluntary fee arising from a voluntary membership in a legal entity established for the purposes of protecting the interests of taxpayers will be tax deductible only up to 5% of the tax base and only up to €30,000 in total per tax period.

Including contractual sanctions into the tax base

This concerns a lump sum payment of expenses related to receivables, contractual penalties, late payment fees and late payment interest. The contractual sanctions shall be considered as tax non-deductible expenses for debtor and as taxable income for the vendor (included in the tax base) after being recognised. 

Thin capitalisation rules for related domestic and foreign entities

Thin capitalisation rules shall affect the companies in which partners or shareholders made small deposits, and which performsr activity by means of providing loans from which interest is paid and thus the profitability of the companies is excessively reduced. Tax deductible interest shall be only up to 25% of the EBITDA indicator (which is the profit before tax + interest + depreciation).

Tax-deductible provisions to receivables towards debtors in bankruptcy and restructuring proceedings and the possibilities of tax-deductible write-off of receivables

Provision to such receivable acquired by assigning shall be tax-deductible only on condition that the assignee actually paid the acquisition price. Write-off of receivable acquired by the assignee will be tax-deductible only on condition that the assignee paid the acquisition price. Upon the sale of such receivable, the loss will be tax-deductible only if the acquisition price was actually paid.

Tax-deductible expenditures after settlement is performed

  • Consultancy and legal services expenses/costs.
  • Commissions for mediation services limited to 20% of the value of the trade with the exception stated by the law (financial institutions, collective investment, etc.); The exception are banks, insurance companies, collective investment entities and financial mediators who perform this activity under specific provisions.
  • Compensation payment expenses/costs.
  • Marketing studies and market research - debtor as well as vendor.

Elimination of generating tax losses related to lease contracts

Tax depreciation of leased property shall be included in tax-deductible expenditures only up to the amount of income from lease, which means that loss from the lease will be tax non-deductible. However, a taxpayer will have the possibility to use the tax non-deductible depreciation in order to extend the depreciation period until the property is fully depreciated. The real amount of depreciation as well as the amount of tax and accounting depreciation has to be recognised in the analytical record (that is, in the inventory card).   

Adequacy of tax expenditures

The amendment forces taxpayers to reconsider deductibility of the expenses or costs for such products and related services which are simultaneously used for private needs of taxpayers or employees. Taxpayers may choose from two ways of proving expenses for personal use:

  • precisely monitor and report, for example, private and business calls and expenses for private use will be excluded from tax expenditures (curtail tax expenditures in the range of 0-100%), or
  • in the lump sum of 80% and the remaining 20% add to the tax base.

Premiums and contributions paid by a public company or limited partnership on behalf of partners

Premiums and contributions paid by a public company on behalf of their partners or by a limited partnership on behalf of their limited partners will be excluded from tax expenditures due to the fact that public company partners and limited partners are, in terms of the Act on Income Tax, considered as taxpayers having income from business under the Section 6 (1 d) of the Act on Income Tax. They have the possibility of deducting the expenses if they pay them themselves and if these expenses are related to their income under the Section 6 (1) of the Act.

Reserves for unbilled supplies of goods and services

Reserves for unbilled supplies of goods and services, as well as reserves for the preparation, audit and publication of financial statements and annual reports and reserves for the preparation of income tax returns will be tax non-deductible.

Restriction of deductible expenses for promotional and advertising items

For the taxpayer, for whom the production of tobacco products and alcoholic beverages is not the main activity, tobacco products and alcoholic beverages of less than €17 for a single item will not be considered as advertising/promotional expenses and therefore considered tax non-deductible.

Depreciation of tangible assets

As of 1 January 2015, the changes in regard to depreciation of tangible assets concern the areas detailed below.

Introduction of two new depreciation groups (Section 26 (1) of the Act on Income Tax)

An increase in the number of depreciation groups from four to six will be introduced. The current third depreciation group with the depreciation period of 12 years will be divided into third depreciation group with the depreciation period of eight years and fourth depreciation group with the depreciation period of 12 years (e.g. air-condition devices, and passenger and cargo lifts which may be depreciated as individual components).

The current fourth depreciation group will be divided into a fifth depreciation group with the depreciation period of 20 years (e.g. production facilities, industrial buildings), and a sixth depreciation group with the depreciation period of 40 years (e.g. hotels, administrative buildings). The changes shall concern the assets being already depreciated.

Accelerated depreciation method

An accelerated depreciation method shall be applicable only to the tangible assets in the second and third depreciation groups. The coefficients of accelerated depreciation for the second group shall remain unchanged. As far as the third depreciation group is concerned, the coefficient eight shall be used in the first year of depreciation, the coefficient nine shall be used in the following years of depreciation and the coefficient for the increased residual value shall be the same as in the first year of depreciation (that is, eight).

The limitation of the acquisition value for passenger cars in the amount of €48,000

Provided that the tax base is low, a taxpayer will not be entitled to claim tax deductible depreciation charges for cars with an acquisition value of €48,000 and above. Shall the tax base be sufficiently high, a taxpayer will be entitled to claim tax deductible depreciation charges for cars with an acquisition value of €48,000 and above in the full amount. This shall apply only under the condition that such car will be used solely on business purposes.     

The rental limit for the operating lease of passenger cars in the amount of €14,400 /year upon failure to fulfil the statutory minimum tax base

Shall the minimum tax base in the amount of €14,400 be not reached and the rental limit (€14,400) exceeded, the difference between the real rental amount (e.g. €20,000) and the statutory minimum tax base (€14,400) will be addition to the tax base.

Non-deducted VAT with regard to applying deductions using a VAT coefficient

A taxpayer who applies deduction using a VAT coefficient is obliged to include the non-deducted VAT into the acquisition value of the tangible and intangible asset. In terms of depreciation of tangible and intangible assets, the non-deducted VAT represents a part of the acquisition value (such VAT cannot be recorded in the account 548, but in the account - 04., 02., 01.).

Other changes relating to tangible assets

  • Cancellation of lease depreciation of tangible assets (in regard to depreciation of tangible assets acquired under financial lease, general rules shall be applied). 
  • Extension of taxpayers' obligations to postpone depreciation of tangible assets.

Read more about doing business in Slovakia

Written by

Ondrej Mihočka

Senior Legal Executive, Slovakia

Insights and updates delivered to your inbox.

Sign up now