What's new in tax and payroll laws for '06

THE NEW Year brought several changes to the tax and payroll legislation approved in 2005. Whether you are a foreigner or a Slovak, check below to see if you are aware of all the new things in the legislation.

E111 forms were replaced by the European Health Insurance Card.
photo: TASR

THE NEW Year brought several changes to the tax and payroll legislation approved in 2005. Whether you are a foreigner or a Slovak, check below to see if you are aware of all the new things in the legislation.

Personal income tax

- Expatriates working in Slovakia, but employed abroad, who receive employment income that is not taxed under the Slovak payroll system must calculate and pay monthly tax advances from the amount of income that is actually paid to them.

- Slovak tax residents must do this from the first day they start working in Slovakia. Slovak tax non-residents must pay advances only after they have spent 183 days or more in Slovakia. However, if it is clear from the start that they will be in Slovakia for more than 183 days, they should register with their local tax office and pay advances from when they start working in Slovakia. Furthermore, individuals must inform the Slovak tax authorities that they receive employment income not taxed under payroll by the end of the month in which they first receive this income.

- The amount of lump-sum expenses that an individual entrepreneur who is not a Slovak VAT payer can claim as tax deductible instead of itemised expenses increased from 25 percent to 40 percent of total income. In addition, social security and similar contributions that the taxpayer has to pay are also tax deductible.

- Certain benefits, such as the use of recreational, health, educational, or sports facilities that employers provide to employees, will be tax exempt for those employees.

- If an employee wants to reduce his taxable income by up to Sk12,000 (€316) a year for Slovak life insurance contributions and special-purpose savings, he must give his employer a certificate from the company providing these services proving that the payments were made.

Companies pay road tax even if they only hire a car.
photo: SITA

- As regards shares, in general individuals pay tax on the first day on which a share option granted to them is exercisable. The taxable income is the difference between the market price of the shares on the first day on which the option could be exercised, and the price the employee will pay to exercise the option (the grant price), decreased by the price paid for the share option (if any). The taxable income is treated as employment income, and thus should be taxed through the Slovak payroll, where applicable. The later sale of the shares is also taxable. The amount that is taxable on the sale of the shares is the sale proceeds, less the price paid, and less the amount already taxed following the granting of the option.

- The annual tax deductible allowances for 2006 have increased as follows: personal allowance and the maximum dependent spouse allowance are Sk90,816 (€2,390).

- The annual tax credit for each dependent child living in an individual's household is increased to Sk6,480 (€171).

- Refunded obligatory insurance contributions that were incorrectly paid in the previous year are considered other income and should be included in the tax base for the 2006 tax period. Therefore, those who receive refunds of health insurance contributions will need to file a 2006 personal income tax return.

Health and social insurance legislation

- A person can no longer reduce his retirement insurance contributions by 0.5 percent for each dependent child he has.

- E111 forms were replaced by a European Health Insurance Card (EHIC). An EHIC enables individuals temporarily working abroad (and their family members) to continue being covered by the Slovak health insurance system during their stay abroad. However, Slovak health insurance will only cover basic health treatment abroad.

Corporate income tax

- The rate of tax securement withheld from a Slovak tax non-resident's Slovak-source income will be limited to the tax rate set out in the appropriate double tax treaty.

- The tax deductibility of contributions that an employer pays for his employees' special-purpose savings and life insurance is limited to 6 percent of the employee gross salary.

- Reserves for certain expenses concerning emissions quotas will be tax deductible. This does not apply to entities keeping single-entry bookkeeping. Tax-deductible reserves can also be created for the costs of handling waste household electronic products.

- The conditions for depreciating assets obtained through financial leasing were changed.

- The minimum duration of financial leasing for land will be 60 percent of the tax depreciation period related to property in the fourth amortization group (thus at present, this is 60 percent of 20 years).

- The maximum five-year amortization period for intangible assets was cancelled. These assets will be amortized in accordance with accounting principles according to the actual time over which the intangible asset is to be used.

- The costs of any unauthorized advantages and bribes provided to another person are tax non-deductible expenses.

- Taxpayers who report their accounting result according to International Financial Reporting Standards (IFRS) will have to adjust their accounting result for items that are treated differently according to Slovak statutory accounting rules. The adjusted items will be set out in a generally binding ruling published by the Slovak Ministry of Finance.

Value-added tax

- A foreign entity must register for VAT before starting taxable activities. However, in some specific cases listed in an amendment to the VAT Act, a foreign entity does not have to register for Slovak VAT. These cases include the provision of tax exempt transportation and supplementary services, and situations where the person liable to pay Slovak VAT is the customer (the recipient of the taxable supply).

- The VAT treatment of the rental of railway carriages, wagons, trailers and semi-trailers is now the same as that of other means of transport. Thus the place of supply is where the supplier has its seat, not where the customer has its seat.

- Services delivered by an association of legal or natural persons to its members are VAT exempt, provided all the members of the association perform activities that are VAT exempt or not subject to VAT. Certain other conditions must also be met for this exemption to apply.

- A VAT payer can issue one summary invoice for several supplies (deliveries) of goods or services for a calendar month, even if the subject of these supplies (deliveries) is not goods or services of the same category. In the past, a summary invoice could only be issued for supplies of goods or services of the same category.

- Slovak VAT payers must self-charge VAT on supplies of gas and electricity from non-EU countries. This means that foreign suppliers of these items do not have to register for Slovak VAT as a result of making these supplies.

- Formerly, the Tax Office had to issue a VAT registration certificate and VAT number to taxable persons within seven days from the date it received a valid request for registration. Now the deadline is 30 days for certain registrations of entities established in Slovakia.

- Invoices issued in electronic form must carry a valid electronic signature.

Excise taxes

- Recent amendments to the Act on Slovak Excise Tax on Tobacco Products, and the Act on Excise Tax on Spirits, include increases to the tax rates.

Road tax

- A taxpayer for road tax purposes is now any individual or entity using a car for business purposes. Previously, the taxpayer was the only individual or entity recorded in the car's technical documents as using the car for business. This change means that companies must pay road tax even if they only hire a car for a certain period.

- The taxpayer must file a tax return and pay the road tax within 15 days after starting to use the car for business purposes. The tax should be payable for the period in which the car was used during the year.

- A taxpayer using a car for business must notify the tax office when he stops using the car for that purpose. He must do this by the fifteenth day after the last day of use.

Real estate tax

- The deadline for the municipal office to assess real estate tax has been extended from 15 March to 15 May, and the deadline for paying this tax has been extended from 31 March to 31 May.

- The municipality may allow the tax to be paid in instalments, in which case the first instalment is payable by 31 May.

- If it is not possible to determine who the taxpayer for a specific building is, the entity using the building should be regarded as the taxpayer.

Alena Zábojová is Tax Advisor with PricewaterhouseCoopers Tax Slovensko

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