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TAX CORNER

New rules regarding Slovak income taxation

The Slovak Income Tax Law has been amended again. However, this time, several new rules that are advantageous for taxpayers have been introduced. They are as follows:
* The base for tax depreciation of cars has been increased from Sk450,000 to Sk800,000. This should reduce the unfairness of the Slovak Income Tax Law, which had actually penalized taxpayers purchasing safe and first-rate cars. As previously, this limit applies for the whole depreciation period and to taxpayers who do not directly use their cars to provide services, i.e. almost all taxpayers apart from, for example, taxi drivers. The new limit also applies to cars that were purchased in the past.

The Slovak Income Tax Law has been amended again. However, this time, several new rules that are advantageous for taxpayers have been introduced. They are as follows:

* The base for tax depreciation of cars has been increased from Sk450,000 to Sk800,000. This should reduce the unfairness of the Slovak Income Tax Law, which had actually penalized taxpayers purchasing safe and first-rate cars. As previously, this limit applies for the whole depreciation period and to taxpayers who do not directly use their cars to provide services, i.e. almost all taxpayers apart from, for example, taxi drivers. The new limit also applies to cars that were purchased in the past.

* Under the new rules, operating lease installments are tax deductible even if they are not paid, provided that further legal conditions are met, e.g. the taxpayers incurs these costs to achieve, maintain or assure their taxable income. However, financial lease installments still have to be paid in order to be tax deductible, usually by January 31 the following year.

* The limit for tax deductibility of financial lease installments for cars has been increased from Sk550,000 to Sk950,000. Similarly to the current Slovak tax law, the taxpayer can incur into tax-deductible expenses the lease installments equally during the whole lease period. This limit also includes the purchase price of the car being purchased at the end of the lease. This limit applies only to taxpayers who use cars also for other business purposes and not only for direct provision of services, i.e. almost everybody.

In addition, the limit for tax deductibility of the costs of the operating lease has been removed.

* The residual value of assets being disposed due to damages will be fully tax-deductible, as the current limit for the tax deductibility of the residual value of damaged assets has been removed. This will ease the work of taxpayers preparing their tax returns, as the current rules in this respect were administratively demanding.

* A taxpayer with an income from the use or transfer of industrial rights or other intellectual rights, including income from copyrights or publishing of literary works, can tax his or her income at the flat tax rate of 2.00 to 2.75 per cent, if further legal conditions are met. The deadline for submission of the 2002 tax return has been prolonged to September 30, 2002 for taxpayers who could not submit their tax returns according to the current tax law, i.e. taxpayers who did not have income mentioned above in 2001. If the tax return is not submitted within the legally stipulated period, the taxpayer will lose the entitlement to use this beneficial means of taxation.

These new rules apply in 2002 for the first time. Thus, taxpayers should change their accounting system to assure that depreciation of cars will be calculated correctly.

New rules regarding tax holidays

A further amendment to the Slovak Income Tax Law has been introduced to harmonize the Slovak tax code with EU standards. This amendment sets out additional requirements under which taxpayers can apply for tax holidays only if they are in accordance with the Law on State Aid.

This applies only to taxpayers who have their first profits in 2002 and thereafter. However, as the first system of tax holidays to which State Aid Law restrictions will apply was introduced in 2000, it can be assumed that a majority of taxpayers did not achieve profits within a two- or one-year period. Therefore, it can be assumed that a majority of taxpayers who want to apply for tax holidays have to go through the administratively demanding process of obtaining an entitlement to state aid.

In my opinion, the new system is not as transparent as the current one, as several state institutions will decide on whether the particular taxpayer is entitled to obtain state aid, which could lead to an increase in corruption. In addition, this system is more expensive than the current one, as it requires the employment of state officers who will do work that is actually not necessary.

Therefore, I believe that the new system will be more 'expensive' for the taxpayer and less beneficial for society as a whole than the current one, even if it is in accordance with EU standards.

Ingrid Jalčová, ACCA, is a chartered accountant with five years of experience with global advisory firms. She invites comments and questions at email: jalcova@gti.sk
Tax Corner is a bi-weekly column that will appear this summer. The next instalment will be on stands on September 16, Vol 8. No 35.

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