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FOREIGN AFFAIRS

Are your taxes taxing? Relax

WHEN most foreigners arrive in Slovakia, the last thing they want to think about is taxes (dane). Most people don't enjoy addressing tax issues at the best of times, and foreigners are no exception, especially as paying taxes is different in every country.
How does the Slovak tax system work? Here is a brief explanation of the basics of tax payments in Slovakia.
The most important thing to be aware of is how the different types of taxes - income tax (daň z príjmu) and value-added tax (daň z pridanej hodnoty) - work in this country.

WHEN most foreigners arrive in Slovakia, the last thing they want to think about is taxes (dane). Most people don't enjoy addressing tax issues at the best of times, and foreigners are no exception, especially as paying taxes is different in every country.

How does the Slovak tax system work? Here is a brief explanation of the basics of tax payments in Slovakia.

The most important thing to be aware of is how the different types of taxes - income tax (daň z príjmu) and value-added tax (daň z pridanej hodnoty) - work in this country.

If you have a residence permit or you're staying in Slovakia for at least 183 days in a calendar year, unless you are studying in this country or here for medical reasons, you are considered to be a resident for tax purposes. Individuals who are not residents in Slovakia are subject to tax only on income from Slovak sources.

When you become a Slovak resident, the tax issue often seems like a nightmare, because you have to pay taxes in both your home country and in Slovakia. This can result in your being taxed twice for the same income. So what can you do?

If you are in this position, you should sign a document called a Contract Preventing Double Taxation (Zmluva o zamedzení dvojitého zdanenia). This will prevent you from having to pay income tax in Slovakia if your salary is paid by or on behalf of a company based abroad and not a legal entity in Slovakia.

Regarding income tax (daň z príjmu), most foreigners fall into one of three categories. First, if you are a foreigner who has a contract with the Slovak company you're working for, that company is responsible for taking care of your tax payments. Second, if you don't have a contract with a Slovak company and you're getting your income from a foreign-based company for the job you are doing in Slovakia, you can be taxed only if the job is understood as providing a service for a Slovak company. And third, if you are employed by a foreign company but a Slovak company hires you under a HOLA (Hire Of Labour Agreement) contract, for example to do consulting work, that Slovak company is responsible for your tax deductions.

In Slovakia, tax is paid monthly directly from your income according to your predicted income for the year and based on your income bracket tax rate, or sadzba dane (see box below). Finance Minister Ivan Mikloš has proposed to abolish the income bracket tax rates in favour of one flat rate of tax (see article, page 1), so this system may change in the future.

As a foreigner, if your income is less than Sk10,000 (240 euro) per year, you do not have to be registered at the tax authority (daňový úrad) in Slovakia.

The biggest problem is when all of the administrative work is not done. Foreigners often break the law by working without a residence or work permit.

Of course, income tax is not the only tax you have to worry about. Whenever you buy something in a shop, you also pay sales tax, or value-added tax (VAT, or DPH). In the United States, sales tax is not included in the ticket price of goods, but in Slovakia, the price you see on the ticket is the one you will pay at the till.

At the moment, there are two levels of VAT. Most things you buy are taxed at 20 per cent, reduced from 23 at the beginning of the year. However, many basic necessities, like meat, milk, vegetables, and ice cream, are taxed at 14 per cent, raised at the beginning of the year from 10 per cent. The government has expressed its wish to create just one set rate of VAT, and the recent changes were a step towards that goal.

As elsewhere, tax issues in Slovakia are extensive and rather complicated, so if you want to know more about this topic, contact a tax consultant or a tax-consulting company.

Annual income-tax rates

Above Sk Up to Sk

0 90,000 10%
90,000 180,000 9,000 + 20 %* 90,000
180,000 396,000 27,000 + 28%* 180,000
396,000 564,000 87,480 + 35%* 396,000
564,000 and more 146,280 + 38%* 564,000

* of the sum exceeding

Foreign Affairs is a regular column devoted to helping expats and foreigners navigate the thrills and spills of life in Slovakia.

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