THE CHANGE of government in Spring 2012 brought with it significant changes to Slovak legislation. While some of these, like the amendment to the Labour Code, were adopted to reverse, at least partly, legislation passed by the previous administration, the aim of others was to consolidate Slovakia’s public finances. These included changes to laws pertaining to income and payroll taxes.
The Slovak Spectator spoke with Přemysl Marek from Peterka & Partners; Daniel Futej from Futej & Partners; Martin Magál and Juraj Gyárfáš from Allen & Overy; Tomáš Rybár from Čechová and Partners; Peter Šuba from Havel, Holásek & Partners; and Katarína Babiaková from bnt attorneys-at-law about the most important changes over the past year.
The Slovak Spectator: Which legislative changes or new laws adopted in 2012 do you consider the most important and why?
Přemysl Marek: As has been usual recently, following general elections, the new government was unable to refrain from amending the Labour Code, reversing the changes adopted by the previous administration.
Some important legislative changes were driven by the need to consolidate the public finances and overcome the effects of the financial crisis, such as the amendment to the Income Tax Act and the legislation on special levies for enterprises in selected industries. The aim of both statutes is to bring additional funds to the state budget by increasing taxes and introducing new levies respectively. As a side effect, the amendment introduces different tax rates for individuals and companies, and progressive taxation.
The Retirement Pensions Savings Act, which regulates the conditions of the so-called second pension-saving pillar, was also substantially amended. The amendment has brought one of the biggest changes to the second pillar since it was launched. The most important of these includes re-opening the window of departure from the second pillar and a dramatic reduction in the amount that contributors pay into the second pillar.
Finally, an amendment to the Commercial Code adopted in late 2012 to take effect from 2013 affects business relationships in some significant ways. Another amendment introduced several changes regarding the creation of new companies and the disposition and acquisition of shares.
Daniel Futej: The most important legislative changes include revisions to the Commercial Code, Income Tax Act and the Labour Code.
The most recent amendment of the Slovak Commercial Code, effective as of February 1, 2013, stipulates that the maximum due period within which goods or services must be paid for, unless a longer period is agreed upon, is 60 days following delivery of the invoice or goods/services, whichever is later, and 30 days if the debtor is a public body.
Another change to the Commercial Code which came into effect in October 2012 reinforced the criteria for incorporated limited liability companies and for transferring majority ownership interest in those companies. Under the new rules a limited liability company may not be incorporated by a person who has tax arrears. The tax authority should also consent to the transfer of majority ownership interest to another party with very minor exceptions.
The amendment of the Income Tax Act, coming into effect on January 1, 2013, practically abolishes the flat tax in Slovakia, increasing the corporate tax to 23 percent and income tax for individuals to 25 percent of the tax base exceeding 176.8 times the applicable subsistence minimum. An additional separate rate of 5 percent is introduced for selected public officials including members of parliament. The amendment also incorporated limitations on postponement of tax returns.
The amendment has also introduced a 15-percent special tax rate on income from dividends arising from profits reported for tax periods until December 31, 2003 at the latest.
The aim of this provision is to encourage companies to pay dividends for the period before the year 2004 and thus increase the state income, otherwise income from these dividends would be subject to the 19 percent rate. The provision is applicable only until the end of the year 2013. To complete the information it must be stated that income from dividends arising from profits reported for the period starting as of the year 2004 is not subject to the tax on income.
The amendment to the Labour Code strengthened the position of employees and trade unions. Failure to consult on a termination of employment with employee representatives will, under the new rules, render the termination invalid. It is no longer possible to agree to terms for employees under collective agreements that are less favourable than what is permitted by the Labour Code.
Employment under fixed term contracts is now possible for a maximum of two years, instead of three.
The amendment to the Labour Code expressly bans employers from monitoring employees in the workplace, in common areas, from recording telephone conversations or even checking work e-mail accounts without prior notice.
Martin Magál and Juraj Gyárfáš: First and foremost, the extensive amendment to the Labour Code affects practically the entire country, with repercussions on employment and thus on the entire Slovak economy.
Secondly, the introduction of a special tax on certain regulated sectors and the amendment to the special bank tax are also important. Not so much because of their practical impact, but rather because it goes to show that the legislator will not hesitate to introduce non-systemic ad hoc measures in the interest of raising state revenues.
Tomáš Rybár: The Commercial Code was changed with two amendments, which introduced, among other things, the requirement of notarisation of the signature of the chairman of the general meeting in a limited liability company for certain types of decisions, new rules on time periods for performance of financial obligations of debtors, debtor’s default, etc. Some of the changes, e.g. concerning debtor rights, are mostly positive; others are bringing more paperwork and less competitiveness as compared to other jurisdictions.
Several changes were also made to the Labour Code, which include, among other things, an increase in severance pay, cancellation of the option to agree on a longer probation period in collective bargaining agreements, shortening of the maximum length of employment for a fixed period, etc. The importance of these changes stems from their day-to-day use in business life and legal practice connected therewith.
A number of legislative changes have been introduced in the pharmaceutical sector. While these were well intentioned, in particular to fight against corruption and save public funds, the resulting laws were unclear and created a lot of uncertainty on the market. As a consequence almost every player interpreted them differently, which was contrary to their purpose. Certain changes, partly reversed in a further amendment, almost brought clinical trials and similar studies to a halt, which is a major source of scientific activity for Slovak hospitals and a relevant source of financial income. These laws are a classic example of a situation where hurried legislation not duly consulted with those who have a stake in the matter, can bring substantial damage to all parties concerned.
Other important legislative changes occurred in the regulation of old-age pension savings, where the compulsory contributions in the second, capital pension pillar were reduced from 9 percent to 4 percent and participation in it has been made looser, which substantially modifies the pension system in Slovakia.
Peter Šuba: From an economic standpoint, an increase of income and payroll taxes, especially those related to agreements performed outside employment, is one of the most important changes. Equally important is also an amendment to the VAT Act and the Commercial Code, which should eliminate tax evasion and fraud.
Another significant piece of legislation adopted was an amendment to the Labour Code, with the aim of enhancing employee protection to the detriment of employer interests, for example, the re-introduction of the concurrence of a salary and a severance payment with a notice period, or the duty to negotiate the termination of an employment contract with employees’ representatives.
However, the amended Labour Code responds to the current European labour market’s requirements, e.g. in the area of overtime work or employee monitoring.
In the pharmaceutical industry the adopted amendment to the Act on Medicinal Products and Medical Aids with impacts on consumers is of fundamental importance. It introduced the notification duty for wholesale distributers of medicinal products for human use when exporting, and renewed the ban on loyalty systems in public pharmacies, whose aim is to prevent practices leading to an increase of over-the-counter drug costs.
In the field of advocacy, an amendment to the Act on Advocacy has also brought about a great change. With the aim of increasing the quality of services provided, it, for example, limits the number of legal trainees per attorney and extends the training period of such trainees.
Katarína Babiaková: The revision to the Income Tax Act brought a fundamental change when it cancelled the 19-percent flat income tax. The government introduced progressive taxation, adding a 25-percent personal income tax rate to the existing 19-percent rate. The corporate income tax was increased to 23 percent. The new legislation also caps flat-rate deductible expense allowances for self-employed people to a maximum of €5,040 per year, or €420 per month. This step of the government in an effort to consolidate public finance incomes can affect the competitiveness of Slovakia’s economy as well as economic growth or the inflow of foreign investors.
Parliament passed in August an important revision to the social insurance law. Apart from changes to the second pension pillar, it increased contributions to the social insurer and the health insurer to employers, employees as well as the self-employed. It unified and simultaneously increased bases for calculation of contributions. Moreover, almost all people working under “na dohodu” limited work contracts and their employers pay levies similar to those paid by ordinary employees as of January 2013. With these changes the Slovak government wants to secure long-term financial sustainability of the old-age pension scheme.
The large revision to the Labour Code changed the definition of dependent work to prevent abuse of self-employed doing dependent work. It also changed the maximum compensation of wages from nine to 36 months, which the employer must pay to the employee in the case of a successful complaint over invalidity of termination of a work contract. It made the legal arrangement of the flex time account more transparent and shortened the period during which the employer is obliged to compensate overtime work by substituting days off, introduced higher protection of people working under “na dohodu” contracts and changed the position of trade unions.
Over 2012 two fundamental changes to the Commercial Code were also adopted, and a law on a special levy to be paid by regulated entities. Via the latter, companies active in regulated fields will help public finances by paying a special levy.
The brand new law on medicine, which replaced the old law – more than 20 times revised – from 1998, became effective in December 2011. Its first revision was adopted in July 2012. Its main aim was to transpose the European directive on supervision of medical products and to tighten the supervision of drugs and the pharmaceutical market, and increase sanctions for not adhering to the law.
To read the second part of this survey please check Several adopted laws and revisions are regarded as controversial and in need of change
11. Mar 2013 at 0:00 | Jana Liptáková