Depreciation and amortisation
Tangible fixed assets (acquisition value over EUR 1,700) are classified into six tax depreciation groups to which different depreciation periods apply. The possibility to use accelerated tax depreciation methods is limited to assets belonging to the tax depreciation groups 2 and 3.
|Depreciation group||Assets||Depreciation (years)|
|1||Motor vehicles, office machines and computers, tools and implements||4|
|2||Combustion engines, outboard engines, most production line equipment, furniture||6|
|3||Electric motors, turbines, air-conditioning systems||8|
|4||Buildings made of metal, ships, railway locomotives||12|
|5||Buildings not involved in depreciation group no. 6 and engineer‘s sites not included in other depreciation groups||20|
|6||Administrative and residential buildings, hotels and buildings for culture, education, health, and public entertainment||40|
Taxpayers do not have to depreciate an asset every year. Tax depreciation may be interrupted in any year and continued in a later year without a loss of the total tax depreciation available.
A lessee can depreciate a tangible fixed asset held under a financial lease. The tax depreciation base equals the acquisition value of the leased asset without VAT and financing costs plus expenses related to acquisition of the leased asset that the lessee incurred before the asset was put into use. The assets acquired under finance lease shall be amortised proportionally or using an accelerated method.
The value to be used as the basis for tax depreciation depends on how the asset is acquired and is usually based on one of the following:
- Acquisition costs (i.e. the price for which the asset was acquired).
- The taxpayer’s own costs incurred, if the asset is acquired or produced internally.
- Intangibles (acquisition value of EUR 2,400 or more) and low value assets (acquisition value of EUR 1,700 or less) are amortised for tax purposes in line with their accounting amortisation (i.e. over the useful life of the asset).
Amortisation of purchased goodwill, including the goodwill on purchase of a business as a going concern, if it represents an identifiable intangible asset, is tax deductible over up to seven consecutive tax years.
For goodwill created at the contribution of business as a going concern or goodwill created at a merger, the tax deductibility of the goodwill depends on the method of tax treatment of this reorganisation. In general, if the reorganisation is performed for tax purposes at fair market values, the goodwill created will be tax deductible.
Start-up expenses are tax deductible in the period when incurred.
In general, interest expenses incurred in order to generate taxable income can be treated as tax deductible, subject to thin capitalisation rules (see Thin capitalisation in the Group taxation section).
Interest on loans for the acquisition of shares is tax deductible only in the period of their sale and if the income from this sale is not tax exempt.
Bad debt provisions
Provisions for unsecured receivables from loans created by banks, and bad debts of regular commercial companies, are fully tax deductible (subject to certain conditions) once the debt has been overdue for more than 1,080 days (20% of the bad debt is tax deductible when it has been overdue for more than 360 days, and 50% after 720 days), provided certain conditions are met. Provisions for bad debts in other circumstances can also be tax deductible if specific conditions are met (e.g. bad debts registered in bankruptcy proceedings).
Charitable contributions are treated as gifts, which are not tax deductible.
Contributions to supplementary pension savings made by the Slovak employer on behalf of the employee, up to 6% of the gross salary of the employee participating in these plans, are tax deductible.
Fines and penalties
In general, penalties and fines are not tax deductible. Contractual fines and late payment interest are tax deductible upon the payment.
Allowance for students
Subject to specific conditions, taxpayers may deduct from their tax base a special allowance with respect to practical education provided to students of up to EUR 3,200 per student per year.
Transporting employees to place of work
The employer’s expenses incurred on transporting employees to their place of work and back are tax deductible under the following conditions:
- Public transport is either verifiably not carried out at all or not in the extent as the employer needs.
- The employer uses a contract carrier or its own means of collective transport for 10+ persons for this purpose.
Road tax, real estate tax, and most other such taxes are tax deductible. Social security contributions paid by an employer with respect to employees are also tax deductible. VAT charged to profit and loss is tax deductible only if certain conditions are met.
Other non-deductible expenses
Expenses are generally tax deductible if incurred to generate, secure, and maintain the entity’s taxable income. However, certain other costs are specifically not tax deductible. These include entertainment costs, various provisions (e.g. provisions to tangible and intangible assets, certain bad debt provisions), and various expenses in excess of statutory limits (e.g. employee travel expenses and meal allowances).
Net operating losses
A company or a branch may currently carry forward and utilise:
(i) tax losses reported for periods starting before 1 January 2020 - equally over a period of four years following the year in which the loss arose (25% per year max), and
(ii) tax losses reported for periods starting from 1 January 2020 - over five consecutive tax periods, up to 50% of the tax base declared in the respective tax period
The new rules would also apply to micro taxpayers (with taxable revenues up to EUR 49,790), in respect of tax losses generated during tax periods since 1January 2021, where above mentioned 50% limitation would not apply.
For issues related to the interim provision regarding tax losses carried forward from years 2010 to 2013, please contact the local PwC Tax office.
Carry back of losses is not available in the Slovak Republic.
Payments to foreign affiliates
Generally, deductions may be claimed for royalties, management service fees, and interest charges paid to foreign affiliates, provided such amounts are at arm’s length and subject to other limitations by the law (e.g. thin capitalisation rules).
As of 1 January 2020, the anti-hybrid rules apply in Slovakia in respect of situations arising between a corporate taxpayer and its related parties (e.g. between a taxpayer and a subsidiary abroad, between the PEs of a taxpayer). Hybrid mismatches also apply to unrelated parties that create a structured arrangement (i.e. an agreement that includes a hybrid mismatch).
According to the Slovak Income Tax Act, the following situations are qualified as a hybrid mismatch:
- Mismatch leading to deduction without taxation of income (deduction without inclusion) due to:
- Different treatment of financial instrument.
- Different treatment of hybrid entity’s income taxation.
- Different approach to allocation of taxable income between PE and its HQ, or between different PEs of the sale HQ.
- Different approach to allocation of taxable income between PE and its HQ due to different approach to PE recognition.
- Payment performed by hybrid subject.
- Deemed payment between HQ and its PE or between different PE of the same HQ.
- Multiple deduction of costs without a corresponding inclusion of the multiple corresponding income.
- Incorporated mismatch where expense is used (directly/indirectly) to finance the expense that leads to a mismatch as defined above.
Application of new rules would limit tax deductibility of expenses related to hybrid mismatches (subject to certain exemption).