The tax base is generally the accounting result as determined under Slovak statutory accounting rules, adjusted for tax purposes.
Stock (i.e. inventory) is valuated at cost. Slovak legislation specifically provides for the use of the arithmetical average cost and first in first out (FIFO) methods to value stock. Last in first out (LIFO) may not be used. The tax treatment follows the accounting treatment.
Capital gains from the disposal of assets are included in the CIT base. The tax treatment of capital losses depends on the type of asset on which they arose.
Capital gains on the alienation of shares and participation interest in Slovak companies may be taxed in Slovakia, predominately if sold to a buyer who is a Slovak tax resident or has a PE to which the purchase is attributable.
The income from the sale of shares or participation interest of a company where the value of immovable property is more than 50% of the equity has its source in Slovakia.
However, as of 1 January 2018, income from the sale of shares in joint-stock companies, ownership interests in limited liability companies, or limited partnerships (hereafter ‘participation’) may be exempt from CIT if certain conditions are met. These conditions include the possession of at least 10% of shares or ownership interests for at least 24 months (counting from 1 January 2018 at the earliest).
A taxpayer who performs substantial functions in Slovakia, bears and manages the risks associated with the participation ownership, and has adequate personnel resources and material equipment to perform these functions may apply the tax exemption. However, the tax exemption does not apply to taxpayers who trade in securities, to the sale of companies in liquidation, bankruptcy, or restructuring, or to taxpayers in liquidation.
The exit tax applies to income in situations where taxpayers (Slovak tax residents and non-residents with a PE in Slovakia) transfer outside of Slovakia:
- individual property (transfer carried out by a tax resident from their headquarters in Slovakia to a PE in another country or by a tax non-resident from their PE in Slovakia to their headquarters of PE in another country)
- business activities (transfer carried out by a tax resident to another country or by a tax non-resident from their PE in Slovakia to another country), or
- tax residence (tax resident is no longer Slovak tax resident).
The tax is calculated by applying a 21% tax rate to a specific positive tax base, which is determined as follows:
- When transferring individual property, its fair (market) price at the time of exit will be considered as income and its tax value will be regarded as an expense.
- When transferring business activities, its fair (market) price of transferred asset and liabilities at the time of exit will be considered as income and the specific tax base will be calculated in the same way as when selling a business, or part thereof.
The exit tax must either be paid in one instalment in the period for filing the tax return or, upon request, in five annual instalments if it is a transfer to an EU or European Economic Area (EEA) member state. When paying the tax in instalments, the taxpayer must also pay interest on outstanding instalments.
The new regulation on the exit tax also addresses the valuation of assets and liabilities for Slovak tax purposes where a Slovak tax non-resident becomes a tax resident in Slovakia.
Dividends paid to legal entities from the profits generated after 1 January 2004 are not subject to Slovak income tax, except for dividends:
- from the profits generated after 1 January 2017 and paid to legal entities that are residents of non-contracting states from a Slovak tax resident company, which are subject to WHT of 35%
- from the profits generated after 1 January 2017 and received by a Slovak tax resident company from residents of non-contracting states, which are subject to tax of 35%
- paid to legal entities and the taxpayer cannot provide evidence of the beneficial owner of dividends, which are subject to WHT of 35%, and
- received by a general partnership or a limited partnership, subsequently 'paid' to its partners of a non-contracting state, which are subject to WHT of 35%.
Dividends paid to entities from profits generated until 31 December 2003 and:
- paid out from a Slovak tax resident company to a Slovak non-resident company will be subject to WHT of 19% (no taxation if subject to EU Parent/Subsidiary Directive exemption), and
- received by a Slovak company from foreign sources will be subject to taxation in Slovakia (no taxation if subject to EU Parent/Subsidiary Directive exemption).
Moreover, based on the anti-avoidance provisions, any dividends may be taxable in Slovakia if they are received through artificial structures with no genuine business reason and contrary to economic reality.
Interest and royalty income
Slovak-source interest income earned by taxpayers with limited, as well as unlimited, tax liability is subject to withholding at a flat tax rate of 19% (for states without a DTT, please refer to the Withholding taxes section), except where the recipient of the deposit interest or the yield is a Slovak investment fund, Slovak supplementary pension fund, Slovak bank or the branch of a foreign bank, or the Slovak Export-Import Bank.
Slovak-source royalty income of tax non-residents is subject to the 19% corporate flat tax rate (for states without a DTT, please refer to the Withholding taxes section).
Interest and royalty income is exempt if it is paid by a Slovak payer to a recipient who is a tax resident in the European Union and is a beneficial owner of this income, provided that for 24 months before the payment:
- the payer owns at least a 25% direct shareholding of the recipient of the income
- the recipient owns at least a 25% direct shareholding of the payer of the income, or
- a third entity resident in the European Union owns at least a 25% direct shareholding in both the payer and the recipient of the income.
Unrealised foreign exchange gains/losses
The taxpayer may decide whether to include unrealised foreign exchange differences relating to unsettled payables and receivables in the tax base in the tax period when they are accounted for or in the tax period when they are realised. However, the decision to include/stop including these differences when they are realised must be made on the CIT return.
Companies resident in the Slovak Republic are taxed on their worldwide income, including income of its foreign branches. A Slovak tax resident entity is able to deduct from its tax base a tax loss made by its taxable PE (e.g. branch) outside the Slovak Republic, adjusted for Slovak tax purposes.
Credit relief is available for foreign tax paid under most of Slovakia’s DTTs. Alternatively, exemption of foreign income taxed abroad from taxation in Slovakia may apply.
Slovakia does not have provisions related to deferral.