Slovak Republic

Business combinations

The amendments to the Commercial Code from November 2017 have strengthened the legal and administrative requirements for carrying out mergers, fusions, and demergers of commercial companies (e.g. new obligation to submit a draft contract for a merger or demerger project to the tax authorities no later than 60 days before the date on which these transactions are to be approved by the company bodies).

In 2018, in-kind contributions, mergers, fusions, and demergers of commercial companies may only be performed for tax purposes in most cases at fair (market) values. Under this method, the taxpayer should value assets for tax purposes using their current market values, and the revaluation difference must be reflected in the appropriate company’s tax returns within seven years of the transaction.

The historical price method may only be applied for mergers, fusions, and demergers of commercial companies, in-kind contributions, or cross-border transactions if certain conditions are met.

With effect from 1 March 2024, a new Act on Conversions of Companies and Co-operatives (the ’Conversion Act‘) has been approved. The Conversion Act introduces the spin-off concept to the commercial and tax law. A spin-off is a transaction where the company being split up does not cease to exist, but an appropriately specified part of its capital is transferred to one or more successors.

Overall, for tax purposes, spin-offs are treated in the same way as mergers and demergers, i.e. fair market value should apply to the spun-off assets. In some exceptional cases the historical prices can be used.

Adoption of International Financial Reporting Standards (IFRS)

Slovakia has adopted most of the principles of IFRS in its accounting law. However, there are still some differences between IFRS and Slovak accounting standards.

Obligation to prepare statutory financial statements according to IFRS

Financial institutions (banks, insurance companies, etc.) must prepare their statutory financial statements according to IFRS. In addition, a company that fulfils two or more of the following conditions, in two consecutive accounting periods, may opt to prepare its statutory financial statements according to IFRS:

• The total value of assets is more than EUR 170 million.
• Net turnover exceeds EUR 170 million.
• The average number of employees in the individual accounting period exceeds 2,000.

An entity may decide to prepare its financial statements under IFRS if certain conditions are met.

If the Slovak taxpayer is obligated to prepare its financial statements under IFRS, the tax base is derived from either:

• the profit before tax under IFRS, adjusted for tax purposes using the 'IFRS Tax Bridge' issued by the Slovak Ministry of Finance, or
• the profit before tax under Slovak statutory accounting standards.

Tax information exchange agreements (TIEAs)

This table highlights countries with which Slovakia has entered into a TIEA.

International agreements

The Slovak/United States (US) Intergovernmental Agreement (IGA) entered into force during 2015. However, financial institutions in the Slovak Republic were allowed to register on the Foreign Account Tax Compliance Act (FATCA) registration website consistent with the treatment of having an IGA in effect even earlier.

FATCA was implemented into Slovak legislation with effect from 1 January 2016, with a first reporting deadline of 30 June 2016.

The Common Reporting Standard (CRS) was also implemented into Slovak legislation with effect from 1 January 2016, and the first reporting deadline to the Slovak tax authorities was 30 June 2017.

EU Mandatory Disclosure Rules (DAC6)

Slovakia has implemented provisions of the EU Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC6) into its local law, imposing reporting obligation on intermediaries or clients (in case intermediaries are subject to professional privilege) in respect to the cross-border reportable arrangement (i.e. arrangements involving more than one member state or a member state and a third country).

The cross-border arrangement is to be reportable, provided at least one of the hallmarks (generic or specific) from the list set by the act is met. Some of the hallmarks are also subject to the main benefit test (i.e. where tax benefit was the main or one of the main aims of cross-border arrangement).

The specific conditions set by the law should be checked on a case-by-case basis to confirm the related reporting obligations.

EU Directive on a global minimum tax

The EU Directive on a global minimum level of taxation (so called Pillar II initiative of OECD) was transposed to the Slovak legislation in the end of 2023. According to the approved adopted legislation, the Law on minimum Slovak top-up tax for multinational enterprise groups and large-scale domestic groups (’The Top-up Tax Act‘) is effective from 1 January 2024.

Given the specific position of the Slovak Republic, where only a very low number of parent entities are headquartered, the option to suspend the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) was utilised. On the other hand, considering the higher number of subsidiary entities that are Slovak tax residents, the Top-up Tax Act introduces a qualified domestic minimum top-up tax (QDMTT) to prevent the taxation of these entities abroad due to the application of mandatory IIR/UTPR rules by parent or other entities headquartered abroad.

The Top-up Tax Act will apply to those Slovak entities, including Slovak PEs of non-resident taxpayers, that are part of a multinational group of enterprises or a large-scale domestic group (hereinafter referred to as the ’group‘) if the consolidated annual revenues of this group, as reported by the ultimate parent entity (hereinafter referred to as the ’parent entity‘) in its consolidated financial statements, reach at least EUR 750 million in at least two of the four fiscal periods preceding the analysed fiscal period.

Under the Top-up Tax Act, Slovakia imposes a top-up tax on Slovak entities falling within the scope of law if their income has been taxed below the effective tax rate of 15%.

The top-up tax is based on three fundamental elements: the calculation of qualifying income (or qualifying loss), the calculation of adjusted covered taxes, and the calculation of the effective tax rate. The Top-up Tax Act generally follows the Directive.

The basic rule for calculating the effective tax rate and the top-up tax is that it will be calculated collectively for all constituent entities of the group located in the Slovak Republic.

Exceptions

The law also prescribes some exceptions to the calculation of the top-up tax. For instance, the filing entity may decide that the top-up tax for the relevant accounting period is zero. This applies in cases where the average revenues of all constituent entities in the jurisdiction are less than EUR 10 million and the average income (profit) or loss of all constituent entities is less than EUR 1 million.

Under the Top-up Tax Act, it is possible to reduce the net qualifying income by the amount of excluded income based on economic substance, which equals the sum of excluded payroll costs and the sum of excluded tangible assets.

In the first year of the Top-up Tax Act’s application, constituent entities can reduce their net qualifying income by up to 9.8% of recognised payroll costs for recognised employees and by 7.8% of the book value of recognised tangible assets located in the Slovak Republic. The percentages will decrease each year until 2033, when they will reach a final level of 5% and 5%, respectively.

Tax administration

The Slovak entities falling under the Top-up Tax Act will submit a tax return for the top-up tax and a notification containing the information required by law for determination of this tax within 15 months after the end of the relevant tax period.

The tax period of the top-up tax is the accounting period for which the main ultimate parent entity of a multinational group of enterprises or a large-scale national group of enterprises prepares consolidated financial statements.

It is not possible to extend the deadline for submitting a notification to determine the top-up tax and the deadline for submitting a tax return, nor to excuse its omission. If the tax subject fails to submit a tax return or tax notification within the prescribed period, the tax administrator will impose a fine of between EUR 1,500 and EUR 50,000, even repeatedly. 

The right to impose the top-up tax and the right to enforce the collection of tax arrears expire after the lapse of four tax periods immediately following the tax period in which the top-up tax was due.

In case the tax period is a transitional year (it is the first accounting period in which a multinational group of companies or a large-scale domestic group falls within the scope of this law), the deadline for filing is extended by three calendar months. This means that the first reporting obligations, calculation, and remittance of the top-up tax will need to be completed by 30 June 2026 for the year 2024.