In general, business expenses that are necessary to generate taxable revenues are fully tax deductible.
Depreciation and amortisation
Depreciation of tangible fixed assets, amortisation of intangible assets, and depreciation of investment property are recognised as expenditures in line with the accounting treatment, up to a maximum of the amount calculated using the straight-line depreciation method and the maximum tax depreciation rates listed below. Any accounting depreciation in excess of these rates is not tax deductible in the period concerned, but may be deductible in subsequent tax periods until the asset is fully depreciated or disposed of.
The maximum annual depreciation rates are as follows:
|Depreciation category||Types of assets||Annual depreciation rate (%)|
|1||Buildings, including investment property||3|
|2||Parts of buildings, including investment property||6|
|3||Equipment, vehicles, and machinery||20|
|4||Parts of equipment, and equipment for research activities||33.3|
|5||Computer equipment, hardware, and software||50|
|6||Crops lasting several years||10|
|8||Other fixed assets||10|
As of 1 January 2020, depreciation rates for operating leasing, regardless of above-mentioned rates, shall be determined in accordance with the actual depreciation period of the tangible asset.
In general, if goodwill is impaired for accounting purposes, then the impairment cost may be treated as tax deductible. The amount that may be treated as tax deductible in any tax period is limited to 20% of the initial value of the goodwill.
However, based on the amendments of the CIT Act, recognition of expenses from the amortisation of goodwill are, as of 1 January 2017 onwards, considered as non-deductible expenses.
In accordance with Slovene legislation, costs that occur prior to the entry of a legal entity into the court register may not be treated as tax deductible. Such a principle arises from a common legal principle whereby an entity may be subject to rights and obligations only after its establishment date. The date of entry into the court register is deemed to be the date of the establishment.
Companies may deduct interest expense on loans from their owners or other associated parties up to a maximum of the amount calculated by using the prescribed interest rate published by the Ministry of Finance. Taxpayers must increase taxable profits by the amount of any excess interest expense unless they can prove that they could have received the loan on comparable terms from an unrelated party.
Certain provisions are only 50% tax deductible when accrued, with the remaining 50% being treated as tax deductible when the provision is utilised. The provisions that are subject to this treatment are provisions for warranties granted when selling products or providing services, reorganisations/redundancies, anticipated losses from onerous contracts, pensions, long-service bonuses, and severance payments on retirement.
Bad debt provisions are only tax deductible if the amount does not exceed the lower of:
- the arithmetic mean of the bad debts written-off in the past three tax periods, under certain conditions specified in the tax law, and
- the amount corresponding to 1% of taxable revenues of the tax period.
In order to take advantage of this deduction, a company must be able to calculate amounts for both tests and then take the lower of the two amounts so calculated. If the company is not able to determine the amount for either, the cost of the bad debt provision is not tax deductible until the provision is utilised.
Costs of bad debts are tax deductible when the debt is finally written-off, provided there is a finalised court procedure, the creditor can demonstrate that it would cost more to pursue the debtor than the debt is worth, or the creditor can demonstrate that it has done everything required by good business practice to try to recover the debt.
A taxpayer may claim a reduction of its taxable profits for donations made for humanitarian, disabled, charitable, scientific, educational, medical, sports, cultural, ecological, and religious purposes to residents of Slovenia or of EU or European Economic Area (EEA) member states, up to 0.3% of the taxable person’s taxable revenues. An additional allowance of 0.2% of the taxpayers’ taxable revenues is available for payments made for cultural purposes and to voluntary organisations that work for the public interest to protect the public from natural and other disasters.
Salaries and other payments relating to employment (e.g. wage compensation, holiday allowances, employer’s social security contributions, long-service awards, severance benefits paid upon retirement, solidarity assistance, reimbursement of business-related expenses) are generally fully tax deductible.
The costs of benefits in kind are also tax deductible if such benefits are taxed for the individual under the PIT Act.
Under certain conditions, a tax-deductible allowance for voluntary supplementary pension insurance may apply, of up to 24% of compulsory contributions for pension and disability insurance for insured employees, but may not exceed EUR 2,390 annually per employee. This amount is reconciled each year and amounts to EUR 2,819.01 for the year 2020. Moreover, the utilisation of the allowance is limited to the tax base of the tax period.
Fines and penalties
Costs relating to compulsory collection of taxes and other levies are, in accordance with Slovene legislation, tax non-deductible.
Taxes paid by a shareholder as a natural person and VAT that was not deducted as an input VAT, even though there was a right to deduct, are not tax deductible. In addition, interests on late payment of taxes are not tax deductible.
Other significant items
The following expenses are considered unnecessary for the generation of taxable revenues and are not deductible for tax purposes:
- Expenses that are not directly necessary for performing business activities or are not incurred as a consequence of a business activity.
- Expenses of a private character.
- Expenses that do not correspond to standard business practice.
Some of the most common non-deductible expenses include:
- Penalties and the cost of bribes.
- Input VAT that could have been reclaimed in accordance with the VAT Act.
- Entertainment costs, which are only 50% tax deductible.
- Costs relating to the supervisory board, which are only 50% tax deductible.
- Legal and other costs of incorporation, which may be deductible for the parent company but not for the entity being incorporated.
Net operating losses
The use of retained tax losses is limited to a maximum of 63% of the actual tax base. Despite this limitation, tax losses may still be carried forward to subsequent years without a limitation, but loss carrybacks are not permitted. Loss relief may not exceed the amount of current taxable income. Generally, losses that are generated in multiple tax years are absorbed chronologically. The right to carry losses forward may be forfeited if the ownership of the capital or voting power of the taxpayer claiming the loss carryforward changes by more than 50% within the tax period and the taxpayer either has not performed business activities for two years prior to the change of ownership or substantially changes its business activity two years prior to or after the change in ownership.
Treatment of tax losses mentioned in the preceding paragraph does not apply for those losses that are generated in the year of the change of ownership or prior tax periods.
Payment to foreign affiliates
Payments to foreign affiliates are normally subject to WHT if there is no right to apply exemptions in accordance with Slovenian legislation or DTT. Payments similar to dividends, including disguised distribution of profit, are not tax deductible. Any other payments to foreign affiliates are tax deductible if they are made in accordance with the arm’s-length principle.