The government approved a bill amending the Income Tax Act on August 16, 2017. A draft amendment of the income tax act highlights the existing measures for the protection against tax fraud, extended of the rules for the protection against aggressive tax planning, the rules against tax base violation and income transfer outside the territory.

All proposed changes follow especially from the Manifesto of the Government of the Slovak Republic and the 2017 Plan of the Legislative Tasks of the Government of the Slovak Republic and the Anti-Tax Avoidance Directive (ATAD). It is proposed that this act, once passed, becomes effective from January 1, 2018, except for several points that will become effective as of January 1, 2019. The proposed changes are summarized below:

Extended definition of permanent establishment

The proposed amendment extends the definition of the pursuit of activities and established place that represent the basic requirements for the taking-up of a permanent establishment on the territory of the Slovak Republic. The pursuit of activities with an established place on the territory of the Slovak Republic also includes the pursuit of activities through a digital platform on the territory of the Slovak Republic. Such digital platform activities include the mediation of contracts among movable or immovable asset holders or service providers and end users. This definition also contains the recommendations of BEPS Action 7.

CFC Rules

A controlled foreign corporation is considered the company, of which 50 per cent and more percent of voting/capital/profit rights are directly or indirectly held by the Slovak entity and its related parties and permanent establishment that is exempt from taxation in Slovakia. This rule will be applied as of January 1, 2019 for the first time if the amendment is adopted.

Definition of tax residence for individuals

The proposed amendment extends the principles for determining tax residence of individuals in Slovakia. As Slovak tax resident, who is taxable from his worldwide income, should be treated also an individual with permanent residence in Slovakia, although he or she spends less than 183 days of presence in Slovakia. This provision is not applicable for short-term visits, business trips, recreation or tourism.

Exit taxation

The main objective of the new article will be to make sure that the taxpayer who is moving their property of shifting their tax residence to a territory outside of the Slovak Republic has been charged a tax in the Slovak Republic on the economic value of all capital profits made on our territory, although this profit might not have been achieved at the time of the exit. This concerns the situations when property is shifted from the headquarter on the territory of the Slovak Republic to a permanent establishment abroad, including the situations when the tax credit method has been applied or the property of a permanent establishment in the Slovak Republic has been shifted to the headquarter or to another permanent establishment abroad. A 21 % tax should be paid from separate tax base as one-off payment or in five annual installments, and it must be approved by tax authorities. If the amendment is adopted, exit tax shall apply for the first time for a financial year starting on January 1, 2018.

Special tax scheme

It is proposed that the exemption of specified incomes will introduce a special tax scheme for the commercial use of intangible assets.

Extension of the period for WHT payment for the non-residential premises

It is proposed to postpone the deadline from 15 days to the end of the calendar month following the calendar month when the income subject to the withholding tax (WHT) was remitted or credited to the account for the operation, maintenance and repairs fund. The proposed adjustments were imposed on the apartment and non-residential premise owners’ association or to the natural or legal person with whom the owners of apartments and non-residential premises in the house made a contract on the pursuit of management with the tax-payers who have not been founded or established to pursue business.