Positive and negative effects from the 2018 tax changes in Slovakia
In the second half of 2017, the Parliament voted for changes to the Income Tax Act, which came into force on January 1, 2018. Below we have selected for you a highlight of changes that have an international reach or can have an impact on your business strategies towards Slovakia.
Super deduction of R&D costs
Positive changes have occurred in the support of R&D. The amendment to the Income Tax Act has increased the deduction of tax costs from the current 25% to 100% of the R&D costs incurred. This so-called super deduction can be applied by legal persons as well as by natural persons. The condition is that taxpayers will define the subject of research and development, indicate the start date and expected end of the project, the project objectives and the estimated expenses (costs) for the implementation of the project.
Profits from sale of shares exempt from tax from now on
Another positive change, which concerns only legal persons, is the exemption from income tax on the sale of shares or business shares. Exemption from tax may be applied by legal persons, provided that the proceeds of the sale flow at the earliest 24 immediately following calendar months from the date of acquisition of shares or business shares and the taxpayer in the Slovak Republic has the necessary personal and material equipment. The last condition for the application of the tax exemption is that the company in which shares, or business shares are sold is not in liquidation, bankruptcy or restructuring.
Business combinations will be taxed!
Significant changes also occurred in business combinations. Since January 2018, valuation has been established exclusively at fair value for non-monetary deposits and mergers or divisions of companies and cooperatives. Taxpayers will only use valuation in real terms for those mergers or divisions of companies with a decisive date after January 1, 2018. In the case of non-monetary deposits, the limitation on the use of the original values will apply only to deposits redeemed after December 31, 2017. So from a tax point of view such business combinations will no longer be tax neutral!
Exit tax introduced
Since January 1, 2018, the so-called “Exit Tax” has been introduced, which in principle means the introduction of tax on the transfer of the taxpayer’s assets, the taxpayer’s departure or the transfer of a taxpayer’s business from Slovakia abroad. The obligation to introduce Exit Tax resulted from Slovakia’s implementation of the EU Directive against tax evasion practices. Exit Tax is calculated from the capital gains generated in Slovakia which were not taxed at the time of the transfer.
Slovakia might be no longer the pioneer in tax changes (the times of the 19% flat tax have been long gone), but there are still interesting aspects that can lower your tax burden. However, with the introduction of the exit tax and the abolishing of the tax neutrality of business combinations it will be clear that Slovakia might have fallen of the list of several potential foreign investors.
Bart Waterloos and Daniel Martiny, VGD Slovakia