Following the tax amendments passed in Slovak Parliament in December 2018 we are introducing you Slovak tax highlights effective 1 January 2019.
VALUE ADDED TAX
1) Supply and leasing of immovable property
The Amendment to the VAT Act modifies the conditions of taxation of supply of building and rental of immovable property as well as definition of the first approval of immovable property.
Currently the supply of building or parts thereof including supply of building land is exempt from VAT if supply occurs after 5 years from the first approval of the building. The VAT Act enables the VAT payer to opt for a taxation of the supply of such immovable property.
A new definition of first approval
According to amended wording of VAT Act the first approval of the construction from which starts the 5-year period for mandatory supply of immovable property with VAT is:
- The first approval of the construction
- The approval of the construction representing conversion of the use/purpose of the building and construction costs represent at least 40% of the value of the construction before construction works began;
- The approval of the reconstruction of the building if construction costs represent at least 40% of the value of the construction before reconstruction works began.
Sale and rent of immovable property for housing
Following the Amendment, the option to charge VAT on supply of immovable property determined for housing after 5-year period from first approval will be no longer available and mandatory VAT exemption will apply. As a result, the already claimed input VAT must be adjusted accordingly.
There is no change in sale and rent of industrial and commercial property.
2) Financial leasing
The CJEU’s judgement No. C-164/16 (Mercedes Benz Financial Services UK Ltd) confirmed concept of financial leasing as supply of goods. As a reaction the articles of VAT Act governing cross border leasing (possibility to consider financial leasing as a service) are amended accordingly.
3) Vouchers
Since 1 September 2019 Slovakia implements the so called “Vouchers Directive” (Council Directive (EU) 2016/1065). According to new legislation a voucher is any instrument that entitles its holder to acquire goods or to receive services in exchange for the voucher. Such a voucher which is subject to the new VAT treatment, may have a different form than regular vouchers (e.g. voucher for retail). This may potentially include, for example, prepaid credit for use of telecommunication services or accommodation vouchers purchased on websites offering discounted accommodation. Both forms - paper and electronic – are allowed.
The vouchers may be single- or multi-purpose vouchers with different VAT treatment when the taxable event occurs.
4) Other VAT changes
- Application of reduced 10% VAT rate on accommodation services;
- New definition of turnover for VAT registration;
- Digital services to non-taxable persons – option to choose place of supply;
- VAT guarantee on VAT registration is abolished.
INCOME TAX
1) Taxation of cryptocurrency income
Since 2019 Slovakia introduced a guidance for taxation of bitcoins, ethereum and other types of cryptocurrencies, currently a booming industry.
Cryptocurrency is defined as a digital bearer of value which is not issued or guaranteed by a central bank or a public authority, it does not have a legal status of currency or money but is accepted by individuals or legal entities as a means of payment and it may be transferred, saved or electronically traded.
From accounting point of view virtual currencies are considered as short-term financial assets other than cash. In books they should be valued at fair value at the date of acquisition (trading) or at the date of disposal (mining).
Income derived from trading (exchange of virtual currency for assets, services, other virtual currency or cash) decreased by acquisition value of virtual currency is subject to tax.
Taxation also applies to mining of virtual currencies. Cryptocurrencies directly obtained from mining are to be kept on the off-balance sheet until they are sold or traded, at which point they will booked at market value.
2) Other CIT changes
- New tax rules for individuals,
- Support of domestic tourism and travel (travel vouchers for employees).
INSURANCE PREMIUM TAX (IPT)
Since 2019 Slovakia is introducing IPT in the amount of 8% from non-life insurance in case that the insured risk is located in the territory of Slovakia. As opposed to the preliminary discussions the new insurance tax is not applicable to life insurance.
Tax will be levied on all insurance policies, regardless the date of the concluding of that agreement, if the insurance period starts after 31 December 2018.
The person liable to pay IPT shall be (i) the insurance /assurance company; however, this obligation may concern also to (ii) policy holder, if this legal entity pays the premium to a third-country insurer, which does not have a branch in the territory of Slovakia or to (iii) a legal entity to which the costs of such insurance are recharged.
As an example, IPT will also apply to cases when a foreign parent company signs a group policy with third-country insurance company and this policy covers insurance risks of its subsidiary in Slovakia, as well. Should this be the case, pro-rated insurance premium allocated/ recharged by parent company to Slovak subsidiary will be subject to Slovak IPT. Slovak subsidiary is liable to register for IPT and pay a tax.