On 1 January 2019 a new indirect tax was introduced in Slovakia. The non-life insurance tax rate is 8%, and generally applies to all non-life insurance contracts. Apart from the introduction of the non-life insurance tax, the Act on Income Tax and the Act on Vocational Education and Training were also amended in Slovakia.
In June 2018 the National Council of the Slovak Republic approved Act No. 213/2018 Coll. on Insurance Premium Tax. The new law, which introduces the non-life insurance tax in Slovakia, took effect on 1 January 2019. Amendments to the Income Tax Act also mean a 13th and 14th month salary and a tax on virtual currencies have been introduced in Slovakia. In our article we summarise the most important recent changes to the Slovakian tax system.
Non-life insurance tax
The new non-life insurance tax is applicable to all types of non-life insurance, except for the compulsory insurance of motor vehicles. It covers insurance risks in the Slovak Republic only.
From 1 January 2019 the non-life insurance tax replaces the insurance premium fee paid since the beginning of 2017, which only covered insurance contracts concluded after 2017. The new insurance tax applies retroactively and therefore non-life insurance contracts concluded before 2017 are also subject to it. The tax rate remains unchanged, i.e. 8%.
13th and 14th month salaries
Apart from the Insurance Premium Tax Act, Act No. 595/2003 Coll. on Income Tax has also been amended in Slovakia. Among other things, it introduced the 13th and 14th month salaries. An employer is entitled to pay them for the summer holiday season, together with the June salary, or for the Christmas holiday season, together with the December salary.
Providing such payments in the form of a 13th and 14th month salary is voluntary, employees have no legal entitlement to them. If the statutory conditions are cumulatively fulfilled, payments provided in the form of these additional salaries are exempt from tax and fees of up to EUR 500. The law sets out conditions for the tax exemption of these benefits in terms of minimum amount and duration of the employment relationship. The 13th and 14th month salaries must at least total the average monthly earnings of the employee, and the duration of the employment relationship must not be less than 24 months (13th month salary) or 48 months (14th month salary). It is important to state that the 14th month salary can only be paid to the employee if the 13th month salary was paid in June.
The authors behind these amendments did not forget employees in state administration and public service either, and so these changes apply to them as well.
Extension of tax deductibility for dual education expenses
The amendment to the Act on Vocational Education and Training is designed to increase the motivation of entrepreneurs to participate in this educational system and/or reduce the respective administrative burden. Furthermore, this amendment introduces several new features, such as the possibility to undergo practical education at the workplace of another employer, and/or clarify the provisions of the education contract.
This amendment also indirectly amends the Income Tax Act. The definition of tax expense in relation to practical education has been clarified. Tax-deductible expenses introduced in the amended act include, for example, corporate scholarships or remuneration for the student’s work up to 100% of the minimum hourly wage.
The sections on the tax deductibility of depreciation have been refined too. The depreciation of assets used to provide practical education for students is now also considered a tax-deductible expense.
Taxation of virtual currencies
Virtual currencies (crypto-currencies) have recently experienced a great boom, to which the Slovak Republic responded by introducing a tax. The amended provisions of the Income Tax Act first had to be applied when submitting a tax return after 30 September 2018. Together with the amendment to the Income Tax Act, the accounting procedures were also amended. The new accounting method applicable to virtual currencies was first applicable to prepare financial statements for the accounting period ending on 1 October 2018 or later.
The tax affects entrepreneurs, non-entrepreneurs as well as non-profit organisations. The state has transferred the burden of taxation to the date of realisation, i.e. the sale and/or exchange of a virtual currency, whether for another virtual currency, other assets, or for the provision of any service. The amended accounting procedures classify virtual currencies as short-term financial assets intended for trading.