Decrease in the income tax rate and simplified calculation of the income tax base are two of the key amendments to the Slovakian Income Tax Act effective since 1 January 2020. The amendments bring major positive changes for both natural persons and legal entities, and aim, among other things, to support small and medium-sized enterprises through income tax in Slovakia.
Apart from the changes to the Slovakian VAT rules effective from this year, on 18 September 2019 the country’s Parliament adopted also a proposal of the Ministry of Finance of the Slovak Republic to amend the Slovakian Income Tax Act (Act No. 595/2003 Coll. on Income Tax). Most provisions of the extensive amendment became effective on 1 January 2020, while others take effect only from 1 January 2021 or 2022. Below we highlight some of the key changes of the Slovakian Income Tax Act which are already in force.
Non-taxable part of tax base for natural persons
According to the new Slovakian Income Tax Act, from 1 January 2020 the non-taxable part of the tax base increased from the minimum subsistence figure multiplied by 19.2 to the minimum subsistence figure multiplied by 21. The new minimum subsistence figure valid from 1 July 2019 to 30 June 2020 amounts to EUR 210.20 for one adult natural person. Thus, the new non-taxable part of the tax base for 2020 amounts to EUR 4,414.20, while for 2019 it amounted to EUR 3,937.35, meaning this change implies a decrease in tax and a simplified calculation.
Applying non-taxable part of tax base
In connection with the amendment to the Slovakian Income Tax Act, the application mechanism of the non-taxable part of the tax base for natural persons has been supplemented. The previous regulation did not specify the procedure. Under the new regulation, the non-taxable part of the tax base should first be applied to income from employment, and then only the remaining part can be deducted from the tax base stemming from business activities or self-employment.
Change of income tax rate for natural persons and legal entities
The amendment also lowered the previous 21% tax rate for entrepreneurs (both natural persons and legal entities) to 15% under the following conditions:
- Legal entities apply the 15% tax rate to the tax base reduced by a tax loss if their income (revenue) does not exceed EUR 100,000 over the taxation period; otherwise the tax rate of 21% shall be applied.
- Natural persons (entrepreneurs) apply the 15% tax rate to the tax base reduced by a tax loss if their income from business activities does not exceed EUR 100,000; the excess amount is taxed at 19% or 25% depending on whether or not it exceeds the minimum subsistence figure currently applicable multiplied by 176.8.
Others changes to the Slovakian Income Tax Act
Apart from the above-mentioned elements, further changes to the Slovakian Income Tax Act took effect on 1 January this year. To remove barriers to the sustainable development of the automotive industry in Slovakia for example, new rules for the depreciation of electric vehicles came into force. Furthermore, some measures of the Council Directive (EU) 2017/952 regarding hybrid mismatches with third countries (ATAD 2) have been implemented as part of the amendments.
If you want to know more about the details of the described changes or other amendments to the Slovakian Income Tax Act, we recommend you visit the website of Mandat Consulting, k.s. and contact the local WTS experts in Slovakia.