Slovakia: Corporate income tax base calculation

6. December 2018

With the end of your company’s financial year approaching, you should draw your attention to various points of the Slovakian Income Tax Act (Act No. 595/2003 Coll.) that may significantly influence your corporate income tax base calculation. Tax experts from TPA Slovakia on the most important changes in CIT, you should know about.

1. Provisions

The creation of provisions, except for the creation of provisions of unused vacation, is a tax deductible expense only in very specific  situations (e.g. provisions in insurance, forestry growing activities, liquidation of mining sites, some activities related to waste dumps, disposal of electronic waste and disposal of mining industry waste).

Given that the creation of other provisions is not a tax-deductible expense, we recommend – for example, in case of provisions of unbilled supplies – that you ask your suppliers to provide you with invoices earlier than usual and, if the services in question are deemed to be tax deductible after payment, in keeping with point 2, to pay these before the end of the financial year.

2. Tax Deductions

Cash-based costs that are tax deductible after payment include the following:

  • compensation payments paid out pursuant to special legislation; these payments are performed by the regulated entity in accordance with the Act on regulation in network industries
  • any expenses (costs) for the lease of tangible and intangible assets (e.g. software, licences); in selected cases, the term “lease” also covers relevant operating costs, energy costs, etc.
  • expenses (costs) relating to marketing and other studies, or market research
  • commission fees payable by the service recipient, this also applies to commission based on mandate agreements or other similar agreements, albeit up to a maximum of 20% of the value of the mediated business; this limit does not apply to a bank, insurance  company or reinsurance company
  • expenses (costs) relating to payments in favour of a taxpayer from a non-contracting country
  • expenses (costs) relating to sponsorship based on a sports sponsorship contract
  • expenses (costs) for advertising provided to a taxpayer, such as civil associations, foundations, non-investment funds and non-profit organizations providing services of general interest
  • expenses (costs) for obtaining standards and certificates (booking required on accrual basis, while if the acquisition price is less than EUR 2,400, these expenses are to be included in the tax base on a one-time basis)
  • expenses (costs) for advisory (financial audit, accounting, preparation of financial statements, payroll, tax advisory, insolvency, bankruptcy administration) and legal services under the Product Classification Codes 69.1 and 69.2

In order to treat the aforementioned expenses as tax deductible, it is necessary to pay them in time, i.e. before the end of the financial year.

3. Overdue liabilities

Your company is also obliged to increase its tax base by the amount of overdue liabilities, where the related costs have been included in the tax deductible expenses (liabilities resulting from the acquisition of depreciated and non-depreciated assets and other liabilities that generate tax deductible costs are also subject to this tax base adjustment if not paid within maturity date), depending on the amount of time passed since expiry of the agreed payment term, i.e.:

  • – > 360 days – increase of tax base by at least 20% of the nominal value of the outstanding liability or its unpaid part
  • – > 720 days – increase of tax base by at least 50% of the nominal value of the outstanding liability or its unpaid part
  • – > 1,080 days – increase of tax base by at least 100% of the nominal value of the outstanding liability or its unpaid part

It is not possible to postpone the payment date for corporate income tax calculation purposes (e.g. by amendments to original agreements). We recommend you either pay the liabilities before the end of the financial year or set them off against receivables or capitalisation into equity.

4. Thin capitalisation rule

Thin capitalisation rules are applied in the event that your company has received credits and loans from a related party. According to this rule, tax deductible expenses do not include the interest paid on credits and loans and related expenses (costs) on received credits and loans, where the creditor is a related person in respect of the debtor, if during the taxation period the amount of interest exceeds:

  • – 25% of the sum of earnings before taxation and its included depreciations and interest expenses (25% of the so-called EBITDA indicator)
  • The value of the credits and loans or parts thereof on which the interest is capitalised into the acquisition price of assets according to the Accounting Act are not subject to this rule.

The points listed above may significantly influence your tax base calculation and we therefore recommend you pay particular attention to them before the end of the financial year. By identifying these issues early, your company will be able to avoid an increase in its tax base and a higher tax obligation.

Should you have any questions regarding specific parts of your accounting and how they might influence your tax base for the current taxation period, please don’t hesitate to contact our tax experts in Slovakia.

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