What is the lastest amendment to income tax act about?

On 11 September 2019, the Government of the Slovak Republic adopted a relatively extensive amendment to Act No. 595/2003 Coll. on Income Tax (hereinafter referred to as ″the Government Draft ″). The Government Draft will enter into force on 1 January 2020 after it is signed by the President of the Slovak Republic and published in the Official Journal of the Slovak Republic.

Changes proposed in the Government Draft are mainly related to:

  • the support of small and medium-sized businesses,
  • decrease of taxpayers’ administrative burden
  • the support of the automotive industry in Slovakia. 

The proposed changes reflect the implementation of measures of the Council of the EU Directive related to hybrid mismatches with third countries (known as ″ATAD 2″).

Check list of selected amendments brought by the Government Draft we have prepared for you:

Tax expenses deductible only after payment

The Government Draft simplifies and changes the conditions under which it is possible to include into tax base expenses that are part of the tax base only after their payment. As of 1 January 2020, the condition of payment will not apply to those expenses (costs) which become part of the cost of assets or part of own costs (e.g. in the case of inventories). In addition, the 20% limit for payments (commissions) for mediated business to be included into expenses (costs) is repealed; the scope of expenses (costs) deductible only after their payment is extended to management services and business management advisory services in accordance with codes 70.1 and 70.22.1 of the classification of products based on activities. Contractual penalties, charges due to delay, interest on late payment will also be considered tax deductible expenses in the tax period of their payment.

Bad debt provisions

The Government Draft also regulates conditions of tax deductibility of bad debt provisions, write-off of receivables and their assignment based on the moment when they become time barred. The moment of becoming time barred will be assessed as at the last day of the tax period and not on the day on which the bad debt provision was created, assigned or written off, which is the case based on the currently applicable rules. A receivable will not be considered as time barred if it was not time barred for at least one calendar day during the relevant tax period.

New rules for tax loss deduction

On 1 January 2020, more attractive conditions for tax loss deduction will start to apply. The proportional deduction principle is repealed and the period for tax loss deduction is extended to 5 years, while taxpayers will be able to use tax loss of up to 50% of the calculated tax base.

New tax exemption of employee benefits

The Government Draft reduces administrative burden with the proposed tax exemption of non-monetary benefits provided to the employee with the amount of the exemption up to EUR 500 per year, which is not a tax-deductible expense of the employer. For example, this may be applied to expenses related to parking on the employer’s property, teambuilding events or corporate parties.

Hybrid mismatches

In relation to the transposition of the ATAD 2 Directive, new rules are introduced encompassing hybrid mismatches between EU member states and third countries. The rules should prevent hybrid mismatches and they will apply to situations created between a taxpayer who is a legal person and his dependent entities or independent entities that are part of the so-called structured scheme. Such rules should prevent the possibility to deduct expenses (costs) without including them in taxable income (profit) of the receiver or multiple deduction of expenses by several dependent entities.

A new term ″micro-taxpayer″ with more beneficial rules

A new element included in the Government Draft is the term ″micro-taxpayer″, which is a natural or legal person with annual income (profit) of up to EUR 49.790 in a given tax period who does not carry out controlled transactions with a related entity. The Government Draft offers various beneficial tax conditions for this group of taxpayers, e.g. more beneficial conditions of tax loss deduction, possibilities to write off receivables, etc.

In relation to the significant changes of the Income Tax Act in force as of 1 January 2020, we will provide you with more details on the above-mentioned changes that might have impact on your activities in the following issue of Tax Alert.