Reduced VAT rate for accommodation
The prepared amendment to the Value Added Tax Act proposed by the Slovak National Party will reduce the VAT rate for selected accommodation services with effect from 1 January 2019. The measure should contribute among others to the support of tourism in the Slovak Republic. If the proposed amendment is approved, the VAT rate of 10% will be applied to hotel and similar accommodation services, tourism and other short-term accommodation services, as well as to the operation of camping sites, recreational and holiday camps.
New rules for vouchers in the VAT Act
The government amendment to the Value Added Tax Act valid from 1 January 2019 introduces (among others) new rules for supplies of goods or services by means of vouchers. New rules in the Slovak VAT Act implement the Council Directive (EU) 2016/1065, amending Directive 2006/112/EC I connection to vouchers.
For the VAT purposes, it will be necessary to distinguish between so-called “single-purpose” and “multi-purpose” vouchers. By single-purpose vouchers, the place of supply of goods or services and the VAT rate are known already by issuing. However, by multi-purpose vouchers, at least one of these facts is unknown. A single-purpose voucher therefore may be used e.g. for accommodation in any hotel in Slovakia. However, if this voucher can also be used for accommodation in a hotel in the Czech Republic, it will be treated as a multi-purpose voucher, because the place of supply of service is unknown by purchase/sale of the voucher.
From 1 January 2019, the sale of a single-purpose voucher by a payer, acting in their own name, will be regarded as a supply of goods or services against consideration. It means that the supplier will charge VAT by the sale of the single-purpose voucher, and the VAT will not be charged to the customer upon the supply of goods/services by redeeming of a single-purpose voucher. In connection with this change, we would like to note that on 1 January 2019 an amendment to the Act on the Use of Electronic Cash Registers will enter into force and that the sale of single-purpose vouchers will be subject to recording through the electronic cash register or “e-kasa client” cash register.
On the contrary, the sale of multi-purpose vouchers will not be subject to VAT. Only the provision itself of goods or service in return for a multi-purpose voucher will be subject to the value added tax.
If the issue of vouchers has captured your interest, we will inform you on our web site about details, in particular about the context in which the mediated sale of vouchers takes place and in which the seller of vouchers is not the actual supplier of goods or services, to which the purchase voucher relates.
Changes in the application of VAT to the sale and lease of properties
From 1 January 2019, there will be introduced new rules for the application of VAT exemption to the sale or lease of properties. Under certain circumstances, the sale of some older properties will be subject to VAT. At the same time, the possibility not to exempt the sale or lease of property from VAT, when the conditions for VAT exemption are fulfilled, will be limited.
If the amendment to the Value Added Tax Act is approved, VAT exemptions for some older properties with improvements, will be abolished under certain conditions. From 1 January 2019 VAT exemption will be abolished for:
- Sale of property within five years from the date of building acceptation, based on which the change of the building purpose was permitted, if the costs of the construction works represented at least 40% of the value of the property before the construction works;
- Sale of property within five years from the date of building acceptation, based on which the change of the building purpose after the construction works was permitted, if the costs of the construction works represented at least 40% of the value of the building before the construction works.
At the same time, the sale of property within five years from the date of approval of the building, based on which the first use of the building for the determined purpose was permitted, or within five years from the starting date of the first use of the building, whichever occurs earlier, will remain exempted from the value added tax.
From 1 January 2019, there will be introduced the obligation to exempt from VAT the sale of buildings determined for dwelling, including individual flats or individual apartments in a block of flats, after five years from the date of approval of the building or under the circumstances specified in the draft Act (if the conditions for the exemption are fulfilled). In case of the sale of other buildings, the payer can choose to apply VAT exemption (if conditions for exemptions are fulfilled).
The possibility not to exempt the lease from VAT will also be subject to a change. A taxable person, leasing a property determined for dwelling (flat, family house, apartment), will be obliged to exempt the lease of the property from VAT. This rule will apply to all lease contracts and supplements to lease contracts concluded after 31.12.2018. By leasing of other properties to taxable persons, the choice to (not) apply exemption from VAT remains preserved.
We will inform you about the prepared amendment to the Value Added Tax Act in detail later.
New taxes for retail chains and insurance companies
From 1 January 2019, new taxes for retail chains and insurance companies will be introduced. While the new Insurance Tax Act has already been approved, the proposed “tax” on net turnover for retail chains is still at the 1st reading stage and faces criticism from the opposition as well as the expert public.
Special tax imposed on retail chains
A special tax rate of 2.5% of net turnover will affect retail chains that:
- operate a food business;
- have establishments in at least two districts;
- derive at least 10% of their turnover from the sale of foods to the final consumer.
- have establishments with uniform design, corporate communication and common marketing activities.
This draft act has been submitted to the Slovak parliament as a parliamentary proposal, which is also not standard. New bills are usually submitted by ministries for inter-departmental comments and the public is invited to a professional discussion. In case of this draft act, this process was fully omitted. Another anomaly of this proposal is that the role of the second-level body is taken by the Ministry of Agriculture and Rural Development SR, instead of the Ministry of Finance, which is actually responsible for tax laws.
We also note that the submitted draft act is contrary to the EU legislation, particularly, because it discriminates a selected group of companies that will be subject to this special tax.
From 1 January 2019, Slovakia introduces a new tax on non-life insurance. This tax will burden only non-life insurance, such as accident, sickness, transport, credit insurance or liability insurance (with the exception of compulsory contractual insurance subject to another levy).
In most cases, the 8% insurance tax will be levied and paid to the state budget by insurance companies based in the Slovak Republic or insurance companies from other EU member states or the European Economic Area (Norway, Liechtenstein, Iceland). However, there may be cases, where other person than the insurance company will pay the tax on insurance to the state budget. There will be two cases:
- A policyholder who signs the insurance contract directly with a foreign insurance company. A foreign insurance company is to be understood as an insurance company that is established out of the EU or the European Economic Area, which does not have a branch in the Slovak Republic
- Group insurance – if the parent company in a Group concludes a group-wide insurance, subsequently transfers the insurance costs to individual companies in the Group and this insurance was concluded with a foreign insurance company without a branch in Slovakia, the legal person, to whom such insurance has been charged, is required to pay the insurance tax.
Online connection of cash registers to the Financial Administration server
An amendment to the Act on Use of Electronic Cash Register will introduce a mechanism of online connection of cash registers to the central database of the Financial Administration. It is so-called “e-kasa system” that will serve for registration of data messages sent via online cash registers or virtual cash registers. Businesses will be obliged to enter receipts in the electronic cash register or the e-kasa system through an online cash register or a virtual cash register without undue delay after the receipt.
If the draft Act on Use of Electronic Cash Register is approved, all businesses who using electronic cash registers for registration of receipts will have to switch to the new online system of receipts registration before 1 July 2019. Interested businesses can switch to the new system from 1 April 2019. However, new businesses with the obligation to register receipts according to the Act on Use of Electronic Cash Registers from 1 April 2019 will be obliged to use the new system from the moment, when the obligation to register receipts according to the Act on Use of Electronic Cash Register arises.
We will inform you about development of the proposed amendment to Act on Use of Electronic Cash Register in detail later.
Changes in the Income Tax Act
Changes also occur in the area of the personal and corporate income taxes.
In connection with the personal income tax, we welcome the proposed increase of the tax bonus for a dependent child. If the amendment to the Income Tax Act proposed by the political party Most-Híd is approved, the tax bonus for a dependent child younger than 6 years will double from 1 April 2019. The proposed monthly tax bonus is EUR 22.17 (if determined conditions are fulfilled, this amount increases to EUR 44.34).
In connection with virtual currencies, we note that from 1 January 2019 income from the sale of virtual currencies will be regarded as other income. The sale of a virtual currency means an exchange of virtual currency for assets, exchange of virtual currency for another virtual currency, exchange of virtual currency for services or the transfer of virtual currency for consideration. Income from sale of virtual currency by mining will be included in the tax base (partial tax base) in the tax period, in which such virtual currency was sold.
In connection with the corporate income tax, we note that from 1 January 2019, the insurance tax paid by the insurance holder and the tax from insurance of recharged insurance costs will be included in the tax base of the taxable person after the payment is made.
Tax expenses will also mean costs of accommodation of employees in buildings classified as KS 112 and 113 (buildings with two and more flats and other buildings determined for dwelling), if prevailing activity of the employer is production performed in a multi-shift operation. However, tax expenses on employee accommodation will be limited by the amount of income of the employer, who provided accommodation to the employee.
Tax expenses also include bonuses for productive work up to 100% of the hourly minimum wage, business scholarships, material support for students, practical trainings and bonus for the operation of secondary vocational schools beyond the sum of provided normative funds.
We will inform you about further changes relating to the income tax act in 2019 later.