The new DAC7 directive enters into force

Barbora Palenikova

Starting January 2023, the financial administration will gain access to information regarding people who rent out apartments or cottages through the Booking app and other online accommodation platforms. This means that the time has come for you to register for this upcoming tax

Landlords renting property via Booking or Airbnb platforms, as well as people driving with Uber or Bolt, will no longer go unnoticed by the financial administration. On January 1st 2023, an amendment to the Act No. 250/2022 will come into force and it states that it is obligatory for the digital platforms to provide information about their clients to the Slovak financial administration. This implements a directive in Slovakia that institutes this obligation throughout the whole European Union.

How will this change things from a practical standpoint?

The European Directive, working title DAC7, aims to simplify things such as the reporting obligation of the income generated by the providers who sell goods or services through these digital platforms, mainly for the operators. In Slovakia, the only way to access the information about each individual income, which the state has earned from digital platforms, was via direct request. However, from now on, this information will flow automatically from the platforms to each individual Member State. This means that for the first time, platforms such as Booking or Airbnb will provide the Slovak financial administration with the necessary data on the income of landlords for the year 2023.

To summarize, from January 2023 onward, the financial administration will have access to data on the rental of apartments, houses or cottages, whether for short- or long-term housing, as well as rentable premises. All platforms through which people or companies sell personal services, goods, or rent cars, bicycles and other means of transport will also have the same obligation.

DAC7 also introduces the so-called cross-border tax audits and also an extension of the automatic information exchange on royalty income.

Following this the Slovak tax administration will be able to use the results of the joint audit to supervise the declared income taxes.

But what does it mean in practice?

Tax legislation in Europe has so far failed to keep up the pace with the rapid development of technologies such as shared services or the rental of real estate via global digital platforms. The implementation of this new directive should change this, with the goal being the minimization of the current tax evasion and avoidance.

From January 1st 2023, all platforms offering the sale of goods, the rental of vehicles and real estate, as well as those that provide accommodation, transport, catering and other services, all of them will be obliged to automatically send the tax authorities detailed data on what services and goods have been provided by a company or an individual over the past year and the income that has been generated via the digital platform.

Booking, Airbnb or other platforms, the financial administration will receive a list from all of these, the list conatining companies and people with their full identification data and details of the income they have earned by using the platform. The administration will then compare this data with the company's or person's tax return and, in the event of a discrepancy, can initiate a tax audit in order to recover the tax for the undeclared income.

The UK has been verifying income from Booking and other platforms since 2017

The same disclosure has been mandatory in the UK since 2017. Unlike the new European directive, which obliges platforms to automatically send data, in the Land of the Rose, the local tax authority sends out a requests for proof of seller information. This means that in Britain, businesses and people selling services or goods online, do in fact stand a chance of escaping the grasp of the tax authorities. Starting January 2023 in Slovakia and across the EU, the system will be a lot stricter than in Britain. Platforms will send data automatically and it will be up to the tax authorities to come up with a system to identify suspicious behaviour and go after companies and people who have not declared their income from renting or other activity via trading platforms all of this also accompanied by  targeted tax checks.

What are the obligations for the lessor?

If the property is rented out by a sole proprietor or a company with an active business registration number, it does not need to get an additional registration with the tax office. Those that do not have a number are obliged to register no later than one month since the property has been rented out for the first time. The application is submitted as a form to the office of the district tax office, by post, or via the portal with an ID card containing a chip and additionaly with a guaranteed electronic signature.

Subsequently, the income tax return must be completed by the end of March or possibly June of the following year. This obligation does not include the people who have had a total income of less than 2 289.63 euro for the whole calendar year from dependent activities (employment) and rental property. In the case of renting, income up to five hundred euro is exempt from taxation.

Therefore, only income exceeding five hundred euro is included in the tax return. This rental income is stated in the personal income tax return type B in Section VI of spreadsheet 1 in column 1. However, all proven tax expenditure which must be recorded in simple or double-entry bookkeeping, can be found in column 2. Acceptable expenses include payments for utilities, internet, interest on the property´s mortgage, or expenses for built-in facilities or appliances. More information on taxation is available on the financial administration´s website.

If one were to fail to register or to declare rental income it would result in heavy penalties. For example, those who fail to register risk a fine of between 60 and 20 thousand euro, depending on the severity of the action. If the taxpayer under-declares rental income in the tax return, the penalty can reach 3% of the difference between the amount of tax declared in the tax return and the amount that should have actually been paid in the tax return for the year in the case that the taxpayer have realized their mistake and reported it to the administration themselves and 10% of the difference in case the tax authority finds the taxpayer to have been non-compliant with their tax obligations.

The data that digital platforms will report to the financial administration:

  • business name (for a legal entity), first and last name (for a natural entity);
  • registered office/residence address;
  • TIN including EU Member State where it was issued / place of birth;
  • VAT identification number (if available);
  • date of birth (for a natural entity);
  • registration number (for a legal entity);
  • the existence of a permanent establishment through which relevant activities are carried out in the EU accompanied with a declaration of each relevant EU Member State where such permanent establishment is located.

What national legislation is being changed in relation to the DAC7 Directive:

  • Amendment to Act No 422/2021 on International Assistance and Cooperation in Tax Administration, as amended, which implements EU Directive 2021/514 of 22 March 2021, modifying Directive 2011/16/EU on administrative cooperation in the field of taxation. The amendment was approved by the National Council of the Slovak Republic on 15th of June 2022.
  • The amendment enters into force on 1st of January 2023, with the exception of the provisions on joint control, which enter into force on 1 January 2024.