On 11 September, the Parliament approved an amendment to the Income Tax Act. Please find below an overview of the introduced changes with effectiveness as of 1 January 2020 with a commentary of Silvia Hallová, Tax Partner at Grant Thornton.

A bank as a Micro-taxpayer? According to the approved amendment, a possible scenario…
Small companies will be able to apply several tax benefits, for example during applying tax depreciation of fixed assets, applying tax provisions on receivables or deduction of tax losses.
The main problem is that the amendment defines a micro-taxpayer on the basis of turnover up to EUR 49 790 under the VAT Act. However, such definition is unclear. For example, the revenues from services exempt from VAT should not be included in the overall revenues for the purposes of the amendment. There is a risk that a number of “large” financial service providers would also be treated as “micro-taxpayers”.

Increase of “Super-deduction” for research and development is a good news, but…
The amendment retroactively applies a super-deduction of 150 % on research and development costs in 2019, and 200 % from 1.1.2020. Without no doubt, it is a good news. However, the amendment does not solve major problems why companies do not want to perform R&D in Slovakia. One of the reasons is that the public register of taxpayers who apply a super-deduction also contains competition-sensitive data on the research and development projects performed. There are further reasons such as non-transparent rules (e.g. the causes related to grants provided by the Ministry of Education of the Slovak Republic) and not existing conceptual development (Austria is the European leader in R&D thanks to the so-called competence centers where the universities, science centers and the business sector run the development projects together).

Why only automotive industry?
The tax exemption of employee´s non-monetary income due to provided accommodation by the employer will increase from 1.1.2020 from 60 to 100 EUR per month. The problem is that this regulation applies only in the automotive industry. The increase of tax benefit is a good news but to be fair, it should be also applied in non-manufacturing sectors.

Good news no. 1: Broadening of the exemption for specialist training of employees, if the costs are borne by the employer.
The income related to enhancing of employees' qualifications is exempt from taxes and social and health contributions provided that the employee must have been employed with the employer for at least 24 months.
These costs (e.g. when upgrading the qualifications after completion of a bachelor's degree and the employer takes over the fees for the master’s degree) will be a tax-deductible expense on the level of the employer if the employer proves that the employee’s achievement of the higher qualification is needed for the employer's business activity.
It is a positive change, which ambitious under-qualified employees would be motivated to upgrade their skills/education. At the same time, cooperation with secondary vocational schools and universities would be strengthened.

Good news no. 2: A new exemption for non-monetary benefit of up to 500 euros per year from all employers can be applied, if the employer does not apply the provision of the non-monetary benefit as a tax-deductible expense.
Nowadays, companies treat various expenses on Christmas parties and teambuilding as non-tax-deductible expenses. The question of whether, in spite of this approach, it is necessary to tax such a non-monetary income, as part of the employee’s pay has remained open. This provision gives legal certainty to these cases. This provision is to come into force from 1.1.2022.

Good news no. 3: A new depreciation group is introduced for electric and hybrid vehicles with a reduced depreciation period (from 4 to 2 years)
This provision represents a positive step in terms of supporting the environment. However, there is still a limit of tax depreciation with respect to luxury cars (over 48.000 Eur) if the taxpayer reports a low tax base.

Good news no. 4: Introduction of a definition of statute barring of receivables for tax purposes
A receivable will be deemed to be non-statute-barred on the last day of the tax period if for at least one calendar day the receivable is not statute-barred in the relevant tax period.
Following such definition, the specification of the creation of tax provisions on receivables and the adjustment of the amount of the tax-deductible expense in case of a write-off or assignment of receivable is introduced.

Acceptable change no. 1: Change of regulations for deduction of tax losses
After 1.1.2020 it will be possible to apply tax losses for any amount over a period of 5 years (currently 4 years), as the condition of an equable deduction is removed. For ordinary taxpayers, the application of the tax loss is limited to 50 % of the annual tax base. This limitation should not be applied to “micro-taxpayers”.

Acceptable change no. 2: Increasing the threshold for pre-payment of tax
The change affects both legal and individual persons, with pre-payments applying to tax liabilities of 5 000 Eur (previously up to 2 500 Eur). At the same time, the calculation of the tax for the previous taxation period, from which individual persons and legal entities’ income tax pre-payments are calculated, will be simplified.

“Step back”: Amendment of the list of expenses that are tax-deductible only after actual payment
Expenses, which will be tax-deductible only after payment will be management fees and consultancy services. The condition for payment to obtain standards and certificates is removed. Provision on the 20% limitation on intermediation commission is removed as well, but the condition for payment remains in force.
Contractual penalties, fees and late payment interest and severance payments will be tax deductible after payment. At present, these costs are not tax deductible at all. Therefore, there is a return to the previous tax regulations, under which the condition of actual payment also applied at these costs.

Special point of the amendment: Reduction of income tax rate from 21 % to 15 % only for specific companies
A proposed parliamentary proposal of the amendment of the Income Tax Act would reduce income tax rate at 15 %, however only for companies with an annual turnover of up to 100 000 Eur. Such proposal brings many risks, the biggest one is that Slovakia would be “flooded” with small companies in an effort to reduce the tax base and discrimination and injustice in taxation as a new negative element in taxation of legal entities. Not even the argument of Government deputies that Government's Program Statement includes the commitment to reduce the taxation would succeed. However, the Government's Program Statement does not refer to discriminatory tax policy, but to a general reduction of tax to 21% and an attempt to reduce the tax rate annually.