Remember: the benefits of Slovakia (low dividend tax, liberal business laws) are an excellent complement to those of other countries: Zugimpex helps customers to combine these advantages. We know which steps are necessary; with our local offices, we offer various services from one source.
Please note that VAT registration according to § 4 is handled restrictive by the tax office and requires a domestic turnover of 50,000 Euros. Registration according to § 7a is easily possible, and with this the company can issue invoices abroad immediately, but the input tax is not deductible. This means if a company purchases services from abroad subject to the reverse charge system, a tax-liability for VAT arises, but without §4 registration there is no deduction of the same amount allowed, so the result is a tax of 20% of the service costs that is lost. Because of the behavior of the administration, to apply for registration under § 4, a longer lead time and the inclusion of a local specialist has to be planned. Alternatively, ready made companies with a §4 VAT number are available.
There is a tax of 21% for companies and a tax rate from 19% to 25% for individuals, and every self employed person has an option to deduct up to 20.000 Euro as flat fee for costs without further proof.
Corporations are taxed only on corporate profits: since 2017 there is a 7% taxation on dividends at shareholders level in Slovakia, but there are ways to avoid it. Because dividends usually are taxed in the country of residence, a foreign partnership can be a good solution.
Interesting possibilities for accounting policy: for example, in the evaluation of inventory or of receivables. This can be combined with e.g. Austrian group taxation which allows compensating profits with losses of associated companies.
If there is a Double Tax Treaty (DTT) with exemption method, a partnership is useful: the profits in the other country will be taxed at a tax rate that is based on the total income, and this can work in both directions: so losses of a partnership in Slovakia can be interesting, too.
The advantages of a “s.r.o. & k.s.” (Ltd. & Limited Partnership):
21% tax, often without social contribution for the limited partner (explanation: the limited partnership k.s. has an s.r.o. as general partner).
While in countries like Austria total taxation of the owner of a corporation is 45,625% (25% corporate income tax + 27,5% dividend tax on the remaining 75%), Slovakian tax remains at 21% + 0% or 26.53% (21% corporate income tax + 7% dividend tax on the remaining 79%), thus creates a saving between 19,095% and 24,625% versus Austria.
Companies who transfer activities to Slovakia additionally benefit there from lower wages and prices. Additional costs might be caused by tax progression e.g. in Austria on the level of natural persons (Austria takes Slovak profits into account when calculating the tax bracket for Austrian profits), structure costs and additional costs for restructuring. In addition, several actions must be taken to perform a real business and to avoid classification as misuse. The k.s. should not have mainly passive income in order not to be qualified as a pure financial vehicle. In addition, it is recommended to consider social charges according to the EU-Directive 883/2004.
Holding function: tax-free reception and distribution of dividends: a limited liability company (s.r.o.), which has a real substance (permanent establishment, real function), can (subject to the parent-subsidiary directive of the EU) receive dividends from a subsidiary in another EU country and distribute it to an active k.s. (limited partnership). There is still a possibility to avoid further taxation, if the owners of the KS have their residence in another country that has a double taxation agreement with Slovakia.
If an s.r.o. receives dividends, they remain tax free, and there is currently little restriction on dividends from countries with low taxation.
Attention: if you have residence in another country: only for business income of a Slovakian company, the right of taxation is exclusively assigned to Slovakia according to Article 7 DTT. But dividends, interest and salaries to individuals usually are taxed in the country of residence according to the local tariff in this country.
If Slovakia is the country of competence according to the EU-Directive 883/2004, personal income should be low, because not all social contributions have an upper limit and thus, 14% charges on health insurance can become expensive. Therefore persons with high income often are employed in another country and work as self – employed in Slovakia.
Profits of a K.S. are not exempt in the country of residence, if the business is run from this country, if the company has no substance or if the k.s. receives dividends from abroad that are not relevant for its functional business activities (therefore, in such cases we recommend a subsidiary corporation as a dividend feeder company for the k.s.). (see statement of Austrian ministry of finance in EAS 3010).
National laws in the country of residence define when the profit of a k.s. is attributed to the limited partner: Slovakia and other countries attribute it when the payment is received, for other countries in the year when it is generated. Therefore we recommend different options of structures.
In the menu “Advisory” we offer clients to benefit from our know-how in international tax planning and international tax law.
Structures shall follow the business activities, so please look at our guidelines for Company Structures.
If there is a proper setup, it is important to avoid legal issues. So please consult our guidelines about Real Implementation
Legal Documents and some Double Tax Treaties: Downloads & Links
(aktualisiert Mai 2018)