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Tax and Excise Duty Systems

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Tax and Excise Duty Systems

 Since its establishment in 1993, the Slovak Republic has undergone significant changes, with an integral part of this being the transformation from a centrally-planned system to a market-driven economy. Slovakia’s entry into the European Union in 2004 only accelerated this transformation. The liberal economic reforms which were introduced in recent years have brought about changes in the tax policy of the state, and have also led, among other things, to the strengthening of the tax authorities. Taxes generated by the market economy taxes are one of the most important instruments of the economic policy of the state and are the most important source of revenue for the state budget.

Tax system of the Slovak Republic

The tax system of Slovakia includes the tax system, the tax authorities which ensure the tax administration and the special system of instruments and procedures applied by these authorities in relation to subjects of taxation.

The term “tax” may be defined as a non-returnable monetary payment which is imposed by law in order to cover the costs of the payment of governmental or other public needs at a predetermined amount and maturity.

The tax system of the Slovak Republic gained its current form through a series of reforms instituted in 2004. The principles of these reforms were as follows:

 

  • The transfer of the burden of taxation from direct taxes to indirect taxes or, in other words, the shift from taxes on production to taxes on consumption
  • The abolition of inheritance taxes and gift taxes,
  • The introduction of lower tax rates and the abolition of all exemptions and special tax regimes
  • The abolition of progressive income tax rates through the introduction of so-called flat rate income tax (this principle has been amended in recent years through the introduction of two tax rates of 19% and 25% for individuals and a corporation tax of 21%)
  • The elimination of irregularities in the tax system
  • The elimination of double taxation.

Tax regime of the Slovak Republic

A tax regime is a summary of all of the taxes levied within the territory of a given country at a specific time. Its role is to secure sufficient income to cover all necessary state expenditure. The tax system of the Slovak Republic has been in force since 1 January 1993 and was based on the principles of tax systems which are currently in use in advanced market economies. The biggest changes in tax legislation occurred in connection with the entry of the Slovak Republic into the European Union in 2004 and the resultant harmonization of indirect taxes.

The current Slovak tax regime is comprised of a total of 9 tax laws which define 18 existing types of taxes.

The tax regime of the Slovak Republic consists of direct taxes paid by entities on their income or assets which are paid directly by the state or by indirect taxes which are paid by entities as part of the price of products or services which are eventually passed to the state through intermediaries.

The current tax regime of the Slovak Republic consists of the following taxes:

  1. Direct taxes
  2. income (pension) taxes
  3. corporation tax,
  4. individual income tax,
  5. property taxes
  6. motor vehicle tax,
  7. local taxes
  • property taxes: land tax, building tax, apartment tax,
  • dog tax,
  • tax on use of public space,
  • residential tax,
  • vending machine tax,
  • tax on non-gambling gaming machines,
  • taxes on the entry and parking of motor vehicles in historic city centres,
  • tax on nuclear facilities.
  1. Indirect taxes
  2. Value added tax
  3. Consumption duties
  4. Electricity excise duties,
  5. Coal excise duties,
  6. Natural gas excise duties,
  7. Cigarette and tobacco excise duties,
  8. Mineral oil excise duties,
  9. Alcoholic beverage excise duties.

 

  1. Direct taxes
  2. Income taxes

Income taxes form a group of taxes which belong to the category of direct taxes which are levied on the income of individuals, corporations and legal entities. Legislation for income taxes is included in Law No. 595/2003 Coll. On Income Tax, as Amended (hereinafter referred to as ‘the Income Tax Act’). Together with added value tax, income taxes form the most important revenues for the state budget of the Slovak Republic.

This form of taxation has undergone many changes in recent years. Changes to the Income Tax Act in 2012 introduced a flat rate of 19% for all individuals and legal entities. Currently, individuals whose income does not exceed a value 176.8 times greater than the official national subsistence level (which as of 2017 amounts to €35,022.31) are levied at a rate of 19%, while those whose income exceeds this value are levied at 25%.  Corporate income tax is fixed at a rate of 21% of the tax base minus the tax loss. For both individuals and legal entities, a 35% tax rate is applied from the special tax base determined by the share of profit derived from taxpayers from non-Contracting States.

  1. Property taxes
  2. Motor vehicle tax

Motor vehicle tax is regulated by Law No. 361/2014 Coll. On Motor Vehicle Taxes and Amendments to Other Laws, the subject of which are vehicles registered in the Slovak Republic which have been used in the taxation period for business purposes or which have been used to gain income from business activities.

  1. Local taxes

Local taxes are governed by Law No.. 582/2004 Coll. On Local Taxes and Local Duties from Municipal Waste Collection, Small Construction Waste as Amended.  Local taxes are imposed by local authorities in generally binding measures which regulate tax rates, reductions and exemptions.

 

  1. Indirect taxes
  2. Added value tax

Added Value tax (hereinafter referred to as “DPH”) is a universal indirect tax and forms one of the main sources of revenue of the Slovak Republic. The introduction of this tax into the Slovak tax regime was primarily a result of Slovakia’s efforts to integrate the state into the economic and legal structures of the European Union, but the implementation of VAT offered additional advantages such as tax neutrality and transparency and also contributes to the fight against tax evasion.

The legal basis of VAT is found in Law No. 222/2004 Coll. On Value Added Tax as Amended (hereinafter referred to as the “VAT Act”). The Act is in compliance with EU legislation governing the application of this tax in Council Directive (EU) No. 2006/112 / EC of 28 November 2006 on the common system of value added tax.

In accordance with the VAT Act, this tax is levied upon:

  1. The supply of goods for consideration within the territory of the state by taxable individuals acting as taxable individuals,
  2. The provision (or supply) of services for consideration within the territory of the state by taxable individuals acting as taxable individuals,
  3. The acquisition of goods for consideration within the territory of other member states of the European Union,
  4. The importation of goods into the state.

The basic rate of VAT on goods and services is levied at 20%. A reduced rate of 10% is levied on selected food, printed and pharmaceutical products.

  1. Consumption taxes

Consumption taxes or excise duties are considered to fall under the category of indirect taxes but they are not universal in nature. They apply to a limited number of goods, particularly those whose consumption may have a negative impact on the health of local inhabitants or which may have a detrimental effect on the environment. When defining the range of goods which will be subject to such duties, the fiscal requirements of the state are paramount, but the state can also attempt to influence the consumption of these goods in a socially beneficial manner.

The current legislation regulating consumption taxes are as follows:

  1. Law No. 609/2007 Coll. On Duties on Electricity, Coal and Natural Gas as Amended,
  2. Law No. 106/2004 Coll. On Duties on Tobacco Products as Amended,
  3. Law No. 98/2004 Coll. On Duties on Mineral Oil as Amended,
  4. Law No. 530/2011 Coll. On Duties on Alcoholic Beverages as Amended.

Fee system of the Slovak Republic

The fee system of Slovakia is comprised of a set of fees, the system of legal and organizational bodies which ensure the collection of these fees, and the instruments and procedures applied by those bodies on individuals and entities who are subject to fees.

The concept of a fee can be defined as a cash payment imposed by law which is levied on the activities of state and other public bodies carried out upon the initiative of the taxpayer at predetermined periods and at pre-determined amounts.

Fee regime of the Slovak Republic

Art. 59 ods. 1 of the Constitution of the Slovak Republic draws clear distinctions between fees levied by the state and fees levied by local authorities. The decisive criterion of this breakdown is whether the fees are considered to be a revenue source of the state budget or of the budget of a regional self-government. In addition to those fees, other payments are also applied, which are referred to as fees but which are the revenue of public authorities and institutions. These are fees which are of a sanctioned, ecological or orderly nature, such as concession fees or air pollution taxes.

The fee system in Slovakia is currently comprised of the following categories:

  1. State fees
  2. Administrative fees,
  3. Court fees,
  4. Maintenance fees.
  5. Municipal fees

At present, only a single municipal fee is in existence, the municipal fee for the collection of domestic waste and small construction waste.

  1. Fees of public authorities and institutions