Tax seminar pdf presentation by italoblog italoblog

Key Changes to Slovak Tax Legislation Branislav Ďurajka Zuzana Blažejová Elvíra Ungerová 17 October 2012

A penalty is a tax for doing something wrong. A tax is a penalty for doing something right.

Expected income to state budget (in thousands Eur)

2012

2013

2014

129 977

138 985

150 040

51 517

74 618

94 169

133 922

140 667

149 274

215 003

701 363

505 381

535 550

62 369

88 997

5 678

27 000

81 000

351 240

378 415

405 909

Special tax rate of 5 % for listed functionaries

196

220

231

Lump sum costs limited

19 543

24 143

25 745

Spouse allowance availability limited

5 670

16 296

16 602

304 372

1 563 425

1 367 722

1 383 198

Assessment base for social and health security contributions aligned Security contributions increase for selfemployed persons

Changes concerning contracts for work Changes in second retirement pillar Bank tax Special levy for businesses in regulated industries CIT rate increase from 19 % to 23 % and second PIT rate 25%

Total

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2015

Key Changes to Slovak Tax Legislation Affecting Companies

Key changes to the SITA – Corporate income tax • CIT rate to increase from 19% to 23% as of 1 January 2013 • The new rate to apply for tax periods which will start after 31st December 2012 • WHT rate in general to remain at 19% • Dividends WHT (for pre-2003 profits) at 15% • Security tax will be: • 9.5% if the liability to withhold imposed by the Tax Authorities, or

• 19% in transactions with foreign taxpayers who are not EU tax residents

Key changes to the SITA – Corporate income tax • Dividends out of post-2003 profits still not subject to tax • Dividends out of pre-2004 profits – subject to tax • if distribution approved (annual meeting) after 31 December 2012 • WHT 15% (if distributed by Slovak resident company)

• Foreign dividend received by Slovak residents included in the tax base (no deductions), i.e. 23% • Exemptions (as per EU P/S Directive):

• If paid to an EU resident holding directly at least 10% in the share capital of the payer • If received by a Slovak resident from an EU resident while the Slovak company holds directly at least 10% in the share capital of the payer

Key aspects of the special levy for businesses in regulated industries

• Law on the special levy for businesses in regulated industries (Act no. 235/2012 Z.z.) • Approved by the Parliament on 26 July 2012. • Signed by the President on 7 August 2012

• Effective from 1st September 2012

Key aspects of the special levy for businesses in regulated industries • The scope: regulated entities – legal entities: (a) operating in one or more of the following areas (possessing by appropriate license):

• Energy • Insurance and re-insurance • Public healthcare insurance • Electronic communications • Pharmacy • Postal services • Railway transport

• Public water conduits (distribution) and sewerage • Air transport • Healthcare providing (b) at least 50 % of their business income from the activities in regulated areas • Not only domestic entities but also branches of foreign entities licensed in one of the regulated areas in another Member State of the EU or EEA.

Key aspects of the special levy for businesses in regulated industries • Base: accounting result (=profit) (if IFRS, to be adjusted to SAS)

• Rate: 0,00363 per month (= 4,356% per year) • Calculation: levy base x levy rate • Liability : if levy base at least EUR 3 mil. (regulated entities obliged to estimate) • Administration: tax authority responsible for administration of corporation tax

Key aspects of the special levy for businesses in regulated industries • Obligation to deliver a written notification containing: • business area, • date of obtaining of the license, • estimated profit or profit for previous accounting period and the amount of the levy. • New entities: by the end of the month following the month of obtaining the license, provided that the expected profit is EUR 3 mil. • Existing entities: by 30 September 2012 (the levy liability arises from September 2012)

Key aspects of the special levy for businesses in regulated industries

• The levy period: calendar month

• Payment DL: by the end of levy period • Annual Settlement: tax authority calculates for all levy periods falling within the corresponding accounting period and compares with amounts paid • Standard assessment / appeal procedure does not apply • The last period: December 2013

The Bank Tax (Levy) + Aggregate of passives of the bank - positive equity - long-term debt provided to a branch of a foreign bank - amount of subordinated debt - Value of the protected deposits (up to 31 August 2012)

= The Bank Tax Base • The annual rate is 0.4% on the bank tax base

• Quarterly payments of 0.1% on the base as per Q statements • Due by 25th day of the respective quarter (previously 20th day) • An extra levy of 0.1% for Q4 / 2012 (due by 25 Oct.) on 2011 audited base

• Rate to be decreased if accumulated funds exceed MEUR 500/750 etc... • Rate of Deposit Protection Contribution 0% for Q3-4/2012 and 2013 © 2012 KPMG Slovensko Advisory, k.s., a Slovak limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International‟), a Swiss entity. All rights reserved.

Vehicle Registration Fee

• Registration fee for the first record of the owner of a motor vehicle categories L, M1 and N1 in the vehicle registration • The fee amounts to EUR 33 if the engine power is to 80kW and from EUR 167 to EUR 2,997 if the engine power is greater than 80 kW

• Fee EUR 33 for vehicles other than categories L, M1 and N1, electric vehicles and other records in connection with transferring vehicles • Exemptions: • a person with a severe disability with a granted State contribution for the acquisition of the vehicle • vehicles acquired by inheritance, by official order or court ruling and termination of joint marital property. © 2012 KPMG Slovensko Advisory, k.s., a Slovak limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International‟), a Swiss entity. All rights reserved.

Key Changes to Slovak Tax Legislation Affecting Individuals

Definition of income from dependent activities

• The definition of income from dependent activities will be extended also to: • income for the function of a president, member and record keeper of an election committee, committee for a referendum and census taker

Income of artists and authors

• Income from the creation of a work of art and artistic performance, including the publishing, reproduction and distribution of literary works and other works on own expense and income of authors from their contributions to newspapers, magazines, radio and television is subject to tax from other independent activities. • Income of authors from the contributions to newspapers, magazines, radio and television is in general subject to withholding tax, if the below procedure will not apply from 1 January 2013 • There will be the possibility to agree with the payer of tax in writing in advance on nonwithholding of the withholding tax. In this case the tax payer will have to notify the tax authorities on this agreement within 15 days of the year following the agreement with the author

Lump sum costs

• Threshold until which the individuals who are not VAT payers may claim 40% of their revenues as their tax deductible costs will be introduced at : • EUR 5 040 annually, but

• at maximum EUR 420 monthly in extraordinary cases (e.g. if the taxpayer receives trade license during the tax year or stops doing business during the year) • the application of the lump sum expenses will no longer be possible in the case of rental income

Progressive taxation of income of individuals

• The income tax rate for individuals will be set as: • 19% until the threshold of 176,8-times the valid living minimum was reached, and • 25% from the excess portion of income. • The income of the president of Slovakia, members of the government, members of the parliament and other listed functionaries will be subject to a special tax rate of 5% in addition to the above income tax rate.

Spouse allowance availability limited • Proposed changes include tightening of conditions for applying the spouse allowance • For the purposes of claiming the spouse allowance, the spouse (husband) shall mean : • a person who:  shares the household with the taxpayer and:  is taking care of a dependent child until 3 (or 6) years old living in the household of the taxpayer, or 

receives attendance allowance for disabled persons, or

 is registered as a jobseeker with National Labor Office • income of the spouse (husband) is income reduced by the paid obligatory social and health security contributions, excluding the employment bonus based on the Slovak Income Tax Act, tax bonus for a dependent child, increase of pension due to immobility, state social contributions and scholarship if constantly preparing for future employment • Only „active“ income will be considered when considering the claim for a child bonus

Assessment base for social and health security contributions aligned As of 1 January 2013 the maximum assessment base for all social security contributions will be unified and increased to 5-times of average salary

• The unification of assessment bases will be determined as follows: 5-times of average monthly salary assessed 2 years ago EUR 786 x 5 = EUR 3 930 = max. assessment base for 2013

At the same time, the maximum assessment base for health care insurance will increase as follows: 36-times 60-times of average monthly salary form the period 2 years ago, i.e. EUR 47 160 per year (EUR 3 930 p.m.) for 2013

Injury insurance remains uncapped (contribution of employer in the amount of 0.8% from assessment base)

Changes concerning contracts for work Contributions to the insurance funds when considering contracts for work  Until 31 December 2012, employer pays only contributions to guarantee and accident insurance funds

As of 1 January 2013 the following changes are proposed: • Agreements on temporary student jobs:

 Shall be concluded only with individual, student of university or secondary school, up to the month during which the invidividual reached 26 years  Contributions paid only to guarantee and injury insurance funds

• Early retirement person working based on contracts for work  Obligatory insured in old-age insurance fund  The claim on payment of early retirement pension contributions will be ceased

Dividends and health care insurance • It is proposed that the payer of the health care contributions should be the person who pays the dividends

legal entity based in Slovakia, which pays the dividends (what if dividends from foreign companies?)

•

The rate of health care contributions is proposed to be 14 % of dividend payments (currently 10 %);

• The maximum assessment base will amount to 120-multiple of average monthly salary, approximately EUR 94 320 for 2013; (if no other income180-multiple?)

• The payer will be obliged to inform the respective health insurance company within 8 days following the day of payment (electronically or in writing) • Before the dividends will be paid, the payer of dividends will be obliged to announce to the Authorities for Supervision of the Health Care the health insurance company of the individual

Key Changes in the VAT Act

Amendment to the Slovak VAT Act

Key changes applicable from: 1 October 2012:

Combat against VAT fraud and VAT evasion

Restriction on VAT deduction for foreign entities registered for VAT in Slovakia who perform only the supplies of goods and services in the case of which the liability to pay VAT is transferred to the customer (via reverse-charge mechanism) Filing the EC Sales List (ESL) if the VAT ID Nr. of the service recipient is not available before the deadline for filing the ESL Adjustment of deducted VAT

1 January 2013:

Place of supply of services [Article 4 of the Council Directive 2008/8/EC] Invoicing rules [Council Directive 2010/45/EU] Taxable event in case EU member state

continuous

supplies

goods

another

Decrease of the value-limit for a cash receipt printed by an electronic cash register to be accepted as a substitute of a regular VAT invoice

1 January 2014:

Reverse-charge mechanism upon import of goods

Changes effective from 1 October 2012

Combat against VAT fraud and VAT evasion

Key measures against VAT fraud and VAT evasion

Changes effective from 1 October 2012

Stricter rules for completing the VAT registration of “risky entities”

Extension of application of domestic reversecharge, i.e. transfer of the liability to pay VAT to customers

Combating fraudulent activities

Extension of powers of the tax authorities with respect to execution of VAT-deregistration in legitimate cases

Revision of conditions related to joint liability to VAT by the customer in the case of failure of the supplier to pay VAT

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

Becoming a VAT payer by law

Occurrences based on which a taxable person becomes a VAT payer by law were extended to:

 sale of immovable property (building or its part, building site) or

receipt of payment before the supply takes place

whichever occurs earlier;

provided that the existing VAT registration threshold is reached by this transaction. Certain exceptions should apply.

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

VAT guarantee payment upon VAT registration

Obligation to deposit a financial guarantee to the account of the tax authorities or to secure a bank guarantee for VAT applicable for:

Voluntary VAT registration Relevant for businesses only preparing for making supplies of goods or services to obtain income.

Risky entities If an applicant for VAT registration – an individual or a statutory representative or shareholder of a legal entity has currently or previously owned or managed companies with recorded VAT arrears, or a company which was de-registered from VAT by the tax authorities ex-offo based on specified grounds.

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

VAT guarantee payment upon VAT registration

The amount of VAT guarantee (in the range of EUR 1,000 – 500,000) should be determined based on detailed criteria to be drafted by the Slovak Tax Administration in cooperation with the Ministry of Finance. The maximum amount should be required: • if there are justified concerns that the VAT registration would be misused to gain an unjust advantage, or • taking into account the record of the applicant‟s VAT arrears. The minimum amount should apply to:

• newly established entities without recorded VAT arrears and with no doubts arising with respect to their future taxable activities.

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

VAT guarantee payment upon VAT registration

• Non-fulfillment of the VAT guarantee obligation in the case of: Voluntary VAT registration:  would represent grounds for rejecting a “voluntary” VAT registration. • Mandatory VAT registration  the tax authorities would complete the registration process; however would enforce the payment of VAT guarantee as an amount of tax due. • Timeline for keeping and using the VAT guarantee  The amount of VAT guarantee would be bound for 12 months without the right for interest payment. Should the VAT guarantee be not used to settle any VAT due, the tax authorities would be obliged to repay this to the taxpayer within 30 days of the end of the 12th month following the day of making the VAT guarantee deposit (if not used for settling other taxes due).

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

VAT Deregistration „Ex Offo“

• Powers of the tax authorities further be extended with respect to execution of VAT-deregistration in legitimate cases: • such as where a taxpayer  repeatedly fails to file VAT returns or  repeatedly fails to pay the outstanding VAT due,  is unavailable at the address of its seat, place of business or establishment.

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

Domestic Reverse-Charge

• Application of domestic reverse-charge, i.e. transfer of the liability to pay VAT to customers, is extended to:  the sale of immovable property where the option to tax the sale was used,  forced sale of immovable property (subject to execution and bankruptcy procedure, tax execution proceedings) as well as  upon the execution of the right of lien and security title transfer.

Changes effective from 1 October 2012

Key measures against VAT fraud and VAT evasion

Joint Liability for VAT

• Revision of conditions related to joint liability to VAT by the customer in the case of failure of the supplier to settle the VAT; • the purchaser would be liable for unpaid VAT e.g. if  the agreed price is unreasonably high or inadequately low;  business is continued to be executed with an „unreliable“ supplier;  if there is a connection between supplier and customer in terms of persons;

• „Blacklist“ of unreliable VAT payers • A register of “unreliable” VAT payers introduced (to be maintained by the Slovak Financial Directorate and published in its web portal) © 2012 KPMG Slovensko Advisory, k.s., a Slovak limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International‟), a Swiss entity. All rights reserved.

Further measures against VAT fraud and VAT evasion

Changes effective from 1 October 2012 (2013)

IC supplies (documentation)

Stricter rules for application of the VAT exemption upon intracommunity supplies of goods: Confirmation of taking over/receipt of goods by the customer

If the transport of goods is performed by the supplier or customer themselves, the confirmation must contain the obligatory details as stipulated in the amended wording of the respective provision of the VAT Act.

VAT guarantee upon import

Records on purchase of used cars

VAT guarantee payment when applying for exemption from VAT upon importation of goods followed by an intra-community supply of goods

Obligation to maintain records on the purchase of used cars from other EU member states for purposes of their further resale

In order to release the VAT guarantee, the claimant must prove the receipt of goods by the recipient in the EU member state in which the transport of goods ended.

and submit these records to the tax authorities

Tax period

Receipts from electronic cash registers

Entitlement to a tax period equal to a calendar quarter, provided that

Value-limit for a cash receipt printed by an electronic cash register to be considered as a substitute of a regular VAT invoice, will be decreased

12 calendar months have passed from the end of the calendar month of VAT registration

1,600 when using a payment card or other non-cash means of payment and

turnover of EUR 100,000 within the previous consecutive twelve calendar months has not been reached

EUR 1,000 for cash payments.

Tax period generally a calendar month

[Applicable from 2013]

Changes effective from 1 October 2012

Other changes

Changes effective from 1 October 2012

Other changes

Restriction on VAT deduction

• Foreign entities from another EU member state registered for VAT in Slovakia, who perform only the supplies of goods and services in the case of which the liability to pay VAT is transferred to the customer, are not allowed to deduct the input VAT via their Slovak VAT return, but are entitled to claim the VAT recovery via the VAT refund mechanism for persons not established in the EU member state of refund.  For suppliers seated outside Slovakia, this change stresses the importance of proper assessment of their status (i.e. whether the supplier is considered as a foreign or domestic person) for VAT purposes in Slovakia.  The VAT status affects inter alia the liability to pay VAT in Slovakia and, as indicated above, the taxpayer‟s possibility to deduct the input VAT via its Slovak VAT return. Therefore, it is crucial that the suppliers seated abroad will seek to determine whether or not they have a fixed establishment for VAT purposes in Slovakia.

Other changes

Changes effective from 1 October 2012 Other (EC Sales List, Adjustment of deducted VAT)

• Declaring a supply of service with a place of supply in another EU member state in the EC Sales List if the supplier does not have the VAT identification number of the customer within the deadline for submitting the EC Sales List [provided that the customer informed the supplier that he asked for the assignment of the VAT identification number]  In such a case the supplier will include the provision of services into the EC Sales List in the period in which the VAT identification number of the customer will be assigned.

• Adjustment of deducted VAT (Appendix 1 to the VAT Act)

Changes effective from 1 January 2013

Place of supply of services

• Change related to determination of the place of supply of long-term hire of means of transport will become effective: • The changes results from Article 4 of the Council Directive 2008/8/EC, related to determination of the place of supply of a long-term hire of a means of transport. • In a “B2C” transaction, a long-term hire of a means of transport will deemed to be rendered at the place where the customer is established, has his permanent address or usually resides. Certain exceptions apply.

Changes effective from 1 January 2013

Invoicing Rules

• New invoicing rules according to the Council Directive 2010/45/EU of 13 July 2010 amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing (“Invoicing Directive”) are transposed into the Slovak VAT Act with effect from 1 January 2013. • Related inter alia to:

 Electronic Invoicing  New rules for issuance of invoices related to intra-community supplies of goods or in relation to services with a place of supply in another EU member state  Archiving

Change effective from 1 January 2014

Changes effective from 1 January 2014

Reverse-charge upon import of goods

• Reverse-charge mechanism upon import of goods – entry into force to be postponed to 1 January 2014  The entry into force of the provisions related to application of reverse-charge mechanism upon import of goods were postponed from 1 January 2013 to 1 January 2014, due to consolidation of public finance.

Thank you KPMG Slovensko Advisory, k.s. Dvořákovo nábrežie 10 811 02 Bratislava

Tel. +421 2 599 84 111 bdurajka@kpmg.sk

© 2012 KPMG Slovensko Advisory, k.s., a Slovak limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and „cutting through complexity‟ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

The information contained in this presentation is of a general nature and for information purposes only, and is not intended to address the specific circumstances of any particular individual or entity. Nobody should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG assumes no liability for any direct or indirect damage caused in connection with, or resulting from the use of the information contained herein.