Slovakia Corporate Tax Guide

Slovak Republic

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The chapter below is based on the existing law in the Slovak Republic as of 1 January 2022. Because further changes to the 2022 tax rules are possible, readers should obtain updated information before engaging in transactions.

A. At a glance

Corporate Income Tax Rate (%) 15/21 (a)

Capital Gains Tax Rate (%) 15/21 (a)

Branch Tax Rate (%) 15/21 (a)

Withholding Tax (%) (b)

Dividends

Income

Net Operating Losses (Years)

(b)

(c)

(d)

(e)

(f)

(a) For tax years beginning on or after 1 January 2021, the 15% rate applies to so-called micro-entities whose taxable income does not exceed EUR49,790.

(b) The 7% rate applies to the dividend income of individuals paid out from profits generated in tax periods beginning on or after 1 January 2017. The 35% rate applies to dividends paid out from profits generated in tax periods beginning on or after 1 January 2017 if the dividends are paid to or received from residents of non-treaty countries or countries that have not signed the Convention on Mutual Administrative Assistance in Tax Matters.

(c) The 35% rate applies to income paid to residents of non-treaty countries or countries that have not signed the Convention on Mutual Administrative Assistance in Tax Matters. Also, see Section B.

(d) This tax applies to nonresidents only. For resident companies, royalties are included in taxable income subject to corporate tax. The 35% rate applies to income paid to residents of non-treaty countries or countries that have not signed the Convention on Mutual Administrative Assistance in Tax Matters. The rates may be reduced by an applicable double tax treaty. Also, see Section B.

(e) This tax applies to income received by authors (individuals) for contributions to newspapers, radio and television. It is possible for the author and the payer of the income to agree that no withholding tax be applied; in such case, the income is taxed through the tax return of the author at tax rates of 19% and 25%. The 35% rate applies to income paid to residents of non-treaty countries or countries that have not signed the Convention on Mutual Administrative Assistance in Tax Matters.

(f) A tax loss incurred in a tax year beginning before 1 January 2020 may be carried forward proportionally for a period of four consecutive years. The tax loss incurred in a tax year beginning on or after 1 January 2020 or later may be carried forward for a period of five consecutive years and a tax loss may be utilized up to 50% of the calculated tax base. Special rules apply to socalled micro-entities.

B. Taxes on corporate income and gains

Corporate income tax. Slovak (resident) companies are subject to corporate income tax on their worldwide income. Slovak compa nies are those incorporated or having their place of management in the Slovak Republic. Foreign (nonresident) companies are subject to corporate income tax only on their Slovak-source income, such as income attributable to a permanent establish ment.

Under Slovak law, a permanent establishment is a fixed place or facility for nonresidents to carry out activities in the Slovak Republic. A permanent establishment includes an administrative location, branch, office, workshop, sales location, technical facil ity or location for research and extraction of natural resources. The fixed place or the facility is considered to be permanent if the activities are carried out continuously or repeatedly. Repeated intermediary services related to transportation and accommoda tion that are rendered through a digital platform (a hardware or software platform required to create and administer applications) are also deemed to have their fixed place in the Slovak Republic. In the case of one-off activities, the place or facility is considered to be permanent if the duration of the activities exceeds six months, either continuously or divided into 2 or more periods in the course of 12 consecutive calendar months. A building site,

construction site or assembly works site (as described in the Commentary to Article 5, Paragraph 3 of the Organisation for Economic Co-operation and Development [OECD] Model Tax Treaty) is regarded as a permanent establishment only if the duration of the activities performed by a tax nonresident and its related parties exceeds six months. The provision of services in the Slovak Republic by an enterprise through its employees or other personnel is considered to create a “service permanent establishment” if the provision of services exceeds 183 days in any consecutive 12-month period. A permanent establishment also includes the activity of an agent if both of the following conditions are satisfied:

• The agent negotiates, enters into agreements, acts as an inter mediary in the conclusion of contracts or plays a principal role leading to the conclusion of contracts that are routinely con cluded without material modification by the enterprises.

• These contracts are concluded in the name of the enterprise, or for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that enterprise has the right to use, or for the provision of services by that enterprise.

Rates of corporate tax. The corporate income tax rate is 15% or 21%, except for withholding tax (see Section A). For tax years beginning on or after 1 January 2021, the 15% rate applies only to so called micro-entities whose taxable income does not exceed EUR49,790.

Incentives. To promote investments, the Slovak government pro vides potential local and foreign investors with investment incen tives that are proportionate to their activities in the Slovak Republic. The maximum limits for state aid are determined by the European Union (EU) regulations and are driven by the relative development of the country or region in which an investment project is located and the unemployment rate in that region. The limits are set as a percentage of eligible costs of an investment project.

Under the Slovak Regional Investment Aid Act, investment aid may be granted to support the realization of investments in manufacturing productions, technology centers and sharedservice centers.

The Slovak Republic provides the following indirect forms of incentives:

• Tax relief

• Transfer of immovable assets owned by the state or municipal ity at a price lower than the market price

The Slovak Republic provides the following direct forms of incentives:

• Cash grants on acquisitions of fixed assets

• Cash grants on newly created jobs

• Cash grants on training

Tax relief. Under the Slovak Regional Investment Aid Act, com panies may apply for a 100% tax reduction (full tax relief) for 10 consecutive tax years. The tax relief can be provided for newly established companies (new production) and also for existing companies (extension of existing production).

Transfers of immovable assets owned by the state or municipality at a price lower than the market price. In exceptional circumstances, as part of regional aid, the government may award a financial grant or discount from the market price with respect to a transfer of immovable assets (usually land and buildings) to investors by the state or municipalities.

Cash grants for the acquisition of fixed assets. Cash grants can be made for the acquisition of tangible fixed assets (for example, land, buildings, and plant and machinery) and intangible fixed assets (for example, patents, licenses, know-how or unpatented technical knowledge).

Cash grants for newly created jobs. Cash grants for newly cre ated jobs are made based on the anticipated wage costs related to newly created jobs and the regional location of the project (taking into account the regional unemployment rate).

Cash grants on training. The amounts of cash grants for training are expressed as a percentage of eligible training costs and vary according to region (grants for the Bratislava region are lower than grants for the rest of the country) and type of training (gen eral or specific).

General conditions. To qualify for investment aid, applicants must meet the general and specific conditions under the Slovak Regional Investment Aid Act, the Regulation of the Slovak government and the European legislation.

The following are the general conditions:

• An applicant must submit its investment intention (plan) before the start of the projected works.

• The project must be completed within three years (five years in case of large investment projects). As a result of the COVID-19 pandemic, if conditions are met, this deadline could be extended to five years (seven years in the case of large investment proj ects).

• All subsidized job positions must be filled within three years after the completion of the projects and maintained for a period of three (five) years.

• The project operation must be maintained for a minimum period of five years from its completion without change of its location.

Specific conditions. The specific conditions under the Slovak Regional Investment Aid Act vary according to the type of proj ect.

The following are the specific conditions for manufacturing projects under the Slovak Regional Investment Aid Act:

• The works on the investment project did not start before the submission of the application to the Ministry of the Economy.

• The long-term tangible assets (land, building and machinery) and the long-term intangible assets (patents, licenses and knowhow) are acquired.

• The minimum amount of the new machinery intended for manufacturing production is acquired.

• The minimum amount of new jobs is created.

• The main area of the investment is realized.

The following are the specific conditions for technology centers under the Slovak Regional Investment Aid Act:

• The works on the investment project did not start before the submission of the application to the Ministry of the Economy.

• The long-term tangible assets (land, building and machinery) and the long-term intangible assets (patents, licenses and knowhow) are acquired.

• The minimum multiple of the average monthly wage in the given region is paid to employees of the center during the three (five) years. The average wage is tested for the calendar year preceding the calendar year during which the job was created. This condition is considered fulfilled during the 2020 to 2022 periods as a result of the unfavorable economic circumstances brought about by COVID-19.

• The minimum amount of new jobs is created.

• The main area of the investment is realized.

The following are the specific conditions for shared-service cen ters under the Slovak Regional Investment Aid Act:

• The works on the investment project did not start before the submission of the application to the Ministry of the Economy.

• The long-term tangible assets (land, building and machinery) and the long-term intangible assets (patents, licenses and knowhow) are acquired.

• The minimum multiple of the average monthly wage in the given region is paid to employees of the center during the three (five) years. The average wage is tested for the calendar year preceding the calendar year during which the job was created. This condition is considered fulfilled for the 2020 to 2022 peri ods as a result of the unfavorable economic circumstances brought about by the COVID-19 pandemic.

• The minimum amount of new jobs is created.

• The main area of the investment is realized.

The specific values for each type of the project are provided by the Regulation of the Slovak government. Conditions, such as the value of acquired assets, ratio of new assets, minimum amount of created jobs and minimum multiple of average wage are set dif ferently depending on the type of the project, type of the request ed aid, region (based on the unemployment rate) and area (priority or non-priority).

Approval of the aid. No legal entitlement to any investment aid exists. An applicant must submit an investment aid intent to the relevant authorities (that is, the Ministry of the Economy and other relevant aid providers), which review compliance with both the general and specific conditions under the Slovak Regional Investment Aid Act. An applicant can begin work on the project as soon as the investment aid intent is submitted to the respective authority. If the conditions are met, the Ministry of Economy may issue an official offer to the applicant. Following receipt of the official offer, the investor may submit an investment aid application. The investment aid application is submitted to the Slovak government for approval. Approval of the European Commission may also be required if the requested aid exceeds the thresholds stated in the EU General Block Exemption Regulation.

Other national and local incentives. Investors may benefit from infrastructure (for example, electricity, water, gas and sewage)

fully or partially financed by the state and/or municipality. The municipality may also offer minor tax exemptions (real estate tax and other local taxes). In general, most of this support qualifies as regional state aid.

Municipalities are entitled to use state budget funding for the development of industrial parks. At the predevelopment stage, investors are typically requested to sign a letter of intent with the relevant municipality. Benefiting from advantages offered by industrial parks does not, in general, qualify as state aid.

Patent Box. Fifty percent of the income derived from the com mercial use of certain intangible assets and embedded royalties is exempt from tax. This affects income from compensation for the use of software, patents and utility models as well as income from the sale of products that were manufactured using patents or technical solutions protected by a utility model. To apply the income exemption in both of these cases, the intangible assets (for example, software or patents) must be the result of an R&D activity of a resident or a nonresident legal person performing the activity in the Slovak Republic through a permanent establish ment.

Capital gains. Capital gains are subject to income tax at a rate of 15% or 21%. For tax years beginning on or after 1 January 2021, the 15% rate applies only to so-called micro-entities whose tax able income does not exceed EUR49,790.

The income of legal entities, Slovak tax residents or nonresidents with a Slovak permanent establishment, arising from the sale of shares may be exempted from tax if the following conditions are satisfied:

• These persons perform substantial function and manage and bear risks connected to the ownership of these shares in the Slovak Republic.

• They possess the required personal and material equipment necessary to perform these functions.

• They have a direct shareholding of at least 10% in the company, the share capital of which is being sold.

• At least 24 consecutive calendar months have passed since the shareholding was acquired.

The exemption does not apply to income from the sale of securi ties and shares by securities dealers, as this represents their prin cipal activity; nor is it available to taxpayers subject to liquidation proceedings. In addition, income arising from the sale of shares is not exempt if the company of which shares were sold has gone into liquidation, declared insolvency or had its restructuring approved.

Capital gains realized by Slovak tax nonresidents on the sale of shares of companies established in the Slovak Republic are con sidered Slovak-source income and are generally taxable.

Administration. The tax year is usually the calendar year. However, if a company informs the tax authorities in advance, it may change its tax (accounting) year.

Tax returns for each tax year must be filed within three months after the end of the tax year. The filing period may be extended by a maximum of three months based on a written announcement

filed with the tax authority before the expiration of the regular filing deadline. Another extension of an additional three months is possible if the company received income from foreign sources.

In general, monthly or quarterly prepayments of tax are required, depending on the amount of tax liability for the preceding year.

Dividends. Profits distributed by companies to their holding com panies are not subject to tax in the Slovak Republic unless either of the following circumstances exists:

• The distribution is deductible for tax purposes at the level of the subsidiary.

• The distribution is a transaction (or part of a series of transac tions) that is (are) not business driven, and the purpose or one of the main purposes is to gain a tax advantage.

Dividends paid out of profits generated for periods beginning on or after 1 January 2017 that are paid to or received from residents of non-treaty countries or countries that have not signed the Convention on Mutual Administrative Assistance in Tax Matters are subject to a 35% income tax. The dividend income of indi viduals paid out of profits generated for tax periods beginning on or after 1 January 2017 is taxed at a rate of 7% or 35%.

Special rules apply to dividends distributed out of profits realized before 2004.

Interest and royalties. Under Slovak law, interest and royalty pay ments satisfying the conditions contained in Council Directive No. 2003/49/EC are exempt from Slovak withholding tax.

Foreign tax relief. Under applicable double tax treaties, a foreign tax relief is available to Slovak residents for foreign tax paid on income earned abroad.

C. Determination of trading income

General. Corporate tax is based on the statutory accounting profit as adjusted for certain items prescribed by the tax law.

In general, dividends are not included in the tax base.

Items that are specifically deductible for tax purposes include, among others, tax depreciation (see Tax depreciation) and certain expenses relating to health and safety at work and environmental protection.

Nondeductible items include, among others, the following:

• Entertainment and travel allowances in excess of the statutory limits

• Taxes paid on behalf of other taxpayers

• Damages exceeding compensation received, unless the damage arose as a result of natural disaster, or it was caused by a person or persons unknown and this is confirmed by the police

• Most accruals and provisions (see Provisions)

• Write-offs of debts, unless specific conditions are met

Inventories. Inventories may be valued using the first-in, first-out (FIFO) or average-cost methods. Costs include all costs necessary to convert the inventory to its current condition and to transport it to its current location. Shortages and damages are not tax

deductible, unless the damage resulted from a natural disaster, or it was caused by a person or persons unknown and this is confirmed by the police.

Provisions. Accruals and provisions are generally not deductible, with certain exceptions specified by law.

Special rules apply to banks and insurance companies.

Tax depreciation. Under the Income Tax Act, tangible assets are divided into seven categories, each of which specifies a period (a specified number of years, which range from 2 to 40) over which all assets in the category are depreciated. Intangible assets are depreciated over their actual useful life. Effective from 1 January 2021, special rules apply to so-called micro-entities.

It is possible to split assets and depreciate separable parts of the assets. Each separable part must have an acquisition price higher than EUR1,700, and separate evidence must be maintained. Only parts of assets specified by the Income Tax Act can be depreciated based on separate parts (for example, specific buildings and machinery).

Tax depreciation may be calculated by using either the straightline method or the accelerated method (allowed only in specific cases). A company chooses the method on an asset-by-asset basis and, after the method is chosen, it cannot be changed during the depreciation period.

Research and development. To support entities performing research and development (R&D), the Slovak Republic provides an allowance equal to 100% of R&D (for tax years beginning on or after 1 January 2022; previously, the allowance was 200%) costs and expenses that may be deducted from the tax base. This allowance may also include the cost of licenses for software used in performing R&D activities. In addition, the R&D allowance can be increased by 100% of the positive difference between the average of the total R&D costs for the current tax year and the preceding tax year and the average of total R&D costs for two tax years immediately preceding the current tax year.

Deduction of expenses (costs) for investments. Effective from 1 January 2022, taxpayers may claim an additional (super) deduction (15% to 55%) of investment expenses from the tax depreciation of the assets concerned. The amount of the percent age of the additional deduction in the relevant tax year depends on the following two factors:

• The reinvested average value of the investments in percentage terms, which represents the arithmetic average of the capitalized expenses on the acquisition of fixed assets, including technical improvements, made during the three tax years pre ceding the tax year in which the period of the investment plan begins. The investment plan needs to begin in the tax year start ing in 2022 and last for four consecutive tax years (that is, it should end in 2025 for taxpayers whose tax year started 1 January 2022 and in 2026 for taxpayers whose tax year started later). The minimum reinvested average value of the investment is 700%.

• The total value of the planned amount of the reinvested average value of the investments. This is divided into three groups, with a minimum investment of EUR1 million.

This is a temporary measure aimed at supporting investments with higher added value (that is, productive investments with links to Industry 4.0). For purposes of the super deduction, Industry 4.0 refers to the process of optimalization of production processes using the latest technology in order to increase produc tion. For the purposes of this deduction, the taxpayer must draw up an investment plan which declares when investments will be made. A qualifying investment is an investment in a production system and a logistics system consisting of several components such as equipment, machinery, ancillary equipment, automation and communication technology, including software for the man agement of a production and logistics process capable of realtime exchange, processing and archiving of digitalized data in order to identify and optimize the production and logistics pro cess. The deduction can be applied during the depreciation period of the asset, up to a maximum of 10 immediately consecutive tax years.

Relief for losses. Companies may carry forward losses incurred in tax years beginning on or after 1 January 2020 and offset them against income during a period of five consecutive years. The tax loss may be utilized up to 50% of the calculated tax base, beginning with the first year of the tax loss carryforward. Effective from 1 January 2021, special rules apply to so-called microentities, which may offset losses up to the calculated tax base.

Companies may carry forward losses incurred in tax years beginning before 1 January 2020 and offset them against income pro portionally during a period of four consecutive years following the tax year of the loss. If the tax period is shorter than 12 months (for example, if the company changes its financial year), the tax loss that would normally be deductible is fully deductible in that tax period.

Groups of companies. Slovak law does not contain any provisions regarding the corporate taxation of groups in the Slovak Republic.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

Value-added tax

Pharmaceutical products, books, accommodation services and selected food products 10 Other 20

Social security contributions for old age insurance, disability insurance, unemployment insurance, guarantee insurance and the solidarity reserve fund; imposed on monthly wages with a monthly cap on wages of EUR7,931; contributions are deductible for employers; paid by Employer 24.4 Employee 9.4

Nature of tax Rate (%)

Social security contributions for accident insurance; imposed on monthly wages without a monthly cap; contributions are deductible for employers; paid by Employer

Health insurance contributions; imposed on monthly wages without a monthly cap; paid by Employer

Employee

Local taxes (tax on land, tax on buildings and apartments, and motor vehicle tax); rates vary depending on location Various

E. Miscellaneous matters

Thin-capitalization rules. Thin-capitalization rules apply to domes tic and foreign related parties, effective from 1 January 2015. The maximum amount of tax-deductible interest is set at 25% of earn ings before interest costs, tax, depreciation and amortization. These rules also apply to contracts signed before 1 January 2015. They do not apply to financial institutions.

Transfer pricing. If the price agreed between related parties differs from the usual market price and if this difference cannot be satisfactorily justified, the tax authorities may adjust the tax base to reflect the usual market price.

The transfer-pricing rules apply to close family relatives (for ex ample, direct family relatives, spouse and siblings) personally or economically related persons, as well as to other related persons.

Persons are economically or personally related if one person par ticipates in the ownership, control or administration of another person, if such persons are under the control or administration of the same person or a close family relative of the person, or if the same person or a close family relative of the person has a direct or indirect equity interest in the persons. Participation in owner ship or control exists if the direct or indirect participation in the basic capital of, or voting rights in, one company by another company is higher than 25%. Participation in the administration is a relationship between members of statutory bodies or supervisory boards of the companies. Other relationships are defined as relationships created for the purpose of decreasing the tax base or increasing the tax loss.

Under the Slovak transfer-pricing measures, an advance ruling on the transfer-pricing method may be obtained through an agree ment with the tax authorities at least 60 days before the tax year in which the transfer-pricing method will be used.

The Slovak transfer-pricing measures specify the acceptable transfer-pricing methods, which conform to the methods includ ed in the OECD Transfer-Pricing Guidelines.

Taxpayers must provide transfer-pricing documentation within 15 days after an official request by the tax authorities.

Tax regime for business combinations. The Slovak Income Tax Act addresses in detail the taxation of the sale of all or part of an enterprise, the taxation of non-monetary contributions to

registered capital and the taxation of mergers and divisions of companies.

In general, business combinations can be made only in real values for tax purposes, with the exception of certain cross-border busi ness combinations meeting specific criteria.

Exit tax. Assets are subject to an exit tax at a rate of 21% if a taxpayer moves them, with no change of ownership, to a jurisdic tion outside of the Slovak Republic or if the taxpayer changes its tax residence.

The exit tax base equals the difference between the fair market value of the moved assets and their tax residual value (that is, the fiction of the sale of these assets is applied, and this difference must not be negative). The tax applies in the following circum stances, among others:

• Assets are moved from a head office in the Slovak Republic to a permanent establishment abroad.

• Assets are moved from a permanent establishment located in the Slovak Republic to a head office or other permanent estab lishment in another state.

• The tax residence of a taxpayer changes to a jurisdiction outside the Slovak Republic.

• A taxpayer moves an activity or part of an activity performed in Slovak Republic through a permanent establishment to another state, or a taxpayer with unlimited tax liability moves its busi ness activity or its part of its activity to a permanent establish ment abroad.

Hybrid mismatches. New rules against hybrid mismatches apply to tax years beginning on or after 1 January 2020 and replace previous rules applicable since 1 January 2018. These rules reflect the transposition of the EU Anti-Tax Avoidance Directive 2 and address the following situations:

• Hybrid financial instrument or payment: a financial instrument or payment of one related entity is considered a debt instrument and/or an interest expense that decreases the tax base, while for a payee it is considered a non-taxable equity instrument and/or dividend.

• Hybrid entity: an entity treated as a corporation by the state in which it was established as a separate taxpayer but treated as a fiscally transparent entity by the state of its founder. The converse situation may also occur, in which case the entity is referred to as a “reverse hybrid entity.”

• Diverted payment: the state of a head office attributes the pay ment to a permanent establishment in another state, while the state in which the permanent establishment is located attributes the payment to the state of the head office. The income is not taxed in the state of the head office or the permanent establish ment, while simultaneously giving rise to a tax expense.

• Disregarded permanent establishment: the state in which the permanent establishment is to be located fails to declare its existence and the state of the head office attributes a payment to a disregarded permanent establishment in such state. Accordingly, the income is not included in either the tax base of the head office or the permanent establishment, while simul taneously giving rise to a tax expense.

• Disregarded payment: a hybrid mismatch results from a pay ment made by a hybrid entity and from non-inclusion of income with respect to a related entity.

• Deemed payment: a notional payment is made by the perma nent establishment to the head office (or vice versa), and this income is not included in the taxable income of the head office or the permanent establishment.

• Multiple deduction of expense (cost) without including multi ple income (revenue) in taxable income: this most frequently relates to situations in which an expense (cost) is applied in a state where a company is established as well as in the state of its founder.

• Imported mismatch: although the mismatch occurs between the taxpayer’s related entities rather than directly between the tax payer and its related entity, the taxpayer participates in financ ing this mismatch, either directly or indirectly.

Reverse hybrid entities. Effective from 1 January 2022, so-called reverse hybrid entities are transposed into Slovak tax legislation. A reverse hybrid entity is a company that is considered transpar ent in the state of establishment and that is considered a taxpayer in the state of the shareholder. Under the new rules for hybrid mismatches, income (revenues) attributable to foreign (nonresi dent) shareholders fulfilling the criteria of 50% or more partici pation in relation to transparent entities will be taxed at the level of a transparent entity (according to Slovak legislation this is a partnership, limited partnership or another subject with or with out legal personality taxed at the level of shareholders). This applies if the income (revenues) of a nonresident entity cannot be taxed through a permanent establishment situated in the Slovak Republic and will not be taxed, either in the state of residence of the nonresident entity or abroad. Foreign shareholders of trans parent entities also have additional reporting obligations. The rules should not apply to collective-investment subjects.

Controlled foreign companies. A controlled foreign company (CFC) for Income Tax Act purposes is a legal person, entity or permanent establishment that satisfies both of the following con ditions:

• A Slovak company or an entity has more than a 50% share of the assets, voting rights or profits of the controlled company (does not apply to a permanent establishment).

• Tax paid in the Slovak Republic on the income of this con trolled company is lower than the difference between the corpo rate income tax that this controlled foreign company would have paid in the Slovak Republic after recalculating its tax base under Slovak law, and the tax paid by the company abroad.

If both of the above conditions are met, the company is considered a CFC and the taxpayer must carry out specific tax base arrange ments.

Controlled foreign companies rule applying to individuals. Since 1 January 2022, application of the rules for CFCs is extended to include individuals who are tax residents of the Slovak Republic. Based on this, an individual’s income derived from CFCs will be included in a special tax base for a period, that is, when the potential claim of the taxpayer arises, not at the time of actual payment.

The income concerned will be subject to a tax rate of 25% or 35%. It will not apply if the following conditions are met:

• The individual’s total income derived from CFCs does not exceed EUR100,000.

• The CFC falls under the existing CFC definition for legal enti ties.

• The CFC is not a taxpayer of a non-cooperating state and is able to prove that the income derived from a CFC was achieved through economic activity for which the CFC has personnel, material equipment, and tangible and intangible assets in the state concerned.

Mandatory Disclosure Regime. The Slovak transposition of the Mandatory Disclosure Regine, in principle, mirrors the EU DAC 6 Directive when it comes to hallmarks and other aspects of the reporting. Statutory tax advisors, auditors and lawyers are exempt from the requirement to disclose arrangements if legal profes sional privilege applies. However, they are required to notify other intermediaries or clients. If all the involved intermediaries are exempted, the reporting obligation should be placed on the client.

F. Treaty withholding tax rates

The Slovak Republic honors the bilateral tax treaties that were concluded by the former Czechoslovakia. The withholding rates under these treaties, and the treaties entered into by the Slovak Republic are listed in the table below.

In general, treaty rates apply if the recipient is the beneficial owner of the income. To obtain the benefit of the reduced treaty rates, the beneficial owner must be in a position to provide a tax residency certificate.

In general, dividends paid by Slovak companies to legal enti ties are exempt from tax. Consequently, the treaty rates do not apply to these dividends.

Multilateral Instrument. The Slovak Republic signed and ratified the Multilateral Instrument (MLI). It implemented “mini mum standard” changes to existing treaties in the areas of treaty abuse, mutual agreement procedures and treaty pream bles. In addition, depending on the reservations and notifica tions made by each party, the MLI facilitates optional changes to modify tax treaties with respect to permanent establish ments, transparent entities, residence tiebreakers, double tax relief, minimum shareholding periods, capital gains derived from immovable property and a jurisdiction’s right to tax its own residents.

For example, with respect to withholding tax rates for dividends, Paragraph 1 of Article 8 of the MLI introduced an additional condition that the tax rate limited by the treaty can be used if the company is a beneficial owner that holds at least a certain amount of the capital, shares, stock, voting power, voting rights or similar ownership interests of the company paying the dividends throughout a 365-day period that includes the day of the payment of the dividend.

Armenia

Dividends Interest Royalties

% % %

5/10 (n) 0/10 (kk) 5

Australia 15 10 10

Austria 10 0 0/5 (l)

Belarus 10/15 (a) 0/10 (c) 5/10 (l)(m)

Belgium 5/15 (d) 0/10 (s) 5

Bosnia and

Herzegovina

5/15 (a) 0 10

Brazil 15 0/10/15 (c)(k) 15/25 (p)

Bulgaria 10 0/10 (c) 10

Canada 5/15 (b) 0/10 (c) 0/10 (q)

China Mainland 10 0/10 (c) 10

Croatia 5/10 (a) 10 10

Cyprus 10 0/10 (c) 0/5 (l)

Czech Republic 5/15 (n) 0 0/10 (l)

Denmark 15 0 0/5 (l)

Estonia 10 0/10 (c) 10

Ethiopia 5/10 (n) 0/5 (nn) 5

Finland 5/15 (a) 0 0/1/5/10 (l)(w)

France 10 0 0/5 (l)

Georgia 0 5 5 Germany 5/15 (d)(e) 0 5

Greece (x) 0/10 (c) 0/10 (l)

Hungary 5/15 (d) 0 10

Iceland 5/10 (a) 0 10

India 15/25 (d) 0/15 (c)(s) 30 (f)

Indonesia 10 0/10 (c) 10/15 (oo)

Iran 5 5 7.5

Ireland 0/10 (a) 0 0/10 (l)

Israel 5/10 (n) 2/5/10 (t) 5

Italy 15 0 0/5 (l)

Japan 10/15 (g) 0/10 (c) 0/10 (l)

Kazakhstan 10/15 (cc) 0/10 (c) 10

Korea (South) 5/10 (a) 0/10 (y) 0/10 (l)

Kuwait 0 0/10 (ii) 10

Latvia 10 0/10 (c) 10

Libya 0 0/10 (c) 5

Lithuania 10 0/10 (c) 10

Luxembourg 5/15 (a) 0 0/10 (l)

Malaysia 0/5 (pp) 0/10 (jj) 10 Malta 5 (u) 0 5

Mexico 0 0/10 (c) 10

Moldova 5/15 (a) 10 10 Mongolia (z) 0 0 0

Montenegro 5/15 (a) 10 10

Netherlands 0/10 (d) 0 5

Nigeria 12.5/15 (b) 0/15 (c) 15

North Macedonia 5 10 10

Norway 5/15 (d) 0 0/5 (l)

Oman 0 0/10 (c) 10

Poland 0/5 (n) 0/5 (c) 5

Portugal 10/15 (d) 10 10

Romania 10 0/10 (c) 10/15 (r)

Dividends Interest Royalties % % %

Russian

Federation 10 0 10

Serbia 5/15 (a) 10 10

Singapore 5/10 (b) 0 10

Slovenia 5/15 (d) 10 10

South Africa 5/15 (d) 0 10

Spain 5/15 (a) 0 0/5 (q)

Sri Lanka 0/6/15 (h) 0/10 (o) 0/10 (i)

Sweden 0/10 (d) 0 0/5 (l)

Switzerland 0/15 (gg) 0/5 (j) 0/5/10 (hh)

Syria 5 0/10 (c) 12

Taiwan 10 0/10 (ff) 5/10 (l)

Tunisia 10/15 (d) 0/12 (c) 5/15 (l)

Turkey 5/10 (a) 0/10 (c) 10

Turkmenistan 10 0/10 (c) 10

Ukraine 10 10 10

United Arab Emirates 0 0/10 (ll) 0/10 (mm)

United Kingdom 5/15 (v) 0 0/10 (l)

United States (bb) 5/15 (b) 0 0/10 (l)

Uzbekistan 10 10 10

Vietnam 5/10 (dd) 0/10 (c) 5/10/15 (ee)

Non-treaty

jurisdictions 0 19/35 (aa) 19/35 (aa)

(a) The lower rate applies if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the capital of the payer of the dividends.

(b) The lower rate applies if the beneficial owner is a company that controls at least 10% of the voting power of the payer.

(c) The lower rate applies to interest on government loans.

(d) The lower rate applies if the recipient is a company that directly holds at least 25% of the capital of the payer of the dividends.

(e) If the corporate tax rate in a contracting state on distributed profits is 20% lower than the corporate tax rate on undistributed profits, the withholding tax rate may be increased to 25%.

(f) This rate also applies to fees for technical services.

(g) The 10% rate applies if the recipient is a company that owns at least 25% of the voting shares of the payer during the six-month period immediately pre ceding the date of payment of the dividends.

(h) The 15% rate applies to dividends paid by Slovak companies to Sri Lankan recipients. The 0% rate applies to dividends paid by Sri Lankan companies to Slovakian recipients, except for Sri Lankan income tax and additional tax under Sri Lanka’s tax law. A maximum tax rate of 6% applies to the addi tional tax.

(i) The 0% rate applies to royalties relating to copyrights and films derived from sources within one of the contracting states.

(j) The 0% rate applies to interest paid in any of the following circumstances:

• It is paid with respect to indebtedness arising as a result of the sale on credit of equipment, merchandise or services.

• It is paid on any type of loan granted by a financial institution.

• It is paid to a pension fund or other similar institution providing pension schemes in which individuals may participate in order to secure retirement, disability and survivors’ benefits, if such pension fund or other similar institution is established, recognized for tax purposes and controlled in accordance with the laws of the other contracting state.

• It is paid to the government of the other contracting state, a political subdi vision or local authority thereof or the central bank of the other contracting state.

• It is paid by a company to a company of the other contracting state if the recipient company was affiliated with the company paying the interest by a direct minimum holding of 25% in the capital for at least two years before the payment of the interest or if, for at least two years before the payment of the interest, both companies were held by a third company that held

directly a minimum of 25% in both the capital of the first company and the capital of the second company.

The 5% rate applies to other interest payments.

(k) The 10% rate applies if the recipient is the beneficial owner of the interest and if the interest is paid on a loan granted by a bank for a period of at least 10 years in connection with the sale of industrial equipment or the installation or furnishing of scientific units or public works.

(l) The lower rate applies to cultural royalties, which are defined as the right to use copyrights of literary, artistic or scientific works, including cinemato graphic films.

(m) The higher rate also applies to payments for the right to use transport vehicles.

(n) The lower rate applies if the recipient is a company (other than a general partnership) directly holding at least 10% of the capital of the payer.

(o) The 0% rate applies to interest paid to banking institutions, interest paid on government loans and interest paid by the government or other state institu tions.

(p) The 25% rate applies to royalties paid for trademarks.

(q) The lower rate applies to cultural royalties, such as copyright royalties, and other similar payments with respect to the production or reproduction of literary, dramatic, musical or artistic works, except for royalties relating to motion picture films and works on film or videotape for use in connection with television.

(r) The lower rate applies to industrial royalties, which are defined as payments for the use of or the right to use, patents, trademarks, designs or models, plans, secret formulas or processes, or industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scien tific experience.

(s) The lower rate applies to the following types of interest:

• Interest paid on commercial debt claims (including debt claims repre sented by commercial paper) that result from deferred payments for goods, merchandise or services supplied by an enterprise

• Interest paid on loans made, guaranteed or insured by public entities that are intended to promote exports

• Interest paid on current accounts or loans that are not represented by bearer instruments between banks or public credit institutions of the con tracting states

• Interest paid to the other contracting state, public subdivision or local authority

(t) The 2% rate applies to interest on government loans. The 5% rate applies to interest paid to financial institutions.

(u) The tax in Malta on dividends may not exceed the tax on the profits out of which the dividends are paid.

(v) The 5% rate applies to dividends paid to a company that owns more than 25% of the voting power of the payer of the dividends.

(w) The 1% rate applies to payments under a financial lease of equipment. The 5% rate applies to payments under an operating lease of equipment, as well as to payments for the right to use cinematographic films and software for personal computers.

(x) Dividends may be taxed in both contracting states in accordance with the domestic laws in the states.

(y) The 0% rate applies to interest on government loans and on loans for the purchase of goods or industrial, trade and scientific equipment.

(z) These rates are based on a multilateral treaty, which the former Czechoslovakia entered into with the other members of the Council for Mutual Economic Assistance (Comecon or CMEA).

(aa) See Section B.

(bb) The lower rates apply only if the recipient is one of the following:

• An individual

• A contracting state or a political subdivision or local authority of the state

• A recipient engaged in the active conduct of a trade or business in the United States (other than the business of making or managing investments, unless these activities are banking or insurance activities carried on by a bank or insurance company) if the income derived from the Slovak Republic is derived in connection with, or is incidental to, that trade or business

• A company whose principal class of shares is substantially and regularly traded on a recognized securities exchange or is wholly owned, directly or indirectly, by a resident of the company’s state whose principal class of shares is substantially and regularly traded on a recognized securities ex change

• A not-for-profit organization

• A person who satisfies both of the following conditions:

More than 50% of the beneficial interest in such person is owned, directly or indirectly, by persons entitled to the lower rates according to the treaty.

Not more than 50% of the gross income of such person is used directly or indirectly, to meet liabilities (including liabilities for interest or roy alties) to persons not entitled to the lower rates according to the treaty.

(cc) The lower rate applies if the beneficial owner is a company (other than a partnership) that holds directly at least 30% of the capital of the payer of the dividends.

(dd) The 5% rate applies if the recipient is a company that holds directly at least 70% of the capital of the payer of the dividends.

(ee) The 5% rate applies to royalties paid for the use of, or the right to use, pat ents, designs or models, plans, secret formulas or processes, or for informa tion concerning industrial or scientific experience, or for the use of, or the right to use industrial, commercial or scientific equipment. The 10% rate applies to royalties paid for the use of, or the right to use, trademarks or for information concerning commercial experience. The 15% rate applies in all other cases.

(ff) The 0% rate applies to the following types of interest:

• Interest paid to the other contracting state, public subdivisions or local authorities with respect to loans, debt-claims or credits

• Interest paid on loans made, guaranteed or insured by public entities that are intended to promote exports

(gg) The lower rate applies if the recipient is one of the following:

• A company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends

• A pension fund or other similar institution providing pension schemes in which individuals may participate in order to secure retirement, disability and survivors’ benefits, if such pension fund or other similar institution is established, recognized for tax purposes and controlled in accordance with the laws of the other contracting state

• The government of the other contracting state, a political subdivision or local authority thereof or the central bank of the other contracting state (hh) The 0% rate applies to cultural royalties, which are defined as the right to use copyrights of literary, artistic or scientific works, including cinemato graphic films. The 0% rate also applies to other royalties if, for a period of at least two years before the royalty payment, the payer and recipient of the royalty were mutually connected by a direct share of at least 25% in owner ship or if a third entity had a direct share of at least 25% in both the payer and recipient for a period of at least two years before the royalty payment. The 5% rate applies to industrial royalties, which are defined as the right to use a patent, trademark, design or model, plan, secret formula or process, and to consideration for information concerning industrial, commercial or scientific experience, provided Switzerland does not under its internal law levy a tax at source on royalties paid to nonresidents. The 10% rate applies to other royalties.

(ii) The 0% rate applies to the following types of interest:

• Interest paid on loans made, guaranteed or insured by the government, a local authority or national bank of a contracting state

• Interest paid on loans made, guaranteed or insured by institutions estab lished according to public law whose assets are fully owned by the govern ment of a contracting state

• Interest paid on loans made, guaranteed or insured by Eximbank SR, Slovak Guarantee and Development Bank (Slovakia), Kuwait Investment Authority, Kuwait Petroleum Corporation, Public Institution for Social Security or the Kuwait Fund for Arab Economic Development (Kuwait)

(jj) The 0% rate applies to the following types of interest:

• Interest paid on loans made by the government, a local authority or national bank of a contracting state

• Interest paid on loans made by Eximbank SR, Slovak Guarantee and Development Bank and the Export-Import Bank of Malaysia Berhad

(kk) The 0% rate applies if the interest is received from the other contracting state and beneficially owned by the government, including its administrative units, local authorities, central bank or other financial institutions owned by the government of the other contracting state or if interest is received and guaranteed by this government.

(ll) The 0% rate applies if the interest is derived and beneficially owned by the following:

• The government of the Slovak Republic, its local authorities, the National Bank of Slovakia, the Export-Import Bank of the Slovak Republic, the

Slovak Guarantee and Development Bank or the Debt and Liquidity Management Agency

• The Central Bank of the United Arab Emirates, the Emirates Investment Authority, the Abu Dhabi Investment Authority, the International Petroleum Investment Company, the Abu Dhabi Investment Council, the Investment Corporation of Dubai, the Abu Dhabi National Energy Company, the Mubadala Development Company, the Abu Dhabi Retirement Pensions and Benefits Fund and the General Pension and Social Security Authority

• Any other institutions that are agreed upon between the two contracting states through an exchange of letters (mm) The 0% rate applies if the royalties are derived and beneficially owned by the following:

• The government of the Slovak Republic, its local authorities, the National Bank of Slovakia, the Export-Import Bank of the Slovak Republic, the Slovak Guarantee and Development Bank, and the Debt and Liquidity Management Agency

• The Central Bank of the United Arab Emirates, the Emirates Investment Authority, the Abu Dhabi Investment Authority, the International Petroleum Investment Company, the Abu Dhabi Investment Council, the Investment Corporation of Dubai, the Abu Dhabi National Energy Company, the Mubadala Development Company, the Abu Dhabi Retirement Pensions and Benefits Fund, and the General Pension and Social Security Authority

• Any other institutions that are agreed upon between the two contracting states through an exchange of letters (nn) The 0% rate applies to the following types of interest, if paid to its beneficial owners resident in the other contracting state:

• Interest paid to the government, an administrative territorial unit or a local authority thereof or to the central bank

• Interest paid in connection with a loan or a credit guaranteed or insured by the government, an administrative-territorial unit or a local authority thereof or by the central bank (oo) The lower rate applies to payments for the use of, or the right to use, copy rights of motion picture films, films or video for use in connection with television, tapes for use in connection with radio broadcasting, or total or partial forbearance regarding the use or supply or any property or right. (pp) The lower rate applies if the beneficial owner is a company (other than a partnership) directly holding at least 10% of the capital of the payer for an uninterrupted period of at least 12 months.