2023 Amendments of the Income Tax Act

The Income Tax Act has been amended since 1 January several times. Further to this we state below the relating changes in the order of the date of their effectiveness:

• Since 15 March 2023 the costs of operating own kindergartens and facilities for caretaking of children of up three years, if established in line with Act No. 245/2008 on Upbringing and Education (the School Act), are tax deductible.
• On 18 April 2023 the taxation of bonds issued by the Slovak companies in Slovakia and abroad was cancelled. Therefore, since the above date, the income generated by the Slovak tax non-residents from any bonds (both state or commercial ones) is not classified as the Slovak source income, just as it was the case up to 31 December 2022. If the tax has been withheld from the non-resident’s income generated from commercial bonds based on the tax liability arisen up to 17 April 2023, further to the transitory provisions of the law the taxpayer can treat this tax as an advance and, consequently, file the Slovak 2023 income tax return.
• Since 1 May 2023 the income of the sport specialists generated throughout their entrepreneurial activities is subject to the withholding tax and this is considered the final tax liability. However, if in advance and in writing, the sport specialist agrees with the taxpayer that the withholding tax is not applied, the sport specialist will be obliged to settle the tax from the respective income through the personal income tax return.
• Since 1 May 2023 the deadlines set out by the Income Tax Act for the recipients of the investment aid in the form of the tax credit have been partially softened. Further to the transitory provisions of the law, the taxpayers who were issued a decision on the approval (or provision) of the investment aid in the form of a tax credit based on the Act on the Regional Investment Aid till the end of 2022, will not include the taxation periods running in 2023 and 2024 into the three years’ deadline for starting the application of the tax credit. Also, these taxpayers will not include three immediately one after another following taxation periods, commenced by the taxation period which started in 2023, into the ten years’ period for the application of the tax credit.
• Since 1 July 2023 the tax on special buildings based on the Act No. 145/1995 on administration fees has been included into the list of tax-deductible costs. 
  Due to the reform of the construction legislation, it has become necessary to ensure the compliance of various special acts with the approved acts in the area of territorial planning and construction. Legislative amendments caused by the changes of the terms used in the new construction legislation have impact also on the Income Tax Act. With the effectiveness from 1 April 2024 the references in the Income Tax Act to other acts will be updated. These references will relate to, for example, the preliminary use of the buildings and the trial period for the purpose of the suspension of tax deprecation, the temporary buildings for the purpose of time depreciation of selected tangible fixed assets, fittings of the buildings for the purpose of considering technical improvements, or a general classification of the buildings into the appropriate tax depreciation groups. At the same time, the Income Tax Acts will introduce an update of the definition of a small building as a depreciable tangible fixed asset.
  

During its last session the Slovak Parliament approved several amendments of the Income Tax Act either directly, or indirectly through amending other acts. These amended laws have not been published in the Collection of Laws so far:

1. With the effectiveness on 1 August 2023 the CFC rules (rules for foreign controlled companies) for physical persons in the Income Tax Act, introduced on 1 January 2023, will be abolished. Further to the transitory provisions of the law, if the tax liability arises to a physical person based on the CFC rules effective up to 31 July 2023, the liability will cease to exist on 1 August 2023. If the tax relating to this liability is paid, on 1 August 2023 it will become a tax overpayment based on the Tax Administration Act.
2. On 1 August 2023 a new Act on the general safety of the products will be introduced into the Slovak legislative environment as a consequence of the transposition of the EU directive. This act will indirectly amend the definition of dangerous goods in the Income Tax Act, the acquisition costs of which have to be treated as tax non-deductible upon the disposal of the goods.
3. Since 1 January 2024 also the following provisions of the Income Tax Act will be amended, in particular in relation to the taxation of virtual currencies, companies’ shares and income from capital assets by the physical persons:
   • Income from the sale of virtual currency after one year since its acquisition (if the currency has not been part of the business assets) will be included into the physical person’s special tax base and subject to 7% tax rate. The income from the sale of virtual currency within one year since its acquisition will be included in the tax base (or partial tax base) together with other income.
   • Income from the sale of securities that are not traded on the regulated market, or a similar foreign market, will be tax exempt for physical persons if the sale is carried out after three years since the acquisition of the securities. Also the sale of participation certificates and shares in a limited liability company will be tax exempt for physical persons if the sale is carried out three years since the issue of the certificates, or the acquisition of the shares.
   • The definition of virtual currency, stablecoin a staking is introduced and the definition of the sale of virtual currency is amended, saying that it is the exchange of a virtual currency for a stablecoin. Further in the area of virtual currencies’ taxation, the tax exemption of the income from the exchange of a virtual currency for goods or provision of service for physical persons is introduced, if the aggregate of this income, decreased by related costs, does not exceed 2 400 EUR in the taxation period.
   • A physical person, who achieves income from capital assets in the form of interest or other revenues from provided loans and credits, and interest income from paid contributions of the partners in the unlimited partnerships, will be able to decrease the income by the costs incurred in relation to the acquisition of financial assets that are used for generating this income. 
   • The tax exemption of a non-monetary benefit of employees is introduced if this benefit is received in relation to the employment activity carried out for the employer, and if it is received in the form of the employee’s shares in a joint stock company at a nominal value, or in a limited liability company at an employee’s contribution value, while certain conditions set out by the law are fulfilled.
     A similar exemption will apply for the contractors who acquire shares in companies in connection with their activities for these companies.
     The above tax exemptions will apply to non-monetary benefits received after 31 December 2023. The shares acquired this way will always be taxable upon the sale (without the possibility of tax exemption even if meeting the timing criteria).
4. On 1 March 2024 a new Act on conversions of companies and cooperatives will become effective („Act on Conversions“), amending further existing laws, in particular the Commercial Code, and being the transposition of the EU Directive No. 2019/2121 published on 27 November 2019, amending (EU) Directive 2017/1132, as regards cross-border conversions, mergers and divisions („EU Directive“) into the Slovak legislative environment. The Income Tax Act will also be amended quite extensively in this respect. However, the amendments solely reflect the new terminology and categories of some already existing business combinations, and the introduction of one new type of business combinations through the Act on Conversions.
   The Act on Conversions covers the Slovak and cross-border conversions and changes of the legal form of companies and cooperatives. The conversions are divided into mergers, fusions, splits and spin-offs. The business combinations of mergers, fusions and splits already exist in the current Slovak legislation. The spin-off will become the new business combination since 1 March 2024. On the contrary to the split, under the spin-off the divided company does not cease to exist, just a properly specified part of its assets and liabilities is taken over by one or more legal successors.

In relation to the above changes, with effectiveness from 1 March 2024, the respective terminology will be amended throughout the whole Income Tax Act and two new provisions will be introduced. These provision will cover the tax treatment of the spin-off in real values and the spin-off in historical values. The basic principles of the tax treatment will be set out in the same way as they are in the currently effective Income Tax Act with respect to mergers, fusions and splits, depending on the relevancy of the treatment for the individuals steps and processes under the respective type of the business combination. 

After the Act on Conversions becomes effective, it will no longer be possible, in compliance with the EU Directive, to change the legal form of a Limited Partnership, or Unlimited Partnership (k.s., v.o.s.), into a Joint Stock Company or a Limited Liability Company (s.r.o., a.s.), and vice versa. Also, a cross-border change of a legal form will be introduced.