Changes to determination of tax residence from 1st January 2018
It is important to understand tax residence with regard to the scope of tax obligations that a taxpayer has in Slovakia. Generally, a tax resident is obliged to declare their worldwide income in Slovakia, while Slovak non-resident taxpayers are only obliged to declare income earned in Slovakia and some other special types of income.
One of the most significant changes to the Income Tax Act for individuals will come into force from 1st January 2018 and will affect the principle for determining the tax residence of individuals.
According to the Slovak Income Tax Act, currently there are only two criteria for determining Slovak tax residence: permanent residence in Slovakia and presence in Slovakia for more than 183 days. A new criteria, habitual abode, will be introduced in addition to the two original criteria for determining tax residence. From 1st January 2018, a person who has their habitual abode in Slovakia will be considered a Slovak tax resident and such a person will be obliged to declare their worldwide income in Slovakia. Short-term accommodation in the Slovak Republic for occasional visits, tourism and so on will not be considered as habitual abode for the purpose of determining tax residence in the Slovak Republic. The definition of 'habitual abode' can be deduced from the OECD Commentaries on the Articles of the Model Tax Convention, where habitual abode is defined as any form of accommodation available to a person at all times continuously regardless of the legal title to the property and the character of the property (house, flat, rented or owned property). Therefore, in practice it will be decisive whether the person has the opportunity to come to the Slovak Republic and to stay in this property at any time and whether the person has placed their own personal belongings in that property, etc.
The change will mainly affect two groups of individuals: sportsmen who have deregistered a permanent residence in the Slovak Republic and foreign nationals (citizens of non-EU countries) who spent less than 183 days in the Slovak Republic during the calendar year.
For foreign nationals, these will be considered Slovak tax non-residents under Slovak law as they would not fulfil any of the criteria for Slovak tax residence (permanent residence registered in the Slovak Republic and more than 183 days spent in the Slovak Republic). This means that they will only be liable for tax for work performed in the Slovak Republic. Individuals who are not considered a tax resident in another country under local tax law may legally avoid paying taxes on certain types of income. The amendment to the Act is intended to prevent tax avoidance, as these individuals will have to declare the entire income in Slovakia if they have a "permanent opportunity to reside in the Slovak Republic".
