Tax news in Slovakia – October 2014

Below is an outline of tax news in Slovakia, as of October 2014. There are 2 major topics covered in the tax news:

1. The Mini One Stop Shop (MOSS) Scheme
2. Amendment to the Income Tax Act from 1 January 2015 proposed by the government

1. The Mini One Stop Shop (MOSS) – Non-EU Scheme

Even for the taxable persons that are not established within the territory of the European Union (EU), but supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons (legal and natural persons  not engaged in business) the  place of delivery is considered to be the location (the state) where the service recipient (as an end consumer and a non-taxable person), is established, has a permanent address or place where he usually resides. E-services means the provision of websites, hosting the website, intra-maintenance of programs and equipment, supply of software and its update, supply of images, text and information and accessibility of databases, supply of music, films and games, including games of chance to win and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and broadcasts events and distance teaching.

Taxable persons – providers of these services can use MOSS through the simplified procedure of a single contact point via web portal of any Member State, with no necessity to burden each and every individual state where these services will be provided. Thus they can avoid multiple registrations in each Member State of consumption (in a Member State of the customer) and fulfil their obligation to declare and pay tax imposed by a Member State of consumption. Its obligation to declare and pay the tax (which belongs to the Member State of consumption) they fulfil through a single submitted return via the portal of the Member State of identification.

When using MOSS all the communication is processed electronically and there is no signing of papers using electronic signature or conclusion of an agreement with the tax administrator about electronic delivery required.

Registration and deregistration

Providers who are not established within the territory of the EU may choose to register in any Member State. Member States will make the registration available from 1 October 2014 and if the taxable person registers during the 4th quarter of 2014 the registration becomes effective from 1 January2015.

Tax return submission

Provider who uses some of the special scheme is obliged to electronically submit the quarterly MOSS VAT returns  regardless of the fact whether or not he actually provides services, within 20 days of the end of the period to which the tax returns relates and within the same period the provider is also obliged to pay the related tax liability.

The MOSS VAT return includes the information about the services provided to customers in each Member State of consumption. Domestic provider shall include in the tax return all the telecommunications services, radio and television broadcasting and electronic services which he provided to customers within the European Union. The mentioned services provided to the domestic customers shall be included in a regular tax return. The Member State of identification shall divide VAT return according to Member State of consumption and will send the data to the particular Member State of consumption.

Tax liability payment and refund of taxes

Provider pays the due VAT to the Member State of identification. Provider pays the total amount of the submitted return. The Member State of identification shall generate a unique reference number for each MOSS VAT return and notifies this number to the taxpayer.

2. Amendment to the Income Tax Act from 1 January 2015 proposed by the government

Following are the most significant proposed changes in the Income Tax Act that the government plans to have approved by the Parliament with effect from 1 January 2015

A. Depreciation of tangible fixed assets

The government proposes that the tax depreciation classes be extended from the current four to six. The proposed depreciation classes are outlined in the following table:

Depreciation class:  1    Years of tax depreciation:   4
Depreciation class:  2    Years of tax depreciation:   6
Depreciation class:  3    Years of tax depreciation:   8
Depreciation class:  4    Years of tax depreciation:  12
Depreciation class:  5    Years of tax depreciation:  20
Depreciation class:  6    Years of tax depreciation:  40

The most significant changes include the introduction of the new depreciation class 3 with 8 years of tax depreciation, where machinery and production technology such as electrical engines, generators, transformers and their parts will be included; under the current rules, these items are depreciated for tax purposes over 12 years.

Another significant change affecting a major group of businesses is the introduction of the new depreciation class 6 with 40 years of tax depreciation. This depreciation class will be used for buildings used for administrative purposes, accommodation (e.g., hotels), cultural, educational, entertainment and health-care purposes. Under the current rules, these buildings are depreciated for tax purposes over 20 years.

Further, the government proposes that the accelerated method of tax depreciation be limited for depreciation classes 2 and 3 only, where mostly production equipment, machinery and tools are included. For all the other depreciation classes, i.e. 1, 4, 5 and 6, it is proposed that the straight-line method of tax depreciation only be allowed. Under the current rules, enterprises have a freedom of choosing whichever method of depreciation they prefer for all the depreciation classes.

B. Introduction of thin capitalisation rules

The government proposes the introduction of thin capitalisation rules. The new rules limit the maximum amount of interest expenses charged on loans received from related parties. Under the proposed rules the interest expenses may not exceed 25 per cent of profit before depreciation and tax. Under the current rules, there are no such limits in effect.

The changes above are in a form of the government proposal and have not yet been enacted by the parliament. If enacted, the new legislation will be valid in Slovakia as of 1 January 2015.

Author: Rado Dojczak, D.P.F., spol. s r. o., Bratislava