Amendments to Income Tax Act

Parliament approved amendments to the Income Tax Act No. 286/1992 Coll. The provisions of the approved wording can be divided into the following two groups:

1. Provisions, that should become effective from 1 July 1998, under which the most important changes include:

* State bonds

The amendment exempts yields from state bonds denominated in foreign currency from corporate income tax.

* Foreign incentives

A beneficial tax regime relates to Slovak legal entities manufacturing, receiving foreign capital (apart from debentures and loans). After meeting criteria determined by the amendment, the above entities can decrease the regular tax liability by 75% annually for five consecutive years.

The amendment specifies clear criteria in order to qualify for the beneficial tax regime. These criteria include, mainly, a minimal amount of foreign capital, and annual growth of production.

2. Provisions, that should become effective from 1 January 1999, where the most important changes include:

* Taxation of interest

Further to the amendment, interest from bank accounts paid by banks to Slovak tax residents will be subject to a flat withholding tax at a rate of 15%, regardless of the legal form of the resident. This provision relates also to current bank accounts which were not established for business, or commercial purposes. In the case of legal entities and sole traders, the tax withheld will be treated as a tax prepayment, and the amount of interest received should be added to the regular tax base.

* Adjustments of tax base in case of related parties

The amendment defines the term related parties as residents economically or personally related with non-residents.

The amendment authorises the Ministry of Finance to issue rulings in determining the method of the tax base adjustment when prices in business transactions between related parties (including prices of services and interests on loans) differ from those used between unrelated parties.

Foreign trade support fund

The amendment of the Foreign Trade Support Fund simplifies the contribution technique and determines the minimum amount of imports/exports to 100 000 Sk which is subject to contribution duty.

The amendment also specifies the base for calculation of the contribution being the invoiced value of imported/exported goods net of direct commercial expenses abroad.

The amendment should become effective from 1 July 1998.

Mortgage loans

The amendment of Banking Act, enables individuals to use flats that they intend to buy as a mortgage loan collateral. In addition, the amendment enables banks licensed to provide mortgage loans to use their own capital for the purposes of a mortgage loan financing.

So-called state compensation of the interest rates (compensation of interest expenses from state budget funds) is aimed to reduce high interest rates, which are currently regarded as an impediment to the development of mortgage financing in the Slovak Republic, to 6-7%. However, the implementation of this system is conditional on its approval in the 1999 State Budget Act.

The information in this newsletter is correct to the best of our knowledge and belief at the time of going to press. Specific advice should be sought, however, before investment and other decisions are made.

For further information contact Mr Frank Walsh on +421 7 5340 545 Email directly on Click Contact Link