In December 2017, an amendment to Act No. 595/2003 Coll. on Income Tax, as amended and on Act No. 563/2009 Coll. on Tax Administration (the Tax Code) and on the Amendment and Supplement of Certain Acts, as amended was introduced. The Amendment strengthens the level of protection against aggressive tax planning and the rules against the disruption of the tax base resulting from the transfer of profits outside the Slovak Republic.
With effectiveness as of January 1, 2018 (or, with respect to some of the changes, as of January 1, 2019), through the amendment, the Anti-Tax Avoidance Council Directive (EU) 2016/1164 of July 12, 2016 is transposed into the law of the Slovak Republic and introduces many changes that intend to reduce tax avoidance.
The introduction of "Exit Taxation" is one of the most relevant changes. The aim is to tax the economic value of profits created in the Slovak Republic in cases where a taxpayer transfers its assets, business activities or tax residence abroad. As a result, beginning in January 1, 2018, a tax rate of 21% will be applied. If certain statutory conditions are met, the tax may be paid in instalments.
After the amendment, in the case of non-monetary contributions, mergers or divisions of companies or cooperatives, the "fair value method" will be predominantly applied, while the book value method may only be used in specific cases.
The amendment also affects the taxation of income of legal entities from the sale of shares and ownership interests in companies. As of January 1, 2018, such income is not subject to taxation. The change is applicable to legal entities fulfilling the following statutory conditions: interest in the registered capital in the company of at least 10%, a holding period of the ownership interests or shares of at least 24 consecutive calendar months, the seller carries out essential functions in the Slovak Republic and manages and bears risks related to the ownership of the ownership interests or shares, and has available the personnel and material equipment necessary for performance of such functions.
Last but not least, with effectiveness as of January 1, 2019, new rules for a taxation concerning controlled companies (CFS Rules) will be introduced that should prevent the outflow of profits of Slovak companies to "Controlled Foreign Companies". A Controlled Foreign Company will be considered a foreign entity which is directly or indirectly controlled by a Slovak company (through more than 50% interest in the voting rights, registered capital or profits) and the amount of a tax paid by such Controlled Foreign Company abroad will be lower than the difference between the tax that would be paid by it in the Slovak Republic and the tax that would be paid by it abroad.
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