With the approaching tax filing deadline, taxpayers’ practical questions increase every year. One of them is the question regarding taxation of financial contribution for providing accommodation to Ukrainian citizens. Does this financial contribution constitute taxable income?
Due to the extraordinary situation in Ukraine, many foreigners found themselves in Slovakia during 2022 and accepted the status of temporary refuge in Slovakia. Many Slovaks provided these refugees with accommodation in their properties. As a result, the Slovak Government introduced a financial contribution for providing accommodation to Ukrainian citizens to compensate for the costs incurred by the accommodation provider.
With only a few weeks left to the filing deadline for the 2022 income tax returns, many taxpayers wonder whether these contributions are subject to taxation.
The Financial Directorate of the Slovak Republic has published methodological guidelines on taxation of the accommodation contributions. An important consideration for taxation is who provides the contribution:
- the municipality according to the Act No. 480/2002 Coll. on Asylum or
- the Ministry of Transport according to the Act No. 91/2010 Coll. on support of travel and tourism
The municipalities provides financial contribution for accommodation to individuals who own property (dedicated for living) in the municipality. The contribution is paid by the municipality based on accommodation agreement with the refugee and the number of nights spent in accommodation.
The Ministry of Transport provides financial contribution to persons who provide accommodation in an accommodation facility in accordance with the Act on Trade Licensing. To be able to apply for the contribution, an agreement on provision of the financial contribution for accommodation concluded with the Ministry of Transport is necessary.
Tax exemption of contributions from the state budget
According to Article 9 (2j) of the Income Tax Act, support and contributions provided from the state budget, municipal budget, higher territorial units as well as state funds, including non-monetary payments, are exempt from tax. However, this does not apply to payments received in connection with the performance of activities that generate income according to Article 5 and 6 of the Income Tax Act.
Both the contribution according to the Act on Asylum and the contribution under the Act on support of travel and tourism are provided from the state budget. In both cases, the right to tax exemption arises in the first step. However, it is necessary to further consider whether these contributions originate from the performance of activities from which the taxpayers generate income according to Article 5 (from dependent activity) and Article 6 (from trade, rental and others) of the Income Tax Act.
Financial contribution for accommodating refugees according to the Act on Asylum
Whether the financial contribution for accommodating according to the Act on Asylum is taxable for the particular taxpayer depends on whether the contribution provided to him / her is connected with the performance of an activity from which the taxpayer has income from business, from renting out, or from other self-employed activities.
The contribution will be subject to income tax, especially in situations if the living area where the individuals accommodate the refugees is commonly provided for accommodation or rented out. Property included in business assets may be another indication of taxability.
On the other hand, if the accommodation in the property is provided by an individual who has income only from employment (non-entrepreneur), the contribution provided by the municipality is not subject to taxation.
Financial contribution for accommodating refugees according to the Act on support of travel and tourism
An individual who is granted the financial contribution for accommodating according to the Act on support of travel and tourism provides the accommodation and related services in an accommodation facility according to the Act on Trade Licensing.
This means that the financial contribution is always provided in connection with the performance of the activity from which the taxpayer generates income according to Article 6 of the Income Tax Act. According to Article 9 (2j) of the Income Tax Act, this contribution is not income exempt from income tax of an individual.
If the contribution is subject to taxation, the taxpayers are entitled to claim expenses incurred in connection with the provision of accommodation without limitations (in accordance with the Income Tax Act). These may include for example operating expenses for services or energy expenses.
The taxpayer includes the financial contributions and related expenses into the tax base, depending on how the taxpayer keeps the accounting records / tax evidence.
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