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The Parliament approved an Amendment to the Income Tax Act

On 7 December 2017 Parliament approved an Amendment to the Income Tax Act. The second reading has brought several significant changes, such as the exemption of income from the sale of shares and business shares.

The Parliament Committee for finance and budget proposed several important changes to the draft amendment which had been approved by the Parliament in the first reading and details of which were covered in our September issue of Tax&Legal News.

Exemption of income from sale of shares and a business share – similarly to Participation Exemption regimes known from other EU countries the amendment introduces an exemption from the corporate income tax for income from sale of shares and business shares provided that the following conditions are simultaneously met:

  • minimum holding of 10 % of the registered capital
  • holding period for at least 24 consecutive calendar months
  • substance test: the company selling shares must perform economic activities in the territory of Slovakia, perform material functions, bear risks related to the investment and have the respective personal and material equipment

Only legal entities (not individuals) would be entitled to the exemption and it would be applicable also to shareholdings acquired up to 31 December 2017; however the holding period test on existing shareholdings would commence on 1 January 2018.

Depreciation period for buildings where spa treatment is provided will be shortened to one half of the regular depreciation period set for 6th depreciation category using the linear depreciation method, i.e. 20 years as opposed to 40 years.

Taxation of employees’ transportation – as of 1 January 2018 the income tax act would stipulate conditions for transportation of the employees to its place of employment provided that such transport is performed by the employer.

In order to exempt from tax the non-monetary income of the employees the following conditions would have to be met:

  • it must be documented that there is no other form of public transportation available that would enable the transportation as needed and required by the employer; 
  • employees have to bear part of the costs incurred by the employer of at least 60% of the provably incurred costs; in case of multi-shift operation at least 30% of the costs incurred providing that at least 30% of all employees use this transportation.

If the payment for transportation does not reach the set amount, the difference between the amount of 60% or 30% of the provably incurred costs and the actual amount paid by the employees will be considered as non-monetary income and included into the tax base of the respective employee.

CFC rules for individuals were not approved – the Parliament committee for finance and budget had proposed to implement CFC rules also for individuals. However, this proposal was not approved by the Parliament.

The Amendment is subject to signature by the Slovak President. We will keep you updated on any further development.    

 

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