The tax authorities closely cooperate in the field of exchange of information about foreign taxpayers
The tax authorities of OECD states annually exchange information on persons having relations in another country. It happens more often than in the past that the tax authorities ask taxpayers to document taxation of income from foreign sources or interests credited on foreign bank accounts. The exchange of information is focused on finding cross-border tax evasion and tax frauds.
Slovak financial institutions provide information on bank accounts of US residents, EU residents and most of the OECD countries tax residents to the Financial Administration. Tax authorities forward the received information to tax authorities of the respective states. Therefore, foreign authorities obtain information on bank account of their tax residents kept abroad, including the bank account balance.
Obviously, Slovak Financial Administration receives annually detailed information on Slovak individuals having bank accounts abroad.
However, the taxpayers are not often aware of their obligations. Slovak tax resident having a bank account in a foreign bank is obliged to tax the interest credited on the foreign bank account in Slovakia, even though the foreign bank already withheld certain withholding tax at the time of crediting the interest. The same principle applies to other types of foreign income, such as dividends received from abroad.
Slovak tax resident holds a Swiss bank account where the bank credits interests and withholds tax according to the Swiss regulations. However, the final tax liability is not settled by this withholding tax. The individual is obliged to report this income in Slovakia, calculate the Slovak tax and if possible, apply tax credit of the Swiss tax. If you do not inform the foreign bank about your residency, the bank usually withholds higher tax rate (e.g. 35%). However, this withholding tax cannot be credited fully against the Slovak tax liability, only up to tax rate enabled under the respective Double tax avoidance treaty (e.g. 5%). The remaining tax should be paid in Slovakia. If you submit to your foreign bank a confirmation of your residency in Slovakia, you can avoid withholding tax abroad. And by including this income in the Slovak income tax return you may avoid unpleasant discussions with the Tax authorities.
If you received an income from abroad, we would be glad to assist you with your tax obligations.