Tax residency

What it means

Tax residency decides which state taxes a person or company on worldwide income. A company is a Slovak tax resident if its registered seat or its place of effective management is here - the place where managerial decisions are actually taken.

For an individual it turns on permanent or habitual residence in Slovakia in the year concerned. Where two states both claim residency, a double tax treaty settles it through a sequence of tie-breaker tests.

Tax residency is not the same thing as citizenship or tax registration. A resident is taxed in Slovakia on all income wherever it arises, while a non-resident is taxed here only on income from Slovak sources. That split decides what goes into the return at all and what stays out of it.

How it works in practice

Residency is evidenced by a certificate of tax residence issued by the tax administrator. Without one, a foreign payer withholds withholding tax at the full rate instead of the treaty rate.

For companies with a foreign managing director or owner this is a live question: if decisions are taken abroad, a place of effective management can arise there, bringing a tax liability nobody planned for.

In the year a client moves to or away from Slovakia, we first establish which state they are resident in for that year, and under the treaty possibly for which part of it. Only then do we know which foreign income belongs in the tax return and where the method for relieving double taxation applies.

What to watch out for

A registered address is not evidence. What counts is the factual position - where management sits, where contracts are signed, where the staff are. An artificial structure is also a standard target under transfer pricing review.

Slovak residents often forget income from abroad - rent from a flat in another country, foreign dividends or interest on an account with a foreign bank. When it surfaces later, a supplementary tax return has to be filed and the tax paid with interest and a penalty, even though some of it may already have been paid abroad.