Separate tax base

What it means

A separate tax base is the tax base for selected types of an individual’s income that is not added to their other income and is taxed at its own rate. In personal income tax, a general tax base and one or more separate ones can therefore exist side by side.

Typical examples are dividends and other profit shares, whose taxation has its own rate, and some capital income, for instance from abroad where no withholding tax was deducted. The exact rates are set by law and change, so we always check them when preparing the return.

The point of a separate base is separation. This income is not reduced by tax-free allowances, and a business loss cannot be offset against it. Nor does the progressive rate that applies to the general base affect it.

How it works in practice

We most often deal with a separate base for shareholders who received dividends from a foreign company or from a source where no tax was withheld. They must then report them in the relevant section of the type B tax return and pay the tax by the filing deadline.

On dividends from a Slovak company, tax is usually withheld at payout, so the shareholder does not report them in the return. If the paying company is based in another country, however, responsibility for the tax passes to the recipient.

For foreign income we also check whether a double tax treaty applies and whether tax paid abroad can be credited. Without proof of the tax paid abroad, the credit cannot be claimed.

What to watch out for

A common mistake is to add dividends to salary or business income in one base. The result is the wrong tax and a return that has to be corrected. It is equally wrong to reduce the separate base by tax-free allowances or by losses from other income.

The second risk is missing paperwork. Foreign dividends must be converted to euros at the exchange rate the law prescribes, backed by a confirmation from the paying company or a broker statement. Anyone who does not start gathering them early risks reaching the filing deadline without the correct amount or proof of the tax withheld.