Capital income

What it means

Income from capital assets is one of the categories of personal income under the Income Tax Act. It includes, for example, interest on deposits and accounts, interest and yields on bonds and other securities, and payouts from certain insurance or savings products.

Much of this income is taxed by withholding tax at the time of payment. When a bank credits interest, it withholds and pays over the tax, and the recipient has nothing further to do. Income taxed this way is not included in the tax return.

Profit shares, meaning dividends, have their own regime of dividend taxation and form a separate tax base. Gains from selling securities or fund units are treated as other income with their own exemption rules.

How it works in practice

When preparing the tax return we go through all of the client’s investments: bank accounts at home and abroad, bonds, investment funds and investment platforms. Foreign banks and brokers often do not withhold Slovak tax, so the income then has to be declared.

For foreign income we check whether tax was withheld abroad and whether it can be credited under a double taxation treaty. A statement from the foreign institution showing the income and the tax withheld is needed.

We remind business owners who keep money in the company account that interest earned by the company is its revenue, not the owner’s capital income. We recommend keeping private investments and company finances strictly separate.

What to watch out for

Investment platforms and foreign brokers provide annual statements in various formats. With many transactions, putting the data together can be demanding, so we recommend collecting statements throughout the year rather than in March.

Undeclared income from foreign accounts reaches the Slovak Financial Administration through the automatic exchange of information between countries. The tax office then asks for an explanation and payment of the tax with interest for several years at once.