Income from use of a work

What it means

Income from the use of a work is what an author earns for allowing others to use their work, such as fees for an article, photograph, music, book, design or software. The Income Tax Act classes it as income from other self-employed activity, along with income from the use of an artistic performance.

At its core is the grant of a licence under copyright law. The author remains the author and the licensee acquires the right to use the work to the agreed extent. When a company that has acquired the right grants the licence, it receives royalties as part of its business.

The author may agree with the payer that the income will be taxed by withholding tax at the time of payment. It then does not have to be included in the tax return. Without such an agreement, the income is declared in the type B return, where documented expenses can be claimed.

How it works in practice

For authors working for several clients, we compare whether withholding tax or taxation through the return is better. It depends on their other income, their costs of creating the work and their entitlement to personal allowances or the child tax credit, which cannot be used with withholding tax.

For commissioning clients, most often companies and agencies, we make sure the contract is set up correctly. A contract for work covers creating the work, a licence agreement its use. For software and design we recommend covering both together so that the company may use and modify the work.

If the author is not a Slovak tax resident, the payer generally withholds tax under the law or a double taxation treaty and notifies the tax office of the payment. For a reduced treaty rate we need the author’s certificate of residence.

What to watch out for

Fees for a work are not the same as employment income. If an author works for a single client, on its instructions and during its working hours, the tax office or inspectorate may treat the relationship as disguised employment subject to contributions.

For withholding tax, the agreement with the author must be in writing before payment. An agreement made after payment is not valid, and a payer who withheld tax without it risks the taxation not being treated as final.