Current income tax

What it means

Current income tax is the income tax a company calculates in its tax return for the tax period and actually pays to the tax administrator. It starts from the tax base, the accounting result adjusted for add-backs and deductions, reduced by any tax loss carried forward and multiplied by the applicable rate.

In double-entry accounting, current tax is booked to account 591 as an expense and to account 341 as a liability to the tax office. Tax advances already paid are credited, and the difference is paid or an overpayment arises. In the profit and loss statement, current tax together with deferred tax makes up the total tax expense.

The difference between current and deferred tax is timing. Current tax relates to the current year and is paid in cash. Deferred tax reflects the future tax effects of temporary differences between accounting and tax, for example from different depreciation or non-deductible provisions, and is not paid in cash in that year.

How it works in practice

Current tax is booked in the annual financial statements once the tax return has been prepared. Since the return is often filed after the statements, the calculation should run in parallel so the right amount appears in the statements. If the return is later corrected, the difference is recorded in the period the correction is found, unless it is a material error.

For cash flow planning it matters when tax is paid. The balance is due by the filing deadline, which can be extended under certain conditions. The amount of tax also sets the advances for the next period. Rising profit therefore means both a higher balancing payment and higher advances at the same time.

In Slovakia the corporate tax rate depends on the level of taxable income, and a minimum tax regime also applies, payable even with a loss or low profit. The share of current tax in accounting profit, the effective rate, can therefore differ markedly from the nominal one. It is worth monitoring and explaining to owners.

What to watch out for

A common mistake is not booking current tax in the financial statements because the return is not finished. The result is then overstated and the liability to the state is missing. Even if the return is filed later, the tax should be estimated and recorded in the year it belongs to.

Do not confuse it with withholding tax. Tax withheld on interest or dividends received by the company can sometimes be credited against current tax, while in other cases it is final. Likewise, tax paid abroad is credited only under the double tax treaty and the statutory rules.