Income Tax Act

What it means

The Income Tax Act is Act No. 595/2003, which governs the taxation of income of individuals and legal entities in Slovakia. It defines what counts as income, which expenses are tax-deductible, how assets are depreciated, and sets tax rates, allowances and withholding tax.

The act covers personal income tax, including income from employment, business, rental, capital and other sources, and corporate income tax, the taxation of company profits. It also governs the taxation of non-residents and international aspects.

It is one of the most frequently amended laws. It changes almost every year, often with effect from the start of the calendar year, and amendments may affect rates, thresholds, tax-free allowances or the rules for deducting expenses. The version in force for the relevant period must therefore always be checked.

How it works in practice

For companies, the key provisions concern deductible expenses, tax depreciation, provisions and allowances, transfer pricing and carrying forward tax losses. When the tax return is prepared, the accounting result is adjusted for add-back and deductible items under the act.

For sole traders, the option to claim actual or flat-rate expenses, the treatment of contributions as expenses and tax-free allowances are important. The choice between actual and flat-rate expenses can significantly affect the final tax.

The act also governs withholding tax and tax securing, which the payer must deduct from certain payments, such as interest, royalties or payments to non-residents. For payments abroad, the act is applied together with double tax treaties.

What to watch out for

Interpretation of the act is helped by Financial Administration guidance and court rulings, which are not always clear-cut. In uncertain situations it is advisable to consult a tax adviser or request a binding ruling where the procedure allows.

An amendment passed at year-end can change the rules for the very next tax period, leaving companies little time to prepare. It is worth following the legislative process during the year and adjusting accounting procedures, payroll settings and planning in time.