Taxation of dividends

What it means

Dividend taxation governs how the profit share a company pays to its shareholders after paying tax on its profit is taxed. A dividend is paid out of profit already subject to corporate income tax and is taxed separately in the hands of the recipient.

For individuals who are Slovak tax residents, a dividend from a Slovak company is subject to withholding tax at a statutory rate. The company withholds and pays the tax when paying the dividend, and the recipient does not include it in a tax return. A higher rate applies to dividends from countries that have no information exchange agreement with Slovakia.

Dividends paid between companies are generally not subject to tax, allowing profit to move within a group without being taxed again. Exceptions apply to flows from non-cooperative jurisdictions and to abusive structures.

How it works in practice

When distributing profit, we compare with clients the overall burden of paying out through a dividend versus salary, a tantième or director’s fees. A dividend is not tax-deductible for the company but attracts no contributions, which is often an advantage for larger sums.

When paying dividends to foreign shareholders, we check their tax residence and the application of the double taxation treaty. A certificate of residence is needed and, for some countries, evidence that the recipient is the beneficial owner of the income.

For dividends on foreign shares that clients receive through a broker, we include them in the tax return, credit the foreign tax and translate at the correct rate. This income is not subject to Slovak withholding and must be declared.

What to watch out for

Dividend tax rates have changed in recent years. What matters is which period the profit comes from and when it is paid. When distributing retained earnings from past years, we therefore always check which rules apply.

Hidden profit distributions, such as excessive rent paid to a shareholder or loans that are never repaid, may be reclassified by the tax office as dividends or other taxable income. We therefore recommend distributing profit properly, by general meeting resolution.