Taxation of foreign income

What it means

A Slovak tax resident declares worldwide income in Slovakia, including income from abroad such as wages for work abroad, rent from foreign property, interest, dividends or income from a foreign business. This principle applies to both individuals and legal entities.

To avoid double taxation, where both the source country and Slovakia would tax the same income, double tax treaties apply. They determine which country has the right to tax the income and which method removes double taxation.

Two main methods are used. Under the credit method, the income is included in the Slovak tax base and tax paid abroad is credited. Under the exemption method, foreign income is excluded from the Slovak base or taken into account only for determining the rate.

How it works in practice

Foreign income is reported in the tax return on separate lines and in annexes. To claim a credit, the amount of income and foreign tax paid must be documented, for example with a certificate from the foreign employer, a broker's statement or confirmation from the foreign tax authority.

For capital income, such as dividends or interest from foreign accounts, foreign tax is often withheld at source. To reduce it under a treaty, a certificate of tax residence may need to be provided to the foreign payer.

If a country has no treaty with Slovakia, the Slovak Income Tax Act sets its own credit rules. Income from countries Slovakia regards as non-cooperative jurisdictions may be subject to stricter rules and higher rates.

What to watch out for

Tax authorities increasingly exchange information automatically about accounts, income and assets abroad. Failing to declare foreign income is therefore easier to detect and can lead to additional tax, interest and penalties, as well as criminal consequences.

Determining residence is not always simple, especially for people who live and work in several countries. If someone could be resident in more than one country, the treaty decides using criteria such as a permanent home or centre of vital interests, and the outcome must be assessed individually.