Reduced VAT rate

What it means

A reduced VAT rate sits below the standard one and applies only to goods and services listed in the annexes to the VAT Act. Slovakia runs two reduced rates alongside the standard one, so the rate is settled item by item, not once for the whole invoice.

It is not an exemption. Under a reduced rate the supply is taxable: the supplier accounts for the tax and the customer deducts it, whereas an exempt supply carries no output tax and usually no right to deduct.

Both the list of items qualifying for a reduced rate and the rates themselves change over time. What counts is the rate in force on the tax point, not on the day of the order or of the invoice. When the law changes, advances received before the change and balances paid after it may therefore be taxed at different rates.

How it works in practice

Goods land in the annex by their combined nomenclature code and services by their statistical classification code. The rate is decided by that code, not by the wording on the invoice or by what the seller assumes.

The rate follows the supply, not the customer: the same goods carry the same rate for a business and for a consumer. A wrong rate is not a correction of the taxable amount, which is declared forward, but an error in the tax itself: a corrective invoice goes out and an amended tax return is filed for the original period.

Gift boxes and sets sold by an e-shop often combine items at different rates, such as a book, food and cosmetics. Unless it is a single supply with a principal element, we split the price of the box across the items and list them separately on the invoice, each at its own rate, and set the shop prices so that the breakdown adds up.

What to watch out for

A wrongly chosen reduced rate is paid out of the seller’s own pocket. A year later the customer will not top up the difference and the price list cannot be rewritten, so the supplier carries the shortfall for the whole period plus interest. The classic case is alcohol served with a meal: it is excluded from the reduced rate for restaurant services.

A supplier charges the standard rate where the reduced one applies, and the customer deducts all the tax shown on the invoice. Only the tax legally due can be deducted, however, and the tax office disallows the difference at an audit. The customer then has to recover it from the supplier through a corrective invoice.