Slovak Republic: Taxes and Costs

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Rental income tax is moderate in Slovak Republic

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	9.3%	13.0%	13.6%
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Rental Income

Slovakia revamped its tax system in 2004, synchronizing personal income tax, corporate income tax, and VAT at 19%. So, rental income is taxed at 19%, after deductions.

Generally, necessary expenses incurred to generate, ensure, and maintain rental income are deducted before arriving at the taxable income. Deductions can include depreciation costs, interest and finance charges, real estate taxes, repairs, maintenance and other types of rental expenses. Alternatively, the taxpayer can make a general expense claim of up to 40% of the rental income instead of itemizing deductions.

Depreciation Rented buildings qualify for depreciation, and are usually depreciated over 20 years. Buildings can be depreciated either through the straight-line (property value – scrap value/estimated life) or accelerated method, under which depreciation is computed by multiplying the value of the property to a designated coefficient.

Personal Allowance All taxpayers (both resident and non-resident) are allotted a basic personal allowance equivalent to 19.2 times the minimum subsistence level on 1 January of the applicable fiscal year. The allotted personal allowance in 2007 is SKK95,616 (€2,850).

Real Estate Tax

The basic annual tax rate on apartments is SKK1 (€0.03) for every sq. m. of the flat’s floor area. The tax rate changes depending on the municipality and normally, it is between SKK1.0 (€0.03) to SKK10 (€0.30) per sq. m.

The basic annual tax rate on buildings is SKK1 (€0.03) for every sq. m. occupied by the finished building. This will be increased by a surcharge of SKK10 (€0.30) for each additional floors above the ground.

A separate tax on land is levied at 0.25% of the tax base which would be assessed by the municipality. Rates vary depending on the type of land and its location.

Value Added Tax (VAT)

Real estate leasing is VAT exempt.

Withholding Taxes

Till September 2007, when the landlord resided overseas, the tenant was obliged to withhold tax on the interest. The domestic rate of withholding taxes on interest is 19%, which can be reduced, and even not levied.

Since September 2007, landlords planning to rent out their dwelling must now register with the Tax Office or face a SKK 200,000 (EUR 5900) fine, according to a recent article in the Slovak Spectator, writes Adras Patkai of www.ceinvest.co.uk The reference to the law regarding rental of property is Section 6 (3) of the Income Tax Act of the Slovak Republic.

“The amended law, which took effect this month, has changed, apart from other things, the conditions for the registration and notification duty of individuals who rent property,” said Jan Zila, the head of the Tax Office in the city of Martin.

The person renting the property has to register according to their permanent residence, not the location of the property. In the case of foreigners this is an office in Bratislava. An individual that has already been registered for another reason and starts to derive rental income shall be obliged just to notify the tax authorities of this fact.

Until now, if the property was owned by a non-resident, the tenant paid 19% of the rental fee, before the rent ever reached the landlord. It was an automatic deduction from the rental fee. From January 2007 there is no such requirement; this advance-payment of tax only applies to non-EU citizens.

EU landlords are now able to collect the full rent, make the necessary deductions (apartment purchase-related fees, value-increasing renovations, depreciation), and submit a tax return at the end of the year. This service is usually provided by an accountant for an annual fee of cca. 250 EUR. The service includes applying for a tax ID, issuing the monthly invoices, and preparing & submitting the tax return at the end of the year.

Note that if utilities are included in the rental fee and paid by landlord after rental fee is collected, landlord is liable for tax on income earmarked for utilities as well. Therefore it is advisable to separate rent from utilities and arrange for tenant to pay that separately and directly to service providers and the building management company.

After September 2007, any individual who is not yet registered for taxation and starts to rent out his/her property, is obliged to apply for registration within 60 days.

For those individuals who have not yet applied for a tax ID to register rental income earned in the Slovak Republic, the following steps should be taken, according to CE Invest:

1) Send personal particulars of all owners (no need if company owns the apartment)

1. full name
2. full maiden name
3. date of birth
4. place of birth
5. current resident address
6. passport number
7. citizenship

2) Send details of the property

1. full address including post code, floor, door number
2. m2 size of the property (internal floor area)
3. number of bedrooms
4. Land Registry reference number
5. Land Registry number of the extract

3) Send an authorization authorizing your accountant to submit the application on owner’s behalf

The process takes less than a month and each owner receives a Tax ID (DIC number in Slovak), which must be used on all invoices.

Capital Gains Tax

Individuals who are not Slovak tax residents are required to pay income tax on any profits and gains from Slovak sources. Income from the sale of real estate is taxed at a flat rate of 19%..

Exempt from capital gains are the disposal of:

• Real estate which has not been used for commercial purposes;
• Real estate held for more than five years;
• Any real estate previously used for business purposes and held for five years;
• The sale of a flat or a house that has been the taxpayer’s permanent residence and his own property for at least the two-year period prior to the sale.

Tax Securement (Withholding Tax)

The tax securement ensures that the foreign entity assumes its Slovak corporate tax liability. A standard rate of 19% has to be deducted by the Slovak entity whenever he is paying, transferring, or crediting an amount to a foreign entity.

However, it may not be withheld if the foreign entity registers for Slovak corporate tax purposes, pays monthly corporate tax advances in the country, and the tax authorities have confirmed that tax securement is not necessary.

VAT

Sale of real estate property is VAT exempt.

Slovak Republic - more data and information

• Guide to buying houses and registering property sales in Slovakia

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