Effective Tax Rate on Rental Income
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Nonresident individuals are taxed on their income from Slovakian sources. Married couples are taxed separately.
Income is classified according to the following categories: (1) employment income, (2) business, professional, and rental income, (3) income from capital, and (4) other income.
Income and capital gains are taxed at a flat rate of 19% for income up to €35,022.31, and at a flat rate of 25% on income exceeding€35,022.31.
Nonresidents are entitled to allowances and tax credits:
- Basic personal allowance of €3,803.33 if annual employment income does not exceed €19,809.
- Spouse allowance of €3,803.33 if the spouse´s annual income does not exceed €35,022.31.
- Child tax credit of €2,430
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.
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.
Withholding Taxes on Rental Income
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 SKK200,000 (€6,599) 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 nonresident, 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 €250. 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 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:
- Send personal particulars of all owners (not necessary if company owns the apartment): (a) full name, (b) full maiden name, (c) date of birth, (d) place of birth, (e) current resident address, (f) passport number, and (g) citizenship
- Send details of the property: (a) full address including post code, floor, door number, (b) m2 size of the property (internal floor area), (c) number of bedrooms, (d) Land Registry reference number, (e) Land Registry number of the extract
- 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 realized from the sale of real estate are taxed at 19% to 25%.Gains from the sale of properties used in business are considered business or professional income. Gains from the occasional sale of properties not used in business are considered as other income.
Exempt from capital gains tax are the disposal of:
- Properties that has been the taxpayer´s permanent residence for at least the two-year period prior to the sale, unless the property was used for business in the last five years
- Properties held for more than five years, unless the property was used for business in the last five years
VALUE ADDED TAX (VAT)
The standard VAT rate is 20%. A reduced rate of 10% applies for medicines, books, and other printed matter.
Real estate leasing and sale of real estate property is VAT exempt.
Real Estate Tax
There are three kinds of real estate tax: (1) land tax, (2) building tax, and (3) apartment tax. There are general rates for these taxes but municipal authorities may increase or decrease the tax rates applicable in their municipalities.
Land tax is generally levied at 0.25% of the land value, as assessed by the municipality. Rates vary depending on the type of land and its location.
The general tax rate on buildings is €0.033 for every sq. m. occupied by the finished building. The general tax rate on apartments is €0.033 for every sq. m. of the flat´s floor area.
Income and capital gains earned by companies are taxed at a flat rate of 21%. Income-generating expenses are deductible when calculating taxable income.