Slovakia – Changes to Caps for Social Security in 2017

Slovakia – Changes to Caps for Social Security in 2017

This GMS Flash Alert reports on changes to the salary caps for social security contributions in effect in Slovakia for 2017.

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During its October and November sessions, the Slovak Parliament approved amendments to a law concerning the caps for calculating social security contributions, which have now been significantly increased or even entirely lifted.1  These changes are already applicable with effect from January 2017. 

WHY THIS MATTERS

For high-earning individuals, the cost of paying social security contributions in Slovakia was previously limited by relatively low caps (i.e., the maximum level of income from which contributions are calculated).  Whereas before the caps had been increased each year in line with increases of the average salary level, this time the increase is more substantial, and for the first time a significant portion of the employee’s portion of the contributions will be paid from total income without any limits.  This can have a material impact on the income of employees and the costs for employers where contributions are paid in Slovakia.  At the same time, the change was approved very shortly before its application date, thus not allowing for potential planning opportunities or proper budgeting for extra costs.

No Caps for Health-Care Insurance Contributions

For 2016, mandatory health-care insurance contributions were due in Slovakia only on maximum monthly incomes of EUR 4,290 (or EUR 51,480 annual income).  As of 2017, there is no such cap and both the employee’s (4 percent) as well as the employer’s (10 percent) contributions will be due on total employment income.

Increase of Caps for Social Security Contributions

The other branch of contributions, which covers social security in Slovakia (employee 9.4 percent and employer 24.4 percent), used to be capped at monthly incomes of EUR 4,290.  For 2017, this cap has been increased to EUR 6,181 per month.  One other type of employer’s contribution (injury insurance at 0.8 percent), which was not previously capped, remains uncapped.

KPMG NOTE

It should be noted that the relevant laws are designed in such a way that even if higher contributions are paid from employees’ income, this does not result in any higher entitlements or additional benefits from the social security or health-care insurance schemes. 

Paying higher contributions, however, can have a positive effect on one’s tax liability thanks to the fact that contributions are deductible from taxable income in Slovakia. Thus, the recent changes that effectively increased employees’ contributions could result in savings on personal income tax in the amount of 25 percent from the extra contributions arising, provided that the employee’s compensation is taxable in Slovakia.  

FOOTNOTE

EUR 1 = USD 1.055 

EUR 1 = GBP 0.867 

EUR 1 = PLN 4.37 

CONTACTS

For additional information or assistance, please contact your usual KPMG GMS or People Services professional or one of the following professionals with the KPMG International member firm in the Slovak Republic:

Peter Bohus

tel. +421 2 559 84 339

pbohus@kpmg.sk

 

Martina Cizmarikova

tel. +421 2 599 84 325

mcizmarikova@kpmg.sk

The information contained in this newsletter was submitted by the KPMG International member firm in Slovakia.

© 2017 KPMG Slovensko Advisory k.s., a Slovak limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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