A draft amendment to the income tax law in Slovakia | KPMG | GLOBAL

Slovakia: Proposals for patent box regime, exit tax, CFC rules

A draft amendment to the income tax law in Slovakia

A draft amendment to the income tax law of the Slovak Republic would, if passed by the parliament and signed into law by the president, introduce a number of new provisions including the following:

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  • A “patent box” regime to support industrial research and development (R&D) so that income for the use of, or the right to use, granted and registered patents, utility models and software created by the taxpayer (not purchased) would be partially exempt from a tax. The exemption also would apply for income generated by the sale of products manufactured, using a registered patent or a technical design protected by a utility model.
  • An “exit tax” when a taxpayer transfers assets or business activities abroad. The exit tax would be based on the economic value of all capital gains generated in Slovakia (even if gain or profit has not been realized at the time of exit). The exit tax would be reported within a special/partial tax base and taxed at a rate of 21%. Assets transferred outside the territory of Slovakia would be subject to tax even if no sale/change of the legal ownership arises, as long as the Slovak Republic loses its right to tax this income due to the transfer of the property. The exit tax could be paid in instalments over a five-year period, provided that the assets are transferred to a country that provides for the effective collection of receivables, e.g., when the assets, tax residence or business activity are transferred to, for example, an EU Member State. Otherwise the exit tax would be payable by the due date for filing the tax return. 
  • Controlled foreign companies (CFC) rules that would be effective as of 1 January 2019. A controlled foreign company is a company that is registered and conducts business in a different jurisdiction than the place of residency of the controlling owner. A non-resident company would be treated as a CFC if it is controlled by a Slovak resident or jointly with related parties, by direct or indirect share participation in the share capital or voting rights of at least 50% or at least 50% profit share, and the corporate income tax of the CFC paid abroad is lower than 50% of the Slovak tax. In such instances, the corporate income tax base of the CFC would be included in the corporate income tax base of its Slovak controlling company and taxed in accordance with the Slovak tax legislation. A part of the foreign tax paid with respect to the CFC’s income could be credited against the final tax liability. 
  • The rules for business combinations by domestic companies—for instance, contributions in-kind, mergers, amalgamations or demergers of companies—would be amended to be measured at fair value for tax purposes. Historic values would only be allowed for certain cross-border transactions upon specific conditions.

 

Read a September 2017 report prepared by the KPMG member firm in Slovakia

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