According to the provisions of the Income Tax Act, the Ministry of Finance of the Slovak Republic published on its website the list of the countries with which it has concluded a treaty on the avoidance of double taxation or an agreement on the exchange of information on tax matters as well as the countries which are parties to multilateral conventions containing provisions on the exchange of information on tax matters - collectively comprising the so called "White List", a copy of which is attached.
With effect from 1 March 2014 the amendments to the Income Tax Act introduce the definition of a tax payer from a non-contracting state, i.e. a tax payer without permanent residence or registered office in a state that is part of the White List. If a tax payer residing in a non-contracting state receives income from Slovak sources, these payments will be subject to a higher withholding tax rate or a higher tax guarantee of 35%. The entity paying out such income will apply the higher tax and will report it to the tax administrator in a special form.
Under the current Income Tax Act, taxable income of non-residents from Slovak sources includes also the following:
- income from services
- royalties and copyrights
- interest income and similar payments
- rent from movable and immovable property
- transfers of business participations
The only exception where a payment to non-residents is not subject to taxation in Slovakia is income from debt securities, including interest income, even if paid out by Slovak residents to recipients residing in a country outside of the White List.
Further countries can be added to the White List, if Slovakia enters into a double tax treaty or an agreement on the exchange of information on tax matters. It can also be expected that the Slovak Ministry of Finance will reconsider its approach to the countries from the White List that do not pass the OECD audit and do not meet the criteria for tax transparent jurisdiction (i.e. with overall rating "non-compliant").
Impact on investors: As of 1 March 2014 residents of countries not included in the While List published by the Slovak Ministry of Finance will be subject to 35% tax on taxable income. Dividends and interest income on debt securities paid to foreign residents remain exempt from taxation.
Related Newsflash: Income Tax Act Amendments in force from 1 January 2014