The amendment to the Income Tax Act was approved by the Parliament on 23 November 2016 and published in the Collection of laws on 19 December 2016 therefore completing the legislation process. The amendment will become effective as of 1 January 2017.
As already stated in our previous newsflash (dated 14 October 2016), these changes should be applicable to dividends distributed out of profits generated in a taxable period beginning on or after 1 January 2017. This means that the amendment will be applied in practice staring from 2018 (after closure of financial year 2017).
Please find below an overview of the main changes in the area of Dividend Taxation:
- Dividends (including payments such as liquidation proceeds, settlement shares or shares in profit payable to a silent partner) received from or paid to taxpayers who are resident in non-treaty countries* will be subject to a tax rate of 35% (applicable to both individuals and legal entities).
- Dividends paid to individuals who do not reside in non-treaty country* will be taxable at a rate of 7%, contrary to a 15% rate suggested by the Ministry of Finance.
- Dividends paid to legal entities who do not reside in non-treaty country* are not subject to any tax.
- The tax from dividends will be withheld when the source is in Slovakia or taxed through a tax return when paid to Slovak tax residents from abroad.
- Dividends received by individuals who participate in Health Care Insurance System in Slovakia will no longer be subject to contributions to that system.
Impact on investors: Amended legislation will reintroduce dividend taxation on profits generated in a taxable period beginning on or after 1 January 2017.
*Treaty countries are all countries with which Slovakia has concluded a Double Tax Avoidance Treaty or a Treaty on Exchange of Information for Tax Purposes (including similar multilateral instruments). This includes all EU/EEA and OECD member countries and a wide range of other countries.