Changes in tax laws in Slovakia from 1 January 2019 – part 1 - value added tax

26. January 2019

Cancellation of value added tax security deposit

From the year 2019, the concept of value added tax (hereinafter VAT) security deposit is cancelled in Slovakia. Originally, the future taxpayer was in some cases obliged to make this security deposit when registering for VAT.

Introduction of new rules in taxation of vouchers.

As of 1 October 2019, the law will define the new term POUKAZ (voucher). The voucher will be understood as a tool, to which the right of the holder to obtaining corresponding goods or services relates.

Introduction of this legislation mainly changes the date of occurrence of a chargeable event. Until now, only supply of goods/provision of service was subject to VAT when the voucher was eventually used. The issuing of a voucher, or its re-sale were not subject to taxation. Newly, as of 1 October 2019, the issuing of a voucher will be subject to VAT, or its purchase or sale via distributors. The subsequent supply of goods or provision of services will not be subject to VAT.

The situation is, however, not as easy in practice, as it may seem. It is not always clear when a voucher is issued, what the holder will buy with it (will the future purchase of goods/provision of service be subject to the 20% or to the 10% tax?). Further, it is necessary to consider, where the voucher will be applied, if it is locally, or in other EU countries? From the above-described facts, the VAT act distinguishes between two types of vouchers, single-purpose and multi-purpose ones. The definition of a single-purpose and multi-purpose voucher needs to be understood in the sense of the VAT act.

A single-purpose voucher is a voucher, for which the location of goods supply/ provision of services is known at the time it is issued. In other words, we know for certain, if the eventual exchange of the voucher for goods/ provision of service will be subject to VAT in Slovakia or not. The provider of the voucher is also able to determine, with what rate the tax will be due. An example is a situation, when a voucher is issued for use in a network of physical shops selling electronics in Slovakia – we know the location of use, as well as the VAT rate, because supply will take place in Slovakia and supply of electronics will always be subject to 20% VAT. This tax will then be paid upon issuing, or during gradual distribution of the voucher.

In case the above-mentioned parameters of the voucher are not known in advance, it will be a multi-purpose voucher. For illustration, we can outline the following example: the voucher will relate to any purchase in a TESCO supermarket, where goods with various VAT rates can be found. Another example can be a situation, when a voucher will be usable via e-shop, where clients from the entire EU can use it. In the above-mentioned situations, it will be a multipurpose voucher. To put it simply, it will be a multipurpose type of voucher, if it is not be possible to determine its tax regime when the voucher is issued. In this case, VAT will not be paid when the voucher is issued, but only when it is being exchanged for goods/ provision of service. It will also be important to know the final value, which the user of the voucher has received by its possession and thus if the value of the voucher is the same as its nominal value or lower, because this value will be the basis for calculation of the supply of goods/ provision of service.

For entrepreneurs, who use this type of benefit for clients as part of sales support, this new rule will represent a certain administrative burden, both in terms of correct setting of voucher issue from the VAT perspective and in terms of ensuring a correct regime during its eventual use. In case of incorrect set-up, there is a danger of unpaid VAT, double tax payment or, last but not least, incorrect payment of higher tax, which may disturb the cash flow of entrepreneurs.

The new rules will not be implemented until 1 October 2019

Lowering of the VAT rate of accommodation services

From 1 January 2019, accommodation services will be subject to the 10% VAT rate.

Change of rules for supplying construction and real estate leasing

Until the year 2018, supply of construction after 5 years of first building approval was exempt from VAT payment. The payer, who supplied the construction, could decide, though, that supply after 5 years would be subject to VAT as well. In other words, supply of construction within 5 years from first building approval was always subject to VAT. After 5 years, it was up to the decision of the taxpayer, if supply will be subject to VAT or not.

From 1 January 2019, VAT application will also be obligatory for situations, when a structure will be approved again due to change of use and construction work, or due to a significant change in the conditions of current use of the structure, if the costs of this work were higher or equal to 40% of the value of the structure. In such a case, a new period of five years for obligatory tax application will begin to run.

The intention of this change is that not only supplies of new buildings are subject to obligatory tax, but also supplies of buildings, which have undergone such changes or reconstruction that to a certain extent we can consider them to be new buildings.

An even more significant change in this article is, however, the fact that from 1 January 2019, the law does not enable to entrepreneur supplying  a structure intended for housing, an apartment, or suite in a residential house after the obligatory period to decide, if supply will be subject to VAT.

The situation is similar in case of leasing of the above-mentioned real estate. Real estate leasing is generally exempt from VAT. The entrepreneur - lessor was able to decide that lease would be subject to VAT, in case his client is also an entrepreneur. From 1 January 2019, this alternative no longer exists, though, in case of leasing an apartment, a family house or a suite in a residential building or their parts. Such lease will always be exempt from VAT. The reason for implementation of this stipulation to prevent application of VAT deduction from purchase of the above-mentioned real estate. Entrepreneurs, who bought real estate for housing into their business, with the intention of their further lease or sale, could use tax deduction upon purchase, in case the performance was subject to VAT payment. In principle, if this other supply is subject to taxation, the entrepreneur is entitled to application of VAT deduction. If this other supply of goods/ service is not subject to VAT, because it is exempted from VAT, no entitlement to tax deduction arises, or it is necessary to perform a proportionate adjustment of tax deduction even years later, when a change of facts occurs. For entrepreneurs, who have real estate for housing in their accounting, this reduces the range of arguments to defend tax deduction, that is they are coming closer to the obligation of returning a proportionate part of the deduction or in case of buying new real estate for housing they will not be entitled to any tax deduction, and thus in connection with further handling of real estate, entrepreneurs need to consider well, if they are even eligible for tax deduction. To contracts of lease, based on which real estate was provided to be used before the end of the year 2018, rules applicable before the end of the year 2018 apply, which means that lease can this be subject to tax, until the contractual relation has ended.

In the next issue, you will find out the most interesting news in other laws in Slovakia. In case the above-mentioned issues relate to you, please contact us. We will be happy to advise you.

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