Holding Slovak Real Estate
DIRECT HOLDING OF REAL ESTATE
This section shows the most important tax implications of direct holding of real estate. First, the impacts for resident and non-resident individuals are explained. Thereafter the impact for resident and non-resident companies are described.
Resident individuals
Personal income tax
Income derived from the real estate such as rental income is subject to individual income tax (at 19 % and/or 25 % tax rate).
Deductibility of costs, interest, and depreciation
The buildings of hotels, stores and office buildings are depreciated for tax purposes for 40 years. Other buildings are depreciated for tax purpose for 20 years. Land is not depreciated for tax purposes. For tax purposes taxpayers may choose to depreciate assets using the straight-line or the accelerated depreciation method.
Generally, tax depreciation, interest, maintenance, and operational costs (expenses incurred to generate, assure, and maintain the taxable income) reduce the rental income if general and special legal conditions are met.
Losses – carry back/forward
Generally, the tax losses can be carried forward for five subsequent periods. However, only individuals, generating losses as individual entrepreneurs can carry forward tax losses. Individual who are not entrepreneurs are not allowed to carry forward rental losses.
Non-resident individuals
Non-resident individuals are treated in the same way as resident individuals.
Resident companies
Corporate income tax
Business income including also rental income and capital gains are subject to 21 % (15%) corporate income tax.
Deductibility of costs, interest, and depreciation
The buildings of hotels, stores and office buildings are depreciated for tax purposes for 40 years. Other buildings are depreciated for tax purpose for 20 years. Land is not depreciated for tax purposes. For tax purposes taxpayers may elect to depreciate assets using the straight-line or the accelerated depreciation method.
Generally, tax depreciation, interest, maintenance, and operational costs (expenses incurred to generate, assure and maintain the taxable income) reduce the rental income if general and special legal conditions are met.
Anti-tax avoidance directive
The anti-tax avoidance directive (ATAD) has already included in the Slovak tax legislation in minimalistic version of the general anti-avoidance rules.
Losses – carry back/forward
Generally, the tax losses can be carried forward for five subsequent periods. Rental losses can be offset against other generated taxable income.
Non-resident companies
Rental income from non-residents companies are treated in the same way as resident companies.
INDIRECT HOLDING OF REAL ESTATE
This section shows the most important tax implications of indirect holding of real estate. First, the impacts for resident and non-resident individuals are explained. Thereafter the impact for resident and non-resident companies are described.
Resident individuals
Personal income tax
Individuals who hold shares in a Slovak company generate capital income that is subject to a withholding tax at 7% income tax rate.
Deductibility of costs, interest payments and depreciation
As the distribution of dividends is qualified as capital income, there are not any related costs being tax-deductible.
CFC rules
Individuals also tax the income they have earned through the CFC, even if they have not been paid out as dividends. The CFC rules apply to a natural person who is a tax resident of the Slovak Republic if his share (direct or indirect, share capital, voting rights or profit) in the CFC is more than 10% and if the effective taxation in the CFC country of residence has not reached 10% .
The rules do not apply if the income of the individual from all CFCs does not exceed 100 thousand. EUR in the year, if the CFC actually carries out an real business activity (except for non-cooperating countries) or if the income of this CFC has already been included in the corporate tax base in accordance with the CFC rules for legal entities. The tax base is the entire economic result of the CFC, deducting the tax that the CFC has demonstrably paid in the country of residence. The tax rate is 25%, for CFCs in non-cooperating countries 35%.
Non-resident individuals
Personal income tax
Non-resident individuals are treated in same manner as resident individuals unless the applicable withholding tax rate is reduced under the respective tax treaty.
If non-residents who are not resident in the European union, European Economic Area, a jurisdiction for which a tax treaty or an agreement for the exchange of information on tax issue with the Slovak Republic is at place , specific withholding tax at 35% rate is applicable.
Resident companies
Corporate income tax
The corporation that directly generates rental income is subject to corporate income tax of 21 % (15%).
The dividends received by company being shareholder of another corporation are generally not subject of taxation in the Slovak republic. However, if the dividends are sourced from jurisdiction for which no tax treaty or an agreement for the exchange of information on tax issue with the Slovak Republic is at place, specific withholding tax at 35% rate is applicable.
Anti-tax avoidance directive
The anti-tax avoidance directive (ATAD) has already included in the Slovak tax legislation in minimalistic version of the general anti-avoidance rules. CFC rules, GAAR, Hybrid mismatches, Interest limitation/Thin-capitalization rule, Exit taxation have been implemented in the Slovak Income Tax Act.
CFC rules
The rules for CFCs seek to tax income artificially diverted by a Slovak parent company to a CFC if the income is paid without economic justification or to obtain a tax advantage for the Slovak company.
A company is considered a CFC if:
- it is controlled or managed, directly or indirectly, by the Slovak company (e.g. by voting rights, share capital, or share in profit), and
- the CIT paid in another country is lower than 50% of the tax the CFC would pay in Slovakia.
If income is diverted to a PE, it will only be sufficient (for purposes of the CFC assessment) to fulfil the second condition (i.e. the condition regarding the hypothetical Slovak tax).
Non-resident companies
Non-resident companies are treated similarly as resident companies. Please note, if the dividends are paid to a jurisdiction for which no tax treaty or an agreement for the exchange of information on tax issue with the Slovak Republic is at place, specific withholding tax at 35% rate is applicable.
