Quick overview of Slovak Real Estate

Rental income and capital gains of Slovak real estate

Rental income

Individuals

Introduction

Rental income is taxed as part of the taxpayer’s annual income. The first 41 445,46 EUR of the yearly income tax base is subject to 19% tax rate. If the individual’s total yearly income tax base exceeds 41 445,46 EUR (2023), then this part of the tax base is taxed by 25%.

Liability to tax

Rental income received by individuals is subject to individual income tax.

Basis to tax

The tax base is calculated by the rental income minus the deductible expenses. The extent of the deductible expenses is determined by form of the “evidence” of the immovable property for the tax purposes (the form of evidence directly influences option for exemption of the capital gains). If individual keeps the immovable property out of scope of evidence as “business property” for tax purposes, only direct operational expenditures become tax deductible expenses (electricity, gas, water supplies and sewerage costs). If individual keeps the immovable property as “business property” for tax purposes, some additional tax-deductible expenses are applied (i.e. depreciation costs, reconstruction or maintenance costs, insurance costs, interest paid on loans related to purchase of the property, paid immovable taxes, etc.).

Companies

Introduction

Rental income is taxed as business income.

Liability to tax

Rental income is subject to corporate income tax.

Basis to tax

Subject to 21% corporate income tax is difference between the business income and related tax-deductible expenses. Specific reduced 15% tax rate is applied for companies with total yearly taxable income (revenues) not exceeding 49, 790 EUR (this applies from 2021).

Capital gains

Individuals

Introduction

Capital gains from transfer of immovable properties are taxed as part of a taxpayer’s annual income.

Liability to tax

Capital gains received by individuals is subject to individual income tax. If the total yearly income tax base of the individual exceeds 41 445,46 EUR (2023), this part of the tax base is taxed by 25%. The part below this amount of the yearly income tax base is subject to 19% tax rate.

Capital gains derived from the transfer (sale) of real estate can be exempt from the taxation if an individual has held the real estate as a non-business asset for longer than 5 years prior the sale. If rental income has been derived before the immovable property has been sold, the capital gain exemption is applied if individual has kept the immovable property out of scope of evidence as “business property” for rental income taxation purposes.

Basis of tax

The difference between the sale price and the acquisition costs is subject to 19% / 25% and 35% tax.

Losses

Capital losses derived from the sale of real estate that is not part of business assets cannot be offset against gains derived from other sales. If the real estate is part of the individual’s business assets, the capital gain losses can be offset against other taxable income except the employment income.

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%.

Companies

Introduction

Capital gains are taxed as business income.

Liability to tax

Capital gains are subject to 21% (15%) corporate income tax.

Basis of tax

The difference between the business income and tax-deductible expenses is subject to corporate income tax.

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).

Slovak Republic VAT & transfer taxes

Value Added Tax

Individuals

Introduction

Value added tax (VAT) is based on the increase in the value of a product or service at each stage of the supply chain.

Liability to tax

Rental income is subject to Slovak VAT if the rented property is in the Slovak Republic.

Basis of tax

As general rule, rental income of real estate is exempt from VAT, except below situations:

Provision of accommodation services.
Rental of premises and parking places for vehicles.
Rental of safe deposit boxes.
Rent of permanently installed machinery and equipment.

However, a VAT payer can tax the rental fee with VAT if they decide not to exempt the rental services and the immovable property (or its part) is rent to another VAT liable person.

Rental income of movable tangible objects is always subject to VAT.

Companies

The same rules as for individuals applies.

Transfer Taxes

Introduction

The immovable property acquisition tax is not applied on transfer of the immovable properties in the Slovak republic.

Slovak Republic Local taxes (immovable properties tax)

* The municipality coefficient can be set up based on the decision of municipality.

Introduction

Subject to tax is real estate located in the Slovak Republic. The tax is calculated annually based on the property ownership as of 1 January of the respective year.

The applied tax rates and amount of the tax base depend on the purpose of usage of a real estate and its location.

Liability to tax

The owner of real estate located in the Slovak Republic is liable to tax.

Basis of tax

The real estate property tax base depends on the type of the immovable property, administrative value as well as its location.

Slovak Republic Net Wealth/worth taxes

There are no net wealth/worth taxes in the Slovak Republic.

Vehicles for Slovak real estate

Commonly used vehicles for Slovak real estate

Limited liability company

Slovak limited liability company must include the designation “spoločnosť s ručením obmedzeným” or its abbreviated form “spol. s r.o.” or “s.r.o.” in its commercial name. Limited liability company is the most frequently used vehicle for the ownership of Slovak real estate. The amount of the contribution determines the share of the shareholder. Shareholders guarantees the company’s liabilities only up to the amount of outstanding deposits. Profits generated by the limited liability company are subject to 21% (15%) corporate income tax. Dividend paid to individuals are subject to 7% withholding tax or 35% in case of the individual is a resident of a non-treaty country.

Dividend paid to another company are subject to 0% withholding tax or 35% if the company is a resident of a non-treaty country.

Joint stock company

Slovak joint stock company must include the designation “akciová spoločnost” or its abbreviated form “a.s.” in its commercial name. Slovak joint stock company is liable for breaches of its obligations by its entire property. Its shareholders are not liable for breaches of the company’s obligations at all. The Slovak joint stock company is a widely used vehicle for the ownership of Slovak real estate.

Profits generated by the joint stock company are subject to 21% (15%) corporate income tax. Dividend paid to individuals are subject to 7% withholding tax or 35% in case of the individual is a resident of a non-treaty country.

Dividend paid to another company are subject to 0% withholding tax or 35% if the company is a resident of a non-treaty country.

Limited partnership

Slovak limited partnership must include the designation “komanditná spoločnost” or its abbreviated form “k.s.” in its commercial name. Slovak limited partnership is established by a memorandum of association concluded between at least two persons, at least one being a general partner whose liability is unlimited, and at least one being a limited partner, with limited liability. The part of the profit generated by the limited partnership, assigned to general partner, forms part of the general partner tax base and is taxed on the level of the general partner. The part of the profit of the limited partnership, assigned to limited partner is subject to 21% (15%) corporate income tax on the level of the limited partnership. Dividends paid to individuals is subject to 7% withholding tax or 35% in case of the individual is a resident of a non-treaty country.

Dividend paid to another company are subject to 0% withholding tax or 35% if the company is a resident of a non-treaty country.

Foreign partnership

The residence of partnership is determined by the place where decisive business is made. Foreign partnership which has permanent establishment in the Slovak Republic is subject to 21% (15%) corporate income tax.