Numerous changes to the Slovak Income Tax Act were adopted in late 2017. We believe the most important of these changes were the tax exemption on the sale of shares and ownership interests, and the introduction of a new exit tax.
Subject to the satisfaction of certain conditions, capital gains realised on the sale of shares or ownership interest (shares) may be tax exempt. The exemption only applies to corporate shareholders that are tax resident or have a permanent establishment in Slovakia. For now, individual shareholders are not eligible for the exemption.
One of the conditions for the capital gain tax exemption on the sale of shares is that the seller must have held the shares for at least 24 consecutive calendar months after acquiring at least 10% direct shareholding in the company. After passing the time test, the seller is eligible to claim the exemption upon the sale of the shares, but it should be noted that the 24-month time test was not set to begin before January 1 2018.
To prevent speculative buy-back of shares, the legislation also provides that none of the following days will be considered as the day of share transfer: (i) the day of concluding a contract or similar agreement that transfers shares or ownership interest at some time in the future or after conditions precedents are met; (ii) the day of purchase of share option rights; and (iii) the day of obtaining pre-emptive purchase rights to the shares.
The other condition for the capital gains tax exemption is that the seller must have active trading operations in the Slovak Republic, and must manage and bear the risks associated with the shareholding; the seller must also be adequately equipped to carry on these operations.
New to the Slovak business environment is the implementation of an exit tax for companies that depart Slovakia or migrate their assets from Slovakia to another jurisdiction. The exit tax applies to legal entities having a registered office/place of effective management in Slovakia or a permanent establishment in Slovakia.
Slovakia will apply a tax of 21% in these cases:
- when a company migrates assets from Slovakia to another jurisdiction (migration by a Slovakia resident entity from its head office in Slovakia to an establishment in another jurisdiction, or by a non-resident entity from an establishment in Slovakia to its head office or establishment in another jurisdiction);
- when a company migrates its business activities or a part thereof from Slovakia to another jurisdiction (migration by a Slovakia resident entity to another jurisdiction, or by a non-resident entity from its establishment in Slovakia to another jurisdiction); and
- when an entity departs to another country (change of tax residency), ie when an entity that is tax resident in Slovakia ceases to be resident in Slovakia.
The specificity of the exit tax lies in the fact that it is imposed on unrealised (future) gains arising in Slovakia. We mention unrealised gains because the calculation of exit tax uses a special tax base derived from the fair value of the migrated assets, liabilities, and tax expenditures.
If you are unsure how the capital gain tax exemption on the sale of shares may apply to you, or if you would like to know what your special tax base would be on departure, please contact us and we will be happy to assist you.
|Lenka Paluchová||Rudolf Sivák|