Recent amendments to the Personal Income Tax Law of the Republic of Slovenia introduce a number of changes with respect to calculating different categories of income, which are taxed differently depending on their source and origin. Accordingly, income derived from dividends, interest and capital gains is no longer aggregated to other sources of income and then taxed at a progressive rate ranging from 16% to 50%, but rather is computed separately from other sources of income and taxed at a flat rate. This change will lower the taxable income of individuals.
In accordance with Article l02 of the Law, income derived from interest, dividends and capital gains is computed separately from other income and is not included in the annual income tax base. In accordance with Article 126a, income earned from interest, dividends and capital gains is taxed at a flat rate of 20%, which is considered to be the final tax.
In certain circumstances, the generally applicable flat tax rate of 20% might be reduced for capital gains depending on the length of time the asset was owned before its disposition. In accordance with Article 126a, the tax rate on capital gains is reduced at the end of each five-year period of asset ownership, so that the tax rate amounts to:
- 15% for five years from the date the asset is acquired;
- 10% for 10 years from the date the asset is acquired;
- 5% for 15 years from the date the asset is acquired; and
- 0% for 20 or more years from the date the asset is acquired.
The definition of an asset, for the purpose of assessing the capital gains tax, has been changed and the Law no longer provides any criteria on the duration of the ownership of an asset, the size of a share, or the capital value of the company. According to Article 86, the following are considered assets for the purpose of assessing capital gains: (i) real estate property; (ii) securities and shares in companies and other commercial entities; and (iii) investment coupons. Debt instruments are not considered assets for the purpose of assessing capital gains.
The definition of the acquisition cost of an asset has also been amended to include the retail price index.
As stated above, interest is taxed at a flat tax rate of 20%. However, the Law provides for a number of exemptions to this general rule. According to Article 141, in 2006 and 2007 interest will be taxed at 15%. The Law also provides for a tax exemption for debentures acquired pursuant to denationalization laws. According to Article 71, 50% of the interest payable on debentures that were given as a remedy in accordance with laws regulating denationalization is not subject to any income tax. Also exempt from any income tax is the interest payable on apartment owners' contributions to the reserves fund in accordance with the Housing Act.
The Law still provides for an exemption from taxable interest income in the amount of Tr300,000 ($1,520). The Law applies the stated exemption to the payment of interest tax that is payable by residents in connection with deposits with banks and savings institutions in the Republic of Slovenia and the EU. However, over the next few years the Law prescribes the gradual elimination of this tax exemption, so that by 2008 this exemption will no longer apply.
The Law has also done away with a general tax reduction of 35%, which is applied to the calculation of income derived from certain categories of dividends. All dividends are taxed at a 20% flat tax rate.
The Law has eliminated the complex system of taxing investment funds. The Law no longer distinguishes between a qualified and non-qualified investment fund and treats all investment funds equally. Income derived from the operation of an investment fund is not treated differently from the same type of income earned from another legal entity (company or other) and is consequently taxed either as a dividend, interest or capital gains depending on the nature of the income.
Markus Bruckmüller and Jelena Hrle