The new Corporate Income Tax Act entered into force in January 2007. It stipulates that companies must withhold taxes at a rate of 15% for distributed dividend and interest issued to residents and non-residents of Slovenia. If international treaties on the avoidance of double taxation stipulate a tax rate other than 15%, the treaty's tax rate applies. Slovenia has such treaties with several different countries and the withholding tax on interest varies between 5% (in Germany, Luxembourg, Ireland and The Netherlands) and 10% (in the UK).
Further exemptions are defined in the Corporate Income Tax Act. No tax is withheld for payments of dividends distributed to persons to whom a common system of taxation applies (for example, parent companies and subsidiaries), under certain conditions. A withholding tax applies to interest, with the exception of: (i) interest on loans raised by Slovenia and securities issued by Slovenia; (ii) interest on loans raised by and debt instruments issued by authorized institutions in accordance with the act regulating insurance and the financing of international commercial transactions, for which a surety is provided by Slovenia under the stated act; and (iii) interbank loans.
The Corporate Income Tax Act stipulates that withholding tax does not need to be paid for interest payments in certain cases involving affiliated persons from different EU member states, if at the time of payment the payer and the eligible owner are linked (for example, the payer holds a share of at least 25% in the eligible owner's equity capital). The minimum share must be held for at least two years and other conditions listed in the Corporate Income Act regarding the payer or eligible owner must be fulfilled.
This tax exemption, however, does not apply to: (i) payments that have the nature of a distribution of profits or a repayment of capital; (ii) interests arising from credits that carry a right to participate in the debtor's profit; (iii) interest from credits that entitle the creditor to exchange its right to interest for a right to participate in the profit; and (iv) payments from credits that contain no provision for repayment of the principal amount or where the repayment of the principal amount is due more than 50 years after the issue date.
The withholding tax is also not payable if the dividend and/or interest is paid to: (i) Slovenia or a local self-governing community in Slovenia; (ii) the Bank of Slovenia; (iii) a resident taxable person who submitted a tax number to the paying entity; or (iv) a non-resident taxable person who must pay income tax on the income earned from performing business in Slovenia and who submitted a tax number to the paying entity, if the dividend and/or interest is paid to the business unit.
Personal income tax
Income tax on interest and dividends is paid according to a flat income tax rate. Any tax payment is treated as a final tax for residents and non-residents alike. The tax rate for dividends is 20%. The tax rate for interest income is 15% for 2006 and 2007, and is 20% after 2007. Residents must pay income tax on their worldwide income; non-residents must pay income tax on income derived in Slovenia.
The taxable base for dividends is the income received and the tax base for interest is the interest derived. If an interest payment is made to a Slovenian tax resident through a legal person, an entrepreneur or other intermediary that is a Slovenian taxpayer, the payer is bound to pay withholding tax to the tax authority. If payment is not made through a Slovenian taxpayer, the individuals will be obliged to file a tax return on the active income at the end of the quarter in which the interest and dividends were collected, as determined by the Tax Procedure Act.
Under the Tax Procedure Act, non-residents in Slovenia can claim privileges provided in an international treaty, that is, a reduction of the tax rate or exemption upon the payment of income, subject to verification of the treaty's entitlement by the competent tax administration office. Or, if upon payment of income a tax is imposed according to Slovenian domestic tax law, non-residents may subsequently be refunded the portion of the tax that exceeds the amount that Slovenia can levy under the provisions of the double-tax treaty. The general limitation period for claiming a refund is five years from the end of the calendar year in which the tax was paid.
By Markus Bruckmüller and Mojca Erman