After quite a few years of a highly restrictive withholding tax regime, in the aftermath of the crises that hammered Slovenia as well as other economies worldwide, the country has loosened its approach to the taxation of international debt securities and enacted an exemption from its withholding tax. Without such exemption, the withholding tax could otherwise amount to up to 20% for interest paid from international debt securities.
As a general rule, if interest arising in Slovenia is to be paid to a person who is not a resident of Slovenia, the person paying such interest must deduct a withholding tax which could amount to up to 20%. Pursuant to the newly enacted set of rules, an exemption from this requirement is now available where interest is payable on a quoted Eurobond. In order to qualify as quoted Eurobonds and therefore allow interest to be paid as a gross amount without any deduction for income tax, securities have to meet the conditions set out in the Tax Procedure Act, Corporate Income Tax Act and Personal Income Tax Act. In effect, a quoted Eurobond means any debt security that (a) is issued by a company incorporated in Slovenia; (b) carries a right to interest; (c) does not contain a conversion option to be exchangeable for common stock or, if the issuer is a bank, is not exchangeable at the option of the holder of the Eurobond; and (d) is admitted to trading on a regulated market or a multilateral trading facility (MTF) within an EU member state or Organization for Economic Cooperation (OECD) member state (for example, the London Stock Exchange, Irish Stock Exchange and Luxembourg Bourse, where Eurobonds are traditionally traded, fall within the EU, however, the Channel Islands Stock Exchange is excluded).
In the event debt securities do not qualify as a quoted Eurobond, all interest payments by the issuer of debt securities may be subject to a withholding tax application. In case the person by or through whom the payment is made to beneficial owners is not the issuer, the issuer is required by law to deduct from the interest amount the withholding tax at the maximum rate applicable under the law (20%). If such interest income were, if received directly by the beneficial owner, to be exempted from Slovenian tax or subject to tax at a lower rate, the beneficial owner may be entitled to claim (from the Slovenian tax administration) a refund of the excessive amount of tax withheld.
This means that in Eurobond offerings, Slovenian companies may now find themselves in an economically advantageous situation. However, it should be noted that there are exceptions to a company's ability to issue debt securities where such instruments being offered may not be considered straight debt securities, such as convertible or exchangeable bonds or bonds with other equity-related features.