The Tax Deductibility of Expense in Slovak Law
The Slovak Republic has been engaged in competition with surrounding countries to attract foreign investors. One aspect of the continuing competition is that many countries have lowered their corporate income tax rate. The Slovak Government reduced its corporate income tax rate to 29% effective from January 1, 2000 and it is proposed to reduce this further in future. However, this tax rate does not tell the whole story. To assess the actual tax burden one should also consider which costs are allowed as tax deductible and which costs are not. In this article we will address some of the most important issues in this area.
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In the last three years of the five-year period the taxable base cannot be lower than SKK 150,000, regardless of the amount of losses carried forward. If the taxable base amounts to less than SKK 150,000 no losses can be carried forward at all.
Slovak tax loss rule are much more restrictive than in many countries. In many countries losses can be carried forward for longer periods and normally there is no restriction on the amount of a loss that can be carried forward into each year. Equally there is normally no reinvestment requirement.
Bad debt provisions
Another issue of concern in practice is the procedure for the creation of a bad debt provision for receivables of a Company. At present allocations to a bad debt provision are only tax deductible if the debtor is in bankruptcy, the bankruptcy procedures has already started and the company has filed, within a stated period of time, an application with the relevant Court that has acknowledged the claim. This is very formal and time consuming approach and it may well happen that, although a receivable will never be paid, the amount can never represent a tax deductible cost.
Slovak tax deprecation rules are another topic of extensive discussion with foreign investors. Assets are deprecated according to the rules of Slovak Income Tax Act in accordance with laid down rates for different categories. For example a building can be tax deprecated over 40 years. This is normal under most tax systems. However, there are several down sides of the Slovak tax deprecation rules that must be...