Pdf version is available here: TAX NEWS 2019

VAT IN 2019

There are several VAT-related changes upcoming in 2019. We bring to you below an overview of the most important ones.

VAT exemption in case of transfer of property

VAT payer is the party transferring a property that decided, within five years since the property’s final approval, that they will treat the transfer either as subject to VAT or as a VAT exempt supply.

However, as of 1 January 2019, there is a change upcoming. If a residential property is transferred, the transferor will no longer have an election to opt for its VAT treatment. The supply will always be VAT exempt. This also means that there will no longer be a possibility of an input VAT deduction and the proportional part of VAT claimed upon the property’s acquisition will have to be returned.

Similarly, the election to opt for VAT treatment in case of lease of residential property is also abolished. Newly, the transaction will always be subject to VAT exemption with no corresponding VAT deduction.

 “The VAT Act amendment restricts the option of the lessor to choose the VAT treatment for the lease of a flat, family house or an apartment in a residential property such that this type of lease must be VAT exempt, even when the transaction takes place among entrepreneurs. The goal of the new provision is to prevent fraud, when lease was declared as business-related, but in the final effect it was meant for private consumption”, as explained by Soňa Ugróczy from the Slovak Chamber of Tax Advisers.

Based on transitional provisions, this change should apply to lease agreements concluded after 31 December 2018 based on which the property was handed over to the lessee after this date.

VAT security upon registration 

After 7 years, the obligation for the VAT payer to deposit a security upon VAT registration has been abolished. Companies thus no longer have to be concerned about the fact that a tax administrator may request a VAT security during the VAT registration process. All the VAT securities deposited so far will also be refunded by 28 February 2019.

„VAT security has been in place since 2012 in order to prevent tax underpayments from arising at the level of newly registered VAT payers. Abolition of this provision confirms that its limited use value and represents a positive development. All the unspent VAT securities will be automatically refunded by the tax authorities until 28 February 209“, says Soňa Ugróczy.

Electronic services provided abroad 

A simplification of the rules in the area of the provision of electronic services has been enacted as of 1 January 2019 that will be appreciated by those in the e-commerce business.

Until the end of 2018, it used to be the case that the entrepreneur providing electronic services (e.g. sale of e-books, software applications etc.) to an individual not carrying out business activities in another EU member state , was required to levy VAT from this electronic service in the buyer’s EU member state. The service provider levied the VAT either via a direct VAT registration in the respective EU member state, or through the so-called MOSS system.

As of 1 January 2019, a simplification has been enacted on the basis of which small-scale entrepreneurs whose annual turnover of electronic services to individuals not carrying out business activities within EU does not exceed EUR 10,000, are to levy domestic VAT. Electronic services of up to EUR 10,000 will thus be subject to the Slovak VAT rate.

VAT and vouchers

The new provision takes effect as of 1 October 2019, results from the EU Directive and concerns a change in the point when tax obligation arises when providing vouchers entitling their holder to buy goods or services.

As of 1 October 2019, the obligation to pay VAT arises at the point of selling the vouchers and not, as until now, when the underlying goods or services were delivered.

However, the above treatment does not apply if the vouchers are sold by a party other than the one which also delivers the goods or services to which the voucher entitlers their holders. In such a case, the old rule that the VAT is levied when the goods or services are delivered remains in effect.

Changes relating to purchase of some goods

As of 1 January 2019, entrepreneurs will be entitled to deduct VAT upon purchase also on the basis of a receipt from an electronic cash register, as long as the goods service business purposes.

Soňa Ugróczy – Slovak Chamber of Tax Advisers: “the current regulation of rules governing domestic reverse charge mechanism when transacting with specific commodities such as agricultural, metal or iron products, caused various practical issues to taxpayers throughout 2018. When buying such goods, they were not entitled to an input VAT deduction on the basis of a receipt issued by an electronic cash register, although they were VAT payers in such transactions and despite the fact that the retail paid the VAT to the state directly wen selling such goods.”

MINIMUM WAGES AS OF 1 JANUARY 2019

With the onset of the new year, minimum wages have been increased by EUR 40 as of 1 January 2019, amounting newly to EUR 520 per month for employees. This also entails the increase of the minimum hourly wages from the previous EUR 2.759/hour to EUR 2.989/hour (e.g. for those on short-term contracts).

MINIMUM INCOME

Minimum income is the socially accepted minimum threshold for an individual not to suffer from major material inadequacies. The minimum income amount always resets as of 1 July of the given calendar year. As of 1 January 2019, the minimum income amounts to EUR 205.07.

WAGES-RELATED PARAMETERS IN 2019

A change in the minimum income as of 1 July 2018 impacts the following parameters, applicable for the period 1 January – 31 December 2019:

1. Child-related tax bonus: EUR 22.17 (monthly) or EUR 266.04 (annually) for one child.

Be aware that, as of April 2019, the tax bonus increases to EUR 44.34 for one child until 6 years of age. The increased tax bonus is last applied in the calendar month when the child reached 6 years of age.

2. Parental contribution: EUR 220.70.
3. Child contribution: EUR 24.34.
4. Surcharge to the child-related tax bonus: EUR 11.41.
5. Non-taxable part of the taxpayer’s taxable income: EUR 328.12 (monthly) or EUR 3,937.35 – annually (for annual setlement/2019 tax return), if the taxpayer reaches taxable income of up to EUR 20.507 (100 times minimum income).
6. Taxable income of individuals, the exceeding of which triggers reduction of the non-taxable part of the taxpayer’s taxable income: EUR 20.507. The non-taxable part of the taxpayer’s taxable income is calculated as follows:

9,064.094 – (taxable income : 4), where the the amount of 9,064.094 = 44.22 times minimum income.

7. Annual personal taxable income (annual), the exceeding of which triggers 25% tax rate applied to the excess (and where the non-taxable part of the taxpayer’s taxable income is set to zero): EUR 36,256.37 (176.8 times minimum income).
8. Taxable income of individuals (monthly), the exceeding of which triggers 25% tax rate EUR 3.021.36.
9. Income tax is not assesed or paid: if the taxpayer’s total 2019 taxable income does not exceed EUR 1.968.67.
10. Minimum pension amount: EUR 278.90 (monthly).

PER DIEMS IN 2019

Per diems applicable as of 1 June 2018 are as follows:

• EUR 4.80 for the duration of 5-12 hoursn,
• EUR 7.10 for the duration of 12-18 hours,
• EUR 10.90 for the duration in excess of 18 hours.

As of 1 January 2019, basic compensation for every 1km travelled for business purposes amounts to:

• EUR 0.50 for motorbikes and tricycles,
• EUR 0.183 for personal vehicles.

Tax News 2018

Minimum wages and overtime pay

The new year brings the regular increase in minimum wages. The new minimum wages applicable as of 1 January 2018 amount to EUR 480/month for employees. This also implies an increase in the minimum hourly wages from the original EUR 2.50/hour to EUR 2.759/hour.

As of 1 May 2018, there is an amendment to increase the overtime pay and pay for work done during national holidays. For the first time, this change will also affect one-off job contracts. The current law obliges the employer to pay extra for overtime work, work during national holidays and during night shifts as extra percentage of wages. This extra pay will now have to be calculated using at least the minimum hourly rate of EUR 2.759 in the following manner:

• For every hour worked overtime during Saturday or Sunday, the employer will be obliged to pay to the employee an extra amount on top of the regular wages of at least 100% of EUR 2.759;
• For every hour worked during a night shift (between 10pm and 6am), the employer will be obliged to pay to the employee an extra amount on top of the regular wages of at least 50% of EUR 2.759 = EUR 1.3795;
• For every hour worked under hardship, the employer will be obliged to pay to the employee an extra amount on top of the regular wages of at least 20% of EUR 2.759 = EUR 0.5518;
• For every hour worked during a national holiday, the employer will be obliged to pay to the employee an extra amount on top of the regular wages of at least 100% of EUR 2.759.

Illegal employment

As of 1 January 2018, the National Parliament approved amendment No. 82/2005 Coll. on illegal work and illegal employment. The law introduces changes that will benefit employers. If an employer omits to register an employee for social security purposes before the employee starts the work, the employer is liable to a penalty of at least EUR 2,000. If the employer omits to register 2 and more employees, the penalty amounts to at least EUR 5,000. It does not matter whether the employer corrects this by making a retroactive registration afterwards.

As of the new year, more reasonable conditions will apply. If an employer registers an employee within 7 days after starting work, the penalty will no longer apply. However, if a labor office starts an audit of the employer during the 7-days period, the penalty will still apply.

The obligation to register employees for health insurance purposes remains in effect without any changes.

Job offer

The amendment introduces a new obligation for the employers that remains to be seen in practice. As of 1 May 2018, upon publication of a job offer, an employer will be obliged to publish the offered wages (the so-called basic wages). If an employer subsequently enters into a work contract with the employee, the employer cannot agree on basic wages in the contract that would be lower than what had been published in the job offer.

Social security and health insurance premium relief for working pensioners

For a number of years, a relief for social security and health insurance premiums has been in place for working students, which they can apply based on a signed declaration. When receiving income of up to EUR 200/month, the amount of social and health insurance premiums is negligible.

As of 1 July 2018, the relief will also newly apply to pensioners, including those in early retirement. The relief will not be as substantial as for students, but will surely make all working pensioners happy nonetheless. The relief can be claimed with one employer only for the amount of up to EUR 200. The principle remains the same as for students. The amount of social security and health insurance premiums for the working pensioners will be as follows: 4% for the employee, 18.75% for the employer.

It is not recommendable for early pensioners to exceed the income amount of EUR 200 as it would trigger mandatory pension insurance, which would lead to the loss of entitlement to pension, the payment of which would be duly suspended by the social security office.

Tax relief

As of 2018, a new item deductible from taxable income has been put in place for taxpayers that will apply to payments for medical stays in spas. The list of qualifying spas has been published by the Ministry. The maximum amount of the deductible amount is EUR 50/year. This fixed amount can also be claimed in respect of wife and children that also took part in the medical procedures. However, the service must be purchased directly from the qualifying spa and not from an intermediary.

As of 2018, tax bonus for interest paid from residential loans is in effect. Tax bonus shall be granted to young people of up to 35 years of age who draw a loan to finance property. The tax bonus will amount to 50% of the interest paid in the given year up to the maximum amount of EUR 400/year.

Non-taxable part of taxable income for taxpayer

The first increase in the non-taxable part of taxable income for taxpayers since 2014 is going to apply as of 2018. In the last four years, the amount has been EUR 3,803.33. As of 2018, the amount shall increase to EUR 3,830.02 EUR/year and EUR 319,17 EUR/month. The amount of the credit is calculated from the current minimum income (19.2 times the minimum income). EUR 19.2 * EUR 199.48 = EUR 3,830.02. The new amount of the credit will first apply to salaries and wages for January 2018 and when filing 2018 tax returns.

Exit taxation

Exit tax shall apply in cases when a taxpayer (subsidiary of a foreign multinational) decides to terminate business activities in Slovakia and migrate to another state in terms of its tax residency. Such a taxpayer will be obliged to tax all capital gains that relate to the Slovak business activities, regardless of the fact whether the gains had been realized or not as of the exit date. Such capital gains will be subject to the 21% tax rate.

A mitigating clause relates to tax collection point as the tax shall be paid within the period of up to 5 years. However, such payment schedule will only be possible in case that the property is transferred to a state where subsequent collection of tax can be reasonably assured.

Changes in the VAT securitization rules

As of 1 January 2018, there will be new criteria for establishing tax risks for the purpose of VAT securitization for VAT registration applicants that are:

• natural person or legal entity, with the VAT debt of EUR 1,000 and more, if such tax debt had not been paid as of the day of filing the VAT registration application;
• natural person or legal entity to which VAT registration was cancelled due to repeated breach of conditions stipulated in Article 81 Section 4 Subsection b, Point 2 of the VAT Act.

The procedure to refund the VAT security is governed by the VAT Act and applies when the following occurs:

• VAT registration process is suspended and the cash security or its part had already been deposited;
• VAT registration is cancelled within 12 months of the VAT security deposit date in cases where the security had not yet been fully used up.

Disclosure of archived accounting documents

As of 2018, the period for archiving accounting documents has been harmonized with the period for archiving financial statements. As financials statements are drawn up from accounting documents, the new rule is reasonable but not very practical for entrepreneurs. The obligation to archive accounting documents will extend from the current 5 years to 10 years and will also apply to documents for which the original 5-year period had not yet elapsed.

A rule that accounting documents can be archived in a written or digital form, based on the entrepreneur’s own decision, remains in effect.

Tax News 2017

Compensation for the withholding of an excess VAT deduction during a tax audit

The VAT amendment has introduced the so-called interest from an excess VAT deduction into the tax law. A taxpayer is entitled to receive the interest in case the excess VAT deduction was withheld as a result of a tax audit.

If a tax authority initiates a tax audit within the VAT refund term and the excess VAT is not paid by the end of 6 months since the last date of the VAT refund term, interest from the excess VAT starts accruing to the taxpayer. The interest rate amounts to the double of the ECB rate applicable on the first day of the calendar year for which the interest is calculated. The minimum interest rate is set at 1.5%.

The interest is calculated from the amount of the excess VAT deduction for each day in excess of 6 months since the end of the VAT refund term until the actual payment.

The new procedure for charging interest from excess VAT deductions will apply to tax audits initiated after 1 January 2017 as well as those that had not been concluded as of that date.

Reverse charge for construction activities

Since 1 January 2016, the reverse charge treatment has been introduced in the VAT law via provisions of Article 69 Section 12 Subsection j). The main condition for application of the reverse charge treatment to construction activities is correct classification of construction activities based on CPA nomenclature. In practice, this can be an issue as taxpayers often do not know how to correctly classify a construction activity and out of prudence serve an invoice including VAT.

The VAT law amendment proposes introduction of a new concept when applying the reverse charge treatment to construction activities. This should increase certainty to both the supplier as well as the customer.

If a supplier has a justifiable reason to assume that the service being provided is subject to the reverse charge treatment, he or she shall provide a clear reference on the invoice to the reverse charge regime, making it clear that the supply recipient is liable to declare the VAT.

Change to VAT Control Statement

In accordance with the amendment of the law No. 222/2004 Coll., on VAT, as of 1 January 2017 a new version of the VAT Control Statement has been introduced. The new form shall be used for the first time in connection with the filing of a VAT return for January 2017, which is due in February 2017.

In accordance with Article 78 Section 2 Subsection a) of the VAT law applicable since 1 January 2017, the Control Statement must contain information regarding every individual invoice that the taxpayer was required to serve under Articles 71-75 on supply of goods and services subject to domestic VAT that are not VAT exempt. This shall exclude simplified invoices or those subject to the reverse charge treatment in accordance with Article 69 Section 12 Subsections f)-j), excluding simplified invoices.

As of 1 January 2017, taxpayers that transfer VAT liability to the counterparty under the reverse charge mechanism shall also include information in Section A.2. of the VAT Control Statement. This concerns supplies of:

• construction activities,
• delivery of a building or its part,
• goods with installation or assembly.

The reverse charge treatment applies as long as the supplied construction activities, a building (or its part), installation or assembly of goods falls within the scope of Section F (Construction Activities) of the Statistical Classification of Product by Activity (CPA).

Increase of lump sum expense deductions for self-employed individuals

The biggest surprise for self-employed individuals is the enactment of a percentage increase of lump sum expense deductions. Currently, a self-employed individual can choose between two methods of applying expenses:

• actually incurred expenses
• lump sum deductions

For the 2016 tax period, 40% lump sum deductions are still in force whereas the maximum amount is EUR 5,040 a year.

Since 1 January 2017, there will be a change insofar that the percentage for applying the lump sum deduction will increase to 60%. The absolute limit also increases from EUR 5,040 to EUR 20,000. Newly, the limit shall not be calculated on a pro-rated basis for months of self-employed activities within a given year.

This change is mainly beneficial to artists, journalists and authors whose income is made of two components – active income (fee for creating a work) and passive income (fee for providing a license). Lump sum deductions of 60% will thus apply to both income components which means the cap will be twice EUR 20,000.

This change also introduces an additional benefit to self-employed individuals. The increase of expenses (lump sum deductions) will cause a reduction to their taxable income which determines amounts of social security and health insurance premiums.

Digital data boxes

Act No. 305/2013 Coll, on e-Government also addresses the more discussed topic of the digital data boxes. Data boxes have been set up by the government for all state authorities, entrepreneurs as well as citizens of 18 years of age and above.

The data boxes should serve for digital communication between state authorities and citizens as well as entrepreneurs. The list of state authorities that will start communicating in this manner is not known yet. For the time being, tax authorities, health insurance and social welfare authorities continue to communicate in written form.

The setup of data boxes does not concern foreign shareholders. The access to digital data boxes is only possible on the basis of an identity card issued to Slovak citizens.

Delivery of documents was supposed to start as of 1 January 2017. However, as identity cards of many entrepreneurs had to be exchanged, the shift of the start date to 1 July 2017 is being considered.

If an entrepreneur already took steps to get access to his or her account through their own identity card or using an authorized attorney until 31 December 2016, he or she is obliged to start using the data box. If he or she does not start doing so until 1 July 2017, the data box will be automatically activated as of that date.

Deactivation of a company digital data box activated for delivery is not possible. The digital tax box will be deleted only after the removal of the company from the Commercial Register.

Reduction of corporate income tax rate

The pledged reduction of corporate income tax return to 21% has come into force. Starting with the new year, the companies will thus pay lower taxes.

In accordance with the Income Taxes Act amendment, the corporate income tax rate shall be reduced again, down to 21%. The lower income tax rate shall apply for the first time in the period starting on 1 January 2017 and later. In 2016, legal entities shall continue to apply the 22% rate. By reducing the income tax rate, the government has fulfilled its pledges included in the Government Program for years 2016-2020.

As the income tax rate is being reduced from 22% to 21%, advances to be paid as of 1 January 2017 will also be reduced. The advances calculated based on the 2015 tax return have to be recalculated using the new tax rate.

Increase of the minimum wages

2017 year starts with an increase of the minimum wages from the original EUR 405/month amount to EUR 435/amount. The minimum hourly wages will increase from EUR 2.328 to EUR 2.5. This represents an 7.41% increase. This is the highest increase in the history of Slovakia.

The law calls for an annual increase of minimum monthly wages based on the following formula:

– applicable monthly minimum wage for 2016 (i.e. EUR 405) times the rate of annual growth of average monthly wages for 2015 (i.e. 102.9).

Based on this formula, the minimum monthly wages for 2017 would have been EUR 416.8. Based on the Directive of the Slovak Government No. 280/2016, the minimum wages have thus been set EUR 18.2 higher than the law requires.

This increase will be reflected in the minimum wages determined based on the given work difficulty factor:

If the weekly work is less than 40 hours, the minimum wages are adjusted as follows:

The increase of the minimum wages will also cause an increase of payroll costs to employers by pushing up the sum of health insurance and social security premiums.

Dividends

After thirteen years, the Slovak government reintroduces taxation of dividends. When paying out past profits (dividends), a special health insurance levy of 14% applies until the end of 2016. Starting in 2017, the levy is abolished. To make up for it, withholding tax rate of 7% is introduced. The rate was originally set at 14%.

Dividends paid to legal entities will not be subject to tax i.e. no change in the current practice. For dividends paid to individuals, the following will apply:

• dividends paid from profits created until the end of 2013 – upon payment in years after 2016, a withholding tax rate of 7% shall apply,
• dividends paid from profits created in years 2004 – 2016 – the current regime shall apply i.e. dividends have not been subject to tax and this treatment shall remain in force in years after 2016. However, these dividends will continue to be subject to the special health insurance levy determined in accordance with the law valid in the given years (2011-2012: 10%, 2013-2016: 14%);
• dividends paid from profits created in years from 2017 onwards – the amendment proposes taxation of dividends paid to individuals via the withholding tax rate of 7% while abolishing their being subject to the special health insurance levy.

Increase of per diems

The Ministry for Labor, Social Welfare and Family of the Slovak Republic has determined new rates of per diems applicable since 1 December 2016 for domestic business travel under Article 5 Section 2 of Act No. 283/2002 Coll., on per diems.

Rates of per diems for domestic business travel starting as of 1 December 2016:

• EUR 4.50 for business travel with duration of 5-12 hours,
• EUR 6.70 for business travel with duration of 12-18 hours,
• EUR 10.30 for duration above 18 hours.

The increase of per diems will mainly affect the value of meal vouchers. Their value derives from the amount of per diems for domestic business travel with duration of 5-12 hours. Based on the said law, the amount of a meal voucher will increase from the current EUR 3.15 to EUR 3.38.

The increase of per diems will also affect the amount of tax deductible costs for the employers. In accordance with Article 152 Section 3 of the Labor Code (311/2011 Coll.), the employer shall contribute at least towards 55% of the value of one meal, up to the limit of 55% of per diems applicable for business travel with duration of 5-12 hours. This means that the employer will be entitled to apply a tax deductible expense of between EUR 1.86-2.48 for one meal voucher.

A self-employed individual will be able to include in tax deductible expenses an amount of EUR 4.50 for every day worked.

Costs deductible upon payment

Based on the amendment of the Act No. 595/2003 Coll., on Income Taxes, as further amended (further “ITA”), as of 1 January 2015, costs deductible upon payment have been newly defined.

As of 1 January 2017, the definition has been rendered more precise.

We list below 10 categories of costs that require increased attention:

1. payments for damages
2. payments for lease of fixed assets (tangibles as well as intangibles)
3. payments for lease of intangibles (e.g. payments for provision of industrial know-how, software, copyrights or similar rights)
4. costs for marketing and other studies
5. costs for market research
6. commission fees at the level of the principal
7. costs relating to payments of income to taxpayers resident in countries with no Double Tax Treaty
8. costs for specific consultancy and legal services
9. costs for obtaining compliance with standards and for certificates
10. costs for sponsorship in sport based on a special agreement at the level of the sponsor

Tax News 2016

The income tax legislative amendment as of January 1, 2016.

Year 2016 won’t be without changes either. On 22.09.2015 the National Council SR passed an amendment to Income tax Act no. 595/2003 Coll., as amended. This amendment introduces improvement of provisions already adopted during 2015, as well as new, more advantageous conditions for taxpayers.

Perhaps the biggest change, affecting every taxpayer is the possibility to claim the tax deductible expenses only after their payment. According to the present wording it meant that it will apply to all services of the advisory and legal services type. However, from 1.1.2016 the term “advisory” will be specified more precisely. From the next year, the advisory shall have the meaning of the provision of accounting services, auditing services and tax advisory.

In case of certain expenses, there will be even limit set with regards to their eligibility for inclusion in tax expenses. This restriction will apply to expenses for obtaining standards and certificates, not exceeding 2,400 Euro. These expenses will not be accrued and they will be included in the tax base in the form of lump sum amount.

Positive change is the termination of tax license for land cooperatives and companies wound up without liquidation. The tax license exemption will be determined by income type and the annual turnover amount, which must not exceed 10,000 Euro. The tax license also won’t have to be paid by a company, which during the taxable period filed an application for winding up without liquidation. A land cooperative, meeting the exemption criteria and the company winding up without liquidation, will not pay the tax license for calendar year 2015 either.

Subsistence level for 2016

For the second year in a row, the subsistence level amount remains without change. This means that also in 2016 the amount for applying tax bonus (21.41 €/month), non-taxable part of tax base per taxpayer (316.94 €/month), as well as other values, derived from the subsistence level, remain the same.

Indexation of the subsistence level depends on the growth of net incomes or living expenses. The current value is 198.09 €/month, which represents the minimum value of private individual income, before it is qualified as material distress. The subsistence level is adjusted every year, as of July 1, by multiplying the subsistence amount by a ratio of net cash income growth per head or by the ratio of living expenses growth of low income households, with the lower value of these two. The subsistence amount is not adjusted if the ratio, which is used for its adjustment was equal to 1 or lower. This means that the subsistence level cannot decrease, but it can only rise.

Maternity leave allowance increase

Part of the second social package presented by Fico government is the improvement of young families’ status. As of January 1, 2016 the maternity insurance allowance increase comes into effect. Until the end of 2015 the maternity allowance was defined as 65% of the assessable base. The assessable base is the employee income during the decisive period. The decisive period varies depending on the health insurance period of the employee. The new maternity allowance will be defined as 70% of the assessable base. It won’t be necessary to apply for the new allowance, as it will be increased automatically. The maternity leave allowance increase is planned once more, namely to 75% of the assessable base. In case of minimum maternity leave, this will be approximately 20 €/monthly and in case of maximum allowance amount, it will be approximately 60 €/month. The maternity allowance duration remains without change. Increase will also apply to the childcare allowance, namely approximately by 50 €/month.

Time element for assessing penalties

The change of tax rules applies to the penalties levied on taxpayers in an effort to motivate them to more responsible approach to their taxes. The option to file additional tax return also after the commencement of a tax audit is a great advantage for the taxpayer, mainly from financial standpoint. The entitlement for filing must be exercised by the taxpayer latest within 15 days after the commencement of the tax audit, which will be rewarded by a lower penalty. In the case that the tax administration will assess tax based on the tax audit, the taxpayer will be charged a penalty of 10% of the additionally assessed tax amount for each day overdue. In the case of an additional tax returns being filed prior to the delivery of the tax audit notice, the amount will be 3% of the additionally assessed tax amount and in the case of an additional tax return being filed within 15 days after the tax audit, the penalty will equal 7% of the additionally assessed tax amount. The penalty must not be higher than the additionally assessed tax.

The new system for penalty calculation will be applied to additional tax returns filed after December 31, 2015.

VAT amendment after January 1, 2016

The principal change of the approved VAT act amendment is the possibility of VAT payment only after the payment by the customer. Small and medium enterprises will no longer have to pay to the government VAT immediately after the issuing of an invoice, as was the case so far, allowing them to avoid financial problems or unnecessarily high penalties for late tax payments to the tax office. Everyone who decides to utilise this principle and is legally entitled to do so, is obliged to indicate this fact on the invoice by stating that “the tax shall be applied upon the receipt of the payment.” This immediately provides information to his customer, that equally as he applies the output tax only after the payment, he as the recipient cannot apply the input tax until such invoice is paid to the supplier. The restriction is that this principle cannot be applied by a company with turnover higher than 100,000 Euro.

Changes will also apply to VAT control statement, namely in section B.3, where in the past all information was entered in summary form from simplified invoices. Since during 2015 there were a number of cases, suspicious of tax avoidance, where in section B.3, the taxpayers stated amounts for tax deduction in multiples of thousands, the tax office introduced restriction. Each taxpayer supplying data in section B.3, will have to monitor the amount of tax deducted from these invoices. After the deducted tax amount will exceed 3,000 Euro, it will be the taxpayer’s obligation to enter separately all these documents in section B.3, in order to show clearly which document is involved. In the VAT control statement, the taxpayer will enter the total VAT base amount, the total VAT amount and the total amount of deducted tax, broken down according to suppliers with their VAT ID number. This change will come into effect on April 1, 2016.

For more than two years the government has been tightening the requirements regarding VAT registration applications, namely by introducing the tax bond. Without its payment to the tax authority, it was not possible to register a tax entity (taxpayer). Today the situation changes and from the next year, the tax office will allow registration also without the payment of the bond, whereby it will still pursue the outstanding portion of the bond. Full exemption shall apply only to newly starting businesses.

From January, the government will reduce VAT rate for selected foodstuffs. This change is also part of the second social package. The new lower VAT rate will be 10% and it will apply to 10 types of groceries. Currently, the 10% VAT rate applies to medications and books. From the next year, this shortlist will include probably all types of fresh meat, including fish, fresh bread, butter and milk.

Minimum wage in 2016

Same as every year, also from the next year, there will be again an increase in the minimum wage. Minimum wage per employee, performing the least demanding work is 405.00 €/month (2.328 €/hour). The highest demand labour category has minimum wage set at 810.00 €. Therefore every employer should know at what level of difficulty his employees perform their work, in order to maintain the minimum wage entitlements for each employee. More detailed specification of individual labour demand levels is in appendix no. 1 of the Labour Code.

Virtual cash registers

The Virtual cash register (VCR) project was launched in April 2015, which in many instances replaced the electronic cash register. Setup expenses for VCR are zero. Only an application and subsequent registration with the tax authority are required. It’s utilisation was not available to all of tax entities, because also this novelty encountered certain restrictions. The use of VCR is available only to a taxpayer, who during one month does not issue more than 1,000 receipts. Initially, the VCR could have only been used by a business, which was obliged to record sales from the cash register in accordance with new regulations. From January 2016, the VCR will be available to all businesses, who are subject to obligation to record their sales in cash register.