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4.2 Direct Taxes

The direct taxes can be defined as address taxes, non-delegable on the other party. The direct taxes constitute a large group of taxes through which the incomes and the property of taxable parties are being assessed. The scheme below displays the structure of the direct taxes in SR.

Scheme – Structure of the direct taxes in SR

Scheme – Schedule of taxable parties

4.2.1 Legal entity income tax

Taxable parties are legal entities who are understood in both countries as entities who are not individuals and have their registered office or their place in which decisions are taken by statutory bodies, in the territory of the given country. As well as individuals, we distinguish entities with unlimited and limited tax liability. The subjects who do not have their registered office in the territory of the domestic country have a tax liability referred only to incomes from sources located in the territory of the domestic country.

The object of the legal entity income tax is the income (proceeds) whose extent is judged according to the fact whether the legal entities have been or have not been established to conduct business. The object of the business subjects income tax is the income (proceeds) from the activity of these legal entities reduced by tax deductible expanses (costs).

A tax base is the result of the management increased by non-deductible items and decreased by deductible items. From this tax base a farther tax loss can be deducted. Incomes exempted from tax are specified in the legislation. In SR the incomes exempted from tax are incomes of legal entities that have not been established to run business (nonprofit organizations), as long as the incomes do not exceed SKK 300,000 per tax period. For the purpose of this Act an income means the difference between costs and revenues (incomes and expanses). Only incomes over this limit are taxable.

A tax period is a financial year which does not have to match a calendar year. A tax rate is 19 % of the legal entity tax base reduced by the tax loss. The tax loss may be deducted during five consecutive years at most. The scheme below displays the tax calculation.

Calculation of the legal entities income tax

4.2.2 Physical entity income tax

The taxpayers of the physical entity income tax are individuals obtaining incomes that are taxable according to the law. The law does not specify physical entities – enterprisers, it speaks only generally about physical entities. To have a tax liability, it is unimportant whether they are or are not inhabitants of SR. The law only specifies a physical entity tax liability as :

  • Unlimited – physical entities (tax residents) who are permanent residents, who have the allowance for a long-time stay or the allowance for a permanent residence, a domicile, or who usually stay more than 183 days over here.

  • Limited – physical entities (tax non-residents) who are not residents of SR and who are not usually staying here either.

  • All cash and non-cash incomes shall be liable to the personal income tax. According to the type of income, we distinguish :

  • an income from dependent activity ,
  • an income from business, other independent gainful activity and tenancy
  • an income derived from capital ,
  • a sundry income

  • The income from dependent activity is the income derived from employment, service, membership, or a similar relationship, in which the taxable parties performing his/her work must follow the orders or instructions of the payer of the income.

    The income from business, other independent gainful activity and tenancy. It includes mainly the income from private business, agricultural production, forestry and tenancy. But also the income from intellectual property rights, income earned by appraisers, translators, and brokers and others.

    When calculating the tax base, these incomes are reduced by the expanses incurred to generate and maintain such income or by the lump-sum expenses which are 40 % (except the craft trades where it is up to 60 % of such income).
    The income derived from capital includes profit sharing, interests in the share capital of jointstock companies, profit sharing of co-operatives, the income derived from promissory notes, from bonds, interests and other income from keeping securities.

    The sundry income includes incomes which are not in any of the above mentioned groups. It includes incomes derived from occasional activities, incomes from the sale, and incomes from the transfer of interests in the company and others. The sundry incomes are taxable in case of the exceeding of the limit, which is in SR defined as the living wages multiplied five times in effect since January 1 of the relevant tax period.

    The tax base is a sum by which the income (except the incomes exempted from tax) exceeds the expanses incurred in order to generate the income. If that difference is negative, it is a tax loss. The tax base is determined as an aggregate of the partial tax bases with respect to the individual types of the income.

    The tax base shall be reduced by tax allowances. In SR it is the yearly amount corresponding with 19.2 times of the living wages with respect to the taxable party (SKK 90,816), moreover, there is a tax bonus of SKK 6,480 per year with respect to every maintained child. The tax bonus may be claimed by any taxable party whose annual incomes exceeded the minimal wages six times. The tax is reduced by the sum of the tax bonus. The tax base can be reduced by SKK 12,000 per year in case of taxpayer’s voluntary old-age pension savings.

    Scheme of the tax allowances in SR

    There is a 19 % tax rate of the physical entity tax base reduced by the tax loss and by the tax allowances in SR. Dividends belong to significant items exempted from the tax. SR with no double taxation of the diluted earnings is unique among the OECD countries. When the tax of the legal entity income is paid, the diluted earnings are neither taxable, nor does the recipient declare the diluted earnings in an income-tax return.

    Calculation of the physical entity income tax in SR

    4.2.3 Depreciation of a long-time property

    For the purposes of the Income Tax Act, the term „depreciation” means a gradual inclusion among tax expenses of the depreciation charges of tangible and non-tangible property. Different view on the tangible and non-tangible property is asserted in term of the depreciation. The long-term tangible property is in SR defined as a property with useful life which exceeds one year and with the acquisition cost higher than SKK 30,000.

    The period of depreciation in SR and examples of property items falling into particular depreciation categories

    Depreciation category
    Period of depreciation
    Examples of property items falling into this category
    4 years
    motor vehicles, computers, tools, instruments intended for demonstration purpose…
    6 years
    building cranes, refrigerating and freezing machines, tractors for use in agriculture and forestry, furniture…
    12 years
    turbines, stoves, elevating and conveying equipment, air-condition equipment, ships…
    20 years
    buildings, infrastructure

    Meaningful types of non-depreciable tangible and non-tangible property items :
  • land ,
  • perennial crops, yielding crops for more than three years which have not yet reached their production age ,
  • protection dikes ,
  • works of art ,
  • movable national cultural monuments ,
  • surface and underground waters, forests, caves, measuring marks, indicators and other surveying standards and printing materials of the publication of State maps ,
  • museum and gallery objects ,
  • non-tangible property items embedded in the registered capital of the company or cooperative if they have been acquired by the founder free of charge, e.g. know-how, trade mark

  • The taxable party shall either depreciate its tangible property items using the straight-line depreciation method, or the accelerated depreciation method. The taxable party shall determine the method of depreciation with respect to each newly acquired tangible property item, and this method cannot be changed during the entire period of the depreciation. It is important to say that the property items are depreciated by the entity who acquires the economic benefits originated from these property items. I.e. in the praxis that e.g. the tangible property items leased in a financial leasing are depreciated by the tenant.

    The long-term non-tangible property items are property items with the useful life exceeding one year and with the acquisition cost higher than SKK 50,000. An accounting unit must depreciate intangible property items such as goodwill, capitalized incorporation expanses and development costs - within five years of their acquisition. A negative goodwill must be depreciated by the accounting entity within five years of its acquisition. If the incorporation expenses and the development costs have not been fully depreciated, the accounting entity may pay off dividends, shares and director’s bonuses only if the total profit or loss and the funds created from profit designated for the paying off exceed the total amount of the undepreciated incorporation expenses and development costs. Taxation aspect of the depreciation of the long-term intangible property items is not stated by the law.

    4.2.4 Motor vehicle tax

    The object of the tax is a vehicle with an assigned license number or an individual license number and is used for business activities or in connection with the conduct of business. The taxpayer of the motor vehicle tax is a physical or a legal entity who is registered in the vehicle papers as the holder of the vehicle or the driver of the vehicle in SR, in cases of international traffic or in specific cases the person who uses the vehicle. The tax base for utility vehicles and buses is the total weight in tons and axle number and for personal vehicles the engine cylinder capacity in cubic centimetres. The tax administration is performed by the tax office. In cases of vehicles in the international traffic, the tax administration is performed by the authorities of the Bureau of Customs. The tax period for the vehicles registered in the country is one calendar year, and for the vehicles in the international traffic it is the duration of their stay in SR. The motor vehicle tax rates are listed below.

    Motor vehicle tax rates

    Type of vehicle Annual tax rate in SR
    Personal vehicle SKK 1,600 – SKK 6,160
    Utility vehicles and buses with 1 axle SKK 1,800 – SKK 70,180
    Utility vehicles and buses with 2 axles SKK 1,800 – SKK 70,180
    Utility vehicles and buses with 3 axles SKK 14,600 – SKK 78,980
    Utility vehicles and buses with 4 and more axles SKK 18,600 – SKK 67,320

    Since January 1 2006 the motor vehicle tax in SR is in the competence of the upper tier units which may decide about its establishment and set the tax rates by a generally binding regulation. Therefore the individual upper tier units use different motor vehicle tax rates or the motor vehicle tax is not even established (presently, it exists in each upper tier unit). Except for the various tax rates, also the range of tax exemptions is different. Some upper tier units avoid the tax exemptions exercitation, another use the complete range, e.g. for agriculture vehicles, salvage service, public traffic service, etc.

    4.2.5 Real estate tax

    The real estate tax encompasses
  • land tax ,
  • tax on constructions ,
  • tax on apartments

  • In general, the real estates are object to the tax of immovable property items situated in SR. The taxable party is a physical or a legal entity registered in the real estate cadastral register as its owner or as the administrator of the real estate owned by the state, the municipality or the upper-tier unit. When the taxpayer cannot be determined in accordance with the Act, then the taxpayer is the person actually making use of the real estate. The tax rate is in the competence of the municipality or the town. The tax administrator (municipality) may increase or decrease the annual tax rate with effect since January 1. The tax administrator may also set various tax rates for the individual types of real estates. The annual tax rate on buildings may not exceed the lowest tax rate on buildings set by the tax administrator in a generally binding regulation by 40 times. It is similar with the land-units where it is 20 times.

    List of the local taxes and their basic requirements in SR

    Taxable party
    Object of the tax
    Tax base
    Tax rate
    Real estate tax Land tax owner of a landunit, administrator of a land-unit, tenant land-units in SR value of the land plot = land plot area x value per square metre 0.25 % of the tax base and the municipality may increase or decrease it
    Tax on constructions owner of a building, administrator of a building, tenant, user of the real estate buildings in SR size of the built-up area in square metres SKK 1 per every square metre of the built-up area, including also those areas where work has been initiated and the municipality may increase or decrease it
    Apartment tax owner of an apartment or a non-residential premise, administrator of an apartment or a non-residential premise apartments or non-residential premises in an apartment house size of the floor area of the apartment or nonresidential premise in square metres SKK 1 per each square metre and part of a square metre of the floor area and the municipality may increase or decrease it
    Dog tax owner or keeper of the dog (if the owner cannot be proven) a dog older than six months of age number of dogs determined by the municipality in SKK per dog per calendar year
    Tax on the use of public space physical or legal entity using the public space individual use of public space and temporary parking of a motor vehicle in a designated area of a public space size of the used public space in square metres or the parking lot set by the municipality per each square metre and per day, and for the temporary parking per hour and per parking lot
    Accommodation tax physical entity temporarily accommodated in the facility temporary accommodation of a physical entity provided in return for payment in the facility number of overnight stays determined by the municipality in SKK per individual person and overnight stay
    Vending machine tax physical or legal entity operating a vending machine machines and dispensers dispensing goods in return for payment number of vending machines determined by the municipality in SKK per vending machine per year
    Non-gainful (entertaining) slot machine tax physical or legal entity operating non-gainful slot machines slot machines activated in return for payment, where these slot machines do not pay off any financial win and are publicly accessible number of nongainful slot machines determined by the municipality in SKK per non-gainful slot machine per calendar year
    Tax on the entry into and on the parking of a motor vehicle in a historical part of the city physical or legal entity who is a holder of the
    vehicle. The
    payer is the
    entry and parking of a motor vehicle in a historical part of the city number of days of the entry and parking in a historical part of the city determined by the municipality in SKK per motor vehicle and each day of entry and parking. It can also be set as a flat rate.
    Nuclear facility tax operator of the nuclear facility nuclear facility in which a fission reaction takes place and electric power is produced size of the cadastral area of the municipality in square metres, located in a zone subject to threat according to the distance from the source
    Motor vehicle tax physical entity or legal entity who uses the vehicle for business motor vehicle and towed vehicle used for business with an assigned licence number in SR for a personal vehicle the engine cylinder capacity, for a utility vehicle the weight and axle number determined by the upper tier unit
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