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.
As a general rule, expenses spent on attaining, ensuring and maintaining taxable income in the Slovak Republic are tax deductible, unless they are specifically listed as non-tax deductible. Unfortunately, the Slovak Republic is out if line internationally in this respect as it provides for a substantial number of expenses to be specifically non-tax deductible in variance with common international practices. As examples of this we discuss the position of losses carried forward, the establishment of bad debt provisions, depreciation issues and advertising expenses.
Under current Slovak tax legislation tax losses can be carried forward for five years. However, the losses must be divided into five equal portions and then each portion (i.e. 20% of the loss) should decrease the taxable base in each of the following five years. Tax losses incurred in three consecutive years directly preceding the profit making year can be aggregated and carried forward but any further losses occurring during the company's existence may not be carried forward.
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...ted and technical improvements which have to be capitalized and deprecated over a longer period. In practice the authorities take a broad view of technical improvements which can lead to significant deferrals of tax deductions.
The rule for taking a tax deduction when assets are disposed of for less than net book value of taken out of use are also extremely restrictive.
Under Slovak tax only direct advertisement costs are fully tax deductible. Direct advertisement costs are the costs incurred on advertisement in magazines and newspapers and commercials on radio and T.V. The majority of other advertisement costs may be considered and indirect advertisement costs. Indirect advertisement costs are only tax deducible up to 1% of the taxable base of the Company. In the case that the Company incurs a loss these costs are not tax-deductible at all.
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