On 15. Directive No. 2024/927[1] (“AIFMD II“). EU Member States must transpose AIFMD II into their national laws by 16 June at the latest. April 2026 , while the transposition deadline for some provisions has been postponed until 16. April 2027. AIFMD II fundamentally changes not only in particular the provisions of Directive No. 2011/61/EU[2] (“AIFMD“), but also partially amends Directive No. 2009/65/EC[3]. The changes introduced by AIFMD II apply to all management companies licensed under the AIFMD, but do not apply to the so-called “AIFMD II”. They do not apply to under-limited AIFMs.

We took a closer look at the topic of investment funds, including the differences between management companies and registered managers, at our conference on regulated structures in real estate:

Lending by alternative investment funds

One of the key objectives of AIFMD II is to harmonise the rules for alternative investment funds (AIFs) providing credit. The aim is to create an efficient and functioning internal market for AIF lending within the EU. The harmonisation of AIF lending is further intended to ensure a consistent level of investor protection across Member States and also to facilitate access to (alternative) finance for businesses.

What is an AIF lending?

A lending AIF[4] is such an AIF under AIFMD II:

(a) whose investment strategy consists primarily of lending; or

(b) the loans granted have a nominal value of at least 50 % of its net asset value.

At the same time, the term “extension of credit”[5] within the meaning of AIFMD II means the granting of credit:

(a) directly from the AIF as the original lender; or

(b) indirectly through a third party or special purpose vehicle(SPV) that originates the loan for or on behalf of the AIF, or an AIF management company (‘AIFM‘) for or on behalf of the AIF in relation to the AIF, where the AIFM or AIF is involved in structuring the loan or in defining or pre-approving its characteristics before acquiring exposure to the loan.

At this point it should be noted that the Slovak translation of AIFMD II uses a single term “loan origination”, while the English version of AIFMD II differentiates between “loan origination” and “originating a loan”. It is important to see this distinction in the context that a loan-originating AIF is an AIF that meets the above criteria, but at the same time some of the provisions of AIFMD II will also apply to those AIFs that do not qualify as loan-originating AIFs but are involved in the origination of loans (” AIFs that originate loans”).

The term “loan “ itself is not defined in the AIFMD II, which may cause some interpretative confusion in the future, specifically as to what all transactions will qualify as a “loan” for the purposes of the AIFMD II. In this respect, ESMA can be expected to provide its opinion on the issue[6].

What will it mean for asset management companies if they want to manage AIFs providing loans or. AIFs involved in lending?

Under AIFMD II, an AIFM will also be able to apply for authorisation to provide an additional service[7], namely credit management activities. In such a case, the AIFM will be obliged to, for example[8]:

(a) establish effective policies, procedures and processes for the assessment of credit risk and the management and monitoring of its loan portfolio, ensure that those policies, procedures and processes are kept up to date and effective and review them at least annually;

(b) ensure that the nominal value of loans granted by the AIF it manages to any one borrower does not exceed in aggregate 20% of the capital of that AIF where the borrower is a finance company[9], another AIF or a UCITS fund;

(c) comply with lending restrictions under which the AIF will not be able to lend to, for example, its AIFM, or. its employees, its depositary or entities in the same group as the AIFM;

(d) disclose all costs and expenses associated with loan servicing; and

(e) ensure that the AIF it manages retains 5% of the nominal value of each loan made by the AIF and subsequently transferred to third parties.

However, authorisation for the activity of loan management shall not be required for the granting of shareholder loans, provided that the nominal value of such loans does not exceed in total 150 % of the AIF’s capital.

Can a lending AIF be an open-ended investment fund?

AIFMD II provides[10]that the AIFM is obliged to ensure that the AIF lending which it manages is closed. At the same time, however, this Directive allows for such an AIF to be kept open if the AIFM is able to demonstrate to its supervisory authority that the liquidity risk management system of such an AIF will be compatible with its investment strategy and redemption policy.

Liquidity management tools available to AIFMs managing open-ended AIFs include[11] under AIFMD II will include, for example, suspension of subscriptions, redemptions and redemptions, restrictions on redemptions, extension of notice periods for redemptions, redemption fees or swing pricing mechanisms. These instruments may only be used if they are provided for in the AIF’s statutes or constituent documents.

New requirements for the performance of AIFM activities and the outsourcing of activities to third parties

AIFMD II introduces a new requirement to appoint at least two natural persons who are either full-time employees of the AIFM or full-time executive or management board members of the AIFM and who reside in the EU to carry out the activities of the AIFM.[12]

AIFMs that delegate portfolio management or risk management functions will be subject to enhanced reporting obligations and will be required to provide additional information to their supervisor as part of the reporting process on the delegated persons, e.g. the number of full-time equivalents of staff used by the AIFM to perform day-to-day portfolio management or risk management tasks, a list and description of the activities related to portfolio management and risk management functions that are delegated, the number of full-time equivalents of staff used by the AIFM to monitor delegation arrangements, the number and dates of periodic due diligence reviews carried out by the AIFM to monitor delegated activity, and others.

Similarly, the enhanced conditions regarding entrustment will also apply when applying for an AIFM authorisation, where the applicant will also have to provide, for example, the following information: (i) a detailed description of the human and technical resources used by the AIFM to carry out the day-to-day tasks of portfolio management or risk management and monitoring of the entrusted activities, or, for example (ii) a description of the regular due diligence measures to be carried out by the AIFM to monitor the delegated activity.

Depositary from another Member State

In order to increase competition in depositary services, AIFMD II introduces a regime under which Member States have the possibility to allow their supervisory authorities to allow the designation of a depositary established in another Member State. Currently, under Art. 21 para. 5 of the AIFMD, the depositary must be established in the home Member State of the AIF (if the AIF is domiciled in the EU).

The designation of a depositary from another Member State will be possible under AIFMD II provided that the following conditions are met[13]:

(a) the AIFM has received a reasoned request from the competent supervisory authority for permission to designate a depositary established in another Member State and that request demonstrates a lack of depositary services in the AIF’s home Member State that are capable of effectively meeting the needs of the AIF with regard to its investment strategy; and

(b) the total amount of assets entrusted to custody on the national market of the depositaries of the home Member State of the AIF on behalf of EU AIFs authorised or registered under the relevant national law and managed by the EU AIFM does not exceed EUR 50 billion or the equivalent in any other currency.

Provision of information to investors

The regulation of the provision of information to investors, which is regulated in Article 23 of the AIFMD, will also undergo changes. Under the new legislation, the AIFM will be required to make available to investors before making an investment, in addition to the information previously required, for example (i) the fees, costs and expenses which it incurs and which subsequently accrue, directly or indirectly, to the AIF or to one of its investments; or (ii) information on redemption rights in both normal and exceptional circumstances, existing redemption arrangements with investors and the possibilities and conditions for the use of liquidity management tools.

The AIFM will also be required to provide investors with the following information on a regular basis for each AIF it manages and distributes in the EU:

(a) the composition of the loan portfolio,

(b) once a year, all fees, costs and expenses directly or indirectly borne by investors,

(c) once a year, any parent undertaking, subsidiary or special purpose vehicle used in connection with the AIF’s investments by or on behalf of the AIFM.

Given the transposition deadline of two years, we will have to wait some time for the relevant draft amendment to the Collective Investment Act. It will also be interesting to see whether Slovak AIFMs take the opportunity to create AIFs with an investment strategy focused on lending. In the Slovak realities, this issue is inevitably linked to the fact that it is common for a Slovak AIFM to be part of a group that includes a banking institution, thus potentially representing direct competition for the AIF providing credit.

If you are interested in this topic, please do not hesitate to contact us:

• Peter Varga, e-mail: peter.varga@hg.amcef.com
• Roman Baranec, e-mail: roman.baranec@hg.amcef.com

We have been involved in the field of collective investment for a long time, as evidenced by our award in the prestigious Law Firm of the Year 2024 competition , in which we won the “Capital Markets” category.

Alternatively, you can address your specific questions in a consultation with our partner Peter Varga, who specialises in financial regulation and tax law. You can book a consultation here:

[1] Directive (EU) 2024/927 of the European Parliament and of the Council of 13. 2024, amending Directives 2011/61/EU and 2009/65/EC as regards delegation agreements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and the provision of credit by alternative investment funds.

[2] Directive 2011/61/EU of the European Parliament and of the Council of 8. June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulation (EC) No. 1060/2009 and (EU) No 1095/2010.

[3] Directive 2009/65/EC of the European Parliament and of the Council of 13. Directive 2009/65/EC of the European Parliament and of the Council of 16 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

[4] Article 4, para. 1 lit. (at) AIFMD, as amended by AIFMD II.

[5] Article 4, para. 1 lit. (ar) AIFMD, as amended by AIFMD II.

[6] European Securities and Markets Authority.

[7] In the Slovak Act No. 203/2011 Z. z. on collective investment, as amended (hereinafter referred to as the “Collective Investment Act“), the additional services that an AIFM may currently perform (if it is authorised to do so) are defined in section 27 para. 6. The adoption of AIFMD II will require an amendment of this provision as well.

[8] Article 15 of the AIFMD, as amended by AIFMD II.

[9] As defined in Article 13(25) of Directive 2009/138/EC of the European Parliament and of the Council.

[10] It does not apply to AIFs engaged in lending, only to AIFs engaged in lending.

[11] Annex V of the AIFMD, as amended by AIFMD II.

[12] Art. 8 par. 1 lit. (c) AIFMD, as amended by AIFMD II.

[13] Art. 21 par. 5a AIFMD, as amended by AIFMD II.

Článok AIFMD II: Summary of the key changes introduced by the new Alternative Investment Fund Managers Directive je zobrazený ako prvý na Highgate.

Understanding these differences is important for the correct application of a person’s rights and obligations in criminal proceedings and for ensuring a fair trial in accordance with the laws of the Slovak Republic.

Who is the accused?

According to the current legislation, an accused is a person against whom a charge has been brought under Section 206 of the Criminal Procedure Code. The accused may be a natural person who is reasonably suspected of having committed a criminal offence. An indictment is a procedural act of the law enforcement authorities, namely the investigator, who formally accuses a person of committing a certain criminal offence. This act must be documented in writing and delivered to the accused, who from that moment on has the rights and obligations laid down by law, including the right to a defence.

Rights and obligations of the accused

According to the law of the Slovak Republic, the accused has the following rights and obligations in criminal proceedings:

Rights of the accused

• Right to defence:

The accused has the right to choose a defence counsel to represent him or her in criminal proceedings. If he or she does not have sufficient financial resources, he or she may apply for the assignment of a defence counsel ex officio (at the expense of the State).

• The right to be informed:

The accused has the right to be informed of the substance of the charge, the evidence and the rights afforded by law.

• The right to remain silent:

The accused has the right to refuse to testify, and his silence cannot be used against him.

• The right to a fair trial:

The accused has the right to a fair and impartial trial within a reasonable time.

• The right to be present during criminal proceedings:

The accused shall have the right to take part in investigative measures which directly concern him or her and to ask questions of witnesses.

• Right to adduce evidence:

The accused shall have the right to present evidence and to propose the taking of further evidence.

• The right to a translator:

If the accused does not understand the language in which the proceedings are conducted, he or she shall have the right to an interpreter.

Duties of the accused

• Obligation to appear before a summons:

The accused is obliged to appear before the law enforcement authorities.

• Obligation to provide truthful data:

The accused shall be obliged to provide truthful information concerning his person, such as his home address, name and other identifying information.

• Obligation to comply with the instructions of the authorities:

The accused is obliged to follow the instructions of the law enforcement authorities, for example, when carrying out searches or other procedural acts.

These rights and obligations are enshrined in the Criminal Procedure Code of the Slovak Republic and other related legislation. If you have specific questions or need more information, I will be happy to help you.

Who is the defendant?

A defendant is a person against whom an indictment has been filed in a criminal court. This term is used after the prosecutor or other authorised authority has completed an investigation and decided that there is sufficient evidence to bring the case to trial.

Rights and obligations of the defendant under the law of the Slovak Republic

Rights of the accused

• Right of defence

The defendant has the right to choose a defence counsel to represent him throughout the trial. If he has insufficient financial means, he may apply for the assignment of an ex officio defence counsel.

• Right to be informed

The accused has the right to be informed in detail of the charges against him, including all evidence and testimony.

• The right to remain silent

The defendant has the right not to incriminate himself and his silence may not be used against him.

• Right to a fair trial

The accused has the right to a fair and impartial trial, which shall be held within a reasonable time.

• Right to present evidence and witnesses

The defendant has the right to present evidence in his/her defence and to propose the examination of witnesses.

• Right to be present at court hearings

The defendant has the right to be present at all hearings concerning his case.

• Right to an interpreter

If the defendant does not understand the language in which the proceedings are conducted, he has the right to a free interpreter.

Obligations of the accused

• Obligation to appear at court hearings

The defendant is obliged to appear at all hearings to which he is summoned.

• Obligation to provide truthful data

The defendant is obliged to provide truthful information about his/her person and to comply with the court’s instructions.

• Obligation to comply with court decisions

The defendant must respect and obey all decisions and orders of the court.

These rights and obligations are enshrined in the Criminal Procedure Code of the Slovak Republic and other legislation governing criminal proceedings. A defendant is therefore a person who faces formal charges in court and is the subject of a trial.

Explanation of the terms: suspect, accused, defendant, convicted

Suspicious

A suspect is a person who is reasonably suspected of having committed a crime but against whom charges have not yet been brought. Law enforcement authorities gather evidence and investigate circumstances that could confirm or refute the suspicion.

Accused

The accused is the person against whom a formal charge has been brought in a criminal proceeding. This status is the result of a preliminary investigation during which sufficient evidence has been gathered to charge a person with a specific offence. Charging is effected through the issuance of a charging order.

Defendant

A defendant is a person against whom an indictment has been filed in court. Once the investigation is complete and sufficient evidence has been gathered, the prosecutor files an indictment, which starts the court proceedings. At this stage of the criminal proceedings, the defendant is subject to a trial where his guilt or innocence is decided.

Convicted

A convicted person is a person who has been found guilty of a criminal offence by a final judgment of a court. After the judgment has been handed down and all legal remedies, if any, have been exhausted, the convicted person is obliged to carry out the sentence imposed, which may include, for example, imprisonment, a fine, community service or other penalties as provided for by the relevant legislation.

These terms refer to the different stages and statuses of a person in criminal proceedings, each stage having its own specific legal consequences and rights for the person concerned.

Accused and indicted in economic crime

Economic crime covers a wide range of offences relating to financial fraud, corruption, tax evasion and other illegal activities in the economy. In the context of criminal proceedings, the terms ‘accused’ and ‘defendant’ are important, as they refer to different stages of the process and have their own specificities also in the context of economic crime.

Accused in economic crime

The accused in an economic crime is the person against whom charges have been brought on the basis of the preliminary investigation and the evidence gathered. Charges may include suspected offences such as:

• Tax evasion
• Corruption and bribery
• Unauthorised business
• Money laundering
• Misuse of information in commercial dealings

Defendant in economic crime

A defendant in an economic crime is a person against whom an indictment has been filed in court after an investigation has been completed and sufficient evidence has been gathered. An indictment is a formal act by which the prosecutor presents a case to the court for determination.

Economic crime is often complex and requires thorough investigations, and suspects of such crimes must be guaranteed all procedural rights to ensure a fair and impartial trial.

In conclusion

These differences are important not only from a legal perspective, but also for understanding the procedural rights and obligations of those involved in criminal proceedings. A proper distinction between the accused and the defendant ensures that legal procedures are followed and cases are dealt with fairly, thereby strengthening public confidence in the legal system.

Článok Accused and accused – what is the difference between them je zobrazený ako prvý na Highgate.

Crowdfunding is a modern and increasingly established method of alternative fundraising, especially for startups and small and medium-sized enterprises. The essence of crowdfunding is to bring together investors (individuals and legal entities) who have free capital with businesses seeking to finance their activities. As the term ‘crowdfunding’ itself implies, crowdfunding generally involves a large number of investors in the financing of individual projects. This type of financing also allows access to finance for a group of entities that find it difficult or almost impossible to obtain bank financing.

The most common forms of crowdfunding

Crowdfunding can most commonly be divided into four basic categories:

• Donor crowdfunding: In this model, investors contribute money without expecting any reward. This type is often used to fund charitable and social projects.
• Reward crowdfunding: contributors receive some form of reward, which can be a physical product, service or other form of compensation. This model is popular among creative projects and startups.
• Investment crowdfunding: investors take a stake in a company or project to which they have contributed. This model is similar to the traditional investment process, where contributors expect a financial return.
• Loan crowdfunding: this model allows contributors to provide loans which are then repaid with interest. It is an alternative to traditional bank loans and microfinance.

Crowdfunding legislation

Crowdfunding legislation is harmonised across the European Union. The basic legislation governing crowdfunding is Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7. October 2020 on European crowdfunding service providers for business and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (the “Crowdfunding Regulation“), which has been applicable in the European Union since 10. November 2021.

Crowdfunding is further regulated by the Commission’s implementing and delegated regulations, which are a set of regulatory and implementing technical rules further regulating certain provisions of the Crowdfunding Regulation.

Finally, the European Securities and Markets Authority (” ESMA “) also provides interpretative opinions on the legal regulation of crowdfunding.ESMA“).

In particular, the Crowdfunding Regulation regulates:

• requirements for the provision of crowdfunding services,
• the organisation of providers of crowdfunding services, and
• the authorisation of providers of crowdfunding services, including the supervision of their activities.

Our partner Tomáš Demo also commented on the topic of crowdfunding regulation in the Investing show on TA3 television:

Crowdfunding actors and crowdfunding platform

In crowdfunding, three types of entities meet:

• crowdfunding service provider – is a legal entity authorised by the relevant regulator to manage or operate a so-called ‘crowdfunding service provider’. A crowdfunding platform through which supply and demand meet between project owners and investors,
• project owner – any legal or natural person seeking to raise capital to finance the performance of its activities through a crowdfunding platform; and
• investor – is any legal or natural person that provides financing to project owners through a crowdfunding platform.

As is also clear from the above, the key concept for the Crowdfunding Regulation is therefore the “crowdfunding platform”, which is defined as a publicly accessible online information system operated or managed by a crowdfunding service provider.1 The provision of crowdfunding is thus defined in the Crowdfunding Regulation exclusively as crowdfunding that is carried out in an online space.

Loan and investment crowdfunding

The Crowdfunding Regulation regulates two types of crowdfunding:

• loan crowdfunding, which facilitates loans from investors as lenders to project owners as borrowers, at an agreed interest rate; and
• investment crowdfunding, whereby transferable securities are placed through a crowdfunding platform and the so-called ” investment crowdfunding“, whereby transferable securities are placed through a crowdfunding platform and the so-called “investment crowdfunding“. The crowdfunding platform involves the placement of accepted instruments for crowdfunding purposes issued by project owners or special purpose vehicles and the acceptance and forwarding of investor instructions to acquire these transferable securities and so-called “securities”. accepted instruments for the purpose of crowdfunding.

Loan crowdfunding and investment crowdfunding are activities through which a crowdfunding platform matches the interests of investors and project owners for funding (crowdfunding services).

A loan under the Crowdfunding Regulation has the following characteristics:

• has a due date,
• the project owner’s commitment to repay the borrowed funds is unconditional,
• the loan is interest-bearing, and
• the project owner is obliged to repay the principal of the loan together with interest in accordance with the repayment schedule.

Investment crowdfunding involves the provision by the crowdfunding service provider of two investment services and activities defined in MiFID II[2]:

• Receiving and forwarding instructions, and
• Placement without firm commitment.

Both of the above services relate to transferable securities[3] and the so called. accepted instruments for the purposes of crowdfunding which are specific instruments defined and defined in the Crowdfunding Regulation. This defines them as ‘shares in a private company limited by guarantee which are not subject to restrictions which would effectively prevent their transfer, including restrictions on the manner in which such shares are offered or advertised to the public’. The National Bank of Slovakia (hereinafter referred to as “NBS“) states that it “does not consider shares in limited liability companies, limited partnerships, public partnerships or cooperatives to be such instruments.”[4] The list published by ESMA[5] also shows that there are no instruments that would qualify as accepted instruments for the purposes of crowdfunding in the Slovak Republic.

Authorisation to provide crowdfunding services

Only the following may provide crowdfunding services (i) legal persons which (ii) are established in the Union; and (iii) have been authorised to carry on activities under the Crowdfunding Regulation . Povolenie podľa prechádzajúcej vety udeľuje v Slovenskej republike NBS, a to po splnení podmienok stanovených v Nariadení o crowdfundingu.

A provider of crowdfunding services with an authorisation granted by the NBS may subsequently, after submitting the relevant notification, also provide crowdfunding services in other Member States of the European Union.

The basic conditions for obtaining a licence to provide crowdfunding services are that the following requirements are met in particular:

• Prudential (capital) requirements. Crowdfunding service providers must continuously comply with financial guarantees, which must amount to at least EUR 25 000 and to one quarter of the fixed overheads for the previous year, if the crowdfunding service provider also facilitates loans. The crowdfunding service provider may meet these requirements through its own resources, an insurance policy or a combination thereof.
• Staffing requirements. Persons responsible for the management of a crowdfunding service provider must demonstrate that they are of good repute and have sufficient knowledge, skills and experience to manage a crowdfunding service provider.
• Organizačno-technické požiadavky. Poskytovatelia služieb hromadného financovania musia vypracovať postupy a opisy systémov, ktorými sa bude riadiť ich činnosť, ako napríklad:
  • opis mechanizmov riadenia a vnútornej kontroly poskytovateľa služieb hromadného financovania na zabezpečenie súladu s Nariadením o crowdfundingu, vrátane riadenia rizík a účtovných postupov;    
  • a description of the systems, resources and procedures of the crowdfunding service provider to control and protect the data processing systems;
  • a description of the crowdfunding service provider’s internal rules to avoid conflicts of interest; and other.

Obligations of the provider of crowdfunding services

In accordance with the Crowdfunding Regulation, a crowdfunding service provider is obliged, inter alia, to:

• make an assessment in relation to the non-professional (retail) investor, in particular to assess whether the investment is suitable for them. To this end, the crowdfunding service provider shall assess the investor’s investment experience, investment objectives and understanding of the risks associated with the investment,
• provide potential investors with a Key Investment Information Document prepared by the project owner,
• publish annually the failure rate of projects offered through the crowdfunding platform; and
• advise investors that their investments are not covered by the Deposit Protection Fund or the Investment Guarantee Fund.

How long does it take to get a crowdfunding license?

Before actually applying for a licence (authorisation to provide crowdfunding services), the entire application must be thoroughly prepared. Depending on the specific business model and the range of services to be applied for, this pre-licensing process can take a couple of months.

In the case of an application for authorisation to provide crowdfunding services, the NBS is obliged to assess whether the application is complete within 25 working days of receipt of such an application. If the application is not complete, the NBS shall set a deadline by which the application must be completed.

Only upon receipt of a complete application is there a time limit of 3 months to assess whether the applicant meets the conditions set out in the Crowdfunding Regulation and to decide whether to grant or refuse the application.

For whom does it make sense to apply for a crowdfunding license?

The crowdfunding platform’s revenue comes from the fees of its users. The crowdfunding service provider does not directly lend its funds or act as an issuer of securities. Therefore, when considering setting up a crowdfunding platform, it is necessary to consider, among other things:

• Whether the entrepreneur wants to manage the funds himself on his own behalf and on behalf of investors,
• Whether the entrepreneur is interested in collective or individual portfolio management,
• Whether the entrepreneur wants to enter directly into the investment or is content to act as an intermediary, and
• What resources does the entrepreneur have and how is their financial plan built.

At the same time, it is always necessary to comprehensively compare and assess other available regulated structures, not only from a legal but also from a tax perspective, with the relevant adviser dealing with the issue. Only after such an assessment (feasibility study) can it be evaluated whether a crowdfunding licence is a suitable solution for a particular business model.

Crowdfunding vs. peer-to-peer (P2P) lending

Crowdfunding and peer-to-peer (P2P) lending share a similar goal – financing projects or needs of individuals and businesses through online platforms. However, there are important differences between them in terms of the legal framework.

In P2P lending, individuals most often borrow funds from other individuals, while such a model is not legally regulated in Slovakia, neither by the Regulation on Crowdfunding, nor is it subject to consumer credit regulation. However, the regulation of P2P lending may be different in other Member States.

A common feature of P2P lending and crowdfunding is the existence of a platform that, in the role of intermediary, links the interests of investors (lenders) on the one hand and borrowers on the other, with these two groups entering into direct contractual relationships.

How can Highgate help you with crowdfunding?

If you are interested in providing crowdfunding services under the Crowdfunding Regulation, we at Highgate can help:

• assess your business plan and its compliance with relevant legislation, including tax analysis,
• prepare an application for authorisation to provide crowdfunding services, including the necessary by-laws and other annexes,
• to provide comprehensive representation throughout the licensing procedure before the NBS, up to the actual granting of the licence.

Highgate has a long-standing interest in financial regulation and capital markets, an area in which crowdfunding regulation clearly falls. Our expertise in this area is evidenced by our recent success in the prestigious Law Firm of the Year 2024 competition, in which Highgate, in addition to winning the Tax Law category, also won the Capital Markets category.

If you have any questions about the legal regulation of crowdfunding, please do not hesitate to contact our experts:

• Peter Varga, e-mail: peter.varga@hg.amcef.com
• Roman Baranec, e-mail: roman.baranec@hg.amcef.com

Alternatively, you can discuss your specific questions with our partner Peter Varga, who specialises in financial regulation and tax law. Book a consultation here:

[1] Art. 2 par. 1 lit. (d) Crowdfunding Regulations.

[2] Directive 2014/65/EU of the European Parliament and of the Council of 15. 2014 on markets in financial instruments amending Directive 2002/92/EC and Directive 2011/61/EU (“MiFID II“).

[3] Transferable securities as defined in Article 4(1)(a) of Directive 2009/65/EC shall not be transferable securities as defined in Article 4(2) of Directive 2009/65/EC. 1(44) of MiFID II.

[4] Cited on the NBS website here: https://nbs.sk/dohlad-nad-financnym-trhom/dohlad/trh-cennych-papierov/crowdfunding/ (cited on 13.7.2024).

[5] Available online here: https://www.esma.europa.eu/sites/default/files/library/esma35-42-1305_crowdfunding_tables.pdf (cited on 13.7.2024).

Článok Crowdfunding or crowd funding je zobrazený ako prvý na Highgate.

Basic concepts in personal bankruptcy

On the topic of personal bankruptcy, it is important to understand the basic terms that are often used in this area. Below is an overview and brief description of the most common terms associated with personal bankruptcy:

• Personal bankruptcy: is the legal status of a person who is unable to pay his debts and who files for bankruptcy in order to solve his financial problems.
• Debtor: a person who has financial obligations and who is responsible for repaying debts.
• Creditor: the person or organisation to whom the debtor owes money.
• Bankruptcy: a formal process in which a debtor’s assets are sold to satisfy creditors’ claims. This means losing (usually) all assets (if any).
• Repayment schedule: the debtor retains the assets but repays his debts according to a set repayment schedule.
• Insolvency administrator (insolvency practitioner): the person or organisation appointed to manage the insolvency process, including the sale of the debtor’s assets and the distribution of the proceeds to creditors.
• Restructuring: is the process of rearranging the debts and liabilities of a debtor to enable it to repay its debts on modified terms.
• Debt relief: is a process whereby some or all of a debtor’s debts are forgiven when certain conditions are met.
• Liabilities: the total debts and liabilities that the debtor has.
• Assets: all values and assets that the debtor owns and that can be used to repay debts.
• Secured creditor: a creditor to whom the debtor owes money and who has security (e.g. real estate) in case the debtor defaults.
• Unsecured creditor: a creditor who has no specific security for a debt held by the debtor.
• Moratorium: is a temporary period of cessation or postponement. In the context of finance and personal bankruptcy and law, the term is most commonly used to refer to a period during which certain activities are temporarily suspended, especially in relation to debt repayment. A moratorium may be established by legislation or by agreements between the parties involved.
• Liquidation: the process of selling a debtor’s assets to repay debts.

These terms may have slightly different definitions or nuances in different jurisdictions, so it is important to consult a professional or lawyer in the relevant field before making any decisions regarding personal bankruptcy.

Reasons for declaring personal bankruptcy

Declaring personal bankruptcy is a serious decision that has long-term consequences. Personal bankruptcy is often seen as a last resort for individuals who find themselves in a difficult financial situation. Although the reasons may vary depending on individual circumstances, there are several common reasons why people declare personal bankruptcy:

• Excessive debt: many people get into financial trouble because of excessive loans that they are unable to repay.
• Medical expenses: unexpected health problems and related expenses can lead to financial problems.
• Loss of employment: loss of income due to unemployment can quickly lead to an inability to repay debts (mortgage, loans, leases, etc.).
• Divorce: the end of a marriage can bring significant financial burdens due to legal costs, division of property or maintenance obligations.
• Business Failure (CSR): small business owners whose business fails may face large debts they cannot repay.
• Lack of financial literacy: failure to manage personal finances properly can lead to poor decisions and increased debt.
• Accidents or unforeseen events: natural disasters or accidents that cause property damage can cause significant financial hardship.
• Addiction: problems with drugs, alcohol or gambling can lead to excessive spending and financial instability.

Declaring personal bankruptcy should be the last resort after all other options have been explored. It makes sense to consult with a financial advisor or a lawyer specializing in bankruptcies to assess all the options and consequences of such a move.

How personal bankruptcy works

The process of personal bankruptcy usually goes as follows:

• Pre-bankruptcy counselling: financial counselling is required before declaring bankruptcy. The aim is to provide the individual with information about bankruptcy and possible alternatives.
• Filing for bankruptcy: the person wishing to declare bankruptcy files an application for bankruptcy with the competent court. The application is often accompanied by documents relating to income, debts, assets and other financial information.
• Bankruptcy trustee: after the filing of the petition, a bankruptcy trustee is often appointed to oversee the entire bankruptcy process and is tasked with managing the debtor’s assets, satisfying creditors’ claims, and performing other acts prescribed by law.
• Suspension of foreclosures and claims: in most cases, bankruptcy provides some protection from creditors, which means that creditors cannot pursue foreclosures or other legal proceedings against the debtor when bankruptcy is declared.
• Sale of assets: the debtor’s assets can be sold to satisfy creditors’ claims. There are some exceptions where certain assets (e.g. basic housing, basic household appliances) are not included in the sale.
• Satisfaction of creditors: the proceeds from the sale of the debtor’s assets are used to satisfy creditors’ claims in the order provided for by law.
• Debt cancellation: after the bankruptcy process is completed, the remaining uncovered debts are usually wiped out. However, there are exceptions; some types of debts cannot be excluded from cancellation, such as fines, child support or student loans.
• Completion of bankruptcy and consequences: once the bankruptcy process is completed, a person can be formally declared “free” of his or her debts. However, declaring bankruptcy can have long-term negative consequences for credit history and the ability to obtain loans in the future.

Personal bankruptcy laws

In Slovakia, personal bankruptcy is mainly mentioned in Act No. and subsequent amendments. This Act lays down the rules for bankruptcy and restructuring proceedings in Slovakia, including bankruptcy proceedings concerning natural persons – non-business persons, i.e. personal bankruptcy.

Does personal bankruptcy also apply to entrepreneurs?

Yes, personal bankruptcy can also apply to entrepreneurs. In Slovakia, a natural person – an entrepreneur (i.e. a sole trader or self-employed self-employed person) can, in the event of bankruptcy, file a petition for a bankruptcy discharge, i.e. apply for a so-called “bankruptcy bankruptcy”. personal bankruptcy.

Debt relief for natural persons – entrepreneurs is more complex and may have more significant consequences for their business activities. Therefore, in such cases it is even more important to consult a specialist or attorney specializing in insolvency law.

Frequently asked questions about personal bankruptcy

Frequently asked questions about personal bankruptcy:

What is personal bankruptcy?

Personal bankruptcy, also called personal bankruptcy, is a legal process by which a debtor discharges his or her debts. The debtor files for bankruptcy with the court and the court reviews his or her financial situation. If the court finds that the debtor is unable to repay his debts, it declares him bankrupt.

Who can apply for personal bankruptcy?

Any natural person who is unable to repay his/her debts can apply for personal bankruptcy. This means that the debtor must have a number of debts that he or she cannot repay on time and in full. The debts must be provable, i.e. they must be supported by invoices, contracts or other documents.

What are the conditions for declaring personal bankruptcy?

To declare personal bankruptcy, the debtor must meet the following conditions:

• He must have several debts.
• He must be unable to repay his debts on time and in full.
• Debts must be provable.
• The debtor must not have an enforcement proceeding pending in court on a claim that is included in the bankruptcy estate.
• The debtor must not have been approved for bankruptcy in the previous 10 years.

What are the consequences of personal bankruptcy?

The consequences of personal bankruptcy are as follows:

• The debtor’s debts are forgiven. This means that the debtor is no longer obliged to repay them.
• The debtor is prohibited from transferring property. The debtor may not transfer his property to other persons without the consent of the bankruptcy trustee.
• The debtor is prohibited from entering into new commitments. The debtor may not enter into new contracts which would give rise to new debts without the consent of the insolvency administrator.
• The debtor is entered in the Register of defaulters. This may have a negative impact on his credit history.
• Bankruptcy proceedings can take up to 3 years. During this period, the debtor is obliged to cooperate with the insolvency administrator and provide him with all necessary information.

Which famous celebrities have used personal bankruptcy?

Several well-known celebrities have used personal bankruptcy, whether because of bad business decisions, uncontrolled spending, lawsuits or other reasons. Some of these celebrities who are media famous and have presented themselves by availing personal bankruptcy are:

• Mike Tyson: a former professional boxer who in the 90. The former boxer, who earned hundreds of millions of dollars, filed for bankruptcy in 2003, when he had debts of around $23 million.
• Kim Basinger: The American actress filed for bankruptcy in 1993 after breaking her contract and reneging on a verbal agreement to appear in the film “Boxing Helena”.
• MC Hammer: rapper who in the 90. In 1996, Hammer, who had acquired a huge fortune in the 90s, filed for bankruptcy with debts of approximately $13 million.
• Gary Coleman: the actor from the “Diff’rent Strokes” series filed for bankruptcy in 1999 after a series of financial and legal problems.
• Nicolas Cage: although he didn’t go through formal bankruptcy, he was known for his financial problems.

Článok Personal bankruptcy je zobrazený ako prvý na Highgate.

In this podcast, Peter Varga provides insight into the issue and discusses in more detail:

• When does VAT apply to the sale of property and land?
• How to calculate and deduct VAT correctly?
• Methods and rules for VAT exemption or carry forward?
• How about holiday properties and apartments?
• Important exceptions and specifics that every dealer should know.
• Practical advice and examples from real practice.

VAT exemption: when and how?

One of the most interesting moments of the podcast was the explanation of the situation when the sale of real estate can be exempt from VAT. In practice, we encounter attempts, mainly by smaller developers, to sell properties as individuals. More was said by Peter Varga in the podcast.

Legal Persons and Transfer of Tax Liability

For legal entities Peter Varga explained the application of the “reverse charge” mechanism or otherwise the transfer of VAT tax liability. This mechanism is only possible for the sale of certain buildings, not for the sale of the land itself. The podcast also covers other practical aspects, such as how to calculate and deduct VAT correctly, specifics regarding holiday properties and apartments, and more. For real estate professionals, sellers and buyers, understanding these rules is key to avoiding potential mistakes and financial losses. So don’t miss this opportunity to watch the full interview with Peter Vargo VAT on property sales.

Make sure you don’t neglect your obligations related to income from the sale of real estate, which we wrote about in our article Taxation of income from the sale of real estate. Take advantage of this valuable information and make sure your sale goes smoothly and in compliance with all legal standards, if you have further technical questions, feel free to consult with Peter Varga.

You can book a consultation with Peter Varga here:

Článok How does VAT control the sale of real estate? Peter Varga bol hosťom vo videopodcaste Národnej asociácie realitných kancelárií (NARKS) je zobrazený ako prvý na Highgate.

Identification of the shvarc system

In the past we have analysed in detail the history and advantages or disadvantages associated with the shvarc system, which you can read about in our article The Schwartz System: Do you want to work as a freelancer or employ freelancers? Be careful not to get knocked on the door by Cobra or the CID.

The issue of the shvarc system is often perceived as a hunt for a fictitious sole trader (but also a one-person SRO), i.e. a self-employed person (self-employed person) without own employees who does not meet at least two of the following criteria:

• autonomy – has more than one client for whom he works,
• subcontracting – it has the possibility to employ staff if necessary,
• Decision-making power – it is capable of important decisions regarding its planning.

Although this definition is vague and neglects many variables, the state tries to identify and punish such tradesmen because they are “robbing” the public finances, failing to pay pension contributions and other compulsory contributions.

Let’s look at this issue from a different angle. Why is the shvarcsystem so controversial? And what are its real advantages and disadvantages for sole traders and employers? These questions open the way for an interesting debate and bring new perspectives to old problems.

Read more to find out how you can safely navigate the world of the shvarcsystem without unnecessary risks.

Motivation for the use of tradesmen

In Slovakia, the number of sole traders is constantly growing, which brings us to the question: what motivates people to become sole traders?

One of the main reasons for this is the significant disproportion between the tax and levy obligations of sole traders and employees. This imbalance in the tax system creates more financially favourable conditions for sole traders, which naturally attracts many who are looking for ways to optimise their income. However, the state is looking at this phenomenon critically and intervening to prevent abuse of the system. It should be noted that if there is such a disparity in the law between the different regimes, the intervention of the state is legitimate.

At the conference, Peter Varga addressed this topic from a different perspective. He stressed that if the tax system were more neutral, the decision of individuals to become a sole trader or an employee would not be considered fraudulent. It would not be an attempt to avoid tax, but a free choice of the legal form that best suited individual needs. In situations where the individual expects social insurance benefits (mainly a pension), the optics are more neutral for a change. Be that as it may, it is the knowledge of the complex perspective of taxes, levies and social insurance benefits that is a prerequisite for a greater likelihood of defending a business relationship with a contractor. In other words, it can be argued from the case law that legal analysis alone is not sufficient and that legal analysis must reflect the existence or non-existence of a financial disproportion in the adjustment of the relationship. These are also the conclusions of our conference.

In the absence of a disproportion, we would be on a level that would allow a freer choice of the appropriate legal form for a particular natural person. Within the relevant legal models, employment, single-person LLCs, trades, but also IP relationships and other forms of cooperation, such as silent partnerships, were presented in more detail. Watch the video recording of the conference to learn more about why working as a sole trader is so attractive and what advantages and disadvantages it brings for both employers and sole traders. A deeper look at the motivations for using sole traders and the contractual freedom in choosing the legal form is presented by Peter Varga in the video from the Švarc system conference : “Employing freelancers” – where is the limit?

Comparison of tax and levy obligations

The motivation of market participants on the part of employees is to seek other forms in order to increase their income. For better clarification, we also provide a summary of the tax rates, the basic models that frame the issue

Effective levy rate: Who pays less?

At the conference, we made a detailed comparison of levy rates for different working regimes based on an income of €1,000 gross salary for an employee and €1,000 on an invoice for a sole trader (other alternatives were also discussed).

The results clearly show that the effective tax and deduction rate for an employee is 42%, while a sole trader who uses the deduction holiday pays only a tiny 10%. When compared to a managing director with. r. o. we can see that this scheme is not so advantageous, since with the executive remuneration of the minimum subsistence level, i.e. j. 269 € per month, which is the most efficient in terms of minimum health levies, and we assume that it pays 15% corporation tax, so the effective levy rate is 28%. From the above, we can seem to understand why the incidence of sole traders in Slovakia is so high. To clarify, we provide a brief summary.

Peter Varga at the conference explained in detail the individual items and evaluated the changes in the effective tax-tax rate with increasing wages/remuneration, the obligation of a sole trader to pay social contributions , including the possibilities for SROs to reduce the tax burden through the standard ways in practice for small SROs to optimize (legal/illegal) taxes (e.g. purchase of a car, etc.) and thus reduce the % of the effective tax rate in this table.

You can subscribe to the full video recording of the conference here:

Legal and regulatory challenges

At the conference, we also highlighted the legal risks associated with the shvarc system. This issue of illegal employment and dependent work is under scrutiny and falls under the jurisdiction of not only the tax authorities, but also the Labour Inspectorate, the Social Insurance Institution and, until recently, the Social Welfare and Family Labour Office. Employers who resort to this employment model risk heavy fines and even criminal prosecution. In order to define some kind of boundary, it is also necessary to analyse the different legal concepts that we may encounter in this issue.

In the case of the Labour Inspectorate and illegal employment, as a concept that is regulated by law č. 82/2005 Coll. on undeclared work and illegal employment, which defines several types of undeclared work, but primarily prohibits the classic shvarcsystem. It is understood by law as dependent work performed by an individual for an entrepreneur without an employment relationship or a state employment relationship existing between them. The performance of work by a self-employed person for an entrepreneur cannot in all circumstances be subsumed under the definition of a shvarcsystem. The essence is that the cumulative fulfilment of the features of dependent work found in Art. 2 of the Labour Code, under which it is the work performed:

• In the relationship of superiority of the employer and subordination of the employee;
• The employee performs it personally for the employer;
• As instructed by the employer;
• On behalf of the employer; and
• The employee performs work at the time specified by the employer.

In the case of tax administration and tax authorities, the issue is that of dependent activities, which is regulated in Section 5 of the Income Tax Act. Simply put, a dependent activity is a situation where a person is obliged to follow the instructions or orders of the payer of the income. A mechanical interpretation of dependent activity could lead to the erroneous conclusion that any instruction or direction given to someone is a dependent activity. Such an interpretation would not only be totally illogical, but more importantly, it would not reflect the state of affairs and the purpose which the legislature sought to achieve by the above formulation.

It is important to understand that the concept of dependent activity is broader than the concept of dependent work. This means that all dependent work is dependent activity, but not all dependent activity is dependent work. This distinction is key in controlling and sanctioning the shvarcsystem.

Controls and penalties: what can you expect in the scarcity system?

The Shvarcsystem is under the strict supervision of a number of supervisory authorities. The main institutions carrying out controls are:

• The Labour Inspectorate, which controls illegal employment under Art. on illegal employment;
• The tax authority controlling the dependent activity pursuant to Art. on income tax;
• Social Insurance Institution, which refers to the Income Tax Act.

Each of these authorities has the authority to carry out separate inspection activities, but we know from decision-making practice and findings that inspections are often initiated by the Labour Inspectorate. If it finds a breach of duty and determines that an offence has been committed, it issues a report and informs the Social Insurance Institution.

Employers who violate their obligations face heavy fines not only from the Labour Inspectorate but also from the Social Insurance Institution. The Labour Inspectorate can impose a fine of between EUR 2 000 and EUR 200 000 under the law. The Social Insurance Institution may impose a fine of up to EUR 16 600 and may also impose a penalty of 0.05% for each day of non-payment of insurance premiums, which amounts to 18% per year.

The penalties imposed by the tax office are different and this is related to the fact that the tax office has the power to carry out an audit even several periods back, which makes it impossible to determine the maximum amount and could therefore lead to liquidation consequences for the company. During the conference, Peter Varga spoke about the possibilities of how to avoid such liquidating sanctions from the tax office.

The law also defines non-monetary sanctions such as:

• Inability to obtain subsidies from the state budget;
• Inability to participate in public procurement;
• Inclusion in a public list of persons fined for illegal employment;
• And others.

Professor of criminal law Tomáš Strémy in a discussion with Petr Varga at the conference also spoke about the criminal aspect of the shvarcsystem. In extreme cases, a prison sentence of up to 12 years can be imposed. More about the criminal aspect of the shvarcsystem can be found in the video from the conference Shvarc system: “Employing freelancers” – where is the line?

Legal vs. factual: What does reality say?

In law, the principle is that the state of the law must correspond to the state of the facts. Simply put, the contract must reflect the actual situation. You cannot have a contract to do job A if the employee is actually doing job B. This is often referred to as a legal sham. For a better understanding and preparation of employment contracts, here are some of the indicators that should, or should not, be included in contracts. For example, such indicators are:

• Instructions: clear instructions regarding the work to be done.
• Representability: the ability of an employee to be represented.
• Project: work on specific projects.
• Holidays: rules on holidays and time off.
• Penalties: possible penalties for non-compliance.

These indicators can serve as an aid in assessing and proving the true nature of the contractual relationship in a dispute with the tax authorities or the Labour Inspectorate. When setting up relationships for clients, we focus on several details that neither an entrepreneur nor an attorney who does not deal with taxes and levies in detail will notice at first glance. If you would like to If you are interested or would like to assess/set up relationships at your company, let us know.

The shvarcsystem may seem at first glance to be an attractive employment model, but it hides a number of risks and potential negative consequences. At our conference, we offered an in-depth look at this issue, highlighted the importance of complying with laws and regulations, provided advice on how sanctions can be avoided, and opened a discussion on the opportunities and challenges associated with this model.

If you have any questions or need professional assistance in this area, please do not hesitate to contact us. We are here to help you find the best solutions for your business.

Článok The Schwarz system: Don’t you face up to 12 years for “employing” freelancers? je zobrazený ako prvý na Highgate.

Článok je zobrazený ako prvý na Highgate.

The Income Tax Act regulates in relative detail the taxation of personal income, including income from the sale of real estate. According to the provisions of the law, income from the sale of real estate is classified as other income of individuals, which is included in the tax base and must be declared in the tax return. Such sale income may be taxed at a rate of up to 25% under certain conditions, and is also subject to a health levy of 15% of the assessment base. However, there are also legally defined conditions that allow the income from the sale of real estate to be exempt from tax, which is important from the point of view of financial efficiency and tax optimisation.

Income from the sale of real estate

Income from the sale of immovable property is classified as other income under the Act, namely income from the transfer of ownership of immovable property. This applies except where the immovable property is used in connection with business income from other self-employment or rental income pursuant to Section 6(6)(a) of the Act. 1 and 2 of the Income Tax Act and is included in business assets.

Income from the transfer of ownership of immovable property may be income accruing to a taxpayer who uses the property for personal or business purposes and at the same time the property has not been classified as a commercial property or for rental purposes. If the taxpayer receives income from the sale of real estate that is not exempt from income tax, he or she is obliged to report this income in the tax return.

Income from the sale of real estate is treated as passive income of the taxpayer for tax purposes. Passive income also includes rental income from real estate, royalty income, interest and income from securities, etc. If a taxpayer earns taxable income in a tax year only from the sale of real estate, he or she is not entitled to reduce the tax base by deducting the non-taxable portions of the tax base, and cannot reduce the tax by the child tax bonus or mortgage interest paid. If an individual taxpayer earns only income from the sale of real estate, he or she is not subject to the legal obligation to register with the tax office.

An essential element in income taxation is determining when the income will be included in the tax base. The taxpayer shall include the income from the sale of real estate in the tax base or partial tax base in the relevant tax year in which it is received, regardless of the date of conclusion of the contract of sale or acquisition of ownership rights to the real estate.

Method and correct determination of the time of acquisition of immovable property

For the purposes of taxation, it is essential to correctly determine the moment of acquisition of ownership of the property. The moment of acquisition of immovable property depends on how it was acquired, whether by contract, inheritance or a decision of a public authority.

• Contract: The moment of acquisition of the property in a contract, e.g. purchase, gift or exchange is determined by the entry into the Land Registry. Therefore, it is not the date of receipt of the money nor the date of signing the contract that is decisive, but the date determined by the decision on the authorisation of the entry into the land register.
• Inheritance: in the case of inheritance, the moment of acquisition of the immovable property is determined on the date of the death of the testator, as the ownership is acquired on the death of the testator, not only on the entry in the land register.
• Decision of the state authority: When acquiring ownership of immovable property on the basis of a decision of a state authority, the moment of acquisition is determined by the date specified in the decision; if not specified in the decision, the ownership is acquired on the date of the decision becoming final.

The correct determination of this moment of acquisition of the real estate is essential for the correct assessment of the possibility of tax exemption of the income from the sale of the real estate.

Exemption of income from tax

It is important to remember that some income from the sale of real estate may be exempt from income tax under the provisions of the Act. The most common cases of exemption include:

• sale of real estate not included in commercial property: After the expiry of 5 years from the date of acquisition of the property, the income from the sale of such property is exempt from tax.
• Inheritance of real estate in direct line: if the real estate is inherited by a person in direct line, i.e. j. parents, children, or after a spouse, the income from the sale is exempt after 5 years from the date of the proven acquisition of the property in the ownership or co-ownership of the heirs.
• Inheritance of real estate in indirect line: in case of inheritance from other relatives, e.g. sister, uncle, etc., the income from the sale of the real estate is exempt after five years from the acquisition of the real estate. In the case of inheritance, the moment of acquisition is determined differently than in the case of a contractual transfer of immovable property, since in the case of inheritance, ownership is acquired on the death of the testator, not on entry in the land register.
• sale of real estate issued under restitution laws or included in the bankruptcy estate
• the sale of real estate included in commercial property: The exemption applies to the proceeds from the sale of immovable property included in commercial property, after a period of 5 years from the date of removal of the property from commercial property.

If the income is exempt from tax, it is not necessary to report this income on the tax return. However, even in such a case, the taxpayer may be obliged to file a tax return for other reasons. Therefore, it is important to consult with a professional or monitor changes in tax regulations to minimize the possibility of breaking the law and incurring unforeseen tax liabilities.

Peter Varga also spoke about the income tax on the sale of real estate in more detail in 1. Real estate podcast NARKS, which you can watch here:

Possible tax expenses

Tax expenses are an important aspect in the taxation of income from the sale of real estate. Their application depends on how the property was acquired and the purpose for which the property was used. The buyer can claim the purchase price paid, in case of inheritance it is the general price of the real estate determined in the inheritance order.

In the case of a donation, the application of the expenses examines whether the income was exempt with the donor at the time of the donation of the immovable property. If the income would be an exempt expense for the donor, the value of the property is the value as determined by a forensic expert at the time of the gift. If the gift income would not have been exempt with the donor at the time of the gift, the expenditure with the donor is the purchase price of the property for which the donor acquired the property. In addition to the expenses related to the purchase, inheritance or gift of the property, the taxpayer can also reduce the tax base by other expenses:

• Expenditure on the acquisition of assets: This includes, for example, interest on a mortgage, fees associated with a loan, the cost of building materials or services used to construct the property.
• Expenditure on technical evaluation, repair and maintenance: This includes funds spent on the repair, maintenance and technical improvement of the property, such as the cost of roof repairs, legal services, etc.

These expenses can be claimed on the tax return, reducing the tax base and avoiding overtaxation. The taxpayer can claim tax expenses in the tax return up to a maximum of the income from the sale of the property, so there can be no tax loss where the tax expenses exceed the taxable income.

Tax burdens and health levies

Income from the sale of real estate, as outlined in the introduction, is subject to both income tax and health levies. Income that is not exempt from tax is subject to taxation at specific rates determined by the Income Tax Act. These rates depend on the size of the tax base and can be as high as 25% for higher incomes. The tax base is calculated as the sum of income from employment, income from entrepreneurship and other self-employment and other income earned in the relevant tax period.

If the taxpayer’s tax base does not exceed €47,537.98 (for 2024), the 19% rate applies. The amount above this threshold is taxed at 25%. In addition to the above tax burden, the income from the sale of the property is also subject to a health levy of 15% of the assessment base. These contributions are calculated by the health insurer in the annual health insurance statement after the tax return is filed. Taxpayers have the option to reduce their tax base by the health levies paid in the following tax year.

Example for calculating income tax for an individual whose taxable income from the sale of real estate exceeds EUR 60,000

The taxpayer calculates tax on the tax base of EUR 47 537.98 at a rate of 19 %, i.e. j. EUR 9 032.22 and on the amount exceeding EUR 47 537.98 (i.e. on the amount of EUR 12 462.02) it calculates the tax at a rate of 25%, i.e. j. EUR 3 115,51. The tax liability is therefore the sum of 9 032,22 and 3 115,51, which is a total of EUR 12 147,73.

In the last four years, the Financial Administration has been undertaking the so-called. letter campaign. This is an action to remind taxpayers of the obligation to file a tax return and pay tax on the income from the sale of real estate. Based on data from the Real Estate Cadastre, it sends letters to taxpayers who may become liable for tax in connection with the sale of a house, cottage or garage within five years of their acquisition. These letters serve as a reminder of their tax responsibilities. In terms of tax, the tax administration focused in particular on properties where there had been at least two changes of ownership within a five-year period. It has to be said that the previous actions were very successful and brought EUR 29 million to the state budget.[1]

Compliance with relevant tax obligations and understanding tax exemptions are key aspects to minimise the risk of unwanted consequences such as penalties or fines from tax authorities. Given the complexity of the Income Tax Act and the particularities of individual income taxation, it is advisable for individuals to take all steps to help them avoid potential risks of non-compliance with their tax obligations. Such a step can be a consultation with a tax specialist who will assess the specifics and provide the necessary advice and knowledge to properly meet your tax obligations. This is the only way they can manage their financial affairs effectively and minimise the risk of tax problems in the future.

In connection with this topic, Peter Varga also talked about VAT on the sale of real estate in the NARKS real estate podcast. You can watch it here:

[1] Source: https://www.financnasprava.sk/sk/pre-media/novinky/archiv-noviniek/detail-novinky/_prizn-nehnut-ts/bc

Článok Taxation of income from the sale of immovable property je zobrazený ako prvý na Highgate.

Accounting for small and medium-sized companies, as we know it today in Slovakia, will not survive the current technological development. We strive to implement these technological innovations, also because they reduce the overall costs not only for the client, but also for us. We recommend suitable invoicing applications to our clients so that they can be automatically imported into the accounting software, we extract and try to digitize. We can recommend suitable applications that act as a data repository for the client and also have integrated approval processes with the ability to export payments directly to the bank. For companies that have an e-shop we provide automatic import of payment gateways (for example, via Stripe, GoPay, PayPal, Wise or Revolut).

For some of our clients, thanks to automation, we have been able to get as low as 10 – 20 cents per accounting item even with incoming documents , while the average market price of an accountant is 1 euro. Just selecting the right invoicing system can also help with the actual recording of cost invoices, and with an effective link to the accounting software, the right invoicing system can provide online reports and outputs directly from the accounting system. Whether such scope for automation exists at a client is, of course, individual. Automation of accounting processes helps not only the client, but also us, as it reduces the volume of low-skilled work, which is already very expensive today, and helps us to focus on services with higher added value. And these are things like tax optimization, setting up controlling, accounting per centers/activities/contracts, for smaller companies replacing CFO, financial reporting and setting up an automated and efficient process to operate.

2. We are engaged in tax and levy optimization as attorneys, tax advisors and accountants

Most of our accounting clients (including the smallest ones) use our services to efficiently set up their tax and tax burden. Not only multinational companies, but also medium-sized and smaller Slovak companies are able to optimise. As we are also attorneys and tax advisors, our job is to look for solutions that have the potential to be defensible. At the same time, we try to show our clients in which cases a tax optimization technique already interferes with the criminal law.

In addition, our law firm is Tax Law Firm of the Year in 2023 and 2024, we organize the largest legal-tax conferences in Slovakia on the topic of tax optimization and the search for legal techniques and methods. Recent conferences have been held, for example, on the following topics: employing freelancers – where is the line?, tax investment structures, tax optimisation for IT and digital companies or employee share ownership (ESOP). At the same time, we have extensive experience in scaling businesses abroad, as well as in the legal use of foreign companies, including offshore ones. Thus, we provide legal, tax and accounting services under one roof, which has the potential to be a more efficient (i.e. cheaper and better quality) service, mainly due to synergies.

3. Clients use the following benefits for accounting

Access to the most widely used legal documents

These are the most widely used legal documents in practice, so you don’t have to “google” them or pay other legal advisers to draw them up (e.g. loan agreement, employment contract, sole shareholder’s resolution, purchase agreement, share transfer agreement).

75% discount on our conference recordings (e.g. when you can employ freelancers, tax optimization options, …)

Probably every one of our clients is interested in when they can “employ” labour as a sole trader, what the penalties are, how to set up a contract with such a contractor. Several clients are also interested in what tax optimization options exist or how to set up employee stock ownership plans (ESOPs) at their company. On all these topics, we have organised conferences with detailed content, for which you can see the recordings.

75% or 100% discounts on online courses (e.g. property taxes and levies, management fees, …)

As an accounting client, you have access to a wider range of video courses delivered by Peter Varga on a variety of practical business topics.

Issuing invoices in Superfaktur

We will make the best Slovak online invoicing system Superfaktúra available to you free of charge (also for your mobile phone), where you can issue invoices, register cost invoices, or automatically send reminders to your clients after linking with the bank.

Consultations with Peter Varga and Tomas Demo for 50% price

You can consult on various business topics such as taxation of cryptocurrencies, use of foreign companies, the shvarc system, sole proprietorship vs. LLC, setting up investment funds, employee stock ESOPs. You can find the consultation topics here.

4. Cleaning up the books (e.g. for the purpose of taking over from another accountant or potential investor input)

When setting up accounting systems, we do not only focus on the technological aspect, but also on its “cleaning”. Often we have client accounts that come to us that not only need to be set up, but also cleaned up. Having transparent accounting is important not only for the convenience of the owners and to avoid penalties from the tax authorities (e.g. for improper accounting of development activities, accounting for contracts, use of crypto assets), but also as a demonstration for an investor or a prospective buyer.

In our legal-tax practice we have been on the side of a number of buyers or investors, where not only financial/accounting indicators, but also administrative (accounting) “orderliness” of the owners of the company played a primary role in deciding whether or not to enter the company.

5. We are passionate accountants and legal and tax advisors

Just check out the Linkedin profile of our founder Petr Varga and you will know how many legal, tax and accounting topics we set the trend in Slovakia. These are, for example, attractive topics such as “Using a car for business purposes“, “Putting your watch into expenses” or “Taxation of ETF funds“, about which Peter Varga writes and lectures. In addition to these activities, as well as our professional conferences, we write a number of articles as part of the Highgate Group, assist states in drafting better legislation (e.g., assisting states in creating the legal environment for taxing ESOPs, cryptoassets, creating investment funds, superannuation or patent box applications), and educate on accounting automation (see our conferences, collaborations with technology partners, and articles on our website).

Článok 5 reasons to let Highgate Group manage your accounting je zobrazený ako prvý na Highgate.

In addition, Highgate Law & Tax is also celebrating its win in the “Capital Markets” category, proving itself to be a comprehensive law firm with an extensive portfolio of expertise and the ability to successfully navigate diverse legal challenges.

The awards gala evening, which was organized by the media and educational group EPRAVO Group and the weekly TREND, was held at the Double Tree by Hilton hotel in Bratislava. For Highgate Law & Tax it was not only an opportunity to celebrate its success, but also to thank its clients and partners for their trust and support, without which this milestone would not have been possible.

This double triumph confirms Highgate Law & Tax’s excellent reputation for legal and tax services and reinforces its position as a leading player in the legal services market in Slovakia.

Článok Highgate Law & Tax and its double triumph in the prestigious Law Firm of the Year competition je zobrazený ako prvý na Highgate.