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.

Článok Tomas Demo in an interview about startups for startitup je zobrazený ako prvý na Highgate.

We are thus relatively intimately familiar with the related realities of this segment. Whether it is the topic of tax optimization, “employing sole traders”, investor entry, setting up a holding company, automated accounting, ESOPs, the legal, practical and tax pitfalls of scaling a business abroad, or operating with cryptos, these are all topics that we encounter in practice.

For this reason, we perceived that this conference can help many entrepreneurs to navigate through the complex tangle of more complex Slovak and foreign tax and legal issues. It was also intended to help to better understand the perspective of an investor or potential buyer in a company exit.

Sale of the company or entry of an investor :

• What are the basic situations and types of investor entry into companies?
• What are the key motivations and areas of interest for the investor and the company owner?
• What should an IT firm focus on to maximize the benefits of the investment for the firm and the business owner?
• Structured transactions and relevant tax implications from an income tax perspective (e.g. tax burden through a Slovak vs. a foreign holding company);
• Transaction Experience;

Relevant financial ratios when a company is sold or an investor enters :

• What is of interest to the investor or the buyer in accounting?
• Risks associated with incorrect accounting;
• Capitalization of the company;
• Transaction Experience;

Foreign IT contractors and work “from Bali” :

• Withholding taxes on payments to foreign contractors;
• Working from “Bali” – tax and levy implications;
• Setting up contract documentation;

ESOP – Best practice :

• What forms of shares and options can Slovak companies offer to their employees?
• Legal and practical context;
• Tax and levy context;
• Cross-border structure and practical experience;

Functioning in the crypt :

• Receiving retribution and paying contractors in the crypt;
• Types of crypto projects (token issuance, management, consulting, community token,…) and regulatory and tax aspects;
• Accounting and tax pitfalls in Slovakia and best practice when leaving Slovakia;
• Experience;

Scaling the IT business abroad :

• Do I need to have a company abroad in different business situations?
• Establishment of a permanent establishment, VAT regimes, withholding taxes;
• A company in an offshore jurisdiction from a legal, tax and practical perspective;
• Holding abroad – advantages and disadvantages;
• Investor requirements for foreign structure;
• Protection of the owner’s private property in the context of the political situation in Slovakia;
• Transfer pricing;

Software contracts :

• Framework or one-off contracts;
• Waterfall vs. agile SW development;
• Licensing Terms;
• Warranties and liability for defects in the SW;
• Problematic provisions – experience from practice;

Structuring business to the US :

• How best to enter the US market;
• Where can I get some help/information/grants?
• What is the tax and administrative burden?
• How to choose the right lawyer and accountant?
• How to get into the investors/funds horizon?
• In which state are the best conditions to enter the US market?

Tax optimization for digital and IT companies :

• Holding structure – owner protection;
• Patent Box and Supercomputing – how some IT companies do not have to pay income tax in Slovakia;
• Other tax and levy types and practical experience;
• When is tax optimisation already a criminal offence;

Schwarz system :

• Tax-tax implications and calculations;
• Impact on employees’ social insurance benefits (maternity, pension, sick leave,…);
• What impact does the change to a sole trader’s trade have on a sole trader’s pension?
• Analysis of court decisions that have dealt with the topic;
• Practice of tax administrations and labour inspectorates;
• Criminal liability;
• Setting up contracts with contractors;

Relevant financial ratios when a company is sold or an investor enters :

• What is of interest to the investor or the buyer in accounting?
• Risks associated with incorrect accounting;
• Capitalization of the company;
• Transaction Experience;

Many topics and many questions from conference participants. Companies were particularly interested in topics around ESOPs, tax optimizations or company sales. However, many attendees stayed until the end to hear the current practice in connection with the so-called In the meantime, there was a lot of interest in the practice of the shvarc system (i.e. the employment of freelancers).

We received a lot of positive feedback on the content and organisation of the conference. We are therefore very pleased that after the conference on setting up investment funds, this conference was also a success.

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

Článok Conference on legal and tax optimization for technology companies je zobrazený ako prvý na Highgate.

In his 4-hour lecture, Peter Varga focused mainly on the issues of effective payout of owners from the company , not only from the tax and taxation point of view, but also from the legal point of view. This is because some, at first glance effective, solutions may bring with them the legal inconvenience of a natural person being liable for all of his or her assets. This may arise in particular in situations where the disbursement of funds to the holder in question has not been made in accordance with the relevant commercial law standards. In addition, if the paying company is in a more difficult financial situation, it is also possible to talk about the criminal consequences of improper payments from the company.

In addition, the topics were mainly the possibilities of setting up and operating companies abroad in the context of legal defensibility and other tax-legal pitfalls as well as the relevant administration. Establishing not only offshore companies, but any foreign companies is a very complex topic in the context of today’s legislation, partly the practice of tax authorities and administrative pitfalls. Gone are the days when it was possible to set up and run a foreign company with ease and extract profits simply by moving them into a low tax bracket. Peter Varga has been working on this topic for a long time and has also discussed it at our recent conferences on setting up investment funds and tax optimization for IT companies.

In addition to the above topics, he also discussed other commoditizable tax optimization techniques. However, many optimization opportunities arise only in the context of the dynamics of specific companies. Thus, a number of specific opportunities can only be applied to specific situations, making the range of possibilities very wide in today’s relatively complex world of tax law contexts. Either way, tax optimisation is a lively topic and we have been working on it for a long time.

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

Článok Lecture by Peter Varga on tax optimization options je zobrazený ako prvý na Highgate.

In every development, some new knowledge must be created. Since neither legal nor tax counsel is qualified to determine whether the taxpayer is actually performing this activity, a technical advisor should be part of the taxpayer’s team. The key is that it really is about science and research.

When patent box and when supercomputation? Read more here : https://touchit.sk/it-firmy-a-spolocnosti-ktore-robia-vyskum-mozu-vyrazne-usetrit-na-daniach/405626

You can read more about supercomputing and the patent box here.

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

Článok Peter Varga on the use of patent box and supercomputing for Touchit je zobrazený ako prvý na Highgate.

The Patent Box exempts from income tax up to 50% of the profits that a taxpayer (e.g. an IT company) makes from royalties for the grant of a right to use or for use:

• an invention protected by a patent or a technical solution protected by a utility model which results from research and development carried out by the taxpayer;
• a computer program that is the result of development by the taxpayer;

The Patent Box also allows taxpayers to benefit from this exemption from income tax if they derive income from the sale of products which are the result of research and development carried out by the taxpayer and which are wholly or partly based on an invention protected by a patent or a technical solution protected by a utility model. Read more about Patent Box and optimization for IT and development companiesin the video by Peter Varga.

The super-deduction for change is a tool by which a taxpayer (e.g. an IT company) can, for an economically unprofitable project (in the research or development phase), claim the costs of that project at least twice as much as the revenue from profitable projects. You can learn more about supercalculus in Super-deduction for research and development or at our conference.

The full interview of Peter Varga for TouchIT can be found here: IT companies and companies that do research can save significantly on taxes.

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

Článok Favourable taxation for IT companies in Slovakia. Peter Varga sa vyjadroval pre TouchIT je zobrazený ako prvý na Highgate.

Thanks to the Patent Box, IT companies that develop software and other R&D companies that develop various inventions and technical solutions can pay income taxes in Slovakia even at a rate of 10.5%. For example, if Slovak IT companies want to pay lower taxes, they do not have to come up with complex and administratively demanding cross-border solutions.
Peter Varga in his article “Slovakia can be a tax haven too!” commented positively on Slovakia’s efforts to compete with other favourable tax regimes in Europe thanks to the Patent Box. But it is the Patent Box that has brought an important tool for legal and legitimate tax optimization, especially for Slovak IT companies. Although relatively late, Slovakia has been inspired by other IP Box regimes with which other countries in Europe have been attracting added value to their territory for a relatively long time.

The Patent Box exempts from income tax up to 50% of the profits that the taxpayer makes from royalties for the grant of a right to use or for use:

• an invention protected by a patent or a technical solution protected by a utility model which results from research and development carried out by the taxpayer;
• a computer program that is the result of development by the taxpayer;

The Patent Box also allows taxpayers to benefit from this exemption from income tax if they derive income from the sale of products which are the result of research and development carried out by the taxpayer and which are wholly or partly based on an invention protected by a patent or a technical solution protected by a utility model.

Patent Box at a glance

The patent box is a new instrument to support research and development in Slovakia, which makes it possible to exempt revenues from the provision of intangible assets (the so-called licensing revenues) and revenues from the sale of products for the production of which a patent or utility model is used from corporate income tax, up to 50% of these revenues. In other words, if a Slovak company accounts correctly and meets other conditions, it can qualify for the benefit of taxing profits at 10.5% instead of the standard 21%.

The Patent Box thus exempts from income tax up to 50% of the profits that the taxpayer earns from royalties for the grant of a right to use or for use:

• an invention protected by a patent or a technical solution protected by a utility model which results from research and development carried out by the taxpayer;
• a computer program which is the result of development by the taxpayer;

The Patent Box also allows taxpayers to benefit from this exemption from income tax if they derive income from the sale of products which are the result of research and development carried out by the taxpayer and which are wholly or partly based on an invention protected by a patent or a technical solution protected by a utility model.

How much will the Patent Box save

The taxpayer can achieve an effective tax rate of 10.5% through the Patent Box. As we often combine the Patent Box with theR&D Super Deduction for our clients, the effective tax rate can be 0% for several years.

Let us imagine a situation where an IT firm carries out an experimental development after completion of which it has licensing revenue. Assume that the company will record revenues and expenses as shown in the table below (amounts are in EUR):

Basic Conditions for Patent Box Application

The basic prerequisite is to carry out R&D activities and to account for them correctly. Based on our experience, mainly from audits of the accounts of young IT companies, we have observed a number of cases where such companies have incorrectly accounted for software development. Not only does this commit an offence under the Accountancy Act for which they are liable to a fine of up to 2% of the value of their assets, incorrect accounting can also unjustifiably reduce a business’s tax liability and disqualify them from using the Patent Box.
It is therefore essential to account for the Patent Box correctly and to anticipate its use in advance. Moreover, the relevant Patent Box provisions indicate in several places a requirement for the taxpayer to use its own research and/or development result. In other words, the Patent Box requires that only employees of the taxpayer be part of the personnel apparatus that produces the relevant intangible R&D results.
Given the high tax-tax burden on labor, it is naturally more economically advantageous for taxpayers to reach for so called. contractors (i.e. self-employed, sole proprietorships)where the tax and levy burden is significantly lower. In certain circumstances and with well-drafted contracts covering the creation of works and other intangible results, the requirement for employees may be waived. Therefore, if a taxpayer does not work with an attorney who is knowledgeable about Patent Box issues, it may have a negative impact on the use of Patent Box.
The Patent Box should therefore be seen as an instrument whose statutory application affects not only tax law but also accounting and intellectual property law.

Does a company only need to have employees when applying Patent Box?

This is a very complex topic from both a legal and tax and accounting point of view. It was discussed in detail by Peter Varga at the recent methodological days of the Slovak Chamber of Tax Advisors, where he also lectured on the topic of the Patent Box together with a representative from the Ministry of Finance of the Slovak Republic and where the topic of the use of the so-called “patent box” was also outlined. freelancers(sole traders or trading companies). In certain circumstances, a company may use such outsourcers without reducing its Patent Box tax benefit. However, it needs to adjust its factual and legal position accordingly.

More about Patent Box

We deal with the topic of Patent Box relatively frequently. We write articles on the subject and give commercial or methodological lectures. You can find more information in our articles and media releases or videos and conferences.

Our services for patent box application

Working with our lawyers, we provide the following Patent Box services to our clients:

• bookkeeping and accounting consultancy;
• analysis of the tax calculation and preparation of the relevant accounting documentation for the Patent Box;
• drafting contracts/implementing elements into existing contracts to take advantage of Patent Box and IP protection;
• transactional advice related to Patent Box;
• representation of the client before the tax authorities and courts;
• in cooperation with the Czech technical company RESEA, we also provide a technical audit of the taxpayer’s research and development activities in order to identify whether these activities can be considered research and development activities.

History of the Patent Box and Patent Boxes in Europe

The origins of the Patent Box can be traced back to the 1970s in Ireland. years of the last century. Legislation at the time allowed companies licensing certain forms of intellectual property to reduce their income tax. The concept has been gradually applied by other countries, including France, Luxembourg, Cyprus and the UK. Recently, it was quite common to set up an offshore company in Cyprus, for example, and benefit from a reduced tax rate of 2.5% on income from the use of intellectual property when invoicing within the group.
The Patent Box concept is very popular today legislatively. Everywhere, however, the so-called. nexus principle, which prevents tax abusive practices. As can be seen from the figure below, Slovakia ranks among the progressive countries in this respect.

Blockchain and taxes

We have worked on a number of “blochchain based” projects. For example, the following projects:

• the creation of investment funds investing in cryptocurrencies;
• the creation of a decentralised stock exchange;
• regular savings through cryptocurrencies;
• preparation of documentation for the cryptocurrency management service;
• tax advice and tax optimization in the taxation of cryptocurrencies;
• security token offering;
• utility token offering;
• accounting

For more information about our cryptocurrency practice, please visit the Highgate Group website. Anyway, even R&D activities of programmers in the field of blochchain can qualify in principle for the Patent Box regime.
Indeed, the field of crypto cannot be viewed in isolation. Even though it is often outside the standard knowable world, the corresponding legal and tax frameworks have to be attributed to it.
One of these frameworks is the Patent Box or Supercomputation (R&D Super Deduction).

Článok Patent Box and Optimization for Technology Companies je zobrazený ako prvý na Highgate.

Patent Box was one of the topics at the recent methodical days of the Slovak Chamber of Tax Advisors, where Peter Varga was also a co-presenter. Alongside the VAT in the Crypt lecture(more information), the Patent Box is one of the main topics we regularly cover at Highgate Group.

The lecture was also attended by a representative of the Ministry of Finance of the Slovak Republic, with whom a very interesting and stimulating discussion took place. For example, we looked at the position of freelancers in the R&D process. Indeed, after a more thorough legal, tax and accounting analysis, it is possible to conclude that in certain circumstances it is not necessary to have only employees.

In addition, we looked at the technical evaluation or requirements for the qualitative level of R&D activities.

A lot of interesting and especially practical topics. So we are very pleased that the Highgate Group can be instrumental in shaping the interpretations for the Patent Box application.

A year ago, Peter Varga managed to convince a successful SK IT company to relocate from offshore to Slovakia. One of the main reasons was the so-called. Patent Box (i.e. taxation of profits at 10.5% tax rate). Further, if the Patent Box is combined with supertaxation, a successful (not just IT) company may not have to pay taxes for a decade. But why do some still want to leave Slovakia?

We deal with clients in the context of legal and tax advice for a variety of reasons. From the need to diversify legal and practical risks, to the lack of corporate institutes such as carried interest, redeemable cumulative preference shares or share redemption, to PR/investor considerations. If the state aims to motivate entrepreneurs not to go abroad with their business, the Patent Box is certainly a very important motivational element in the complex puzzle.

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

Článok Peter Varga lectured at the Slovak Chamber of Tax Advisors for tax advisors and the general public on the topic of Patent Box je zobrazený ako prvý na Highgate.

The full interview is available here – https://www.etrend.sk/podnikanie/advokat-varga-dovera-v-ekonomiku-sa-neobnovi-zo-dna-na-den.html

In April 2020, we also organised a webinar on the possibilities of using state measures aimed at partial compensation of entrepreneurs affected by the corona crisis, not only for our clients – http://zachranfirmu.sk/webinar/znizovanie-nakladov/.

Článok Interview for TREND on tax-legal measures related to the corona crisis je zobrazený ako prvý na Highgate.

Super deduction

The research and development super deduction allows taxpayers undertaking research and innovation projects to deduct for a second time from their tax base the expenses they have incurred on such projects. This includes not only development companies, but also standard IT companies that are dedicated to research and development.

If the proposed amendment to the Income Tax Act is adopted, it will bring a tax benefit that consists in an additional deduction of up to 200% of research and development costs from the tax base for the tax period of 2019 (for the tax period of 2018, the value of the benefit was at the level of up to 150%). The deduction can be used for research and development projects that incur costs that are part of the economic result and are eligible for a deduction from the tax base.

Despite the fact that the tax relief in the form of the Super Deduction was supposed to make the business environment in Slovakia more attractive, in the first years since its introduction it caused uncertainty among entrepreneurs. Although the use of the Super Deduction among entrepreneurs is slowly increasing, the percentage of application or. the use of this tax institute is still low. The main reasons for the low use are mainly the high administrative burden, lack of information on the conditions for qualifying for the application of the institute, ignorance of legislation and procedures, as well as fear of possible sanctions from the financial administration.

However, the government wants to continue to motivate entrepreneurs to use the Super Deduction for research and development, and has therefore announced that it will continue to use the Super Deduction for research and development. promised businesses the possibility that the level of benefit for claiming the Super Deduction could increase even further in the next period (probably from 1 January 2020), with the benefit being up to 250%.

Patent Box

Another important institute is the so-called. Patent Box, which is a special tax regime consisting in tax exemption of income derived from royalties for the use of patents, utility models and software, which are the result of the taxpayer’s own development activities in Slovakia, up to 50% of such income. The taxpayer may claim the exemption during the taxable years in which it amortises the capitalised development costs of those intangible assets. This regime has been introduced in Slovakia since 1. January 2018.

If the entrepreneur takes advantage of the Patent Box tax benefit and at the same time takes advantage of the Super Deduction tax benefit, he or she can significantly reduce his or her tax liability. As a result, the Slovak Republic can become an attractive business environment in the field of research and development without the entrepreneur being forced to shift his income abroad, i.e. to countries with lower tax burden.

The issue and application of the Super Deduction and Patent Box is still a rather complicated and unexplored area for many entrepreneurs. Despite the fact that the government expected a high percentage of entrepreneurs to take advantage of these tax incentives, in reality these expectations were not even half fulfilled. Entrepreneurs have rather taken a very cautious attitude in this area and are waiting for more information and procedures to be published on how to apply these institutes correctly and efficiently to their business without being sanctioned by the state in the future.

Is expert advice required in relation to the application of the Super Deduction and Patent Box?

Due to the complexity and relative ambiguity of the correct application of the Super Deduction and Patent Box, our clients have repeatedly contacted us regarding the qualification for the application of the tax-optimization institutes in question. In this context, we assessed for our clients, among other things, whether their entrepreneurial activities are indeed research and development (R&D), which results in new, hitherto unknown to the public, knowledge that has real significance for the public. Often times, entrepreneurs are only a cosmeticadjustment or tweak to their business documentation or marketing communications away from a dramatic reduction in their tax and levy obligations.

In connection with the application of the aforementioned tax-optimisation institutes, the taxpayer concerned must, among other things, correctly account for the costs relevant for the application of the tax exemption, while the accounting records must be clearly recorded and demonstrable in the event of an inspection by the financial administration.

Our office Highgate Group provides comprehensive legal, accounting and tax advisory services under one roof, focusing, among other things, on the issues of the aforementioned tax-optimization institutes Super Deduction and Patent Box.

If you are interested in our services, please do not hesitate to contact us.

Článok Tax-optimisation institutes to support research and development, called. in-house R&D je zobrazený ako prvý na Highgate.