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.

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.

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.

You can book a consultation with Peter Varga here:

Článok Can I sell an apartment for €200,000 so that €20,000 is the apartment and €180,000 is the furnishings in it? Peter Varga bol hosťom vo videopodcaste Národnej asociácie realitných kancelárií (NARKS) je zobrazený ako prvý na Highgate.

For those who did not attend the conference, we have provided a more detailed overview of the topics covered at the conference in a separate article. The article can be found at this link. At the same time, if you would like to watch the whole conference, or just some parts of it, we have video recordings of the conference available for you, which can be found at this link.

Taxation of Slovak funds

The form and amount of taxation for Slovak funds depends primarily on the legal form of the fund. By default, there are transparent and non-transparent forms, whereas in the case of mutual funds we see a hybrid between the two.

It is the analysis of a fund’s tax set-up that can be crucial to the efficiency of the fund structure and ultimately the investor’s return.

Taxation of foreign funds

During the lecture at the conference, as well as during the methodological days of the Chamber of Tax Advisors, we also devoted a certain part to various foreign fund structures and individual income from the perspective of classification according to Slovak tax and general legal regulations. In some fund structures, given the incompleteness of Slovak law, it may also be the case that the income from the fund, as well as the income of the fund itself, will not be taxed at any level.

In general, however, there are a number of non-tax reasons why fund managers or founders choose a foreign structure. At the conference we talked about the following:

Thus, taxes are only one consideration and should not be the primary consideration for purposes of defending a foreign fund’s tax position.

VAT

In the lecture we discussed in detail the topic of management fees in fund management. The problem with the interpretation of our VAT Act was caused by the Slovak legislator who forgot to amend the VAT Act when introducing the SICAV legal form. Today, in principle, funds in Slovakia may face the risk of a mechanical interpretation that would be contrary to EU law and could significantly harm the fund structure (including investors).

However, it is important to note that not every fund administration is exempt from VAT, and in practice it is relatively common to find that trustees (including institutional trustees) are not sufficiently knowledgeable on the subject. When setting up the fund structure, it is therefore essential to bear this in mind and try to set up the structure as efficiently as possible within the legal framework.

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

Článok Petr Varga’s lecture at the methodological days of the Chamber of Tax Advisors on the topic of taxation of funds in Slovakia je zobrazený ako prvý na Highgate.

For those who did not attend the conference, this article provides a brief overview of the topics we covered. At the same time, if you would like to watch the whole conference, or just some parts of it, we have video recordings of the conference available for you, which can be found at this link.

What types of investment funds do we know in Slovakia?

We opened the conference with a comprehensive discussion of different types of investment funds. When setting up a structure through investment funds, a number of factors have to be taken into account, hence their division mainly according to:

• investment policy;
• legal form;
• passport options;
• taxability of income;
• application of VAT on management fees;
• the type of investor to whom the investment fund may be distributed;
• the type of offer; or
• whether a permit is required for its establishment and operation.

At the same time, not all types of investment funds are suitable or possible to use for real estate financing, and those that may have real estate in their portfolio consequently differ significantly in their specific parameters. Therefore, an initial comprehensive regulatory, legal and tax assessment of the above factors is crucial in the creation and establishment of investment funds.

What are the rules for distributing a retail investment fund? Slovak SICAV?

The first panel was devoted to the so-called. Small investment funds. These are investment funds whose managers are limited by the maximum amount of assets they can manage. On the other hand, these investment funds are subject to very limited application of collective investment legislation, do not have a statutory investment policy (so they can invest in real estate) and are primarily aimed at professional investors and, to a limited extent, qualified investors.

The following factors play a key role in the distribution of small investment funds that invest in real estate:

• identification and assessment of the professional investor;
• taking into account the criteria of a professional investor with regard to the investment policy of the fund;
• limits for qualified investors in terms of their number, their share of the fund’s assets and their share of the assets managed by the manager;
• the distribution channels through which qualified investors may be approached; and
• restrictions on the promotion of such funds.

Small investment funds can be set up as a variety of companies or cooperatives. At the same time, only an investment fund can take the legal form of a company limited by shares with a variable share capital (SICAV). This is a flexible legal form which is adapted to the needs of collective investment. Only a small investment fund set up as a SICAV can create sub-funds as accountably separate parts of the assets with different investment strategies.

Where is the collective investment frontier? When do I need the fund?

The second panel focused on various alternative forms of raising capital from investors and investing in foreign real estate. The first topic was defining the boundaries of collective investment, i.e. answering when a particular business model constitutes a fund and when it is a legal structure without any permission from the NBS. When analysing a particular business model from a collective investment perspective, it is necessary to assess whether this business model:

• cumulatively fulfils all the statutory characteristics of collective investment;
• meets the characteristics of one of the collective investment exemptions, e.g. it is a joint venture (JV) or a holding entity;
• there are other indications that are a prerequisite for a business model to be a fund or not.

Crowdfunding and bond financing

Crowdunfing is a relatively still new regulation that makes it possible to connect investors on the one hand and entrepreneurs seeking funding for their projects on the other. The Crowdfunding Regulation aims to facilitate financing, especially for small and medium-sized enterprises, for which, for example, bond financing with a prospectus may be too costly. At the same time, crowdfunding platforms, as online platforms, are widely accessible to a large range of investors, including retail, and thus allow project owners to find funding, either through loans or by placing the securities they issue on that platform.

Thus, for example, a crowdfunding platform allows a developer to issue bonds (only up to a certain amount) in order to build a specific development project. Bonds can of course also be offered outside the crowdfunding platform, while the issuance of bonds represents a standard traditional method of financing, which is widely used in Slovakia and by developers. The legal regulation of bond issues is very flexible, which gives issuers a lot of room to set the individual parameters of the bonds according to their needs, starting with the way of calculating the yield, setting the rules for early maturity of the issue, the period during which the bonds will be issued, or their subordination to bank financing. At the same time, when financing real estate through bonds, an interesting institute is the security agent, in whose favour, as an agent of the bondholders, the bonds can be secured by the real estate.

How is it possible to invest in foreign real estate?

Acquiring real estate outside the Slovak Republic can be an interesting investment opportunity. For investment structures that allow Slovak investors to make such investments, taxes are one of the most crucial parameters. Setting up the structure in such a way that it can be competitive for investors with other “domestic” investment products is a very complex matter, taking into account in particular the existing risk of double taxation.

European Investment Funds EuVECA and ELTIF

The third panel, which also included two panelists from Slovak asset management companies, was devoted to larger investment funds, i.e. funds whose establishment and operation in Slovakia requires the permission of the NBS. The venture capital fund or “EuVECA” is primarily intended for investments in the so-called “EuVECA”. However, with a relatively broadly defined investment policy, it is possible under certain circumstances for such a fund to invest, for example, in companies owning real estate. While such a fund can also be established by a registered manager, in order to use the EuVECA designation, a number of requirements that are normally required (of course to a greater extent) for licensed management companies must be met, such as qualification requirements for persons managing venture capital funds, prudential requirements for the manager, and a number of internal policies. Not forgetting the correct tax set-up.

EuVECA and ELTIFs have the advantage that they can be distributed across the EU to a wider range of investors than other AIFMD alternative investment funds. ELTIF is also the only alternative investment fund that can be offered to retailers across the European Union. The investment policy of this fund is primarily focused on investments in long-term assets (including real estate). Although ELTIF is a closed-end fund, under certain conditions investors may be allowed to redemption before the life of the fund expires.

Qualified investor fund, real estate fund and alternative investment fund

Typical investment funds used by Slovak asset management companies to invest in real estate (and which they also refer to as “real estate funds“) are qualified investor funds, which do not have a statutory investment policy, and then public special real estate funds, which can invest directly in real estate or in so-called “real estate funds”. They can also invest in real estate, in particular in real estate companies, and have to follow rules for limiting and spreading the risk in their portfolio. If certain criteria are met, it is also possible to acquire a commercial company that may own real estate as part of the assets of a public special alternative investment fund. Both real estate funds and alternative investment funds can be offered in Slovakia and to the retail sector without a minimum investment amount limitation.

Why investment funds are set up abroad?

The fourth panel was devoted to foreign funds whose securities or holdings can be offered to Slovak investors. There are various motivations for the decision not to set up an investment fund that will be offered (to a large extent) to Slovak investors, ranging from the stability of the legal environment, the variability of structures that do not exist in Slovakia, for example, but also for reasons of a more robust infrastructure (many Slovak entrepreneurs set up, for example, SICAVs in the Czech Republic, which are managed by “external” management companies).

A big challenge for Slovak investors in setting up investment funds abroad (also) is their tax structuring. Adding to the complexity of this issue are the various legal and tax-transparent structures that need to be dealt with when disbursing income to Slovakia.

In terms of distribution, foreign alternative investment funds (including non-European alternative investment funds) can be offered in Slovakia to all types of investors, but the individual conditions for achieving such distribution will vary depending primarily on:

• where the management company that wants to distribute the fund is based;
• where the Fund is established;
• whether the securities or holdings of such a fund should be offered only to professional investors or also to retail investors.

Acquisition financing

In the fifth and final panel, we addressed the topic of acquisition financing. In a broader sense, financing includes not only bank financing, but also the use of own funds, which have several specificities and limitations, and, for example, various alternative forms of foreign financing.

At the same time, different types of financing can be combined, in which case the potential regulatory aspects of such combinations also need to be considered.

Slovak law brings several specifics, resp. Legal restrictions related to the provision and subsequent repayment of own financing. This not only implies high demands for creative structuring of acquisition transactions using own funds, but also places on the statutory bodies the burden of responsibility for compliance with these rules and a common obligation to compensate for damages in the event of their breach. In particular, the following institutes serve to protect the company’s capital and its shareholders and creditors against transactions between the company and its related parties which are not market-standard:

• prohibition on the return of deposits;
• a society in crisis;
• financial assistance.

If you are interested in the above topics and would like to learn more about them, you can find video recordings of the individual conference panels right here:

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

Článok Real Estate – Taxes and Financing Conference (Unique conference on fund and tax structures, crowdfunding, bonds, bank financing, etc.) je zobrazený ako prvý na Highgate.

The awards gala was organised by the EPRAVO Group and the weekly TREND, and its eleventh edition took place on Wednesday 26. April. The event took place at the Double Tree by Hilton Hotel in Bratislava, where the winners of the individual categories received their awards for their year-long work.

We would like to thank our clients and partners for their cooperation, thanks to which we have achieved this success.

If you are interested in a consultation, please do not hesitate to contact us.

Článok Highgate Law & Tax named Tax Law Firm of the Year 2023 je zobrazený ako prvý na Highgate.

When is it worth buying an apartment for a company, for a trade and when is it better to buy it for a person?

Answering this question has a legal context and also requires knowledge of income tax, levies and VAT. In addition, the economic aspects of property ownership, such as the cost of renting, the growth or decline of property or the cost of construction inputs, must be taken into account. From an income tax and levy perspective, it is worth buying with the intention of owning the property for more than 5 years as an individual. “This is due to the fact that an individual does not tax the sale of a property after 5 years of acquisition unless the property was in a business property. And therefore, it does not arise the basis of assessment for health insurance premiums,” explains tax attorney Peter Varga of Highgate Group.

However, this may not always and everywhere be the case, according to experts. If property prices were not rising at such a rapid rate as we have seen in recent years, and the property required some investment for repairs or upgrades, it might be more efficient to own the property as a corporate entity in a particular case. “Let’s illustrate this with the example of an individual who acquires a property, rents it out and after 5 years decides to sell the property. The total tax liability (we assume that the property is rented out without the provision of related services such as cleaning, laundry change, etc.) would be higher in those 5 years than the tax liability of a legal entity on the sale of the property, when the tax base on the sale would be the difference between the sale price and the tax residual value of the property,” says Peter Varga.

In practice, however, there are more complex cases. Especially if the property is rented out by a sole trader. In some cases, such a way of renting is more tax-advantageous than the so called. The above example could lead to the opposite answer. “It depends on the total amount of income (also from other sources) of such an individual. At the same time, individuals – self-employed persons can put the real estate into business assets and thus apply depreciation, charges to the repair, reconstruction, tax or insurance fund against the rental income,” explains tax attorney Peter Varga.

Careful with VAT deduction

A very important factor when buying a flat or other property for a company are also matters related to VAT. If certain conditions are met, the buyer of the property can deduct VAT and the state will pay him the so-called VAT. Excess deduction. For example, if a property in a new building costs EUR 250,000 including VAT, the buyer will receive EUR 41,667 back from the state. However, this is not automatic. “In general, it is necessary that such a buyer subsequently carries out taxable transactions with the property for VAT purposes. Otherwise, he loses the right to deduct VAT,” explains tax lawyer Peter Varga. In practice, there are also situations when the buyer receives an excessive deduction from the state, but has to return it only partially after some time. “There are several variations in relation to VAT. In general, however, it can be stated that the right to deduct VAT does not automatically mean an advantageous tax position of the buyer,” adds Peter Varga.

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

Článok Is it better to buy an apartment in the name of a person or in the name of a company?
Interview by Peter Varga for Pravda je zobrazený ako prvý na Highgate.

Natural versus legal person

When is it worthwhile for an entrepreneur to buy an apartment for a company and when is it better to buy it for a person?

Answering this question requires knowledge not only of income tax, levies and value added tax, but there is also some legal context. It is also necessary to be able to estimate the economic aspects of owning a property – the cost of renting, the growth or decline of property or construction inputs, which have a significant impact on answering this question. From the point of view of income tax and levies, it is in principle worthwhile to make a purchase with the intention of owning the property for more than five years as a natural person. This is because the sale of real estate after five years of acquisition by an individual, if the real estate was not in commercial property, is not taxable. Thus, she does not even have a taxable basis for health insurance premiums.

Higher prices

However, this obviously does not always and everywhere have to be the case. What might be the impact of a rise in property prices?

If property prices were not rising at the rate we have been used to in recent years, and the property required some investment for repairs or upgrades, it might be more efficient in a particular case to own the property as a corporate entity. Let’s illustrate this with the example of an individual who buys a property for 200 thousand euros and rents it out with a profit of seven thousand euros per year after deducting OPEX. After five years, he decides to sell the property. Before the sale, however, it will carry out reconstruction in the amount of 30 thousand euros and sell the property for 225 thousand euros. The total tax liability – we assume that the property is rented out in a so-called passive form – is higher for those five years than the tax liability of a legal entity on the sale of the property would be, when the tax base on the sale would be the difference between the sale price, i.e. 225 thousand euros, and the tax-residual price of the property, i.e. 175 thousand euros.

More complicated cases

Are there more complex cases in practice?

For example, renting out a property as a sole trader also brings some complexity. In some cases, this type of renting is more tax-efficient than so-called passive renting, and the above example could lead to the opposite answer. It depends on the total amount of income and also on the other sources of such an individual. Further, individuals may put the property into a business property and thus claim depreciation, repair, renovation, tax or insurance charges against the rental income.

VAT on the scene

What role can the possibility of deducting value added tax play in the decision?

If certain conditions are met, the buyer of the property can deduct the value added tax and the state will pay the “excess deduction”. If a property in a new building costs, for example, 250 thousand euros with value added tax, the buyer will get 41 667 euros back from the state. But, of course, this is not so simple. Generally, it is necessary that such a purchaser subsequently makes taxable transactions in the property for value added tax purposes. Otherwise, the right to deduct value added tax is lost. In practice, there are also various hybrid situations where, for example, the buyer receives an excessive deduction from the state, but has to repay only part of it after a certain period of time. There are several tax variations. In general, however, it can be stated that the right to deduct value added tax does not automatically imply an advantageous tax position for the buyer.

Different risks

To what extent should the legal dimension also be considered?

When buying a property as a legal entity, the buyer’s legal position is not as protected. On the other hand, buying real estate in the name of a legal person is more sensible, especially in situations where there is a risk of security or forfeiture of all or part of the property or assets associated with the natural person. Anyway. The topic is very complex and it is not possible to give a blanket answer to this question. In practice, this always needs to be assessed on an individual basis.

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

Článok How is it best to own real estate? Ako PO alebo FO? je zobrazený ako prvý na Highgate.

With the rising value of cryptocurrencies, the demand for tax and legal advice related to the taxation of cryptocurrencies and possibly finding legal avenues to reduce tax and levy liability is also naturally increasing .

In the basic setup, individuals who are both tax and levy residents of Slovakia are taxed at a tax rate of 19% and 25% respectively on profits from the sale of cryptocurrencies. At the same time, this profit is also subject to health levies. For legal entities, the tax base is taxed at a 15% or 21% tax rate. However, despite the relatively clear rules, the area of cryptocurrencies is in practice a very complex not only tax but also accounting topic.

For example, we work with clients on:

• what is included in tax expenses when trading cryptocurrencies;
• how trading via different platforms outside the disposition of a particular taxpayer is assessed;
• how non-monetary deposits with natural or legal persons at home or abroad are treated;
• the use of foreign companies in cryptocurrency trading;
• what if the taxpayer does not know exactly how to calculate the tax base;
• the acquisition value of cryptocurrencies on donations, deposits, mergers or liquidations;
• cryptocurrencies and VAT (it is not absolutely true that cryptocurrencies are outside the VAT regime).

For more on cryptocurrency taxation, see our articles and videos. You can find them on the Highgate Group website .

In connection with the taxation of cryptocurrencies, we provide the following services:

• analysis of options for legal tax and/or levy optimisation;
• implementation of foreign solutions;
• representation in tax proceedings;
• Analysis of the limits of criminal liability in the context of specific cases.

Taxation of financial instruments

Financial instruments include, in addition to securities, derivatives, holdings in collective investment undertakings, financial contracts for differences and, in some cases, cryptocurrencies. The taxation and ‘tax treatment’ of financial instruments is not harmonised and, therefore, the specific level of taxation and, where applicable, the obligation to pay compulsory social or health insurance depends on the type of financial instrument as well as the type of income that accrues to the individual in relation to it.

For corporations, the tax situation is a bit simpler. However, especially with derivatives and derivative cryptocurrencies, the accounting is significantly more difficult.

It is important to note that the topic of accounting and taxation of more complex financial instruments and cryptocurrencies is generally not harmonised in the European Union, and thus countries create their own tax and accounting frameworks.

This has implications especially for smaller countries like Slovakia, which naturally does not have the capacity to comprehensively grasp these issues.

Taxation of real estate

In addition to income tax and levies, VAT also plays a big role in property taxation. The topic is not only of interest to real estate entrepreneurs by default, but also to current non-business individuals who use real estate for the appreciation of their assets.

Cases of individuals buying investment properties are frequent. Based on our experience, clients are particularly interested in these topics:

• VAT is deductible on the purchase of the property;
• it is better to rent the property through an LLC or as a natural person;
• entrepreneur/non-entrepreneur and taxable/non-taxable person;
• when dealing with real estate is perceived as a business;
• if the property is purchased without VAT, it is possible to obtain a VAT deduction when it is subsequently sold with VAT;
• it is possible to sell the property without VAT if it was bought with VAT.

We advise clients in structuring their real estate business.

This is not only the case for the larger development projects we handle as Highgate Group, but clearly individuals as individual (and smaller) investors also find added value in this advice.

Článok Taxation of real estate, business shares, shares and other capital income je zobrazený ako prvý na Highgate.