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.

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.

Transfer pricing is the process of pricing controlled transactions between related parties for tax purposes. The requirements of the tax authorities were clear, the pricing of transactions between dependants must be at arm’s length, i.e. on terms that the entrepreneur would have agreed with independent persons.

The objective of transfer pricing is:

• Preventing unnatural profit shifting between dependants;
• Influencing the amount of tax liability, where there is a loss to the state budget.

Transfer pricing legislation

In the legislation of the Slovak Republic, the controlled transaction is regulated by Act 595/2003 Coll. on income tax as a legal relationship or other similar relationship between two or more dependent persons, where at least one of the persons is a taxpayer with income according to § 6 or a legal person who earns taxable income (revenue) from an activity or from the disposal of property.

A lease from which income is derived pursuant to Section 6(3) shall not be considered a controlled transaction if the property is not classified as commercial property and the lessee is a natural person who uses the property for personal purposes.

In a controlled transaction, the actual content of the legal relationship or other similar relationship is taken into account. A transaction is a controlled transaction if it takes place between two dependants, which according to the Income Tax Act are:

• Loved ones;
• Persons economically or personally related;
• Otherwise related persons;
• Persons or entities that are part of the consolidated whole for the purposes of consolidation

Close person

The Civil Code defines a close person as a relative in the direct line, sibling and spouse, but also other persons in a family or similar relationship if the injury suffered by one of them would reasonably be perceived by the other as his or her own.

Persons economically or personally related

Under the Income Tax Act, an economic and personal relationship may be understood as a person’s participation in the property, control or management of another person or a mutual relationship between persons who are under the control or management of the same person or a close associate of the same person or in which the person or the close associate of the person has a direct or indirect property interest.

Other related persons

Otherwise connected persons or other connection means a relationship established between two persons, primarily for the purpose of reducing the tax base or increasing a tax loss. Where the relationship is not a close one, a person linked economically or personally, or persons who are part of a consolidated unit, if they are materially dependent, the tax authorities may also describe it as a relationship between dependent persons.

The concept of otherwise related persons has thus created a safe harbour for the tax authority , under which the tax administrator can also subsume the actions of persons who would otherwise not fall under the definition of dependants.

Persons or entities that are part of the consolidated whole for the purposes of consolidation

Persons belonging to a consolidated entity are interdependent. These are a group of subsidiary entities and their parent company, which is required to prepare consolidated financial statements for the group.
In practice, we may also encounter the frequently used term related or connected parties.

Conversely, we also refer to non-dependants as third parties or unrelated persons and parties.

Examples of a controlled transaction

An entrepreneur owns two sister companies, one of which shows a profit – Company A and the other a loss – Company B. Company B, the loss-making company, provides Company A with consultancy services. On invoicing for such services, Company A will reduce its tax liability to the tax authorities and, in turn, Company B will reduce its tax loss.

The above example transaction is carried out for the purpose of reducing the tax base and at the same time reducing the tax loss in the sister companies. Company A and B can be subsumed under the definition of dependants, namely persons belonging to the consolidated entity. Under the Income Tax Act, the above transaction would meet the characteristics of a controlled transaction and would therefore be subject to transfer pricing conditions. And it would probably also meet the elements of the offence of tax and insurance fraud.

Another frequently occurring example might be the following:

An individual who is a shareholder and director in a company “puts” money into his own company, i.e. gives his company an interest-free loan.

A shareholder who has more than 25% shareholding in the company is a close person according to the above criteria and thus, the company will have to pay market interest on the loan as if the money had been given to it by a bank or an independent person.

Transfer pricing documentation

Transfer documentation is regulated by the Guideline of the Ministry of Finance of the Slovak Republic No. MF/014283/2016-724 on determining the content of documentation according to § 18 para. 595/2003 Coll. on income tax (hereinafter referred to as the “Guideline of the Ministry of Finance of the Slovak Republic”).

In the transfer pricing documentation, businesses shall demonstrate whether the controlled transactions meet the conditions that would be agreed between arm’s length parties and, therefore, that the transaction was carried out in accordance with the arm’s length principle. The definition of this principle can be found in the Income Tax Act as follows: “The arm’s length principle is based on a comparison of the terms agreed in controlled transactions between related parties with the terms that would have been agreed between related parties in comparable transactions in comparable circumstances in the relevant periods.”

Types of transfer documentation

There are three types of transfer documentation:

• Full documentation;
• Basic documentation;
• Abbreviated documentation.

The obligation to keep transfer pricing documentation in the scope of complete documentation is imposed on entrepreneurs who, according to the Guideline of the Ministry of Finance, carry out selected transactions, especially significant transactions with a cross-border element or transactions where a special procedure is applied. The obligation to keep full documentation applies to:

• taxpayers that report profit or loss in their separate IFRS financial statements (with certain exceptions) in relation to significant cross-border controlled transactions;
• taxpayers involved in a cross-border controlled transaction with a value of more than EUR 10 million EUR 10 per tax period;
• taxpayers who carry out significant transactions with dependants who are taxpayers of a non-Contracting State (i.e. in particular tax havens);
• taxpayers involved in controlled transactions for which they request the tax administrator to issue a decision on the approval of the valuation method;
• taxpayers claiming secondary treatment for a controlled transaction under international tax treaties;
• taxpayers who have controlled transactions for which a request has been made to initiate a dispute resolution mechanism under an international tax treaty;
• taxpayers claiming tax relief in the tax year in respect of significant cross-border controlled transactions.

Basic documentation

In other cases, the taxpayer is obliged to keep basic documentation on:

• cross-border controlled transactions with an annual value of more than CZK 1 million EUR;
• insignificant transactions with dependants who are taxpayers of a non-Contracting State (i.e. mainly tax havens);
• significant cross-border controlled transactions in respect of a taxpayer with total economic and financial activity income for the tax period exceeding EUR 8 million. EUR;
• significant domestic controlled transactions, if the taxpayer claims a tax credit.

The contents of the complete and basic documentation shall include all facts that affect the valuation of those controlled transactions.

Abridged documentation

If neither complete nor basic documentation is prepared for a controlled transaction, the taxpayer shall maintain at least abbreviated documentation, which shall be completed in the prescribed structure issued by the Ministry of Finance, except where proper disclosure of the controlled transactions in the income tax return is sufficient. Should the taxpayer fail to disclose the controlled transactions in the tax return, the taxpayer is obliged to prepare abbreviated documentation on these transactions.

Transfer pricing methods

In selecting a transfer pricing method, the taxpayer shall select a method whose use is consistent with the best method principle. Transfer pricing methods are defined in § 18 para. :

• methods based on price comparisons (arm’s length method, subsequent sales method, mark-up method);
• methods based on profit comparisons (profit split method, net trading margin method);
• methods that are a combination of price-comparison and profit-comparison methods;
• other methods not listed in the preceding points, if their use is consistent with the principle of an independent relationship.

PenaltiesIfan entrepreneur fails to comply with any of his obligations under the transfer pricing conditions, the tax authority may impose a penalty during a tax audit.

The most common fines imposed include:

• penalty for failure to increase the income tax base;
• fine for failure to produce transfer documentation;
• a penalty for an unjustified corresponding adjustment of the tax base.

Penalty for failure to increase the income tax base

The adequacy of the amount of the failure to increase the tax base shall be assessed in the case of a penalty for failure to increase the tax base. If the taxpayer fails to increase the tax base, a penalty for failure to increase will be imposed and the tax authority will also increase the tax. The amount of the penalty is 3 times the ECB interest rate per annum on the amount, or 10% per annum of the amount assessed . Pričom platí, že čím neskôr je daňová kontrola, tým vyššia je aj pokuta.

Penalty for failure to draw up transfer documentation

A penalty for failure to produce the transfer documentation will be imposed on the taxpayer if he fails to produce the transfer documentation within 15 days from the date of receipt of the notice. The maximum amount of the fine is EUR 3 000.

Penalty for unjustified corresponding adjustment of the tax base

The taxpayer may make a corresponding adjustment to the tax base only in certain

in the case of domestic transactions, if carried out by another dependent person, and in relation to foreign transactions, after prior authorisation by the tax authority. A breach of any of the above rules shall be deemed to be an unjustified corresponding adjustment of the tax base. If the tax authority finds a breach of the rules during the tax audit, it shall impose an increase in tax on the taxpayer and impose a penalty of 3 times the ECB base rate, similar to the case of a non-adjustment of the tax base.

FAQ

Question – granting a loan

An individual who is a shareholder and director in a company “puts” money into his own company, i.e. gives his company an interest-free loan. Is this type of contribution subject to an adjustment of the taxable amount by the interest on the loan at the rate of interest normally charged by banks in the market?

Answer:

No, as the interest on the loan constitutes income from the capital assets of an individual for which no taxable amount is shown under Sections 17 to 29 of the Income Tax Act.

Question – supply of business-to-business services

Both spouses carry out business activities on the basis of a trade licence. They provide services to each other on the basis of invoices. They are accounting units. Are these entrepreneurs subject to transfer pricing and tax base adjustment?

Answer:

As the taxpayers are taxpayers carrying out business activities and are close persons, their business transactions are covered by the provision of Section 17 para. 5 of the Income Tax Act. On this basis, it is necessary for each spouse to keep separate documentation on the significant controlled transaction in the scope specified by the guidance of the Ministry of Finance, i.e. abbreviated documentation. If the use of different prices or terms in this controlled transaction results in a reduction of the tax base or an increase in the tax loss of the individual, then the individual will be obliged to adjust the tax base pursuant to section 17(1)(a) of the ITA. 5 of the Income Tax Act.

Question – rental property

An individual who is a partner and managing director in the company has entered into a lease agreement with the company to lease the property for business purposes. The income from the rental of the property is taxed by the natural person in accordance with Art. 3 of the Income Tax Act. The provisions of Section 17(1)(a) of the Act apply to this individual. 5 and 18 of the Income Tax Act?

Answer:

The lease of immovable property between an individual and a legal person who are dependants is a controlled transaction between persons who ascertain the taxable amount pursuant to Sections 17 to 29 of the Income Tax Act, and therefore the provision of Section 17(1) of the Income Tax Act applies to such persons. 5 as well as Section 18 of the Income Tax Act.

Question – sale of movable property

An individual, not a businessman, sells his brother a passenger car for less than the normal market price. As this is a transaction between close persons, is the individual liable to pay the difference in price from the sale of the car on his income tax return?

Answer:

As this is a business transaction between close persons who are natural persons who are not entrepreneurs, and the income from the sale of the car falls under other income taxed under Section 8 of the Income Tax Act, the procedure under Section 17(1) of the Income Tax Act does not apply to this business transaction. 5 of the Income Tax Act.

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

Článok Transfer pricing in 2022 je zobrazený ako prvý na Highgate.

According to Petr Varga, the reform is not just an invention of this government. A number of proposals have existed for a longer period of time. He also sees the reform as an effort to introduce a greater degree of fairness into Taxation / drainage. There is now a huge disproportion between employees and the so called. office tradesmen. These sole traders benefit from generous lump-sum expenses and pay an effective tax and levy rate of perhaps around 15% (up to 10% for levy holidays). Whereas ordinary employees are much worse off. And yet tradespeople do not lose out on important social insurance benefits (old-age pension, maternity, pregnancy benefits) and save hundreds of euros a month at the expense of public finances.

Positive features of the reform:

• simplification of the system
• group taxation (i.e. netting of losses, elimination of transfer pricing)
• lower tax rate
• striving for greater fairness

Negative features of the reform:

• property tax (illusion)
• exuberant social transfers
• charging university fees for working students

Anyway Peter Varga is very sceptical about whether the state as we have known it for a long time (except perhaps the 2nd Dzurinda government) is capable of implementing such a tax and levy reform. It would be extremely technically complex, not only from a §§ point of view, but also from an information point of view. After all, the Social Insurance Institution has been unable to introduce even an annual settlement of insurance premiums for several years.

Full interview: An expert has dissected Matovič’s reform to the bone. The part with tradesmen has succeeded, surprised the expert (INTERVIEW)

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

Článok What are the positives and negatives of Matovic’s tax revolution? je zobrazený ako prvý na Highgate.

A credit note is linked to the invoice issued and is a corrective tax document in which the supplier reduces the amount of the invoice that he has already invoiced and dispatched.

What is a credit note?

A credit note is a document (invoice) on the basis of which the originally issued invoice is corrected. The supplier reduces or completely cancels a previously billed receivable from the customer. For example, due to a claim or return of goods.

What is an annotation

A debit note is a corrective invoice (tax document) by which a supplier increases a previously settled receivable from a customer. For example, due to overwork or other change where the amount on the invoice needs to be increased. Thus, it serves to increase the price of the goods or services on the invoice.

A debit note is the opposite of a credit note.

The taxpayer who issued the original invoice shall issue a tax copy and only if it is necessary to correct the tax base due to an increase in the price of the goods or services.

When is a credit note issued?

The issue of a credit note applies only to VAT payers. Non-payers of VAT use cancellation invoices. Credit note is an established term in business, but you would look for it in the law in vain, officially, according to the legislation, credit note is referred to as: “taxbase correction document“.

Generally, the VAT payer issues a credit note in the following cases:

• claim for services or products – all or part of the amount is reduced
• cancellation of the supply of services or products – e.g. in the event of a wrong order
• additional price reduction – if you decide to give an additional discount

Who issues the credit note?

A credit note is issued by the taxpayer who issued the original invoice, and a credit note cannot be issued in cases other than those mentioned above (e.g. if a taxpayer issues an invoice that contained incorrect data, in which case the original invoice must be corrected and no credit note issued).

From the law on “credit”

According to § 25 par. 1 lit. (a) and b) the credit note shall be used to correct the taxable amount for the supply of goods or services and for the domestic acquisition of goods from another Member State when:

• the total or partial cancellation of the supply of goods or services,
• full or partial return of the delivery of goods (e.g. due to a claim),
• a reduction in the price of goods or services after the tax liability has arisen (e.g. due to additional discounts or bonuses).

What if the customer has not paid the invoice?

If the customer has not paid the invoice, a credit note under Section 25 of the VAT Act is not issued.

The problem is that you, as the VAT payer, have to pay VAT on the invoice. In this case, however, it is possible to proceed according to § 25a para. 1 of the VAT Act, where the taxable amount for the supply of goods or services can be paid by the payer who is liable to pay tax on this supply according to § 69 par. 1 of the Act, if after the tax liability has arisen, the customer has not paid him wholly or partially for the supply of goods or services and his receivable from this supply has become irrecoverable pursuant to Section 25a(1) of the Act. 2 of the Value Added Tax Act.

VAT refunds on irrecoverable debt

From 1 January 2021, the content of the control statement and the lines of the tax return will change. In this section on the amendment to the VAT Act, we are going to deal with the changes that will be related to the correction of the tax base after the new VAT Act, as well as the novelty of the correction of the tax on the irrecoverable receivable.

Credit note for receivables?

Credit notes may not be issued by businesses for the purpose of reducing revenue or VAT on an unpaid invoice, for example. From 1 January 2021, according to the amendment to the VAT Act, entrepreneurs can issue a credit note to invoices on the basis of which they register uncollectible receivables in order to be refunded the VAT they have paid on the invoice.

What law defines a credit note?

The credit or correction of the tax base is contained in Section 25 of Act No. 222/2004 Coll. on value added tax as amended.

As mentioned above, you would be hard pressed to find the word “credit note” or “debit note” in this law (it is not there). Credit note is just a popular name and it expresses the term: “correction of the tax base“.

How to issue a credit note?

A credit note is issued in the same way as an invoice and most accounting systems have the ability to directly generate a credit note from an invoice.

What must the credit note contain?

The credit note must comply with the following:

• must state in the title that it is a correction of a document. It must therefore contain the word credit note or tax base correction document;
• must contain the credit note serial number
• the credit note contains, like the invoice, the identification data of the taxable person and of the recipient of the goods or services
• date of delivery – date of issue – due date
• must include the invoice number to which the repair relates;
• must include the goods or services to which the refund relates
• amounts on the credit note are marked with a minus symbol,
• the same tax rate must be applied as on the invoice to which the credit note relates

A credit note, like an invoice, does not have a precise form or visual format, only the elements it must contain.

Článok What is a credit note and why it does not replace the cancellation of an invoice je zobrazený ako prvý na Highgate.

Minimum wage in Slovakia 2023

The new amount of the monthly minimum wage in 2023 is from 1.1.2023 700 € gross = 568,97 € net (which will be credited to the employee’s account). This minimum wage amount applies to employees who are paid a monthly salary.

The hourly minimum wage in 2023 for a 40-hour working week is €4.023 gross. It is calculated as 1/174 of the monthly minimum wage. The hourly minimum wage shall be applied to employees who are remunerated by the hourly wage.

What is the minimum wage?

The minimum wage is the lowest amount of money an employer must legally pay an employee for work done in a certain period of time (usually a month). It is the legal minimum level set by law to ensure a minimum standard of living for employees. The minimum wage is usually adjusted every year based on inflation, economic developments and labour market needs. In some countries, there are different minimum wage levels for different sectors, regions or groups of employees, but usually the minimum wage applies to all employees over a certain age (for example, 18).

What is a wage?

A wage is a monetary benefit or benefit of monetary value(wages in kind) provided by an employer to an employee in return for work. Wage conditions are the result of an agreement between the employer and the relevant trade union body, as set out in the collective agreement or as agreed with the employee in the employment contract, and equality between men and women must be maintained and respected without any discrimination on the basis of sex. At the same time, the condition that the wage must not be less than the minimum wage laid down by special regulation must be complied with.

In the real economic environment, wages tend to adjust slowly and rigidly to the current state of the labour market. Wage rigidities represent a very complex labour market problem. One possible explanation is that the labour market itself is regulated by economic theory.

Wages are largely set administratively by employers for a period of one year. Companies set their own salary scales, and when pay adjustments are made, wages are usually increased by the same percentage across all grades. However, this may not always be the case. In this context, the influence of trade unions, which aim to raise wages, and state intervention in the form of the introduction of a minimum wage, are also significant.

Wages in a labour market with a high degree of unionisation are even more rigid and inflexible. Wages can be set for longer periods (usually 3 years) and do not have to be adjusted in the event of labour market imbalances.

Minimum wage means the lowest monetary remuneration that an employer is required by law to provide to an employee in return for work. Where the employee’s wage in a calendar month does not reach the amount of the minimum wage entitlement per hour worked, the employer shall provide the employee with a supplementary payment in the amount of the difference between the wage earned and the amount of the minimum wage entitlement laid down for the grade of the job concerned.

How is the minimum wage set in Slovakia?

The determination of the minimum wage usually depends on a country’s particular economic system and legislation. In Slovakia, the minimum wage is set by law and regulated by the Ministry of Labour, Social Affairs and Family.

In general, the minimum wage is set on the basis of various criteria such as the cost of living, inflation, labour productivity and local labour market conditions. The specific level of the minimum wage is usually decided in consultation with employers’ organisations, trade unions and other relevant parties.

In Slovakia, the minimum wage is determined by the Minimum Wage Act. The specific amount of the minimum wage is set annually and usually comes into force in January. The minimum wage is usually set on the basis of the recommendations of a tripartite commission consisting of representatives of the government, employers’ organisations and trade unions. After consulting these parties, the government sets the final minimum wage for the following calendar year.

Introduction of a minimum wage

The origin of the minimum wage dates back to 19. The minimum wage dates back to the 19th century, when the first labour laws appeared and trade unions sought to improve working conditions for workers.

In the United States, the Minimum Wage Act of 1938 established a federal minimum wage for employees nationwide. In Europe, the minimum wage was introduced in the 1920s. In Europe, the minimum wage was first introduced in the 20th century, first in some countries such as Sweden, Germany and the United Kingdom. However, it gradually became common practice throughout Europe and was included in many labor laws.

The main aim of the minimum wage is to ensure that workers receive fair pay for their work and to prevent employers from exploiting workers who might otherwise be paid low wages. At the same time, a minimum wage can help improve the economy by increasing consumption and thus demand for goods and services.

Why is the minimum wage important?

The minimum wage has several important functions and purposes in modern economic systems. Among the most important are:

• Guaranteeing a minimum income for workers: a minimum wage ensures that workers are guaranteed a minimum income for their work, allowing them to pay for basic living costs, food and healthcare.

• Preventing social exclusion: the minimum wage helps prevent poverty and social exclusion for those who would otherwise be unable to support themselves and their families.
• Improving working conditions: introducing a minimum wage can improve working conditions and increase workers’ incentives to work. Employers should strive to provide better working conditions and wages in order to retain skilled and motivated employees.
• Supporting consumer demand: a minimum wage can stimulate economic activity and boost consumer demand, as minimum wage workers have more money to buy goods and services (compared to if there was no minimum wage and some workers were paid less than the minimum wage).
• Improving living standards: a minimum wage can contribute to improving workers’ living standards and reducing social inequality, as employers are obliged to pay their employees at least the minimum wage.

Ultimately, the minimum wage is an important tool for ensuring decent work and safeguarding workers’ fundamental rights. It can also have a positive impact on the economy and society as a whole.

Development of the minimum wage in Slovakia

The minimum wage in Slovakia has changed and evolved over time. The main milestones are:

• In 1993, a minimum wage of CZK 2 000 was introduced in Slovakia.
• In 2001 , the minimum wage was raised to SKK 3 500.
• In 2004 , the minimum wage was raised to CZK 4 100.
• In 2007 , the minimum wage was raised to CZK 5 200.
• In 2010 , the minimum wage was raised to €307.70.
• In 2014, the minimum wage was raised to €352.
• In 2018, the minimum wage was raised to €480 and the hourly minimum wage to €2,759.
• In 2020, the minimum wage has been raised to €580 and the hourly minimum wage to €3,333.
• In 2021, the minimum wage was raised to €623 and the hourly minimum wage to €3.58.
• In 2022, the minimum wage was raised to €646 and the hourly minimum wage to €3,713.
• In 2023, the minimum wage was raised to €700 and the hourly minimum wage to €4.023.

It is important to note that the minimum wage in Slovakia changes every year. This usually reflects economic conditions in the country, inflation and the rising cost of living. In addition, the level of the minimum wage often becomes the subject of political debate and government decisions. The aim is to ensure a decent wage for workers while protecting the country’s economic stability and competitiveness.

How many people in Slovakia have the minimum wage?

Around 217 000 people in Slovakia receive the minimum wage, which represents around 4% of the workforce. The majority of employees in Slovakia working for close to the minimum wage work in the service, agricultural and food processing industries.

Who is entitled to the minimum wage?

• employees in an employment or similar employment relationship
• natural persons working under one of the agreements for work performed outside the employment relationship (performance agreement, student temporary work agreement and work activity agreement).

Average wage in Slovakia

The average nominal monthly gross wage of an employee in the Slovak economy reached €1,304 in 2022. It increased by 7.7% year-on-year, its growth rate accelerated by 0.8 percentage point compared to the same period last year. Real wages fell by 4.5%. The last time we saw a decline in real wages was in the immediate aftermath of the financial crisis in 2011 and 2012.

What will the minimum wage be in 2024?

If the social partners (trade unions and employers’ associations) had not agreed on the minimum wage for 2024 and the Minimum Wage Act had not been amended, the minimum wage for 2024 would have been determined in accordance with Article 8 of Act No. 663/2007 Coll. on the minimum wage as 57 % of € 1 304, which, after rounding, would be € 744.

Net and gross minimum wage

The employer will deduct social security and health insurance contributions of €93.80 from the employee’s gross monthly minimum wage of €700 from 2023. At the same time, the employer is obliged to pay social and health insurance contributions of € 246.40 on the employee’s wages. The total levy burden for both the employee and the employer is € 340.20 per month, i.e. j. worth almost half of the gross monthly wage (48.60%).

Minimum wage legislation

Pursuant to § 7 of Act no. 663/2007 Coll. on the minimum wage: Representatives of employers and representatives of employees negotiate the determination of the monthly minimum wage for the following calendar year by agreement from 1. April .

The minimum wage is set annually in two amounts in euros:

• per month (monthly minimum wage),
• per hour worked (hourly minimum wage), which is 1/174 of the monthly minimum wage.

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This new guideline should be seen positively as it reduces the administrative burden for SMEs by completely removing the obligation to prepare transfer documentation or reduces the documentation obligation to only abbreviated transfer documentation which is in a simplified structured form. At the same time, this Guideline introduces a documentation obligation only for significant transactions.

However, it is necessary to point out to all taxpayers who adjust the tax base within the meaning of Sections 17 to 29 of the Income Tax Act (all corporations and certain individuals) that, irrespective of the documentation requirement, Section 17 para. 5 of the Income Tax Act has not been changed and the tax authority may still adjust the taxpayer’s tax base if the prices for goods and services between dependants are not set at market rates (in accordance with the arm’s length principle).

This means that if the taxpayer does not have a documentation obligation, the tax administrator cannot penalize him. However, if the taxpayer is not obliged to submit the transfer documentation to the tax administration, it does not mean that the tax administration cannot ask the taxpayer to demonstrate the pricing set-up for the transactions under audit.

If the taxpayer has a documentation obligation and thus has to prepare abbreviated, basic or full transfer documentation, the tax administrator may also ask the taxpayer to submit additional information to demonstrate that the prices used in the controlled transactions comply with the arm’s length principle. For this reason it is also important to have a properly set transfer pricing policy.

Author of the article: Mgr. Andrej Choma, transfer pricing specialist

Článok Relief from the documentation obligation does not mean relief from compliance with the arm’s length principle je zobrazený ako prvý na Highgate.

This material provides the most basic overview of the various manufacturing companies as well as the various distribution/sales companies. The division and definition of companies is for information purposes only and there are overlaps in the different types of companies in real business. These overlaps should also be taken into account by the tax administrator when assessing individual companies in the context of transfer pricing control .

Companies can be divided into two basic groups, namely manufacturers and distributors.

Manufacturers

Fully-fledged manufacturer

• The Company owns intangible assets such as. patents, industrial know-how and designs
• The Company purchases goods and semi-finished goods on its own account and holds stocks of both raw and finished goods and bears the associated risks
• The Company is subject to risks associated with the sale of goods
• The company invests in innovation, machinery and equipment
• The company is therefore entitled to the profit earned, less compensation for routine functions

Contract manufacturer

• The company owns the plant and machinery and employs the workforce
• Produces goods for the parent company
• The Company does not have risks associated with holding or selling finished products; these risks are transferred to the principal
• The company bears the risk associated with the storage of the products until they are taken over by the principal
• The company is entitled to profit compensation
• The principal guarantees the purchase of all goods produced, if not he should be obliged to indemnify for the damage so incurred

Manufacturer “work in wages”

• The legal title to the material is held by the principal throughout the production process
• The principal buys materials and goods, even though these materials and goods go physically directly to the company
• The principal bears all risks associated with the storage and sale of the goods
• The company is entitled to compensation for the work carried out

Distributors

Full-fledged distributor

• A full-fledged distributor sells products wholesale or retail
• It buys these products, holds them as stock and then sells them to customers
• These activities may also involve marketing and promotion activities, respectively. other services such as transport, servicing, engineering, etc.
• A full distributor bears the risks associated with the purchase, possession and sale of goods
• Other risks include warehousing and non-sale risks, warranty risks, liquidity risks, operational and competitive risks, market risk and others
• Full-fledged distributors may also own marketing intangible assets such as trademarks

Commissioner

• He represents the principal
• Concludes contracts on its own behalf and issues invoices to customers
• Legal title to the goods passes from the principal to the customer
• The commission agent is entitled to a percentage of the sales or a percentage of his costs as profit
• The commission agent acts in his own name as agent of the principal, but the risk is on the principal’s side
• The goods remain the property of the principal until they are taken over by the customer
• The functions and risks associated with the purchase and storage of goods and the credit risk on the sale of goods are borne by the principal

Distributor with limited risk

• Under a contract between the distributor and the principal, the principal compensates the distributor for certain costs
• The main functions and risks are on the side of the principal
• The risks associated with the goods are reimbursed by the principal

Agent

• Arranges business with customers / brokers the opportunity
• The contractual terms are subsequently agreed without his intervention between the principal and the customer
• Does not take legal title to the goods
• Entitled to routine compensation

Author of the article: Mgr. Andrej Choma, transfer pricing specialist

Článok Overview of transfer pricing entities je zobrazený ako prvý na Highgate.

On the other hand, however, it has narrowed the scope of persons and transactions for which it prepares full transfer documentation. First of all, full transfer documentation is maintained for significant transactions and the materiality threshold has been increased from EUR 1 million to EUR 10 million. At the same time, for a taxpayer claiming tax relief, the full transfer documentation only applies to cross-border transactions and the requirement for full transfer documentation for the amortisation of a tax loss has been abolished .

Under the Guideline general transfer documentation contains the following information:

• identification and legal form of the individual members of the group of dependent persons (hereinafter referred to as the “Group”), description of the organisational and ownership structure of the Group, including changes compared to the previous tax period;
• a description of the Group’s business activities and business strategy;
• the main drivers of the Group’s profitability;
• a description of the supply chain and markets of the Group’s top five (or, if fewer than five, all) product or service categories,
• a description of the supply chain and markets of the Group’s product or service categories that represent more than 5% of the Group’s turnover;
• a list and brief description of significant service arrangements within the Group, excluding research and development services, and how these services are valued;
• a brief description of the functions, risks and assets of each member of the Group, including changes from the previous tax period;
• a description of significant changes in the Group’s structure, significant acquisitions or disposals of parts of the Group;
• a description of the Group’s overall strategy for the creation, holding and utilisation of intangible assets, including the location of the Group’s principal R&D facilities and the locations from which R&D activities are managed;
• a list of significant items or categories of the Group’s intangible assets, with an indication of their owner;
• a list of significant agreements between members of the Group relating to intangible assets, including cost contribution agreements, licensing agreements and research and development services agreements;
• a general description of how the Group prices controlled transactions relating to intangible assets;
• a general description of significant changes in ownership of intangible assets between dependants during the tax year, including the identification of the relevant members of the Group and the consideration for those changes;
• a general description of the Group’s financing arrangements, including significant financing arrangements with independent parties;
• Identification of Group members that carry out centralised Group financing activities;
• a general description of the pricing method for financial transactions between members of the Group;
• the consolidated financial statements of the Group for the relevant fiscal period, if any, prepared up to the time of submission of the documentation;
• a list and brief description of existing pre-measurement arrangements and binding tax rulings relating to the allocation of profits among the members of the Group; and
• other information that will contribute to demonstrating the consistency of the prices used with the arm’s length principle.

Specific transfer documentation contains the following information:

• identification and legal form of the taxpayer, description of its organisational and ownership structure, description of the organisational units within the Group to which members of the taxpayer’s management are subordinate within the Group’s organisational structure, including changes compared to the previous tax period;
• a description of the taxpayer’s business activities and business strategy, including changes in the structure of the business or transfers of intangible assets within the relevant or previous tax year, including changes from the previous tax year;
• for a single controlled transaction or group of controlled transactions:

1. a description of the controlled transaction or group of controlled transactions and the circumstances in which it takes place;
2. a financial statement of the value of the controlled transaction or group of controlled transactions for the relevant tax period, broken down by individual dependants;
3. a copy of the contract for the relevant controlled transaction or group of controlled transactions, if available in writing;
4. an analysis of the functions, risks and assets of the taxpayer and relevant dependants in relation to the transaction in question;
5. the method used to measure the controlled transaction and the rationale for its use, including the assumptions underlying the use of the method;
6. the selection of the tested party for the purpose of the comparability analysis, including the rationale for the selection, if relevant;
7. internal comparable transactions, external comparable transactions or arm’s length data, including a description of the sources and method of obtaining that data, comparability analysis (information on factors determining the comparability of controlled transactions with uncontrolled transactions, characteristics of the asset or service, analysis of functions, contractual terms, economic environment, specific business strategies);
8. a description of adjustments for comparability purposes, if any;
9. the rationale for the consistency of the valuation of the controlled transaction or group of controlled transactions with the arm’s length principle;
10. a summary of the financial information used in applying the particular valuation method to the controlled transaction or group of controlled transactions and a description of how it relates to the taxpayer’s financial statement data;
11. a copy of the prior valuation measures relating to the controlled transaction or group of controlled transactions in question, e.g. agreement on the valuation method, if this measure was not issued in the Slovak Republic;

• other information that will contribute to demonstrating the consistency of the prices used with the arm’s length principle.

Author of the article: Mgr. Andrej Choma, transfer pricing specialist

Článok Extension of the scope of full documentation in the new transfer documentation guidance je zobrazený ako prvý na Highgate.

Structured abridged transfer documentation

One of the most significant changes in the new guidance is the introduction of structured shorter documentation. The purpose of introducing the abbreviated documentation as an annex to the transfer documentation was to simplify the preparation of the transfer documentation for the least risky taxpayers, where the taxpayer only lists the transactions with dependants and the value of the transactions.

However, the Ministry of Finance of the Slovak Republic has forgotten that the taxpayer may also be interested in drawing up abbreviated documentation and at the same time, in the specific documentation for individual transactions, would like to indicate the method of setting the price and demonstrate the compliance of the set prices with the principle of arm’s length relationship.

Structure of the abridged documentation

The Ministry of Finance of the Slovak Republic issued together with the Guideline also the Annex to Guideline No. MF/019153-724, an overview of transactions with dependants. The summary of transactions is to be filled in separately for each dependent person. On the first page of the summary of transactions, information on the taxpayer is filled in. On the second and third pages, the taxpayer identifies the dependent and also fills in the individual boxes according to the type of transaction he or she has with the dependent.

The individual rows of the table shall show the total volume of transactions recorded in the accounts, depending on whether the taxpayer had a particular type of transaction in the tax year concerned. The transactions are divided into eight tables according to the type of transaction, namely :

• Table A ⇒ Transactions with a dependent party – intangible, tangible and financial assets
• Table B ⇒ Transactions with dependent person – stocks
• Table C ⇒ Transactions with a dependent – services
• Table D ⇒ Transactions with a Dependent – Royalties
• Table E ⇒ Transactions with a Dependent – Interest
• Table F ⇒ Transactions with a dependent – cost contribution agreements
• Table G ⇒ Transactions with a dependent – additional information
• Table H ⇒ Transactions with a related party – balance of long-term receivables and payables

If you find it difficult to classify certain transactions into individual tables, please do not hesitate to contact us contact and we will be happy to help you.

Finally, it should be noted that regardless of the simplification or complete waiver of the documentation preparation requirement, taxpayers must continue to comply with the arm’s length principle for audited transactions, i.e. have arm’s length pricing. The guidance only sets out the minimum scope of transfer documentation and the tax administrator may request the taxpayer to submit additional information to demonstrate that the prices used in the controlled transactions comply with the arm’s length principle.

Článok New short form of transfer pricing documentation je zobrazený ako prvý na Highgate.