Important changes to Slovak Income Tax Act make founding a company more attractive

Amendments to the Income Tax Act have brought changes that could improve the business environment in Slovakia and make founding a company more attractive.

Tax reduction for entrepreneurs and small businesses

A vital change is a reduction in the income tax rate to 15% for small businesses with a turnover of up to EUR 100,000 a year (both private entrepreneurs and companies). The rate can be applied for the first time in 2021 with the tax declaration for 2020. At the same time, it should be noted that advance income tax payments would be paid at an unchanged rate of 21%.

Micro-taxpayer as a new category

A micro-taxpayer is an entity that does not exceed turnover requiring registration as a VAT payer, i.e. EUR 49,790.

Micro-taxpayers will enjoy benefits including improved tax optimization options such as greater possibilities to deduct tax losses, better optimization options for depreciation of tangible assets (except real estate and luxury cars) plus the possibility to include correcting book entries for claims in tax expenses.

However, these changes will be effective only from 2021 for the business year 2020.

Improved possibilities for exploiting tax losses

It will be possible to amortize tax losses from previous periods over a 5-year period. Losses will no longer have to be amortized equally.

Losses can be applied up to a maximum of 50% of the tax base in the respective year. However, if the loss for the previous year is less than 50% of the tax base, it can be fully amortized. The 50% threshold does not apply to micro-taxpayers, who will be able to apply tax losses on the amount up to the entire tax base.

All these changes provide interesting legal options for tax optimization and make Slovakia more attractive among other European countries for founding a company.

Courtesy of: bnt attorneys in CEE

Obligation to register beneficial owners to the Commercial Register by 31 December 2019

Obligation to register beneficial owners to the Commercial Register

Under the amendments to the Commercial Register Act and in connection with amendment of the Anti-money Laundering Act, almost all companies are obliged to file a notification regarding registration of their beneficial owners to the Commercial Register by 31 December 2019. This applies to both new and existing companies.

It is also important to note that if a company has already registered its beneficial owners in the Register of Public Sector Partners (RPSP), this registration does not substitute the obligation to register beneficial owners in Commercial Register and vice versa.

In 2017, the Act on the Register of Public Sector Partners (ARPSP) entered into force in Slovakia. The Act introduced the obligation to register and publish entities which receive or intend to receive funds from public resources (so-called public sector partners) and the beneficial owners of these public sector partners in a specific Register of Public Sector Partners (RPSP). The register is public and, in principle, anyone wishing to participate in procurement must be registered. Further, according to new act, beneficial owners must also be registered in the Commercial Register.

The law defines beneficial owner. However, this will need to be assessed for each company separately.

Corporate veil pierced in Slovakia

Creditors will be able to enforce their claims directly against controlling shareholders

One of the main reasons businessmen conduct their business through companies is to transfer the risk from themselves to the company. In other words, creditor claims against a company can only be satisfied from company assets, whereas the assets of its owners – the shareholders are protected. The statutory protection of shareholders has the prosaic name corporate veil.

The recent amendment to the Slovak Commercial Code introduces a provision, which, for the first time in Slovak law, partially pierces the corporate veil.

The new regulation applies only to controlling shareholders. A “controlling shareholder” is a legal entity or a natural person that holds a majority share in a company’s voting rights. Any company so controlled is considered to be a “controlled company”.

According to the amendment, any controlling shareholder that significantly contributes to its controlled company’s insolvency is obliged to compensate the company creditors for the damage caused as a result of the insolvency of the controlled company. The law assumes that the company is insolvent not only if it has more than one creditor and the value of its obligations exceeds the value of its assets, but also if, due to lack of assets, the insolvency cannot be declared, or continued, or the enforcement proceeding executed.

A controlling shareholder can relieve itself of this obligation if it can prove that it acted in an informed way and in good faith for the benefit of the controlled company. Thus, it appears that a form of the “business judgement rule”, well established in common law jurisdictions, is being introduced in Slovakia. Hence, the controlling shareholders are protected from the consequences of incorrect business decisions which were not aimed at damaging the company or its creditors.

The law presumes that the damage is in the extent of the unsatisfied claim. However, this does not prevent creditors from claiming damages in their actual amount together with lost profit.

The new regulation enables creditors to enforce their claims even if the insolvency was caused by a shareholder of their business partner.

The discussed provision will come into force on 1 January 2018.

Article courtesy of   bnt attorneys-at-law, s.r.o.


Disputes with producers in Central and Eastern Europe (CEE)

Trouble with a producer in a CEE land? Unclear text and foreign law always favor the domestic producer. But there are tips and tricks that can help, even in the middle of a dispute. We deal with tough cases; we know the local courts. Intimately. We work with arbitration. And we love it.

1         When the sun is shining and everybody is happy

It is a paradox, but this is the time to think about a possible dispute. There are approaches that can help to mitigate a dispute in a foreign land before it happens. Obviously, a buyer can agree to apply the buyers law on the contract. Also, B2B contracts are usually arbitrable, so choosing a reputable arbitration court should be advantageous. Be assured, dodging a foreign court could be priceless. However, do not forget to check if your contract is also arbitrable under the local law and therefore, you will not have trouble enforcing the arbitration award locally.

Please, do not forget to attach your general terms to the signed contract. A simple cross-reference to a web page with the general terms might not suffice under some CEE laws. If you have no general terms, prepare them. We can help you with that, too. And do not forget to limit your liability.

2        When there are dark clouds on the horizon

This is the time for your local lawyer in CEE. We can negotiate the potential dispute. Speaking from experience, more than half of the disputes are negotiable. Producers in CEE do not usually like court processes. They often will accept a proposed settlement, even if less than advantageous for them. We recommend writing it down and preparing the written settlement in a way that is enforceable.

3        The legal storm and legal help with disputes in CEE

In case your (ex)business partner/producer did not settle and you are in a middle of a lawsuit, heads up. Check if you have a counterclaim. The counterclaim can be raised during a lawsuit, but there are other possibilities, too. For example, in some cases, it is possible to file the counterclaim as a separate claim in another EU member state, e.g. when the claimant is from a different EU country. In such instance, you can choose witch EU court will decide this part of the lawsuit (forum shopping). This might be of advantage, since a different judge in a different EU country will hear this part of the case.

Also, if you are a provider you might have a subcontractor. From a legal point of view, you might be able to include a subcontractor in some lawsuits. This can be done in the main lawsuit or a separate lawsuit can be initiated.

All in all, you need an experienced international lawyer that is specialized in disputes in CEE from the beginning till the end of your doing business in CEE.

Article curtesy of:

bnt attorneys-at-law, s.r.o.