Tax Alert: Proposed changes in the tax landscape

On Monday, 3 June 2024, the Ministry of Finance submitted for public consultation a package of proposed tax law changes. The proposed measures mainly concern amendments to the Personal Income Tax Act, Corporate Income Tax Act, Value Added Tax Act and Tax Procedure Act.

Below we list the key proposed changes in each area, while noting that the solutions presented are for informational purposes only, subject to public consultation and potential amendments. The interested public is invited to submit comments on proposed changes to the Ministry of Finance by 3 July 2024.

Corporate income tax

• Rule on the limitation of tax-deductible interest
  • It is proposed to eliminate the thin capitalisation rule under Article 32 of the CITA-2, which defines interest on loans exceeding a capital to debt ratio of 1:4 as not tax deductible. The limitation of interest would thus henceforth be linked to an EBITDA ratio of 30% or to the absolute threshold for the recognition of excess borrowing costs, which the proposal increases to EUR 3 million.
• Tax losses carry forward
  • The proposal provides for a time limit of 5 years for the possibility to utilize tax losses carry forward with a transitional period of 7 years for unused tax losses.
• Relief for investment in digital and green transition
  • Possibility to carry forward the unused part of the relief for investment in digital and green transition over the next 5 tax periods following the investment period.
• Abolition of the special arrangement for determining the tax base by reference to normalised expenses.

Value added tax

• Special regime for small enterprises
  • The annual turnover threshold for small taxable persons for mandatory VAT registration in Slovenia is increased from EUR 50 thousand to EUR 60 thousand. The exemption will apply to all taxable persons established in the EU.
  • The establishment of an exemption from charging VAT on cross-border supplies of goods and services in another EU Member State which permits small businesses to be exempt under its national VAT rules. Eligibility for the exemption is provided on condition that the turnover does not exceed an amount to be determined by that Member State, with an absolute threshold set at EUR 100 thousand. According to the proposal, a taxable person established in Slovenia will obtain an individual identification number for the cross-border exemption on the basis of a prior notification sent to the tax authority.
• Bookkeeping
  • The obligation to keep two records (VAT ledgers) in the taxable persons' accounts, namely the VAT account record and the VAT deduction record, is defined. The obligation to transmit the data from these records to the tax authority is also determined.
• VAT groups
  • The possibility of setting up a VAT group for related taxable persons with a seat or fixed establishment in Slovenia, which means that several companies within the group could have one VAT number. Transactions among members of VAT group would be treated as out of scope.
• VAT surplus carry-forward
  • The carry-forward of VAT surplus and the possibility to claim a refund of VAT surplus is limited to a period of five years from the submission of the VAT return.
• Issuance of invoices by vending machines
  • Invoicing will not be mandatory for vending machines selling goods or services, only the reporting of sales to the tax authorities will be mandatory.

Personal Income tax

• Special personal allowance for new tax residents
  • It is proposed to grant new tax residents (e.g. inbound foreigners or returning Slovenian citizens) a reduction in income tax of 7% on the salary or salary allowance received, subject to certain conditions.
• Annual income tax assessment for tax non-residents
  • The proposal removes the requirement for the taxpayer to prove that income earned in Slovenia is exempt from taxation in the country of tax residence or is tax-free in the country of tax residence for the purposes of the annual income tax assessment for tax non-residents.
• Promoting worker ownership in the ownership structure of innovative start-ups
  • It is proposed that, for income earned by workers in innovative start-ups, i.e. bonuses in the form of shares or stocks, the moment of calculation of the income tax liability should be postponed to the moment of disposal of such shares or stocks.
  • This type of income will be subject to averaging taxation as provided for income received by virtue of a court judgment for the previous year(s).
  • Income derived from this title would be excluded from the income in kind that is subject to the gross up.
• Determination of the taxable amount of business income by reference to normalised expenses
  • The condition for entry into the normalised expenses scheme is raised to EUR 60 thousand, while the condition of EUR 100 thousand linked to one full-time insured person for at least nine months is deleted.
• Tax loss carry-forwards
  • The carry-forward of tax losses in subsequent tax periods (which is unlimited under the current system) is limited to the next five years, while for tax losses that have already accrued, this period is limited to the next seven years.
• Relief for investment in digital and green transition
  • The proposal provides that the unused part of the relief for investment in digital and green transition can be carried forward to the next five tax years.
• Private use of company’s electric cars becoming taxable benefit in kind
  • The taxable base for private use of an electric car is set at 0.75% of the vehicle’s purchase price per month, with a transitional period of zero value up to and including 2029.
• Bicycles and electric vehicle charging
  • The supply of electricity for charging the employee's personal vehicles at the employer's non-commercial charging stations and the use of employer-owned (e)bikes will not be considered as benefit.
• The special tax base for seconded public employees and officials is abolished.

Tax procedure

• The definition of withholding agent (i.e payer of tax) is amended:
  • Under the proposed new rules, local companies that are the formal (legal) employer of an employee who receives employment income from a foreign entity would be required to report to the tax authority any such remuneration within a payroll calculation. The proposal thus extends the employer's liability to pay tax, which we expect will have a direct impact on seconded workers and their employers where workers receive income paid by a foreign affiliate.
• Advance payment of income tax on income from shares in an innovative start-up company
  • In practice many cases of remunerating employees with shares requires so-called gross-up calculation which increases the overall cost and tax burden. As proposed, the employment income in kind in the form of shares in innovative start-up company will not be increased by a withholding tax coefficient (i.e. gross-up), provided that the taxpayer notifies the tax authority in the withholding tax return, which will, on the basis of this notification, determine the advance payment or income tax by means of a decision.
• Automatic data provision in cases of innovative start-ups
  • Employers of innovative start-ups will be required to provide the tax authority, on an annual basis, with the information necessary for the collection of tax on that income in respect of employees who have received options to purchase shares or income in the form of shares in respect of which special tax treatment may be claimed.
  • The proposal also imposes an obligation on the Slovene Enterprise Fund to annually provide the tax authority with information on the registration and deletion of companies listed in the register of innovative start-ups.

Following a public consultation and inter-ministerial coordination, the Slovenian government is expected to approve the legislative proposals in September, while the final adoption of the tax changes by the National Assembly is expected by the end of 2024 meaning the adopted changes would become effective with 1 January 2025.