Tax Alert: Government of the Republic of Slovenia confirmed proposed amendments to tax legislation

On Friday, 30 August 2024, the Government of the Republic of Slovenia confirmed a package of amendments to tax legislation in the areas of corporate income tax, value added tax, personal income tax, and tax procedure.

In the following paragraphs we portray the prominent changes for each respective area. Please note that those changes are still subject of approval and adoption by Slovenian national assembly.

A. Corporate Income Tax

• Limitation rule on interest recognition
  

The thin capitalization rule, which defines interest on excess loans exceeding a capital-to-debt ratio of 1:4 as non-tax deductible, will be abolished.

For tax purposes, interest expenses are limited to 30% of EBITDA or to an absolute threshold for recognizing excess borrowing costs, which the proposal increases to EUR 3 million.

• Carry forward of tax losses

The proposal introduces a time limitation on the possibility of utilizing tax losses to 5 tax periods, with a transitional period of 7 tax periods for claiming unused losses from tax periods that began before the proposed act's application.

• Tax relief for investments in digital and green transition

The proposal introduces the possibility of utilizing the unused part of the tax relief for investments in digital and green transition over 5 tax periods following the investment period. The proposal applies to investments made after the act application begins.

B. Value Added Tax

• VAT group

The proposal introduces the possibility of forming a VAT group for related taxable persons with their headquarters or fixed establishment in Slovenia, meaning that several entities within the group could have one VAT number, and transactions between members would be considered outside the VAT system.

• Limitation on the transfer of VAT surplus

The proposal limits the possibility of transferring the VAT surplus to the next tax period and the possibility of submitting claims for the refund of the VAT surplus to a period of five years from the submission of the VAT return. This limitation applies to surpluses identified with VAT returns for tax periods from January 1, 2025.

• Accounting

The proposal mandates the obligation to keep two records (VAT books) within the taxable persons accounting, namely the record of charged VAT and the record of deducted VAT. It also establishes the obligation to transmit data from these records to the tax authority.

• Adjustment of taxation on sugary drinks

The general VAT rate will be applied to beverages with added sugar or sweeteners, which currently have a 9.5% VAT rate.

• Issuance of invoices at vending machines

The issuance of invoices at vending machines for the sale of goods and services will not be mandatory, only the reporting of sales data to the tax authority will be required.

• Special scheme for small businesses

The threshold for annual turnover for small taxable persons for mandatory VAT identification in Slovenia is raised from EUR 50,000 to EUR 60,000. The exemption will apply to all taxable persons headquartered in the EU. This policy equalizes business conditions for small businesses in the EU territory.

The proposal establishes the right to exemption from VAT on cross-border supplies of goods and services in another EU member state, which in its national VAT regulations allows exemption for small businesses. Eligibility for the exemption is provided if the turnover does not exceed the amount determined by that Member State, with the absolute threshold set at EUR 100,000. According to the proposal, a taxable person based in Slovenia will obtain an individual identification number for cross-border exemption based on a prior notification sent to the tax authority in electronic form.

C. Personal Income Tax

• Special personal allowance for new tax residents

New tax residents (foreigners and returning Slovenian citizens) are granted a reduction in personal income tax of 7% of the received salary or salary compensation under the conditions that:

• is a tax resident of Slovenia;
• has not been a tax resident of Slovenia in the last two consecutive tax years before the date of commencement of work in Slovenia and during this period did not have taxable income with a source in Slovenia from employment income or business income;
• is guaranteed a salary in the employment contract in amount of at least twofold of the last known average annual salary of employees in Slovenia, published by the Statistical Office of the Republic of Slovenia, converted to a monthly salary;
• is employed in Slovenia with an employer who is a resident of Slovenia according to the law or a non-resident of Slovenia (who has a non-resident's permanent establishment in Slovenia or a branch in Slovenia), if the salary or salary compensation is considered a deductible item when calculating the employer's tax base in Slovenia;
• has not reached the age of 40 at the start of work in Slovenia.

The reduction in personal income tax under these conditions is recognized for a maximum of five consecutive tax years and is not compatible with the special tax relief determined in Article 45.a of the Personal Income Tax Act.

• Encouraging employee ownership in the ownership structure of innovative start-up companies

According to the proposal, for the income of employees in innovative start-up companies, i.e. securities in the form of shares or stocks, the moment of disposal of these shares or stocks or a certain other moment, such as e.g. termination of the employment contract, transformation of the company, will be considered for the calculation of tax liability.

For the taxation of this type of income, the principle of "averaging" will be considered, as opposed to the principle of grossing up the income, as is the case for other incomes in kind, when there is not enough net income to cover all tax liabilities.

• Standardized sole proprietors

The highest allowed limit for participation in the system for full standardized sole proprietors is reduced from EUR 100,000 to EUR 60,000 of annual income, if that taxable person was compulsorily insured on the basis of self-employment for full-time uninterrupted at least nine months. For afternoon sole proprietors, this limit is reduced from EUR 50,000 to EUR 30,000.

Full standardized sole proprietors will be able to claim 80% standardized expenses for revenues up to EUR 60,000, which represents an increase compared to the previous amount of up to EUR 50,000, while for afternoon sole proprietors, up to EUR 12,500 will be recognized at 80%, and from EUR 12,500 to EUR 30,000 at 40%.

Exiting the system of standardized expenses will be required, if the taxable person exceeds the average of EUR 60,000 or EUR 30,000 of income in two consecutive years, depending on the condition of the taxable person's inclusion in insurance. A transitional period is envisaged for the implementation of the changes, which will last until the end of 2026.

• Transfer of tax losses

Covering tax losses in subsequent tax periods (which is unlimited under the current system) will be limited to the next five tax periods, while for already accrued tax loses this period will be limited to seven tax periods.

• Tax relief for investments in digital and green transition

The proposal provides that the unused part of the incentive for digital and green transition can be transferred to the next five tax periods.

• Elimination of zero benefit for electric motor vehicles

The benefit for private use of a company electric motor vehicle is set at 0.75% of the purchase value of the vehicle per month, with a transitional period of zero benefit until the end of 2029.

• Bicycles and charging electric vehicles

Providing electric energy to an employee for charging his personal vehicles at the employer's non-commercial charging stations and the use of (e)bikes owned by the employer will no longer be considered a benefit.

• The special tax base for posted public officials and functionaries is abolished from the tax year 2026 onwards.

D. Tax Procedure

• Changing the “payer of tax” definition

The proposal expands the obligations of the employer as the payer of tax (withholding agent). In the future, entities that formally employ an employee will have to report to the tax authority all earnings that the worker would receive in the context of employment (also, for example, income from a foreign company), in the tax withholding calculation.

• Advance payment of personal income tax on income from shares or interests in an entity

Income from employment in the form of shares or interests in an entity, received from innovative start-up companies, will not be increased by the tax withholding coefficient, provided that the taxpayer informs the tax authority in the tax withholding calculation, which based on this notification determines the advance payment of personal income tax or personal income tax with the decision.

• Automatic data provision in cases of innovative start-up companies

Employers of innovative start-up companies will have to submit to the tax authority, on an annual basis, the data necessary for the collection of tax from the income for employees who have received options to purchase shares or interests or income in the form of shares or interests.

The proposal also imposes an obligation on the Slovenian Enterprise Fund to send data on the registration and deletion of companies registered in the register of innovative start-up companies to the tax authority on an annual basis.