3. Tax rates of direct taxes in Slovakia

Tax rates are a fundamental competitive tool and a means of tax harmonization. Setting tax rates is the responsibility of individual EU states, hindering tax harmonization in the EU. Tax rates are an indicator of differences in tax systems across EU countries. We determine the tax rate in terms of income of a natural person and a legal entity. The natural person uses the tax rate based on the tax base reduced by non-taxable parts and the tax loss and the special rate of income tax on the dependent activity of selected constitutional agents, whose income is also taxed at this special rate (the President of SR, Member of the Slovak Republic, and the Vice-Chairman of the Supreme Audit Office of the Slovak Republic) [7]. The tax rate is based on 176.8 times the current living wage (Table 3).

The tax liability of a legal person is determined from the tax base reduced by the tax loss according to the applicable tax rate. The legal entity was required to pay the tax license for the first time in 2015 for the taxable period of 2014 as the minimum corporate income tax. The new tax law, which will enter into force on January 1, 2018, will be cancelled, the last taxable period for which taxpayers-legal entities will be required to pay tax licenses will be 2017 if the tax year is a calendar year. If the taxpayer is not a taxable person on the last day of the taxable period and has an annual turnover not exceeding EUR 500,000, a tax license of EUR 480 shall apply. If


Table 3. Tax rate in Slovakia.

the taxpayer is a value added taxer at the last taxable date and has an annual turnover not exceeding EUR 500,000, he pays a tax license of EUR 960. If the taxpayer attains an annual turnover of more than EUR 500,000 at the last taxable date, regardless of whether or not he is a taxable person, he has a tax license of EUR 2880 (Table 4).

The natural reaction of each business entity to taxing is the search for tax optimization within legal procedures. In order to minimize the indirect tax liability, entrepreneurs may consider the decision on voluntary registration as a value added tax payer. In order to minimize the tax burden on local taxes, entrepreneurs consider regional differentiated tax burdens. In the case of income tax, entrepreneurs consider decisions of long-term nature, including choosing a suitable form of business, choosing the way to apply tax expenses, choosing the way to procure long-term tangible and intangible assets, choosing the depreciation method and using the possibility of aborting the depreciation, non-taxable and deductible items from the tax base, the possibility of applying the tax deducted as a tax advance. Income tax in the Slovak legal system is a common denomination for two types of taxes: the income tax of a natural person and the corporate income tax. Many EU countries complain that some Member States have an unfair advantage from low corporate tax rates. Their aim is to determine the minimum rate of tax within the European Union. In Switzerland, Spain, Italy, England and Austria, income tax has always been relatively high. Taxes have set these countries virtually exclusively on the basis of their national needs. The tax rates in Bulgaria, Cyprus, Romania, Hungary and the Czech Republic had to be set to motivate Western European companies to shift production (Figure 2).

Taxation of the economic activity of business entities can be judged at a double level. One is the effort of the state and the self-government to maximize revenue into public budgets that needs to be taken into account in the context of the impact of individual taxes on the behavior of taxpayers and the entire society. The second is the interests of taxpayers and their


Table 4. Tax rate for company in Slovakia.

The World Bank Group and the consulting firm PwC have released a study aimed at simplifying and reducing tax liabilities in business around the world. The study involved 190 countries of the world. The study highlighted the global most common element of tax reforms over the period under review for the introduction of an electronic system for filling

Tax rates are a fundamental competitive tool and a means of tax harmonization. Setting tax rates is the responsibility of individual EU states, hindering tax harmonization in the EU. Tax rates are an indicator of differences in tax systems across EU countries. We determine the tax rate in terms of income of a natural person and a legal entity. The natural person uses the tax rate based on the tax base reduced by non-taxable parts and the tax loss and the special rate of income tax on the dependent activity of selected constitutional agents, whose income is also taxed at this special rate (the President of SR, Member of the Slovak Republic, and the Vice-Chairman of the Supreme Audit Office of the Slovak Republic) [7].

The tax liability of a legal person is determined from the tax base reduced by the tax loss according to the applicable tax rate. The legal entity was required to pay the tax license for the first time in 2015 for the taxable period of 2014 as the minimum corporate income tax. The new tax law, which will enter into force on January 1, 2018, will be cancelled, the last taxable period for which taxpayers-legal entities will be required to pay tax licenses will be 2017 if the tax year is a calendar year. If the taxpayer is not a taxable person on the last day of the taxable period and has an annual turnover not exceeding EUR 500,000, a tax license of EUR 480 shall apply. If

Years Tax rate for tradesman (%) Tax rate for tradesman (%) Tax rate for tradesman (%)

The tax rate is based on 176.8 times the current living wage (Table 3).

2007 19 — — 2008 19 — — 2009 19 — — 2010 19 — — 2011 19 — — 2012 19 — — 2013 19 — — 2014 19 25 5 2015 19 25 5 2016 19 25 5 2017 19 25 5

in and paying taxes.

44 Taxes and Taxation Trends

Source: Ref. [9].

Table 3. Tax rate in Slovakia.

3. Tax rates of direct taxes in Slovakia

For tax purposes, two types of tax returns are available: type A and type B. Type A is intended for taxpayers who have income only from dependent activity under Section 5 of the Income Tax Act. Type B is intended for taxpayers who have income, which are subject to tax according to §5 to §8 of the Income Tax Act. Tax returns are required to be paid by natural persons whose income for the taxable period exceeds 50% of the amount of the taxable amount of tax to the taxpayer if the income derived from the non-taxpayer receives income from abroad, the revenue for which tax cannot be deducted and also if the taxpayer did not ask the employer to perform the annual

Source: Ref. [9].

Table 5. Tax return limit in Slovakia.

Figure 3. Trend of limit value of tax returns. Source: Ref. [9].

Years Limit 1586.93 € 1634.73 € 2012.85 € 1773.00 € 1779.65 € 1822.37 € 1867.97 € 1901.67 € 1901.67 € 1901.67 € 1901.67 €

Taxes and Their Impact on the Business Sector in Slovakia

http://dx.doi.org/10.5772/intechopen.74383

47

Figure 2. Tax rates of income. Source: Ref. [9].

attitudes toward taxation. Tax harmonization exists where taxpayers face similar or equal tax rates regardless of whether they are working, buying, buying or investing. Harmonized tax rates eliminate budget competition. Tax harmonization can be achieved in two different ways: explicit and implicit tax harmonization. Explicit tax harmonization occurs when countries agree to set minimum or equal tax rates. The EU requires its Member States to apply a minimum standard rate of 15% VAT. The EU has harmonized taxes on fuels, spirits and tobacco, and efforts to harmonize corporate and personal income taxes. In such a direct form of tax harmonization, taxpayers are not able to benefit from better tax policy in other countries, and governments are not under the pressure of competitive discipline. Tax competition is desirable for many reasons. The most important thing is that it underpins economic growth by encouraging policy-makers to make a meaningful tax policy.
