Israel – Slovakia Tax Treaty

Business Activity in Slovakia

Slovakia is an open export-oriented economy attracting foreign direct investment due to its favorable geographical position at the heart of Europe, and its skilled labor force. The country joined the Organization for Economic Co-operation and Development in 2000, the European Union in 2004 and the North Atlantic Treaty Organization in 2009, hence increasing its economic integration and stability.

The government’s positive attitude towards foreign direct investment has led to many foreign investments in manufacturing, industry, financial services, information and communications technology, like Amazon Inc., Hewlett-Packard Co., and IBM Corporation to establish their presence in Slovakia. Furthermore, Slovakia has high labor productivity levels, which encourage many multinational corporations to expand their operations into the country.

Some of its major exports include automobiles, vehicle spare parts, video displays, broadcast equipment and electric current which are mostly supplied to Germany, Czech Republic, Hungary, Poland and France. On the other hand, major imports comprise of motor vehicle components like spare part, broadcasting machinery, natural gas, cars and electric power. Main import partners include Czech Republic, Germany, Poland, Russia and Austria. Among others, these aspects make Slovakia a favorable country to invest to, while it is expected to have high return on such investments.

Bilateral Agreements Between Slovakia and Israel

Several agreements were signed between Israel and Slovakia:

1. Double Taxation Agreement
2. International Investment Agreement

Reciprocal Promotion and Protection of Investments

The International Investment Agreement between Israel and Slovakia was signed on September 8, 1999 and became effective on June 23, 2003. This agreement was designed to create favorable investment conditions while also promoting and protecting them.

To read the agreement in English click here.

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Slovakia regarding the avoidance of double taxation was signed in September 8, 1999 and entered into force on December 31, 2000.

To read the agreement in English click here.

Applicability of the MLI

Both Slovakia and Israel have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Israel signed the agreement on June 7, 2017, and ratified it on September 13, 2018. Also, Slovakia signed the MLI on June 7, 2017, and ratified it on September 20, 2018.

To read the agreement in English click here.

Residency for Tax Purposes in Slovakia

Residence of an Individual

Individuals are considered Slovak tax residents if they:

1. Have permanent residence in Slovakia.
2. Spend 183 days or more in Slovakia in a calendar year, either continuously or in total (except for cases where the stay is for study or medical treatment).
3. Have a residence in Slovakia that is not just for occasional use, and it is clear that they plan to stay permanently for personal and economic reasons.
4. Are not considered a tax resident in another country under the relevant double tax treaty (DTT).

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A company is a tax resident in Slovakia if it:

1. Has its registered office in Slovakia.
2. Has its main management activities and decision-making taking place in Slovakia.
3. Is not considered a tax resident in another country under the relevant double tax treaty (DTT).

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Slovakia

Slovakia’s Tax Authority is called the Finance Directorate of the Slovak Republic.

Income taxation:19% or 25%

Taxation of companies and branches:15% or 21%

VAT: 20%

Capital gains tax: 15%, 21%

Withholding Tax

Inheritance Tax and Estate Tax in Slovakia

Slovakia does not impose inheritance, estate, or gift taxes. It was abolished in 2004.

Relocation to Slovakia

Slovakia has become a popular destination for emigration and relevant educational hub for obtaining European higher education. Slovakia, a member of the European Union, provides free travel and a wide range of recreational options that include protected areas and tourist attractions. The country provides affordable accommodation, a peaceful environment and low prices for properties. Its stable economy and low-cost help maintain an affordable standard of living. The main sources of government revenue in Slovakia are currently services, tourism, household chemicals, electronics, and automobiles.

The Jewish community of Slovakia has approximately 2,600 members living in Slovakia’s capital, Bratislava, while another small number lives in areas such as Košice, Presov, Piestany or even Nowy Zamky. The Federation of Jews in Slovakia represents this community on diverse levels such as religion, ethnicity, society, education and culture.

Real Estate Taxation in Slovakia

In Slovakia, the tax on Real Estate varies based on the area, location and type of property. For example, an office building with four floors in Bratislava has to pay a tax of €9.00 per square meter in the first and all subsequent stories for an additional fee of €0.33.
In remote areas, this tax varies from €0.89 to €9.00 per square meter. Furthermore, counties may require a local development levy that ranges from €3 to €35 per square meter on the developed property. It is interesting to note that the tax authorities in Slovakia neither levy transfer taxes nor stamp duties in property transfers, however, the registration of transactions includes a minimal administrative fee.

In case of any exceptions like selling off a land after a 5-year term, a tax shall be imposed. In addition, a person who sells their immovable assets can reduce taxable income by a number of tax costs, such as documented purchase price, evaluation of heritage or value given by an expert or somebody else. Similarly, the cost to improve, repair and construct property along with the interest paid on mortgage loans is also deductible.

Transfer of Funds from Israel to Slovakia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Slovakia

Limited Partnership

In Slovakia, a limited company has limited liability partners and unlimited liability partners. The company is managed by general partners who are fully responsible for its obligations while on the contrary, limited partners are liable only up to their capital investments.

General Partnership

The general partnership (is formed by at least two partners who are jointly and severally liable for the company’s obligations with their private property and may actively participate in the management and representation of the firm. A company of this type is appropriate for small or family-run businesses that do not require an initial investment.

Limited Liability Company

This entity is the most common type of business entity in Slovakia. There is usually a member of the company who is responsible for managing the capital contributions, and such member is called an administrator of contributions. Each member is supposed to make a minimum of €750 in contributions with total minimum registered capital amounting to €5,000. Non-capital contributions like real estate or patents can also be made, which should be confirmed by expert opinions.

Joint Stock Company

In Slovakia, starting a joint stock company requires a minimum capital of one million SKK, with at least 30% of this amount paid up when the company is established. If the capital is valued in euros, the required minimum is EUR 25,000. A joint stock company can be formed by a single legal entity. However, if individual people are involved as co-partners, there must be at least two shareholders.

Foreign Branches

Foreign investors in Slovakia can choose between setting up a subsidiary or a branch, depending on their company’s size, budget, and the scope of their planned activities. The key distinction is that a branch is not a separate legal entity from the parent foreign company, whereas a subsidiary is. Although the legal requirements for both are similar, branches benefit from lighter reporting requirements.

Incentive Laws in Slovakia

Slovakia encourages regional investments and job generation through various investment incentives that are available for both natural and legal entities. These incentives back projects related to sectors like industry, technology and innovation and tourism. The eligible costs consist of tangible assets such as land, buildings, and machinery while intangible assets include licenses as well as patents.

Forms of aid include cash grants, income tax credits, job creation grants, and transactions involving property at less than the market price. Incentives support both fundamental and applied research, offering subsidies together with tax relief on eligible direct or indirect expenses. Additionally, film production incentives attract major productions by reimbursing up to 20% of qualifying expenses, provided that the production budget is above €2.5 million and spending occurs within Slovakia.

The regional investment schemes of Slovakia are aimed at both new and existing investors, irrespective of whether they are large corporations or small and medium-sized enterprises from any part of the world. The magnitude and prerequisites for these schemes differ from place to place where the investment is made, with certain minimum requirements stipulated for each project type.

Double Tax Treaties in Slovakia