Israel – Slovenia Tax Treaty

Business Activity in Slovenia

In Slovenia, business activity is flourishing in various sectors. For example, in recent years, several projects have been established in the field of cybersecurity. Firstly, since 2011, SI-CERT, a public team operating within Slovenia’s academic and research network, has worked to raise national awareness in the field through the “Safe Internet” program funded by the Ministry of Education, Science, and Sport.

Additionally, there is another project called SI-SAFE aimed at raising awareness among children and youth about safe internet and mobile device usage, through an online reporting point that allows real-time anonymous reporting of cyberbullying incidents. In the education sector, most higher education institutions in Slovenia include courses and content related to cybersecurity in their curricula.

In the export sector, Slovenia excels in the export of chemical products and related goods (accounting for about 34% of the country’s exports) followed by machinery and transport equipment (26%). The Port of Koper serves as the only free trade area in the country and facilitates convenient, cost-effective, and sometimes greener import and export between European countries. This port, linking Central and Eastern Europe, has earned the title “Ambassador of the Slovenian Economy” due to its strategic location. Moreover, the country has dedicated multiple land areas for investment, where most of the newly developed industrial areas have direct access to developed infrastructure, including highways and rail services.

 Land prices in Slovenia vary from city to city and are not fixed, but there are areas where a square meter of land costs as low as 5 euros. Furthermore, sometimes the municipality and government subsidize infrastructure and land costs to enhance business opportunities for real estate investments, reducing the prices of equipped lands in industrial areas. There is also a complete range of services and free concessions provided by local development agencies to potential investors interested in investing in startups. These services include assistance in completing all the necessary paperwork, ensuring permits, and in some cases, even organizing and financing construction according to investor requirements.

Bilateral Agreements between Israel and Slovenia

• Double Taxation Agreement
• International Investment Agreement

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Slovenia regarding avoiding double taxation was signed on January 29, 2007, and entered force on December 31, 2007.

To read the agreement in English, click here.

Reciprocal Promotion and Protection of Investments

The Reciprocal Promotion and Protection of Investments (RPPI) was signed on May 12, 1998, and went into effect on October 2^nd, 1999. The RPPI is an agreement between Israel and Slovenia that is designed to encourage and safeguard investments made by individuals and companies from each country in the territory of the other. These agreements typically include provisions related to non-discrimination, compensation for expropriation, dispute resolution, and the transfer of funds.

To read the agreement in English, click here.

Applicability of the MLI

Both Slovenia and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Slovenia, as well, affixed its signature to the MLI on the 7th of June 2017, and its provisions became effective as of the 1^st of July, 2018.

Residency for Tax Purposes in Slovenia

Individuals

A person is considered a tax resident of Slovenia if they have either a formal or actual connection to the country. Formal ties include having permanent residence in Slovenia, working as a Slovenian public employee abroad, or being a former Slovenian resident now working in an EU institution. Actual ties mean they either live in Slovenia regularly, have their main personal or economic interests there, or spend more than 183 days in Slovenia during a year.

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

Companies

A legal entity is considered a tax resident of Slovenia if its registered office or place of effective management is located in Slovenia. However, this also applies to societies or associations of persons, including those formed under civil or foreign law without legal identity, which can also qualify as Slovenian tax residents.

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

The Tax System in Slovenia

Slovenia tax authority is called the Financial Administration of the Republic of Slovenia (FURS)

Income Taxation: 16% to 50%

Taxation of Companies and Branches: 22%

VAT: 22%

Capital Gains Tax: 25%

Withholding Tax

Inheritance Tax in Slovenia

Slovenia’s inheritance tax is based on two main factors: the value of the inheritance or gift and the relationship between the giver and the recipient (referred to as the line of succession). Depending on these two criteria, the inheritance tax is levied between 0% to 40%.

Relocation to Slovenia

Slovenia’s economy has grown faster than most other European countries. As a result, people are earning more, spending more, and feeling more confident. Unemployment is decreasing, inflation is low, and overall, the economy is doing well. Slovenia’s Public Agency helps attract foreign investments and supports foreign investors in the country. It works with embassies and business groups to improve Slovenia’s economy by providing financial and technical help to businesses and entrepreneurs.

Foreign companies in Slovenia have the same rights and responsibilities as local businesses. They are treated equally and follow the same laws, ensuring fair treatment as outlined in the country’s commercial and foreign transaction laws.

In Slovenia, there is a Jewish community comprising about 100 Jews who actively participate in the cultural and political life of the country. In the last two decades, there has been a significant development of Jewish culture in Slovenia, with several public events organized by the Jewish community that were warmly received by the broader public and other communities in Slovenia.

Real Estate Taxation in Slovenia

In Slovenia, there is no specific property tax, but a charge is applied for the use of building land. This charge is set by local communities and applies to both vacant and developed land, depending on the land’s size and the area of buildings on it.

A 2% real estate transfer tax is charged when real estate is transferred or leased unless VAT is already included in the transaction.

Transfer of Funds from Israel to Slovenia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% 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.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax. 

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more. 

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us. 

For more information on money transfers abroad, click here. 

Types of Business Entities in Slovenia

Limited Liability Company (Družba z omejeno odgovornostjo – “D.O.O.”): This is a separate legal entity established by one or more partners, but not more than 50. Shareholders have limited liability based on their investments. This is the most common legal entity, especially suitable for small to medium-sized businesses. To establish a D.O.O., a relatively small initial capital of 7,500 euros is required, and the establishment process can be fast, taking about a week in some cases.

Sole Proprietorship (Samostojni podjetnik – “S.P.”): This entity is established by an individual and does not require any initial capital. However, the liability is unlimited and applies to all the individual’s assets, both business and personal. The establishment of this entity is very quick, taking only one day. It is a common legal form for crafts and small start-up businesses. It’s important to note that non-EU citizens must wait at least one year to obtain a residence permit in Slovenia before they can establish this type of company.

Public Limited Company (Delniška Družba – “D.D.”): This is a legal entity established by one or several shareholders with limited liability according to their investment. The company’s shares are issued to the public. A relatively high initial capital of 25,000 euros is required to establish a D.D.

Limited Partnership (Komanditna družba – “KD”): This legal entity is established by two or more partners. At least one partner has unlimited personal liability, typically structured as a limited liability company. The other partners have no liability but participate in the profits of the company. No initial capital is required to establish a limited partnership.

Branch of a Company (“Podružnica”): This is not a separate legal entity but a branch under the main company. The branch must be registered in the business register.

Incentive Laws in Slovenia

The following categories comprise the main categories of the fiscal incentives that are currently applicable in Slovenia:

Employment Allowances: If a company hires trainees or students, they can reduce their taxable profits by 80% of what they pay them. They can also get reductions for hiring disabled workers (50-70% depending on the level of disability). New tax breaks are available for hiring people in high-demand job areas or first-time job seekers.

Research and Development Allowances: You can get a full 100% tax deduction for research and development investments, up to 63% of your tax base. This includes internal R&D work or buying R&D equipment.

Foreign Tax Credit: Taxes that are paid abroad can be used to reduce taxes owed in Slovenia, based on the amount paid. If there is a tax treaty, the credit is calculated using the rates in the treaty. Proof of foreign tax payments is required.

Investment Allowances: Tax allowances are available for investments in equipment and intangible assets, up to 40% of the investment value, with a maximum of 63% of the tax base.

Digital and Green Investment Allowances: As of 2022, there are tax allowances for investments in technologies like cloud computing, AI, and environmentally friendly technologies. The allowance is 40% of the investment, with a maximum of 63% of the tax base.

Slovenia Double Tax Treaties