Corporate Tax Rates from 2025: Overview of Changes and Their Impact

Starting January 1, 2025, Slovakia will implement new corporate tax rules. These changes are part of the government's consolidation package and represent a significant step toward reforming the tax system. The primary objectives are to support small and medium-sized enterprises (SMEs), reduce disparities in the tax burden, and ensure stable revenues for the state budget.

The core element of the reform is the introduction of progressive corporate tax rates based on taxable income. This article provides a detailed overview of the new rates, their practical application, and a specific example of calculating tax liability.

New Corporate Tax Rates

The new system introduces three taxation brackets, each with its corresponding rate:

• 10%: Applies to legal entities with taxable income up to €100,000 inclusive.
• 21%: Applies to legal entities with taxable income between €100,000 and €5,000,000 inclusive.
• 24%: Applies to legal entities with taxable income exceeding €5,000,000.

These rates replace the previous system, which only distinguished between two levels: 15% for incomes up to €60,000 and 21% for incomes above that threshold.

Key Rule: The progressive rates apply to the entire tax base, not just the portion exceeding a specific threshold. This means that if a company exceeds the €100,000 limit by even one cent, its entire tax base will be taxed at the higher rate.

As shown in the table, the tax rate decreases from 15% to 10% for small businesses with income up to €100,000. Conversely, the new system introduces a higher rate of 24% for large companies with income exceeding €5 million.

Tax Calculation Example: How Tax Obligations Will Change

To better understand the changes, let’s look at examples for companies with different levels of taxable income.

Example 1: Company with €80,000 Income

• 2024: Tax obligation = €80,000 × 15% = €12,000
• 2025: Tax obligation = €80,000 × 10% = €8,000
• Savings: The company saves €4,000 in taxes.

Example 2: Company with €3,000,000 Income

• 2024: Tax obligation = €3,000,000 × 21% = €630,000
• 2025: Tax obligation = €3,000,000 × 21% = €630,000
• Difference: No change; the tax rate remains the same.

Example 3: Company with €7,000,000 Income

• 2024: Tax obligation = €7,000,000 × 21% = €1,470,000
• 2025: Tax obligation = €7,000,000 × 24% = €1,680,000
• Increase: The company will pay €210,000 more in taxes.

Practical Impact on Businesses

Small and Medium Enterprises (SMEs): The reduction of the tax rate to 10% for incomes up to €100,000 will provide significant relief for small businesses. These savings can be reinvested into business expansion, technology upgrades and employee training programs.

Large Enterprises: For large companies, the introduction of a 24% tax rate represents an increased tax. Many will need to reassess their strategies to mitigate the impact on profitability.

General Changes in the Tax System

The reform introduces clear allocation of rates and brackets, enhancing predictability for businesses. On the other hand, higher rates for large companies may create pressure to optimize tax obligations.

How to Prepare for the Changes

To effectively manage the upcoming changes, businesses are advised to:

• Analyze Income and Expenses: Evaluate how the new rates will impact your tax obligations.
• Seek Professional Advice: Consulting with a tax advisor can help optimize your liabilities.
• Consider Investments: Lower rates may serve as an incentive to reinvest in business growth.
• Adapt Strategies: For large companies, exploring effective ways to optimize taxes will be crucial.

What Is Included in Taxable Income for Determining the Corporate Tax Rate?

Starting in 2025, legal entities in Slovakia will follow new rules for determining the corporate tax rate. It is essential to carefully consider what constitutes the total taxable income. These rules are based on the Corporate Income Tax Act and are crucial for accurately calculating tax liabilities.

What Is Taxable Income?

Taxable income for a legal entity is the income that:

• Is subject to taxation, meaning it falls under the categories of income designated as taxable by law.
• Is not exempt from taxation, either under Slovak legislation or international agreements.

Legal entities must carefully analyze all income received to determine what should be included in the total amount for calculating the applicable tax rate.

Are All Reported Incomes Included?

Most income recorded in Class 6 (double-entry accounting system) is considered taxable. However, there are cases where income not recorded in Class 6 may be included in taxable income, and conversely, some recorded income may not be considered taxable.

Incomes Included in Taxable Income

The following incomes are included in taxable income:

• Income from the sale of goods, services, or property.
• Income from renting out real estate and other assets.
• Interest on bank accounts (even if subject to withholding tax).
• Adjustments for transfer pricing, such as elements that can be added to the tax base.
• Non-monetary income, such as non-monetary income from a landlord.

Incomes Not Included in Taxable Income

The following incomes are not included in taxable income:

• Income exempt from taxation, such as income from the sale of a business share if conditions specified in § 13c of the Act are met.
• Income that is not subject to taxation, such as dividends.
• Adjustments to the tax base related to expenses, such as expenses recognized after payment or differences between accounting and tax depreciation.

Taxation of Taxable Income

Even income that is already subject to source taxation is included in the total amount of taxable income (revenue), even if it is no longer reported in the tax return. Such income is considered taxable but still affects the determination of the tax rate.

Why Accurate Determination is Important

Correctly including income in taxable income is crucial for:

• Calculating tax obligations: The tax rate applies to the entire tax base, which must be accurately determined.
• Minimizing the risk of incorrect tax calculations: Errors in defining taxable income can lead to penalties.
• Optimizing tax strategies: A precise understanding of what constitutes taxable income helps in better planning of tax expenses.

Tax License (Minimum Corporate Tax) for 2025

Starting January 1, 2024, Slovakia will reintroduce the tax license, also known as the minimum corporate tax. This concept ensures that every legal entity, regardless of whether it generates profit or incurs a loss, will pay a minimum amount into the state budget.

What is a Tax License and Who Does It Apply To?

The tax license is a minimum tax that a legal entity must pay if:

1. The calculated tax is lower than the established minimum tax amount.
2. The entity incurs a tax loss.

The minimum tax applies to all legal entities, such as limited liability companies (LLCs), except in special cases where the license is not payable. These exceptions include:

• Legal entities in the process of liquidation or bankruptcy.
• Legal entities filing their first tax return for the tax period in which they were established.

How is the Tax License Amount Determined?

The amount of the minimum tax depends on the taxable income (revenue) of the legal entity. The following structure applies:

Each legal entity is required to pay the minimum tax if its calculated tax, based on the applicable rates, does not exceed these amounts.

Why is the Tax License Important?

• Ensuring Minimum Revenue for the State: Even companies that report losses contribute to the state budget.
• Motivating Efficient Management: Businesses are encouraged to generate profits that exceed the minimum tax amount.
• Equality Between Entities: The minimum tax reduces the risk of speculative loss reporting to avoid taxes.

Exit Tax Rate on Transfer of Property, Departure, or Transfer of Business Activities Abroad in 2025

Starting in 2025, the so-called exit tax will be introduced, focusing on the taxation of income and assets where they were generated. This ensures that taxpayers who move property or conduct business activities abroad will pay tax in the Slovak Republic, where the property was created.

Taxation on the Transfer of Property or Business

Who Does It Apply To?

The taxation applies to:

• Legal entities with a legal address or actual place of management in the Slovak Republic.
• Foreign legal entities conducting business through a permanent establishment in the Slovak Republic.

Assets and liabilities that remain functionally linked to the permanent establishment in Slovakia (and generate profits here) will not be subject to taxation after the transfer.

Subject of Taxation

The subject of taxation is the difference between:

• The fair market value of the property at the time it is transferred abroad.
• Tax expenses or the cost of inventory.

This difference is included in the special tax base for the tax period in which:

• There is a transfer of assets from the main office in the Slovak Republic to a permanent establishment abroad, or vice versa.
• There is a transfer of property from a permanent establishment in the Slovak Republic to the main office or permanent establishment abroad.

Special Tax Base: The difference will be included in the special tax base, provided that this taxable base cannot be negative. However, it is not calculated if:

• The assets are related to the financing of securities.
• The property is pledged, or other special cases apply.

Tax rate on property transfer

A tax rate of 21% applies to the transfer of property, exit, or relocation of business activities from the special tax base.

Taxation of Income from Dividends of Legal Entities

Dividends as Income for Legal Entities
If the recipient of the dividends is a legal entity, their taxation depends on the country of origin of the dividends:

• Dividends from domestic legal entities or from countries cooperating with the Slovak Republic:
  These are not subject to taxation under § 12 paragraph 7 letter b) of the Profit Tax Act.
  This also applies to countries that have signed a Double Taxation Avoidance Agreement with the Slovak Republic.
• Dividends from countries that do not cooperate (e.g., Panama):
  These are subject to a 35% tax rate.
  Countries that do not cooperate are those that refuse to comply with international tax standards.

Reflection of Dividends in the Tax Declaration

• Dividends from cooperating countries: They are part of the economic result, but are reflected as a deductible item in the tax base.
• Dividends from non-cooperating countries: They are listed in a special section of the legal entity's tax declaration and are subject to a higher tax rate.

Conclusion

The legislative changes in corporate income tax rates starting from 2025 introduce significant reforms aimed at supporting SMEs and ensuring a more equitable distribution of the tax burden. Entrepreneurs should prepare carefully for the new rules to take advantage of their benefits and minimize potential negative impacts.