Tax News - December 2022

Applicable changes in tax legislation

I. INCOME TAX ACT

Amendment to the Income Tax Act

On 28 November 2022, the National Assembly adopted the Law on Amendments and Additions to the Income Tax Act (ZDoh-2AA). Following a casting veto, on 9 December 2022, the National Assembly re-adopted the amendment to the Income Tax Act. Newly adapted Act adapts general relief in the amount of EUR 5000. Further, gradual increase up to EUR 7500 until 2025 is cancelled. Tax rate for the highest (5th) tax grade is increasing from 45% to 50%, as well as total income, up to which a resident is entitled to an additional general relief (on top of the general relief) from EUR 13.716,33 to EUR 16.000. Amount of special relief for dependent family members will increase for roughly 7,5% in 2023 and 2024. Also, relief for the young will be introduced where taxable income from employment for taxpayers under 29 years of age is reduced by EUR 1300 in fiscal year.

Regarding performance-related income the, it will be excluded from the tax base but only up to 100% of average monthly salary of employees in Slovenia (Before, 100% of average worker`s salary was recognized).

For taxpayers finding the tax base using standardized expenses method, the rate of recognized expenditures is reducing from 80% to 40%, but only for those with more than EUR 50.000 of revenue. Regarding Tax Rate on rental income, novelties are setting it at 25%, whereas amount of standardized cost recognized is not changed. Taxpayer will also be deprived of the option whether include this particular type of income in annual tax base or not.

Sale of own share in 2023

Entering into force in 2023, amendments to the Income Tax Act will negatively affect the tax treatment of transaction, where individual sells his own share to company.

From 1 January 2022, an individual who owns a share of a company for more than 15 years and sells it will not pay tax as it is treated as a capital gain. From 2023 onwards, payout from own share will again be treated differently; individuals will pay a 25% dividend tax on sale of an own share. 

Non-compliance between Article 27 of the Income Tax Act and Constitution of the Republic of Slovenia

In its judgement No U-I-26/20, The Constitutional Court found that Article 27(5) of the Income Tax Act is not compliant with the Constitution of republic of Slovenia.

Article 27 of the Income Tax Act states that compensation for damage resulting from personal injury, illness or death is exempt from the income tax. However, the exemption does not include compensation for non-property damage resulting from the violation of personal rights, which is not compliant with principle of tax fairness and principle of equal distribution of tax burden. In tax area, both principles reflect the content of principle of equality under the Article 14(2) of the Constitution of the Republic of Slovenia. The Tax Income Act criterion for determining taxability is the cause of the damage, which is incompatible with the abovementioned Article of the Constitution.

The Constitutional Court found the compensation, that is paid out, has the same effect on the injured party`s financial situation, whereas the origin of the damage is irrelevant, and on this basis concluded there is no reasonable and factually justified ground for taxation of certain compensation, considering the fact that the purpose of the compensation was the same.

Until the National Assembly of Republic of Slovenia corrects the discrepancies (the deadline is set one year after the announcement of the decision), the same rules as those for the taxation of compensation for damage resulting from personal injury, illness or death also apply to taxation of compensation for non-property damage.

Reduction of tax base for the transport costs for migrant workers (without meeting additional conditions)

For workers employed abroad, who are Slovenian taxpayers, the tax base on employment income is reduced by cost of transport to and from the place of work, under the conditions and up to the amount determined in Article 44 of the Income Tax Act.

The Supreme Court explains its decision to take transport costs into account in the assessment of income tax by arguing that as a result of being employed abroad, the taxpayers` disposable income is reduced and if not being taken into account, the constitutional principle of “tax fairness” would be infringed.

Gifts for business partners, employees and their children

Gifts for business partners

Before choosing gifts for business partners, it is important to check how they are taxed and how to comply with tax law.

Only if the value of the gift does not exceed EUR 42, income tax does not have to be paid and the gift given does not have to be reported to Tax Authorities (TA). If the value of the gift is more than EUR 42 but less than EUR 80, the company does not have to pay income tax but must report about it to TA. However, if the value of the gift exceeds EUR 80, company must calculate and pay 25% income tax.

According to Corporate Income Tax Act, gifts to business partners are part of the entertainment costs which are only partially deductible (60% of the value). Company can deduct VAT from purchasing business gifts if the following conditions are met:

• The value of the gift is less than EUR 20,
• There must be no counter-supply of goods or services by the recipient of the gift,
• The gift is given in the course of the recipient business, on an occasional basis and not always to the same person.

Gifts to employees and their children

From a personal income tax perspective, a gift to an employee is not taxable if it does not exceed EUR 15 per month together with other benefits received and is not provided by the employer on a regular and frequent basis. For the purpose of CIT reporting, the cost of gift is not tax deductible due to its private nature and the fact that the benefit is also not subject to the personal income tax.

If the child is under 15 years of age, the value of the gift does not exceed EUR 42 and the child receives it in the month of December, no contributions and taxes are due on the gift. If any of the above-mentioned conditions are not met, the gift to the child is treated as a bonus received by the parent (employee).

New changes to the membership benefit in-kind

Under Article 39 of the Income Tax Act-2, the payment of membership fees to associations, societies, chambers or organizations is treated as benefit in-kind. This is also the case when an employee receives a discount on training courses because of membership status. However, where membership is a condition for the exercise of an occupation carried out by the employee with the employer, the membership fee is not considered as a benefit in-kind. The latter has not changed with the 2022 amendments, but there are exemptions under Article 39/3/2 of the Income Tax Act for bonuses under Article 39/1 of the Income Tax Act. According to the amended clarification, the tax authority has thus determined that it is not a benefit in-kind if the payment is intended for supplementary education and training of the employee related to the employer's business.

Current employment incentives

The legislation encourages employers to recruit hard-to-employ groups such as young people without work experience, people with disabilities and older people. For the following groups, employer can benefit in two ways. One way is deducting from the taxable income tax base. Another is to get partial or full exemption from contributions. Thus, different groups are subject to different rules regarding the types of incentives and duration. New permanent employees are exempted from the employer's contribution for the employment at the rate of 0.06%. In the case of permanent employment of under-26s and mothers with children up to 3 years of age (if it is their first employment), only 50% of the employer's contribution to the pension and invalidity insurance is payable for the first year of employment and 70% for the second year. Employers' pension and invalidity contributions are exempted at 30% for those aged 60 and over.

II. SALARIES 

Introducing of compulsory electronic filing of claims for reimbursement of salary compensations

On 1 January 2023, an amendment to the Rules of compulsory health insurance will come into force, making it compulsory to submit claims for wage compensations reimbursement electronically – paper claims can no longer be submitted.

In case of incomplete documentation when submitting electronic claims in January 2023, they can be submitted later, within 3-year period. Claims can also be submitted before the end of 2022, as follows:

• from a payroll software with implemented link to interface for eBOL interface for transmission, as well as submission of electronic claims (eBol interface and eNDM – eNDM module) or
• via SPOT portal – select procedure Reimbursements.

Tax Authority: Postponement of the deadline for the implementation of the new REK-O form

The Official Gazette of the Republic of Slovenia No 96/2022 of 15 July 2022 published the Regulation on amendments to the Regulation on the content and form of the withholding tax return, which sets a new deadline for the implementation of the new REK-O form for payments from 1 January 2023 onwards.

Intervention measure to support the labor market

Due to the high levels of absences and quarantines, the National Assembly in March 2022 adopted an intervention law to support the labour market, which is valid until 31 December 2022. The measure adopted allows for an increased volume of casual and temporary work for pensioners. Thus, a pensioner may work temporarily or intermittently for a maximum of 90 hours in a calendar month. Overtime hours in current month, however, cannot be carried over to the following calendar month. In addition, a pensioner may work 120 hours, but no more than three times in a calendar year. Notwithstanding the above, the sum of total hours of temporary or occasional work performed in a calendar year may not exceed 1,080 hours. In 2023, the hours of temporary and occasional work will thus return to their original values: 60 hours per month or a maximum of 90 hours three times a year, with the total hours worked not exceeding 720 hours in a calendar year.

Government adopts EUR 1.2 billion amendment to the Law on aid to the economy for 2023

On 6 December 2022, the Government adopted the amendment to the Law on aid to the economy to mitigate the effects of the energy crisis, with total aid for the measures included estimated at EUR 1.2 billion. The aid also includes below listed subsidies for two job preservation measures.

The temporary measure for partial reimbursement of salary compensation due to reduced full-time working hours will be on disposal from 1 January to 31 March 2023 to employers who have been or could have been eligible for economic aid under the provisions of the Act on measures to mitigate consequences of rising prices of energy products, while at the same time fulfilling the condition that they are not able to provide 90% of work to at least 30% of the workforce.

The temporary measure of partial reimbursement of wage compensation to workers on temporary lay-off will be on disposal from 1 January to 30 June to employers who have been or could have been eligible for economic aid under the provisions of the Act on measures to mitigate consequences of rising prices of energy products, while at the same time fulfilling the condition that they invest half of the funds received under the measure into the Green transition over the next 30 months.

III. VALUE ADDED TAX

ECJ C-227/21 (HA.EN.) – Judgment – No Denial of input VAT if the seller would not pay output VAT

On 15 September 2022, the ECJ presented its decision on case C-227/21 (HA.EN.), related to topic about the right to deduct VAT if the recipient of the supply was aware (or should have been aware) of the supplier`s inability to pay VAT to tax authorities.

Article 168 of the Council Directive on VAT (directive 2006/112/EC) states that if received goods and services are used for the purposes of the taxed transactions of a taxable person, the latter shall be entitled, in the Member State in which he carries out these transactions, to deduct the VAT which he is liable to pay.

Example: A bank has granted a loan to a real estate develop by credit agreement secured by contractual mortgage on a plot of land and building under construction located thereon. The real estate company (borrower) was involved in a lawsuit, where the applicant acquired the right to all financial claims under credit agreement concluded between the bank and the borrower. Entering this particular arrangement, applicant confirmed his understanding of the borrower`s financial situation; being insolvent and undergoing restructuring.

For the borrower`s obtained part of the property the auction was announced, but there was no interest. Therefore, the applicant acquired it and covered part of its claim. The borrower issued an invoice stating that the property was being transferred for a certain amount, including VAT in the corresponding amount, which he declared in his VAT account, but did not pay later due to insolvency proceedings. On the other hand, the applicant deducted the input VAT, declared it in VAT declaration for the current month and later requested a refund from the State Tax Inspectorate for excess VAT amount. Inspectorate concluded that the applicant knew or should have known that the borrower would not pay VAT on the property transaction and was therefore deprived of the right to deduct VAT. Additionally, he was charged with interest and fine. Applicant appealed against the decision to Tax disputes Commission who partially cancelled the Inspectorate`s decision regarding interest and the fine, but confirmed the decision about deduction of VAT.

Opinion: Article 168 of the Council Directive on VAT must be interpreted in accordance with the principle of fiscal neutrality, which points to prohibiting national authorities from denying a taxable person the right to deduct VAT, even if it was aware the supplier would not be able to pay output VAT. In this situation, the court must determine whether recipient of the goods or services is actually charged with VAT collected from him by the supplier, which could not be the case if the recipient has never made the funds available to the supplier to pay VAT

Decision: The refusal of a right to deduct VAT in the context of a sale of immovable property between taxable persons contradicts the Article 168 of the Council Directive on VAT and principle of fiscal neutrality. Even if the buyer was aware of the supplier`s inability to pay VAT due to financial difficulties or insolvency, this is not a sufficient reason to deny the right to deduct VAT. 

IV. INTERNATIONAL TAXATION

Double Tax treaties in 2023

To date, Slovenia has signed 62 double tax treaties. This year, an updated treaty with Sweden entered into force, while the treaties with Egypt and Mark are still awaiting ratification. Although there will be no expansion of the network in 2023, changes to the provisions can be expected as a result of the multilateral convention. Changes have already been made to the provisions of Greece, Croatia, and Hungary, and in 2023 there will be changes to the treaties signed with Bulgaria, Thailand, China and Spain.

V. TAX PROCEDURE

Draft amendment to the Tax Procedure Act

Draft amendment to the Tax Procedure Act refers to EU Directive which requires Member States to transpose its provisions regarding requirements for operators of digital platforms to report information to Tax Authority on business activities of sellers operating on those platforms.

Operators will be obliged to report on the rental of immovable property, personal services, the sale of goods and the rental of various types of transport. Reporting is mandatory for operators in EU and third whereas smaller operators with lower risk transactions are exempt and will report according to OECD model.

Another provision enables taxpayers to no longer need a qualified digital certificate when receiving documents on eTax portal and where the taxable person is obliged to declare his/her own income from employment, the income tax return will no longer be limited to one tax year. Proposals also include a rule on the order of payment of real estate transfer tax, inheritance and gift tax, tax on motor vehicles, change to the issuance a decision on a guarantee and the possibility to pay tax obligations with a single payment order.

V. CUSTOMS 

Renewal of Customs systems

Since 2016, customs operations have been carried out in accordance with the new electronic customs legislation. In 2023, TA will modernize its IT systems for controlling the import, transit, and export of goods. This will include new features on the following programs: SINCTS5 for the third country and EU transit, ICS2 R2 for imports and exports SIAES2. The new applications will thus be rolled out to all Member States by 1 December 2023. The application will allow national exchange of messages, monitoring and routing of goods processes and meet the security and control requirements of customs legislation. 

VI. OTHER

Intervention law to intervene in high energy prices

On the 1 of December, the government approved a proposal, in line with a European regulation, to reduce electricity consumption and further subsidise investments in renewable energy sources. The aim is to reduce electricity consumption by 5%. As an incentive, a compensation mechanism will be applied for accounts with reduced consumption. For renewable energy sources incentives are funds that will promote the production of electricity from renewable sources, renewable hydrogen, biogas and biomethane from waste and residues, electricity and heat storage and renewable heat. According to the European Regulation, companies involved in the processing of crude oil and natural gas are obliged to pay a solidarity contribution for 2022 and 2023. 

Re-designed accounting eCard

Using eCard in eTaxes, taxpayers can access information regarding the state of receivables and payables on taxes, contributions, excise duties and environmental charges. Latest version of eCard enables its users the access to current year`s accounts as well as accounts for last year and year before, to separately display open and closed items` balance at the date of access and to filter data on netting and offsetting. Furthermore, data on tax period, finial recipient and the date of entry are added.

Taking into the account the taxpayers` obligations seen at eCard, interest on late payments can be calculated on view eCardO. Additionally, payment order can be prepared using a QR code.  

Designation of an electronic address for serving documents by submitting an application on the eGovernment portal

From 24 October, users can access the application form through eGovernment portal which allows them to set, change or opt-out of an email address for receiving documents. Purpose of application is to offer individuals an alternative to physical service (post or courier) as well as additional form of receiving documents.

The decision to receive documents electronically is voluntary. It is required for individual to provide his/her mobile phone number through which notifications are received and messages sent. 

Voucher for obtaining certificates

The public call for application for the certification voucher is open again. Its purpose is to encourage companies to obtain certificates or new management systems, products, processes, services and maintenance of certificates for management systems, products, processes and services. By obtaining certificates, companies can increase their competitiveness, get an opportunity to expand into foreign markets and increase their sales.

Total value for obtaining certificates is EUR 620.000. The whole process is simple and cost-free. Submission of application can be made in digital form via SPS ePortal which you can access on link https://eportal.podjetniskisklad.si.

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