There are two kinds of taxes relating to the real estate in Slovakia, which is an income tax and real estate tax. In case of legal entities there is also VAT (value added tax).
Real estate tax in Slovakia
Tax on rent incomes in Slovakia
VAT and real estate in Slovakia
Real estate tax is one of the property taxes and is paid annually by the owner of the real estate. Real estate tax is a local tax, therefore, its amount is imposed by local government and varies depending on the region of Slovakia. The tax is not paid to the state treasury, but is an income of the local budget. Real estate tax in Slovakia is one of the lowest in the EU, and the EU often advocates for its increase. Tax amount does not depend on real estate value, but it depends on its size – square meters.
Tax liability arises on 1st January of the accounting period following the period when the taxpayer became a property owner and ends on 31 December of the year when the taxpayer has lost the real estate title. Tax return must be submitted before 31 January of the accounting period when the tax liability has arisen.
Therefore if you, for example, have bought a real estate on 5th September, you must file a tax return from 1st to 31st January of the following year.
Tax return for the following periods is submitted only in the case of changes affecting the tax amount, such as, for example, real estate purchase, sale of the existing real estate, a change of the type of real estate (e.g. from residential to nonresidential). If you own only a real estate without any changes, you file a tax return just once after its purchase and you don’t need to file any tax returns in the following years. If you own a real estate in several locations, you are required to file tax returns in every location.
After having filed a tax return local government calculates tax amount and sends you a cash or bank voucher payable indicating the tax amount by registered mail. You must pay a tax within 15 days after receipt of such mail.
The highest tax amounts are imposed in Bratislava. Its rate is 0,299-0,399 EUR in Bratislava and 0,1991 EUR at average in Slovakia for 1 sq. m of an apartment, 0.3-1.2 EUR in Bratislava and 0,0003-0,3002 EUR at average in Slovakia for 1 sq. m. of the ground, depending on its type and 0,399-8,299 EUR in Bratislava and 0,1991-2,9942 EUR at average in Slovakia for 1 sq. m. of the building, depending on its type.
Example: for 50 sq.m. apartment in the center of Bratislava you have to pay tax in the amount of 50 x 0.399 = 19.95 EUR per year.
In Slovakia taxes are imposed not only on the incomes of legal entities, private entrepreneurs and individuals, but also on the lessor’s income. No matter what is the rental period, whether it is one month or 100 years, the tax must be paid.
When you receive a rental income or income from real estate sale, there are several methods of taxation, depending on who is a lessor or seller:
- An individual who does not keep accounting records
- An individual who keeps accounting records
- A legal entity
- Private entrepreneur
If an individual does not keep accounting records, it means that such person does not draw accounting statements (double-entry or simple-entry bookkeeping), but he/she keeps only tax reporting. Tax reporting is simpler – all incomes and only certain expense items are important.
A taxpayer must file a tax return only if the sum of all his incomes (not just income from real estate) in Slovakia within a year exceeds a half of non-taxable part of tax base. This half in 2015 comes up to 1,901.67 EUR. It is worth noting that first 500 EUR per year from rental income is not an object of taxation, so we count out and do not include 500 EUR in a tax return.
If the individual does not keep accounting records, not all expenses are taking into account, but only expenses related to the real estate exploitation, but not with the real estate purchase, its upkeep or renovation.
The following expenses are taking into account: electricity, heating, water, gas, deratization, desinsection, disinfection, elevator repairs, lighting, heating and public territories cleaning, rubbish removal, management company servise, real-estate agency fee for tenants’ selection.
The following expenses are counted out: complete overhaul fund, real estate insurance, real estate tax, renovation, furniture and equipment purchase, loan payments, etc.
The expenses can’t be applied in full amount, but in the same ratio as income and income minus tax credit in the amount of 500 EUR.
Example: a taxpayer had been receiving 500 EUR per month within a year, and had earned 6,000 EUR per year. His expenses related to the real estate exploitation were 3,850 EUR. Let us deduct 500 EUR from an income in the amount of 6000 EUR, so we get 5500 EUR. The ratio of 5,500 EUR to 6,000 EUR gives the coefficient 0,9166666, which is multiplied by expenses (3,850 x 0.9166666) so we get 3,529.17 EUR as the expenses. The tax base is: 5,500 – 3,529.17 = 1,970.83 EUR and the tax 19% equals to 374.45 EUR.
If an individual does not keep accounting records, the disadvantage is that in order to reduce a tax base you can’t use all expenses, such as renovation or furniture and equipment purchase. However, the biggest advantage of this option is that a tax-exempt income is an income from the sale of real estate 5 years after its purchase. But if you sell a real estate before the expiry of the term of 5 years, tax base equals sale price reduced on real estate purchase value, its renovation, furniture, household appliances, etc.
Example: An individual bought a real estate at the price of 100 000 EUR in August 2009 and he/she didn’t keep accounting records when he/she was renting it out. In September 2014 he/she sold this real estate for 150 000 EUR and, therefore, did not pay any tax on the sale of real estate, as he/she had been owning it for more than 5 years and hadn’t been keeping accounting records.
In addition, it is worth noting that if the spouses rent out a real estate, they have the right to divide an income in any ratio, both of them files a tax return individually, both of them can use tax deduction in the amount of 500 EUR and for both of them is a limit of tax return in the amount of 1 901.67 EUR.
Example: The owners of a real estate have started to rent out an apartment since April for 500 EUR per month with the expenses of 100 EUR per month.
Therefore their annual income is 500 x 9 = 4,500 EUR. If the tax return will be filled by one of them, his/her income will be 4,500 – 500 = 4,000. The expenses (100 x 9) x (4,000/4,500) = 800 EUR, the tax will be 800 x 19% = 152 EUR.
If a tax return will be filed by both spouses and income will be divided into halves, 4,500/2 = 2,250 EUR, let us deduct 500 EUR and we will get 1,750 EUR, which is less than 1,901.67, therefore, the tax return will not be filed and the tax will not be paid.
Eventually if the spouses don’t have any other income in Slovakia, they do not file a tax return and, accordingly do not pay the tax if the amount of annual income is less than 4,803.33 EUR (2 x 500 + 2 x 1,901.34). For an individual the limit is 2,401.33 EUR.
In contrast to the previous alternative it is allowed to deduct the following expense items from incomings:
- Depreciation of the real estate (annually 1/20 of the real estate value)
- Renovation, furniture and household appliances purchase.
- Real estate insurance, real estate tax, mortgage interest payments, etc.
The main disadvantage of this alternative is that the income from the sale of real estate is exempted from tax only 5 years after bookkeeping has been finished.
Example: Similar to the previous alternative: An individual bought a real estate at the price of 100 000 EUR in August 2009, but he/she kept accounting records. In September 2014 he/she sold it for 150 000 EUR. Incomings were 150 000 EUR and expenses: residual value of real estate after 5 years of amortization: 100 000 - 5 x (100,000 / 20) = 75 000 EUR. The tax base is 150 000 –75 000 = 75 000 EUR. Tax 19% = 14 250 EUR.
Legal entity always includes a rental income in its tax return, even if it is 1 EUR per year, it is not entitled to deduct 500 EUR, but can apply all expenses by analogy with an individual who keeps accounting records.
In case of real estate sale, the same as with an individual who keeps accounting records, an income is a sale price of real estate and expenses are residual value of real estate after depreciation.
Private entrepreneur can rent a real estate out as part of his/her business or it could be a common renting. The second option – he/she rents it out as a common individual and can decide whether keep accounting records or not.
The advantage of first option, when renting is considered as business activity, is that instead of a tax deduction in the amount of 500 EUR, private entrepreneurs reduce their tax base in the amount of 3,803.34 EUR, therefore, this amount is tax free. Tax deduction in the amount of 3,803.34 EUR is used only once, so, if such private entrepreneurs have income from other business activities, only real expenses can be deducted from a rental income, what is more you can use the same expenses as an individual, who keeps accounting records.
Example: The abovee mentioned taxpayer had been receiving 500 EUR per month within a year, and had earned 6,000 EUR per year, but he rented the real estate out as a private entrepreneur and did not have other income from business activities. His expenses related to the real estate exploitation were 3,850EUR. Let us deduct expenses from the incomings (6,000 – 3,850) and we receive 2,150 EUR. Then deduct 3,803.34 EUR from this amount, therefore, the tax base is 0 EUR and this private entrepreneur will not pay tax.
Please note that renting can be considered as business activity of individual only if additional services are offered too, such as, for example, housecleaning, laundry, etc. It is also important to take into account that private entrepreneurs without a permanent residence in the territory of Slovakia are required to keep accounting records using double entry method (double-entry bookkeeping), as simple-entry bookkeeping without a permanent residence in Slovakia is not allowed.
In the case of renting out the real estate by an individual who is not a private entrepreneur, he/she should not forget about an obligation to register at tax office. An application must be submitted before the end of the month following the month when renting began.
A gift tax on a property, including real estate, was abolished 10 years ago.
VAT taxpayer in case of real estate purchase can take an opportunity to receive a refund of VAT, included into purchase value of real estate, but only if a real estate is bought for entrepreneurial purposes, not for general director living, for example.
Regard must be paid to it, because a lot of estate agents offer to buy real estate and include it into VAT taxpayer expenses, in order that tax office will return VAT for realty and its price (real estate price), consequently, will be cheaper. If real estate is not going to be used for income generation or as an office, but for company members living, the company has no right for VAT refund, and of course, realty price is not going to deduct the tax base of income tax. If one demands VAT refund, tax office often arranges tax audits and if it discloses deception, it won’t return VAT and will charge a penalty. Important is that if realty is bought by a VAT taxpayer, rent and sale prices for individuals will also include VAT. Thus, VAT which is “saved” upon purchase is being lost with renting and sale.
The sale of buildings or their parts (including apartments) by VAT taxpayer, including ground area where buildings are located, that are in ownership of the seller for more than 5 years, or 5 years after commissioning is VAT-exempt. But VAT taxpayer may also decide not to exempt real estate sale from taxes. The sale of all kinds of ground areas, except for area with a building permission is VAT excluded, if there is not located any building.
Renting out real properties (not including some exceptions) is VAT-exempt. VAT taxpayer can rent the real property out to other legal entity inc. VAT or ex.VAT.
Income from extra sale of real estate is not included in the turnover for VAT.