Chapter Avbreht, Zajc & Partners Ltd. Ursula Smuk 1 General: Treaties 1.1 How many income tax treaties are currently in force in? 44 income tax treaties are currently in force in. 1.2 Do they generally follow the OECD or another model? Although only acceded to the OECD in 2010, the treaties currently in force generally follow the OECD model, with the exception of those concluded by Yugoslavia with Cyprus and Sweden. The latter, which are applicable to by way of succession, are the only two remaining bilateral income tax treaties, which have not as yet been renegotiated. 1.3 Do treaties have to be incorporated into domestic law before they take effect? In order for a treaty to take legal effect in, it must be ratified by the Slovene Parliament and published in the Official Gazette. 1.4 Do they generally incorporate anti-treaty shopping rules (or limitation of benefits articles)? Apart from some notable exceptions, such as the treaty with the United States and Malta, the relevant tax treaties generally do not incorporate specific limitation of benefits provisions. 1.5 Are treaties overridden by any rules of domestic law (whether existing when the treaty takes effect or introduced subsequently)? Pursuant to the provisions of the Constitution of the Republic of, all domestic laws and rules must comply with the general principals of international law and treaties, to which has acceded. From this it may be derived that treaties generally may not be overridden by domestic law. 2 Transaction Taxes 2.1 Are there any documentary taxes in? There are currently no documentary taxes in. 2.2 Do you have Value Added Tax (or a similar tax)? If so, at what rate or rates? has Value Added Tax at the standard rate of 20%. A reduced rate of 8.5% applies to items which are specifically enumerated in the Slovene VAT Act. These items include, but are not limited to food, medicine and medical equipment, and some residential buildings. 2.3 Is VAT (or any similar tax) charged on all transactions or are there any relevant exclusions? Slovene VAT regulations closely follow Directive 2006/112/EC, which gives Member States a certain degree of leeway regarding exclusions / exemptions. In general, the supply of goods and services as well as the import of goods and the Intra Community acquisition of goods, are subject to VAT. Several exclusions are, however, provided for in the Slovene VAT Act, which include but are certainly not limited to the sale of shares in a company, an active trade or business and the sale of securities. The sale of certain (used) real estate is also VATexempt unless the parties opt to treat the supply as a taxable transaction (in which case the standard rate of 20% applies). 2.4 Is it always fully recoverable by all businesses? If not, what are the relevant restrictions? Taxable persons are generally entitled to deduct input VAT, insofar as the VAT is incurred in the provision of the business own taxable transactions. Taxpayers rendering VAT-exempt services however, such as banking and financial services, are not entitled to deduct input VAT. Additionally, it may be noted that not all businesses are required to register for VAT purposes - namely businesses with an annual turnover of under 25,000 EUR are not obligated to register for VAT purposes. 2.5 Are there any other transaction taxes? The transfer of real property for consideration is subject to a real estate transaction tax. The tax rate of this transfer tax is 2% and the taxable basis is the purchase price of the immovable property. If the purchase price is at least 20% lower than the estimated real market value of the property, 80% of the market value shall be considered as the taxable basis. It is important to note that the Real Property Transaction Act specifically states that for the purpose of the taxation of the relevant transaction, transfer of title of property, for which VAT has already been charged, is not subject to real estate transaction tax.
2.6 Are there any other indirect taxes of which we should be aware? Goods imported from outside the EU are subject to custom duties and excise duties are levied on particular classes of goods (e.g. tobacco, alcohol and mineral oils). In addition, green taxes can apply to certain limited transactions. 3 Cross-border Payments 3.1 Is any withholding tax imposed on dividends paid by a locally resident company to a non-resident? A 15% withholding tax is levied on dividends paid by a local resident company to a non-resident. The relevant tax may be reduced or eliminated pursuant to an applicable tax treaty and/or pursuant to Slovene provisions implementing the Directive 90/435/EC. Moreover, subject to certain conditions, a withholding tax is not levied on dividends paid to a non-resident pension fund, insurance fund or insurance company. Pursuant to Slovene regulations, which implement the Directive 90/435/EC, dividends paid by a local resident company to a nonresident are not subject to a withholding tax, if the non-resident is an EU resident and holds at least 10% of capital or voting rights in locally resident company. A further condition for such tax relief is a minimum two year holding period and that the recipient company is subject to corporate income tax in its State. 3.2 Would there be any withholding tax on royalties paid by a local company to a non-resident? In the event that a local company pays royalties to a non-resident, a withholding tax of 15% is levied, which may be reduced or eliminated pursuant to an applicable tax treaty and/or pursuant to the Slovene provisions implementing the Directive 2003/49/EC. Under the latter, interest and royalty payments made by resident companies are exempt from withholding tax, provided that the recipient company, which is resident in another EU Member State, is subject to corporate income tax in that State, and is an associated company of the paying company. 3.3 Would there be any withholding tax on interest paid by a local company to a non-resident? A 15% withholding tax is levied on interest paid by a local company to non-residents. This tax rate may be reduced or eliminated pursuant to an applicable tax treaty and/ or the Directive 2003/49/EC. Neither interest paid by resident banks to non-resident banks, nor interest paid by resident banks to non-banking entities other than those resident in non-eu low-tax jurisdictions, is subject to withholding tax. Again, it is important to note that also in the case of interest paid to a non-resident pension, investment or insurance fund, subject to certain conditions, a withholding tax is not levied on interest paid. 3.4 Would relief for interest so paid be restricted by reference to thin capitalisation rules? As a general rule, the Slovene Corporate Income Tax Act limits the tax deductability of interest paid on loans granted by a shareholder or partner, holding at least 25% in the share capital or the voting rights of a taxpayer. Interest paid on such loans is not tax deductible if the loan exceeds five times (in 2011) the value of the shareholder's or partner's share in the capital of the taxpayer. This general limitation does not apply however, if the taxpayer manages to prove that the excess loan could have been obtained from unassociated parties. With regards to the thin capitalisation rules, enjoys a transitional period. This transitional period shall continue until 2012, when the debt-to-equity ration fixed at 4:1 shall apply. 3.5 If so, is there a safe harbour by reference to which tax relief is assured? The so-called safe harbour, by reference to which tax relief is assured, may be indirectly detected in the thin capitalisation rules outlined in question 3.4. In addition a safe harbour may be detected within the transfer pricing rules encompassed in Slovene regulations. Pursuant to the latter, interest payments made pertaining to loans granted by associated entities are tax deductible only to the extent that interest paid does not exceed the officially determined and published interest rate. At this point it is important to note however, that the abovementioned thin capitalisation rules only apply to debt provided by an entity with a 25% or over direct or indirect holding in the n tax resident. In this respect, a loan granted by a sister company in a safe harbour would not fall within the scope of thin capitalisation rules. 3.6 Would any such thin capitalisation rules extend to debt advanced by a third party but guaranteed by a parent company? The thin capitalisation rules would also extend to such loans granted by a third party. 3.7 Are there any restrictions on tax relief for interest payments by a local company to a non-resident in addition to any thin capitalisation rules mentioned in questions 3.4-3.6 above? Interest payments made on loans granted to a Slovene resident company by a resident in a so-called low-tax jurisdiction are not tax deductible. According to the Slovene Corporate Income Tax Act, non-eu Member States with a general nominal tax rate lower than 12.5%, fall within the scope of the definition of a low-tax jurisdiction. The Slovene Ministry of Finance compiles and publishes an official list of low-tax jurisdiction States. At this point it also must be highlighted that also the arm's length principle should be taken into consideration in order for interest payments to associated entities to be fully deductible for tax purposes. 3.8 Does have transfer pricing rules? The Corporate Income Tax Act of and the accompanying rules, incorporate transfer pricing rules, which are based on the OECD guidelines. 4 Tax on Business Operations: General 4.1 What is the headline rate of tax on corporate profits? Since 1 January 2010, a flat corporate income tax rate of 20%
applies to all corporations. This tax applies to payments to residents and non-residents. Subject to specific conditions, a reduced 0% corporate income tax rate applies to investment funds, insurance companies, pension funds and venture capital companies, which are taxed in accordance with the Slovene Corporate Income Tax Act. 4.2 When is that tax generally payable? An advance payment tax is generally paid on a monthly basis throughout the tax year. Each monthly advance payment amounts to one-twelfth of the tax liability determined in the tax return of the previous year. The difference between the cumulative advance payments carried out within the relevant tax year, and the tax liability determined in the tax return filed for the respective tax year, must be paid within 30 days from the filing of the tax return. The annual corporate income tax return must be filed within 3 months subsequent to the end of the tax year, which may differ from the calendar year. 4.3 What is the tax base for that tax (profits pursuant to commercial accounts subject to adjustments; other tax base)? In principle, a company s net income, therefore taxable basis, is determined in accordance to Slovene accounting principles and provided for in the company s financial statements. Slovene tax law however, provides for several adjustments for tax purposes, e.g. restrictions on the deduction of certain business expenses. As a general rule, expenses incurred in connection with the company s business activities, which fall within the definition of expenses that are commonly incurred in usual business practice, are tax-deductible. 4.4 If it otherwise differs from the profit shown in commercial accounts, what are the main other differences? As stated above, expenses must be incurred in connection to the company s business activities. Expenses are considered not to be in connection with the company s business if they are not usually incurred in business practice, if they are not necessary for the company s business, or if they are of a private nature. More specific rules apply to the determination of the tax deductibility of expenses in certain cases, e.g. claim write-offs are recognised as deductible expenditures for tax purposes, only if the taxpayer has exercised all available means of collection thereof. Furthermore, another main difference is provided with regards to dividends and capital gains. In general, subject to certain conditions, dividends which are conferred upon a resident Company from a resident or non-resident, are not subject to a corporate income tax at the level of corporate shareholders. This general rule however, does not apply if the dividends are paid by residents of low-tax jurisdictions. 4.5 Are there any tax grouping rules? Do these allow for relief in for losses of overseas subsidiaries? Slovene regulations do not provide for tax grouping rules. 4.6 Is tax imposed at a different rate upon distributed, as opposed to retained, profits? The same tax rate is levied upon both types of profits. 4.7 What other national taxes (excluding those dealt with in Transaction Taxes, above) are there - e.g. property taxes, etc.? The Slovene system of property tax is currently being reformed and the new tax is expected to be implemented as of 1 January 2012. Currently, property is taxed by three separate local and/ or national taxes and dues, depending on the circumstances pertaining to each specific case. 4.8 Are there any local taxes not dealt with in answers to other questions? The current property tax, which is applicable both to natural and legal persons, who hold real estate is a local tax. The tax is levied on the property value as determined by law. Property tax is levied at progressive rates, from 0.10% to 1.50%, as set by local municipalities. 5 Capital Gains 5.1 Is there a special set of rules for taxing capital gains and losses? In, there is no separate capital gains tax applicable to businesses. Capital gains are therefore considered as normal business income and are thus subject to corporate income tax. 5.2 If so, is the rate of tax imposed upon capital gains different from the rate imposed upon business profits? Capital gains are generally subject to the corporate income tax at the 20% rate. 5.3 Is there a participation exemption? A participation exemption applies to capital gains or losses attributed to the disposal of qualified capital shares or other qualified participation. For the purpose of the relevant provisions, a qualified participation includes at least an 8% share of the capital or voting rights of the company that is subject to disposal. If the latter condition is met, the Slovene Corporate Income Tax Act provides that only 50% of capital gains or losses, attributed to the disposal of shares, are to be included in a Company s taxable basis. In addition to the qualified participation condition, it is important to note that this rule may not apply if the company, which is subject to disposal, is a resident in a low-tax jurisdiction, nor may it apply if the taxpayer company has not met the minimum six-month holding period requirement, in which it employed at least one employee. Similar to dividends, 5% of related expenses are tax non-deductible. 5.4 Is there any special relief for reinvestment? No specific relief is available for reinvested profits. However, companies can claim a tax deduction amounting to 30% of the amount invested in equipment and intangible assets. The relevant deduction may not exceed EUR 30,000, nor the taxable base. Any unused credit may be carried forward for five tax years. Moreover, companies can also claim a tax deduction for 40% of the amount invested in research and development activities, whether these activities be carried out within the company or outsourced. The tax deduction may not, however, exceed the taxable base of the
year in which the investments were carried out. Taxpayers carrying out their business activities in a region where the gross domestic product per capita (GDP per capita) is up to 15% lower than the average national GDP per capita, may claim a tax deduction for 50% of the amount invested in research and development. The amount claimed may increase to 60% of the invested amount, if the GDP per capita in the region where the company s business activities are carried out is more than 15% lower than the respective national average. 6 Branch or Subsidiary? 6.1 What taxes (e.g. capital duty) would be imposed upon the formation of a subsidiary? No taxes or fees, apart from those connected to the registration of the subsidiary, are imposed upon the formation of a subsidiary. 6.2 Are there any other significant taxes or fees that would be incurred by a locally formed subsidiary but not by a branch of a non-resident company? Currently no such taxes or fees apply. 6.3 How would the taxable profits of a local branch be determined? The profits of a branch are subject to corporate income tax, if the branch falls within the definition of a permanent establishment. Should this be the case, the taxable income of the permanent establishment includes all income, which is acquired in or via the permanent establishment. In general, the taxable profit of a permanent establishment shall be determined in accordance with the same rules as those applicable to resident companies. It should also be noted that transfer pricing rules should also be applied when determining the taxable basis of a local branch. 6.4 Would such a branch be subject to a branch profits tax (or other tax limited to branches of non-resident companies)? Slovene regulations do not provide for a branch profits or similar tax applicable to branches. Profits attributable to such permanent establishment are subject to the standard corporate income tax. 6.5 Would a branch benefit from tax treaty provisions, or some of them? Under n tax law, a branch is considered a taxable entity for corporate income tax purposes if it qualifies as a permanent establishment within the meaning of a double taxation treaty. 6.6 Would any withholding tax or other tax be imposed as the result of a remittance of profits by the branch? There is no withholding tax levied on the remittance of profits by the branch to the head office. 7 Anti-avoidance 7.1 How does address the issue of preventing tax avoidance? For example, is there a general antiavoidance rule or a disclosure rule imposing a requirement to disclose avoidance schemes in advance of the company s tax return being submitted? Slovene regulations do not address the issue of preventing tax avoidance as such. However, in general the substance over form rule applies, while in the case of fictitious transactions, the underlying transaction is deemed to be effective from a tax perspective. Moreover, taxable persons are required to disclose certain data, which may affect the perceived risk relating to the taxable person by the tax authorities, in their annual corporate income tax returns. The tax authorities may base their investigation strategies on the submitted information.
Ursula Smuk Avbreht, Zajc & Partners Ltd. Šestova 2, 1000 Ljubljana Tel: + 386 1 434 5400 Fax: + 386 1 434 5404 Email: ursula.smuk@azodvetniki.com URL: www.azodvetniki.com Ms. Ursula Smuk, dipl. iur. (University of Ljubljana, 2005) and LL.M (City University of Hong Kong 2006/2007, programme in International Trade Law in Asia), is an associate at Avbreht, Zajc & Partners law firm in Ljubljana, one of the leading corporate law firms in. Before joining Avbreht Zajc & Partners, Ms. Smuk worked as a tax advisor in at a big four auditing firm. Avbreht, Zajc & Partners Ltd. is a full-service law firm providing a broad range of advisory services and legal representation to both national and international clients. The firm's main expertise are in the fields of Corporate and Commercial law, Competition Law and Intellectual property law. The firm has offered complete legal support in numerous stock and asset deals, joint ventures, mergers and acquisitions. Our specialisations are also in the fields of public procurement and public private partnerships, media law and telecommunications / advanced technologies. Today we are one of the larger n law firms with even higher ambitions for the future. We deal with companies from various industries such as banking, petroleum, chemistry and pharmacy, insurance, media, construction, new technologies, automotive and others. In the public sector we advise and represent numerous state-owned companies, local municipalities and governmental agencies. We are members of the Warwick International Legal Network (WLN). Highly reputable, independent law practices work within WLN worldwide. Through our membership in WLN we are in the position to meet the need for international legal advice and the highest level of cross-border advice and representation.