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Potential Offshore Company Tax Increase (November 12, 2013)

Offshore companies generating revenue in the Slovak Republic may be taxed at 35%.  A proposal to amend the Income Tax Act has recently been submitted to the Slovak Parliament.  The proposal introduces, among other things, a new 35% tax rate on revenues generated in Slovakia by certain offshore companies.  If adopted by the Parliament and signed by the President, the amendment will have significant implications on offshore structuring.  The amendment is likely to be adopted since a similar tax was adopted by Czech Republic as of January 1, 2013.

The 35% tax rate is intended to apply to revenues generated in Slovakia by companies with a registered office in a “non-contracting state”.  A non-contracting state is any state that is not a Member State of the EU or European Economic Area and is not party to a treaty with Slovakia regarding double taxation or tax information.  The list of double taxation treaties can be found at https://www.finance.gov.sk/en/Components/CategoryDocuments/s_LoadDocument.aspx?categoryId=285&documentId=454.

Accordingly, the increased tax rate will not apply to companies based in traditional European offshore jurisdictions, such as Luxembourg, Netherlands, Cyprus, Switzerland and UK.  Companies located in other offshore jurisdictions, such as BVI, Caymans, Seychelles, Belize and Anguilla, will be subject to the 35% tax.

The revenues generated by offshore companies that will be subject to the increased tax include:

  • payments for delivery of goods or provision of services rendered by an offshore company’s permanent establishment (operations) in Slovakia;
  • payments for services provided by an offshore company to a Slovak tax resident or a non-resident with a permanent establishment in Slovakia, irrespective of where the services were carried out;
  • payments for the sale or lease of real estate located in Slovakia; or
  • payments for transfers of shares in a Slovak company, even if the seller of shares is not a Slovak tax resident.

 

The amendment is scheduled to enter into force on January 1, 2014.  Since this is a governmental proposal, it is likely to be passed without any material changes.

Stay tuned for more information.