Slovakia – Government to Implement Notable Changes to VAT Rates

October 4, 2024

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Recently, we witnessed many announcements of changes in VAT rates in EU countries. Some are already in effect, like in Finland or Portugal; others will come into effect starting next year, like in Estonia, and some are scheduled for 2026, such as one related to the applicable VAT rate on short-term rentals in the Netherlands.

Among all the implemented and announced changes, the Slovak government has also announced that it plans to implement specific changes to VAT rates.

Changes to VAT Rates and Its Impact

The Slovak Prime Minister, Robert Fico, announced the government's plan to amend the VAT law and to change applicable VAT rates. The most significant changes include increasing the standard VAT rate and introducing a new reduced VAT rate.

If the amendments to the VAT law are adopted, starting on January 1, 2025, the standard VAT rate will increase from 20% to 23%, putting the Slovak standard VAT rate next to some of the highest in the European Union. In addition, a new reduced VAT rate of 19% will apply to essential foodstuffs and medicine, thus eliminating the current 10% reduced rate.

The second reduced rate of 5% should remain in place, but it will apply to different supplies, such as hotel accommodation services.

This change in the VAT rate will affect both businesses and citizens, from the increase in prices of goods and services to the decrease in citizens' purchasing power and ability.

Nevertheless, the final decision on these changes has yet to be made. However, it is almost certain that some changes will be made and that the government will not give up on this rather unpopular measure to secure more revenue and increase the state budget.

Conclusion

The final decision on VAT rates is still being determined, but businesses should still prepare for inevitable changes. In addition to staying updated with further developments, companies operating in the Slovak market should take precautionary steps to adjust their systems and prices to new rules and regulations.

Source: EasyTax, Central European Times, Spectator, 1stopVAT

What are the new VAT rates that Slovakia plans to implement?

Effective January 1, 2025, Slovakia will adjust its VAT structure. The standard VAT rate will increase from 20% to 23%. The current 10% reduced rate will be replaced by a new 19% rate, while the 5% reduced rate will remain unchanged.

Which goods and services will be affected by these changes?

The 19% reduced rate will apply to specific goods and services, such as non-basic foodstuffs, domestic electricity, and catering services. For catering, services including alcohol will be taxed at the standard 23% rate, those with low-alcohol beverages will be at 19%, and those without alcohol will benefit from the 5% rate. The 5% reduced rate will continue to cover basic foods, medicines and medical devices, books, textbooks, newspapers, magazines, rental accommodation, hotel services, and rental housing support.

What is the rationale behind these VAT adjustments?

The Slovak government aims to increase state budget revenues and align VAT rates with regional standards. Slovakia’s previous standard VAT rate was below the EU average of 21.8% and lower than neighboring countries such as Hungary (27%), Poland (23%), and the Czech Republic (21%).

How will these changes impact businesses and consumers?

Businesses will need to update their pricing structures and accounting systems to reflect the new VAT rates. Consumers may see price increases on goods and services moving from a reduced rate to the standard rate. For instance, catering services previously benefiting from a 10% rate may now be subject to the 23% standard rate, depending on the nature of the service.

Are there any additional tax changes accompanying the VAT adjustments?

Yes, there are additional changes. The corporate income tax rate for legal entities with income exceeding EUR 1 million will increase to 22%. The taxable income threshold for the reduced income tax rate for individual entrepreneurs and legal entities will be raised from EUR 60,000 to EUR 100,000, offering support to small and medium-sized enterprises (SMEs).

What steps should businesses take to prepare for these changes?

Businesses should review and update their accounting and billing systems to accommodate the new VAT rates. They need to train staff on the implications of the rate changes to ensure compliance and communicate transparently with customers about any price adjustments resulting from the VAT changes. Consulting with tax professionals is advisable to understand the full impact on their operations and ensure all legal requirements are met.

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