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Permanent Establishments

The phrase "permanent establishment" ("PE") is a term used in tax legislation to define a fixed place of business, which represents a taxable entity in the territory in which it is located in Slovakia. A PE can be either a branch that is registered in the Commercial Register, or an unregistered unit that has no legal status ("deemed PE"). Thus, for instance, a person who acts on behalf of a foreign company and repeatedly enters into agreements on its behalf, under a power of attorney, is also considered to create a PE of the foreign company.

Under present law, a PE is constituted when one-off services have been performed in the territory of Slovakia for more than 6 months within a period of 12 consecutive calendar months. In other cases, a PE is constituted if a fixed place through which the activities of the foreign entity are carried out in Slovakia is available. The parent company can register the PE immediately, but in all cases the PE must be registered within 30 days of the date when the PE was constituted.

Whether or not a PE is created is subject also to the provisions of applicable double tax treaties.

Generally speaking, all employees assigned to a PE are subject to Slovak personal income tax (see Chapter 5).

Withholding Taxes

Withholding tax is deducted from certain types of income derived in the territory of Slovakia by both residents and non-residents at a single rate of 19%. Such income comprises mainly interest and revenues derived from participation certificates, from certificates of deposit, and from deposit letters.

Withholding tax also applies to dividends paid out of profits generated before 2004, subject to further exemptions in accordance with the Parent/Subsidiary Directive.

In the case of non-residents, withholding tax is also charged on royalties, subject to exemptions under the EU Interest and Royalty Directive if the payment is to an EU associated company. According to the EU Interest and Royalties Directive, interest and royalty payments to EU associated companies are exempt from withholding tax under certain conditions.

The rate of withholding tax can be reduced in accordance with applicable double taxation treaties.

Slovak entities are also obliged to deduct a withholding tax of 19% from payments for business, advisory and consulting services rendered in Slovakia if they are made to a non-treaty country before a PE is constituted (the first 183 days of activity in Slovakia).


©2010 KPMG Slovensko spol. s r.o. , a Slovak limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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