If the supplier comes from a treaty country, and it is likely that a PE will not be constituted, then no withholding tax applies.
In addition to withholding tax, Slovakia also levies a "security tax" on payments to PEs.
If a PE exists or is likely to be established, a Slovak entity making payments to the PE must withhold 19% security tax from all payments. With effect from 1 January 2007, the obligation to withhold security tax does not apply to payments in respect of a Slovak PE of an entity based in the EU, which is taxable on its worldwide income in the respective EU country and is not considered a tax resident in Slovakia. The security tax represents an advance payment of the corporate income tax liability of the PE, which is then credited against its actual tax liability. It is possible to agree to cancel or reduce this 19% advance payment on the basis of specific approval from the relevant tax authority.
The taxpayer making the payment is obliged to remit withholding taxes within 15 days of the following month and to notify the tax authority regarding the amount of payment. In case of EEA tax resident companies the tax withheld is not regarded as a final tax, but the net tax base taxation is applied.
Double Taxation Avoidance Treaties
Double taxation avoidance treaties concluded between Slovakia and Western countries in general follow the OECD Model Treaty. Reduced withholding tax rates under treaties are shown in the appendix.
Slovak tax law contains transfer pricing rules which are largely based on OECD principles (especially OECD Transfer Pricing Guidelines), which permit the authorities to adjust prices charged between foreign related parties that are not in accordance with the arm's length principle (fair market value). Pricing methods (comparable uncontrolled price method, resale method and cost plus method) and profit methods (profit split method and transactional net margin method) are allowed on this basis. The transfer pricing rules for transactions between domestic entities have been abolished.
With effect from 1 January 2009 special obligation to keep documentation on the transfer pricing method used between foreign related parties applies. The rules for drafting and keeping the required transfer pricing documentation are issued by the Ministry of Finance by means of secondary legislation.
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