With effect from 1.1.2022, application of the rules for controlled foreign companies (CFC rules) should be extended to include individuals who are tax residents of the Slovak Republic. These rules shall be applied for the first time when filing a tax return in 2023 for 2022.
CFC rules apply for individuals who are tax residents of the Slovak Republic, should they control at least 10% participation in legal entities and the effective tax rate in the residency country is below 10%.
A company is considered to be a CFC if it is a subject with its seat abroad and following conditions are met:
- the natural person alone or together with associated persons executes real control over a controlled foreign company or has a direct or indirect share on the registered capital, voting rights or has a title to a profit share of this legal person or entity of at least 10 %, and
- is taxpayer of a non-cooperating State
- the CFC is not a taxpayer of the non-cooperating state and the relation between the demonstrably paid income tax or similar tax replacing the income tax of the controlled foreign company and the accounting results of this company in percent is less than 10%.
The income concerned should be subject to a tax rate of 25%, but for CFCs established in non-cooperating countries 35%.
This procedure shall not apply if the individual’s total income derived from CFCs does not exceed € 100,000 (a minimum threshold of EUR 100,000 is set at which the taxpayer does not have to apply the CFC rules).
The CFC rules shall not apply if the taxpayer is in an EU/EEA Member State, and the individual is able to prove that the CFC performs economic activity in that state, simultaneously the taxpayer can support this with personnel, material equipment, tangible assets and intangible assets in the state concerned (substance test).