Tax News, March 2024

In March edition of tax news, we inform you about the higher corporate income tax rate for taxable persons with the tax year different from the calendar year, about the new developments in the field of employment of foreigners based on Proposed Act on Amendments and Additions to the Act on Employment, Self-employment and Work of Foreigners, about the first batch of informative tax calculations for year 2023, about the new average gross salary for year 2023, about the Proposal for an amendment to the Investment Promotion Act and about the Proposal of the Act for implementing the European regulation on crypto asset markets. 

APPLICATION OF THE HIGHER CORPORATE INCOME TAX RATE FOR TAXABLE PERSONS WITH THE TAX YEAR DIFFERENT FROM THE CALENDAR YEAR

The adoption of the Act on Reconstruction, Development and Provision of Financial Resources, which we informed you about in our January edition of Tax News, has introduced an increased corporate tax rate of 22% for calendar years 2024-2028.

In this context, questions arose about the applicability of the increased tax rate for taxable persons whose tax period (year) is different from the calendar year. According to the clarification obtained from Slovenian TA, those companies that have a financial year different from the calendar year, will need to consider the new tax rate with respect to the tax period starting in the calendar year 2023 and ending in 2024, i.e. the new rate of 22% will be applied to those months relating to the calendar year 2024.

In practice, this means that for the current tax period (which is different to the calendar year), the tax rate for such taxable persons will be calculated as a mathematical average between the 19% and 22% rate, based on the actual number of months of the financial year in calendar years 2023 and 2024.

The monthly advance payment for the subsequent tax period will be calculated based on the new tax rate of 22% for both, taxable persons whose tax year ended on 31 December 2023, and those with a later tax period (year) end date which will occur during the calendar year 2024.

NEW DEVELOPMENTS IN THE FIELD OF EMPLOYMENT OF FOREIGNERS BASED ON PROPOSED ACT ON AMENDMENTS AND ADDITIONS TO THE ACT ON EMPLOYMENT, SELF-EMPLOYMENT AND WORK OF FOREIGNERS

In the March Tax News, we inform you about the new developments in the field of employment of foreigners based on Proposed Act on Amendments and Additions to the Act on Employment, Self-employment and Work of Foreigners (hereinafter the Act). The main reason for the drafting of the amendments is the implementation of Directive 2021/1883 adopted on 20 October 2021 on the conditions of entry and residence of third-country nationals for the purpose of highly qualified employment (hereinafter Directive 2021/1883) into the Slovenian legal order. The proposed changes are:

EU Blue card:

• Under Directive 2021/1883, persons with recognized international protection status and seasonal workers would also be eligible for an EU Blue Card. The same Directive also introduces the obligation to recognize professional experience as evidence of high professional qualifications. Until now, only formally acquired qualifications in the form of diplomas and other certificates of successful completion of a university course have been recognized.

• The proposal introduces a reduction in the validity of the employment contract down to six months. Instead of the current 1.5 times the average annual gross salary, the future salary of an EU Blue Card holder would have to be at least in the amount of the average Slovenian annual gross salary.

• EU Blue Card holders would have easier short-term mobility within Member States (up to 90 days in a 180-day period), as they would not need to obtain any additional permits. They would also be able to carry out long-term mobility after just 12 months of legal residence in the first Member State. They would be able to work in the Member State where the mobility is to be carried out even when the decision to grant the permit has not yet been taken.

Digital nomads:

• Third-country nationals who would be working remotely for a business entity outside Slovenia and when the entity is not included in the business register, would be able to apply for a temporary residence permit as digital nomads. The permit would be valid for one year and non-renewable, with conditions including a valid passport, adequate health insurance and sufficient monthly means of subsistence equal to at least twice the average net salary.

New categories that can instantly unite family members:

• Digital nomads, foreigners of Slovenian descent up to the second degree with a permit issued based on Article 48 of the Foreigners Act and foreigners who resided in Slovenia based on temporary protection prior to obtaining the permit are added to the category of foreigners who can immediately unite family members. These categories will be issued with a confirmation of submitted application for a temporary residence permit for the purpose of family reunification, which will allow them to reside in Slovenia before a final decision on their application is taken.

Elimination of inconsistencies between Ztuj-2 and ZZSDT

• Foreigners who have a residence permit for reasons other than employment, self-employment or work are allowed to work based on their previous residence permit card stating the reason for residence (for example, family member) and the Informativni list issued by the Employment Service, until they receive a new residence permit card stating access to the labor market.

• The single permit card should now also include the consent of the Employment Service, which will allow the foreigner to take up employment, self-employment or work during the validity period of the permit without the need to issue a further new permit for a different purpose of residence.

FIRST BATCH OF INFORMATIVE TAX CALCULATIONS FOR YEAR 2023

Slovenian Tax Authorities will issue the first batch of Informative Tax Calculations for year 2023 on 31 March 2024.

The Informative Tax Calculation is assembled according to the information available to the Tax Authorities based on official records, data on the income and dependent family members, which were reported to the Tax Authorities by payers of the income and individuals during the year.

The individual must carefully review the Informative Tax Calculation. If the individual does not agree with the calculation or finds that the given data is incorrect or incomplete, he/she must file an objection against Informative Tax Calculation and submit it to the competent office that issued the calculation no later than 30 days (15 days from received Informative Tax Calculation which is considered received after 15 days from when The Informative Tax Calculation was dispatched) from the date the calculation was issued. If the individual agrees with the data included in the calculation and finds that it is correct, no further action is needed. In such case, after the expiry of the deadline for filing an objection, the Informative Tax Calculation is considered as his/her final Annual income tax assessment for tax year.

Second batch of Informative Tax Calculations is planned to be issued at the end of May 2024.

NEW AVERAGE GROSS SALARY FOR YEAR 2023

Statistical office of Republic of Slovenia published a new average gross salary for previous year on 15 February 2024. Average gross salary for 2023 amounts to EUR 2,220.95. The new amount was published in the Official Gazette, no. 18/2024 on 1 March 2024.

In accordance with the published change, highest non-taxable amounts of certain private incomes from employment will change for payments from 1 March 2024 onwards. This is valid for certain incomes as prescribed in Decree on the tax treatment of reimbursement of costs and other income from employment, as they are tied to the amount of the last published average salary. The new amounts are published for:

• jubilee awards (EUR 666.29 to EUR 1.665,71),

• severance payments for retirement (EUR 6.662,85),

• payments to students for compulsory practical work (EUR 333,14),

• compensation for the use of own tools, devices, and objects (EUR 4,44).

From 1 March 2024 a new minimum basis for the payment of social security contributions is also valid, which is calculated as 60% of the average salary for the previous year. The new minimum insurance basis for payments from 1 March 2024 to 28 February 2025 amounts to EUR 1,332.57.

PROPOSAL FOR AN AMENDMENT TO THE INVESTMENT PROMOTION ACT

Based on the amended Regulation 651/2014/EU, the Ministry of Economy, Tourism and Sport prepared the Draft Act amending the Investment Promotion Act, which was approved by the Government of the Republic of Slovenia at its February session. The proposal foresees the introduction of changes according to which a branch of a foreign company will also be able to receive an incentive. The aim of the amendment is to facilitate access to incentives for foreign investors and to support their investments in the Republic of Slovenia. The possibility of establishing and obtaining an incentive for a branch of a foreign company will only apply to companies established in EU Member States, while companies established in third countries will still have to establish a company in Slovenia before receiving the incentive.

The incentive shall include regional aid, aid to small and medium-sized enterprises and aid for research, development, and innovation. The investor will also be able to apply for an investment incentive before having a company or branch of a foreign company registered in Slovenia. The condition is that either the company or the branch of a foreign company in Slovenia is registered at the moment of payment of the incentive, at the latest.

PROPOSAL OF THE ACT FOR IMPLEMENTING THE EUROPEAN REGULATION ON CRYPTO ASSET MARKETS

In the last week of February 2024, the Ministry of Finance sent out for public consultation a draft of the Act for implementing the European Regulation on crypto markets. This will transpose the European regulation adopted last year, known by its acronym MiCA (Markets in Crypto-Assets Regulation), into Slovenian law. The Bank of Slovenia defines the word “crypto assets” as a digital representation of value or rights that can be stored and transferred electronically using so-called distributed ledger technology ("Blockchain" technology).

The European Union is one of the first in the world to adopt legislative regulation of cryptocurrencies. The regulation aims to increase investor protection and requires providers to make their customers' digital wallets more secure. It also aims to allow companies to operate in the entire crypto market of the European Union with a licence granted in one of the Member States. However, the MiCA Regulation does not address some other areas of the crypto market, namely decentralised finance (DeFi), non-fungible tokens (NFTs) and central bank digital currencies (CBDCs).

What will the proposal regulate in Slovenia?

The proposal establishes the competent authorities for issuing, withdrawing and supervising:

• cryptocurrency service providers,

• issuing tokens linked to assets,

• issuing fiat tokens (e-money tokens - stable coins whose value is linked to fiat currency),

• issuers of tokens other than asset-linked tokens or fiat tokens.

The Securities Market Agency of Slovenia (ATVP) will be responsible for issuing licences and approving the so-called whitepaper, which serves as the main document describing in detail the operation, structure and purpose for issuing a particular cryptocurrency. The ATVP will also receive a notification from credit institutions wishing to offer a crypto asset-linked token to the public for trading.

The Bank of Slovenia will be the competent authority to receive notifications from electronic money-issuing institutions wishing to act as custodians, administrators and transferors of cryptocurrencies on behalf of clients. The Bank of Slovenia will also receive notifications on the whitepaper of persons offering e-money tokens to the public or requesting their admission to trading.

The Ministry of Finance announced that the law will come into effect from 30 December 2024 onwards, with the exception of the provisions on the issuance of asset-linked tokens and e-money tokens, which will apply from 30 June 2024 already. In addition, it was announced that the bill does not address tax treatment. However, the Strategic Tax Council and the Tax Working Group are currently working on addressing broader topics in the area of taxation system.

The fines for minor infringements depend on the size of the offending legal entity and range from EUR 1.250 to half a million euros.

For medium or large companies, if one of the 44 requirements is breached, the fine ranges between EUR 10 thousand and EUR 500 thousand.

Some of the infringements, for which a fine of up to half a million euros can be imposed to legal persons, are listed below. Fines can be imposed in the event that the legal person:

• does not list for public offer or trade crypto assets other than asset-linked tokens or e-money tokens,

• does not prepare and publish a whitepaper on crypto assets,

• does not prepare marketing communications in relation to crypto assets,

• fails to inform the competent authority of any potential changes to its business model,

• acts contrary to the best interests of its clients or holders of tokens linked to crypto assets,

• does not provide for a right of withdrawal from a contract.

Where the nature of the infringement is particularly serious because of the amount of the damage caused or the amount of the unlawfully gained profit, the following amounts of fines can be imposed:

• between EUR 1 million and EUR 15 million or up to 15 % of the total annual turnover of the legal person in the preceding business year,

• up to twice the amount of the profit derived from the infringement, if this amount exceeds the maximum amount referred to in the previous point,

• up to EUR 5 million may be imposed on a responsible person or an individual operating as a self-employed person.

Despite the ongoing examination of the crypto market, regulators in the EU and elsewhere in the world are still working on key underlying topics which, due to the sheer complexity of crypto assets, need to be thoroughly defined in order for further rules to effectively address taxation, investor protection and money laundering prevention.