Tax News, September 2022

n the October issue of EY tax news, we would like to inform you about the to the proposed Changes and Amendments to the Personal Income Tax Act and the proposals for amendments to the Tax procedure Act and Fiscal validation of receipts Act.

PROPOSED CHANGES AND AMENDMENTS TO THE PERSONAL INCOME TAX ACT

On 26 September 2022, the Government of the Republic of Slovenia confirmed the proposed Changes and Amendments to the Personal Income Tax Act (hereinafter PITA).

The proposed changes are set to be in force as of 1 January 2023.

The main changes and amendments of the Act are specified below. We note that the summary below is based on publicly available information and documents and the proposed changes are subject to confirmation by Slovenian Parliament.

Change in the general tax relief

In accordance with the currently valid Act, the annual general tax for year 2022 is set at 4,500 euros, with foreseen gradual increase of the general tax relief up to 7,500 euros, which would be effective in 2025. The proposed change abolishes the gradual increase of the general tax relief and fixes the amount of the relief at 5,000 euros.

Changes in the amount of income for additional general relief

The proposal provides for an increase in the total income up to which a tax resident is entitled to additional general tax relief alongside general tax relief. The threshold is increased from the current 13,716.33 euros to 15,000 euros.

Special tax relief for young

Up to and including the year in which the individual reaches the age of 26, a reduction of 1,000 euros per tax year in his/hers tax base is predicted. After completed age of 26 years and up to and including the year in which the individual reaches the age of 29, the proposed reduction would be 500 euros per year. The relief is then granted proportionally according to the number of months of employment in each tax year, considering each full month of employment.

Method of reconciliation of reliefs and net annual tax base amounts

The changes eliminate the mechanism of automatic adjustment of the amount of tax relief and net annual tax bases. For 2023 the adjustment of tax relief and net annual tax bases will not be carried out. This way, it is proposed to adjust the tax relief amounts and the net annual tax bases in the same way as was in place for the tax years from 2014 to 2021.

Increase of marginal tax rate

The proposal includes an increase of the tax rate in the top income tax bracket from current 45%  to 50%.

Part of the salary related to business performance

It is proposed that the more favourable tax treatment of part of the salary related to business performance can be applied at most twice a year, while the possibility of more favourable tax treatment of such payments at 100% of the average salary of the employee is removed.

The beneficial tax treatment of the salary related to business performance remains in place, however limited to 100% of the average monthly salary of employees in Republic of Slovenia.

Determining the tax base of business income by taking into account standard costs

The proposed change sets a condition for entry into, or staying included into the system of standard costs, which is linked to the social insurance of the individual or of a person employed by this individual and extends the period of continuous inclusion in the social insurance. 

According to the proposal, the condition will therefore be fulfilled if the taxpayer is included in the system continuously for at least nine months full-time on the basis of self-employment, or has an employee who is included in the system on the basis of this employment relationship continuously for at least 9 months full-time.

Thus, the condition of continuous inclusion in the social insurance is extended from five months to nine months.

The amount of expenses recognized when determining the tax base in the system of standard expenses is also changing. The amount of recognized standard expenses is determined based on the generated revenues and the mandatory insurance under the law governing pension and disability insurance.

Accordingly, the tax base and standardized costs are recognized in accordance with the table below:

Personal income tax rate on rental income

The tax rate for income from renting out real estate is proposed to be increased from the current 15% to 25%, while the amount of standard cost that taxpayer can claim remains the same, at 10%.

Disposal of own shares

According to the proposal, the disposal of shares in the context of the acquisition of own shares of the company, except in the case when the company acquires its own shares on the organized market, it is considered as dividend income and not as capital gain.

The aforementioned tax treatment was already in effect before 1 January 2022.

Elimination of the possibility on deciding to include income from renting out property and income from capital in the annual tax base

The possibility for the taxpayer to decide on the inclusion of rental income and capital income in the annual tax base is eliminated which means they will be taxed separately only.

APPROVAL OF THE AMENDED PROPOSALS OF THE TAX PROCEDURE ACT AND FISCAL VALIDATION OF RECEIPTS ACT

At the 31. correspondence session, the Government of the Republic of Slovenia approved the proposals for amendments to the Tax procedure Act and Fiscal validation of receipts Act. As part of the proposed changes to ZDavP-2, taxpayers will no longer need to use a qualified digital certificate in order to collect documents from the eDavki portal. They will now be able to obtain documents from the portal using other means of secure electronic identification. This change has been made with the aim of facilitating one’s fulfillment of his tax obligations as well as to ensure appropriate transfer of European directives.

At aforementioned session, the government also approved amended proposal regarding the Fiscal validation of receipts Act, according to which traders, caterers and entrepreneurs will once again become obliged to hand over invoices for their sold goods and provided services. This will on the other hand create an obligation on the buyer's side as he will need to accept and store the received invoice. Mentioned amended proposal will nullify the amendments made in the beginning of the year according to which it was no longer obligatory for a salesperson to hand over an invoice to his customer.