Corporate / M&A

Slovakia: Amendment to VAT Act Makes Life More Difficult for LTDs

The new amendment to Slovakia’s VAT Act complicates the transfers of shares in limited liability companies.

Due to pro­tract­ed prob­lems with its bud­get deficit, the new Slo­vak gov­ern­ment decid­ed to pass an amend­ment to the VAT Act (VAT Amend­ment), which took effect on 1 Octo­ber 2012 and aims at elim­i­nat­ing fraud­u­lent actions dam­ag­ing VAT col­lec­tion. This new piece of leg­is­la­tion is far reach­ing and touch­es not only tax law, but also cor­po­rate and crim­i­nal law.

Corporate law

Setting up a limited liability company

The VAT Amend­ment changes the pro­vi­sions of the Slo­vak Com­mer­cial Code in such a way that the founder of a lim­it­ed lia­bil­i­ty com­pa­ny (the Slo­vak equiv­a­lent to a GmbH) must be a per­son hav­ing no tax arrears. Before fil­ing an appli­ca­tion to reg­is­ter a lim­it­ed lia­bil­i­ty com­pa­ny (LTD), the founder (includ­ing a for­eign one) must ask the Slo­vak tax admin­is­tra­tion author­i­ty for writ­ten con­sent – which must be issued with­in three work­ing days if the founder has no (or only minor) tax arrears.

Transfers and divisions of business shares

The same writ­ten con­sent is required when a busi­ness share to which at least 50% of all votes per­tain (“major­i­ty busi­ness share”) is to be trans­ferred and/or divid­ed. This writ­ten con­sent is required in rela­tion to both the trans­fer­ee and the trans­fer­or of the major­i­ty busi­ness share. With­out obtain­ing writ­ten con­sent from the tax admin­is­tra­tion author­i­ty, a major­i­ty share trans­fer can­not be reg­is­tered in the com­mer­cial reg­is­ter and thus can­not take effect.

Trans­fers or divi­sions of the major­i­ty busi­ness share due to, for exam­ple, a merg­er or divi­sion do not require writ­ten con­sent. The writ­ten con­sent require­ment does not apply to a for­eign transferor/transferee of a busi­ness share. When writ­ten con­sent is not required, the appli­ca­tion to reg­is­ter a share trans­fer must con­tain a writ­ten dec­la­ra­tion of the trans­fer­or and the trans­fer­ee that they are released from the duty.

VAT law

Collateral for VAT

The VAT Amend­ment intro­duces new pro­vi­sions on col­lat­er­al for VAT arrears. When apply­ing for VAT reg­is­tra­tion, the appli­cant must, under cer­tain con­di­tions, pro­vide col­lat­er­al for 12 months, either as a finan­cial deposit or as an uncon­di­tion­al bank guar­an­tee. The col­lat­er­al require­ment also applies inter alia to per­sons per­form­ing only prepara­to­ry activ­i­ties, such as new mar­ket entrants. The amount of the col­lat­er­al will be deter­mined by the tax office for each appli­cant (with a cap of EUR 500,000). Fail­ing to pro­vide the col­lat­er­al for VAT in full will cause the rejec­tion of the appli­ca­tion for VAT reg­is­tra­tion. Col­lat­er­al not used for the set­tle­ment of tax arrears in the course of 12 months must be returned to the appli­cant.

Guarantee for VAT, cancellation of registration

The VAT Amend­ment intro­duces the oblig­a­tion of the pay­er to set­tle VAT stip­u­lat­ed on an invoice that has not been paid by the sup­pli­er when due, if the pay­er knew or rea­son­ably should have known (eg, inad­e­quate con­sid­er­a­tion stat­ed on the invoice or being a mem­ber of the supplier’s statu­to­ry body) that the sup­pli­er will not meet his tax duty.

Repeat­ed non-com­pli­ance with the duty to sub­mit VAT returns, to pay own tax duty, and var­i­ous types of pas­sive behav­iour by the tax pay­er (eg, repeat­ed breach­es of the co-oper­a­tion duties dur­ing a tax inspec­tion) will now lead to the can­cel­la­tion of the tax payer’s reg­is­tra­tion for VAT by the tax office.

Criminal law

The VAT Amend­ment also indi­rect­ly amends the Crim­i­nal Code and intro­duces two new crimes. The new crime of tax fraud was cre­at­ed by a sep­a­ra­tion of cer­tain mis­con­ducts from the too-broad­ly defined crime of non-set­tle­ment of tax and focus­es on the unlaw­ful appli­ca­tion for VAT or excise tax return. The crime of obstruct­ing the tax admin­is­tra­tion sanc­tions var­i­ous types of behav­iour hin­der­ing prop­er tax admin­is­tra­tion; for exam­ple, dam­ag­ing or destroy­ing nec­es­sary doc­u­ments or pro­vid­ing mis­lead­ing infor­ma­tion.


The VAT Amend­ment, aimed at fight­ing the exploita­tion of tax law loop­holes, unfor­tu­nate­ly brings with it com­pli­ca­tions for cor­po­rate law trans­ac­tions using LTDs – the most com­mon busi­ness vehi­cles in Slo­va­kia. These com­pli­ca­tions must be con­sid­ered when found­ing a Slo­vak LTD, when draft­ing share pur­chase agree­ments and when plan­ning the clos­ing mech­a­nisms in deals involv­ing a Slo­vak LTD.

When applying for VAT registration, the applicant must, under certain conditions, provide collateral for 12 months, either as a financial deposit or as an unconditional bank guarantee.

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