Tax News: Financial Transaction Tax

On 28^th November 2024 the Parliament approved the amendment of the Act no. 279/2024 on Financial Transaction Tax (“FTT”) approved by the Slovak Government in October 2024. The Act was approved as the part of the consolidation package with the aim to improve the state of public finances. FTT will be effective from 1 January 2025, however the first taxation period will be April 2025.

Definition of financial transaction

Financial transaction is defined by FTT as a payment service provided by a payment service provider based on the order or consent of the taxpayer. This means that the transaction tax will apply to outgoing bank payments including payments from accounts, cash withdrawals and the use of a payment card.

Subject to tax is:

- financial transaction where the funds are debited from the bank account;

- use of a payment card;

- cash withdrawal from the bank account (ATM);

- recharged costs related to financial transactions which refers to the taxpayer's activity performed in the Slovak Republic.

NOTE

The tax is designed to be a levy on debit transactions from the bank accounts, i.e. whenever a payment is made from an account, the tax will be charged. Please note that some payments related to taxes, social and health security or transfers between the taxpayer's own bank accounts in the same bank will be exempt from the tax.

The usual offsetting of receivables and payables will be not subject to transaction tax. However, settlement of receivables for recharged costs is considered as financial transaction according to FTT, i.e. transaction tax with no cap limit must be paid from this settlement.

Who will pay the tax to the tax authorities?

Taxpayer is a business entity (not private individual), i.e. individual – entrepreneur, legal entity and organizational unit of a foreign person, who is a client of a payment service provider performing financial transactions.

Exception applies to the Social insurance company, budgetary and contributory organizations, municipalities and regions. As the criteria for exemptions were unclear the amendment extended the exemptions to the entire non-governmental sector, such as non-profit organisations, civil associations, charities, foundations, transactions of Slovak National bank, etc. Such entities would be obliged to announce the taxpayer, i.e. the bank, the bank accounts from which the tax should not be withheld due to fulfilled conditions for exemptions.

The person who will pay the tax to the tax authorities is:

- provider of financial services based in the country (banks);

- organizational unit of the financial service provider located in the country;

- taxpayer who is a client of a provider based outside the territory of the Slovak Republic and does not have an organizational unit located in the country;

- taxpayer to whom the costs related to the financial transaction, which refers to the taxpayer's activities performed in the country, are charged;

- taxpayer who carries out financial transactions on a non-transaction account.

Transaction account

The taxpayer is obliged to carry out the financial transactions on the so-called “transaction account”, i.e. business bank account on which the taxpayer carries out business-related payments.

In case that the taxpayer does not have a business account on which he carries out financial transactions related to his business, he is obliged to establish it by 31 March 2025. The tax will be automatically deducted by provider of financial services and remitted to the Slovak tax authorities. This obligation mainly affects self-employed persons who were not obliged to have a business account and could use a private account for business purposes as well.

NOTE

Please note that it is not possible to avoid paying the tax by using foreign bank accounts, cash pooling accounts or accounts held by third parties. Transactions done abroad using foreign bank accounts, cash pooling accounts or using third parties, are also subject to tax, and thus must be reported by the taxpayers themselves.

Tax base and tax rates

The tax base is the amount of each individual financial transaction or recharged expense.

Tax rate will vary depending on the subject of the tax:

- debit financial transactions - 0,4% of the transaction, with a cap of EUR 40 per transaction;

- cash withdrawal – 0,8%, with no cap limit;

- use of the payment card – flat rate of EUR 2 per year

- recharged expenses – 0,4%, with a cap of EUR 40 per transaction, if the taxpayer can demonstrably identify the recharged expenses by individual transaction.

- recharged expenses – 0,4%, with no cap limit, if the re-charged expenses cannot be demonstrably identified.

NOTE

Debit financial transactions

In practice, the transaction tax will work in such a way that if an entrepreneur pays the invoice in the amount of EUR 1 000, he will also pay transaction tax (0,4%) in the amount of EUR 4 to the state treasury.

As for the maximum limit of EUR 40, it will be paid for payments worth EUR 10 000 and more. The FTT does not prohibit paying multiple invoices to a supplier at once (in one payment), which is convenient for the companies as the cap is applied.

The withdrawal of the tax as well its transfer and reporting to the tax authorities shall be performed by the provider of the payment service (e.g. bank).

Cash withdrawals

Regarding cash withdrawals (ATM or at the bank), there is not set a maximum limit for this tax rate. This means that if an entrepreneur withdraws EUR 20 000, he will pay transaction tax in the amount of EUR 160.

The withdrawal of the tax as well its transfer and reporting to the tax authorities shall be performed by the provider of the payment service (e.g. bank).

Use of the payment card

Payment by card becomes advantageous compared to other forms of payment, as transaction tax is not paid for individual financial transactions carried out by payment card and is not subject to tax. Only a one-time annual fee of EUR 2 is paid for using the payment card. In case that the entrepreneur has more payment cards to the transaction account, a fee of EUR 2 will be charged for each payment card used during the year.

The withdrawal of the tax as well its transfer and reporting to the tax authorities shall be performed by the provider of the payment service (e.g. bank).

Recharged expenses

Provided that a parent company pays the expenses on behalf of its subsidiary based in the Slovak Republic, the subsidiary is obliged to report and pay the transaction tax, which may lead to the additional administration costs for the subsidiary.

As for the maximum limit of EUR 40, it will be paid for payments worth EUR 10 000 and more, however only under the condition that subsidiary is able to demonstrably identify the recharged expenses by individual transactions. Provided that the subsidiary is not able to demonstrably identify the recharged expenses by individual transactions, the cap of EUR 40 does not apply and the tax represents 0,4% of the transferred amount.

For example, if the parent company pays various invoices on behalf of its subsidiary totally amounting to EUR 5 000, FTT amounting to EUR 20 shall be transferred and reported to the tax authorities by the subsidiary itself (regardless of the fact whether is or is not able to demonstrably identify which particular invoices were paid).

Another example would be the case when the invoices totally amounting to EUR 15 000 shall be paid by the parent company, the subsidiary shall in such a case be obliged to transfer and report to the tax authorities EUR 60 (provided expenses recharged by the parent company are not demonstrably identified) or cap of EUR 40 (provided expenses recharged by the parent company are demonstrably identified).

This means if the expenses are directly paid by the subsidiary, there is no additional reporting obligation for the subsidiary as the tax will be reported and remitted by the bank. It is therefore more convenient for the companies to pay invoices directly and not through the parent company.

In case of recharged expenses, which in most cases represent intercompany transfers, topic of thin cap rules,  contribution in-kind and taxation of overdue liabilities should be definitely taken into account as well.

Taxation period

The taxation period is a calendar month and the tax must be paid by the end of the following month (e.g. tax for the financial transactions performed in July 2025 must be paid to the tax authorities by the end of August 2025). The provider of financial services or the taxpayer are also obliged to file the notification by the same date (end of following month).

For the very first 3 taxation periods (April – June 2025) it is possible to pay the tax until 31 July 2025 at the latest. However, provided that the taxpayer collects the tax for these tax periods earlier, the taxpayer is obliged to pay it by the end of the calendar month following the month in which collected the tax and at the same time file a notification to the tax authorities.

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