Novelties in Slovenian Corporate Income Tax legislation

05 January 2022

On November 13, 2021 the Corporate Income Tax Act (ZDDPO-2S) (Official Gazette of the Republic of Slovenia, No. 172/2021), entered into force, bringing changes to the use of tax reliefs and the recognition of costs. The changes apply as of January 1, 2022.

Below are outlined some of the main highlights and changes to the Act.

Employment tax relief

In the amended Act the conditions for using the employment tax relief are changed (Article 55.b). The relief is now also extended to employees in professions for which there is a lack of sufficient staff on the labour market. A taxable person, who newly employs a person under the age of 29, a person over the age of 55 or a person in a profession for which there is a lack of sufficient staff on the labour market in accordance to the needs of employers while also provided that the person has not been employed by this taxable person or his related person in the last 24 months, will be able to apply for a relief on the tax base in the amount of 45% of the salary of the employee, but at most in the amount of the tax base. However, for the first employment of the person under the age of 25, a taxable person will be able to benefit from a tax relief in the amount of 55% of the employee’s salary, but not more than the tax base.

A taxable person will be able to use the tax relief for persons mentioned in the paragraph above for the first 24 months of employment in the tax year of employment and in the following tax years until the expiration of 24 months. Taxable person will be able to claim relief for the employment of a person with a deficit profession if the deficit profession is identified as such on the list of deficit professions defined by special rules and published at least once every two years, taking into account the availability of candidates in the profession, qualifications, working conditions and other structural factors.

It is important to note that use of tax relief for people under the age of 29 and those over the age of 55 excludes the possibility of the relief for persons with a deficit profession. Furthermore, the use of benefits for persons under 25 years of age is excluded by other employment benefits, as well as of tax relief for the employment of people with disabilities.

Tax relief for investments in the digital and green transition

The amendment to the Act newly provides a tax relief for investments in the digital and green transition. A taxable person may claim a relief on the tax base in the amount of 40% of the amount representing investments in digital and green transition in this period, but not more than the amount of the tax base.

Investments that fall into this category :

• investments in cloud computing, artificial intelligence and big data;
• investments in environmentally friendly technologies, cleaner, cheaper and healthier public and private transport, decarbonisation of the energy sector, energy efficiency of buildings and the introduction of other standards for climate neutrality.

It should be noted that:

• the said relief is excluded by the relief for investments in research and development (Article 55) and the relief for investments (Article 55.a),
• the taxable person may not claim relief for investments in the digital and green transition in the event that these investments were financed from the budgets of self-governing local communities, the budget of the Republic of Slovenia or the EU budget, if these funds are in the nature of grants.

Amortisation and representational costs

With the amendment to the Act, the costs of representation (i.e. costs for catering, entertainment and gifts in business contacts of the taxable person with business partners) and the Supervisory Board are tax deductible in the amount of 60% (Article 31) - before the amendment that was 50% - and at the same time the tax treatment of amortization costs for tangible fixed assets, intangible assets and investment property has changed. When considering the right to use the leased asset, the highest annual amortization rate, corresponding to the actual period of contractual lease for this asset, is used (Article 33).

Tax relief for practical works

Pursuant to Article 57 of the Act, a taxable person that accepts an apprentice, pupil or a student under an apprenticeship contract for work-based training in professional education may claim a relief on the tax base in the amount of payment to this person, but not more than 80% of the average monthly salary of employees in Slovenia for each month of practical work of an individual in professional education.

Tax relief for donations

The use of relief for donations has also changed (Article 59), wherein the general tax allowance has increased from 0,3% to 1% of the taxable revenue in the tax period, but not more than the amount of the tax base of said tax period. An additional relief of 0,2% may be claimed for the amount of payments in cash or in kind for culture, sport or for payments to volunteer associations set up for protection against natural and other disasters acting in the public interest, while relief up to 3,8% of revenues will be recognized for investing in top-level sports.

Reverse hybrid mismatches

The amendment also transposes into Slovenian law the provision of Directive (EU) 2016/1164, which stipulates treatment when coming to reverse hybrid mismatches (Article 67.n) in cases where one or more non-residents, who are together directly or indirectly participating in at least 50 percent of voting rights, capital shares or profit rights in a hybrid entity established in Slovenia, are located in a country that treats this hybrid entity as a taxable person. To eliminate a hybrid mismatch a hybrid entity should be a resident of Slovenia and liable to tax in accordance with the laws of Republic of Slovenia or any other country. However, the above does not apply to a collective investment vehicle. According to article 67.n, a collective investment vehicle means an investment fund or an institution which has dispersed ownership and invests in various valuable securities and for which, in accordance with Slovenian legislation, rules on investor protection apply.