Micro-taxpayer: conditions and tax advantages

Smaller companies and self-employed individuals, when fulfilling their tax obligations and filing their income tax returns, often look for legal ways of tax optimisation. One of the legally based options under Slovak legislation is the status of a micro-taxpayer.

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What is it, and what tax advantages are associated with this status?

‍Who is a micro-taxpayer?

• It is a taxpayer:
  
  • A self-employed individual whose taxable income (under § 6(1) and (2) income from business and other self-employment activities) for the tax period (calendar year) does not exceed EUR 60,000, or
  • A legal entity whose taxable income (revenues) for the tax period (calendar or fiscal year) does not exceed EUR 60,000.

‍Who is not a micro-taxpayer?

• The aforementioned taxpayers whose taxable income (revenues) exceed, i.e., more than EUR 60,000 per calendar or fiscal year.
• A taxpayer who is a related party and carries out controlled transactions during the tax period.‍
  
  • For clarification, related parties are persons (including companies) that are connected in some way, e.g., financially, economically - a parent and subsidiary company, a sister company, or they are connected through close persons (e.g., spouses, parents, and children), or they are part of a consolidated group. Controlled transactions are transactions between these aforementioned related parties (e.g., purchase and sale of assets, provision of services, etc.). In general, if your company conducts business or provides services to a close or economically related person, it is not possible to use the micro-taxpayer status.

• A taxpayer who has been declared bankrupt, has entered into liquidation, or has been granted a payment plan.
• A taxpayer whose tax period is shorter than 12 consecutive calendar months, except for a taxpayer who has a shorter period due to death.

The status of a micro-taxpayer is always verified for the given tax period (calendar or fiscal year).

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What are the tax advantages of a micro-taxpayer?

• Depreciation of tangible assets: A micro-taxpayer can claim the tax depreciation of tangible assets classified in depreciation groups 0 to 4 (except for a car with an acquisition cost of more than EUR 48,000) in any amount (up to the acquisition cost), i.e., they can claim the entire acquisition cost as a tax expense for the tax period. This also applies to the tax depreciation of leased assets, which is generally limited by the amount of rental income, but this variable is not monitored for a micro-taxpayer.
  
  • A condition for the above-mentioned preferential depreciation is that the tangible asset was included in business assets or put into use in the tax period in which the taxpayer was considered a micro-taxpayer.
  • Compared to standard depreciation of tangible assets, a micro-taxpayer cannot interrupt depreciation.
  • It is necessary to note, however, that if the taxpayer were to sell the tangible asset before the end of the depreciation period for the given type of asset according to the Slovak Income Tax Act - the taxpayer is obliged to increase the tax base by the positive difference between the already claimed preferential depreciation and the depreciation that would have been applied if the taxpayer were not a micro-taxpayer.

• Tax loss deduction: The advantage lies in the possibility of claiming a tax loss deduction up to the full amount of the tax base shown for the tax period for a taxpayer who is a legal entity or a self-employed individual, if they are considered a micro-taxpayer in the respective tax period in which they claim the tax loss deduction. Other taxpayers, legal entities, and self-employed individuals who are not micro-taxpayers can claim a tax loss deduction up to a maximum of 50% of the tax base shown by the taxpayer for the given tax period.
• Creation of provisions for receivables: The time test is waived (i.e., it is not necessary to wait 360-1080 days after the due date to claim a tax provision) when creating provisions for overdue receivables and their accessories for a micro-taxpayer; the following conditions are sufficient:
  
  • The receivable is not statute-barred
  • The fact that there is a risk that the debtor will not pay the receivable in full or in part
  • The receivable was included in taxable income
  • Based on the fulfillment of the above conditions, a micro-taxpayer can claim the full amount of the provision thus created for the receivable and its accessories as a tax expense.

• Write-off of receivables: Similar conditions and rules as for the creation of provisions for receivables of a micro-taxpayer, i.e., upon fulfillment of all conditions, a micro-taxpayer can claim the write-off of the receivable in its full amount as a tax expense.
• Tax rate: Lastly, we mention the preferential 15% tax rate for information only, as this tax rate is available not only to micro-taxpayers but also to other taxpayers not exceeding the income limit of EUR 100,000 for the tax period.

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The status of a micro-taxpayer is an interesting tool for optimising the taxpayer's tax liability, provided that they meet all the obligations stipulated by law.

Don't know if you can use this institute, or how to implement it in practice in your tax return in Slovakia? We will be happy to help you with all your questions.