Payment of a Tax Liability in Instalments: Adverse Financial Situation of the Taxpayer

A successful tax period for a natural person (“FO”) or legal person (“PO”) may be followed by a period of declining income and poorer liquidity caused by an increase in the originally expected tax liability. However, Slovak legislation offers an instrument that can help taxpayers bridge this difficult period through an instalment plan.

Income tax is generally payable by the deadline for filing the tax return. In some cases, it may represent a significant one-off financial burden, particularly if the taxpayer did not anticipate such a tax liability or, after filing the tax return, discovers additional facts that increase the tax liability. In such situations, the solution may be an application for permission to pay the tax in instalments under Section 57 of Act No. 563/2009 Coll. on Tax Administration (the Tax Code).

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When it is possible to apply to pay tax in instalments

The final tax calculated in the tax return (after taking any advance payments into account) is payable by the ordinary or extended deadline for filing the tax return.

If even an extension of the deadline is not sufficient to secure enough funds for payment, the mechanism under Section 57 of Act No. 563/2009 Coll. on Tax Administration (the “Tax Code”) applies, allowing an application for permission to pay income tax in instalments. The tax administrator may grant the application if you meet the conditions set out in the methodological guidance issued by the Financial Directorate of the Slovak Republic. Payment of the tax liability in instalments may be permitted for no more than 24 months from the original tax due date. This mechanism is one of the most effective ways to avoid enforcement proceedings and maintain a good reputation with the tax administrator.

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Conditions determined by the Financial Directorate of the Slovak Republic

For the tax administrator to grant the application, it is necessary to state clearly in the application and prove with documents that at least one of the following conditions has been met:

1. Payment of the tax would endanger the subsistence of the taxpayer or persons dependent on the taxpayer for support (this applies only to natural persons who are not entrepreneurs).
2. The taxpayer’s income has decreased as a result of an extraordinary situation (e.g. a natural disaster), making it impossible to pay the tax on time.
3. Payment of the tax would increase the taxpayer’s insolvency.
4. Other serious reasons of a demonstrable nature (e.g. long-term incapacity for work, hospitalisation, etc.).

We recommend stating the specific condition in the application using the wording of the methodological guidance of the Financial Directorate of the Slovak Republic.

For a highly reliable taxpayer, the tax administrator does not assess compliance with the stated conditions under the methodological guidance.

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How to prepare the application correctly?

There is no prescribed form for the application, but it must be submitted in accordance with the rules of tax administration. Legal persons and natural persons conducting business must submit the application electronically. Other natural persons may also use paper form or make the application orally for the record. In the case of electronic communication with the competent tax office, the application is attached to the general submission. A fee of EUR 14 is payable for issuing the decision, reduced to EUR 7 for an electronic submission.

As the tax administrator assesses the individual circumstances of each case, we recommend identifying the taxpayer in detail in the application, stating the amount and type of tax liability, the tax period to which the application relates and, in particular, the reasons why the tax cannot be paid in a single payment. The application generally also includes a proposal for the method of paying the tax liability, including the amount of the individual instalments and their payment dates.

It is essential that the taxpayer document their financial situation as thoroughly as possible. We therefore recommend attaching current financial statements or accounts, bank statements, an overview of issued invoices and receivables and, where appropriate, general ledger data to the application. If the taxpayer is repaying loans or financing their activities with external funds, it is also advisable to provide documentation relating to these liabilities. Other supporting documents demonstrating a lack of funds and the objective impossibility of paying the tax liability in a single payment may also be attached.

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Additional information

• Although you propose a specific instalment plan in the application, the tax office has the power to shorten this period at its own discretion and based on its assessment of the situation.
• For higher amounts of tax liability, the tax administrator may make permission conditional on securing the debt, for example by establishing a lien over assets.
• If the taxpayer fails to comply with the conditions of the permitted instalments, the benefit of the instalment plan may be lost and the tax administrator may proceed to recover the tax arrears.
• When payment of tax in instalments is permitted, there is an obligation to pay interest under Section 57(5) of the Tax Code. This regime is generally more favourable for the taxpayer than late-payment interest imposed under Section 156 of the Tax Code.
• If you breach the conditions of a previously permitted deferral, you may apply for another one only after 2 years have elapsed.

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Conclusion

Payment of tax in instalments is a practical instrument for taxpayers who have encountered temporary financial difficulties and are unable to pay their tax liability in a single payment. The key factors are, in particular, the timely submission of the application, thorough documentation of the financial situation and a realistic proposed instalment plan. A correctly prepared and properly documented application can contribute significantly to a successful assessment of the application by the tax administrator and help prevent tax arrears and related penalties.

^{The content of this article is for informational purposes only and in no case replaces professional legal, tax or accounting advice. Dravecký & Partner assumes no responsibility for any decisions made on the basis of the information provided herein, nor for any damage that may arise from such actions. Before applying any information to your specific situation, we strongly recommend consulting a qualified professional.}