The new tax on financial transactions – basic rules and pitfalls

In connection with the adoption of the consolidation package, a tax on financial transactions was introduced with effect from 1 January 2025. It will affect approximately 700,000 entities, with the estimated total tax revenue in 2025 amounting to EUR 517 million.

Since the first taxation period will be April 2025, there are still a few weeks left for you to prepare for the impacts of this tax. In our article, in addition to basic information concerning the new tax on financial transactions, we also present various pitfalls that this tax brings.

Who will the tax on financial transactions apply to?

The tax on financial transactions represents a novelty of the SR tax system, which will apply to taxpayers, who are natural persons – entrepreneurs, legal entities or organisational units of foreign persons that are users of the payment services of a payment service provider carrying out financial transactions and that:

• have their registered office or place of business in the SR,
• have a payment account with a payment service provider with its registered office in the SR, or
• carry out an activity in the SR.

From the recently expanded definition of a taxpayer of the tax on financial transactions, it follows that this tax will apply not only to legal entities with their registered office in the SR, but also to foreign legal entities if they carry out an activity here.

To identify these transactions, the law lays down the obligation to set up, or report, a transaction account by 31 March 2025, through which taxpayers will carry out the financial transactions related to their business.

On the other hand, it is clearly defined who the tax on financial transactions will not apply to, and thus the taxpayers will not be entities such as the Social Insurance Agency, Matica slovenská and the Slovak Academy of Sciences, budgetary and contributory organisations, municipalities and higher territorial units. This list was also expanded to include civic associations, foundations, non-investment funds, non-profit organisations providing services of general benefit, special-purpose facilities of churches, research and development entities, organisations with an international element, interest associations of legal entities, the Slovak Red Cross, regional and area tourism organisations, or tourist centres. The decisive criterion for determining whether an entity is or is not considered a taxpayer will be its legal form and the (non-)performance of a public-benefit purpose.

Who will be the payer of the tax on financial transactions?

The primary payers of the tax are above all the providers of financial transactions in the SR, such as banks and other financial institutions or their organisational units located in the SR. There are, however, also cases where the taxpayer itself is considered the payer of the tax, namely in the following situations:

• If a taxpayer makes payments through its accounts abroad with a payment service provider outside the SR, it must also fulfil obligations as a payer of the tax and thus becomes both payer and taxpayer at the same time.
• If costs are recharged to a taxpayer associated with carrying out a financial transaction that relates to its activity carried out in the SR, it simultaneously becomes a payer of the tax as well, even if the transaction was originally carried out by another entity.
• If a taxpayer carries out financial transactions on an account that is not designated as a transaction account, it may also become a payer of the tax at the same time.

In the event that a taxpayer simultaneously also has the status of payer of the tax, it is obliged to calculate the tax itself and subsequently also to pay the tax for the relevant taxation period to the tax administrator by the end of the calendar month following the taxation period. Within the same period, the payer of the tax is obliged to submit to the tax administrator a notification of the amount of the tax electronically on a form determined by the Financial Directorate of the SR. A notification submitted in this way will be considered a tax return.

What is the subject of the tax on financial transactions?

Transactions subject to this tax will consist of  debit transactions, i.e. the debiting of an amount of funds from the taxpayer's payment account, the use of a payment card linked to the transaction account for the purpose of carrying out a financial transaction, withdrawals from an ATM or at a bank branch.

The subject of the tax also includes  the recharging of a cost associated with carrying out a financial transaction that relates to the activity of the taxpayer carried out in the SR, whereby the offsetting of receivables is also considered a payment. This means that even in the event that a parent company with its registered office outside the SR pays costs on behalf of a subsidiary in the SR and subsequently recharges them to its subsidiary in the SR, such a transaction will also be subject to the tax on financial transactions, whereby it is not possible to avoid this even by mutual offsetting of receivables and liabilities. The position of such a transaction is also significantly weakened by the fact that, in the case of recharging costs, no upper limit on the paid tax on financial transactions is set.

At the same time, the law also defines exceptions among payment operations to which the tax will not apply. These include, for example, the following most common payment operations:

• payment of taxes, contributions to the Social Insurance Agency and the health insurance company, fees and contributions, customs debt and other payments that are revenue of the state budget,
• a payment operation carried out between the taxpayer's accounts held with the same provider (intra-bank transfers between accounts, as well as a transfer between the taxpayer's transaction account and the taxpayer's current account held at the same bank),
• a payment operation carried out by payment card, except for a payment operation that is a withdrawal of funds in cash,
• a payment operation in connection with the debiting and return of funds,
• a payment operation that relates to the administration of securities or other financial instruments or a payment operation related to the purchase of securities or other financial instruments in connection with the administration of old-age pension savings and supplementary pension savings (i.e. payments into the 2nd and 3rd pension pillars),
• payment operations within group financing provided that the accounts of the group members are held by the same payment service provider, so-called cash pooling, and others,
• a payment operation involving the handover or return of money from a notarial escrow,
• a payment operation carried out within postal payment services and a payment operation carried out by a postal undertaking intended to mediate the crediting or transfer of funds from the sender of the payment to the recipient of the payment, including cash withdrawals related to this mediation,

Under the currently approved wording of the law, however, none of the exceptions applies to the payment of employees' wages, which means that employers' costs will increase. This increase in costs may have a negative impact on employment and also on the competitiveness of the SR economy.

From what and in what amount will the tax be remitted?

• The tax base will primarily be the amount of funds debited from the taxpayer's account (i.e. the amount of the debit payment).
• In the situation where the costs associated with carrying out a financial transaction are recharged, the tax base will be this amount of recharged costs that relates to the activity of the taxpayer carried out in the SR.
• The tax base may also be a financial transaction relating to the activity of the taxpayer carried out domestically, which was, however, carried out by a person other than the taxpayer, and which this other person recharged to it, if the taxpayer can prove it.

The rates differ according to the type of transaction, whereby for some transactions a maximum tax limit per transaction is also set. The tax is subsequently calculated as the tax base x the relevant tax rate (see the table), except for the payment card, for which a fixed tax amount of EUR 2 per year is introduced if the card was used at least once during a calendar year.

The calculated tax should be withheld by the bank or another payer of the tax on an ongoing basis, as is also the case with bank fees, but it will be remitted to the state for the entire taxation period, i.e. for each calendar month. An exception is the use of a payment card, where the taxation period is the calendar year in which the payment card was used.

Which situations are not clear under the law and where does a problem with its interpretation arise?

Mutual offsetting of receivables

The Act on the tax on financial transactions so far regulates only the restriction of offsetting receivables in the case of recharged costs associated with carrying out a financial transaction that relates to the activity of the taxpayer carried out in the SR, where the offsetting of receivables is also considered a payment. So far, however, it is not clearly regulated in the Act on the tax on financial transactions whether the mutual offsetting of receivables and liabilities outside the operation of recharging costs will be subject to the tax.

Payment of multiple invoices in one payment

Neither the Act on the tax on financial transactions nor the explanatory report to the tax on financial transactions deals with aggregated payments. The aggregation of multiple invoices and their payment by the taxable entity through a single (aggregated) payment thus gives the taxpayer the possibility of tax optimisation, since for debit financial transactions a maximum tax limit of EUR 40 per transaction is set.

The situation would be different if the taxable entity can demonstrably identify a financial transaction relating to the activity of the taxpayer carried out domestically, which was carried out by a person other than the taxpayer and which this other person recharged to it. If the taxpayer can identify the recharged costs according to individual transactions, a rate of 0.4% applies to these transactions, using the cap of EUR 40 for each individual transaction separately.

In the event that the recharged costs cannot be demonstrably identified, the entire amount of the costs will be taxed without a cap. We perceive here a possible problem of unequal treatment of taxable entities, namely precisely in the situation where entities carry out payment operations domestically compared with those that use a third party for payment.

In this article we have pointed out only some of the main pitfalls associated with the tax on financial transactions. Currently, however, several questions remain unanswered on the part of taxable entities, on which the Ministry of Finance of the SR should comment and which could clarify the legislative ambiguities.

If you are interested in more detailed information on the Act on the tax on financial transactions and need to get oriented in the new obligations that this law brings, do not hesitate to contact the team of experienced professionals in the field of tax advisory at CLA Slovakia, s. r. o.

Source: CLA Slovakia