Slovakia – Significant Increase of the VAT Rates

Last September, government representatives presented a consolidated package of public finances for next year. The draft version of the highly impactful financial act introduces substantial novelties of the VAT framework. 

The Government sees the need to increase VAT rates starting next year as necessary. This measure, among others, is a logical step for expanding the state coffers. The leading party has continuously repeated that its measures will not impact the quality of life of its citizens and regular household spending. 

However, the high expected VAT rate increase will indeed influence the buying potential and quality of life of the country’s citizens at some level. 

It should be emphasized that the Bill is still in its draft phase; there are still active negotiations within the Government ministries, and after its upcoming adoption, it will be submitted to the Parliament. 

Some changes are still expected. However, there is a small percentage of doubt that the increase in VAT rates will not happen. There is a strong push from the leading party on this “not-so” blissful measure for businesses, consumers, and international traders. 

Timeline 

If the consolidation package of public finances passes the legislative procedure before the Parliament, the increase of the VAT rates could be in force from January 1, 2025. 

Present Situation 

Currently, the standard VAT rate for goods and services(except for those for which a reduced or zero rate applies) is 20%. In addition to the standard VAT rate, reduced rates apply to a broad spectrum of goods and services. These reduced rates are 5% and 10%.

New VAT rates and Related Impact 

The draft Law addresses the increase of standard and reduced VAT rate in the country in the following way: 

• Standard VAT Rate – From 20% to 23% 
• Reduced(intermediate) VAT Rate – From 10% to 19%
• Reduced VAT Rate – 5% stays the same(however, it will cover different supplies). 

Impact 

The increase in the introductory VAT rate will undoubtedly have the broadest impact on domestic households. Prices for various necessities and services will increase. One of the most interesting debates between ministries is the definition of the VAT rates that should be allocated to provide accommodation services. 

It was almost decided that the “newly” proposed basic VAT rate of 23% should be levied on accommodation services; however, it seems that the reduced rate of 5% will be levied in the end. 

The draft Bill makes many easily understandable factual changes regarding VAT rates. The most obvious one is that these changes will modify the VAT rate framework for most market supplies. 

After the Parliament adopts the draft Bill, it remains to be seen what exact rates will be allocated for different supplies of goods and provision of services starting from 2025. Significant tax changes are next door; businesses should be prepared for them in advance.

Domestic and foreign businesses should already start preparing for the expected changes, which will extensively impact, among other things, their tax calculations, cash flow(based upon the increase of VAT rates), and invoicing system. 

It remains to be discovered what exact rates will be allocated to the precise type of the supply of goods or provision of services. Still, the fact that the VAT rates will be changed should already be an important notice to react upon for economic operators with taxable supplies in Slovakia.