Taxation of interest from bonds of non-residents is coming

The expected amendment to the Income Tax Act from 2023 brings novelty, which is the introduction of taxation of interest from bonds flowing to non-residents.

At the moment, income flowing to a Slovak tax non-resident from any bonds (whether state or corporate) do not constitute income from a source in the territory of the Slovak Republic. Such income was, for example, interest from commercial bonds, more specifically also from, for example, mortgage bonds.

The situation for foreign investors is about to change from next year. Income from a source in the territory of the Slovak Republic will also include income from bonds (except for income from government bonds and government treasury bills).

The aim of taxation of the aforementioned income (interest) is to prevent the evasion of taxation of income from commercial, especially corporate bonds, issued by domestic issuers on foreign markets. Parliament is currently negotiating an amendment to the Income Tax Act.

When will the interest taxation on bonds not be applied in the Slovak Republic

However, there will be situations where interest from corporate bonds will not be taxed in the Slovak Republic, despite the fact that their source will flow from the territory of the Slovak Republic, specifically:

  • in the case of payment of interest income from bonds flowing to taxpayers of EU member states between connected persons (there is a 25% share in the capital for at least 24 months - e.g. mother-daughter relationship), or
  • in the case of payment of interest income to residents of countries with which the Slovak Republic has concluded an agreement on the avoidance of double taxation, and this agreement would not confer the right to taxation in the Slovak Republic.

In practice, the changes in the taxation of bonds will primarily affect taxpayers from non-contracting countries, where legal regulation in the form of defining the source of this income in the Slovak Republic has been absent until now.

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