With effect from 1 January 2022, tax legislation in accordance with § 5 par. 7 letters o) of the Income Tax Act allows, after fulfilling the conditions defined by the law, to include among the employee's exempt income the amount of non-monetary benefits received by the employee in connection with the performance of his dependent activity, up to a maximum amount of EUR 500 per year in total from all his employers. In May 2022, the Financial Directorate of the Slovak Republic issued guidance on the application of this provision, which, although not legally binding, is good to follow and thus avoid potential disputes with the financial administration.

What are the basic conditions for applying the given exemption?

In order to apply the exemption of non-monetary employee benefits, the cumulative fulfillment of the following conditions is necessary:

• 1. In the tax period in which the employer provided the employee with a non-monetary benefit, he also spent funds on this non-monetary benefit, or he incurred expenses (costs) related to this non-monetary performance in the given tax period when he is considering a potential exemption

It means that the legislator has in this way excluded the possibility of exempting the provided non-monetary benefit for employees in cases where the employer incurred a cost/expense related to it already in the past, and to which no other related costs would be associated at the present time, thus there would be no immediate the time connection between the benefit provided and the tax expense on the part of the employer.

A typical example can be the depreciated property of the employer, from which the employee himself also benefits. On the part of the employer, there is no possibility of applying the tax expense in the form of depreciation in the year of providing the benefit to the employee. In order to be able to exempt such a benefit, however, it is necessary that the employer incurs at least any other costs related to this benefit, despite the fact that they would be in a lower amount than the amount of the provided non-monetary benefit. In such a case, it would be possible to exempt the entire amount of the provided non-monetary benefit on the part of the employee, despite the fact that the related costs incurred by the employer are in a lower amount. However, the assessment would be different if the employer applied flat-rate expenses according to §19 paragraph 2 letter t point 1 of Income Tax Act.

• 2. Funds spent on non-monetary performance and related expenses (costs) with this non-monetary performance are expenses (costs) for achieving, securing and maintaining taxable income in the sense of §2 letter i) Income Tax Act

Expenditures (costs) spent on non-monetary income must be tax expenses in their nature (but which the employer will not apply in connection with the exemption of the employee's income - point 3 below).

If the non-monetary benefit provided to the employee was procured from funds that represent for the employer a non-tax expenditure of the Social Security Administration or if it was procured from sources that are not charged to the expenses, the employer cannot claim exemption for such non-monetary benefit according to § 5 par. 7 letters o) Income Tax Act

The only exception is the provision of benefits for employees in the case of a taxpayer not established and not established for business, for whom, in accordance with §21 paragraph 1 letter j) Income Tax Act exclude from the tax base expenses related to income from the activity for which it was established (§13/paragraph 1).

• 3. Another condition for exempting the employee's income is the exclusion of the expense/cost from the tax base of total costs on the part of the employer, together with all related expenses (costs), in the tax period in which the non-monetary benefit was provided to the employee.
• 4. If these are specifically regulated exemptions through separate provisions in the the Income Tax Act, the employer cannot apply the procedure according to § 5 par. 7 letters o) the Income Tax Act, even if a specific regulation according to a special provision would allow exemption in an amount lower than EUR 500.

Thus, the employer cannot combine several provisions on the exemption of income, and therefore it is not possible to apply any difference in value above the amount of the exemption, which is regulated by a special provision up to the amount of the exemption of non-monetary payment according to § 5 par. 7 letters o) the Income Tax Act, as it might seem at first glance. A typical example is exempt non-monetary payment related to accommodation for employees according to §5/paragraph 7 letter n) the Income Tax Act, which sets a threshold of EUR 350, which is, however, less than the exemption threshold according to § 5 par. 7 letters o) Personal income tax.

Is it possible to claim an exemption in connection with the provision of vouchers? Disproportion in the case of a single-purpose versus multi-purpose voucher.

If the employer provides employees with a voucher (card) for which the employee can purchase goods or services from a predetermined supplier, while the use of the voucher is limited from the beginning to a selected range of suppliers of goods or services, or pre-defined purchase of goods/services, the features of a single-purpose voucher are indirectly fulfilled, when the legislation allows the employer to apply exemption according to § 5 par. 7 letters o) the Income Tax Act.

On the other hand, if the employer provided employees with a voucher (card) as a payment instrument, which by its nature fulfills the features of a multi-purpose voucher, and thus the employee would have the opportunity to use the voucher for any good or service at any supplier, it is not possible to apply for such performance liberation.

Is there an obligation to notify receipt of exempt performance?

The Income Tax Act does not impose a notification obligation on the employee or the employer in connection with the application of the exemption for non-monetary payment during the year. However, the employee is obliged to settle his tax obligations in the case of receiving income from several employers (and in this connection also several exempt benefits) through a tax return. A certain control mechanism exists in the form of the so-called "report line" in the form of the confirmation of taxable income, on which the employer is obliged to declare the provision of non-monetary benefits for the employee for the entire tax period.

Practice shows that business entities often face several questions when performing their activities when choosing benefits for their employees, while the area of ​​attractive and at the same time tax-efficient remuneration is one of the ways to gain a competitive advantage in the market battle with competitors. These are often specific assessments, when our team of experienced experts will offer you tailor-made solutions after analyzing the particularities of your business.