You cannot decide between establishing a limited liability company (s.r.o) or obtaining a trade license in Slovakia? Which option means less tax for you? – And what are the differences between these two options You will find your answers regarding the legal aspects of an S.R.O. and Trade License below:
Establishing a company in Slovakia
In Slovakia, S.R.O. stands for “Spoloènos s Ruèením Obmedzeným” which can be translated into a “Company with Liabilities Limited”. Establishing a limited liability company in Slovakia is the most popular choice among the different types of companies for foreigners. S.R.O. is suitable for most small and medium-sized companies.
The first thing you need to be able to establish a company in Slovakia is to apply for permanent or temporary residence in Slovakia.
The residence permit is granted by Slovak diplomatic mission in your home country after you provide all necessary documents and proof of the purpose of your business. The residence permit allows your company to be registered in the commercial register.
Taxation in Slovakia
In general, an SRO will be subjected to the Company Law and must comply with the tax residence requirements imposed in Slovakia.
The following are the taxes must be considered when registering an SRO in Slovakia:
- The corporate income tax rate applicable in Slovakia is 21% (since 2019);
- A withholding tax of 19% is applicable to incomes generated by participation certificates, debentures and investment coupons;
- A 7% a dividend tax applies to the issuance of dividends by companies to the individual shareholders (applicable to the dividends issued since the 1st of January 2017);
- The VAT, the value-added tax is levied at a standard rate of 20%. The reduced VAT rate can be applied to a certain range of products (exports are not subjected to any taxes).
Social Security and Health Insurance
You need to register with pension, sickness, and disability insurance and unemployment insurance at the local social insurance company (Socialna poistovna) Agency : Local social insurance company and all of the health insurance companies at which their employees are insured.
The combined rate for the employee’s social security and health insurance contribution is 13.4% of their assessment base, and the employer’s contribution is 35.2% on the basis of the gross salaries.
The partners are liable for the company only up to the amount of unpaid share capital.
Tax and visa aspects of trade licence in Slovakia
EU/EEA and Swiss citizens are not required to have a residence permit in Slovakia in order to pursue freelancing jobs. But non-EU/EEA citizens do need to obtain a residence permit (permanent or temporary) first in order to utilise their trade license.
Taxation in Slovakia
When paying taxes, the first step is to identify whether the licence owner is a tax resident in Slovakia or not. The people who have permanent residence in Slovakia need to pay taxes in Slovakia on the income they receive both in Slovakia and abroad. It also depends on the international agreement Slovakia has with the country of citizenship of the applicant in order to prevent double taxation. Non-tax residents with a trade license issued outside of Slovakia need to pay taxes only if they have permanent business premises in Slovakia. Their income is not taxed according to the Slovak law if they do not have business premises.
- The income tax in Slovakia is levied at two different rates of 19% on income below 35,022.31 euros and 25% if it is above that level.
- The trade licence owners need to submit a tax return for the previous year, by March 31. However, the deadline can be prolonged by 3 months if they receive income also from abroad.
- Self-employed persons can apply flat-rate expenses amounting to 60% of their taxable income up to 20,000 EUR per year.
Social Security and Health Insurance
After obtaining the trade license, you will be required to pay for public insurance and register at the Social Insurance Agency after 1 year of activities. You can be registered in one of the public insurance companies in Slovakia (Všeobecná zdravotná poisťovňa, Dôvera, zdravotná poisťovňa) by the Trade Licence Office directly. Obligation to pay social insurance depends on the income after it reaches the required limit of 5,298 euros. The minimum rate for sole traders is around €70 a month.
Your obligation to pay social insurance depends on income earned in a particular calendar year. This obligation arises the year following the calendar year in which your income reached the required limit (currently €6,078). If your income in a particular calendar year reaches this limit, you are obliged to start paying the social insurance from July 1, the next year, as well as register yourself as self-employed in the Social Insurance Agency by July 9.
The trade license holder is accountable for all the liability.
Doing business through a limited liability company can be recommended especially if you are interested in creating value and building a brand in the long term that will not depend on the skills of a single person. Creating an S.R.O. may be more expensive at the beginning but in the long-term, it brings more benefits. For example, expanding the scope of your business and to retain the opportunity to transfer business to your children or business partner in the future will be much easier. Equally important, If you want to sell your company in the future, you would definitely need an ‘LTD’.
If you are doing business as a freelancer with a smaller budget such as being a designer, programmer, translator…etc it is probably for the best to obtain a trade license. YeYe Agency can advise and support you in every stage of decision making and implementing. With the help of an expert, you can decide what is the best option for you and ease the process.