An amendment of the Commercial Code

This spring, an amendment of the Slovak Commercial Code was approved in an accelerated legislative proceeding in connection with the case of “Váhostav”. It contains a number of relatively significant provisions, some of which we list below:

A company in crisis 

As of January 1, 2016, the institute of a “company in crisis” is being introduced. A company will be in crisis, in the following cases:

• If bankruptcy is impending for the company, that is if the proportion between its own equity and its liabilities is lower than 8:100. In the years 2016 and 2017, this proportion will be more benevolent, for the year 2016 it is 4:100 and for the year 2017 the proportion is 6:100;
• If it is bankrupt, that is the liabilities of the company exceed its property (the company has negative own capital, it is over-indebted), or if it is not able to fulfil at least two of its liabilities more than 30 days past maturity.

When in crisis, the company will not pay contributions, which substitute so-called own sources, to a selected circle of persons (for example to a partner with a more than a 5% stake, a member of a statutory body, an employee in direct managing responsibility of a statutory body, a silent partner, a person close to such persons according to the Civil Code, etc.). Such contributions are for example loans, credits and similar contributions from such a circle of persons. It will be possible to satisfy these creditors only after the company has overcome the crisis. If not, they will be obliged by law to return such contributions to the company. 

The possibility for a court of justice to issue a decision about excluding a person from a function in a company and the introduction of a list of “banned executives”

As of January 1, 2016, a court of justice will be able to issue a decision about excluding a person from a function in a company, for two reasons – violation of the duty of filing a bankruptcy petition in time, and a decision of a court of justice in a penal proceeding. In this context, a so-called register of disqualifications is being introduced, in which data about natural persons, who have been excluded from performance of their function based on a decision of a court of justice, will be registered. The register will be non-public.

A ban on cash loans for a partner

As of April 29, 2015, a partner cannot provide a cash loan to a company, only a non-cash one.

In practice, it often happens in smaller companies that a partner pays corporate expenditure from private finances. If the accountant brings cash, this money – entered in the accounts as cash – often gets the “cash register” into the negative, because the partner never withdrew the money for this expenditure from the corporate account. In the past, the accountant covered this negative balance with a “fictitious” cash loan from a partner, because what else was being done in principle in case of payment of cash expenditure. Since last April, though, this practically harmless action is banned, as a result of the “Váhostav” case. From January 1, 2016, the circle of persons, who cannot provide cash loans to a limited company, is extended, adding for example the executives. In case of a low balance in the cash register and payment of cash expenditure from a partner’s private money, it was important for the partner to have withdrawn money for this expenditure from the account before the end of the year 2015. 

An amendment of the VAT act

Introduction of the so-called reverse charge scheme for construction work, construction supplies and some goods supplies that include assembling in this area 

As of January 1, 2016, the so-called local reverse-charge system is being introduced for construction work, supplies of structures or their parts, and for supplies of some goods with installation and assembling from the construction sector. These are only the activities, which belong into section F of the CPA statistical classification, which can be found on the website of the statistical office. The list is very extensive and needs to be studied in detail for correct application. Reverse charge will only be applied in case of transactions between two VAT payers.  

This scheme is being introduced in order to prevent tax evasions in the realm of VAT and to improve the cash flow of entrepreneurs. The term “reverse charge” means that the tax duty of paying VAT is transferred from the supplier to the buyer. For this reason, the supplier will not charge VAT with the price of supplied goods or services on the invoice, and on contrary, the company, which receives the supplies, will be obliged to calculate this duty in its tax return form and to pay it. At the same time, in case of fulfilment of certain conditions, it will, in most cases, be entitled to a tax deduction, so the resulting effect on the tax duty will be zero. 

To conclude, we would like to point out that reverse charge was incorporated in the law earlier already, for some local supplies. Let us repeat that this mainly relates to the following supplies:

• Supplies of investment good or metallic waste;
• The list of supplies was extended in the year 2012, when specific supplies were added on the list, such as the transfer of emission quota for greenhouse gasses;
• In some cases of real estate transfer, in case real estate was supplied after five years from having first received a final building approval;
• Supplies of goods which are the subject of guarantee sustaining the claims of a creditor;
• As of January 1, 2014 – some farm products included in chapter 10 – 12 of the customs tariff in unchanged state, are included in the list, such as for example grains, oil seeds and oleaginous fruits, various grains, seeds, fruits, straw, fodder crops, industrial or healing plants. Metals and metal objects belonging to chapter 72 (iron and steel) also belong here, mobile telephones, integrated circuits such as microprocessors and central processing units prior to their incorporation into a product. The reverse charge scheme is only applied in these cases, if the price on the invoice reaches a minimum of EUR 5,000 without VAT.

VAT payment upon receipt of payment – the so-called cash accounting

As of January 1, 2016, the law gives small entrepreneurs the choice (if their turnover for the preceding year exceeded EUR 100,000) to pay taxes to the state only upon receipt of payment. On the other hand, such an entrepreneur is entitled to reduction of the tax from received supplies only at the moment of having paid invoices to his suppliers. This action of the entrepreneur will also affect his suppliers, who will only be able to apply deduction of VAT from an invoice made to such entrepreneurs upon payment, too. The taxpayer, who chooses such a distinctive approach, will be obliged to include a note < -em>“tax applied upon receipt of payment” on invoices. For an incorrect application of this article or a failure to include the above-mentioned note on an invoice, the law imposes a duty to pay a fine of up to EUR 10,000 to the tax administrator. With regard to the relative administrative demandingness (for example not every accounting software will include VAT in the tax return only upon receipt, or problems in case of payments at the turn of a month, a more complicated situation at the supplier), in trainings the creators of the legislation from the finance ministry themselves do not recommend to use this procedure. The government had enforced this change in legislation. 

Of the other changes, we would like to mention:

• The introduction of a reduced 10% VAT rate for some food products, such as butter, milk, fresh bread, chilled meat, chilled freshwater fish etc.;
• The introduction of reverse charge for foreign companies supplying to another entrepreneur, etc.

In the next issue of our newsletter, we will focus mainly on changes in the income tax legislation. In case you have questions regarding this subject, we are available for consultations.