How was it until 31 December 2015?

Until the end of 2015, artists taxed their income via their mandatorily filed tax returns. Contracts concluded under the Copyright Act on the basis of which artists perform mostly stipulate that artist's remuneration consists of two parts. A part for the so-called creation of a work or an artistic performance, and the other part for the so-called granting of approval of the use of the work (the so-called licence or royalty). These two incomes are stated in two separate lines of the tax return; artists may decide with respect to each of those incomes whether they will claim actual documented expenses or a 40% flat rate limited to the maximum of EUR 5,040 as their expenditure. While with respect to the income for creation of a work, they must pay contributions to the social and health insurances to the state, these contributions are not paid in connection with the income for the use of a work.

What is new as of 1 January 2016?

There will be some changes in the taxation of artists' income as of 1 January 2016 even though the law still gives artists the possibility to follow the “old” procedure. However, it is the institution paying the income to an artist, e.g. a theatre, television, advertising agency or company ordering artist's performance, which is primarily responsible for the payment of the tax on an artistic performance remuneration to the state. In practice, this institution will withhold a 19% tax from gross remuneration before the income is paid to artists and it will pay this amount to the tax administrator while notifying the withholding at the same time. Artists will have the remuneration paid to their account reduced by 19% (and by the contribution to the literary fund where applicable). Where the institution paying the remuneration fails to do so, the tax administrator will exact the unpaid tax from the institution, not artists. Beware of the fact that this procedure will be mandatorily applied also to contracts concluded before 1 January 2016 as long as the remuneration is paid after this date. But artists may decide that they do not wish to have the 19% tax withheld by the remunerating company or theatre, preferring they have the remuneration paid in gross amounts and subsequently include it into their tax returns where they can claim their related actual or flat-rate expenditure. In this case it is important for artists to agree on this fact with the institution in writing; the institution is obliged to notify all those agreements to the revenue authority after the end of the year. Artists may choose different options with respect to each contract concluded. As of 1 January 2016, the same procedure including the option of choice will apply to foreign artists performing in Slovakia, i.e. there will be an option to choose, which has not been possible and the remuneration paid to foreign artists was always subject to the withholding tax.

Which procedure is more profitable for artists?

Where artists choose the withholding tax, i.e. being paid net income after tax by e.g. a theatre or television, they do not need to deal with taxation of the income as the taxation is final. They will also avoid contributions to the health and social insurances based on this income, the related paperwork as well as bookkeeping expenses. But the tax paid by them will be probably a little higher than in case of filing a tax return as in this case, they are unable to claim any tax expenses, nontaxable amount for the taxpayer or spouse and the child tax bonus. Nevertheless, contributions to the health and social insurances will be equal to zero, which is certainly worth considering. Note: Being self-payers, however, they will have to pay the minimum contribution to their health insurance company.

Note in conclusion

Where artists are VAT payers, they will be probably obliged to keep accounts and file tax returns even if they choose taxation by withholding tax.

Artists with income from abroad are still obliged to report the income and file tax returns.

If this topic captured your attention or your are directly concerned by this topic, please do not hesitate to contact us.