Value added tax (VAT) is a universal consumption tax. According to the Ministry of Finance of the Slovak Republic, it is one of the most important revenue sources for the state budget. As consumers of goods and services, we encounter that tax every day in grocery stores, restaurants or pharmacies. It is stated separately on receipts received from sellers. How to look at VAT from the seller’s perspective? Is an entrepreneur that provides services/sells goods obliged to register for VAT? In today’s article, we are going to summarise the VAT obligations of new entrepreneurs as well as established enterprises.
VAT CHARACTERISTICS
Value added tax is an indirect tax that is included in the price of goods and services. It is charged continually on the value added to goods and services. It is ultimately borne by the end consumer and charged on the sale price of the goods or services; however, for practical reasons it is paid to the state budget by registered VAT payers. Pursuant to Slovak law, VAT is regulated by the Act on VAT that sets out, inter alia, what is subject to VAT, the VAT rate and the VAT registration obligation.
A taxable person is any person that independently conducts any economic activities regardless of the purpose or results of such activities.
OBLIGATION TO REGISTER FOR VAT
The Act on VAT sets out the obligation for taxable persons (i.e. entrepreneurs) whose registered office, place of business or branch, primary or habitual residence is in Slovakia, to register for VAT if their turnover for the past 12 consecutive calendar months amounted to at least EUR 49,790. A taxable person should fulfil that obligation by filing an application for VAT registration at the Tax Office by the 20th day of the calendar month following the month when the above turnover threshold has been reached.
Illustrative example
A legal person that supplies cybersecurity services has been a taxable person from its registration date, i.e. December 15, 2021, had a turnover of EUR 55,000 by June 2022. Since it exceeded the turnover threshold by June 30, 2022, it is obliged to register for VAT by filing an electronic application for VAT registration by July 20, 2022. Following the VAT registration, the legal person is obliged to submit VAT returns, recapitulative and summary statements (if it supplies goods or services to other EU member states), to the Tax Office and keep records in accordance with the Act on VAT.
When monitoring the turnover for VAT, it is important to point out that the Act on VAT sets out the longest turnover period to be the past 12 consecutive calendar months. If the turnover of a taxable person exceeds the turnover threshold set out by the Act on VAT before the lapse of 12 months of its registration, the taxable person is obliged to register for VAT within the period provided above, as described in the illustrative example. However, the Act on VAT is often incorrectly interpreted in practice where entrepreneurs believe that the obligation to register for VAT applies only after the lapse of 12 consecutive months which is incorrect.
PURCHASE OF GOODS OR SERVICES FROM OTHER COUNTRIES
In addition to the turnover threshold requirement (i.e. EUR 49,790) for mandatory VAT registration, the Act on VAT also sets out obligations related to the purchase of goods and services from other countries. Entrepreneurs frequently overlook this obligation. This type of VAT registration entails the obligation to pay VAT on the acquisition of goods or services which is not deductible.
Illustrative example
A taxable, non-payer of VAT based in Slovakia wishes to receive marketing survey services from a taxable person from another EU member state in July 2022. Under the Act on VAT, the taxable person based in Slovakia is obliged to register for VAT before the supply of services, and to pay a non-deductible tax on the supplied service upon its supply. The taxable person based in Slovakia should fulfil that obligation by filing a VAT return and paying the VAT. The VAT on the supplied service is calculated from the value of the supplied service. The total price of the supplied service will be an addition of the amount invoiced by the supplier and the VAT amount. Since the taxable person does not become a regular VAT payer by such a registration type, the obligation to file a VAT return and pay the VAT occurs only if a service is supplied, i.e., if the taxable person based in Slovakia has not been supplied any service during the given taxable period, it is not obliged to file any (even zero) VAT return.
