Changes in the taxation of cryptocurrencies and other investment instruments

In April 2023, a group of Members of the National Council of the Slovak Republic submitted to parliament a bill amending and supplementing Act No. 595/2003 Coll. on Income Tax, as amended, and amending and supplementing certain acts. The amendment passed its third reading on 28 June 2023 and takes effect from 1 January 2024.

The bill concerns the taxation of individuals on income from capital assets and cryptocurrencies.

A lower tax rate for cryptocurrencies

The tax burden on individuals’ income from the sale of virtual currency will be assessed on the basis of a so-called time test. If the virtual currency is sold more than one year after it was acquired, the income is taxed at a reduced tax rate of 7%.

The time test will also apply to cryptocurrencies bought before this act comes into force. So, for example, if you bought virtual currency on 5 July 2022 and sell it on 3 February 2024, the income from the sale of that currency will be taxed at an income tax rate of only 7%.

The amendment also abolishes the obligation to pay health insurance contributions on income from the sale of virtual currency.

Until 31 December 2023, the sale of virtual currency is taxed at an income tax rate of 19%, in some cases even at an income tax rate of 25%, and health insurance contributions of 14% are then paid on top, which means a total tax burden of 33% or 39% respectively.

Thanks to this change, all investors with income from the sale of cryptocurrencies will save a considerable amount – over 26% – on taxes and contributions.

If the virtual currency is sold within one year, the income is included in the tax base together with other income. Similar measures also apply to income from the sale of capital assets from collective investment undertakings.

Tax exemption for exchanging cryptocurrency for assets

In addition, exchanging virtual currency for assets or services with a value not exceeding €2,400 is not taxed in the relevant tax period. This aims to simplify and encourage the use of virtual currencies in everyday life.

Before the amendment took effect, if you bought even just a coffee or a beer with cryptocurrency, you had to declare this transaction in your tax return and pay tax on it, since it was an exchange of cryptocurrency for other assets.

Abolition of tax on exchanging one cryptocurrency for another

The abolition of tax on exchanging one cryptocurrency for another is great news. This change will be welcomed above all by investors who need to swap cryptocurrency pairs and have so far had to pay tax on these transactions. Even happier than the investors themselves will be the accountants who kept the books for these people, as it was very complicated to establish the tax base for exchanges of virtual currencies.

Exemption from withholding tax

Domestic mutual funds will be exempt from withholding tax where the fund units are held for more than 3 years. In other words, 3 years after the domestic mutual fund units are purchased, the income from these funds will be exempt from withholding tax.

A higher maximum amount for investing within a calendar year

The amendment to the Securities Act doubles the maximum amount that can be invested in long-term investment savings in one calendar year. The limit is increasing from the current €3,000 to €6,000, giving citizens greater investment flexibility.

Changes in collective investment

Another change, made through the amendment to the Collective Investment Act, is the widening of the range of investors who can invest in alternative investment funds and an increase in the share of assets that such funds may hold from qualified investors. The limit is increasing from the original 20% to 30%, which allows greater diversification and access to a range of investment opportunities.

A higher limit on tax-deductible expenses for businesses for charity advertising

In addition, MPs also approved an amendment tabled by Jana Žitňanská, which takes into account all legal forms of recipients of so-called charity advertising who are entitled to receive the 2% tax assignment. The upper limit on income from this advertising is also increasing from €20,000 to €30,000 due to inflation. This measure supports and harmonises the support for public-benefit purposes through charity advertising by businesses.

Source: SaS, Peter Cmorej – Member of the National Council of the Slovak Republic, https://www.nrsr.sk/web/Default.aspx?sid=zakony/zakon&MasterID=9330