All about the trade licence

A trade licence is one of the most widespread forms of doing business in Slovakia. Setting one up and closing it down is quick and costs almost nothing. However, that does not mean you do not have a number of obligations connected with doing business under a trade licence, which is why we have summarised everything you should know about trade licences.

GENERAL CONDITIONS FOR CARRYING ON A TRADE

As entrepreneurs, whatever type of trade we are going to carry on, we must meet the general conditions for carrying on a trade:

• Minimum age of 18
• Clean criminal record
• Legal capacity

TYPES OF TRADE LICENCE

The Trade Licensing Act distinguishes 3 types of trade according to the requirements for professional qualification. Each type has different conditions that you must meet to be able to open it. There are free, regulated and craft trades.

1. Free trades (voľné živnosti)

An entrepreneur who wants to carry on free trades only has to meet the general conditions for carrying on a trade. They do not need any professional qualification or an apprenticeship certificate. Examples of free trades:

• Purchase of goods for sale to the final consumer (retail) or to other trade operators (wholesale)
• Brokerage activities in trade, services or production
• Administrative services
• Activities of business, organisational and economic consultants
• Advertising and marketing services
• Services related to computer data processing
• Preparatory work for construction

2. Craft trades (remeselné živnosti)

In addition to meeting the general conditions for carrying on a trade, a craft trade requires a professional qualification obtained through an apprenticeship in the field, which is proven by an apprenticeship certificate or another document showing that the relevant education was duly completed.

If the entrepreneur has not completed an apprenticeship in the field, they can prove that they meet the condition through many years of practical experience. If the condition is not met even through many years of experience, the entrepreneur can carry on the craft trade through a responsible representative.

A responsible representative is an individual appointed by the entrepreneur, through whom the professional performance of the trade is ensured. The responsible representative must meet the general and special conditions for carrying on a trade and must be resident in the Slovak Republic. They must also be employed by the entrepreneur while the trade is carried on; this does not apply if the representative is the entrepreneur’s spouse, a relative in the direct line or a sibling or, in the case of a legal entity, one of its shareholders.

Craft trades include, for example:

• Locksmithing
• Toolmaking
• Metalworking
• Repair of working machinery
• Watchmaking
• Joinery
• Men’s/women’s hairdressing
• Manicure
• Pedicure

3. Regulated trades (viazané živnosti)

Regulated trades are a specific group of activities that require proof of a different qualification under Sections 21 and 22 of the Trade Licensing Act. How the professional qualification for regulated trades is proven is either governed by special regulations or stated directly next to these trades in Annex No. 2 to the Trade Licensing Act.

If the entrepreneur does not have the professional qualification laid down by the special regulation, they can meet this condition through a responsible representative, who is responsible for the professional performance of the trade, just as with a craft trade.

Regulated trades include, for example:

• Operating a travel agency
• Sale of pyrotechnic articles of categories F2, F3, T1, P1
• Development and manufacture of weapons or ammunition
• Freight forwarding
• Operating a cemetery, funeral service or crematorium

SETTING UP A TRADE LICENCE

You can set up a trade licence in two ways:

• Online via slovensko.sk, if you have an activated identity card with a chip
• In person at the district office (Okresný úrad), at its trade licensing department

Depending on which way you choose to set up the trade licence, you pay different fees.

If you set up a trade licence online, you pay nothing for a free trade and €7.50 for each craft and regulated trade. If you visit the district office in person, you pay €5 for each free trade and €15 for each craft or regulated trade. You can do business under the trade licence from the very day you notify it.

SOCIAL INSURANCE CONTRIBUTIONS OF A SELF-EMPLOYED PERSON (SZČO) – SOLE TRADER

In the first year after setting up a trade licence, the entrepreneur is not obliged to pay contributions to the Social Insurance Agency (Sociálna poisťovňa). This obligation only arises in the second year of business – and even then only after the income tax return has been filed, and only if they exceed the income threshold for assessing the obligation to pay contributions to the Social Insurance Agency.

The income threshold for assessing the obligation to pay contributions to the Social Insurance Agency goes up every year, because the subsistence minimum from which the threshold is calculated rises every year. For 2022 the income threshold is €6,798; for comparison, in 2021 the threshold was €6,552.

If you have exceeded the income threshold and filed your tax return, you become obliged to pay social insurance contributions, which are calculated as 33.15% of the assessment base, but at least €187.78 a month. This is the amount for 2022; these contributions also rise every year – in 2021 the amount paid was €180.99.

If you know you have exceeded the income threshold for paying social insurance contributions, it pays to apply, before the deadline for filing your income tax return, for an extension of the filing deadline, so that you could file your tax return by 30 June instead of 31 March. As a result, you would “save 3 months of contributions”, and the Social Insurance Agency would make you liable to pay social insurance contributions not from 1 July but only from 1 October of that year.

HEALTH INSURANCE CONTRIBUTIONS OF A SELF-EMPLOYED PERSON – SOLE TRADER

The obligation to pay at least the minimum advance payments on health insurance arises for the entrepreneur from the day they became a sole trader, that is, from the day the trade licence was notified.

It is different if you already have health insurance. If you are insured by the state – that is, you are a student, a pensioner or on maternity leave – or you have an employment contract with an employer, you are not obliged to pay monthly advance payments on health insurance. You pay the rest of your health insurance after filing your tax return, when your health insurance company carries out the annual health insurance reconciliation for you.

The minimum “contributions”, i.e. advance payments on health insurance, go up every year. For 2022 the minimum health insurance contributions amount to €79.31 a month; for comparison, in 2021 the amount was €76.44.

INCOME TAX OF A SELF-EMPLOYED PERSON – SOLE TRADER

For a sole trader there are as many as 3 income tax rates. Which one applies depends on the sole trader’s income and tax base. They are:

• 15% if taxable income (revenue) for the tax period does not exceed €49,790
• 19% if taxable income (revenue) for the tax period exceeds €49,790, with this tax rate applying only to the part of the tax base that does not exceed €37,981.94 (inclusive)
• 25% if taxable income (revenue) for the tax period exceeds €49,790, with this tax rate applying only to the part of the tax base that exceeds €37,981.94 (inclusive)

BOOKKEEPING OF A SELF-EMPLOYED PERSON – SOLE TRADER

Every entrepreneur is required by law to ensure that accounts are kept. As a sole trader, you can meet your legal obligations in several ways:

• Claiming flat-rate expenses of 60% in your tax return
• Keeping tax records
• Keeping single-entry bookkeeping
• Keeping double-entry bookkeeping

1. Flat-rate expenses

Instead of actual expenses, a sole trader can claim so-called “flat-rate costs” in the tax return. These costs amount to 60% of the total (sum) of business income and can be claimed up to a maximum of €20,000. The condition for claiming flat-rate costs is that the sole trader must not be a VAT payer.

2. Keeping tax records

The entrepreneur must keep the tax records for 5 years from the end of the year in which they became obliged to file the income tax return.

The form of the tax records is not laid down by law and is up to the entrepreneur. However, the entrepreneur must be able to prove the state of their assets and liabilities to the tax administrator at any time.

We recommend entrusting this to experts who know the Income Tax Act, so that they can assess whether expenses are tax-deductible. When assets are purchased, they also assign them to the correct depreciation groups and then calculate the depreciation.

3. Keeping single-entry bookkeeping

If an entrepreneur decides to keep single-entry bookkeeping, they become an accounting entity. For this reason, they are subject not only to the Income Tax Act but also to the Accounting Act and the accounting procedures for the single-entry bookkeeping system.

An entrepreneur who keeps single-entry bookkeeping is also obliged to file financial statements. These consist of:

• A statement of income and expenditure
• A statement of assets and liabilities

However, these financial statements are not publicly available.

4. Keeping double-entry bookkeeping

A sole trader may also choose to keep double-entry bookkeeping even if the law does not require it. Sole traders who are entered in the Commercial Register (ORSR) are obliged to keep double-entry bookkeeping.

Double-entry bookkeeping is more demanding. It has to take into account the law on corporate income tax, the Accounting Act and the accounting procedures for the double-entry bookkeeping system.

Double-entry bookkeeping also comes with the obligation to file financial statements, but these consist of:

• A balance sheet
• A profit and loss statement
• Notes

Double-entry bookkeeping is the most complex of the options listed. To avoid unnecessary mistakes, we recommend entrusting your bookkeeping to a reliable accountant.

LIABILITY FOR THE DEBTS OF A TRADE LICENCE BUSINESS

A sole trader, in other words a self-employed person, is liable for business debts with all their assets – so not only their business assets but also their private ones.

SUSPENDING A TRADE LICENCE – PUTTING A TRADE LICENCE ON HOLD

If business is not going well, a sole trader does not have to close down straight away; they can decide to suspend the trade licence, in other words put it on hold.

While the trade licence is suspended, the entrepreneur is no longer considered an entrepreneur. The advantages of suspending a trade licence:

• The obligation to pay social insurance contributions ends
• The obligation to pay health insurance contributions ends
• The obligation to make advance income tax payments ends, if the sole trader had such an obligation

When the trade licence is resumed, there is no need to pay these contributions retrospectively.

Since 1 August 2021, a trade licence can be suspended for any length of time.

CLOSING A BUSINESS – TERMINATING A TRADE LICENCE

Closing a business is a very simple process with a trade licence. The sole trader must notify the district office that the trade licence is ending, in one of two ways:

• Online via the slovensko.sk portal, if they have an activated identity card with a chip
• In person at the district office, at its trade licensing department

After notifying the district office, the sole trader must also notify the tax office that the business has ended and, within 30 days of the trade licence being cancelled, apply for cancellation of their income tax registration electronically via the portal of the Financial Administration (Finančná správa).

SUMMARY

In our opinion, a trade licence is an excellent choice of business form when you are starting out. Setting one up and cancelling it costs almost nothing. The disadvantage we see is the liability for the business’s debts with all your assets, and a further disadvantage we see is the high burden of contributions and tax compared with a limited liability company (s.r.o.) in the second and subsequent years of business.

If you are thinking about starting a business, or you already run one and need advice, don’t hesitate to contact us and take advantage of our free consultation.