Expat Tax Advice: Don’t Sell Shares in 2015
More and more people in Slovakia trade with shares. Either with shares purchased within the Company’ share purchase or stock options plans (blog.etrend.sk/radovan-ihnat/zamestnanecke-akciove-plany–dodatocny-prijem-zamestnancov.html) or in a form of direct or indirect investments on capital markets.
For these investors I have one good advice – if you plan to sell your shares in 2015, maybe you should reconsider your decision. No, I am not changing a profession of a tax advisor and I am not going to analyze if the share prices will further raise in 2015 (although considering the current monetary policy of the ECB it is very likely)…
But it is rather likely that in 2016 you will be able to benefit from a more advantageous tax and social security regime of the profit from the sale of shares. The Slovak ministry of Finance sent to the public commentary process a proposal of the amendment of the Income Taxes Act. Sincerely it will take long time until the amendment will be finalized and it will be only effective since January 2016. So why I am writing about a working draft of the amendment? Well, in December 2016 it will not be very helpful for my clients if I tell them that if they did not sell shares in May 2015 but in January 2016, their profit could be tax-free…
So what shall be amended? Based on the proposal, profit from the sale of shares will be exempt from taxation if the period between their purchase and sale exceeds 1 year. This income would also not be subject to health insurance.
There is just one issue. The original proposal covers only shares traded on the regulated stock markets of EU and EEA countries. Thus, the exemption would not cover profit from shares traded on non-European markets as well as profits from sale of other business shares. Based on the Explanatory Note to the amendment, its purpose is a support of the investments on capital markets. I do not want to speculate why just now and why just shares traded on the European stock markets (except also Swiss capital markets). But as this is just a very first draft, it is possible that the exemption will be extended also to other „shares“.
AMENDMENT – THE VERSION WHICH HAS BEEN APPROVED BY THE GOVERNMENT RECENTLY INCLUDES TAX EXEMPTION OF PROFITS FROM SALE OF SHARES TRADED ON ANY REGULATED CAPITAL MARKET, ie is not limited to capital markets of the EU or EEA countries !!!
I will mention 2 other provisions of the Income Taxes Act amendment proposal. Not because what they are going to introduce but because of very interesting explanatory note commenting on the current interpretation of the law.
Foreign (non-Slovak) social-governmental allowances
The amendment defines that allowances from foreign (non-Slovak) social systems, such as foreign children allowances, maternity leave allowances, social allowances or foreign child bonuses will be exempt from taxation in Slovakia. However, the explanatory note to this provision says that so far all these allowances received by Slovak tax residents represent their taxable income!!!
Do you have expatriates whose wives are on maternity leave and they receive child allowances or other foreign allowances? And do they know that such income should be taxed in Slovakia? Another point to the agenda of EXPATRIATES ((blog.etrend.sk/radovan-ihnat/expati–na-com-setrit-netreba.html)
Tax deductibility of over-limit travel allowances
One of my favorite topics at the end – tax deductibility of costs ((blog.etrend.sk/radovan-ihnat/preco-su-expati-take-drahi–why-are-expatriates-so-expensive.html). Moreover, in connection with my another favorite topic of travel allowances (blog.etrend.sk/radovan-ihnat/preco-sa-bat-vyslanych-zamestnancov.html). Based on the current wording of the law, expenses, which can be regarded as tax deductible within the limits and conditions defined in this law are also:
- Expenses for working and social conditions and health care incurred for salary and other labour-law entitlements within the scope defined by labour-law legislation, except of the travel allowances based on the specific law; and
- Travel allowances up to the limit according to the specific law (Act on Travel Allowances).
The amendment will release a part of the sentence „except of the travel allowances based on the specific law“.
And „a surprise“ comes in the explanatory notes “This represent a legislative clarification. Travel allowances provided by the employer to its employee over the limits stipulated by the Act on Travel Allowances are tax-deductible expense of the company provided that they are treated as taxable benefit of the employee. This amendment is due to the legal certainty”.
Thus, not a change, just a clarification of the current status… In other words, the over-limit travel allowances could be also in the past considered to be tax deductible expense of the employer if they were taxed at the level of the employee.
Considering the above, if you provided to employees (and taxed) over-limit travel allowances (but also other in-kind benefits taxed at the level of employees) and treated them as tax non-deductible expenses (although the Slovak Supreme Court already in 2008 decided that the over-limit in-kind benefits of the employees represent tax deductible expense), you may consider whether it is worth to file supplementary tax returns and claim back the settled taxes…
By Radovan Ihnat, Contax.sk