Slovak Republic
This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.
Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.
As from 1.1.2009 Slovakia has joined the Euro zone; the national currency became the Euro (EUR). In 2020, EUR 0.88 was equal to USD 1. In that year, the average worker earned EUR 13 200 (Secretariat estimate).
1.1. Central government income taxes
1.1.2. Tax allowances and tax credits
1.1.2.1. Standard reliefs
Basic relief: An allowance for all taxpayers is set at 21 times the minimum living standard (MLS) for a basic adult as of January 1, 2020 (EUR 4 414.20). In 2020, the basic personal allowance for taxpayers with gross earnings net of employee social security contributions in excess of the threshold of EUR 19 506.56 per year (19 506.56 = 92.8 x MLS, which is approximately equal to an employee’s monthly gross wage of EUR 1 877) is gradually withdrawn. If gross earnings net of employee social security contributions exceed EUR 19 506.56, the personal allowance is calculated as 44.2 times the minimum living standard minus 0.25 times gross earnings net of employee social security contributions. The basic personal allowance reaches 0 if the gross earnings net of employee social security contributions amount to EUR 37 163.36 per year (employee’s monthly gross wage of approximately EUR 3 576). The value of the basic tax allowance cannot become negative.
The regressive tax allowance is taken into account only once a year (when the tax return is filed or when the annual clearing is performed). Monthly tax prepayments during the year are therefore not affected.
Marital status relief: An additional allowance is given to the principal earner in respect of a spouse living in a common household if the spouse earns no more than EUR 4 035.84. As from January 1, 2008 the value of the spouse allowance depends on the gross earnings net of employee social security contributions of both principal and spouse. As of 2013, to be entitled to the spouse allowance one of the following conditions should be met:
If the principal’s gross earnings net of employee social security contributions in 2020 are lower or equal to EUR 37 163.36 (= 176.8 times MLS) and the spouse’s gross earnings net of employee social security contributions are lower than EUR 4 035.84, the spouse allowance is calculated as the difference between 19.2 times MLS and the spouse’s gross earnings net of employee social security contributions. If the gross earnings net of employee social security contributions of the spouse exceed EUR 4 035.84, the spouse allowance is 0. If the principal’s gross earnings net of employee social security contributions exceed EUR 37 163.36 (= 176.8 times MLS), the spouse allowance is calculated as 63.4 times MLS minus 0.25 times the principal’s gross earnings net of employee social security contributions. This amount is reduced by the spouse’s gross earnings net of employee social security contributions. The value of the spouse allowance cannot become negative.
The digressive tax allowance is taken into account only once a year (when the tax return is filed or when the annual clearing is performed). Monthly tax prepayments during the year are therefore not affected.
For the purposes of this Report, only families with unemployed spouse are entitled to the spouse allowance (spouse income does not influence any equations of the spouse allowance as of 2013). Child care up to 3 years does not affect the calculation of tax wedges as according to the Taxing wages methodology any children in the household are assumed to be aged between six and eleven inclusive.
Relief for children: The prior allowance for children has been replaced by a non-wastable tax credit as from January 2004. As from July 2007, the monthly tax credit is automatically indexed by MLS growth as of 1st July when also the new amount of MLS comes into force. Since 2015 the monthly tax credit is automatically indexed by MLS growth from the previous year. Monthly tax credit in 2020 is EUR 22.72 per child for the whole year. The annual amount will be EUR 272.64. The tax credit for each dependent child is deducted from the tax liability; if the credit exceeds the tax liability, the excess will be paid to the taxpayer. In order to receive this credit, the parent must annually earn at least 6 times the minimum monthly wage, which for 2020 is set at EUR 580.0 (the total annual earnings must therefore be at least EUR 3 480.0). The credit can be taken only by one partner. It can be taken by one partner for a part of the tax period (year) and by the other partner for the rest of the tax period (year); this choice will have to hold for all dependent children. (For the purposes of this Report, it is assumed that the credit is claimed by the principal wage earner). Since 2019, the tax credit on dependent children is doubled for each child below the age of 6 years. For children aged 6 or more, the tax credit remains unchanged (EUR 22.72 in 2020).
Relief for social and health security contributions: Employee’s social security contributions (see Section 2.1.) are deductible for income tax purposes.
1.1.2.2. Main non-standard tax reliefs applicable to an average wage worker
Supplementary pension insurance, special-purpose savings and life insurances was repealed as from January 2011. As of 2014 an allowance for supplementary pension insurance has been reintroduced. Supplementary pension contributions are tax-deductible up to the maximum limit of EUR 180 per year.
1.1.2.3. Non-wastable tax credit: employee tax credit (ETC / zamestnanecká prémia)
Prior to 2015 low-income workers were eligible for employee tax credit. The employee tax credit was effective since 2009 and depended on the employee’s earnings and the number of months worked. In order to receive the employee tax credit, earnings should be at least 6 times of the minimum wage. The credit was then calculated as 19% of the difference between the basic allowance and the tax base (gross earnings net of employee SSC) calculated from 12 times the minimum wage or from the actual income (whichever is higher). In 2020 the tax base at the level of the minimum wage (EUR 6 027.36) is higher than the basic allowance (EUR 4 414.20). The tax credit is therefore automatically zero (so effectively nobody can be eligible).
2.1. Employees’ contributions
Compulsory contributions of 13.4% of gross wages and salaries are paid by all employees into government operated schemes. The total is made up as follows:
There are maximum assessment bases MSSAB (maximum threshold for contributions to apply) that apply to social security contributions. From 2004 these MSSAB are no longer fixed values but depend upon the average wages (AW). As of 2013 formulae for calculation of all maximum assessment bases has been unified. Since 2017 MSSAB for health insurance contributions are abolished. As of 2020, the monthly MSSAB for social insurance contributions are calculated as: 7 x AW(t-2), where AW(t-2) is the average wage two years ago (previous equation for calculating MSSAB was 5 x AW(t-2)). The average wage (AW) is determined by the Statistical Office of the Slovak Republic – for 2018 it was EUR 1013 per month.
As of 2015 the health insurance contribution (HIC) allowance has been introduced. The allowance decreases the employee’s and employer’s assessment base for the health insurance. It amounts to EUR 380 per month (EUR 4 560 annually) and decreases with rising income up to EUR 570 (EUR 6 840 annually) when it reaches zero. With EUR 1 rise in the monthly income the monthly allowance is reduced by EUR 2. The HIC allowance is applicable only on standard employment income (not self-employed income or income based on temporary contracts). However, to determine the amount of allowance all types of incomes are assessed, to target only low income workers. Since 2018 HIC allowance for employers was abolished.
2.2. Employers’ contributions
The total contribution for employers is 35.2% of gross wages and salaries. The contribution comprises the health insurance contribution (10% of gross wages and salaries) and the social insurance contribution (25.2%). The social insurance rate reflects contributions to sickness insurance (1.4%), disability insurance (3%), retirement insurance (14%), the Guaranteed Fund (0.25%), accident insurance (0.8%), for unemployment (1%) and to the Reserve Fund (4.75%). All contributions are rounded down to two decimal places.
Since January 2005, Slovakia has introduced the privately managed fully funded pillar. This means that a given proportion (9 percentage points) of social contributions paid by the employer for retirement insurance flew directly to the private pension funds and not to the Social Insurance Agency as in the previous years. As from September 2012 pension sharing scheme has been changed. Employer’s retirement contribution rate to the fully funded pillar has been reduced from 9% to 4% (for more see pension contribution sharing scheme table below). As from 2017 contribution rate to the II. pillar automatically increases by 0.25 p.p. per year (i.e. contribution rate to the I. pillar decreases in the same volume), stopping at 6% to the II. pillar and 8% to the I. pillar in 2024. Private pension funds are treated outside of the general government; these contributions are therefore not taken into account in the calculations of average and marginal tax rates. For the purposes of this Report, the total contribution rate for employers in 2020 is 30.2% with contributions to the second pension pillar not included in the rate.
As of 2015 the health insurance contribution (HIC) allowance has been introduced and in 2018 it has been abolished for employers, while for employees it remains unchanged (for more see 2.1).
The MSSAB also applies to the employer’s SSC. The next table presents the annual values of MSSAB:
Social security contributions: Pension – contribution sharing in case of II. Pillar participation
3.2. Transfers for dependent children
The central government pays an allowance in respect of each dependent child in the amount of EUR 24.95 per month in 2020. In January 2008 an extra allowance for dependent children whose parents are not eligible for the non-wastable child tax credit was introduced. The monthly amount of this allowance is EUR 11.70 in 2020. For the purpose of the tax wedge calculations this allowance is not relevant, as only non-workers and taxpayers with annual earnings lower than six times the minimum monthly wage (which is the condition for eligibility for the non-wastable child tax credit) are entitled to the extra allowance.
The non-wastable tax credit mentioned in Section 1.1.2.1 is part of the social support for families with dependent children. However, it is not considered as a transfer for the purposes of this Report.
3.3. Transfers related to social status
To determine the claim to state social benefits (for example the allowance for housing costs), the minimum living standard amounts are relevant as they form the basis of the income test. For 2020, these amounts are:
A family is entitled to a social allowance if the total combined monthly disposable income of the family is less than the calculated MLS for this family. In the calculation of the benefit eligibility, only 75% of net income from employment is taken into account. The allowance varies with the family type.
The benefits available to a family in material need (valid since 1st of January 2020) are:
EUR 126.20 per month for an individual with between one and four children.
EUR 172.60 per month for a couple with between one and four children.
EUR 184.30 per month for an individual with more than four children.
EUR 232.60 per month for a couple with more than four children.
activation allowance: EUR 67.90 per month – for people who become active either by accepting qualifying employment opportunities or participating in retraining courses.
housing allowance: EUR 57.20 per month for individual in material need, EUR 91.40 for a household in material need (if household has more than 1 person).
protection allowance: EUR 67.90 per month for an individual in material need where employment is not possible due to such circumstances as a disability or old age, EUR 37.30 per month for individual on sick leave for at least 30 consecutive days and EUR 14.60 for a pregnant woman from 4th month of the pregnancy and lasts until the child’s age of 1 year (for the purpose of this Report, protection allowance is assumed to be EUR 67.90 for each individual).
specific allowance: EUR 67.90 per month - entitlement arise for long-term unemployed individuals who move into work for 6 months (does not affect the calculations in this Report).
dependent child allowance: EUR 18.60 per month for a child who properly fulfils compulsory school attendance.
Automatic growth of the contribution rate to the II. pension pillar by 0.25 p.p. per year was introduced in 2017. The contribution rate to the I. pillar decreases by the same amount. In 2020 the contribution rate to the II. pillar is 5 % and contribution to the I. Pillar is 9% (see Section 2.2). Moreover, the MLS value was revised up in July 2017 after 4 years of no change, which led to changes in the tax system allowances, credits and brackets from January 2018. Since 2018 the HIC allowance for employers was abolished.
There are also legislative changes which do not directly affect calculations of the tax wedge used in this Report. The first is a new spa tax allowance for the PIT. Each taxpayer who spent at least EUR 50 on domestic spa services is allowed to reduce their tax base by EUR 50.
The second change is related to support for housing mortgage interest payments for young people. Since 2018 taxpayer is allowed to deduct mortgage interest payment (maximum amount is EUR 400 per year) from their own tax liability. Previously, support for housing was in the form of a public subsidy.
Third, pensioners who earn income from special short term labour contracts (dohoda o vykonaní práce) benefit from an SSC allowance of EUR 200 per month from July 2018.
New exemptions of the 13th and 14th salaries were introduced in 2018. This measure has a negative impact on revenues, which is increasing with gradual phasing of exemption from health insurance contributions, the PIT, and from 2019 onwards also from social insurance contributions. Maximum exemption is EUR 500 per additional salary.
Since 2019, the tax credit on dependent children is doubled for each child below the age of 6 years (Section 1.1.2.1). In addition, an exemption for recreational vouchers was introduced. Employers can provide maximum EUR 275 per year as a cash benefit exempted from social security contributions and the PIT to employees who spent at least EUR 500 on recreation in the Slovak Republic. Provision of this benefit is compulsory for employers who have at least 50 employees.
The amount of the basic allowance was increased in 2020 from 19.2 times the MLS to 21 times the MLS. The threshold when then basic allowance is gradually withdrawn was adjusted accordingly from 100 times the MLS to 92.8 times the MLS.
4.1. Changes to labour taxation due to the covid-19 pandemic
The deadline for the annual tax clearing and filing of tax returns for the year 2019 was moved from the end of March 2020 to the end of October 2020. Any outstanding tax liability is payable by the new deadline as well. In addition, payment of employer contributions for certain months was deferred if the business suffered at least 40% loss of revenue in that month. Moreover, businesses that were compulsorily closed by the order of the government do not have to pay employer social insurance contributions for April 2020. This one-off abatement is not modelled for the purpose of this Report because it affected only about 15% of the workforce.
5.1. Identification of AW and valuation of earnings
The average earnings of the AW are estimated by the Ministry of Finance of the Slovak Republic based on the data provided by the Statistical Office of the Slovak Republic. The source of the information is the quarterly survey of employers which covers:
around 50% of firms with at least 20 employees or firms with annual revenue at least €5 mil. regardless of the number of employees, and
The average earnings are calculated as the mean of the monthly average wages in industry sectors B-N according to the SK NACE Rev. 2 classification, weighted by the number of employed in the given sector. The earnings data are not adjusted to full-time equivalents, but part-time workers are included only if they have a standard employment contract. Workers with non-standard temporary contracts1 are excluded completely. Managerial workers are also included only if they have a standard employment contract. The self-employed are not included in the earnings data, but they are included in the sectoral employment figures.
The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_sp” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_sp” values taken as 0.
Note
← 1. Agreements on work performed outside employment relationship - Dohody o prácach vykonávaných mimo pracovného pomeru