Note: This article was written in 2002. Since business changes fast in Slovakia, the information contained in it might be out of date. Please review newer articles or contact a professional consultant before making business decisions.

These articles were published in the Spectacular Slovakia travel guide, published annually by The Slovak Spectator since 1996. The latest editions can be obtained from our online shop.



Vat refund for foreigners

Changes to the VAT legislation effective 1 January 2002 are good news both for foreign businesses and tourists: they can recover - under certain conditions - the Slovak VAT paid.

A) Refund to businesses

Reciprocity principle

The amendment intro-duces a “reciprocity principle”, according to which the tax authorities will be allowed to refuse a VAT refund to a business resident in a coun-try which does not give VAT (or any other general consumption tax) refunds to

Slovak taxable persons. This principle is also embodied in EU legislation.

Who is entitled to the refund?

Entities entitled to a VAT refund are defined as individuals or companies registered for VAT (or any other general consumption tax) in the state where their enterprise is established.

Who is not entitled to a VAT refund?

A foreign person with his seat or a branch registered in the Slovak Commercial Register during the period for which the refund is claimed, and who is authorised to carry out business activities in Slovakia, will not be entitled to a refund.

When is it allowed?

Goods or services pur-chased within Slovakia and possibly imported goods (provided that the foreign person acts as a declarant - “temporary use” customs regime), on which the foreign person claims a VAT refund, have to be purchased or imported with the intention of their being used for his business activities abroad. The foreign person confirms this to the Tax Authority in the VAT refund application.

The refund applies only to goods and services where VAT recovery is allowed by VATA (see below for the exceptions).

Another condition stipu-lates that during the period to which the VAT refund application relates, the foreign person must not have made any sales of goods or supply of services within Slovakia. However, this does not apply to international transport and related services. A question often asked is whether a foreign company that provides construction or installation services within Slovakia is entitled to a VAT refund. Based on the conditions set by the amendment, the answer is no.

Examples of goods and services excluded from the VAT refund

Some goods and services are excluded from any refund. They include:

  • Fuel with the exception of diesel for trucks;
  • Alcoholic beverages, tobacco and tobacco products;
  • Accommodation and catering services;
  • Entertainment, sports and recreational services;
  • Passenger transportation;
  • Rent of certain transport vehicles (cars, motorcycles, ships for passenger transport and aircraft);
  • Rent of immovable property;
  • Supplies based on intermediation or similar agreements.

How to make a claim?

The foreign person must submit the application for the refund to the Bratislava I tax authority on a form issued by the Ministry of Finance.

It has to be accompanied by the appropriate documents, such as the original invoice, including the amount of VAT paid in Slovak crowns; import documents or other documents confirming the purchase; and also documents proving the actual payment of the VAT. The foreign persons will have to prove that they are registered for VAT or similar general consumption tax in the state where their enterprise is established. The tax authorities of that state will be required to confirm this fact on a form issued by the Ministry of Finance.

Further, the application for a VAT refund will contain a declaration that during the period to which the claim relates the foreign person did not make any sales of goods or supplies of services in Slovakia. The foreign person is also obliged to return any unjustly refunded VAT.

Minimum amount of VAT

A VAT refund application will be submitted for a calendar year period, provided the amount of VAT incurred on purchases of goods or services, or imports is higher than SKK 5,000.

It will also be possible to apply for a VAT refund during the calendar year for a shorter period (minimum 3 months) if the VAT is at least SKK 15,000. In this case the foreign person will have the option, after the end of the calendar year, to submit an application for any VAT on which a refund claim was not made during the year.

Periods

The entitlement to the refund lapses if the application is not submitted within 6 months after the end of the calendar year.

A decision on the application will be made within 6 months of its submission and the VAT will be refunded within the same period.

Sanctions

If the tax authorities discover that a VAT refund was made based on incorrect information, they are authorised to reclaim such unjustly refunded VAT, and a penalty of 50% will be levied.

B) Refund to tourists

Who is entitled to the refund?

A foreign visitor to Slovakia may now also reclaim the Slovak VAT suffered. The sale price of goods usually includes 23% VAT, although selected goods are subject to only 10% VAT. The rule applies to foreign individuals who have no permanent or temporary residence in Slovakia, and who export - in their personal luggage - goods of a non-commercial character.

What?

VAT is considered a tax levied on consumption. A foreign individual who purchases goods in Slovakia and exports them abroad apparently consumes the relevant goods abroad.

Slovakia should therefore not tax this consumption.

The VAT refund system for foreign visitors should guarantee that only real consumption would be taxed, and consequently that such consumption would not be taxed twice. We would like to point out that the majority of European countries have also introduced low-value import relief, based on which the import of goods not exceeding a pre-determined value is import duty and VAT exempt.

Advantages

A foreign individual can purchase goods in Slovakia cheaper than was previously possible. However, when being imported to his country of residence, they may be taxed according to the relevant local tax legislation. Because the foreign tourists finally may buy such goods cheaper, Slovak VAT payers selling goods to foreigners become more competitive in comparison to those from countries where the VAT refund mechanism has already been established. This is especially notable in border areas.

What tourists should do

In order to claim a refund of VAT paid in Slovakia, the price of goods purchased from one VAT payer must exceed SKK 5,000 per day. Relevant purchased goods do not include fuel, alcoholic beverages, tobacco and tobacco products, and food

Furthermore, the goods must be exported within 30 days after the purchase. Consequently, the border customs office must confirm the export of goods on the refund form consisting of pages A and B. The seller provides the foreign visitor with the refund form.

The foreign visitor should claim the refund from the VAT payer who sold the goods. However, in practice it is possible to use specialized agencies to get the relevant refund. The foreign visitor must have a document proving the purchase of goods. This must be issued by the seller when selling the goods. The foreign visitor must submit page A of the VAT refund form confirmed by the border customs office. Both documents (purchase document and page A of the VAT refund form) must be submitted to the seller within 3 months after the end of the month in which goods were purchased, otherwise the entitlement to the VAT refund expires.

The article was written by Milan Vargan
- Tax Manager, from Deloitte & Touche in the Slovak Republic.


These articles and related information were published in Spectacular Slovakia 2002.

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