When considering relocating or expanding your business in Europe, Slovenia should be considered as one of the most appealing options. Even though it is a small country, squeezed between Italy, Austria, Hungary and Croatia, it is becoming more and more recognized due to high quality of life, skilled workforce, stable business environment and reliable legal system.
The key advantage that attracts foreign investors and business to Slovenia is its strategic logistical position at the heart of Central Europe, which makes it the gateway to different regional markets, mainly Austria, Germany, Italy, Hungary and Western Balkans. It is located next to the sea and has access to international waters by port Koper. Slovenia also has good international connections and transport system via land and air and offers excellent logistic solutions.
Business conduct with other EU countries is made easy as Slovenia is a member of both, EU and Schengen, and its currency is euro. It has been having stable economic growth and the GDP grew by 5% from the previous year. Slovenia is known for its corporate culture of transparency and accountability and observance of international technical standards. Its potential as a host business country is great also because it is considered as one of the safest countries to live and do business in Europe, class-based economic disputes are rare and especially because it offers exceptional work-life balance.
Following is a more detailed presentation of the Slovene tax system and the process and conditions for resident permit acquisition, since two of the main considerations when deciding to expand your business should be which taxes must be paid and the tax rates and also the possibility of acquiring the working permit.
Slovenia’s tax system
There are two main business taxes in Slovenia, namely Value Added Tax and Corporate Income Tax.
VAT is a general consumption tax on a net basis included in the price consumers pay for goods and services. Consumers pay this tax indirectly as taxable company or person engaging in commercial activity must remit the tax to the Tax Administration office. The standard VAT rate in Slovenia is 22% and for some specified goods and services the reduced rate 9.5 % applies. A taxable person must register for VAT purposes if the value of its supplies within the previous 12 months exceeds 50.000 EUR. A taxable person established abroad that carries out taxable economic activities in Slovenia must register for VAT.
A company will be liable to pay corporate income tax based on the worldwide income principle if it is considered a resident, which means that it has its business seat or place of effective management in Slovenia. Non-residents are taxed only on Slovenia-source income. The standard rate of corporate income tax is 19%. A rate of 0% applies to certain investment funds, pension funds and insurance undertakings for pension plans under certain conditions. You can get a relief of 100% for investing into research and development and, as an entrepreneur you can get tax relief as high as up to 40% for investing into equipment and intangible long term assets as property. Taxable income comprises all income and profits from a company’s activities, reduced by expenses related to those activities. Tax losses carried forward from previous years may be used only up to 50% of the tax base. The carry back of losses is not permitted.
Payments to individual shareholders that represent dividend payments of surplus income are subject to a flat 25% tax rate. There is a broad interpretation approach to the definition of dividends to encompass all transfers similar in nature, in order to prevent tax evasion through dubious transactions. Dividends, which a company receives from another Slovene company, an EU subsidiary or a non-EU subsidiary established in a country not included on the black list by the Ministry of Finance are, effectively, 95 % tax exempt. Dividends received from a company established in a black-listed jurisdiction are fully taxable.
Capital gains are treated as ordinary income and therefore the full amount of the realized gain is subject to tax at 19 %. Gains arising from a transaction subject to the EU merger directive are exempt. A portion (47,50%) of the capital gains derived from the sale of shares is exempt if, inter alia, the shares represent a participation of at least 8% and the shareholding has been held for more than six months and at least one person is employed on a full-time basis during this period.
In Slovenia, tax must be calculated and withheld on the payments made by residents and non-residents on Slovenian-sourced income to recipients outside Slovenia. The withholding tax applies to dividends, interests, copyrights, patents and licences. Its rate is 15%, but it can be reduced to 0% for dividends, interests and royalties under the EU Parent Subsidiary or Interest and Royalties Directive. The rate can also be reduced under an international tax treaty based on which individuals will pay 5–15% withholding tax in Slovenia.
Other taxes on corporations are real property tax (a yearly charge for the use of construction land, the rate of which is determined by the local municipality); however, Slovenia does not hold a property tax yet. Furthermore, the employer is required to withhold employee social security contributions from the employee’s gross salary (22.10%) and pay them together with the employer’s contribution (16.10% of gross salary) each month as a part of payroll accounting. A special sales tax is levied at various rates on motor vehicles, and at 2% rate on the transfer of real estate not subject to VAT.
Foreign, non-EU citizens who wish to immigrate to Slovenia for long-term reasons, including working, have to obtain a unique permit for residence and work for the purpose of an uninterrupted business conduct. The permit is firstly issued for one year and it can be prolonged.
The easiest and most convenient way to obtain a unique permit for residence and work is to open a company in Slovenia, in which a person is also employed. In general, the fastest way to start working as a legal person in Slovenia is to register a sole proprietorship (s.p.); however, this is only possible for EU citizens or people who have been living in Slovenia for at least one year. Others can establish a limited liability company (d.o.o.) (founding capital of EUR 7,500 is required), a subsidiary or a branch office. However, only establishing a company in Slovenia would not give you immediate right for immigrating here.
When company wishes to obtain long-term employment in Slovenia due do the expansion or transfer of business, it has to prove active business conduct. Based on the Article 27 of the Employment, Self-employment and Work of Foreigners Act this means that the company has to have a full-time employee, who is an EU citizen, employed for at least 6 months or has to show 10.000 EUR inflow to their Slovene bank account from conducting business each month for the last 6 months.
If the company is younger than 6 months, it has to prove an investment of 50.000 EUR into the business activity in which the foreigner will work in (it has to purchase something the company needs for business conduct).
How can we help you?
Nobile Law Solutions is an international legal consulting agency based in Slovenia. We have helped establish many companies in Slovenia (and also abroad) and we have expensive experience in acquiring resident and work permits.
When working with you, we will help you chose the right legal form for your business undertaking in Slovenia, also taking into account the tax consequences. We will help you establish and register your company in Slovenia and will protect your IP rights in this regard. Furthermore, we will advise you on, draft and negotiate agreements, covering all aspects of your business, taking care that they address your evolving business needs.
We are well internationally connected and follow most recent legal standards in international business, including e-commerce (online platforms, sharing economy, blockchain related businesses, STO/ICOs). Thus, our legal solutions provide the clients the best value for money and are also aimed at achieving widest possible international applicability (not only limited to specific country or jurisdiction). However, while observing latest legal standards and up-to-date solutions, we still work closely with each individual client to provide solutions that are never based on the one-size-fits-all approach but individually tailored for you.
We will navigate you through the process of establishing or expanding business, and make sure that starting or expanding your business in Slovenia will be carefree, uncostly and fast.
*I thank Ms Barbara Kompan for support with drafting this country report.