PITA amendment and Supreme court decision

Amendments to the Personal Income Tax Act (amendment ZDoh-2AB)

The Slovenian Parliament has adopted an amendment to the Personal Income Tax Act (ZDoh-2AB). With few exceptions, the amendment applies to tax periods which start on 1 January 2023. The following contains a summary of most important amendments.

1. Change of tax brackets and tax rates

The amendment raises the tax rate for the highest income tax bracket from 45 % to 50 %. The automatic adjustment of tax brackets with inflation has been abolished, nevertheless, an appropriate adjustment coefficient will be determined every year as from 1 January 2024 onwards.

2. Tax allowances

2.1 General tax allowance and increased general tax allowance

The amount of the general tax allowance has been set at EUR 5,000 and its gradual increase to EUR 7,500 has been abolished.

The increased general tax allowance has been raised from EUR 13,716.33 to 16,000.00.

2.2 New tax allowance for taxpayers under 29

A tax resident under 29 years deriving employment income shall be granted an annual reduction in the tax base of EUR 1,300. The allowance shall be recognized proportionally according to the number of months of employment in an individual tax year, considering each full month of employment.

Starting 1 January 2024, the tax allowance shall be annually adjusted.

3. Reimbursement for the use of private equipment for work at home

The requirements and the amount of compensation for the use of private equipment for work at home, which is not included in the tax base from employment income, shall be changed. The compensation can be paid tax-free provided that it is determined by special regulations or on the basis of a collective or general agreement of the employer and up to 0.20 % of the last known average annual salary in Slovenia, calculated per month, for each day of work at home.

4. Part of salary for business performance

The requirements for tax-exempt payment of part of salary for business performance have been changed:

− An additional requirement has been added that part of the salary for business performance can be paid out no more than twice per calendar year.
− The possibility of a tax-exempt payment of part of salary for business performance in the amount of 100 % of the employee’s average salary in the last 12 months, when it is more favourable for the employee, has been abolished. The maximum tax-exempt amount is capped at 100 % of the average salary of employees in Slovenia.

5. Taxation of business income and income from agricultural and forestry activities

The amendments change the method of calculation of lump-sum expenses if the tax base from business income is determined on basis of actual income and lump-sum expenses.

• fully ensured sole proprietors (if at least one person will be insured with the taxpayer based on an employment relationship or self-employment for a full-time continuous period of at least nine months (so far five months))

• Partly ensured sole proprietors (if not at least one person will be insured with the taxpayer based on an employment relationship or self-employment for a full-time continuous period of at least nine months (so far five months))

6. Taxation of rental income

The tax rate has been increased to 25 %. The recognized standardized costs remain at 10 %.

7. Possibility to include income from capital and rental property in the annual income tax base

For tax residents, the possibility of including income from renting out property and income from capital in the annual tax base has been abolished.

8. Acquisition of own business shares or stocks

Payments of shares or stocks in the event of the acquisition of own shares or stocks by the company, except for acquisitions on the stock exchange, shall be taxed as dividends.

Case law on transportation costs for employees working abroad

On 24 October 2022, the Supreme Court of the Republic of Slovenia decided that ˝an employee employed by a foreign employer shall also be entitled to a reduction of the employment income for the costs of transportation to and from work, including transportation costs for driving from home in Slovenia to the foreign place of employment and back˝.

According to the judgment of the Supreme Court, such costs are, because of their legal nature, essentially the same as other costs for transportation to and from work, which already reduce tax base for employment income. Since these costs reduce income available to the employee, they must also be considered for tax purposes.

In its decision, the Supreme Court emphasized that government regulations (such as the Decree on the tax treatment of reimbursement of costs and other income from employment, hereinafter referred to as the Decree) cannot limit the statutory consideration of costs for transportation to and from work laid down in the Personal Income Tax Act. The provision of the Decree, which defines the minimum number of trips from the place of residence to the foreign workplace and back to at least four times a week, as a condition for the tax consideration, is therefore contrary to Article 45 of the Act and goes beyond the constitutionally permissible scope of the Decree.

The decision of the Supreme Court has been confirmed and accepted by the Tax Administration in its administrative guidelines.