A limited liability company, also known as a limited partnership, is a legal entity subject to corporate income tax (CIT). This taxation is regulated by the Act on Corporation Tax (ZDDPO-2) of the Republic of Slovenia and the related regulations. There are two basic types of limited liability companies: the actual cost type and the standard cost type.
A company is considered a taxable person, i.e. a resident, if it has its centre of operations or official seat in Slovenia. Such a resident company must pay corporate income tax on all its income, regardless of its geographical origin. On the other hand, a company that does not meet the residency requirements is liable to pay corporate income tax only on income derived from Slovenia, as further specified in the Act on Corporate Income Tax (ZDDPO-2) of the Republic of Slovenia.
We will focus in particular on the taxation of resident limited liability companies. According to the tax rules, the tax period for a limited liability company is the same as the calendar year, but companies with a different financial year can adjust this and change the tax period to coincide with their financial year. They can only make this change once every three years.
When determining the tax base, it can be calculated either on the basis of actual expenditure or on the basis of normalised expenditure, which is new from 2013. Under the actual cost method, the tax base is calculated as the difference between income and expenses, with expenses adjusted in accordance with the tax law. The CIT Act specifies which expenses are tax deductible and which are not.
In the business world, limited liability companies are among the most common forms of company. Taxable income includes all income except that which is expressly excluded by ZDDPO-2, such as certain dividends and capital gains and income from non-profit activities.
Tax deductible expenses include all expenses that are directly related to the activity and are in line with normal business practices. The CIT Act also contains rules on transactions with related parties, taking into account the arm’s length principle.
If taxable income exceeds expenses, a tax profit is generated, which can be used to reduce the tax base by claiming various tax reliefs. In the case of a tax loss, the company can carry the loss forward to future tax periods, subject to certain legal limitations.
An alternative method of determining the tax base, available as an option from 2013, is the standardised cost method, whereby expenses are set at a flat rate of 80% of recognised income, resulting in a tax base of 20% of recognised income. This method of determining the tax base does not take into account actual costs, tax credits and potential tax losses.
In order to apply normalised expenses, certain conditions must be met, which have changed slightly as of 1 January 2015. Taxpayers with an annual income of up to €50,000 can opt for this method regardless of other circumstances, while taxpayers with an annual income of between €50,000 and €100,000 must meet additional conditions, including those relating to social contributions.
The tax rate for limited liability companies will be 22% from 2024, with some exceptions for certain types of entities, such as investment and pension funds and certain insurance companies, which may enjoy a lower or even 0% tax rate. The tax return must be filed within three months of the end of the tax year and the tax must be paid within 30 days of filing.
It should also be noted that tax advances paid on the basis of the previous year’s tax base are considered to be tax prepayments. Any difference up to the final amount of the CIT is settled after the tax return has been filed.
The tax treatment of dividends, or “dividend tax”, provides for a 25% tax on distributed profits in 2024. This tax comes into effect when a shareholder wishes to distribute the profits of a company to a personal account, in addition to the corporate income tax already paid by the company.