Solvakia 2011 Real Estate Review

COLLIERS INTERNATIONAL2011 SLOVAKIA REAL ESTATE REVIEWAlbania Bulgaria Croatia Czech Republic Greece Hungary Poland Romania Russia Serbia Slovakia Ukraine

Accelerating success.

Research: [email protected]. 137 | CollieRS inteRnAtionAl

MARKET

2011 COLLIerS reAL eStAte reVIew » COUNtrY

Slovakia

Dear clients, colleagues and friends,

Development of the real estate market reflected modest growth of the Slovak economy in 2010. office space leasing came alive due to tenants moving from the older business centers to A class premises.

Market with retail premises has been quite busy. Awaited projects have been delivered on the market: eurovea, River park, Aupark in Piestany and in Zilina, Mirage Shopping Center also in Zilina or retail park tesco in Prievidza. they contributed to saturation of the demand for retail spaces for a long period even in Slovak regions. the success of Zilina Mirage shopping center confirmed the skills and experience of the Colliers international Retail Agency team. As an exclusive leasing agent for Mirage shopping center we managed to introduce new brands to the local markets not only in Zilina, but in Slovakia as well.

At the end of the year we succeeded on the industrial market due to the construction of a new manufacturing plant in Kosice. this happened despite continuing stagnation in this segment. the previous year has been extremely dynamic for the Slovak branch of Colliers international. Global rebranding, relocation of Colliers office and new team members opened way to offer our clients comprehensive services with added value. We use the synergy of individual divisions to deliver to Client effective solutions, professional advice with local knowledge and superior care.

Forecasts indicate that 2011 will be challenging for the real estate market. Balance between demand and supply of new office premises, continuing problematic access to financing for developers, changes in the future use of projects, reducing yields and presence of barriers in refinancing existing properties will be the main characteristics of this year. Despite these expectations we are awaiting positive signals from the industrial market that will move mainly in regions.

Colliers international as a team of experienced professionals is prepared to meet the needs and gain the trust of each client.

Best regards, ermanno Boeris

Ermanno Boeris managing director colliers international slovakia

Address Europeum Business Center1 Suché Mýto81103 Bratislava, Slovakia

Phone +421 259 980 980

Email [email protected]

P. 137 | CollieRS inteRnAtionAl

CollieRS inteRnAtionAl | P. 138Research: Diana.LiptajovaColliers.com

2011 COLLIerS reAL eStAte reVIew » SLOVAKIA

ECONOMIC OVERVIEW

SUMMARY � Slovakia rebounded relatively quickly

from the global economic slowdown. The prudent regulatory framework for the financial sector, combined with competitive tax rates, has ensured Slovakia’s transition into a flexible and vibrant economy with a considerable degree of resilience.

� GDP was strong over 2010 increasing by 4.7% y-o-y, even though the rate of growth declined slightly toward year end. Industrial production was particularly strong, at ca. 17% growth for the year, helping to drive GDP growth to more than double the EU27 average of 2.2% in 2010.

� Despite positive economic growth, the unemployment rate increased to 14.1%, up by 1.6% over the year. Despite increasing unemployment, the average nominal monthly wage of employees in the Slovak economy increased by 3.7%, amounting to €750 in third quarter. Real (inflation adjusted) wages increased by 2.6%. The average nominal monthly wages of employees increased most within the information and communication (€1,354) business sector.

� Consumer prices also increased in 2010 by 1% on average over the year. Prices increased the most in the food and non-alcoholic beverage sector by 6.2%, in education by 4.5% and in miscellaneous goods and services by 1.9%.

� In addition to market changes, the basic rate of value added tax increased over the year from 19 to 20%. The changes are part of a government package to reduce the public finance deficit which reached nearly 8% of gross domestic product last year. These are suggested as temporary measures which will expire when the deficit is below 3%, the EU target. This will take a number of years to reach.

� Looking forward, whilst it may dampen retail and business trade, the fact that most other countries face similar austerity dilemmas keeps Slovakia in a competitive position.

PROGNOSIS � According to FocusEconomics

analysis, the consensus forecasts of banks estimates that the overall GDP growth in 2011 will reach 3.1%.

� GDP should be driven mainly by net exports, although a moderate recovery in domestic demand is possible, stimulated by labor market improvement.

� Inflation shows an upward trend in 2011. Consumer prices could increase by 2% as the first quarter in 2011.

� Unemployment is expected to decrease further over the year, but at a moderate pace.

� The coalition government has proposed a consolidation plan to cut the deficit from a revised 7.8% of GDP in 2010 to 5% in 2011 and confirmed a target of 3% for 2013.

� Roughly half of next year’s consolidation should come from revenue measures (raising VAT by 1 pp, excise taxes on beer and tobacco, energy taxes, etc.) and half from cost-cutting in public administration this could dampen economic growth prospects accordingly, with retail sales set to suffer as a result.

12%

8%

4%

0%

-4%

-8%

GDP

|

2006|

2007|

2008|

2009|

Q12010

|

Q22010

|

Q32010

|

Q42010

|

Q12011

Source: Statistical Office of theSlovak Republic, Focus Economics

560,000

480,000

400,000

320,000

240,000

160,000

80,000

0

18%

15%

12%

9%

6%

3%

0%

UNEMPLOYMENT

|2005

|2007

|2009

|Q2

2010

|2006

|2008

|Q1

2010

|Q3

2010▄ Number of unemployed ▬ Unemployment rate (%)

Source: Statistical Office of the Slovak Republic

|

2006|

2007|

2008|

2009|

Q12010

|

Q22010

|

Q32010

|

Q42010

|

Q12011

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

CONSUMER PRICES

Source: Statistical Office of theSlovak Republic, Focus Economics

P. 139 | CollieRS inteRnAtionAl Research: Diana.LiptajovaColliers.com


OFFICE MARKET

SUPPLY � By the end of the fourth quarter 2010,

the total office stock in Bratislava stands at 1.367 Mln Sqm which remains unchanged from the previous quarter. More than 60% of the space is Grade A space and almost 40% is Grade B space.

� Over the year, total office stock in Bratislava increased by approximately 70,000 Sqm – 48% fall in new supply in comparison with 2009.

� Over 102,000 Sqm of the office space is currently under construction, of which 60,000 Sqm is planned to be completed by the end of the year 2011. These include Pannon Office (6,000 Sqm) in the City Centre and Westend (18,000 Sqm) in Outer City.

DEMAND � Transactions in the last quarter of

2010 rose significantly in the final quarter of the year, reaching 53,000 Sqm. This represents a 45% increase over Q3 take-up and is indicative of much larger take-up levels for the year.

� The total take-up for 2010 reached almost 154,000 Sqm, what represents a very significant increase in activity in the office market – a 60% increase on 2009. In fact this appears to be Bratislava’s record year for take-up, 50% higher than the previous highs of take-up in 2006/7.

� Almost one quarter of all activity is represented by pre-leases and renegotiations represent almost 10%.

� Total take-up in 2010 was mostly driven by companies from the IT sector (24%) followed by the Finance/Banking/Insurance sector (24%) and Professional services (13%).

� The majority of transactions were in units of less than 500 Sqm (70%). Units in the range of 501 – 1,000 Sqm accounted for 3% of signed deals and a further 27% comprised leases signed for units of 1,001+ Sqm.

VACANCY/AVAILABILITY � The vacancy rate reached 9.6% by

year end, which represents the lowest rate compared to the previous quarters. However, there is still 132,000 Sqm of vacant space that has not been leased. In first quarter of 2010 vacancy rate reached its top, as it was 14.2%.

� The highest vacancy rate was recorded in the City Centre (13.5%), followed by Outer City (8.4%) and Inner City (7.2%). Among the five Bratislava districts Bratislava V remains the location with the least office amount of space available for lease (2.5%).

RENTS � Prime office headline rents recorded

slightly increasing trend in 2010. Rents now range from 14 to €18 Sqm/pcm in the City Centre, 11 to €14 Sqm/pcm in the Inner City and 9 to €12 Sqm/pcm in the Outer City.

� The Prime headline rent currently stands at €15 Sqm/pcm, while average headline rents stand at €11 Sqm/pcm. Landlords and developers continue to provide discounts and incentives to keep their existing clients and attract potential tenants. For a client above 1,000 Sqm developers are offering a rent-free period of ca. 6 months.

PROGNOSIS � The situation on the market is

becoming more optimistic due to a higher number of closed transactions. Although several projects came back from standby, the pipeline only matches up to 50% of 2008 delivery.

� We expect the overall vacancy rate to decrease continuously during the next 6 to 12 months. The best case scenario would be a decrease of up to 7 – 8% by the end of 2011.

� Prime rents as well as effective rents are expected to increase slightly during the next 6 – 12 months.

|

Q12009

|

Q22009

|

Q32009

|

Q42009

|

Q12010

|

Q22010

|

Q32010

|

Q42010

50,000

40,000

30,000

20,000

10,000

0

CHANGE IN STOCK OVER TIME

Source: BRF/Colliers International

200,000

160,000

120,000

80,000

40,000

0

18%

12%

6%

0%

-6%

-12%

OFFICE MARKET INDICATORS

▄ Vacant space (sqm) ▄ Take-up (sqm) ▬ Vacancy ▬ GDP (variation %)

|Q1

2009

|Q3

2009

|Q1

2010

|Q3

2010

|Q2

2009

|Q4

2009

|Q2

2010

|Q4

2010


|

Q1 2010|

Q2 2010|

Q3 2010|

Q4 2010

30,000

25,000

20,000

15,000

10,000

5,000

0

TAKE UP BY SUBMARKET AND QUARTER

▄ City Centre ▄ Inner City ▄ Outer City


CollieRS inteRnAtionAl | P. 140Research: Diana.LiptajovaColliers.com


INDUSTRIAL MARKET

SUPPLY � By the end of the year the total

modern stock of industrial space increased by 5,000 Sqm and reached 1,005,500 Sqm.

� Approximately 69% of total stock is located in the Bratislava region, 21.5% in the Trnava region, 5.9% in the Trencin region, while the rest is split between the Zilina and Presov region. There are no logistic parks providing class A warehouse premises in other regions of Slovakia.

� Developers share of the total stock (as a ratio between total stock of a developer and the total stock of the market) stayed at same level for the whole of 2010. The biggest developers share is held by ProLogis (38%), providing 384,000 Sqm of leasable class A warehouse premises, followed by HB Reavis (12%) and AIG Lincoln (11%). Other developers share of the total stock is below 10%.

DEMAND � Total leasing activity in 2010 reached

43,150 Sqm, what represents a decrease of 69% compared with 2009. After no leasing activity in the first quarter, the industrial market slowly woke up in second and third quarters, reaching 24,850 Sqm and 13,300 Sqm respectively. At the end of the year industrial market recorded transaction in Presov (5,000 Sqm in Chemako industrial park leased by Kolormax).

� Regionally, the largest volume of demand was accommodated in the Bratislava region (81%), followed by the Presov region (11%), Trnava (5%) and Trencin (3%).

CORPORATE CLIENT SERVICES. � Colliers represented Faurecia in

following transactions: — Lease renegotiation and extension in AIG/Lincoln park Lozorno (Q1) – 11,500 Sqm.

— Swap of facilities in DaK Kuester DNV park (Q1 – Q4) – 3,200 Sqm.

— Lease renegotiation and extension in AXA Logistic park Trnava (Q4) – 10,500 Sqm.

— Lease extension of Faurecia exhaust division in Zilina (Q4) – 1,700 Sqm.

� Colliers represented Martinrea Fluid Systems Svaty Jur in expansion of current operation. Colliers executed market research and site overview.

� Colliers assisted Delphi in market research and site search as part of optimalization project which resulted in extension of Delphi Hungary operation.

VACANCY/AVAILABILITY � Across the country, the vacancy rate

has steadily decreased since the beginning of the year 2010. It reached approximately 8% in the first half of year 2010 and in the second half of the year the rate declined below 8%, reaching 7.4% by end Q4. This leaves only ca. 74,820 Sqm of leasable space available for take up.

RENTS � Rental levels either remained stable

or increased slightly over the year, in response to the falling levels of vacancy and low supply. Typical rents at year-end are now as follows (€Sqm/pcm):

— Base warehouse area: 3.60 – 4.15 — Base production area: 3.95 – 4.60 — Base office area: 8.00 – 9.00

PROGNOSIS � Due to low vacancy rates Colliers

expects developers in the Senec area to launch new developments. We predict strong pre-lease campaigns for Zilina, Presov and Kosice at rents higher than current levels.

� Developers continue to focus on 'Permit ready' locations with the possibility to launch pre-lease developments. So far they secured land plots on an option-to-buy basis.

TOTAL STOCK BY REGIONS

Trnava21.48%

Trencin5.87%

Presov2.98%

Zilina0.80%

Bratislava68.87%

100,000

80,000

60,000

40,000

20,000

0

VACANCY / TAKE UP

▄ Vacant Space ▄ Take Up

|

Q12009

|

Q22009

|

Q32009

|

Q42009

|

Q12010

|

Q22010

|

Q32010

|

Q42010

Source: Colliers International

1,020,000

995,000

970,000

945,000

920,000

895,000

870,000

10%

8%

6%

4%

2%

0%

TOTAL STOCK / VACANCY RATE

▄ Total Stock ▬ Vacancy Rate

|Q1

2009

|Q3

2009

|Q1

2010

|Q3

2010

|Q2

2009

|Q4

2009

|Q2

2010

|Q4

2010




RETAIL MARKET

OVERVIEW � The retail market in Slovakia came

back to life in 2010, although retailers remain very cautious. Declines in retail sales, decreasing disposable income and purchasing power of inhabitants, increasing unemployment and job insecurity caused some retailers to close unprofitable stores in order to focus on those units which were profitable.

� Concurrently, the boom in the construction of shopping centers continued unabted despite the crisis. Across 2010 Slovakia, approximately 190,000 Sqm of new shopping center space was registered, the largest increase in the last 20 years.

� The largest increase was in the Bratislava Region, representing 44% of all completions in Slovakia. The second most popular destination was the Zilina Region with 36%, including the schemes Aupark (25,700 Sqm) and Mirage (20,900 Sqm).

SUPPLY � Total shopping centre stock in

Bratislava reached 452,000 Sqm in 2010, as 85,000 Sqm was added in 2010 – this is approximately 50% more new supply than in 2009.

� The most significant projects, completed 2010 in Bratislava were Eurovea (55,000 Sqm), River Park (5,500 Sqm), Galeria Cubicon (7,800 Sqm) and Storeland (16,500 Sqm).

� The majority of total stock is located in Bratislava II district, where there is now a total of 200,900 Sqm (44%) and Bratislava V (22%). The least amount of stock is located in Bratislava IV, with only 9% of total stock in Bratislava.

RENTS � For the past few months rental rates

in shopping centers and high street have remained at the same level. Average prime rents in traditional shopping centers are typically €35 Sqm/pcm, high street rents are around €30 Sqm/pcm.

� Average rents in traditional shopping centers in Bratislava are as follows:

— Fashion units: €11 – 35 Sqm/pcm — Sport units: €10 – 31 Sqm/pcm — Shoes units: €13 – 34 Sqm/pcm — Lingerie units: €30 – 38 Sqm/pcm — Fast food units: €18 – 37 Sqm/pcm — Café units: €27 – 39 Sqm/pcm

PROGNOSIS � The gap between successful and

unsuccessful centers will deepen, with location and accessibility the most crucial for their success. The importance of marketing is also increasing.

� Retailers will also remain cautious in terms of expanding in 2011. Expiration of lease agreements will create a relatively new leasing market.

� Rents will remain stable and the market will remain tenant driven. Strong and popular tenants are still demanding concessions such as fit-out contribution, rent-free periods, turnover or step-up rents.

� Landlords and tenants need to be creative and pro-active to address their message as the competition is stronger.

|

2005|

2006|

2008|

2007|

2009|

2010

500,000

400,000

300,000

200,000

100,000

0

SHOPPING CENTER STOCK, BRATISLAVA


▄ Traditional SC ▄ Specialized SC

100,000

80,000

60,000

40,000

20,000

0

CHANGE IN SC STOCK OVER TIME, BRATISLAVA

|

2000|

2006|

2008|

2007|

2009|

2010|

2005|

2004|

2003|

2002|

2001


NEW COMPLETIONS OF SC IN 2010 BY REGIONS

Zilina35%

Trencin8%

Trnava5%

Presov5%

Nitra2%

Bratislava45%

Research: Diana.LiptajovaColliers.com

CollieRS inteRnAtionAl | P. 142


SUMMARY � During 2010, the investment market in

Central and Eastern Europe continued to witness a recovery in transaction volumes and market sentiment, more than doubling the activity witnessed in 2009.

� Most of institutional investor focused their investment mostly in Poland and Czech Republic. As typical investment transactions, in Slovakia we recorded one hotel deal in Bratislava and three TESCO Stores (representing two transactions).

� Completed transactions confirmed the actual investment trend for our market: single and strong tenant with lease agreement over 10 years.

� Pricing, reflected in yields, has witnessed dual behavior with prime and secondary stock showing a widening pricing/risk gap. On the one side, there is a reduced group of top class properties where net initial yields range between 7.0 – 7.5%.

� On the other side, there is an expanding group of properties presenting a range of risk (i.e. low occupancy or location) factors, where net initial yields move in a range of 8.5% and higher.

� Development and investment finance remains available on the market, and at non-prohibitive rates in terms of loan to value/loan to cost ratios. Whilst the product may not be there, the money appears to be.

� Development Finance, loan to costs: — 60 – 70% LTC; — High ratio of presales/preleases required;

— Interest rate: 3M euribor + margin (3 – 4%).

� Investment Finance, loan to value: — 70% LTV; — Debt Service Cover Ratio: min. 1.2; — Interest rate: 3M euribor + margin (2.5 – 3.5%).

� Development activity appears restricted by requirements for high levels of presales/preleases. And rightly so. The market needs to consolidate before it can underpin further development activity without over-saturating the office and retail markets in particular.

PROGNOSIS � For 2011 we expect the realization of

transactions that have been postponed during 2010 as well as more investors re-entering the Slovak market based on the solid macroeconomic fundamentals of the Slovak economy.

� This will be supported by a more stable office occupier market, for good quality product at least. Industrial production is reporting steady growth with a number of companies considering possible expansions. The logistics market is already receiving the attention of developers seeking land purchase opportunities.

� Inflation may become an important issue during 2011 and many investors may see the investment on income producing properties offering indexed rents as a good protection against potential inflation risks.

� From a regional perspective, the pressure on returns in the Polish market reflected in low yields, currently make Slovak yields look more attractive for those investors less concerned with local market liquidity. This should increase overall activity in the market.

INVESTMENT MARKET

|

2005|

2007|

Mid 2010|

2006|

2009|

2008|

2010

12

10

8

6

4

2

0

YIELDS

▬ Office ▬ Retail ▬ Industrial


|

2008|

2007|

2006|

2005|

2004|

2009|

2010

700

600

500

400

300

200

100

0

INVESTMENT VOLUMES (€ MLN)

Research: Diana.LiptajovaColliers.com



SLOVAKIA LEGAL OVERVIEW

BASIC FORMS OF TITLE � With some exceptions, land may be

owned, used and transferred freely in Slovakia. The most common title to real estate is full ownership (“vlastnícke právo", ius proprietas), which is similar to a “freehold” title and entitles the owner to a full range of perpetual rights to use and enjoy real property. It is also possible to use real estate on the basis of (i) an easement ("vecné bremeno") or (ii) a lease ("nájomné právo"), which can be either for a definite or for an indefinite period of time.

ACqUISITION OF REAL ESTATE BY FOREIGNERS

� With limited exceptions concerning forestland and agriculture land in the outer areas of a municipality (“extravilán”), foreigners may freely acquire real estate in Slovakia as of May 1, 2004. Foreigners who are EU nationals may acquire commercial real estate directly; they may also directly acquire forestland and agriculture land in the outer areas of municipality, but only under certain conditions. Indirect acquisitions may be made through the establishment of a Slovak legal entity, such as a limited liability company (spoločnost s ručením obmedzeným), which may be wholly owned by a foreigner.

REGISTRATION SYSTEM � The Cadastral Register ("kataster

nehnuteľností”) discloses the property owner and indicates the extent to which the land is encumbered by mortgages and other servitudes. Any right in rem becomes effective through registration in the Cadastral Register as of the day the registration decision is issued. Registration is performed by cadastral offices ("správa katastra"). As a general rule, “good faith” purchasers of land are entitled to rely upon information contained in the registers, unless such information is proven to be unreliable. Non-binding data from the Cadastral Register is also available online. Accelerated registrations (subject to higher fees) of any changes relating to real estate registered in the Cadastral Register take a maximum 15 days.

TAxES � Presently, there is no real estate transfer

tax, inheritance tax or gift tax applicable in the Slovak Republic. Value Added Tax may be payable in certain cases on the transfer of real property. Following fiscal decentralisation, municipalities administer real estate tax.

LEASES � Leases in the Slovak Republic are freely

negotiable, but are subject to certain mandatory provisions of the Civil Code and the Act on the Lease and Sublease of Non-Residential Premises. These mandatory provisions may not be varied by contract. The most important restrictions concern lease commencement and termination rights, where the contractual freedom is limited, or even excluded.

RESTITUTION CLAIMS � There are comprehensive restitution laws

in the Slovak Republic. All deadlines for claims have passed. However, certain proceedings may still be pending.

NOTARIES AND NOTARIAL FEES � Legal agreements establishing the sale of

real estate and the transfer of usufruct rights to real estate (such as easements, pre-emption etc.) that are to be registered in the Cadastral Register do not need to be in notarial form to be enforceable in the Slovak Republic. However, in certain cases, the signatures of transferors in such legal agreements have to be certified by a notary public, local municipality or advocates.

LANGUAGE � Any document that is to be submitted to

any Slovak state authority (such as the Cadastral Register or the Commercial Register) must be translated into Slovak. However, it is common for English or other languages to be used as a second and governing language.

Information contained in this general outline does not constitute a legal opinion and is not meant to be comprehensive. As a result of pending and new legislation, laws and regulations change frequently in Slovakia and are often subject to varying interpretations. Professional advice should be sought regarding all aspects of real estate in Slovakia.

CollieRS inteRnAtionAl | P. 144Contact: [email protected]


SLOVAKIA TAX SUMMARY

GENERAL � The Slovak tax system has been relatively

stable since the implementation of major tax reforms effective from 2004. The amendment to the income tax law passed at the end of 2007 introduced some potentially significant changes in a number of areas including transfer pricing documentation requirements. In 2009 the amendment to the Slovak tax legislation introduced a new tax treatment for business combinations effective from 1 January 2010. In December 2010 the Parliament approved an amendment to the Slovak tax legislation introducing tax on emission quota and, among other changes, defining withholding tax as the final tax with certain exceptions, with effect from 1 January 2011. The amendment to the VAT legislation passed in 2009 introduced the possibility of VAT grouping and accelerated VAT refunds for qualifying taxpayers. In addition the EU VAT Package was passed by the Parliament and implemented with effect from 1 January 2010. The amendment to the VAT Act effective from 1 January 2011 extended the period for the application of capital goods scheme to real estate from 10 to 20 years and temporarily increased the basic VAT rate from 19% to 20%.

CIT AND CAPITAL GAINS � CIT in Slovakia is levied on all taxable

income at the standard corporate tax rate of 19%. Income is computed as taxable revenues reduced by eligible costs incurred to generate, assure or maintain taxable income.

� There is no separate capital gains tax in Slovakia and gains on the disposal of fixed assets and intangibles are included in a taxpayer´s total income. On disposal, the taxpayer can deduct the net tax value of the assets (after accumulated depreciation) and associated disposal expenditures. Taxable income can be reduced by tax losses available for utilization. Losses on the sale of buildings are generally tax deductible but losses on the sale of land are not deductible. With effect from 1 January 2011 capital gains on sale of real estate, rental income or other income from real estate situated in Slovakia is under the local rules subject to income tax also if both parties involved in the transaction

are Slovak tax non-residents not having a permanent establishment in Slovakia.

� In the case of a sale of shares in a Slovak company held by a non – Slovak shareholder, the double tax treaties Slovakia has concluded with other countries normally provide for the right to tax the capital gain in the jurisdiction of the shareholder. However, some double tax treaties allow the gain to be taxed in Slovakia, either generally in the case of the double tax treaty with Germany or specifically in the case that the Slovak company which is being disposed of comprises substantially real estate as in the case of the double tax treaty with Ireland.

� There is no concept of fiscal grouping for corporate income tax purposes in Slovakia.

TAx DEPRECIATION � Depreciation of fixed assets is calculated

on a straight line or accelerated basis using rates laid down in legislation. Depreciation is based on categorization of assets into groups with depreciation periods between 4 and 20 years. Buildings are normally depreciated over 20 years. It is possible to decide to interrupt (not claim) depreciation in any particular year. This prolongs the depreciation period. Land is not depreciated for tax purposes.

� It is also possible to divide fixed asset into separate detachable components if the acquisition value of each respective component is higher than €1,700 and in the case of certain components of real estate depreciate them separately in a different tax depreciation group.

TAx LOSSES � Tax losses may be carried forward and

utilized for 7 years if the loss was incurred after 31 December 2009. Tax losses incurred in tax periods ending before or on 31 December 2009 may be carried forward over five years. Under current rules there are no restrictions on the amount of loss which can be utilized each year. Prior to 2004 highly complicated tax loss rules applied which significantly restricted loss carry forwards and imposed reinvestment requirements. These rules still apply to „old“

losses being carried forward. The ability to utilize tax losses is unaffected by a change of ownership of a company but can be affected by a merger or other reorganization if a main purpose is to obtain a tax advantage.

THIN CAPITALIZATION � Thin capitalization rules originally included

in the income tax legislation which were supposed to apply from 1 January 2010 were deleted from the Slovak tax legislation by an amendment to the Slovak Income Tax Act and thus did not come into effect.

WITHHOLDING TAxDIVIDENDS

� Dividends are currently not subject to any withholding tax if paid out of profits generated from 1 January 2004 onwards. Dividend withholding tax is applicable at the rate of 19% for profits generated prior to this date. This is generally reduced under double tax treaties to which Slovakia is a party. To apply the reduced rate, it is advisable for the payer to be in possessions of a tax residence certificate of its shareholder. Dividends paid to, EU/EEA resident companies are exempt from Slovak withholding tax if the terms of the Parents-Subsidiary Directive as applied in Slovak law are met.

INTEREST, ROYALTIES AND INTANGIBLE SERVICES

� Under Slovak domestic legislation, withholding tax of 19% applies on payments of interest, royalties and fees for intangible services made abroad. This is generally reduced or eliminated under the double tax treaties to which Slovakia is a party. However, in order to apply the treaty rates, the payer should have a certificate of tax residence of the recipient. Furthermore, the Interest and Royalties Directive fully applies in Slovakia.

� With effect from 1 January 2011 withholding tax is regarded as the final tax with certain exceptions, e.g. certain income of tax non-residents listed by the tax legislation.

SECURITY TAx � Payments to an entity which has or may

have a Permanent Establishment in Slovakia



Contact: [email protected]


are subject to a 19% security tax. This is not applied if the receiving entity holds a certificate proving it makes advance payments of tax or from 2007 onwards if the receiving entity has its registered seat or address in the EU.

BUSINESS COMBINATIONS � With effect from 1 January 2010 taxpayers

in Slovakia may decide that in the case of certain business combinations the fair value will be used not only for accounting, but also for tax purposes.

� In such a case the revaluation difference arising from the restructuring must be included in the taxable base in line with the tax law, but on the other hand the company may depreciate assets from their fair value and must not continue in the tax depreciation of assets from their tax residual value. In addition, the amortization of goodwill may under certain conditions be tax deductible.

TAx ON EMISSION qUOTA � Tax on emission quota applies to emission

quota issued for 2011 and 2012.

REAL ESTATE TAx � Real estate tax is in general applied to

companies and individuals owning land and buildings. The tax is based on the area of the land and building, number of floors of a building, usage and location. There is considerable flexibility for local authorities in setting the rates of tax.

REAL ESTATE TRANSFER TAx AND OTHER TRANSFER TAxES AND DUTIES

� Real Estate Transfer Tax was abolished from 1 January 2005. There are no significant stamp or other duties on the transfer of land or buildings.

� Acquisition of shares in Slovak companies is not subject to any transfer tax or significant stamp duties.

VATGENERAL PROVISIONS REGARDING REAL ESTATE

� The basic VAT rate was temporarily increased from 19% to 20%. Generally the sale of the property is subject to VAT in

Slovakia if sold within 5 years of first occupancy permit or first use. The sale of building land is also subject to VAT. The standard VAT rate in Slovakia is with effect from 1 January 2011 set at the rate of 20% for building land and buildings. To the extent real estate sales do not meet these conditions they are VAT exempt but the supplier has the option to choose to charge VAT.

� Rental of real estate is exempt from VAT but the supplier may elect to charge VAT if the supply is made to a VAT registered entity.

VAT GROUPING � According to an amendment to the tax law

passed in February 2009, VAT grouping is possible in Slovakia with effect from 1 January 2010.

� The application for the VAT group registration should be filed by the member of the group who is appointed as the representative of the group. The tax authorities should register the VAT group with effect from 1 January of the calendar year following the year in which the application for registration was submitted if the respective application has been filed by 31 October of the current calendar year.

� Should the application for the VAT group registration be filed after 31 October of the current year, the tax authorities will register the group with effect from 1 January of the second year following the calendar year in which the application for the registration of the VAT group was filed. This means that the first VAT groups may exist in Slovakia from 1 January 2010 subject to filing the respective application by 31 October 2009.

� VAT grouping can positively affect the cash flow of companies in a VAT group since VAT will not be charged on transactions between the group members.

VAT REFUND � Slovak entities may apply for a refund of

VAT incurred. Generally the refund takes approximately 90 days if the supplier is a monthly VAT payer.

� According to an amendment to the VAT

legislation passed in February 2009, VAT will be refunded to qualifying taxpayers within 30 days of the deadline for filing the tax return for the respective taxable period. The new rule should effectively accelerate VAT refunds for eligible VAT payers by 30 days as compared with previous rules. The accelerated refund mechanism should be applied to VAT payers whose taxable period is a calendar month, who have been registered for VAT purposes for at least a period of 12 months before claiming the excess tax deduction, and who did not have any outstanding liabilities towards the state budget and towards social/health insurance institutions during 12 calendar months before the end of the calendar month in which the excess VAT deduction arose. Taxpayers who comply with these conditions will have to note this in the respective VAT return. For other VAT payers the refund procedure remains unchanged.

� Slovakia applies the capital goods scheme to modify VAT recovery on assets if the use of a building changes within a 20 year period.

SLOVAK ACT ON VALUE ADDED TAx (VATA) GENERAL RULE FOR DETERMINING THE PLACE OF SUPPLY OF SERVICES

� The amendment to the VAT legislation passed in October 2009 introduces a change in the general rule for determining the place of supply of services (i.e. the “place of taxation”). The new rules stipulate that: the place of supply of service to a taxable person (so – called B2B – business to business service) is the place where the customer is established; and the place of supply of service to a person other than a taxable person (so – called B2C – business to consumer services) remains in the Member State of the service supplier. Exceptions to the general rule will apply for specific kinds of services.

� There are also changes to the determination of: the date of supply for services received from foreign suppliers (where the person obliged to pay tax is the recipient of the service); date of supply of services procured in one’s name but on behalf of another person; and also the date of supply of partially and recurrently supplied

CollieRS inteRnAtionAl | P. 146

services.

TRANSFER PRICING � Prices use in transactions between related

parties must comply with arm´s length principles. Under the Slovak tax law, if the agreed price for a transaction is different from a fair market price and the difference would lead to the decrease of the taxable base of the Slovak related party, a fair market price will be substituted for tax purposes. Related parties are generally defined as economically or personally connected individuals or legal entities. Economic connection is understood as a participation of more than 25% in share capital or voting rights. Personal connection is understood as a participation in the management or control of the other person.

� From 1 January 2004 to 19 July 2005 and again from 15 December 2005, strictly transfer pricing rules do not apply between Slovak entities although these continue to apply to transactions between Slovak and foreign related parties. The Slovak tax authorities are however of the opinion that they have other mechanisms under general Slovak principles to challenge non-arm´s length prices between Slovak entities.

� Based on transfer pricing principles the remuneration of the supplier should reflect the risks borne and functions performed. In principle any method recognized by OECD could be used for the price determination (e.g. cost plus, resale minus, comparable uncontrolled price). It should be stressed however, that regardless of the method used if the price charged for the service or goods supplied is significantly different compared to the prices charged for similar transactions by independent companies, the tax authorities would probably challenge the structure in place.

� Formal transfer pricing documentation requirements are effective from 1 January 2009. The Ministry of Finance issued guidelines to transfer pricing documentation rules which should be followed by related parties in Slovakia.



Contact: [email protected]

www.colliers.com