Recently, the Parliament of the Slovak Republic approved in the first reading a bill to abolish the rules on controlled foreign companies (CFC) for individuals.
The rules have been in effect since January 1, 2022. Compliance requirements applied to individuals who controlled at least 10% of a foreign company incorporated in a jurisdiction where the corporate tax rate does not exceed 10% or in a blacklisted jurisdiction (with exceptions).
The initiators of the cancellation were the deputies of the Slovak parliament Marian Viskupic and Petr Kremsky. The abolition of CFC rules for an individual is part of the amendments to the Income Tax Law. The deputies believe that the application of the rules in practice turned out to be ineffective and did not meet expectations. CFC rules for individuals are also not regulated by EU law. The relevant Eurodirective applies to all taxpayers who pay income tax.
As part of the OECD international tax reform, there are requirements for the application of CFC rules only for legal entities.
In addition, only five EU countries have introduced these rules, but their compliance conditions are much less stringent than in Slovakia. But the CFC rules for legal entities are valid in all EU member states.
According to deputies, the abolition of the rules will not affect the public administration budget, as this is a new tax from which the state has not yet received any tax revenues.
CFC rules for individuals in Slovakia will be abolished from August 1, 2023. A transitional period is provided to ensure legal certainty. If necessary, overpaid taxes will be refunded in accordance with the relevant provisions.