Businesses in Slovenia may choose from the following types of corporate structures, according to the Companies Act:

• a limited liability company;
• a public limited company;
• a partnership limited by shares;
• a unlimited company;
• a limited partnership.

The key difference between these corporate forms is that company members or shareholders of a limited liability company and a public limited company are not liable for the obligations of the company, while some or all company members or partners of other corporate forms may be liable for the company obligations with all of their assets. Most businesses generally adopt the form of a limited liability company.

Foreign companies may also perform business activity in Slovenia through branches.

Entities registered in Slovenia are taxed as separate legal entities.

Transparent corporate entities for tax purposes do not exist as such under Slovene law.

A special 0% corporate income tax rate does apply for investment funds. That is, those investment funds that are incorporated in line with Undertakings for the Collective Investment in Transferable Securities (UCITS) legislation are thus effectively exempted from payment of corporate income tax.

Alternative Investment Funds, which are organised as non-corporate entities separate from their Alternative Investment Funds Manager, shall not be regarded as taxpayers under the Slovenia Corporate Income Tax Act (CIT Act) and shall not be liable to corporate income tax (CIT). Alternative Investment Funds do not, however, have a beneficial tax treatment if organised as corporate entities.

Incorporated business and transparent entities are considered to be tax-resident if they have a statutory seat or effective place of management located in Slovenia. Tax residents of Slovenia have to pay tax on profits achieved in Slovenia and in other countries according to worldwide taxation principles.

The definition of a permanent establishment (PE) of a non-resident, according to the CIT Act, is a place of business in Slovenia in or through which the non-resident conducts its activities in whole or in part. In particular, each of the following constitutes a PE:

• an office, branch, factory, workshop, mine, quarry, or other place where natural resources are obtained or exploited;
• a construction, assembly, or installation site or its supervision, if the duration of the activities exceeds 12 months.

The place of business does not have to be permanent for the establishment condition to be met.

It is not considered a non-resident’s PE if the place of business is used by the non-resident only:

• for storage, display, or delivery of goods belonging to themselves;
• for maintaining inventories of goods belonging to themselves for the purpose of storage, display, or delivery;
• for maintaining inventories of goods belonging to themselves for the purpose of processing by third parties;
• for maintaining the place of business in question for the purpose of purchasing goods or collecting information for themselves;
• for maintaining the place of business for the purpose of engaging in any other preparatory or auxiliary activity for themselves; or
• for maintaining the place of business in question for the purpose of any combination of activities previously referred to, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

More than 50 Double Tax Treaties (DTT) are in force. PE provisions of DTTs can be affected in cases where Slovenia and the other contracting state have ratified the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

The standard corporate income tax rate is 19%. As the tax base can be deducted at a maximum rate of 63% after applied deductions, the minimum effective tax rate is 7.03%.

The tax base is primarily determined on the basis of accounting rules, which are used to determine accounting profits. The tax base thus established, as the difference between the accounting income and expenditure, is adjusted for tax purposes. The most substantial adjustments for tax purposes are related to:

• the revaluation of assets, including the revaluation of financial investments, receivables and goodwill;
• capital gains, dividends and incomes similar to dividends;
• tax non-recognised expenditures;
• transfer pricing and thin capitalisation;
• mergers and acquisitions;
• tax reliefs and provisions.

The R&D incentive allows for a 100% deduction of the amount invested in internal R&D activities and the purchase of R&D services.

The investment incentive allows for a 40% deduction of the amount invested in certain prescribed equipment and intangible assets, excluding investments in real estate property.

Additionally, a special incentive was introduced as part of the post-COVID-19 recovery plan, which allows for a 40% deduction of investment into AI technology, cloud computing, green technology, etc.

The combined deduction can be used up to the maximum of 63% of the actual tax base.

Thin-capitalisation rules do not apply when a loan is received by a bank or insurance company.

Notwithstanding the general rules on provisions, provisions held by banks, brokerage firms and insurance companies shall be considered as a fully tax-deductible expense, up to a maximum amount to be determined by the sectoral law.

During the COVID-19 crisis, there were plenty of supporting measures and incentives implemented by the government, including the reimbursement of the costs of furlough of employees in areas where work was shut down to prevent the spike of an unemployment rate and reimbursement of fixed costs for companies to prevent bankruptcies.

Tax losses from the current period can be carried forward into the next tax period with no limitation in time and may be used only up to 50% of the tax base of the period. The carry-back of losses is not allowed in Slovenia.

There are no generally imposed deductions of interest, while transfer-pricing rules and thin capitalisation are applied (see 4.4 Transfer Pricing Issues).

Consolidated tax grouping is not allowed in Slovenia.

Capital gains are regarded as ordinary income and are taxed at the standard tax rate. Capital gains and losses are 50% exempt if the shares represent at least 8% of participation in the company concerned, and if the shares were held for a period longer than six months and there was at least one person employed on a full-time basis in the company of which shares were sold.

This treatment does not apply to the income derived from the disposal of shares of companies, co-operative societies or other types of organisations that have a registered office or place of effective management in states where the general or average nominal rate of taxation applicable to the profits generated by companies is lower than 12.5% and the state is listed on a published list by the Ministry of Finance, where these states are not EU member states.

Expenditure related to managing and financing investments in the capital of companies, co-operative societies or other types of organisations facilitating capital gains and dividends which are tax-exempt shall not be recognised in an amount equalling 5% of the amount of dividends and capital gains which are exempt from the tax base.

Other taxes payable on a transaction include Value-Added Tax, which is charged on supplies of goods or services is charged and paid at a general rate of 22%, except for supplies of goods and services for which a reduced rate of 9.5% is applied. Real estate transfer tax (2%) is payable on transactions of real estate.

Businesses have to deduct payroll taxes for their employees (social security contributions, wage withholding tax).

Certain financial services tax (8.5%) is payable on transactions of certain financial services, if exempt from VAT. Some business activities may also result in additional taxes for businesses, such as environmental taxes, excise taxes (alcohol, tobacco, energy sources), motor vehicle tax, etc.

Closely held local businesses in Slovenia are mostly incorporated as a limited liability company.

As the earned income is first subject to the corporate income tax (19%) and then additionally when dividends are paid out to the owner, subject to tax on dividends (27.5%), this amounts approximately to a tax burden similar to that which would apply if the income were earned by the individual without using the corporate structure, and progressive personal income rates would apply (from 16% in the lowest bracket up to 50% in the highest bracket).

Individuals generating business incomes may elect to determine the tax base by taking into account normalised expenses. This means that 80% of their income is regarded as expenses (up to a maximum of EUR80,000) and only the remaining 20% of income is the tax base, which is taxed at 20%. Thus, a flat-rate taxation of 4% on income up to EUR100,000 and a flat-rate taxation of 20% on income over EUR100,000 is applied. This regime applies to individuals whose business turnover in two consecutive years does not exceed EUR300,000.

As this represents a uniquely low level of taxation, in practice many employments are covertly performed as sole proprietorships. In the event that elements of a dependent relationship exist between an individual using a corporate form or acting as a sole proprietor and his or her contractor, all payments for services related to that relationship can be reclassified from business into employment income.

No other special rules exist that would prevent closely held corporations from accumulating earnings for investment purposes.

Dividends and capital gains from sale of shares are taxed at a flat rate of 27.5%.

The capital gains tax rate decreases with the increase of the holding period of shares. The tax rate falls to 20% if the holding period is from five to ten years, to 15% for a holding period from 10 to 15 years, to 10% for a holding period from 15 to 20 years and is set at 0% after a holding period of over 20 years.

There are no differences in the taxation of dividends or capitals gains on the sale of shares if they derive from a closely held corporation or a publicly traded corporation, as there is no differentiation between the two types of corporations in Slovenia.

Interest, dividends and royalties are subject to a 15% withholding tax in the absence of income tax treaties, when the recipient of the income is a legal entity. If the recipient of the income is an individual or if the income is paid under the dematerialised financial instruments, the general withholding tax rate is 27.5%.

The rate is commonly reduced under a DTT. Similarly for payments of interest, royalties, and dividends within the EU, the Interest and Royalties Directive, and the Parent Subsidiary Directive, may also reduce the rate.

Essentially, withholding tax is applicable for incomes similar to dividends and payments for certain types of services (marketing, staffing, management, administration), if they are provided from countries with a CIT rate under 12.5% and are included on the list published by the Ministry of Finance.

Most of the foreign investors invest via EU member states, most commonly from Luxembourg or Germany.

Other non-EU tax-treaty countries from which investments to Slovenia are generally made include the USA, the UK and Switzerland.

There is currently no practice established in Slovenia by the Financial Administration relating to any challenges of the use of treaty country entities by non-treaty country residents. Generally, the Financial Administration follows the established EU practice, which it is believed would also be followed in this case.

The major issues are related to loans between related parties; namely, the thin-capitalisation rules and the rules on prescribed interest rates.

According to the thin-capitalisation rules, the interest on a loan is not deductible if a loan is received from a shareholder that owns, directly or indirectly, at least 25% of equity capital or voting rights, or vice versa, where the total amount of the loan exceeds a debt-to-equity ratio of the shareholder’s share in the equity of the borrower in a certain tax period. Currently, the applicable debt-to-equity ratio is set at 4:1. Any interest on loans exceeding the debt-to-equity ratio is re-qualified as hidden profit distribution.

Proving scale in the provision of management services is also a major challenge. The taxable person must have unambiguous evidence of the volume and type of services provided.

Another important challenge is the restructuring of companies where there is a transfer of know-how, including the centralisation of certain internal business areas, such as the merging of intra-group shared services.

A distribution company in Slovenia has to be remunerated according to the arm’s-length principle in line with the company’s function profile and the risks borne. Distribution arrangements are often challenged if sufficient evidence is not demonstrated by applying one or more prescribed acceptable methods that include the traditional Organisation for Economic Co-operation and Development (OECD) methods.

The Financial Administration’s interpretation of transfer-pricing regulation follows the OECD standard. OECD Transfer Pricing Guidelines are commonly used in practice by the Financial Administration and in their guidelines on transfer pricing and can be relied upon by taxpayers for reference with issues related to transfer pricing.

With regard to the mechanisms available to prevent transfer-pricing disputes, a taxpayer may apply for a Unilateral or Multi-lateral Advance Pricing (MAP) Agreement. With regard to dispute procedures, dispute resolution under a double-taxation convention in accordance with Article 25 of the OECD Model Tax Convention is also available for a taxpayer to apply via the Ministry of Finances.

There are no figures provided by the local authorities with regard to MAP processes and the exact numbers in Slovenia. According to the information available, only a few have been concluded, but several new cases are underway, also aimed at concluding the MAP agreement.

The transfer price adjustment can be performed by the taxpayer in the CIT return in the event of upward adjustments. Any downward adjustments of the transfer prices are concluded with the MAP.

Branches of non-local corporations are taxed in the same way as subsidiaries of non-local corporations.

Capital gains realised on the sale of shares in local corporations by a non-resident are not taxed in Slovenia. Taxation may apply if the investment in the shares in local corporations is done by a permanent establishment of a non-resident.

A change of control might affect benefits if the taxpayer has carried forward tax losses from previous periods. If, during a tax period, the ownership of capital or voting rights of a local corporation changes directly or indirectly by over 50% compared to the state of ownership at the beginning of the tax period and the local corporation did not perform the activity two years prior to the change in ownership, or considerably changed the activity two years prior to or after the change in ownership, the tax loss carry-forward is not available. If the activity is changed within two years of the change in ownership, any claimed tax losses incurred in the year of the change of ownership or earlier must be recouped. A change of control shall not trigger other tax charges.

Formulas are not used to determine the income of foreign-owned local affiliates. Standard transfer-pricing methods in accordance with the OECD Transfer Pricing Guidelines are accepted for use in the determination of a local affiliate’s income considering the arm’s-length principle. The accepted methods include the comparable uncontrolled price (CUP), the Resale Price, the Cost Plus, the Transactional Net Margin Method (TNMM) and the Profit Split method.

There are no set standards and rules regarding the deduction for payments by local affiliates for management and administrative expenses incurred.

When determining the cost of services incurred by a non-local affiliate, the arm’s-length principle must be taken into consideration, as management and other services are key points of focus for financial administration when conducting investigations in the field of transfer pricing.

Generally, the accepted method for management services is the cost-plus method, which determines the cost of services plus a mark-up. Administrative services are treated as ancillary services, which allow for no mark-up. Only the reimbursement of expenses is allowed, which of course must be in accordance with the transfer-pricing rules.

As stated in 4.4 Transfer Pricing Issues, according to the thin-capitalisation rules the interest on a loan is not deductible if a loan is received from a shareholder that owns, directly or indirectly, at least 25% of the equity capital or voting rights, or vice versa, where the total amount of the loan exceeds a debt-to-equity ratio of the shareholder’s share in the equity of the borrower in a certain tax period. Currently, the applicable debt-to-equity ratio is set at 4:1. Any interest on loans exceeding the debt-to-equity ratio is re-qualified as hidden profit distribution.

The rules on prescribed interest rates define a method for determining a reference interest rate on inter-company loans between related parties in a group in which a shareholder owns, directly or indirectly, at least 25% of equity capital or voting rights in the other party of the loan agreement or vice versa. The Prescribed Interest Rate is the sum of a variable part of an interest rate (EURIBOR) with different mark-ups for credit ratings of the borrower and the maturity period of the loan. This is regarded as a safe-harbour interest rate and is commonly much lower than interest rates on the market. Thus, in the event that a foreign-owned local affiliate were to borrow from a non-local affiliate at a higher interest rate than the Prescribed Interest Rate, it would be required to provide sufficient evidence that the higher interest rate corresponds to the arm’s-length principle.

For local corporations, residents are taxed on their worldwide income. Foreign-sourced income achieved by residents is subject to CIT in the same way as local income.

Foreign tax paid can be used by local corporations in the form of a credit against the local tax liability. The amount of tax credit is the amount of foreign tax that was actually paid. If a DTT applies, the rules on the foreign taxation and tax credit thereof are used. The credit is equal to or less than the amount of foreign tax paid or the amount of tax payable on the foreign income in Slovenia.

Expenses related to foreign taxable income are deductible under the same rules that apply for the deductibility of expenses related to any other kind of taxable income (domestic or foreign) and therefore no specifically imposed limitations exist.

Dividends from foreign subsidiaries located in the EU or a non-EU subsidiary established in a foreign jurisdiction not included in the blacklist from the Ministry of Finance are 100% tax-exempt; however, flat-rate expenses for the management of the financial investment in the amount of up to 5% of the incomes are not tax-deductible. In effect, 95% of the dividends are tax-exempt. If dividends are received from a subsidiary established in a foreign jurisdiction which is included in the blacklist, the dividends received from that subsidiary are fully taxable.

Any intangibles developed by local corporations can be used by or transferred to non-local subsidiaries in accordance with the transfer-pricing regulation and the arm’s-length principle and are treated as regular income of the local corporation.

Income of non-local subsidiaries is taxed under the CFC-type rules when it derives from assets, property rights, royalties arising from intellectual property, dividends, capital gains from sale of shares, etc.

CFC-type rules are used for the taxation of undistributed income of non-local subsidiaries in which the local corporation holds, directly or indirectly, at least 50% or more of the voting power or rights, or is entitled to receive more than 50% of profits. The rules apply if the related entity is low-taxed, meaning that its CIT is lower than more than half of what it would have been under the CIT rules in Slovenia. These rules do not apply when a local corporation can prove that the related company does perform economic activities and does have available assets, human resources, equipment, offices, etc.

As stated in 6.5 Taxation of Income of Non-local Subsidiaries under Controlled Foreign Corporation-Type Rules, there are rules regarding the substance of a foreign-related company to be considered a CFC. If a foreign-related company has a substance, performs economic activities and has available assets, human resources, equipment, offices, etc, and is not a case of artificial arrangements, the CFC-type rules will not apply.

Local corporations are taxed on gains on the sale of shares in non-local affiliates, in the same way as described in 2.7 Capital Gains Taxation.

Slovenia has implemented a general anti-abuse rule (GAAR), which allows for the authorities to disregard any potential arrangement or set of arrangements of which the main purpose is to obtain a benefit that is not in accordance with the purpose of the legislation. Mainly, this stipulates that, if an arrangement or series of arrangements is not put in place for valid economic reasons, they can be deemed to be artificial.

Slovenia has also had local tax-avoidance rules in place since 2006, and specific case law has been developed in recent years.

The tax authority draws up an annual inspection plan, which is structured, in particular, according to the size and status of the taxable persons, the type of tax and the type of inspection in relation to the scope of the inspection. Particular emphasis has been placed on transfer pricing from a CIT perspective and online sales from a VAT perspective. The objective criteria have been prepared on the basis of a risk analysis. Supervision is partly carried out by using the random-selection method.

For large companies, tax inspections shall generally continue from the last tax period for which a previous tax inspection was carried out. Due to the lack of available resources, the tax administration does not in practice carry out controls for all financial years.

With regard to BEPS Action 1, the EU VAT directive has been implemented, while any further actions in the field of taxation of digital economy without co-ordination with the EU is not expected.

As proposed by BEPS Action 2, Slovenia has already implemented legislation with regard to neutralising the effects of hybrid mismatch arrangements. The implemented legislation follows the Anti-Tax Avoidance Directive ATAD II (EU 2017/952).

As proposed by BEPS Action 3, Slovenia has already implemented legislation with regard to the CFC in accordance with the Anti-Tax Avoidance Directive ATAD (EU 2016/1164).

BEPS Action 12 was implemented in Slovenia in 2019 with the transposition of the amendment to Directive 2011/16/EU (DAC6). The new regulation stipulates the reporting of cross-border structures and transactions to the tax authorities, which first became mandatory after delays in 2021.

Action 13 of the OECD recommendations regarding transfer-pricing documentation was also already implemented fully in Slovenia.

In accordance with BEPS Action 15, Slovenia signed the Multi-lateral Instrument to Modify Bilateral Tax Treaties (MLI) in accordance with which a number of double-tax conventions signed by Slovenia were affected by the MLI to correspond to BEPS Action 15.

The government mostly follows other EU countries' approach, practice and recommendations on BEPS and is thus mostly not a leader in changes in the field of BEPS. As Pillars One and Two would mostly have a positive effect in Slovenia, even though it is not of high priority for the government in Slovenia, support for the implementation of a uniform approach in the EU regarding both Pillars One and Two and the BEPS Action Plan certainly has the support of the government in Slovenia.

International tax does not have an especially high public profile in Slovenia and tax policies mostly follow the approach of the EU.

As Slovenia does not have an objective for a highly competitive tax policy, the support for the BEPS Actions Plan and other OECD or EU recommendations is mostly high.

Slovenia has a fairly average corporate income tax rate at 19% and allows a considerable amount of deductions and incentives for R&D and employment, but not anything out of the ordinary which might be in any way vulnerable or affected by the BEPS Actions Plan.

Slovenia has already implemented provisions on the hybrid mismatch, which came into effect in 2020. Hybrid mismatches result in double deduction, deduction of income in a country where the income is not included in the taxable base of another or non-taxation of the income in a country that is not included in the taxable base of another.

Additionally, in 2022, new provisions were implemented in Slovenia on reverse hybrid mismatches, which stipulate that if one or more non-resident entities which together, directly or indirectly, participate in at least 50% of shares in a hybrid entity in Slovenia and the hybrid entity is located in a jurisdiction that treats the hybrid entity as a taxable person, the hybrid entity will be treated as a resident of Slovenia and will also be taxed accordingly.

Slovenia taxes its residents on a worldwide income principle, while it also imposes a withholding on the majority of the incomes with a source in Slovenia. As Slovenia already has thin-capitalisation rules in place, any proposals on interest-deductibility limitations would not result in much difference in comparison to the current situation.

The CFC rules are already in place in Slovenia. This may affect double-tax treaties' provisions, which do not prevent the application and any overriding by the CFC rules.

Rules on the prevention of tax-treaty abuse as provided by BEPS Action 6 has not yet been implemented specifically, but a general anti-abuse rule (GAAR) is already in place in Slovenia.

As with other views on transfer pricing, Slovenia primarily follows the recommendations and practices of the OECD Transfer Pricing Guidelines, therefore no radical changes in the field of transfer pricing has resulted from the BEPS Action Plans.

Slovenia was among the first 31 countries to sign a tax co-operation agreement enabling the automatic sharing of country-by-country information and has implemented rules for automatic information exchange for large multi-national enterprises (MNE) with a consolidated group turnover of at least EUR750 million, beginning in 2016 in accordance with the BEPS Action 13. The instructions, adopted with the amendments to the Implementation of the Tax Procedure Act, are in line with the instructions of Council Directive (EU) 2016/881.

A new law to levy a digital services tax on multi-national tech companies was proposed in the parliament in 2020, but was struck down, as the government supports a co-ordinated approach with the EU, as is its practice with other issues related to international taxation in Slovenia.

The government is aware that a response to the digitalisation of economy and business models is required in the area of taxation, but no action is expected from Slovenia on its own, without any prior guidance from the EU on this topic.

As yet, no provisions are in place in Slovenia with special regard to the taxation of offshore intellectual property. As this is quite a specific topic, Slovenia will most likely wait for guidance and action by the EU and other EU countries.