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Changes in the Slovenian Income Tax Regime for Posted Workers

In February of this year, the Slovenian parliament passed the Transnational Provision of Services Act (ZČmIS), which was aimed at regulating the transnational provision of services within the European Union. With the law set to become operative on January 1, 2018, Slovenian authorities were slowly coming under pressure to adopt appropriate changes to the income tax rules relevant to the new legislation. Last week, the Government of the Republic of Slovenia therefore instigated an urgent procedure for passing a law changing and amending the Personal Income Tax Act (ZDoh-2).

While the law’s scope goes beyond regulating the transnational provision of services, it is strongly focused on the issue of transnational posting of workers. As cited in the Government’s proposal, the relevant part of the law is aimed at “improving the competition landscape, maintaining and creating new jobs, and creating added value in Slovenia with the know-how obtained by individuals working abroad, thereby creating higher quality jobs”. Accordingly, two main sets of solutions are provided in the proposal.

Firstly, under certain conditions, posted workers will benefit from a reduced tax base (in the amount of 20% of the payment for the posting, up to the maximum of EUR 1,000 per monthly payment). The required criteria for the tax base reduction are the following: time criterion (the posting is continuous and lasts longer than 30 days), distance criterion (the place of the posting is more than 200 kilometres away from the usual workplace), tax residence criterion (the posted worker has not been a tax resident of the destination country in 5 years before the posting), and salary criterion (the salary for the posting amounts to at least 1,5-times the average Slovenian salary; this criterion is aimed at preventing ‘social dumping’). It should be noted, however, that the described tax base reduction only applies to earnings made during the period of no longer than 60 months in the 10 years since the worker’s first posting.

Secondly, three types of subsistence expenses will be deducted from the income tax base: meal allowance, transportation and accommodation expenses. Meal allowance expenses will be deducted under the conditions and in the amount set by the government for domestic provision of services, increased by 80%. Furthermore, transportation expenses from the place of the workers’ accommodation to their workplace at the place of the posting, as well as transportation expenses to the place of the posting at the beginning and back to their usual residence at the end of the posting, will also be deducted. Lastly, for short-term placements lasting a maximum of 30 days, the deduction will apply to accommodation expenses as well.

By proposing the outlined amendments, the Slovenian government aims at adjusting the income tax regime to the newly adopted legislation on the transnational posting of workers. The parliament is expected to vote on the new law in the following months and, should the act pass legislative scrutiny, the existing anomalies in the transnational provision of services income tax regime should cease to pose a significant impediment to the posting of workers.