4. Step-by-Step Process to Establish a Sole Proprietorship in Slovakia
Step 1: Choose the Type of Business Activity
- Determine the business activities you wish to pursue (e.g., trade, consulting, professional services). You need to ensure that these activities are allowed under the Trade Licensing Act.
Step 2: Obtain the Trade License (Živnostenský list)
- Apply for a trade license at the Trade Licensing Office (Živnostenský úrad). The process involves filling out an application, which will include:
- Personal identification information.
- Proof of residency.
- Proof of professional qualifications (if applicable).
- A clean criminal record certificate (from your home country and from Slovakia).
- Proof of address in Slovakia (e.g., lease agreement for office space).
The application will vary depending on the type of business activity. Some activities may require additional qualifications or permits, particularly in regulated professions (e.g., healthcare, legal services).
Step 3: Register with the Tax Authorities
- Once you obtain the trade license, you must register with the Slovak Tax Office (Finančná správa). This registration is necessary for:
- Income Tax: As a sole trader, you are taxed on your income under the personal income tax regime.
- Value-Added Tax (VAT): If your business generates income above a specific threshold, or if you plan to engage in cross-border business, you must register for VAT. The threshold for mandatory VAT registration is €49,790 in annual turnover.
Step 4: Register for Social Insurance
- All sole traders are required to register with the Social Insurance Agency (Sociálna poisťovňa). This covers pension, health insurance, and social security contributions. As a sole trader, you must pay both the employer and employee portions of social insurance, although this can be lower than what would be required for a limited liability company.
Step 5: Set Up Business Bank Account
- You will need a Slovak business bank account to manage your transactions. Banks require proof of business registration, a valid ID, and proof of address.
Step 6: Additional Registration (if applicable)
- Depending on the type of business and the nature of your services, you might need additional registrations or permits. For example, if you’re hiring employees, you will need to register with the Labor Office (Úrad práce).
5. Taxation for Sole Traders
- Personal Income Tax: Sole traders are taxed as individuals. Slovakia has progressive personal income tax rates:
- 19% on annual income up to €37,981.94
- 25% on income above this threshold
- Value Added Tax (VAT): If your business turnover exceeds the VAT threshold, you will need to charge VAT on your sales. Standard VAT rate is 20%, with a reduced rate of 10% for certain goods and services.
- Social Insurance Contributions: Sole traders are required to contribute to social insurance, including pension, health insurance, and unemployment insurance.
- Health Insurance: Health insurance contributions are mandatory, and the amount depends on your income level.
6. Liability and Risk
- As a sole trader, you are personally liable for all debts and obligations of the business. This means that your personal assets can be used to settle any business-related debts or liabilities.
- This is one of the key risks associated with a sole proprietorship, and foreign nationals should be aware of this liability.