Slovakia: New option to recover 20% (or more) of bad debts

At the end of last year, an amendment to the VAT Act was adopted, which will significantly contribute to improving the business environment in Slovakia.

The new legislation makes it much easier than before for VAT-liable businesses to recover up to 20% of their unpaid debts. This makes it more worthwhile than ever for businesses to invest in consistent management and enforcement of claims against their customers.

The most significant change is the new definition of „uncollectible receivable“ in the VAT Act, which now also includes receivables for supply of goods or services that are at least 150 days overdue and at the same time:

  1. for receivables up to EUR 1,000, the entrepreneur (supplier) performs an act aimed at obtaining payment of the receivable;
  2. for receivables above EUR 1,000, the entrepreneur (supplier) claims them in court or enforces them in the context of an execution.

As regards the time condition, the moment of expiry of 150 days after the due date of the claim is linked to the entry into force of the amendment on 1 January 2023, and thus will not occur earlier than 31 May 2023, even for claims that are more than 150 days overdue.

Compared to the necessity of conducting enforcement proceedings for at least 12 months, or waiting for the debtor’s bankruptcy or restructuring, the new regulation is considerably more flexible. For small claims (up to EUR 1,000), for example, sending a pre-action notice to the debtor is sufficient; for larger claims (above EUR 1,000), application through the courts is required, for example, by filing a petition for a payment order.

In relation to irrecoverable receivables, the supplier is entitled to reduce its value added tax base by way of a correction of the tax base to the extent that it corresponds to the unreceived consideration for supply of the goods or services (i. e. to the extent that the debtor has not paid the supplier’s receivable) at the most. However, if the debtor subsequently (after 150 days from the due date of the receivable) pays the receivable even partially, the supplier cannot reduce the tax base to the extent of that payment.

The supplier is still obliged, as before, to draw up a correcting document on the correction of the tax base.

If the supplier makes an adjustment to the taxable amount of an uncollectible claim that he has brought in court and subsequently withdraws the claim, the court proceedings are discontinued for reasons on the supplier’s side, or if the court does not recognise the supplier’s claim, the supplier is obliged to repay the relevant part of the VAT back to the State.

As a result of these changes, it is advisable for VAT-liable businesses to actively pursue their claims against debtors. The value they gain by doing so can easily outweigh the costs involved. On the one hand, it is the reduction of the VAT base itself, which is, so to speak, ‚guaranteed‘ if the above conditions are met, but it should certainly not be forgotten that professional management of receivables and their effective enforcement by means of appropriately chosen legal instruments also increases the rate of payment by debtors.

If you plan to entrust this agenda to reputable professionals with many years of experience in this field or have additional questions that you need answered, do not hesitate to contact our law firm.

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