Taxation in Agriculture

Chapter 33. Slovenia

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

33.1. Overview

In Slovenia 536 000 individuals own agricultural and forest land most which is small holdings with less than 1 hectare of land. The average size of agricultural land is 6.9 hectares per farm household.

For tax purposes persons conducting agricultural activity as a company (a legal person) or as a registered self-employed person are generally treated in the same manner as other persons with a business activity.

However there are specific provisions in tax legislation to define a farm for tax purposes. A farm household (tax definition of a farm) has to have at least EUR 200 of annual taxable income from agriculture and forestry. Taxable income is determined based on a presumptive income from the farm’s activities which is significantly lower than the actual market rate. According to the definition, of about 450 000 households with agricultural land and forest only 70 000 to 80 000 households can be considered as farm households. For most farms (more than 95%), the taxable income is based on presumptive income, which includes cadastral income (calculated every three years from statistical economic account) as well as subsidy payments of which some are tax exempt (e.g. investment supports, green subsidies) so around 50% of income received as subsidies is not taxed. Low income farm households with a total presumptive income of less than EUR 7 500 (accounting for nearly 98% of all farm households taxed on presumptive income in Slovenia) have the possibility of applying a flat rate as compensation for value added taxes they pay on inputs (approximately 32 000 farms apply this flat rate). Farmers are mostly exempt from paying property taxes and inheritance tax on the conditions that the benefactor is already engaged in farming and is a landowner. Farmers from family farms have their social security contributions partially paid for them by the state. Small wine and spirit producers on a farm are partially exempt from paying the full excise duties for alcohol. All farmers are entitled to 70% rebates on excise duties for fuel used on-farm.

33.2. Income taxation

For income taxation, agro-food companies are treated as any other company and are subject to tax on profits according to the Corporate Income Tax Act. Corporate income tax is levied on the taxable profit at a rate of 19%. As of 1 January 2013, there is an optional flat rate taxation regime where the tax base is determined on lump-sum costs accounting for 80% of income. Under the lump-sum regime taxpayers cannot claim any allowances or deductions.

Personal income tax (PIT) applies to an individual’s annual net income. There are five tax brackets in the progressive tax schedule with tax rates ranging from 16% up to 50%. The annual taxable base is computed after compulsory social security contributions and certain allowances have been deducted.

The Personal Income Tax Act contains the following six categories of income: income from employment, business income, income from basic agriculture and forestry, income from rents and royalties, income from capital and other income.

For individuals registered as self-employed persons undertaking an agricultural and forestry activity, income is determined using the same rules as for other self-employed persons. The tax base is the business income which is subject to a tax rate of 20%. Taxable income is levied on profit determined by deducting actual expenditures from actual revenue for a given calendar year. Personal business income may also be taxed using the lump-sum deduction regime whereby costs are assumed to be 80% of income.

Owners and users of agricultural and forest land who are not registered as self-employed persons and who are members of a household with a total income from basic agricultural and forest activity of at least EUR 200 per year, are considered as persons conducting “basic agriculture and forest activity” under the Personal Income Tax Act. Their household is considered as a “farm household”.

This distinction links to the fact that in Slovenia a family farm is not regulated as business but is defined by the Agriculture Act. A family farm is defined as a special entity without legal subjectivity – as a group of natural persons including the head of the holding and other members of the family, who are also owners or tenants of the agricultural land, as well as those employed on the farm are all engaged in agricultural activity.

Taxable income from “basic agricultural and forest activity” includes presumptive income and other income such as subsidies and other state aid. Presumptive income is generally set by cadastral income and methodology for determining it is regulated by the Cadastral Income Act. Presumptive income represents a five-year average income of representative production per hectare of agricultural and forest land. Using data collected by the Statistical Office the presumptive income is recalculated every three years.

Subsidies are, in principle, treated as taxable income, except those, exempted by the law. To avoid double taxation of the same income the Personal Income Tax Act exempts from taxation investment subsidies and subsidies that cover non-standard costs or loss of revenue in the case of environmentally friendly production. These are subsidies for costs and revenues that are not included in cadastral income, like subsidies for quality schemes, for environmental climate payments etc. Based on these rules around 50% of all agricultural subsidies are excluded from taxation.

The Financial Administration calculates the tax liability for the farm household. The individual’s annual taxable base (as the aggregate of all income) is computed after compulsory social security contributions and general allowances are deducted. The net amount is taxed at progressive rates from 16% to 50%. For all other types of income tax (e.g. income from real estate properties, activities, capital investments) farmers are treated like any other taxpayer.

Taxpayers deriving business income may claim a deduction of 40% of the amount invested in equipment and intangibles. For basic agricultural and forestry activity conducted by members of farm households the tax deduction applies to purchases of agricultural machinery and investments in plantations but not for purchasing land or buildings.

Income from basic agricultural and forestry activity calculated for tax purposes is used as an estimation of the farmer’s income for all other official purposes, i.e. their social security contributions and allowances.

In Slovenia approximately 536 000 individuals own agricultural and forest land, but for tax purposes there are between 70 000 to 80 000 farm households comprising 140 000 individuals. Of the 140 000 individuals, only 3 700 are reliant on income from basic agricultural and forest activity as their sole source of revenue, with most farmers receiving income from other employment or pensions.

As opposed to other businesses, taxation of “farm households” does not require record keeping. Consequently, the tax regime for farmers is much less of an administrative burden. Also the methodology of calculating the cadastral income underestimates the market income of the agricultural and forestry activity (it is less than 15% of market income although this is expected to improve to 30% of market income by 2020) and reduces the tax base for all the farm households, so it is especially attractive for intensive, market oriented farms.

33.3. Property taxation

In Slovenia, the following three types of duties that can be considered as property taxes: tax on property, charge for the use of the building grounds and fee for the maintenance of forest roads.

Tax on property is an annual duty levied on buildings (which are not occupied by the owner) the value of which are ascertained administratively. The tax rates depend on the type of property and they are progressive according to the property’s value. Buildings used for agricultural purposes are exempt from the taxation.

Charges for the use of building grounds is an annual duty set by municipalities levied on vacant building land and buildings. Agricultural and forest land is not subject to this tax, but agricultural buildings are taxed.

Fees for the maintenance of forest roads are payed annually by the owner of the forest parcel, who has access to the forest road. The tax base is cadastral income and the tax rate is 14.7%. Protected forests are exempt from this tax.

The goal of the Ministry of Finance in Slovenia is to replace these three duties with one real property tax in the near future. At the same time, it plans to expand the taxation to all kinds of real estate (including agricultural and forest land), set the tax base on market value, and set tax rates to ensure a similar revenue level from the three duties.

Inheritance and gifts are taxed in accordance with the Inheritance and Gift Taxation Act. The tax base is the value of inherited or donated property, reduced for debts, costs and other burdens in connection to the property. Tax rates are progressive (from 5% to 39%) according to benefactor’s relationship to the deceased or donor and the value of the property.

Agricultural land or an entire farm is exempt from inheritance and gift tax if it is inherited or received as a gift by a natural person, who is considered by the special law on agricultural land to be a farmer. This status has no connection to the definition of a farmer, who is a member of a family farm under the Agricultural Act or the definition of the farmer (member of a farm household) for income tax purposes. In this case the “farmer” is a natural person with a certain amount of agricultural land and level of production of agricultural products. This can be any owner of agricultural land.

The transfer of real estate, if not taxed by VAT (building land and new constructions, if sold by VAT taxpayer), is taxed in accordance with the Real Property Transaction Tax Act. The seller pays a tax of 2% on the sale price of the land. The transfer of agricultural land within the agrarian bond operations is exempt from this tax, but all other transfers of agricultural and forest land or agricultural buildings are taxed.

33.4. Tax on goods and services

There are two value added tax (VAT) rates a standard rate of 22% and a reduced rate of 9.5%. The reduced rate applies to all edible agricultural products and for agricultural inputs like breeding animals, seeds and seedlings, fertilisers, phytopharmaceutical and biotic products, and veterinary and other services, intended exclusively for use in agriculture, forestry and fisheries.

All companies pay VAT except those carrying out certain defined activities, such as small businesses and farmers with a turnover and income below defined thresholds.

Members of the “farm households” (defined in the same way as under the income tax regime) with a total income of below EUR 7 500 can use a special common flat rate scheme. Under the flat rate scheme, farmers, who are not VAT taxpayers, when selling agricultural or forest products to a VAT taxpayer, have a right to an additional payment of 4% of the total selling value, this is considered as farmer’s revenue and is meant to cover part of their input VAT costs. Buyers can calculate this flat rate compensation as their input VAT. Approximately 32 000 family farms use the flat rate scheme.

Excise duties are charged for alcohol (spirits and wine), tobacco products, energy sources. “Farmers” as defined under the Agricultural Act are entitled to more favourable treatment under the excise duties system. For instance there is a special regime for small wine producers who are individuals or family farms with at least 0.1 hectare and maximum 20 hectares of vineyards producing not more than 100 000 hectolitres of wine per year. Their wine can be exported or sold to another EU country through a simplified procedure. Small wine producers with not more than 0.1 hectare of vineyards and not more than 600 litres of wine production are exempt from paying excise duty as the wine is considered for own consumption. Similarly, small spirit producers, which are individuals or family farm with the production no more than 150 litres of spirit (100% alcohol) per year, pay only 50% of the regular excise duty.

All agricultural businesses, including legal persons and family farms, can be refunded 70% of the excise duty payed on the purchase of fuel used for their agricultural and forest machinery. Reimbursements are limited to a certain quantity of fuel per hectare, i.e. 200 litres per hectare of cultivated land, 420 litres per hectare of vineyard, orchard or hop field, 50 litres per hectare of plantation of forest trees and 15 litres per hectare of forest. Fuel consumption has to be proved by submitting invoices to the tax authority. The refund can be claimed monthly or once a year. Family farms usually claim refunds on an annual basis due to the small size of their claims (on average EUR 600).

33.5. Environmental taxes

There are some charges for environmental pollution but in general these are not specifically for agriculture. Exceptions are environmental taxes on water where all water use that goes beyond the boundaries of general use is charged. Water charges are applied for irrigation of agricultural land, sports fishing in commercial ponds and aquaculture.

The National Environmental Protection Programme until 2030 (NEPP 2030) is under preparation. NEPP 2030 will establish long-term guidelines, goals and actions for protecting the environment. New policy approaches could also include environmental tax provisions.

33.6. Tax incentives for R&D and innovation

A general research and development (R&D) investment incentive is provided as a deduction from the tax base of 100% of the amount invested in internal R&D activities and the purchase of R&D services (not exceeding the amount of the taxable base).

The use of such incentives in agriculture is very limited. Although no official statistics exist, R&D activities in agricultural entities are not common and only large profitable agricultural companies are capable of using these tax incentives.

33.7. Other taxes

Both employers and employees pay compulsory social security contributions. The taxable basis for both is the gross wage. Employers withhold employees’ contributions from wages or salaries and pay them together with their contributions every month as part of payroll accounting. Self-employed individuals are obliged to remit both social security contributions (from employers and employees) on their own. The state budget pays the employers’ social contributions for farmers with income from basic agricultural and forest activities.