Related parties and entering the VAT system in Slovenia – conditions

Related parties and entering the VAT system in Slovenia – conditions

Entrepreneurs who do business in Europe often ask about the conditions to enter the VAT system. While we have already explained the subject in our previous articles, we wanted to emphasize the differences for entering the VAT system when there are several related parties.

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What are related parties?

Related party is a term which the Slovenian legislation determined in the Corporate Income Tax Act (ZDDPO-2). Two entities are related parties if they are owned by the same natural or legal entity or their close family members with a share of at least 25%. A close family member can be a spouse, the ancestor or descendants or their spouses, brothers and sisters or half-brothers and half-sisters, and adopted children.

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When do you have to regsiter for VAT?

The conditions do not necessarily have to be met cumulatively, so in order to enter the VAT system, the fulfillment of the conditions for each taxable person is determined separately:

  • the taxpayer has exceeded or is likely to exceed the taxable turnover in the amount of 50,000 euros (for farmers, the cadastral income is important, which may not exceed 7,500 euros) in 12 months
  • purchases of goods in other EU countries do not exceed 10,000 euros in the current calendar year
  • the taxable person provides services for a client, company / entrepreneur with a valid VAT number, from another EU Member State
  • the taxable person receives services for the client, company / entrepreneur with a valid VAT number, from another EU Member State

When are the conditions for entering VAT system with related parties met?

When the legislation determines the related parties, it can also influence whether just one of the related parties has to enter the VAT system or both. The tax office mostly checks if the related parties are not providing the same business activity. When they are offering similar services, you would need to prove that they are not related in terms to benefit from a better taxation system or avoid paying taxes.

We will explain these conditions on an example of related parties. A mother has opened a sole proprietorship and is renting real estate. In 12 months, she has 12.000€ turnover and is not registered for VAT. Her daughter opened an LTD company, where she owns more than 25% of the shares. She provides services of graphic design. Also, she enrolled to the VAT system as she has more than 70.000€ taxable turnover. In this case, the mother does not have to register for VAT purposes as the business activities they both provide are not similar. In case they would provide similar business activities, both would have to register for VAT purposes.

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