“Purely paper-based relocations undertaken solely for tax purposes, without any genuine change in where a person lives or creates value, are highly risky today.”

1. Offshore Structures vs Tax Residency: What Is the Difference?

The key difference lies in where and on what income an individual is taxed.

• If an individual remains a tax resident of the Slovak Republic, Slovakia generally has the right to tax their worldwide income, regardless of the country from which that income arises. At the same time, if an individual can reorganise their business activities so that, instead of taxing business income at the level of an individual entrepreneur, where income may be subject to personal income tax of 15–35% as well as health and social security contributions, the income is taxed at the level of a legal entity established in a low-tax jurisdiction, and the individual receives dividends in Slovakia, which are subject to 7% taxation, the overall tax and contribution burden may be reduced. However, if foreign structures are used mainly to obtain a tax advantage and their involvement lacks a business or economic rationale, the tax authority may disregard such structures for tax administration purposes and tax the income as if it had been paid directly to the individual.
• If, however, an individual changes tax residency, the “centre of taxation” moves to another country. Ideally, this would be a country with a more favourable tax treatment for certain types of income, such as income from the sale of financial investments or cryptoassets. In this context, it must be emphasised that a change of tax residency requires the genuine physical relocation of the individual, as well as the relocation of the centre of their personal and economic interests to the territory of the relevant state. This may mean, for example, that the individual’s family, business activities, employment and other relevant ties also move to that other state. At the same time, the individual must be prepared for the Slovak tax authority to seek evidence proving their presence in Slovakia and to challenge their foreign tax residency.
• The use of foreign trusts generally does not provide a tax advantage. Their purpose is primarily asset management and protection, inheritance planning and succession. Since Slovak legislation does not regulate trusts, taxation for beneficiaries who are individuals and Slovak tax residents is high.

“Changing tax residency requires a genuine relocation of both the individual and the centre of their personal and economic interests.”

2. When Does International Tax Planning Become Worthwhile?

There is no universal threshold. When considering a change of tax residency or relocation of business activities, each individual should ask the following questions:

1. Does the chosen jurisdiction really offer more favourable conditions? Some types of income are taxed relatively favourably in Slovakia as well. This applies particularly to passive income, such as dividend income, which is taxed at 7% for individuals and exempt for legal entities, income from the sale of securities traded on a regulated market, which is exempt for individuals after one year of holding the security, or income from the sale of real estate, which is exempt for individuals after five years from acquisition of ownership. Moreover, unlike many other countries, Slovak tax legislation does not apply a net worth tax or wealth tax, inheritance tax, gift tax, or tax on the transfer of real estate.
2. Can I move the taxation of my income outside Slovak jurisdiction? The answer depends on whether the individual can move their residency, or the residency of their companies, outside the Slovak Republic. As noted above, a change of residency is essentially not possible without a real relocation of the individual’s home and centre of vital interests, or, in the case of a company, its registered seat and place of effective management. Even after relocation, certain income sourced in Slovakia may continue to be taxable in Slovakia.
3. What are the cost and complexity of the solution? Relocation to another jurisdiction is often preceded by the need to establish a new company in that country, reorganise existing group companies, and comply with all registration and reporting obligations under local legislation. This brings costs related to lawyers, tax advisers, accountants, auditors, reporting administration, including DAC6 and CFC rules, local statutory representatives and other requirements. The level of these costs will vary depending on the selected country and the complexity of the chosen structure.
4. What will my personal costs be? If an individual wants to change their tax residency, in most cases their family will also need to follow them to the chosen country. This may involve additional costs, such as schooling for children and suitable housing.

In practice, more sophisticated foreign structures are worthwhile if the tax saving exceeds the costs mentioned above. At the same time, it is essential to objectively assess whether the structure and its substance are robust enough to eliminate the risk of challenge by the Slovak tax authority.

3. Monaco, Cyprus, Malta, UAE or Estonia: Which Jurisdiction Fits Which Situation?

When relocating a residence, business, or setting up a company abroad, there is no single universally most favourable tax jurisdiction. Monaco, Cyprus, Malta, the UAE, Bulgaria, Estonia, Georgia and various Latin American countries offer different regimes, ranging from low or deferred taxation of profits, through more favourable regimes for passive income and holding structures, to territorial systems that mainly tax domestic income. However, each of these jurisdictions also brings its own costs, legislative requirements, degree of stability and reputational perception among banks and business partners.

In general, relocating to such countries usually makes sense only in cases of higher wealth or internationally oriented business, for example holding and investment structures, international services or the management of larger family wealth. What may be an advantage for one person, such as deferred taxation of undistributed profits in Estonia, relatively generous exemptions for income from the sale of shares and ownership interests in Cyprus or Malta, a low corporate income tax rate in the UAE, Bulgaria or Hungary, or more favourable or zero taxation of personal income in Monaco or the UAE, may be negligible for another when compared with higher living costs, legal, accounting and tax advisory costs, and political or currency risk.

The key point is that relocation of residence or business must have a genuine economic, legal or organisational justification. Ideally, the person should already have some background, clients, projects or family ties in the target country. Purely paper-based relocations undertaken solely for tax purposes, without any genuine change in where a person lives or where value is created, are highly risky today. In an era of international exchange of information and anti-abuse rules, the outcome may be additional taxation, penalties and reputational damage rather than tax savings.

“There is no universal ‘best’ tax jurisdiction.”

4. Is the Czech Republic a Tax Haven for Slovak Business Owners?

I would certainly not describe the Czech Republic as a tax haven in the traditional sense. However, for Slovak owners of capital companies, it may be more tax-attractive in certain situations.

The main advantages from a corporate perspective include:

• Participation exemption – if the relevant conditions are met, including the size and duration of the shareholding, capital gains from the sale of subsidiaries may be exempt from tax. Similar rules also exist in Slovakia, but the Czech conditions are more flexible and, under certain circumstances, may also be met ex post.
• Flexible group financing – group financing through Czech companies is often simpler. Czech legislation allows companies to provide interest-free financial loans to their subsidiaries. Czech legislation also allows the payment of interim dividends, which is not possible in the Slovak legislative environment.
• Collective investment fund structures, such as SICAV – special investment funds that invest at least 90% of the value of their assets in selected types of financial assets may benefit from a reduced corporate income tax rate of 5%. By comparison, the Slovak corporate income tax rate is 24%.

For individuals, the Czech time tests for the sale of ownership interests, shares or cryptocurrency may be particularly interesting. If a Czech tax resident sells an ownership interest in a limited liability company and more than five years have passed since its acquisition, the income from the sale may be exempt. In the case of shares, income from their sale may be exempt if the individual acquired them at least three years before the sale. The three-year holding period also applies to the sale of cryptocurrency.

On the other hand, the Czech Republic also has disadvantages, for example in the area of dividend taxation. Dividends are subject to 15% withholding tax when paid to individuals or to legal entities holding less than a 10% share in the company. When setting up a cross-border structure, these limitations must therefore be taken into account and eliminated through proper structuring.

For these reasons, I would describe the Czech Republic as a relatively efficient Central European jurisdiction rather than a tax haven. Those who can make use of participation exemption, SICAV-type fund structures and time tests for the sale of investments may achieve relatively efficient taxation. At the same time, dividend distributions and certain asset transfers may potentially result in a higher tax burden than in Slovakia.

“I would describe the Czech Republic as a relatively efficient Central European jurisdiction rather than a tax haven.”

5. Moving a Sole Trade Business to the Czech Republic: Common Misconceptions and Risks

A common misconception is that it is enough to formally register temporary residence at a Czech address, “open a sole trade in the Czech Republic” and then use Czech tax and contribution rules, especially higher flat-rate expenses.

In reality, what remains decisive is where the individual actually lives, where they have clients and where they carry out their business activity.

If a sole trader:

• has permanent residence, family and the centre of vital interests in Slovakia,
• provides services to Slovak clients from the territory of Slovakia,

Slovak authorities may argue that the income belongs within the Slovak tax system, regardless of the fact that the individual has a Czech trade licence. First, a permanent establishment for income tax purposes may arise in Slovakia. Even if this did not happen, a Slovak tax resident is still obliged to tax their worldwide income in Slovakia under Slovak legislation, while the Czech tax may be credited against Slovak tax. In the area of social security and health insurance, the decisive country is the country of residence. Contrary to what many people think, this is not the country where the individual formally declares permanent or temporary residence, but the country where they have a genuine permanent home and centre of vital interests.

Moving a sole trade business to the Czech Republic only makes sense when it goes hand in hand with a genuine change in where the individual lives and operates. If it is merely a paper-based solution, the risk of additional taxation is relatively high and may involve:

• additional taxation of income in Slovakia,
• payment of outstanding health and social security contributions,
• penalties and late-payment interest.

“Moving a sole trade business to the Czech Republic only makes sense when it goes hand in hand with a genuine change in where the individual lives and operates.”

6. Czech Tax Residency and Cryptocurrency: What Investors Should Know

The principle of cryptocurrency taxation is more or less the same under Czech and Slovak tax legislation. In both jurisdictions, if an individual who is not an entrepreneur merely holds cryptocurrency, the increase in its value is not taxed, with the exception of staking income. Taxable income is realised only if, for example, crypto is converted into fiat currency or another cryptocurrency, used to pay for goods or services, or sold.

However, the overall tax and contribution burden is significantly more favourable under Czech legislation. Taxable income from the sale of cryptocurrency that cannot be exempt is subject to personal income tax at a rate of 15–23% and is not subject to social security or health insurance contributions.

By comparison, under Slovak legislation, income from the sale of cryptocurrency, regardless of whether it is a one-off or repeated activity, is subject to progressive personal income tax at a rate of 19–35% and also to health insurance contributions of 16%. The combined tax and contribution burden on income from the sale of crypto may therefore exceed 50%.

Czech legislation also allows income from the sale of crypto to be exempt if the income from the sale does not exceed CZK 100,000 in the relevant calendar year. If the individual acquired the crypto more than three years before the sale, the relevant income is exempt up to CZK 40 million.

“The combined tax and health contribution burden on cryptocurrency gains in Slovakia may exceed 50%.”