Foreign individuals may do business in Slovenia through branches or subsidiary companies. In compliance with the Companies Act (ZGD-1) a branch is not a separate legal entity but an individual is authorised to act on behalf of the branch and for the account of the parent company; as such the branch is not a holder of rights or obligations.
Under Slovenian law, a branch may be established by either a national or a foreign individual, and it may be established without share capital. A branch acts as an extension of the parent company which is liable for the operation of the branch.
How can a branch be established?
Branches are not legal entities but may perform all transactions that would otherwise be performed by the parent company. Even though according to Slovenian law a branch is not a legal entity, it must be registered in the court register to legally do business here.
The procedure of registration of a branch office is done at the notary List of notaries.
To register a branch office, a parent company and a future director need to obtain Slovenian tax number. When registering a branch office, a parent
company must also prepare a balance sheet for the last business year, a copy from a register, a founding act.
To start a procedure for establishing a branch office the following documentation is required:
- a copy from a register of a parent company
- a business report fort the last business year (in a short version)
- information about bank account of the parent company: at which bank is the bank account opened, in which currency does a bank and a company operate, the account number
- a copy of a passport
- a founding act of the company
- a Tax number of the parent company and information about the activites of the parent company (if it can not be seen from the founding act)
- the address of the branch, the activities of the branch (the activities of the branch office must be the same as in the parent company)
- the name and the legal form of the parent company and the name of the branch
- information of representatives of the parent company (persons authorised to represent the company in dealings with third parties and in legal proceedings)
A branch may perform only the activities listed in the register (i.e. the "ultra vires" doctrine applies). If an act lays down specific conditions for taking up an activity, the company may only commence this activity when it complies with all the conditions in this other act.
A branch acts on behalf of the foreign-owned company; in so doing; it must use the parent company’s corporate name and registered office and its own corporate name. A hypothetical name of a branch entering in legal transactions could be: Company Ltd, Company Avenue 100, London, UK, Company Slovenia Ltd.
Branch is registered in 7-14 days. After the branch is established you can open a company bank account.
Companies from third countries (i.e. non-EU Member States) may establish branches in Slovenia on the condition that they have been registered, in the country where they have their head office, for at least the previous two years (this applies, for instance, to branches of companies from the Unites States, Switzerland, Serbia, Turkey, etc.).
Branches may be also established by foreign associations; these must be registered in the register of affiliates of foreign associations. When a branch of a foreign association is registered in the Slovenian register, it may start its operations on behalf of the foreign association. It must use the name of the foreign association and its own name; the foreign association is liable for the operation of the branch.
When establishing branches in Slovenia, two legislative documents must be taken into consideration, i.e. the Companies Act (Zakon o gospodarskih družbah – ZGD-1), which regulates the status aspects of establishing branches in the Republic of Slovenia, and the Eleventh Council Directive 89/666/EC which provides for the obligation of disclosure of certain documents and data by branches opened in a Member State.
Taxation of branches of foreign companies in Slovenia
In Slovenia a branch is not a legal entity and as such is not considered a tax resident; however, when a branch pursues a gainful activity on the territory of Slovenia, it is liable to corporate income tax as a non-resident.
Most branches have permanent units in Slovenia, and carry out a taxable activity (purchasing and selling of goods or services). The taxable basis for such branches is determined in compliance with the Corporate Income Tax Act (ZDDPO); their profit is subject to a tax rate of 22 %. More+
Because the legislation of most countries on corporate income tax is harmonised, a foreign parent company must verify which method to use to include the profit in the tax return in its own country and take into consideration the tax paid in Slovenia (method of allowances and reliefs or method of exemption).
It is possible that the effective tax rate (after deductions) in the parent company’s country is higher than in Slovenia, so payment of additional income tax may be required.
If the tax rate in the parent company’s country is lower, the tax must be calculated by using the effective tax rate, and as such may be taken into consideration as a deduction in the country of the parent company.
It should be noted, however, that in the case of tax loss or a "zero" tax basis of the parent company, the tax may not be assessed, even if it had already been paid in Slovenia.
Another type of branch, very common in Slovenia, is the so-called subsidised branch; it has no income, only expenses covered with subsidies and transactional funding (proceeds from financial transactions) from the parent company. In such cases the parent company’s transfers are not considered taxable income; there may be no profit (or loss), and, consequently, no tax basis and no taxation due.
If a branch does not have the status of a business unit in accordance with the Corporate Income Tax Act, it is not considered a taxpayer and does not need to submit a tax return. All income is calculated in the tax calculation in the country of the parent company, which includes the turnover of the branch in its tax return.
A large number of branches in Slovenia carry out a marketing activity (market research, promotion of products and the like). If a branch does not generate its own income, it must attribute income that it could realize if it carried out marketing activity as an independent entity. In such cases a financial analysis must be completed to establish what the independent market average profit is of companies in the marketing business . This margin on costs is then used by the branch to calculate attributed income. A branch ultimately pays tax on the amount representing a percentage of its expenses plus the amount of expenses not recognised for tax purposes.
The tax return must be submitted to the tax authority within three months from the end of the tax period.
Branches must keep books of account in the Slovenian language and in accordance with the Slovene Accounting Standards or the International Financial Reporting Standards and prepare annual reports in compliance with requirements applicable to companies. Documents may be kept or managed abroad; however, the tax authority must be notified of this within ten days from the day on which such documents begin to be kept.
What is the difference between a business unit and a branch?
A business unit is part of a limited liability company connected to a parent company. A business unit cannot independently perform business.
Other terms that are also used for a business unit are subsidiary, place of business, dislocated unit, unit outside head office location and others.
If a company's head office is in Ljubljana and another unit is in Koper, the unit in Koper is considered a business unit. It does not have to be entered in a register. Since it is not entered in a register, this unit has no official status; it does not have its own official registered name or representative etc.
If it is decided to give this unit official status, a decision on establishing a branch must be taken, and a proposal made that this branch should be entered in the Companies Register and the decision of the Companies Register awaited.
The essential difference between a business unit and a branch is neither is a legal entity, but a branch must be registered in the court register, while a business unit must only be entered in the Business Register of Slovenia. Under Slovenian law, a business unit must be established in the event a company carries out its activities at an address which is not the address of the main office.