The government has adopted the first in a planned series of tax changes that it says will improve competitiveness and create a favourable environment for R&D, legislation which businesses are unsatisfied with.

"The solutions will contribute towards higher productivity and international competitiveness of Slovenia's economy, which will help maintain the long-term sustainability of public finances," the government said after adopting the package on 30 August.

Incentives to attract skilled staff

The package includes tax incentives for highly qualified staff under 40 years of age returning to Slovenia after two years of work or studying abroad, and for foreign citizens working in Slovenia provided they had not been Slovenian residents for the two years before starting the job.

If they receive monthly pay that is at least two times higher than the average wage in Slovenia, they will receive an incentive in the amount of 7% of their gross pay for five years.

The idea for the proposal came from the pharmaceutical industry but some business representatives have described it as discriminatory against those who have not worked or studied abroad.

Another major measure is tax incentives for startups, most notably a deferral of tax liabilities on stock options, which has tax benefits for such firms.

Changes affecting sole proprietors

The government will also change how flat rate income tax for sole proprietors is calculated. The ceiling for inclusion in the scheme will be reduced from €100,000 to €60,000 of annual income, and for part-timers from €50,000 to €30,000.

While the government says this will reduce unfair competition - many hi-tech staff choose sole proprietorship over full employment because of lower taxes - this measure has been severely criticised by entrepreneurs, who say it will have a devastating impact on thousands of individuals.

Meanwhile, trade unions have welcomed the change, arguing that self-employment contracts are often being used by employers where regular employment contracts should be used, resulting in lower receipts for the state from tax and social charges.

Heeding criticism from businesses, the government has added a last-minute special two-year transitional period for determining when a sole proprietor no longer qualifies for the flat-rate tax treatment.

Series of minor tweaks

Several minor tweaks, such as allowing multiple companies in a group to have a single VAT number and raising the threshold for when a business must enter the VAT system to €60,000 from €50,000, are designed to improve competitiveness and the fairness of the tax system.

In a move welcomed by business, it will be possible to carry over tax breaks for the green and digital transition that companies are not able to use for up to five years.

Tax benefits for corporate fleet EVs will be extended by five more years as well.

In a move designed to placate farmers, who staged massive protests last year, subsidies for farming in less favoured areas will be tax exempt.

Higher tax on sugary drinks

The higher VAT rate, 22%, is planned for beverages containing added sugar and energy drinks, and higher excise duties are planned for beer and spirits although the reform excise duty bill is yet to be adopted by the government and the latter proposal may still change.

Natural juices and waters without added sweeteners will continue to be taxed at the lower, 9.5% VAT rate although the health experts have proposed for all drinks containing sugar to take the higher rate because of their negative impact on health.

Finally, a new system of tax reporting will be put in place for vending machines.

Businesses unhappy

While the Finance Ministry says it has listened to business to the maximum extent possible, the largest business associations have designated the tax package as unsystemic, piecemeal and poorly designed.

"These band aids will not cure the decline in Slovenia's competitiveness," said the Business Circle, the latest among business lobbies to criticise the tax changes last week.

Business representatives are in particular angered that the government should adopt the bill before it was discussed at the country's main industrial relations forum.

They say almost none of their proposals have been taken into account, in particular measures to reduce the tax burden on wages. They hope the bill can still be amended during the legislative procedure.

The Finance Ministry says this is just the first package of tax changes it has under development, and that it remains "committed to a comprehensive reform of the tax system".