Slovenia tax treaty

Australia and Slovenia signed a new tax treaty – the Convention between Australia and the Republic of Slovenia for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance.

When it enters into force, it will be the first tax treaty between the 2 nations.

The Assistant Minister for Competition, Charities and Treasury signed the treaty and its associated Protocol on 9 September 2024 in Canberra, Australia.

A tax treaty with Slovenia will reduce withholding tax rates on dividends, interest and royalties. This will:

• encourage cross‑border trade and investment
• make it cheaper for Australian businesses to access Slovenian capital and technology.

This will create new opportunities for Australian business.

The treaty will give more certainty and reduce compliance costs for Australians and Australian businesses who earn income here and in Slovenia.

Key features and benefits

Tax certainty

The treaty will allocate taxing rights between Australia and Slovenia from cross‑border dealings. This will reduce tax barriers, improve tax certainty and relieve double taxation for:

• businesses looking to expand into Slovenia
• other Australian taxpayers deriving income from Slovenia.

Lower withholding tax rates on dividends

The treaty will give a withholding rate of 10 per cent on dividends. Lower rates apply for certain scenarios (for example, superannuation funds).

Intercorporate dividends on other non‑portfolio holdings of at least 10 per cent, will have a 5 per cent rate.

An exemption will be provided for dividends derived by:

• tax-exempt Slovenian recognised pension funds
• Australian superannuation funds
• other Australian residents carrying out complying superannuation activities where they have holdings of less than 10 per cent of the paying company.

The dividend withholding tax rate is reduced by at least 20 per cent for Slovenian businesses (from Australia’s 30 per cent default). This will encourage them to invest in Australia.

The withholding tax rate on dividends will be reduced by at least 5 per cent for Australian businesses investing in Slovenia (from Slovenia’s current 15 per cent rate). This will lower the cost of conducting business for Australians in Slovenia.

Lower withholding rates on interest

The treaty will provide a rate of 10 per cent on interest. There will be lower rates for certain scenarios such as financial institutions, governments, central banks and superannuation funds.

A zero per cent rate will be provided for interest derived by:

• governments
• central banks
• tax‑exempt Slovenian pension funds
• Australian‑recognised pension funds
• other Australian residents carrying out complying superannuation activities
• specified government investment funds.

This reduces withholding rates on interest by 5 per cent (from Slovenia’s current 15 per cent rate). This lowers costs for Australians investing in Slovenia.

Australia’s tax under the treaty will remain at 10 per cent for all other Slovenian investors.

Lower withholding rates on royalties

The treaty will provide a rate of 10 per cent.

This reduces Australia’s 30 per cent rate by 20 per cent. This will make it cheaper for Australians to access Slovenia’s intellectual property.

This reduces Slovenia’s current 15 per cent rate by at least 5 per cent. This will incentivise Slovenia to utilise Australian intellectual property.

Protection over natural resources

The treaty preserves Australia’s source country taxing rights over income from natural resources. This includes the operation of substantial equipment.

Tax certainty for pensions

The tax treaty provides that only in the recipient’s country of residence can tax non‑government periodic pension payments (superannuation). This means Australia can tax non‑government pension payments where a Slovenian citizen has retired in Australia.

The source (paying) country may tax up to 15 per cent of any pension lump sum payments from:

• certain pension funds
• retirement benefit schemes
• certain life events (for example, retirement, invalidity, injury, disability or death)
• social security payments.

This will prevent instances of tax avoidance. It allows Australia to tax eligible termination payments paid by Australian employers and pension funds.

Preserving either country’s domestic anti‑avoidance rules

The treaty provides it will not prevent either country from applying its own domestic laws to prevent the evasion or avoidance of taxes. This maintains the integrity of Australia’s existing laws.

Prevention of multinational tax avoidance

The treaty incorporates important integrity provisions. These provisions are consistent with the outcomes of the G20/OECD Base Erosion and Profit Shifting project. This prevents tax evasion and avoidance through treaty abuse.

Non‑discrimination

The treaty prevents Australia and Slovenia from treating each other’s nationals and businesses less favourably. This means Australian businesses will not be subject to any discriminatory tax measures in Slovenia. This allows them to compete on a level playing field with Slovenian businesses.

The non‑discrimination article will not apply to any Australian law relating to a rate of taxation for working holiday makers.

Rules relating to the exchange of taxpayer information

The treaty will ensure the rules relating to exchange of taxpayer information is consistent with Australia’s existing policies and international obligations.

Rules to resolve tax disputes

The treaty will provide mechanisms for taxpayers to present a case if they believe they are not or will not be taxed in accordance with the treaty, subject to certain criteria. It requires Australia and Slovenia to endeavour to resolve the issue by mutual agreement.

If the dispute is unresolved within 3 years, the taxpayer may request the case be submitted to independent binding arbitration.

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