Changes in VAT rates from 2025 and their impact on e-shops
From January 2025, we will face significant changes in VAT rates in Slovakia, which every entrepreneur, especially in e-commerce, should prepare for in advance. The basic VAT rate will increase from the current 20% to 23%, and new reduced rates will be set at 19% and 5%.
These changes, approved by the National Council of the Slovak Republic as part of the consolidation package to improve public finances, will also have a direct impact on e-shops and online retailers. Therefore, it is important to know what this means for your business and how to prepare for it.
Key changes in VAT rates:
The basic VAT rate will increase from 20% to 23%
Reduced rate 19%: This includes certain goods and services, such as electricity or serving non-alcoholic beverages in restaurants.
Reduced rate 5%: this category includes selected foodstuffs, medicines, and medical aids as well as books and textbooks.
How will VAT changes affect e-shops?
Price increase and competitiveness
The increase in the basic VAT rate to 23% may have a direct impact on consumer prices, affecting demand and overall competitiveness of e-shops. For entrepreneurs who will not be able to pass the entire increase onto final prices, this may mean reduced margins and pressure to maintain profitability.
The biggest impact will be felt by e-shops selling goods with higher added value, such as electronics. In this segment, every percentage of VAT is crucial, as it significantly increases the final price for customers, which can affect their purchasing decisions.
Changes in systems and costs
E-shops will need to adapt their systems to the new VAT rates, which will require not only software updates but also price adjustments and effective communication with customers. This process may bring higher costs, especially for implementing changes in systems, and at the same time require optimization of marketing strategies. Businesses will thus have to make efforts to minimize potential losses and maintain competitiveness in the eyes of customers despite price changes.
Impact on cash flow
The increase in the VAT rate may bring significant pressure on cash flow for e-shops and other VAT payers. When purchasing goods, it will be necessary to pay the supplier the total price including the new, higher VAT rate. Although businesses can deduct this input tax from the output VAT, the problem may be the temporary blocking of a larger volume of financial resources. Money that could otherwise be used for investments or growth will be tied up until the VAT is settled with the tax office. This shift may mean pressure on cash flow and overall management for many companies.
Impact on the e-commerce sector
Since e-commerce is sensitive to changes in prices and demand, the increase in VAT may affect customer purchasing behavior. The increase in the basic rate by 3% may cause a drop in demand for certain categories of goods, especially more expensive products, which may be less accessible to consumers. This may force e-shops to more frequent promotions or offers to cover increased costs.
Impact on inflation
The increase in VAT may contribute to rising inflation, which may manifest itself in a general increase in prices in the e-commerce sector. The Minister of Finance has already signaled a possible increase in inflation by 1 to 1.4% due to VAT changes, which may affect customers' purchasing power.
How to prepare for VAT changes in 2025: Tips for e-commerce entrepreneurs
1. Optimize costs: The increase in VAT does not necessarily mean that you have to immediately raise prices. Reevaluate your expenses – find reserves in costs and try to negotiate better terms with suppliers. Effective management of operating costs will help you maintain profit even after the VAT change.
2. Automate processes: Modern software solutions for accounting and inventory management can streamline work. Automation will facilitate the transition to new rates, reduce errors in pricing, and save time. Moreover, you will have a better overview of finances in real-time.
3. Open communication with customers: Price increases may encounter customer resistance. The key is open communication – explain the reasons for the changes and offer them, for example, discounts or loyalty programs that will help maintain their loyalty.
4. Creative pricing and marketing strategies: Reevaluate your pricing models. Try product bundling, dynamic discounts, or loyalty programs to keep customers interested even at higher prices. At the same time, invest in marketing – emphasize added value so that customers perceive higher prices as justified.
5. Plan cash flow: VAT changes will also affect your cash flow. Plan payments to be as advantageous as possible for your business. Ensure sufficient financial reserves to help you weather the period of increased tax expenses without problems.
For e-shops, 2025 will be a challenge that will require adaptation to new tax rules and consideration of increased costs when planning pricing strategies and investments.
