Current tax is the income tax a company actually pays to the tax office based on its return. Deferred tax, by contrast, is never paid to anyone – it is a purely accounting figure that bridges the gap between the accounting and tax view of assets and liabilities. In both Slovakia and the Czech Republic it is mainly larger, audited or consolidated companies that must report it, while the smallest entities are left out.
What is the difference between current and deferred tax?
Current income tax comes straight from the tax return – the amount the company owes the state for the period. It is the “real” tax you see in profit or loss and in the payment to the tax authority.
Deferred tax triggers no payment. It arises because accounting rules and tax law treat the same items differently, so the accounting and tax carrying amounts of an asset or liability diverge. Deferred tax carries that difference into the result so the financial statements fairly show the future tax consequences of today’s transactions. Getting these foundations right is part of professional accounting.
What creates deferred tax?
The source is temporary differences between the accounting value of an asset or liability and its tax base. The classic example is the gap between accounting and tax depreciation: if a company depreciates an asset differently for accounting and tax purposes, a difference arises that will reverse in future periods.
Other typical sources are impairment allowances on receivables or inventory not yet recognised for tax, provisions disallowed for tax, and tax losses a company will use later. All of these feed into the same calculation under the liability method used in both countries.
Deferred tax liability vs deferred tax asset
If a difference will lead to higher future tax, the company reports a deferred tax liability – tax it will pay later. If it leads to lower future tax, it is a deferred tax asset. The asset is recognised only when it is probable the company will use it, that is, that it will have enough taxable profit to apply it against.
This prudence is not a formality: recognising a deferred tax asset with no realistic prospect of use would overstate profit. Companies with losses or uncertain profitability therefore often recognise such assets only in part, or not at all.
Which companies must report deferred tax – Slovakia vs Czechia?
Neither country imposes it on everyone, but the scope differs. In Slovakia, deferred tax is mandatory for entities whose financial statements must be audited and for those preparing consolidated statements; micro entities are exempt. In the Czech Republic, it is mandatory for entities forming a consolidation group and those preparing full-scope statements under §59 of Decree 500/2002 Coll.; the rest decide voluntarily.
In practice both regimes target the same population – larger, audited or consolidated companies – but they phrase the test differently. Knowing which size category you fall into drives several obligations at once, as our tax advisory overview explains.
How does deferred tax affect profit and the balance sheet?
Deferred tax is not paid to the authorities and does not appear in the tax return, yet it changes the net profit shown in the accounts. It raises or lowers the income tax expense in profit or loss and records the matching liability or asset on the balance sheet, so reported profit after tax better reflects economic reality.
When the income tax rate changes, the deferred tax balance must be recalculated at the new rate and the difference booked. Deferred tax is therefore not a formal add-on to the closing but a figure owners should understand.
What are the most common mistakes?
The most common mistake is ignoring deferred tax even though the company is required to report it. The second is recognising a deferred tax asset with no realistic prospect of use, which artificially inflates profit. The third is forgetting to restate the balance when the tax rate changes.
Keep a schedule of temporary differences with their accounting and tax values and update it each year. Such a schedule lets you calculate deferred tax correctly and defend it before auditors and the tax authority alike.
Is your company dealing with deferred tax for the first time, or unsure whether you even have to report it? We are happy to walk through your temporary differences, assess the audit obligation and calculate deferred tax correctly for the financial statements.
FAQ
Who has to report deferred tax?
Mainly larger companies. In Slovakia it is mandatory for audited entities and those preparing consolidated statements; in the Czech Republic for consolidation groups and entities with full-scope statements. Smaller and micro entities are generally exempt or decide voluntarily.
Is deferred tax paid to the tax office?
No. Deferred tax is a purely accounting figure. It does not appear in the tax return and is never paid to the state. It only affects the accounting result and the balance sheet, where it shows as a deferred tax liability or asset.
What most often creates deferred tax?
Temporary differences between the accounting and tax values of assets and liabilities. The most frequent is the gap between accounting and tax depreciation, followed by impairment allowances and provisions disallowed for tax, and tax losses to be used in future periods.