A provision is an accounting liability of uncertain timing or amount. Both Slovakia and Czechia require companies to book provisions, but only a narrow, statutorily defined group is tax-deductible — and the two countries draw that line in materially different places.
Provisions exist so that financial statements reflect future costs that economically belong to the current year, even when the exact amount or date is not yet known. Typical examples include future repairs, warranty work, audit fees or the cost of preparing the financial statements. Without provisions, a company would report an inflated profit and distort its real result.
The key tension is between the accounting view and the tax view. Accounting rules require a provision whenever a future obligation is probable, whereas tax law recognises only specifically listed types. A business operating in both countries must therefore treat each jurisdiction on its own terms.
What is a provision and how does it differ from a liability?
A provision is a liability of uncertain timing or amount, which distinguishes it from an ordinary payable where the creditor, sum and due date are all known. It also differs from a value adjustment (impairment): a provision relates to a future obligation of the company, while a value adjustment reduces the carrying value of an asset such as a doubtful receivable.
For readers who want the wider context of how accounting choices feed into tax, our overview of professional accounting as the foundation of a healthy company explains why disciplined bookkeeping matters before any tax question arises.
Which provisions are tax-deductible in Slovakia?
Slovakia recognises only the statutory provisions listed in Section 20 of the Income Tax Act. Their creation reduces the tax base in the year they are booked. The main ones are the provision for unused holidays (including the employer’s mandatory contributions), for forestry (silviculture), for the reclamation and monitoring of landfills, for mining site remediation, and for handling returned electrical waste.
The list is closed. Crucially, Slovakia has no tax-deductible provision for repairs of tangible assets. Repair costs are recognised only in the period when they are actually incurred. For most ordinary companies, the unused-holiday provision is therefore the main tax-relevant provision.
Which provisions are tax-deductible in Czechia?
Czechia relies on a separate statute, Act No. 593/1992 Coll. on reserves. Alongside banking and insurance reserves and the provision for silviculture, it recognises the provision for repairs of tangible assets — the single biggest difference from the Slovak system.
This provision may be created for assets with a depreciation period of five years or more (the second and higher depreciation groups), never for routine maintenance. Its decisive condition is that the funds attributable to each tax period must be transferred to a separate blocked bank account by the deadline for filing the tax return. The maximum build-up period is capped by depreciation group: three periods for group 2, six for group 3, eight for group 4 and ten for groups 5 and 6.
What about purely accounting provisions?
In both countries, any provision outside the tax statutes is an accounting-only item that does not reduce the tax base when created. This covers provisions for warranty repairs, for uninvoiced supplies, for audit fees and for preparing the financial statements.
The underlying cost becomes deductible only when it is actually incurred. Because the creation was not a tax expense, the later release is not taxable income either — the tax return simply reverses the accounting effect in both directions.
How are provisions booked and released?
Creation is recorded against expenses, with a matching entry on a provisions account. In a later period the provision is either used to settle the actual obligation or released if the reason for it has ceased. The Czech repair reserve adds a further discipline: if the planned repair is not carried out or the conditions are breached, the reserve must be released and taxed.
This is why the blocked-account requirement matters so much in Czechia and has no counterpart in Slovakia — a Slovak company cannot shelter repair costs through a provision at all, while a Czech one can, but only under strict cash-funding rules.
What should cross-border businesses watch for?
The most common mistake is assuming the two regimes mirror each other. A Czech group used to building repair reserves will find no equivalent in Slovakia; a Slovak company expanding into Czechia may overlook the blocked-account condition and lose the deduction it expected. A short tax advisory review before you rely on a provision can prevent an unpleasant reassessment.
In both countries, keep provisions at realistic, documented amounts, distinguish tax from accounting provisions in your records, and review at year-end whether each still has a valid basis. Where repairs or large obligations are involved, a jurisdiction-specific review is well worth the effort.
Running a company in both Slovakia and Czechia and unsure which provisions actually reduce your tax? We will set up the correct accounting and tax treatment in each country.
FAQ
Can I create a tax-deductible repair provision in Slovakia?
No. Slovak income tax law does not include a provision for repairs of tangible assets among its deductible provisions. Repair costs are recognised for tax purposes only in the period when they are actually incurred. This is a major difference from Czechia, which allows such a provision under the Act on reserves, subject to strict conditions.
What is the blocked-account condition in Czechia?
To make the Czech repair reserve tax-deductible, the company must transfer the funds attributable to each tax period to a separate blocked bank account by the tax-return filing deadline. The reserve can only be created for assets with a depreciation period of five years or more, and the build-up period is capped by depreciation group. Routine maintenance does not qualify.
Are warranty provisions tax-deductible in either country?
No. In both Slovakia and Czechia, provisions for warranty repairs are accounting-only items and are not tax-deductible when created. The related cost reduces the tax base only when it is actually incurred — for example, when the warranty repair is carried out and paid. Their creation and release are therefore neutralised in the tax return.