1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand. The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019) creates incentive payments for high value-added investments that focus on R&D and create jobs for university graduates. The law eliminates incentives for investments targeting low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry. In addition, due to COVID-19, the government approved November 30, 2020 an amendment to this statute, which enables producers of personal protective equipment, medical devices, and pharmaceuticals to more easily obtain investment incentives.
CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors. In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms. There are no laws or practices that discriminate against foreign investors.
The Czech Republic is a recipient of substantial FDI. Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD171.3 billion at the end of 2019, compared to USD164 billion in 2018.
As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners. In 2020, 83.5 percent of Czech exports went to fellow EU member states, with 32.6 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office. Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the COVID-19 outbreak. While GDP growth reached 2.4 percent in 2019, there was a 5.6 percent GDP decline in 2020. The Ministry of Finance is forecasting 3.1 percent growth for 2021.
The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful to manage an economic crisis like the current one caused by the COVID-19 pandemic.
The slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring. The Czech government has harmonized its laws with EU legislation and the acquis communautaire. This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, protection and enforcement of intellectual property rights, and in many other areas important to investors.
While there have been many success stories involving American and other foreign investors, a handful have experienced problems, for example in the media industry. Both foreign and domestic businesses voice concerns about corruption.
Long-term economic challenges include dealing with an aging population and diversifying the economy away from manufacturing toward a more high-tech, services-based, knowledge economy.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign individuals or entities can operate a business under the same conditions as Czechs. Foreign entities need to register their permanent branches with the Czech Commercial Register. Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber. In general, licensing and membership requirements apply equally to foreign and domestic professionals.
In response to the European Commission’s September 2017 investment screening directive, the Czech government drafted foreign investment screening legislation. The law will come into effect on May 1, 2021 and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors. The law allows MOIT to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items. Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years according to security concerns that may arise. Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10% of the voting rights of a Czech company. However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions. Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.
As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions. However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations. Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors. The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law. Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).
Other Investment Policy Reviews
The OECD last conducted an economic survey of the government in 2020.
Business Facilitation
Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor. MOIT provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/. MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU. A list of contact points is available at: https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/.
The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index. The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives. An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements. The Business Register is publicly available at: https://or.justice.cz/ias/ui/rejstrik. The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation. It is available online at: http://www.rzp.cz/eng/index.html.
Outward Investment
The Czech government does not incentivize outward investment. The volume of outward investment is lower than incoming FDI. According to the latest data from the Czech National Bank, Czech outward investments amounted to USD 45.1 billion in 2019, compared to inward investments of USD 171.3 billion. However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.
Hungary
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Hungary maintains an open economy and its high-quality infrastructure and central location in Europe attract foreign investment. The GOH actively promotes Hungary to attract FDI, in manufacturing and export-oriented sectors. According to some reports, however, government policies have resulted in some foreign investors selling their stakes to the government or state-owned enterprises in other sectors, including banking and energy. In 2019, net annual FDI amounted to $5.2 billion, and total gross FDI totaled $97.8 billion.
As a bloc, the EU accounts for approximately 89 percent of all FDI in Hungary in terms of direct investors, and 62 percent in terms of ultimate controlling parent investor. In terms of ultimate investor – i.e., country of origin – the United States was the second largest investor after Germany in 2019. In terms of direct investor location, Germany was the largest investor, followed by the Netherlands, Austria, Luxembourg, and then the United States. The majority of U.S. investment falls within the automotive, software development, and life sciences sectors. Approximately 450 U.S. companies maintain a presence in Hungary. According to Hungarian Investment Promotion Agency (HIPA) data, U.S. foreign direct investment produced more jobs in Hungary in 2020 than investment from any other country.
Total, cumulative FDI from Asian sources has approximately doubled since 2010, accounting for over five percent of total FDI stock in 2019. South Korea made several major new investments in the manufacturing sector in 2019. According to HIPA, South Korea, Japan, China, India, and other Asian countries accounted for about 40 percent of the value of new foreign investment projects in Hungary in 2020.
The GOH has implemented a number of tax changes to increase Hungary’s regional competitiveness and attract investment, including a reduction of the personal income tax rate to 15 percent in 2016, the corporate income tax rate to 9 percent in 2017, and the gradual reduction of the employer-paid welfare contribution from 27 percent in 2016 to 15.5 percent in 2020. As of 2016, the GOH streamlined the National Tax and Customs authority (NAV) procedure to offer fast-track VAT refunds to customers categorized as “low-risk.”
Many foreign companies have expressed displeasure with the unpredictability of Hungary’s tax regime, its retroactive nature, slow response times, and the volume of legal and tax changes. According to the European Commission (EC), a series of progressively-tiered taxes implemented in 2014 disproportionately penalized foreign businesses in the telecommunications, tobacco, retail, media, and advertisement industries, while simultaneously favoring Hungarian companies. Following EC infringement procedures, the GOH phased out most discriminatory tax rates by 2015 and replaced them with flat taxes. Another 2014 law required retail companies with over $53 million in annual sales to close if they report two consecutive years of losses. Retail businesses claimed the GOH specifically set the threshold to target large foreign retail chains. The EC likewise determined that the law was discriminatory and launched an infringement procedure in 2016, leading the GOH to repeal the law in November 2018.
In 2017, the GOH passed a regulation that gives the government preemptive rights to purchase real estate in World Heritage areas. The rule has been used to block the purchase of real estate by foreign investors in the most desirable areas of Budapest. In April 2020, during the COVID-19 pandemic, the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund crisis economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms.
In April 2020, during the COVID-19 pandemic, the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund crisis economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms.
The GOH publicly declared its intention to reduce foreign ownership in the banking sector in 2012. Accordingly, various GOH initiatives have reduced foreign ownership from about 70 percent in 2008 to 40.5 percent by the end of 2020. These initiatives included a 2010 bank tax; a 2012 financial transaction tax levied on all cash withdrawals; and regulations enacted between 2012-2015 that obligated banks to retroactively compensate borrowers for interest rate increases on foreign currency-denominated mortgage loans, even though these increases were spelled out in the original contracts with customers and had been permitted by Hungarian law.
While the pharmaceutical industry is competitive and profitable in Hungary, multinational enterprises complain of numerous financial and procedural obstacles, including high taxes on pharmaceutical products and operations, prescription directives that limit a doctor’s choice of drugs, and obscure tender procedures that negatively affect the competitiveness of certain drugs. Pharmaceutical firms have also taken issue with GOH policies to weigh the cost of pharmaceutical procurement as heavily as efficacy when issuing tenders for public procurement.
The Hungarian Investment Promotion Agency (HIPA), under the authority of the Ministry of Foreign Affairs and Trade, encourages and supports inbound FDI. HIPA offers company and sector-specific consultancy, recommends locations for investment, acts as a mediator between large international companies and Hungarian firms to facilitate supplier relationships, organizes supplier training, and maintains active contact with trade associations. Its services are available to all investors. For more information, see: https://hipa.hu/main.
Foreign investors generally report a productive dialogue with the government, both individually and through business organizations. The American Chamber of Commerce (AmCham) enjoys an ongoing high-level dialogue with the GOH and the government has adopted many AmCham policy recommendations in recent years. In 2017, the government established a Competitiveness Council, now chaired by the Minister of Finance, which includes representatives from multinationals, chambers of commerce, and other stakeholders, to increase Hungary’s competitiveness. Many U.S. and foreign investors have signed MOUs with the GOH to facilitate one-on-one discussions and resolutions to any pending issues. The GOH has regularly consulted foreign businesses and business associations as it has developed economic support measures during the pandemic. For more information, see: https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok and https://www.amcham.hu/.
The U.S.-Hungary Business Council (USHBC) – a private, non-profit organization established in 2016 – aims to facilitate and maintain dialogue between American corporate executives and top government leaders on the U.S.-Hungary commercial relationship. The majority of significant U.S. investors in Hungary have joined USHBC, which hosts roundtables, policy conferences, briefings, and other major events featuring senior U.S. and Hungarian officials, academics, and business leaders. For more information, see: https://www.us-hungarybusinesscouncil.com/.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign ownership is permitted with the exception of some “strategic” sectors including farmland and defense-related industries, which require special government permits. As part of its economic measures during the COVID-19 pandemic, the GOH passed a decree which requires foreign investors to seek approval for foreign investments in Hungary.
Foreign law firms and auditing companies must sign a cooperation agreement with a Hungarian company to provide services on Hungarian legal or auditing issues. According to the Land Law, only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding a degree in an agricultural discipline can purchase farmland. Eligible individuals are limited to purchasing 300 hectares (741 acres). All others may only lease farmland. Non-EU citizens and legal entities are not allowed to purchase agricultural land. All farmland purchases must be approved by a local land committee and Hungarian authorities, and local farmers and young farmers must be offered a right of first refusal before a new non-local farmer is allowed to purchase the land. For legal entities and those who do not fulfill the above requirements , the law allows the lease of farmland up to 1200 hectares for a maximum of 20 years. The GOH has invalidated any pre-existing leasing contract provisions that guaranteed the lessee the first option to purchase, provoking criticism from Austrian farmers. Austria has reported the change to the European Commission, which initiated an infringement procedure against Hungary in 2014. In March 2018, the European Court of Justice ruled that the termination of land use contracts violated EU rules, opening the way for EU citizens who lost their land use rights to sue the GOH for damages. In 2015, the EC launched another – still ongoing – infringement procedure against Hungary concerning its restrictions on acquisitions of farmland.
The GOH passed a national security law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25-percent stake in a Hungarian company in certain sensitive sectors (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry. The Ministry has up to 60 days to issue an opinion and can only deny the investment if it determines that the investment is designed to conceal an activity other than normal economic activity. In 2020, as part of the measures to mitigate the economic effects of the COVID-19 pandemic, the GOH passed an additional regulation requiring foreign investors to seek approval from the Ministry of Innovation and Technology (MIT) for greenfield or expansion of existing investments.
On April 6, Hungary’s Ministry of Interior (MOI) blocked an Austria’s Vienna Insurance Group from buying Dutch insurer Aegon’s Hungarian subsidiary, scuttling a four-country acquisition. The GOH granted the specific power to block this type of sale to the MOI in November 2020 under emergency COVID-related legislation, just one day before the parties agreed to the sale, after months of open negotiations.
Other Investment Policy Reviews
Hungary has not had any third-party investment policy reviews in the last three years.
Business Facilitation
In 2006, Hungary joined the EU initiative to create a European network of “point of single contact” through which existing businesses and potential investors can access all information on the business and legal environment, as well as connect to Hungary’s investment promotion agency. In recent years, the government has strengthened investor relations, signed strategic agreements with key investors, and established a National Competitiveness Council to formulate measures to increase Hungary’s economic competitiveness.
The registration of business enterprises is compulsory in Hungary. Firms must contract an attorney and register online with the Court of Registration. Registry courts must process applications to register limited liability and joint-enterprise companies within 15 workdays, but the process usually does not take more than three workdays. If the Court fails to act within the given timeframe, the new company is automatically registered. If the company chooses to use a template corporate charter, registration can be completed in a one-day fast track procedure. Registry courts provide company information to the Tax Authority (NAV), eliminating the need for separate registration. The Court maintains a computerized registry and electronic filing system and provides public access to company information. The minimum capital requirement for a limited-liability company is HUF 3,000,000 ($10,800); for private limited companies HUF 5,000,000 ($17,900), and for public limited companies HUF 20,000,000 ($71,400). Foreign individuals or companies can establish businesses in Hungary without restrictions.
Hungarian business facilitation mechanisms provide equitable treatment for women. They offer no special preference or assistance for them in establishing a company.
Outward Investment
The stock of total Hungarian investment abroad amounted to $36.8 billion in 2019. Outward investment is mainly in manufacturing, pharmaceuticals, services, finance and insurance, and science and technology. There is no restriction in place for domestic investors to invest abroad. The GOH announced in early 2019 that it would like to increase Hungarian investment abroad and it is considering incentives to promote such investment.
Poland
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
Poland welcomes foreign investment as a source of capital, growth, and jobs, and as a vehicle for technology transfer, research and development (R&D), and integration into global supply chains. The government’s Strategy for Responsible Development identified key goals for attracting investment, including improving the investment climate, a stable macroeconomic and regulatory environment, and high-quality corporate governance, including in state-controlled companies. By the end of 2019, according to IMF and National Bank of Poland data, Poland attracted around $234.9 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States. In 2019, reinvested profits again dominated the net inflow of FDI to Poland. The greatest reinvestment of profits occurred in services and manufacturing, reflecting the change of Poland’s economy to a more service-oriented and less capital-intensive structure.
Foreign companies generally enjoy unrestricted access to the Polish market. However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits acquisition of real estate, especially agricultural and forest land. Additionally, the current government has expressed a desire to increase the percentage of domestic ownership in some industries such as media, banking and retail which have large holdings by foreign companies, and has employed sectoral taxes and other measures to advance this aim. In March 2018, Sunday trading ban legislation went into effect, which has gradually phased out Sunday retail commerce in Poland, especially for large retailers. From 2020, the trade ban applies to all but seven Sundays a year. In 2020, a law was adopted requiring producers and importers of sugary and sweetened beverages to pay a fee. The government is planning to introduce (in mid-2021) an advertising tax – hailed as a “solidarity fee”- covering a wide array of entities including publishers, tech companies and cinemas. Only small media businesses would be exempt from the new levy. The revenue would support the National Health Fund, the National Fund for the Protection of National Monuments, and establish a new fund, the Media Support Fund for Culture and National Heritage, to support Polish culture and creators struggling due to the pandemic. Polish authorities have also publicly favored introducing a comprehensive digital services tax. The details of such a tax are unknown because no draft has been publicly released, but it would presumably affect mainly large foreign digital companies.
There are a variety of agencies involved in investment promotion:
The Ministry of Development has two departments involved in investment promotion and facilitation: the Investment Development and the Trade and International Relations Departments. The Deputy Minister supervising the Investment Development Department is also the ombudsman for foreign investors. https://www.gov.pl/web/przedsiebiorczosc-technologia/
The Ministry of Foreign Affairs (MFA) promotes Poland’s foreign relations including economic relations, and along with the Polish Chamber of Commerce (KIG), organizes missions of Polish firms abroad and hosts foreign trade missions to Poland. https://www.msz.gov.pl/; https://kig.pl/
The Polish Investment and Trade Agency (PAIH) is the main institution responsible for promotion and facilitation of foreign investment. The agency is responsible for promoting Polish exports, for inward foreign investment and for Polish investments abroad. The agency operates as part of the Polish Development Fund, which integrates government development agencies. PAIH coordinates all operational instruments, such as commercial diplomatic missions, commercial fairs and programs dedicated to specific markets and sectors. The Agency has opened offices abroad including in the United States (San Francisco and Washington, D.C, Los Angeles, Chicago, Houston and New York). PAIH’s services are available to all investors. https://www.paih.gov.pl/en
The American Chamber of Commerce has established the American Investor Desk – an investor-dedicated know-how gateway providing comprehensive information on investing in Poland and investing in the USA: https://amcham.pl/american-investor-desk
Limits on Foreign Control and Right to Private Ownership and Establishment
Poland allows both foreign and domestic entities to establish and own business enterprises and engage in most forms of remunerative activity per the Entrepreneurs’ Law which went into effect on April 30, 2018. Forms of business activity are described in the Commercial Companies Code. Poland does place limits on foreign ownership and foreign equity for a limited number of sectors. Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, and airport and seaport operations sectors. Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.
Pursuant to the Broadcasting Law, a television broadcasting company may only receive a license if the voting share of foreign owners does not exceed 49 percent and if the majority of the members of the management and supervisory boards are Polish citizens and hold permanent residence in Poland. In 2017, a team comprised of officials from the Ministry of Culture and National Heritage, the National Broadcasting Council (KRRiT) and the Office of Competition and Consumer Protection (UOKiK) was created in order to review and tighten restrictions on large media and limit foreign ownership of the media. While no legislation has been introduced, there is concern that possible future proposals may limit foreign ownership of the media sector as suggested by governing party politicians.
Over the past five years, Poland’s ranking on Reporters without Borders’ Press Freedom Index has dropped from 18th to 62nd. The governing Law and Justice (PiS) party aims to decrease foreign ownership of media, particularly outlets critical of their governing coalition. Approaches have included proposals to set caps on foreign ownership, the use of a state-controlled companies to purchase media, and the application of economic tools (taxes, fines, advertising revenue) to pressure foreign and independent media. In the insurance sector, at least two management board members, including the chair, must speak Polish. The Law on Freedom of Economic Activity (LFEA) requires companies to obtain government concessions, licenses, or permits to conduct business in certain sectors, such as broadcasting, aviation, energy, weapons/military equipment, mining, and private security services. The LFEA also requires a permit from the Ministry of Development for certain major capital transactions (i.e., to establish a company when a wholly or partially Polish-owned enterprise has contributed in-kind to a company with foreign ownership by incorporating liabilities in equity, contributing assets, receivables, etc.). A detailed description of business activities that require concessions and licenses can be found here: https://www.paih.gov.pl/publications/how_to_do_business_in_Poland
Polish law restricts foreign investment in certain land and real estate. Land usage types such as technology and industrial parks, business and logistic centers, transport, housing plots, farmland in special economic zones, household gardens and plots up to two hectares are exempt from agricultural land purchase restrictions. Since May 2016, foreign citizens from European Economic Area member states, Iceland, Liechtenstein, and Norway, as well as Switzerland, do not need permission to purchase any type of real estate including agricultural land. Investors from outside of the EEA or Switzerland need to obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners, prior to the acquisition of real estate or shares which give control of a company holding or leasing real estate. The permit is valid for two years from the day of issuance, and the ministry can issue a preliminary document valid for one year. Permits may be refused for reasons of social policy or public security. The exceptions to this rule include purchases of an apartment or garage, up to 0.4 hectares of undeveloped urban land, and “other cases provided for by law” (generally: proving a particularly close connection with Poland). Laws to restrict farmland and forest purchases (with subsequent amendments) came into force April 30, 2016 and are addressed in more detail in Section 5, Protection of Property Rights.
Since September 2015, the Act on the Control of Certain Investments has provided for the national security-related screening of acquisitions in high-risk sectors including: energy generation and distribution; petroleum production, processing and distribution; telecommunications; media; mining; and manufacturing and trade of explosives, weapons and ammunition. Poland maintains a list of strategic companies which can be amended at any time, but is updated at least once a year, usually in late December. The national security review mechanism does not appear to constitute a de facto barrier for investment and does not unduly target U.S. investment. According to the Act, prior to the acquisition of shares of strategic companies (including the acquisition of proprietary interests in entities and/or their enterprises) the purchaser (foreign or local) must notify the controlling government body and receive approval. The obligation to inform the controlling government body applies to transactions involving the acquisition of a “material stake” in companies subject to special protection. The Act stipulates that failure to notify carries a fine of up to PLN 100,000,000 ($25,000,000) or a penalty of imprisonment between six months and five years (or both penalties together) for a person acting on behalf of a legal person or organizational unit that acquires a material stake without prior notification.
As part of the COVID-19 Anti-Crisis Shield, on June 24, 2020, new legislation entered into force extending significantly the FDI screening mechanism in Poland for 24 months. An acquisition from a country that is not a member of the EU, the EEA, or the OECD requires prior clearance from the President of the Polish Competition Authority if it targets a company generating turnover exceeding EUR 10 million (almost $12 million) that either: 1) is a publicly-listed company, 2) controls assets classified as critical infrastructure, 3) develops or maintains software crucial for vital processes (e.g., utilities systems, financial transactions, food distribution, transport and logistics, health care systems); 4) conducts business in one of 21 specific industries, including energy, gas and oil production, storage, distribution and transportation; manufacture of chemicals, pharmaceuticals and medical instruments; telecommunications; and food processing. The State Assets Ministry is preparing similar and more permanent measures.
In November 2019, the governing Law and Justice party reestablished a treasury ministry, known as the State Assets Ministry, to consolidate the government’s control over state-owned enterprises. The government dissolved Poland’s energy ministry, transferring that agency’s mandate to the State Assets Ministry. The Deputy Prime Minister and Minister of State Assets announced he would seek to consolidate state-owned companies with similar profiles, including merging Poland’s largest state-owned oil and gas firm PKN Orlen with state-owned Lotos Group. At the same time, the government is working on changing the rules of governing state-owned companies to have better control over the firms’ activities. In September 2020, a new government plenipotentiary for the transformation of energy companies and coal mining was appointed.
Other Investment Policy Reviews
The government has not undergone any third-party investment policy review through a multilateral organization,
In 2020, government activities and regulations focused primarily on addressing challenges related to the outbreak of the pandemic.
The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the SME sector and innovations. Poland reformed its R&D tax incentives with new regulations and changes encouraging wider use of the R&D tax breaks. As of January 1, 2019, a new mechanism reducing the tax rate on income derived from intellectual property rights (IP Box) was introduced. Please see Section 5, Protection of Property Rights of this report for more information.
A package of five laws referred to as the “Business Constitution”—intended to facilitate the operation of small domestic enterprises—was gradually introduced in 2018. The main principle of the Business Constitution is the presumption of innocence of business owners in dealings with the government.
Poland made enforcing contracts easier by introducing an automated system to assign cases to judges randomly. Despite these reforms and others, some investors have expressed serious concerns regarding over-regulation, over-burdened courts and prosecutors, and overly burdensome bureaucratic processes. Tax audit methods have changed considerably. For instance, in many cases an appeal against the findings of an audit must now be lodged with the authority that issued the initial finding rather than a higher authority or third party. Poland also enabled businesses to get electricity service faster by implementing a new customer service platform that allows the utility to better track applications for new commercial connections.
The Ministry of Finance and the National Tax Administration have launched an e-Tax Office, available online at https://www.podatki.gov.pl/. The website, which will be constructed in stages through September 2022, will make it possible to settle all tax matters in a single user-friendly digital location. digital location.
In Poland, business activity may be conducted in the forms of a sole proprietor, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code. Sole proprietor and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed with the Ministry of Development here: https://prod.ceidg.gov.pl/CEIDG.CMS.ENGINE/?D;f124ce8a-3e72-4588-8380-63e8ad33621f
Commercial companies are classified as partnerships (registered partnership, professional partnership, limited partnership, and limited joint-stock partnership) and companies (limited liability company and joint-stock company). A partnership or company is registered in the National Court Register (KRS) and maintained by the competent district court for the registered office of the established partnership or company. Local corporate lawyers report that starting a business remains costly in terms of time and money, though KRS registration in the National Court Register averages less than two weeks according to the Ministry of Justice and four weeks according to the World Bank’s 2020 Doing Business Report.A 2018 law introduced a new type of company—PSA (Prosta Spółka Akcyjna – Simple Joint Stock Company). PSAs are meant to facilitate start-ups with simpler and cheaper registration procedures. The minimum initial capitalization is 1 PLN ($0.25) while other types of registration require 5,000 PLN ($1,274) or 50,000 PLN ($12,737). A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board. The provision for PSAs will enter into force in July 2021.
On August 5, 2020, the Government Legislation Center published the detailed assumptions of a draft amendment to the Commercial Companies Code developed by the Commission for Owner Oversight Reform with the Ministry of State Assets. The draft amendment’s primary assumption is to enact a so-called “holding law,” laying down the principles of how a parent company may instruct its subsidiaries, as well as stipulating the parent company’s liability and the principles of creditor, officer, and minority shareholder protections. Apart from introducing the holding law, the draft provides for several additional regulations, including those enhancing the supervisory board’s position, both within the holding law framework and for companies not comprising any group. The amendment is projected to come into force sometime in 2021.
On January 1, 2021, a new law on public procurement entered into force. This law was adopted by the Polish Parliament on September 11, 2019. The new law aims to reorganize the public procurement system and further harmonize it with EU law. The new public procurement law is also more transparent than the previous act.
Beginning in July 2021, an electronic system must be used for all applications submitted in registration proceedings by commercial companies disclosed in the National Court Register, i.e., both applications for registration, deletion, and any changes in the register.
A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website: https://www.nccert.pl/
The Polish Agency for Investment and Trade (PAIH), under the umbrella of the Polish Development Fund (PFR), plays a key role in promoting Polish investment abroad. More information on PFR can be found in Section 7, State-Owned Enterprises and at its website: https://pfr.pl/
PAIH has 70 offices worldwide, including six in the United States.
PAIH assists entrepreneurs with administrative and legal procedures related to specific projects as well as with the development of legal solutions and with finding suitable locations, and reliable partners and suppliers.
The Agency implements pro-export projects such as “Polish Tech Bridges” dedicated to the outward expansion of innovative Polish SMEs.
Poland is a founding member of the Asian Infrastructure Investment Bank (AIIB). Poland co-founded and actively supports the Three Seas Initiative, which seeks to improve north-south connections in road, energy, and telecom infrastructure in 12 countries on NATO’s and the EU’s eastern flank.
Under the Government Financial Support for Exports Program, the national development bank BGK (Bank Gospodarstwa Krajowego) grants foreign buyers financing for the purchase of Polish goods and services. The program provides the following financing instruments: credit for buyers granted through the buyers’ bank; credit for buyers granted directly from BGK; the purchase of receivables on credit from the supplier under an export contract; documentary letters of credit post-financing; the discounting of receivables from documentary letters of credit; confirmation of documentary letters of credit; and export pre-financing. BGK has international offices in London and Frankfurt.
In May 2019, BGK and the Romanian development bank EximBank founded the Three Seas Fund, a commercial initiative to support the development of transport, energy and digital infrastructure in Central and Eastern Europe. As of March 2021, there were nine core sponsors involved in the Fund.
In July 2019, BGK, the European Investment Bank, and four other development banks (French Deposits and Consignments Fund, Italian Deposits and Loans Fund, the Spanish Official Credit Institute, and German Credit Institute for Reconstruction), began the implementation of the “Joint Initiative on Circular Economy” (JICE), the goal of which is to eliminate waste, prevent its generation and increase the efficiency of resource management. PFR TFI S.A, an entity also under the umbrella of PFR, supports Polish investors planning to or already operating abroad. PFR TFI manages the Foreign Expansion Fund (FEZ), which provides loans, on market terms, to foreign entities owned by Polish entrepreneurs. See https://www.pfrtfi.pl/ and https://pfr.pl/en/offer/foreign-expansion-fund.html
Slovakia
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Slovakia is one of the most open economies in the EU. The government’s overall attitude toward foreign direct investment (FDI) is positive, and the government does not limit or discriminate against foreign investors. FDI plays an important role in the country’s economy, with major foreign investments in manufacturing and industry, financial services, information and communication technologies (ICT), and Business Service Centers, where U.S. companies have a significant presence.
Slovakia’s assets, including skilled labor, EU and Eurozone membership, and a central location in Europe have attracted a significant U.S. commercial and industrial presence, with investments from Accenture, Adient, Amazon, Amphenol, AT&T, Cisco, Dell, Garrett, GlobalLogic, Hewlett-Packard, IBM, Lear, Oracle, U.S. Steel, Whirlpool, and others.
The Ministry of Economy coordinates efforts to improve the business environment, innovation, and support for less-developed regions. Within the Ministry of Economy, the Slovak Investment and Trade Development Agency (SARIO) is responsible for identifying and advising potential investors, providing in-depth information on the Slovak business environment, investment incentives, the process for setting up a business, as well as advising on suitable locations and real estate leasing. The government encourages investment through tax incentives and grants to support employment, regional development, and training. Section Four of the Regional Investment Aid Act (57/2018) specifies the eligibility criteria for receiving assistance.
According to the National Bank of Slovakia’s preliminary data, in 2019, inward FDI flows to Slovakia reached 2.2 billion EUR, and inward FDI stock was 54 billion EUR. EU Member States, including the Netherlands, Austria, the Czech Republic, Luxembourg, and Germany, are the largest foreign investors in Slovakia. South Korea remains by far the largest investor among non-EU countries.
The Act on Special Levy on Regulated Sectors (235/2012 Coll., and later amendments) imposes a special tax on regulated industries, including the energy and network industries, insurance companies, electronic communications companies, healthcare, air transport, and others. The levy applies to profits generated from regulated activities above 3 million EUR.
The Slovak government requires ride-sharing and app-based hospitality platforms that are active on the local market to register a permanent office in Slovakia for tax collection purposes. Platforms that have not yet registered an office must pay either a 19 or 35 percent withholding tax on the fees it pays to a foreign entity, based on the residence of the recipient of such fee and whether bilateral taxation treaties exist.
The government actively works with investors to keep them operating in the country. In late 2020, Volkswagen, already one of the largest private employers in the country, credited a decision to expand its investment, in part, to the government’s assistance in negotiations with local partners.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity in Slovakia. Businesses can contract directly with foreign entities. Private enterprises are free to establish, acquire, and dispose of business interests, but must pay all Slovak obligations of liquidated companies before transferring any remaining funds out of Slovakia. All new businesses registered from October 2020 onwards must provide the national registration numbers of their partners, authorized representatives, and members of the boards of directors and supervisory boards when registering the business. Foreigners must provide their passport or residence permit numbers when registering the business.
In February 2021, Slovak Parliament approved legislation, over the opposition of representatives of the business community, requiring government review of ownership transfers larger than 10 percent of companies considered “critical infrastructure” – which includes a number of companies with foreign ownership. The law was passed through a fast-track procedure in response to a reported demand from Russian Sberbank that Slovakia’s electricity generator Slovenske Elektrarne back its debt to the bank with equity. The Economy Ministry has said that it will release a more robust Investment Screening Mechanism in 2021, which will be based on the EU Investment Screening Regulation 2020/1298, and will replace the fast-tracked legislation.
Slovakia has no formal performance requirements for establishing, maintaining, or expanding foreign investments. Large-scale privatizations are possible via direct sale or public auction. There are no formal requirements to approve FDI, though the government ultimately approves investment incentives. If investment incentives apply, the Economy Ministry manages the associated government approval process. The Act on Regional Investment Aid (57/2018) specifies that only three categories of projects may be subsidized: industrial production, technology, or business services. An amendment to the Act in force from January 2021 slightly relaxed the conditions for receiving investment aid, increasing the maximum time to finish work on the investment project from three to five years.
The Slovak government treats foreign entities established in Slovakia in the same manner as domestic entities, and foreign entities face no impediments to participating in R&D programs financed and/or subsidized by the Slovak government. Since January 2020, up to 200 percent of R&D spending is tax deductible.
The Slovak government holds stakes in a number of energy companies. It has historically been less open to private investment in energy assets that it considers to be in the national security interest. There are no domestic ownership requirements for telecommunications and broadcast licenses. The Act on Civil Air Transport (143/1998 Coll.) sets out rules for foreign operators seeking to operate in Slovakia.
Please consult the following websites for more information:
In its Investment Policy Monitor, The United Nations Conference on Trade and Development (UNCTAD) highlights Slovakia’s 2018 adoption of the Act on Regional Investment Aid and notes that tourism was excluded. The report highlights that income tax exemptions are the primary form of state aid, but direct subsidies for land purchase are also available, and investors may apply for job creation contributions from the government or may be permitted to let or own property at lower than a market value.
According to the World Bank’s Doing Business 2020 report, Slovakia ranks 118 out of 190 countries surveyed on the ease of starting a business, up from 127 in 2019. It takes, on average, 21.5 days to start a business versus 26.5 days in 2019, and involves seven procedures. There are business development companies that provide assistance with navigating the process of establishing a new business. The main agencies with which a company must register are the business registry, tax office, and social security agency.
In 2020, the Economy Ministry presented more than 500 measures that will decrease the administrative burden on businesses. More than 100 of these measures were approved by Parliament in July 2020. The Economy Ministry also announced plans for regular reviews of existing legislation to ensure it still serves its purpose, and stricter reviews during the transposition of EU legislation to ensure that the laws are not adding administrative burden beyond what is required.
The Central Government Portal “ slovensko.sk ” provides useful information on e-Government services for starting and running a business, citizenship, justice, registering vehicles, social security, etc. Checklists of procedures necessary for registrations, applications for permits, etc., are currently available on the websites of the business registry, tax office and social security agency. The Economy Ministry is working on streamlining the information into one common platform. The government has also announced plans for a major overhaul to the e-Government service portal to streamline access to public services.
Please consult the following websites for more information:
Due to their limited size, Slovak companies have not made significant outward foreign direct investments.
Several state agencies share responsibility for facilitating outward investment and trade. SARIO is officially responsible for export facilitation and attracting investment. The Slovak Export-Import Bank (EXIM Bank) supports exports and outward investments with financial instruments to reduce risks related to insurance, credit, guarantee, and financial activities; it assists both large companies and small and medium sized enterprises (SMEs), and is the only institution in Slovakia authorized to provide export and outward investment-related government financial assistance. The Ministry for Foreign and European Affairs runs a Business Center that provides services for exporters and helps identify investment opportunities. Slovakia’s diplomatic missions, the Ministry of Finance’s Slovak Guarantee and Development Bank, and the Deputy Prime Minister’s Office for Investments and Regional Development also play a role in facilitating external economic relations. Slovakia does not restrict domestic investors from investing abroad.
Slovakia has signed 54 Bilateral Investment Treaties (53 remain in force) and another 72 Treaties with Investment Provisions (57 remain in force) both before and after accession to the EU. Some of these are legacies of the former Czechoslovakia, while others have come into force following independence in 1993. The 1992 U.S.-Slovakia Bilateral Investment Treaty governs the basic framework for investment protection and dispute resolution between the two countries. An amended bilateral investment treaty entered into force on May 14, 2004, after Slovakia joined the EU. Slovakia signed a Bilateral Income Tax Treaty with the United States in 1993.
The United States and Slovakia agreed to the Foreign Account Tax Compliance Act (FATCA) in July 2015, and Slovakia subsequently approved the Act on Automatic Exchange of Information on Financial Accounts (359/2015) in order to fully comply with FATCA. Slovak financial institutions are now required to report tax information of American account holders to the Slovak Government, which then forwards that information to the U.S. Internal Revenue Service (IRS).
Please consult the following websites for more information:
Companies in Slovakia frequently complain about the country’s complex and unpredictable legislative environment. The current ruling coalition is making significant efforts to address this issue. Starting January 1, 2021, the Economy Ministry has said that it will work on a “one-in-one-out” principle, meaning every new regulation that will increase administrative burden by 1 euro will have to be matched with a proposal to decrease the administrative burden by 1 euro. The Economy Ministry has announced it will follow a “one-in-two-out” principle starting January 2022.
Regulations are drafted on the local and national level, those on the national level typically have more direct consequences to foreign investors. The Legislative and Information Portal of the Ministry of Justice, Slov-Lex, is a publicly accessible centralized online portal for laws and regulations, including draft texts and information about the inter-agency and public review processes. Draft bills, including investment laws proposed by ministries through a standard legislative procedure, are available for public comment through the portal. The public, however, is often granted little time to comment on draft legislation, and there is no obligation for a government reaction to comments prior to final submission to the cabinet.
While the process of adopting new laws and regulations follows clearly defined rules, MPs or parliamentary groups have the option of proposing fast-tracked draft bills. This process has no rules guaranteeing opportunities for public comment, thus rendering the legislative process less predictable and transparent. During the COVID-19 pandemic there has been a sharp increase in the number of laws adopted this way. While there were a total of 28 laws passed using fast-track procedures during the previous four years, there have already been 67 such laws adopted between March 2020 and February 2021. Though the use of extraordinary procedure is conditioned on extraordinary circumstances, potential threats to the public safety, or imminent economic damage, the government has used the procedure to approve bills seemingly unconnected to these criteria.
Regulations are, in most cases, not reviewed on the basis of scientific data assessments. At their discretion, analytical institutes at some ministries may produce data-driven assessments of proposed policies or large investment projects. However, the selection of projects for assessment occurs internally within the institutes or ministries without the opportunity for public comment. Assessments are usually published once completed.
The Commercial Code ( 98/1991 Coll.) and the Act on Protection of Economic Competition (136/2001 Coll.) govern competition policy in Slovakia. As an EU Member State, Slovakia follows relevant EU legislation. The Anti-Monopoly Office, a part of the EU’s European Competition Network (ECN), is an independent state administrative body responsible for ensuring a competitive marketplace.
The Public Procurement Office (PPO) supervises and administers public procurement. Public procurement legislation is frequently amended, and challenges remain to ensure fair competition and eliminate corruption. The PPO has made efforts to improve transparency and communication with stakeholders, as well as to strengthen supervisory activities. All procurers, including ministries and municipalities, may now publish online tenders for low-value purchases, increasing transparency and increasing possibilities for businesses to participate in public tenders. In December 2020, the government proposed major reforms of the public procurement system aimed at streamlining the process by increasing the threshold for when public tenders are required, moving procurement complaint proceedings from the PPO to the courts, and removing the PPO’s authority to request information from the police or the financial administration, as well as other measures. The proposals were met with heavy criticism from anti-corruption campaigners as well as from the PPO itself claiming the reforms would undermine its independence, decrease oversight over public tenders, and increase corruption. As of March 2021, there was no agreement in the government on the final wording of the proposed reforms.
As an EU Member State, Slovakia conforms to the European System of National and Regional Accounts (ESA 2010), which is the EU’s most recent internationally compatible accounting framework, as well as the International Financial Reporting Standards (IFRS-EU). Slovakia meets the minimum criteria of the U.S. Fiscal Transparency Report. Budget proposals, enacted budgets, and closing statements are substantially complete and publicly available. Departures from budget goals are common. The current ruling coalition introduced a number of changes to the 2021 State Budget that have improved transparency and led to better projections compared to previous years. The Ministry of Finance publishes monthly reviews of budget execution, which provide an overview of public revenues and expenditures broken down by source and type. Annex 6 of the State budget describes the Debt Management Strategy including volume, total cost, debt service, structure, financing, forecast, and risk assessments.
Please consult the following websites for more information:
Legislative and Information Portal Slov-Lex: https://www.slov-lex.sk/domov(Note: all legal acts and regulations mentioned throughout this report can be found on this portal.)
Slovakia is subject to European Court of Justice (ECJ) jurisdiction and must comply with all EU legislation and standards, including the Trade Facilitation Agreement (TFA). The national regulatory system is enforced in areas not governed by EU regulatory mechanisms. Slovakia is a WTO member, and the government notifies the WTO Committee on Technical Barriers to Trade of technical regulations.
Please consult the following websites for more information:
Slovakia is a civil law country. The Slovak judicial system is comprised of the Constitutional Court and general courts, including the Specialized Criminal Court and the Supreme Court. General courts decide civil, commercial, and criminal matters, and review the legality of decisions by administrative bodies. The Specialized Criminal Court focuses on cases involving corruption, organized crime, serious crimes like premeditated murder, crimes committed by senior public officials, and crimes related to extremism, such as hate crimes. Enforcement actions are appealable and are adjudicated in the national court system. The right to appeal against regulations is limited to some state institutions and selected public officials.
The Slovak Constitution and the European Convention of Human Rights guarantee property rights. Slovakia has a written Commercial Code including contract law in the civil and commercial sectors. The basic framework for investment protection and dispute resolution between Slovakia and the U.S. is outlined in the 1992 U.S.-Slovakia Bilateral Investment Treaty.
Court judgments by EU Member States are recognized and enforced in compliance with existing EU Regulations. Third country judgments are governed by bilateral treaties or by the Act on International Private Law. Contracts are enforced through litigation or arbitration – a largely applied form of alternative dispute resolution.
Laws guarantee judicial independence, however, in practice, public perception of judicial independence is among the lowest in the EU. A Focus Agency public survey from August 2019 commissioned by the Supreme Court Office showed 64 percent of Slovaks lack full trust in Slovak courts. Accountability mechanisms ensuring judicial impartiality and independence exist and are increasingly utilized. In 2019 and 2020 numerous investigations into judicial corruption were opened and almost 20 judges were arrested on suspicion of corruption. Businesses and NGOs report that the justice system remains relatively slow and inefficient and suggest verdicts are unpredictable and are often poorly justified. Judges remain divided on the need for reform. Investors generally prefer international arbitration to resolution in the national court system.
Laws and Regulations on Foreign Direct Investment
Slovakia is a politically and economically safe destination for foreign investment. Investment incentives are available to motivate investors to place new projects in regions with higher unemployment and to attract projects with higher added value. In February 2021, the government approved a law that allows the Economy Ministry to review and potentially stop ownership transfers larger than 10 percent of companies classified as critical infrastructure.
The Slovak Investment and Trade Development Agency (SARIO) is a specialized government agency in charge of attracting foreign investments to Slovakia and serves as a one-stop shop for foreign investors. Their website offers easily accessible information on laws, rules, procedures and reporting requirements relevant to investors or those wanting to register a business. The Slovak Business Agency (SBA) runs a National Business Center (NBC) in Bratislava and several other cities; it provides information and services for starting and establishing businesses. Startups can use a simplified procedure to register their company in order to facilitate the entry of potential investors. The Interior Ministry operates Client Centers around the country where many formal administrative procedures can be completed under one roof.
Slovakia ranked 45 out of 190 countries in the World Bank’s Doing Business 2020 ranking.
Please consult the following websites for more information:
The Anti-Monopoly Office of the Slovak Republic is an independent body charged with the protection of economic competition. The Office intervenes in cases of cartels, abuse of a dominant position, vertical agreements, and controls compliance of mergers with antitrust law. The Office always specifies if its intervention decision can be appealed based on the relevant laws. The key antitrust legislation regarding fair competition is the Competition Law (136/2001 Coll.) Slovakia complies with EU competition policy.
Please consult the following website for more information:
The Slovak Constitution guarantees the right to property. There is an array of legal acts stipulating property rights. The Act on Expropriation of Land and Buildings (282/2015 Coll.) mandates that expropriation must only occur to the extent necessary, be in the public interest, provide appropriate compensation, and shall only occur when the goal of expropriation cannot be achieved through agreement or other means.
The most recent case of expropriation is from 2016, when Slovak government began expropriating land needed for the construction of an automobile manufacturing plant and accompanying road infrastructure. The state proceeded with expropriation only after it failed to directly purchase the land from the owners.
Dispute Settlement
ICSID Convention and New York Convention
Slovakia is a contracting state to the International Centre for Settling International Disputes (ICSID) and the World Bank’s Commercial Arbitration Tribunal (established under the 1966 Washington Convention). Slovakia is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitrage Awards, which obligates Slovakia to accept binding international arbitration. The Finance Ministry leads on bilateral investment treaty matters and manages and represents Slovakia in international arbitration. Investment contracts with foreign investors in Slovakia are covered by respective ministries depending on the sector, in most cases by the Ministry of Economy.
Investor-State Dispute Settlement
The basic framework for investment protection and dispute resolution between Slovakia and the United States is governed by the 1992 U.S.-Slovakia Bilateral Investment Treaty with an additional protocol that came into force in 2004.
To date, twelve known cases of international arbitration have concluded, all of which Slovakia won. In one of the international arbitrations, a U.S. investor made claims under the U.S.-Slovakia Bilateral Investment Treaty, but respected the decision of ICSID, which ruled in Slovakia’s favor.
The legal system generally enforces property and contractual rights, but decisions may take years, thus limiting the relevance of the courts in dispute resolution. According to the World Bank Doing Business 2020 report, Slovakia ranked 46 out of 190 countries in the “enforcing contracts” indicator, with a 775-day average for enforcing contracts. The report notes that Slovakia made enforcing contracts easier by implementing electronic processing services. Slovak courts recognize and enforce foreign judgments, subject to the same delays. Although the commercial code generally appears to be applied consistently, the business community continues to cite a lack of legislation protecting creditor rights, corruption, political influence, lengthy procedures, and weak enforcement of court rulings as persistent problems. U.S. and other investors privately described instances of multi-million-dollar losses that were settled out of court because of doubts about the court system’s ability to offer a credible legal remedy.
International Commercial Arbitration and Foreign Courts
There are two acts applicable to alternative dispute resolution in Slovakia – the Act on Mediation (420/2004 Coll.) and the Act on Arbitration (244/2002 Coll.). The Slovak Act on Arbitration is largely modeled after UNCITRAL model law. Local courts in Slovakia recognize and enforce foreign arbitral awards.
The alternative dispute resolution mechanisms in Slovakia are relatively fast compared to the court system. The list of permanent arbitration courts authorized by the Slovak Ministry of Justice is published on the Ministry’s website. Decisions should be reached within 90 days of the date when the lawsuit was filed. It is possible to lodge an appeal to a civil court against an arbitration decision within three months of the date of its issuance or lodge a complaint about an arbitration decision to the chairman of the permanent arbitration court or to the Ministry of Justice.
Alternative dispute resolution proceedings can also be initiated by filing a motion with one of the alternative dispute resolution entities from a list maintained by the Ministry of Economy. Dispute settlement takes place through written communication and has a 90-day timeframe for completion. Unless the parties reach an agreement, the alternative dispute resolution entity will prepare a justified opinion. If any attempt to settle the dispute by mutual agreement fails, and the arbitration entity issues an opinion, there is no avenue for appeal.
The other option for extrajudicial dispute settlement is mediation. Mediation can be used even after a court proceeding has started. The agreement resulting from mediation is legally enforceable only if it has the form of a notarial record or court settlement. The list of mediators is published on the website of the Association of Mediators. In the case of an unsuccessful mediation, parties can still take the case to arbitration or to court.
Please consult the following websites for more information:
The Law on Bankruptcy and Restructuring (377/2016 Coll.) governs bankruptcy issues. Companies can undergo court-protected restructuring, and both individuals and companies can discharge their debts through bankruptcy. The International Monetary Fund praised the Act for speeding up the process, strengthening creditor rights, limiting the discretion bankruptcy judges may use in adjudicating cases, and randomizing the allocation of cases to judges to reduce potential corruption. The Act contains provisions to prevent preferential treatment for creditors over company shareholders, reduce arbitrariness in bankruptcy administrators’ conduct, and impose stricter liability rules for those initiating the bankruptcy proceedings. The Commercial Code also contains provisions on bankruptcy and restructuring preventing speculative mergers during ongoing bankruptcy proceedings.
Slovakia ranked 46 out of 190 in the World Bank’s Doing Business 2020 ranking of the ease of resolving insolvency (42 in 2019), with an average of four years for resolving insolvency.
Please consult the following websites for more information:
The Economy Ministry manages and coordinates investment aid with other relevant agencies (see Policies Towards Foreign Direct Investment in Chapter 1). Eligibility for investment incentives is defined in the Act on Regional Investment Aid (57/2018 Coll.). Investors are encouraged to implement projects in less-developed regions, and to invest in high value-added activities.
Investment incentives are available to foreign and domestic investors for projects in sectors including industrial production, technology, and shared service centers. The incentives are provided as tax relief, cash grants, contributions for newly created jobs, and transfers of state or municipal property at a discounted price. Eligible costs include acquisition of land, acquisition and construction of buildings, acquisition of technology equipment and machinery, as well as intangible assets (e.g., licenses, patents, etc.) and wages of new employees for a period of two years.
Apart from investment aid, the Economy Ministry offers innovation vouchers and special loans through its Investment Fund. Individual ministries run EU-supported projects in their respective areas of responsibility.
State aid granted by the Slovak government must comply with valid EU regulations. The Anti-Monopoly Office of the Slovak Republic is the coordinating body for state aid granted by individual ministries, as per the Act on State Aid (358/2015 Coll.), and there is a dedicated state aid web portal.
Please consult the following websites for more information:
Slovakia eliminated all foreign trade zones and free ports in 2006.
Performance and Data Localization Requirements
There are no special requirements for foreign IT providers to turn over their source code or to provide access to encrypted documents. However, according to the Act on Electronic Communications (351/2011 Coll.), entities providing public networks or public services that use coding, compression, encryption, or other form of concealing signal transfer must, at their own expense, provide information obtained through wiretapping and network traffic recording or monitoring to relevant authorities. Slovakia follows the EU General Data Protection Regulation (GDPR) regulating data protection and privacy. There are no automated or systemic mechanisms in place enforcing rules on local data storage. Slovakia follows the EU regulation on the free flow of non-personal data 2017/0228 (COD) that sets out the principle that non-personal data is allowed to be located and processed anywhere in the EU without unjustified restrictions, with some exceptions on the grounds of public security. The relevant authority for data localization is the Deputy Prime Minister’s Office for Investments and Digitalization and the Office for Personal Data Protection.
Slovakia does not mandate local employment or that host country nationals should serve in roles of senior management or boards of directors, follow “forced localization,” or impose conditions on permissions to invest.
Foreign entities have equal access to investment incentives, as per the Act on Regional Investment Aid (57/2018 Coll.). For more details on eligible projects, please see Chapter 1 on Investment Incentives.
The Alien Police Department issues temporary and long-term residence permits as specified in the Act on Residency of Foreign Nationals (404/2011 Coll.; 108/2018 Coll.). Immigration regulations do not differ significantly from those of other EU countries, however the quality of customer service at the Alien Police Department is reportedly very low. Slovak authorities have made some concessions to improve this process for American citizens, including accepting FBI background checks that are up to 90 days expired and accepting applications at the Slovak Embassy in Washington, D.C. prior to departure for Slovakia. The U.S. Embassy’s Consular Section has reported a drop in the number of Americans looking for help with this issue since the implementation of these changes. Even with these changes, authorities are still inconsistent in their recommendations or enforcement of regulations. Some Americans have also reported low level bribery solicitations at the registration center, although less since the introduction of the new online registration system.
Please consult the following websites for more information:
The mortgage market in Slovakia is growing rapidly, and a reliable system of record keeping exists. Secured interests in property and contractual rights are recognized and enforced.
Less than 10 percent of the land in Slovakia lacks a clear title, however, there are instances when a property’s owner is unknown. In such cases, real estate titling can take a significant amount of time to determine. Legal decisions may take years, limiting the utility of the court system for dispute resolution.
Parcels commonly have a very high number of co-owners. There are currently 8.4 million parcels, 4.4 million recorded owners of land, and 100 million co-owning relations. On average, one parcel has 11.93 co-owners, and one owner has an average of 22.74 parcels. To address this issue, the Agriculture Ministry started a robust land ownership reform in 2019, projected to last 30 years, to gradually consolidate parcels and simplify ownership records in the cadaster database. In 2020, 141 land readjustments were initiated. A dedicated web portal allows verification of information about land and property ownership.
Foreigners can acquire real property without restrictions. In February 2019, the Slovak Constitutional Court ruled against a Law on Agricultural Land Ownership (140/2014 Coll.), which indirectly limited the sale of land to foreigners by requiring at least three years of previous agricultural business activity and having at least 10 years of residency in Slovakia.
The Agriculture Ministry announced plans to submit amendments to the respective laws including 140/2014 Coll. in 2021, addressing acreage limits; establishing preemption rights for local governments in order to prevent speculative leases and land sales; and ensuring transparent publication, registration, control, and regulation of the agricultural land market.
Squatting is illegal in Slovakia and ownership of unoccupied property will not revert to squatters or other parties unless they are entitled to own the land.
Slovakia was 8 out of 190 countries in the World Bank’s 2020 Doing Business “registering property” indicator, averaging 16.5 days to register a property compared to average of OECD high income countries of 23.6 days.
Please consult the following websites for more information:
The Slovak legal system provides strong protection for intellectual property rights (IPR). The country is bound by robust EU regulations and adheres to major international IPR treaties, including the Berne Convention, the Paris Convention, and numerous others on design classification, registration of goods, appellations of origin, patents, etc. The protection of IPR falls under the jurisdiction of two agencies. The Industrial Property Office of the Slovak Republic is the central government body that oversees industrial property protection, including patents, and the Culture Ministry is responsible for copyrights, including software. The Financial Administration, which is part of the Finance Ministry, plays an important role in enforcing IPR and deals with customs, which fights against counterfeit goods. In the case of IPR infringement, rights holders can bring a civil lawsuit in the district courts in Bratislava, Banska Bystrica, and Kosice and, if applicable, have the right to claim lost profits. The courts can issue injunctions to prevent further infringement of IPR. In certain cases, violation of IPR can be considered a criminal offense.
No major IPR-related laws were passed in 2020. Recent EU Directives on copyright (2019/790 and 2019/789) are required to be transposed by June 2021. Slovakia is not included in USTR’s Special 301 Report or the Notorious Markets List.
There were 2,781 suspected breaches of IPR in 2019 for goods imported from third countries (up from 1,901 cases in 2018, especially in the form of perfumes, cosmetics, jewelry and other accessories, sports shoes, and toys), and the value of seized counterfeit goods increased nine-fold from 2018 to 6.6 million EUR. The number of domestic IPR infringement cases grew from 996 in 2018 to 1,108 in 2019 but with a decrease in value in 2019 by 22 percent to 2.1 million EUR. In February 2021, the Financial Administration uncovered the largest illegal cigarette production site located in Slovakia to date worth 6 million EUR in VAT and excise duty.
For additional information about treaty obligations and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
Please consult the following websites for more information:
The Bratislava Stock Exchange (BSSE) is a member of the Federation of European Securities Exchanges (FESE). An effective regulatory system exists that encourages and facilitates portfolio investment. BSSE is a joint-stock company whose activities are governed primarily by the Stock Exchange Act No 429/2002 (Coll.) on the Stock Exchange and Stock Exchange Rules. The stock market in Slovakia is among the smallest in Europe, and dominated by bonds, which constitute 95 percent of sales volume. In 2020, the total volume of transactions at the BSSE was slightly more than $220 million (a 17 percent decline compared to 2019). As of December 31, 2020, book-entry securities with the total nominal value Market capitalization of shares was roughly $3 billion and market capitalization of bonds $51 billion.
The European Single Market and existing European policies facilitate the free flow of financial resources. Slovakia respects International Monetary Fund (IMF) Article VIII by refraining from restricting payments and transfers for current international transactions. Credit is allocated on market terms in Slovakia and is available to foreign investors on the local market.
Please consult the following websites for more information:
Slovakia became part of the Euro system, which forms the central banking system of the euro area within the European System of Central Banks, upon its integration into the Eurozone on January 1, 2009. The Central Bank of Slovakia (NBS) is the independent central bank of the Slovak Republic.
Most banks operating in Slovakia are subsidiaries of foreign-owned institutions. Slovak branches operate conservatively and showed strong resilience during the 2009 financial crisis and subsequent EU-wide stress tests. The combined total assets of the financial institutions active in the Slovak market were over 85 billion euro at the end of 2019.
While the COVID-19 pandemic will have significant negative impacts on the profitability of the banking sector, simulations of both baseline and adverse scenarios of the economic recovery in NBS’ Financial Stability Report suggest that the stability of the banking sector is not threatened. Despite the pandemic crisis, the non-performing loan ratio for the first eight months of 2020 fell from 2.9 percent to 2.6 percent. The report points to a risk of a sharp increase in non-performing loans in the adverse scenario, with up to 7.7 percent of loans to non-financial corporations and 3.2 percent of loans to households potentially becoming non-performing by end of 2021. The COVID-19 pandemic has resulted in a sharp increase in the risk of firm bankruptcies with approximately 11.7 to 13.7 percent of companies at risk of insolvency by the end of 2021. The banking sector’s aggregate total capital ratio increased from 18.2 percent to 19.5 percent.
Foreign nationals can open bank accounts by presenting their passport and/or residence permit, depending on the bank.
Please consult the following websites for more information:
Slovakia joined the Eurozone on January 1, 2009. The exchange rate is free floating.
The Foreign Exchange Act (312/2004) governs foreign exchange operations and allows for easy conversion or transfer of funds associated with an investment. The Act liberalized operations with financial derivatives and abolished the limit on the export and import of banknotes and coins (domestic and foreign currency). It also authorizes Slovak residents to open accounts abroad and eliminates the obligation to transfer financial assets acquired abroad to Slovakia. Slovakia meets all international standards for conversion and transfer policy. Non-residents may hold foreign exchange accounts. No permission is needed to issue foreign securities in Slovakia, and Slovak citizens are free to trade, buy, and sell foreign securities.
Remittance Policies
The basic framework for investment transfers between Slovakia and the United States is set within the 1992 U.S. – Slovakia Bilateral Investment Treaty.
Following Slovakia’s approval of the Foreign Account Tax Compliance Act (FATCA) in July 2015, and per the Act on Automatic Exchange of Information on Financial Accounts (359/2015), Slovak financial institutions are obligated to report tax information of American account holders to the Slovak Government, which then forwards that information to the U.S. Internal Revenue Service (IRS).
Slovakia does not impose any limitations on remittances. Dividends are taxed at 7 percent. Transfer pricing for controlled transactions must be based on market prices. An obligation to pay a 21 percent tax applies to companies that are moving their assets or activities abroad.
Please consult the following websites for more information:
Slovakia does not maintain a Sovereign Wealth Fund (SWF). Slovak Investment Holding (SIH) is a fund of funds fully owned by the Slovak Guarantee and Development Bank. Resources are allocated as revolving financial instruments, through financial intermediaries or directly to final beneficiaries, and focus on strategic investment priorities in transport infrastructure, energy efficiency, waste management, SMEs, and social economy.
Please consult the following websites for more information:
There are 95 fully or partially State-Owned Enterprises (SOEs) in Slovakia that employ approximately 85,000 employees. SOEs are mostly active in strategic sectors, including health and social insurance, aerospace, ground transportation, and energy. Gas industry SOEs are the most profitable with SPP Infrastructure (gas infrastructure) at the top of the list with a profit of 584 million euro in 2020. Slovak Rails, a rail infrastructure company with a net loss of 2 million euro in 2019 and assets worth 3.7 billion euro, and Slovak Post, with a net income of 1.4 million euro in 2019 and assets worth 500 million euro, are the two biggest employers in Slovakia, each with around 13,000 employees. In an effort to improve competitiveness, Slovak Post announced layoffs of 6 percent of its employees in January 2021.
Among fully state-owned SOEs Narodna Dialnicna Spolocnost (National Highway Company) has the most assets, totaling 10 billion euro. The second biggest SOE in terms of assets is SPP Infrastructure with 6 billion euro. The 30 biggest fully state-owned enterprises have assets of roughly 25 billion euro. In 2019, the Slovak budget received roughly 430 million euro in revenue from SOEs with 300 million euro coming from SPP and another 110 million euro from key electricity distribution companies ZSE, SSE, and VSE. Slovenske Elektrarne, a major utility company with 34 percent state ownership, has assets worth 10.5 billion euro. According to the government’s Value for Money unit, 37 percent of SOEs have a good financial health and the same percentage have serious financial problems.
In 2019, Transparency International Slovakia (TIS) published a ranking of 100 Slovak companies with state, municipal, and regional ownership, assessing how open these companies are when it comes to publishing economic results and access to information. Transparency International has deemed the SOEs to be generally non-transparent and with limited openness to public control. In February 2021, the Supreme Court responded to a TIS complaint regarding SPP’s concealment of the salaries paid to its board members, ruling that SOEs manage public funds and citizens have a right to know how they manage them. Wider concerns over transparency of public tenders persist, including those involving the SOEs.
Most SOEs are structured as joint-stock companies governed by boards that include government representatives and government appointees, and the government plays a key role in SOE decision making. Significant SOEs are required to publish their audited financial statements in accordance with the Accounting Act. They submit their audited financial statements to the Finance Ministry’s dedicated portal.
Most ministries publish a list of companies they own on their web portals. The list includes SOE equities and profits broken down by enterprise and is publicly available.
Slovak SOE ownership is exercised in accordance with the Act on State-Owned Enterprises (111/1990) and is consistent with the OECD Guidelines on Corporate Governance for SOEs.
Please consult the following website for more information:
Foreign investors are free to participate in privatization programs for SOEs, however, no privatization efforts are currently under way. Privatization programs are usually executed through direct sale, although Slovakia tends to complete major privatization projects through public tenders, especially in the energy sector.
According to Act on Transfer of State Assets to Other Entities (92/1991 Coll.), the appropriate ministry plays a central role in the SOE privatization process. Previous privatization programs commonly resulted in foreign investors bidding and winning the tenders.
Responsible Business Conduct (RBC) has not yet been officially defined nor standardized by the Slovak government. The current ruling coalition pledged in its 2020 to 2024 Program Statement to become more responsible towards business and the environment. The Ministry of Labor, Social Affairs and Family continues to refer to Howard R. Bowen’s 1953 text on Social Responsibilities of the Businessman for its definition of social responsibility. The Ministry has not updated the generic webpage on social responsibility nor boosted the awareness of RBC during recent years.
Slovakia is a party to the Aarhus Protocol. Consumer protection is guaranteed and enforced through the Civil Rights Act, Consumer Protection Act, and the Act on E-Commerce. Slovakia has ratified the Extractive Industry Transparency Initiative (EITI). As an EU member state, Slovakia adheres to the 2017/821 regulation based on the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. Also, as an OECD member, Slovakia adheres to the OECD Guidelines for Multinational Enterprises. A National Contact Point (NCP) was established to promote these guidelines among the wider public (business community, government, trade unions, etc.) and to help resolve RBC disputes. The latest NCP annual report available on their website was issued in 2016.
The Acts on Environmental Impact Assessment (24/2006), Air (137/2010), and Waste (313/2016) govern the environmental protections affecting businesses. The mandatory Environmental Impact Assessment (EIA) process applies to a number of industries, including mining, energy, steel, chemical, pharmaceutical, wood, food, and agriculture, as well as infrastructure projects. The Act on Air defines legal obligations for businesses causing emissions, including emissions limits, monitoring, and reporting in line with valid national and EU legislation. The Act on Waste establishes the obligations for companies producing packaging, as well as rules on waste recycling and recovery, and other waste management issues.
The Ministry of Environment intends to revise the Low Carbon Strategy and the National Integrated Energy and Climate Plan, with the goal to transition to a carbon neutral economy by 2050, including stopping coal power production at the Novaky Power Plant by 2023. The Ministry also aims to introduce a Forest Stewardship Council for state-owned forests.
There have not been any specific human or labor rights violations reported, though Amnesty International reports Roma face widespread discrimination and social exclusion in Slovakia.
Many companies and NGOs adhere to the principles of RBC and actively promote and advocate for this concept. The most significant program is the Via Bona Awards, developed by the Pontis Foundation, which annually recognizes Slovakia’s best RBC programs. The American Chamber of Commerce in Slovakia also plays an important and active role in promoting and advocating for RBC.
Slovakia is not a signatory of The Montreux Document on Private Military and Security Companies nor a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).
The NCP can be contacted here:
Ministry of Economy of the Slovak Republic
The Strategy Unit
Department of Bilateral Trade Cooperation
Mierova 19
827 15 Bratislava 212
Slovak Republic
Tel.: +421 2 4854 2309
E-mail: nkm@mhsr.sk
Slovakia is a party to international treaties on corruption. Among them are the OECD Convention on Combating Bribery of Foreign Public Officials, the UN Anti-Organized Crime Convention, the UN Anti-Corruption Convention, and the Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Slovakia is a member of the Group of States against Corruption (GRECO).
The giving or accepting of a bribe constitutes a criminal act according to Slovak law. Slovak criminal law incorporates criminal liability for legal persons, including corporations. Nevertheless, corruption continues to be among the most serious issues for the business community. According to the Special Eurobarometer survey of December 2019, 79 percent of respondents believed that corruption is part of Slovakia’s business culture. In the 2020 Transparency International global corruption perception ranking Slovakia ranked 60th place, down from 59 in 2019. There is no data available on whether U.S. firms identify corruption as an obstacle to foreign direct investment. In a March 2018 survey by five foreign chambers of commerce (Slovak-German Chamber of Commerce, Slovak-Austrian Chamber of Commerce, Dutch Chamber of Commerce, Swedish Chamber of Commerce, and Advantage Austria), respondents highlighted the fight against criminality and corruption as the largest problem among evaluated investment criteria.
NGO analysts and GRECO point out that conflict of interest and asset declaration regulations lack the necessary level of detail to be implemented and enforced in practice. There is a high threshold for reporting gifts accepted by judges and prosecutors. Government authorities do not require private companies to establish internal codes of conduct that would prohibit bribery of public officials, although some companies have adopted such measures voluntarily. The law requires that public entities and private companies having at least 50 employees set up an internal channel to report corruption or unlawful conduct. While law enforcement has effectively investigated some cases of petty bribes and mid-level corruption, anti-corruption NGOs assess that high-level corruption was rarely investigated or prosecuted effectively until 2019. Prior to that, only two ministerial-level officials had been convicted of corruption-related crimes since Slovak independence in 1993. According to a survey published by Transparency International Slovakia, between October 2016 and 2019 only 10 percent of corruption cases decided by the Specialized Criminal Court involved amounts greater than 5,000 EUR. NGOs investigating corruption do not enjoy any special protection.
Following the murder of investigative journalist Jan Kuciak and his fiancée Martina Kusnirova in February 2018 and the resulting changes in the government and police leadership, one individual involved in high-level tax fraud was convicted in March 2019. In the course of 2019 and 2020 a number of judges, the former Special Prosecutor, high-level police officers, internal revenue officers and several businessmen and lawyers were charged with corruption, interference in the independence of courts and organized crime. In December 2020, the former Environment and Economy Minister was charged with bribery. In January 2021, Pavol Rusko, a former director of TV Markiza, and Marian Kočner, a businessman who was accused of plotting the murder of Jan Kuciak and his fiancée, were sentenced to 19 years in jail for obstruction of justice and promissory notes fraud. The fraudulent promissory notes allowed Kočner to receive 69 million EUR from TV Markiza. TV Markiza is part of NASDAQ-traded Central European Media Enterprise (CME), and was majority owned by AT&T. CME was sold to Czech firm PPF in 2019, pending approval from EU and national regulatory authorities.
The new government’s agenda has been heavily focused on strengthening anti-corruption measures. In February 2021, Parliament selected the head of the new Whistleblower Protection Office responsible for enhancing the country’s system of whistleblower protections. The new Office will become active in August 2021. In June 2019, Parliament streamlined the anti-shell company law that requires private companies to reveal their ownership structure before entering into business contracts with public entities. In January 2020, a conflict of interest in civil service regulation was adopted by Cabinet decree, introducing a Code of Conduct for Civil Servants (400/2019 Coll.).
Disclosure of contracts in the Central Registry of Contracts by public administrators and state-owned enterprises is compulsory.
Private businesses, especially those with foreign ownership, often have internal codes of ethics, in many cases also extending to contractors.
Resources to Report Corruption
Contact details of government agencies responsible for combating corruption:
Daniel Lipsic
Head of the Special Prosecutor’s Office
Office of the Special Prosecution under the General Prosecutor’s Office
Suvorovova 4343
902 01 Pezinok
Telephone: +421 33 690 3171 Daniel.Lipsic@genpro.gov.sk
Branislav Zurian
Director of the National Criminal Agency
Ministry of Interior, National Police Headquarters
Račianska 45
812 72 Bratislava
Telephone: +421 964052102 Branislav.Zurian@minv.sk
Contact details of “watchdog” organizations:
Michal Pisko
Executive Director
Transparency International Slovakia
Bajkalska 25
82718 Bratislava
Telephone: +421 2 5341 7207 sipos@transparency.sk
Zuzana Petkova
Executive Director
Stop Corruption Foundation
Stare Grunty 18
841 04 Bratislava petkova@zastavmekorupciu.sk
Peter Kunder
Executive Director
Fair Play Alliance
Smrecianska 21
811 05 Bratislava
Telephone: +421 2 207 39 919 kunder@fair-play.sk
Politically motivated violence and civil disturbances are rare in Slovakia. There have been no recent reports of politically motivated damage to property, projects, and installations nor violence directed toward foreign-owned companies. Slovak citizens have responded well to stringent government measures introduced during March and April 2020 to contain the spread of the COVID-19 pandemic, with polls showing that nine out of ten Slovaks considered the restrictions appropriate. As the pandemic continued and the country returned to a prolonged lockdown in October 2020, the willingness of the general public to abide by the restrictions, however, decreased. Enforcement of the measures was low across the country. In October and December 2020, protests against COVID restrictions attracted several thousand participants including several high-ranking opposition politicians. The protests resulted in minor damage of government property, a police response with tear gas and water cannon, several arrests and minor injuries to three policemen and two participants. In February 2020, Slovakia elected a new four-party government coalition, which ran on a campaign of anti-corruption, good governance, and accountability. The transfer of power from the previous government was smooth and effective.
Slovakia is one of the most industrialized economies in the EU with almost 32 percent of the workforce employed in industry, 65 percent in services (including construction), and the rest in agriculture. Due to COVID-19, the unemployment rate increased to 7.8 percent by the end of 2020 from 4.92 percent in December 2019. Long-term unemployment remains prevalent in poorer regions, especially in the marginalized Romani communities.
Foreign companies frequently praise workers’ motivation and productivity, and especially commend younger workers for their proficiency with foreign languages. However, businesses complain about the growing gap between their labor market needs and popular areas of study, with shortages in technical education at both the high school and higher education levels, and a lack of support for critical thinking and managerial skills. Slovak PISA scores are persistently below average with skill shortages particularly prevalent in knowledge and technology-intensive sectors. The health and IT sectors are among those facing the most severe long-term labor shortages, but most regions also report shortages in workers for lower-skill construction and machinery operation jobs.
The minimum wage law indexes the minimum wage to overall wage growth in the economy. The minimum wage increased to 623 EUR per month in 2021. Nominal wages grew by 7.8 percent in 2019. The average nominal wage in 2020 remained almost identical to the previous year at 1,096 EUR per month. In 2019, the average hourly labor cost was 12.50 EUR, significantly lower than the EU average of 27.70 EUR. According to Eurostat, the gender pay gap stood at 19.4 percent and the gender employment gap at 13 percent in 2018. A lack of childcare facilities for children below three years of age combined with three years of paid maternity leave discourages mothers from returning to work and aggravates the gender pay gap. According to the European Commission Country Report on Slovakia, formal childcare of children under 3 years remains among the lowest in the EU. In November 2020, the Education Ministry has presented an education reform plan, which will include increasing funding for pre-school infrastructure.
The Slovak Labor Code (311/2001 Coll. and later amendments) governs the national labor market, including for foreigners. Businesses cite burdensome labor regulations, frequent and arbitrary changes to the labor code, and a lack of stakeholder input as some of the obstacles to doing business in Slovakia. A number of labor related measures came into force in March 2021, including an increase in the minimum wage; a requirement for employers to pay for any additional costs arising from telework and clarifying that employees do not have to read e-mails or accept phone calls outside of working hours; and simplifying employer options for providing meal vouchers to employees.
In February 2021, the government approved a permanent “kurzarbeit” social insurance program, in which employers may reduce their employees’ work hours instead of laying them off. Pending approval by Parliament, the act will require the state to subsidize 60 percent of a worker’s salary, with the employer providing another 20 percent.
On January 1, 2020, the Amendment to the Act on Employment Services (5/2004 Coll.) simplified the process for hiring non-EU nationals by decreasing wait times for temporary residence permits from 90 to 30 days and limiting the wait time for work permits to 20 days.
The number of foreign nationals from non-EU countries in the Slovak labor market was steadily increasing, but, likely due to COVID-19, dropped from just over 28,500 in December 2019 to 24,000 in December 2020. According to statistics from the Slovak Labor Office, Ukrainian and Serbian nationals account for 80 percent of all non-EU foreign laborers. There are roughly 69,000 foreign workers in Slovakia in total, including EU and non-EU nationals not requiring work permits.
The Anti-discrimination Act (365/2004 Coll.) and the Labor Code ban discrimination in the workplace based on gender, race, nationality, sexual orientation, health impairment, age, language, religion, and political affiliation. It does not, however, specifically prohibit discrimination based on HIV status. Activists frequently allege that employers refused to hire Roma, and an estimated 70 percent of Roma are unemployed.
Slovakia has a standard workweek of 40 hours and the law mandates a maximum workweek of 48 hours, including overtime, except for employees in the health-care sector, whose maximum work week is 56 hours. The Labor Code caps overtime at 400 hours annually and sets minimum remuneration for overtime and work during public holidays or on weekends. There are no serious concerns regarding compliance with international labor standards.
The Labor Code differentiates between layoffs and firing. The cost to lay off employees stipulated by the Labor Code is generally less expensive than in Western Europe and depends mostly on the employee’s time in service.
Social insurance contributions are compulsory and include healthcare, unemployment, and pension insurance. Both employers and employees must pay social contributions – employers’ combined social and health contributions amount to 35 percent of wages.
Collective bargaining is voluntary and takes place without interference from the state. No national-level collective bargaining exists in Slovakia. Provisions agreed in multiemployer as well as single-employer collective agreements are legally binding for the contracting parties. EU Agency Eurofound reports up to 35 percent of employees in the national economy are covered by a collective agreement. At the sectoral or regional level, the coverage is about 10 percent. No official national data exist on collective bargaining coverage. The standard mechanism for dealing with collective labor disputes is conciliation, which is used in vast majority of cases, and arbitration.
Union membership has declined in recent years. A “tripartite arrangement” is used as a discussion platform including state representatives, labor unions, and employers’ associations. Slovakia is a member of the International Labor Organization and has ratified all eight core conventions. Strikes are infrequent in Slovakia. In January 2020, truck drivers organized a series of strikes, which affected production at two car making factories.
Please consult the following websites for more information:
As a high-income economy, Slovakia does not qualify for DFC support outside of energy infrastructure projects. Before OPIC transformed into DFC, it offered U.S. investors in Slovakia insurance against political risk and expropriation of assets or damages due to political violence. Slovakia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) which also provides political risk insurance.
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
(Note: Final end-of-year data are usually published in Q2 of the next year. Values from host country sources are converted from their original euro denomination with the conversion rate valid at the end of the respective year. Data on FDI is inconsistent since much of U.S. FDI is channeled through subsidiaries located inside the EU.)
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
