Czechia

Executive Summary 

The Czech Republic is a medium-sized, open economy with 71 percent of its GDP based on exports, mostly from the automotive and engineering industries.  According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 32.4 percent going to Germany alone.  The United States is the Czech Republic’s second largest non-EU export destination, following the United Kingdom.  While the Czech GDP dropped by 5.6 percent due to the economic impact of COVID-19 in 2020, it rebounded in 2021 to 3.3 percent according to the Czech Statistical Office.  The Ministry of Finance forecasts 3.1 percent growth for 2022.

The “Bill on Screening of Foreign Investments” entered into force May 1, 2021.  The law gives the government the ability to screen greenfield investments and acquisitions by non-EU investors.

The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies.  EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers.  EU member states are the largest investors in the Czech Republic.

The United States announced on February 15, 2020 plans to provide up to USD 1 billion in financing through the Development Finance Corporation (DFC) to the Three Seas Initiative Investment Fund, the dedicated investment vehicle for the Three Seas Initiative and its participating Central and Eastern European countries.  The Three Seas Initiative seeks to reinforce security and economic growth in the region through the development of energy, transportation, and digital infrastructure.  In December 2020 the DFC approved the first tranche of U.S. financial support for the Three Seas Initiative Investment Fund amounting to USD 300 million.

The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021, to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year pause to help mitigate the impact of the COVID-19 pandemic on the economy.  The EBRD’s investments in the Czech Republic primarily focus on private sector assistance and should reach EUR 100 – 200 million annually (USD109-218 million).  The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years).

The continued economic fallout from COVID-19 resulted in the Czech Republic’s highest historic state budget deficit of 419.7 billion crowns (USD 18.2 billion) in 2021.  In 2021, the Czech Republic appropriated approximately USD17 billion for the COVID-19 response, including USD7.7 billion in direct support, USD 6.7 billion in healthcare and social services expenses, and USD2.3 billion in loan guarantees.

The Czech Republic has adopted environmental strategies and policies to address the climate crisis.  Public procurement policies include environmental considerations, and the government provides subsidies to companies for using modern low-carbon technologies, renewables, and resource-effective processes.

There are no significant risks to doing business responsibly in areas such as labor and human rights in the Czech Republic.

The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors.  Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages).  While wage growth slowed in 2020 following the coronavirus pandemic, resulting in a 3.1 percent year-on-year increase, wages rose by 6.1 percent in 2021, according to the Czech Statistical Office.  As of the fourth quarter of 2021, wages grew primarily in the real estate, accommodation, and hospitality sectors.  As of January 2022, the unemployment rate remained the lowest in the EU, at only 2.3 percent.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 49 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 24 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 5,629 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 22,070 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign 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 USD 192.5 billion at the end of 2020, compared to USD 171.3 billion in 2019.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2021, 84 percent of Czech exports went to fellow EU member states, with 32.4 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 declined by 5.6 percent in 2020, it rebounded in 2021 and grew by 3.3 percent.  The Ministry of Finance is forecasting 3.1 percent growth for 2022.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful for managing economic crises such as the 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.

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 adopted foreign investment screening legislation.  The law came 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 the Ministry of Industry and Trade (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 if security concerns arise.  Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10 percent 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).

The OECD last conducted an economic survey of the government in 2020.

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 for obtaining a business license.  The guide offers 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).  The guide is 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.

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 USD51.3 billion in 2020, compared to inward investments of USD 195.2 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.

2. Bilateral Investment Agreements and Taxation Treaties   

The Czech Republic and the United States have shared a bilateral investment treaty (BIT) for decades.  The government of Czechoslovakia signed the original BIT with the United States in 1992, and the Czech Republic adopted this treaty in 1993, after the breakup of Czechoslovakia.  The Czechs amended the treaty in 2003, along with other new EU entrants that had U.S. BITs, following negotiations with the European Commission about conflicts within the EU acquis communautaire.

Several dozen countries have signed and ratified investment agreements with the Czech Republic, and some are in the process of ratification.  The full list of agreements, including ratification dates, can be found on the Ministry of Finance website in Czech language only at:  http://www.mfcr.cz/cs/legislativa/dohody-o-podpore-a-ochrane-investic/prehled-platnych-dohod-o-podpore-a-ochra.  The list of all BITs between the Czech Republic and other countries is available in English at:  https://investmentpolicy.unctad.org/international-investment-agreements/countries/55/czechia.

A bilateral U.S.-Czech Convention on Avoidance of Double Taxation has been in force since 1993.  In 2007, the U.S. and Czech governments signed a bilateral Totalization Agreement that exempts Americans working in the Czech Republic from paying into both the Czech and U.S. social security systems.  The agreement took effect January 1, 2009.  In 2013, the U.S. and Czech governments signed a Supplementary Totalization Agreement amending the original agreement to reflect new Czech legislation on health insurance.  In 2014, the United States and the Czech Republic signed an Agreement on Improvement of International Tax Compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).

The Czech Republic is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and a party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

3. Legal Regime  

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment.  Policy frameworks are consistent with a market economy.  Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html).  UOHS is a central administrative body entirely independent in its decision-making practice.  The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

The government requires companies with over 500 employees to undertake environmental, social, and governance (ESG) disclosures to facilitate transparency.

All laws and regulations in the Czech Republic are published before they enter into force.  Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate.  A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language).  Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations.  Laws on auditing, accounting, and bankruptcy are in force.  These laws include the use of international accounting standards (IAS) for consolidated corporate groups.  Public finances are transparent.  The government’s budget and information on debt obligations are publicly available and published online.

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia was a founding member of the GATT in 1947 and a member of the World Trade Organization (WTO).  Since the Czech Republic’s entry into the EU in 2004, the European Commission – an independent body representing all EU members – oversees Czech equities in the WTO and in trade negotiations.

The Czech Commercial Code and Civil Code are largely based on the German legal approach, which follows a continental legal system where the principal areas of law and procedures are codified.  The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States.  The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities.  The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability.  Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent of the executive branch.  Regulations and enforcement actions are appealable, and the judicial process is procedurally competent, fair, and reliable.

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.  In addition, the newly adopted investment screening law, which came into effect on May 1, 2020, gives the government the ability to screen greenfield investments and acquisitions by non-EU investors for national security considerations.

The Czech Ministry of Industry and Trade maintains a “one-stop-shop” website available in Czech only at https://www.businessinfo.cz/, which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition.  UOHS also supervises public procurement and monitors state aid (subsidy) programs.  UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law.  The process of tracing the history of property and land acquisition can be complex and time-consuming, but it is necessary to ensure clear title.  Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

The government amended the bankruptcy law on June 1, 2019, expanding the categories of debtors qualified for debt discharge.   The basic debt relief period for individuals is currently five years.  However, if the debtor is a pensioner, disabled, his or her debt was created prior 18 years of age, or manages to repay at least 60 percent of debt, then the debt relief period shortened to three years.

4. Industrial Policies  

The Czech Republic offers incentives to foreign and domestic firms alike that invest in the manufacturing sector, technology and R&D centers, and business support centers.  The amended Act No. 72/2000 Coll. came into force September 6, 2019, and shifted availability of incentive programs from all types of investments to only those requiring R&D and that create jobs for university graduates, as well as in specialized sectors such as aerospace, information and communication technology, life sciences, nanotechnology and advanced segments of the automotive industry.  Incentives are funded from the Czech Republic’s national budget as well as from EU Structural Funds.  The government provides investment incentives in the form of corporate income tax relief for 10 years, cash grants for job creation up to USD13,000 per job, cash grants for training up to 70 percent of training costs, and cash grants for the purchase of fixed assets up to 20 percent of eligible costs.  In response to COVID-19, the government approved November 30, 2020, an amendment to this law, which enables producers of personal protective equipment and medical products to more easily obtain investment incentives, because the state considers these products strategic for the protection of citizens’ lives and health during the pandemic.  In addition, film industry incentives cover up to 20 percent of eligible costs of foreign filmmakers.

The government does not typically issuing guarantees or engaging in joint financing for FDI projects.

The government primarily provides subsidies, as opposed to incentives (such as feed-in tariffs, discounts on electricity rates, or tax incentives) for clean energy investments.

Both Czech and EU laws permit foreign investors involved in joint ventures to take advantage of commercial or industrial customs-free zones into which goods may be imported and later exported without depositing customs duties.  Free trade zone treatment means duties need to be paid only in the event that the goods brought into the free trade zone are introduced into the local economy.  Since the Czech Republic became part of the single customs territory of the European Community and now offers various exemptions on customs tariffs, the original tariff-driven use of these free trade zones has declined.  The Czech Republic does not have special economic zones.

There are no government-imposed conditions on permission to invest.  The host government does not follow “forced localization.”

The visa process for non-EU foreign investors and their employees is the same for domestic, EU, and non-EU companies.

The Czech Republic abides by EU law governing data localization and performance.  The Czech Republic strongly supported creating the EU Regulation on free flow of non-personal data which came into effect in May 2019, stating that it would boost the competitive data economy and accelerate the development of artificial intelligence.

The July 16, 2020 ruling of the EU’s highest court in the Schrems II case, which invalidated the legal basis for the EU-U.S. Privacy Shield framework, has put a significant burden on companies transferring personal data from the Czech Republic to the United States.

The “Bill on Digitalization of Public Authorities (“Cloud Bill”) came into force February 1, 2022, marking the latest step in the country’s efforts to move government data to the cloud.   The legislation enables government ministries to partner with global cloud service providers to migrate government data to the cloud.  The legislation seeks to operationalize a “Cloud Catalogue” of cloud service providers that are certified as secure and trustworthy partners for government data.  The  legislation mandates that sensitive government data be stored in the EU but allows global cloud services providers (including U.S. companies) to transfer data overseas for routine maintenance purposes.  The legislation also allows cloud service providers managing Czech government data to comply with the U.S. CLOUD Act, which gives U.S. law enforcement agencies the right to access personal data stored outside the United States.

5. Protection of Property Rights  

Real estate (land and buildings) located in the Czech Republic must be registered in the national Cadastral Register under the Cadastral Office.  The Cadastral Register contains information on plots of land and buildings, housing units and non-residential premises, liens, and other information and is publicly available online in Czech only at:  https://nahlizenidokn.cuzk.cz/.  Transfer of ownership title to real estate (e.g., sale and purchase agreement) is effective from the date of execution of a written agreement and registration of the transfer of the ownership title in the Cadastral Register.

There is a negligible proportion of land that does not have clear title.  If property legally purchased becomes unoccupied, property ownership does not revert to squatters.

The Czech Republic is a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.  Domestic legislation protects all intellectual property rights (IPR), including patents, copyrights, trademarks, industrial designs, and utility models.  Amendments to the trademark law and the copyright law have brought Czech law into compliance with relevant EU directives and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The Criminal Code sets the maximum penalty of eight years of imprisonment for trademark, industrial rights, and copyright violations.  The Customs Administration of the Czech Republic and the Czech Commercial Inspection have legal authority to seize counterfeit goods.  Information on seizures of counterfeit goods and cases of IPR infringement are tracked by the Customs Administration.  Information is available in Czech at https://www.celnisprava.cz/cz/statistiky/Stranky/dusevni-vlastnictvi.aspx.

The Czech Republic was removed from the Watch List of the U.S. Trade Representative Special 301 Report in 2011.  While online piracy in the Czech Republic has been cited by some U.S. entities as an area of concern, the legal framework for protecting and enforcing IPR has been tested and proven successful in punishing infringers.  In response to the 2019 EU Copyright Directive, the Czech government proposed in November 2020 an amendment to their Copyright Act.  The amendment will clarify the right of copyright holders to receive payment for online distribution of their content by third parties.  The Czech Republic is not listed as hosting any physical markets in USTR’s 2021 Notorious Markets Report, but it reportedly hosts a website containing infringing content.

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/.

6. Financial Sector  

The Czech Republic is open to portfolio investment.  There are 54 companies listed on the Prague Stock Exchange (PSE).  The overall trade volume of stocks increased from CZK108.78 billion (USD4.7 billion) in 2019 to CZK125.31 (USD5.4 billion) in 2020, with an average daily trading volume of CZK501.23 million (USD21.7 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE), which was later re-named to Power Exchange Central Europe, to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania.  PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.  In 2016, the German power exchange EEX acquired two thirds of PXE shares.  Following the acquisition, the PXE benefited from both an increased number of traders and increased trade volume.

The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, capital markets, and insurance and pension scheme industries, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.

The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, facilitating the efficient exchange of information between CCR participants.  CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.

As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.

The Czech Republic respects IMF Article VIII.

Large domestic banks belong to European banking groups.  Most operate conservatively and concentrate almost exclusively on the domestic Czech market.  Despite the COVID-19 crisis, Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the strong state of the Czech banking sector which is deemed resistant to potential shocks.  Results of the most recent stress test conducted by the Czech National Bank are available at: https://www.cnb.cz/en/financial-stability/stress-testing/banking-sector/.  As of January 31, 2022, the total assets of commercial banks stood at CZK9,405 billion (approximately USD409 billion).  Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.

The Czech National Bank has 10 correspondent banking relationships, including JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto.  The Czech Republic has not lost any correspondent banking relationships in the past three years, and there are no relationships in jeopardy.

The Czech Republic does not currently regulate cryptocurrencies.

The Czech government does not operate a sovereign wealth fund.

7. State-Owned Enterprises  

The Ministry of Finance administers state ownership policies.  State-owned enterprises (SOEs) are structured as joint-stock companies, state enterprises, national enterprises, limited liability companies, and limited partnerships.  SOEs are owned by the individual ministries but are managed according to their business organizational structure as defined by law and are required to publish an annual report, disclose their accounting books, and submit to an independent audit.  Potential conflicts of interest are covered by existing Act No. 159/2006 on Conflicts of Interest, and Act No. 14/2017 on Amendments to the Act on Conflict of Interest.  Legislation on the civil service, which took effect January 1, 2015, established measures to prevent political influence over public administration, including operation of SOEs.

Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations.  SOEs purchase or supply goods and services from private sector and foreign firms.  SOEs are subject to the same domestic accounting standards, rules, and taxation policies as their private competitors, and are not given any material advantages compared to private entities.  State-owned or majority state-owned companies are present in several (strategic) sectors, including the energy, postal service, information and communication, and transport sectors.

The Czech Republic has 52 wholly owned SOEs and three majority owned SOEs (excluding those in liquidation).  Wholly owned SOEs employ roughly 78,000 people and own more than CZK487 billion (approximately USD21.1 billion) in assets.  A list of all companies with a percentage of state ownership is available in Czech at:  https://www.komora.cz/legislation/167-19-strategie-vlastnicke-politiky-statu-t-20-12-2019/.

As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs.  SOEs are subject to the same legislation as private enterprises regarding their commercial activities.

As a result of several waves of privatization, the vast majority of the Czech economy is now in private hands.  Privatizations have generally been open to foreign investors.  In fact, most major SOEs were privatized with foreign participation.  The government evaluates all investment offers for SOEs.  Many competitors have alleged non-transparent or unfair practices in connection with past privatizations.

8. Responsible Business Conduct  

The concept of responsible business conduct (RBC) is now widely understood, and every year is implemented by more companies in the Czech Republic.  As an adherent to the OECD Guidelines for Multinational Enterprises (MNE) and to the United Nations Guiding Principles of Business and Human Rights, the government promotes corporate social responsibility (CSR) and encourages local as well as foreign enterprises to adopt a ‘due diligence’ approach to RBC principles.  The Czech National Contact Point (NCP) has operated since 2013 at MOIT:  https://www.mpo.cz/dokument75865.html. The NCP working group consists of representatives of the government, employer organizations (Confederation of Industry and Trade), employee organizations (Czech-Moravian Confederation of Trade Unions), and NGOs.  The NCP closely and actively cooperates with other regional NCPs to share best practices, procedures, and experience.

In conjunction with the UN Commission on Business and Human Rights, in 2019 the Czech government approved a National Action Plan (NAP) for CSR for the years 2019-2023.  The major goal of the NAP is to establish fundamental principles and to motivate businesses and public administration to voluntarily implement specific CSR projects.  In 2015, the Sustainable Development Section of the Quality Council of the Czech Republic created a national Informational CSR Portal that provides businesses, NGOs, representatives of state administration, and the public with updates related to CSR in the Czech Republic.

The government strictly and effectively enforces legislation in the area of human rights, labor rights, consumer protection, and environmental protection to protect individuals from adverse business impacts.  Domestic standards are generally very high.  Negligence or failure to comply with this legislation results in serious consequences.

Shareholders are protected by legislation that clearly describes legal processes, organizational structures, administration, and management of all business components, including stakeholders.

Companies are not required to publicly disclose information about their RBC or CSR activities.  Various local NGOs monitor and advise CSR programs, such as the Association for Corporate Social Responsibility, the Business Leaders Forum, and Business for Society.  The Association for CSR is the host entity in the Czech Republic for the UN Global Compact, a UN strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labor, environment, and anti-corruption.

Payments for extraction of minerals in the Czech Republic abide by the Mining Law, which requires that payments are processed for extracted minerals as well as for mined areas.  International trade with oil, natural gas, and minerals is not subject to any special legislation; it follows the general rules of international trade.  The Czech Republic is not an Extractive Industries Transparency Initiative (EITI)-compliant country or an EITI candidate.  The Czech government adheres to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  MOIT is responsible for implementation and compliance.

The Czech Republic joined The Montreux Document on Private Military and Security Companies on November 14, 2013.

Department of State

Department of the Treasury

Department of Labor

In statements to the public, the government has repeatedly endorsed the EU’s goal of carbon neutrality by 2050.  A key step toward that goal will be the country’s planned exit from coal by 2033 which currently contributes to one-third of the Czech Republic’s electricity production. Switching from coal will offer commercial opportunities in alternative sources of power and the infrastructure and energy storage capabilities necessary to bring it to market.  Nuclear energy is widely seen as the best alternative to coal, but solar, wind and to some extent, green hydrogen, will attract investment.

Two of the stated priorities for the Ministry of Environment include energy efficiency and adaptation.  In September 2021, the government approved an updated version of the national Climate Change Adaptation Strategy 2021 – 2030, which is in line with the EU Adaptation Strategy.  The adaptation strategy addresses all significant manifestations of climate change in the Czech Republic and aims to reduce vulnerability and increase the resilience of society and ecosystems to climate change and thus reduce its negative impacts.  The Strategy’s implementation document is the National Action Plan for Adaptation to Climate Change which assigns specific tasks to relevant ministries.

The Climate Protection Policy of the Czech Republic 2017 – 2030 defines the main goals and measures in the field of climate protection at the national level to ensure compliance with greenhouse gas emission reduction targets in line with international agreements, and thus contribute to transition to a sustainable low-emission economy.  By the end of 2023, the Ministry of Environment should submit to the government an update of the Climate Protection Policy, which will contain new measures the Czech Republic will have to take in the coming years to reach net-zero carbon emissions by 2050.  In 2022, the Czech Parliament is expected to pass legislation banning single use plastic.

Although the government strategies do not specify requirements for private sector contributions to achieving relevant targets, they include examples of positive and negative forms of financial motivation to encourage companies towards contributing to climate goals.

The Czech government offers a range of subsidy programs to achieve environmental goals.  For example, manufacturing companies can receive subsidies for installing low-carbon and smart technologies, using renewable resources, increasing energy savings, and reducing losses in heat distribution.  Companies can receive subsidies and soft loans from the EU Operational Program Environment (OPE) 2021-2027 which supports projects in the field of protection of nature, biodiversity, green infrastructure, circular economy, sustainable water management, renewable resources, energy efficiency and reduction of greenhouse gas emissions.

Public procurement policies include environmental considerations, including resource efficiency, pollution abatement, and climate resilience.

9. Corruption  

Current law criminalizes both payment and receipt of bribes, regardless of the perpetrator’s nationality.  Prison sentences for bribery or abuse of power can be as high as 12 years for officials.  There have been several successful cases prosecuting corruption, though some experts have noted proceedings can be lengthy and subject to delays.  The National Center for Organized Crime (NCOZ) is primarily responsible for investigating high-level corruption cases, however some experts have raised concerns about cumbersome procedural requirements.  Anti-corruption laws authorize seizures of proceeds or instruments of crime and apply equally to Czech and foreign investors.

Czech law obliges legislators, members of the cabinet, and other selected public officials to declare their assets annually.  Summarized declarations are available online and complete declarations are available upon request from the Ministry of Justice, which can impose penalties of up to CZK50,000 (approximately USD2,170) for non-compliance.  The law also requires judges, prosecutors and directors of research institutions to disclose their assets, however their declarations are not publicly available for security reasons.

In addition to the financial disclosure law, the government regulates political parties financing, public procurements, and the register of public contracts.  The law on the register of public contracts requires all national, regional, and local authorities as well as private companies to make publicly available all newly concluded contracts (including subsidies and repayable financial assistance) valued at CZK50,000 (USD2,170) or more within 30 days; noncompliance renders contracts null and void.  Additionally, as of November 2019, major state-owned companies are required to publish all contracts, except in limited circumstances.  The Registry of Contracts has a website in Czech only at: https://smlouvy.gov.cz/.

Public procurement law requires every contracting authority to post winning contracts on its website within 15 working days of signing.  Subject to limited exceptions, the law mandates more than one bidder for all public procurements and requires bidders to disclose their ownership structure prior to bidding.  In addition to general conflict-of-interest law, the procurement law also addresses some conflict-of-interest issues related to government procurements.   The Council of Europe’s Group of States Against Corruption (GRECO) evaluation report listed missing whistleblower protection and regulation of lobbying as problematic.

The “Beneficial Ownership Bill” came into force in June 1, 2021.  The law is a part of a transposition of an EU convention on anti-money laundering and counterterrorism financing and requires transparency regarding the real (or “beneficial”) ownership of companies seeking subsidies or public contracts.  The law bars anonymously owned companies from applying for public subsidies or tenders, although it does not empower officials to challenge discrepancies or irregularities in a company’s ownership structure, absent a court finding.  However, the European Commission asserted in December 2021 that the Czech law does not meet EU requirements, because it allows two types of owners to be listed for one company:  one with “final influence” and one who is the “final recipient of benefits”.  The European Commission also criticized the carveout that public research institutions, SOEs, political parties, schools, and some other associations are not required to declare their beneficial ownership.  The Czech government reported March 2022 it would make changes to the law to comply with EU requirements.

According to a law which came into force in January 2020, candidates filling supervisory board positions in state-owned companies must be selected in a clear, transparent process that prioritizes technical expertise and is reviewed by an advisory committee whose members are apolitical experts.  Separately, the government recommends companies maintain internal codes of conduct that, among other things, prohibit bribery of public officials.

The Council of Europe’s anti-money laundering body MONEYVAL reported at the end of 2021 that the Czech Republic has considerably improved its implementation of measures against money laundering and terrorist financing since 2020.

The government ratified the OECD Anti-Bribery Convention in 2000 and the UN Convention against Corruption in 2014.  According to the 2017 OECD Phase 4 Evaluation Report, the Czech Republic should take steps to improve enforcement of its foreign bribery laws, enhance efforts to detect, investigate, and prosecute foreign bribes, increase protections for whistleblowers, and better implement the criminal liability of the legal entities law.

Several NGOs such as Frank Bold, Transparency International, and Anticorruption Endowment Fund receive corruption reports online.  The reports most frequently involve minor offenses, such as attempts to bribe police officers or other public officials to receive benefits or avoid liability.  While there is not a specific law to protect NGOs involved in investigating corruption, NGO activities are protected under the Charter of Fundamental Rights and Freedom that protects civil society and free speech.

Contact at government agency responsible for combating corruption:

Conflict of Interest and Anti-Corruption Department
Anti-Corruption Unit
Ministry of Justice of the Czech Republic
Vyšehradská 16
12800 Prague 2
https://www.justice.cz/      
+420 221 997 595
korupce@msp.justice.cz

Contact at “watchdog” organizations:

Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895
posta@transparency.cz
https://www.transparency.cz/   

Frank Bold
Udolni 33, Brno
tel: +420 545 213 975
info@frankbold.org
https://frankbold.org/ 

Anticorruption Endowment Fund
Nadacni Fond Proti Korupci
Revoluční 8, building A, 5th floor, 110 00 Praha 1
+420 226 209 047
info@nfpk.cz
https://www.nfpk.cz/ 

Hungary

Executive Summary

Hungary continues to recover from the COVID-19 pandemic and now faces rising inflation and economic uncertainty due to Russia’s war in Ukraine. Despite a growing deficit and energy prices, as well as a continued skilled labor shortage and corruption concerns, ratings agencies in 2021 maintained Hungary’s sovereign debt at BBB, two notches above investment grade, with a stable outlook. In December 2021, the Finance Ministry forecasted 5.9 percent economic growth and a 4.9 percent budget deficit for 2022. Analysts since then have revised their forecasts and project 2 percentage points lower economic growth for this year.

Hungary, an EU member since 2004, currently has a population of 9.7 million and a GDP of $155 billion. Fellow EU member states and the United States are Hungary’s most important trade and investment partners, although Asian influence is growing; foreign direct investment (FDI) from Asian sources was five percent of total FDI in 2019 and now accounts for over 30 percent of new foreign direct investment in 2020.

Macroeconomic indicators were generally strong before the COVID-19 pandemic, with GDP growing by 4.9 percent in 2019. Following a 5.1 percent pandemic-induced contraction in 2020, Hungary’s GDP increased by 6.4 percent in 2021. As the Government of Hungary (GOH) increased spending to support the economy and other priorities, the 2021 budget deficit reached approximately 7.5 percent of GDP, which pushed up public debt close to 80 percent of GDP.

Hungary’s central location in Europe and high-quality infrastructure have traditionally made it an attractive destination for Foreign Direct Investment (FDI).  Between 1989 and 2019, Hungary received approximately $97.8 billion in FDI, mainly in the banking, automotive, software development, and life sciences sectors.  The EU accounts for 89 percent of all in-bound FDI. The United States is the largest non-EU investor, whereas in terms of annual investment, South Korea was the largest investor overall in 2021. The GOH actively encourages investments in manufacturing and other sectors promising high added value and/or employment, such as research and development, defense, and service centers.

Despite these advantages, Hungary’s regional economic competitiveness has declined in recent years.  Since early 2016, multinationals have identified shortages of qualified labor, specifically technicians and engineers, as the largest obstacle to investment in Hungary.  In certain industries, such as finance, energy, telecommunication, pharmaceuticals, and retail, unpredictable sector-specific tax and regulatory policies have favored national and government-linked companies.  Additionally, persistent corruption and cronyism continue to plague the public procurement sector. According to Transparency International’s (TI) 2021 Corruption Perceptions Index, Hungary placed 73rd worldwide and ranked 26th out of the 27 EU member states, outperforming only Bulgaria.

Analysts remain concerned that the GOH may intervene in certain priority sectors to unfairly promote domestic ownership at the expense of foreign investors.  In September 2016, Prime Minister (PM) Viktor Orban announced that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. Since then, observers note that through various tax changes the GOH has pushed several foreign-owned banks out of Hungary. GOH efforts have helped increase Hungarian ownership in the banking sector to close to 60 percent, up from 40 percent in 2010.  In the energy sector, foreign-owned companies’ share of total revenue fell from 70 percent in 2010 to below 50 percent by 2022. Foreign media ownership has decreased drastically as GOH-aligned businesses have consolidated control of Hungary’s media landscape: the number of media outlets owned by GOH allies increased from around 30 in 2015 to nearly 500 in 2018.  In November 2018, the owners of 476 pro-GOH media outlets, constituting between 80 and 90 percent of all media, donated those outlets to the Central European Press and Media Foundation (KESMA) run by individuals with ties to the ruling Fidesz party.

Ostensibly in response to the COVID crisis, the Hungarian government has had uninterrupted state-of-emergency (SOE) powers since November 2020 with authority to bypass Parliament and govern by decree. Parliament passed the first SOE legislation in March 2020 as part of its COVID-19 pandemic response; this legislation did not have a sunset clause, and the government repealed it in June 2020. The GOH passed a second SOE law in November 2020, this time for a 90-day period. Following the expiration of the first 90-day term, the Parliament extended the SOE in February, May, September and most recently in December 2021 – until June 2022 – without any support from opposition parties. As part of the emergency measures, the GOH extended measures for national security screening of foreign investments from December 31, 2020, until December 31, 2022, and may extend this deadline further.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021

    73 of 180

http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021    34 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020      $13,295  https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020     $15,890 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

Hungary’s government actively courts FDI; net annual FDI in 2020 amounted to $3.2 billion, and gross FDI totaled $98.1 billion. EU countries account 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; approximately 450 U.S. companies maintain a presence in Hungary. Most U.S. investment falls within the automotive, software development, and life sciences sectors. 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 doubled since 2010, accounting for over five percent of total FDI stock 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 and in 2021, with $3.1 billion in investments creating 3,500 jobs.

The GOH has implemented tax changes to increase Hungary’s regional competitiveness and attract investment; the government reduced the personal income tax rate to 15 percent in 2016, the corporate income tax rate to 9 percent in 2017, the employer-paid welfare contribution to 13 percent in 2021, and employers’ payroll tax to 13 percent.  Hungary’s Value-Added Tax (VAT), however, is the highest in Europe at 27 percent. 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.” In 2020 Hungary committed to join the OECD Global Minimum Tax Agreement with a 10-year transitionary period.

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.  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 the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund COVID-19 pandemic economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms. In December 2021, the Parliament fast-tracked a legislation to increase the retail tax and compelled retail chains with an annual revenue over $310 million to offer their food items nearing expiry date to a state-owned nonprofit company, introducing another measure which hits only foreign-owned retailers.

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 companies also complain about the lengthy procedure to accept innovative medications in the national reimbursement system, making business planning challenging for them.

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: HYPERLINK “https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok” HYPERLINK “https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok”  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.  Most 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/  .

Foreign ownership is permitted except for certain “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 these 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.

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. Some observers have suggested this law could be used to disadvantage foreign firms or deny them access to the Hungarian market.

Hungary has not had any third-party or independent civil organization investment policy reviews in the last five years.

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 county-level courts of justice operating as courts of registration.  Registry courts must process applications to register limited liability and joint-enterprise companies within 15 workdays, but the process is usually complete within 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 ($8,500); for private limited companies HUF 5,000,000 ($14,300), and for public limited companies HUF 20,000,000 ($57,100). Foreign individuals or companies can establish businesses in Hungary without restrictions.

Further information on business registration and the business registry can be obtained at the GOH’s information website for businesses: http://eugo.gov.hu/starting-business-hungary  or at the Ministry of Justice’s Company Information Service   https://ceginformaciosszolgalat.kormany.hu/elektronikus-cegeljaras  , and the Tax Authority  https://en.nav.gov.hu/taxation/registration/specific_rules.html.  

Hungarian business facilitation mechanisms offer no special preference or assistance for them in establishing a company.

Outward investment is mainly in manufacturing, pharmaceuticals, services, finance and insurance, and science and technology.  The stock of total Hungarian investment abroad amounted to $36.8 billion in 2019.  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.

3. Legal Regime

Generally, legal, regulatory, and accounting systems are consistent with international and EU standards.  However, some executives in Hungarian subsidiaries of U.S. companies express concerns about a lack of transparency in the GOH’s policy-making process and an uneven playing field in public tendering.  In recent years, there has been an uptick in the number of companies, including major U.S. multinational franchises and foreign owners of major infrastructure, reporting pressure to sell their businesses to government-affiliated investors.  Those that refuse to sell report an increase in tax audits, fines, and spurious regulatory challenges and court cases. SMEs increasingly report a desire to either remain small (and therefore “under the radar” of these government-affiliated investors) or relocate their businesses outside of Hungary.

For foreign investors, the most relevant regulations stem from EU directives and the laws passed by Parliament to implement them.  Laws in Parliament can be found on Parliament’s website (https://www.parlament.hu/en/web/house-of-the-national-assembly).  Legislation, once passed, is published in a legal gazette and available online at  www.magyarkozlony.hu  .  The GOH can issue decrees, which also have national scope, but they cannot be contrary to laws enacted by Parliament.  Local municipalities can create local decrees, limited to the local jurisdiction.

As a result of the COVID-19 crisis, in March 2020, the Parliament passed a bill that established a state of emergency (SOE) in Hungary, allowing the GOH to govern by decree without parliamentary approval. The GOH used this decree to levy new sector-specific taxes, to take control of a Hungarian company that had been in an ownership dispute with the GOH, and to reallocate competencies and tax collection duties from an opposition-led municipality to a county-level body led by the ruling Fidesz party.

Hungarian financial reporting standards are in line with the International Accounting Standards and the EU Fourth and Seventh Directives.  The accounting law requires all businesses to prepare consolidated financial statements on an annual basis in accordance with international financial standards. The government does not promote or require environmental, social, and governance (ESG) disclosure for companies operating in Hungary.

The GOH rarely invites interested parties to comment on draft legislation.  Civil society organizations have complained about a loophole in the current law that allows individual Members of Parliament to submit legislation and amendments without public consultation.  The average deadline for submitting public comment is often very short, usually less than one week. The Act on Legislation and the Law Soliciting Public Opinion, both passed by Parliament in 2010, govern the public consultation process.  The laws require the GOH to publish draft laws on its webpage and to give adequate time for all interested parties to give an opinion on the draft. However, implementation is not uniform, and the GOH often fails to solicit public comments on proposed legislation.

The legislation process – including key regulatory actions related to laws – are published on the Parliament’s webpage.  Explanations attached to draft bills include a short summary on the aim of the legislation, but regulators only occasionally release public comments.

Regulatory enforcement mechanisms include the county and district level government offices, whose decisions can be challenged at county-level courts.  The court system generally provides efficient oversight of the GOH’s administrative processes.

Hungary’s budget was widely accessible to the general public, including online through the Parliament and Finance Ministry websites and the Legal Gazette.  The government made budget documents, including the executive budget proposal, the enacted budget, and the end-of-year report publicly available within a reasonable period of time.  Modifications to a current budget, which in 2021 were quite substantial because of the pandemic, are not consolidated with the initial budget law and do not include economic analysis of the effects of those modifications. Information on debt obligations was publicly available, including online through the Hungarian Central Bank (  https://www.mnb.hu/en  ) and Hungarian State Debt Manager’s ( https://akk.hu/  ) websites.

All EU regulations are directly applicable in Hungary, even without further domestic measures.  If a Hungarian law is contrary to EU legislation, the EU rule takes precedence. As a whole, labor, environment, health, and safety laws are consistent with EU regulations.  Hungary follows EU foreign trade and investment policy, and all trade regulations follow EU legislation. Hungary participates in the WTO as an EU Member State.

The Hungarian legal system is based on continental European (German-French and Roman law) traditions.  Contracts are enforced by ordinary courts or – if stipulated by contract – arbitration centers. Investors in Hungary can agree with their partners to turn to Hungarian or foreign arbitration courts.

Apart from these arbitration centers, there are no specialized courts for commercial cases; ordinary courts are entitled to judge any kind of civil case.  The Civil Code of 2013 applies to civil contracts.

The Hungarian judicial system includes four tiers: district courts (formerly referred to as local courts); courts of justice (formerly referred to as county courts); courts of appeal; and the Curia (the Hungarian Supreme Court).  Hungary also has a Constitutional Court that reviews cases involving the constitutionality of laws and court rulings. There are no special commercial courts, but first level public administration and labor cases are judged only by the county level courts of justices.

Although the GOH has criticized court decisions on several occasions, ordinary courts are considered to generally operate independently under largely fair and reliable judicial procedures.  Recently, an increasing number of current and former judges have raised concerns about growing GOH influence over the court system and intimidation of judges by court administration. The European Commission’s 2021 Rule of Law Report, issued in July 2021, cited judicial independence in Hungary as a source of concern. Most business complaints about the court system pertain to the lengthy proceedings rather than the fairness of the verdicts.  The GOH has said it hopes to improve the speed and efficiency of court proceedings with an updated Civil Procedure Code that entered into force in January 2018.

Regulations and law enforcement actions pertaining to investors may be appealed at ordinary courts or at the Constitutional Court.

Hungarian law protects property and investment.  The Hungarian state may expropriate property only in exceptional cases where there is a public interest; any such expropriations must be carried out in a lawful way, and the GOH is obliged to make immediate and full restitution for any expropriated property, without additional stipulations or conditions.

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.  (Please see above section on limits on foreign control for more details). Based on this law, in April 2021 the Interior Ministry blocked Austria’s Vienna Insurance Group from buying Dutch insurer Aegon’s Hungarian subsidiary. In February 2022 the European Commission decided the blocked sale violated EU rules, but by that time the GOH and VIG agreed that the state would acquire a 45 percent stake in Aegon. Additionally, in 2020, as part of the measures to mitigate the economic effects of the COVID-19 pandemic, the GOH passed another regulation requiring foreign investors to seek approval from the Ministry of Innovation and Technology (MIT) for greenfield or expansion of existing investments.

There is no primary website or “one-stop shop” which compiles all relevant laws, rules, procedures, and reporting requirements for investors.  The Hungarian Investment Promotion Agency (HIPA), however, facilitates establishment of businesses and provides guidance on relevant legislation.

The Hungarian Competition Authority, tasked with safeguarding the public interest, enforces the provisions of the Hungarian Competition Act, and EU competition law also binds Hungary. The Competition Authority is empowered to investigate suspected violations of competition law, order changes to practices, and levy fines and penalties.  According to the Authority, since 2010 the number of competition cases has decreased, but they have become more complex. Out of more than 60 cases in 2021, only a few minor cases pertained to U.S.-owned companies.  Hungarian law does not consider conflict of interest to be a criminal offense. Citing evidence of conflict of interest and irregularities, in December 2017 the European Anti-Fraud Office (OLAF) recommended opening a criminal investigation into a high-profile $50 million EU-funded public procurement project, but Hungarian authorities declined to prosecute the case.

Hungary’s Constitution provides protection against uncompensated expropriation, nationalization, and any other arbitrary action by the GOH except in cases of threat to national security.  In such cases, immediate and full compensation is to be provided to the owner. There are no known expropriation cases where the GOH has discriminated against U.S. investments, companies, or representatives.  There have been some complaints from other foreign investors within the past several years that expropriations have been improperly executed and without proper remuneration. Parties involved in these cases turned to the domestic legal system for dispute settlement.

There is no recent history of official GOH expropriations.

ICSID Convention and New York Convention

Hungary is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID Convention), proclaimed in Hungary by Law 27 of 1978.  Hungary also is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), proclaimed in Hungary by Law 25 of 1962. There is not specific legislation providing for enforcement other than the two domestic laws proclaiming the New York and ICSID Conventions.  According to Law 71 of 1994, an arbitration court decision is equally binding to that of a court ruling.

Investor-State Dispute Settlement

Settlement of Investment Disputes (ICSID) and to UN’s 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Under the New York Convention, Hungary recognizes and enforces rulings of the International Chamber of Commerce’s International Court of Arbitration.

Hungary shares no Bilateral Investment Treaty or Free Trade Agreement with the United States.  Since 2000 Hungary has been the respondent in 16 known investor-State arbitration claims, although none of these involve U.S. investors.

Local courts recognize and enforce foreign arbitral awards against the GOH.

International Commercial Arbitration and Foreign Courts

In the last few years, parties have increasingly turned to mediation to settle disputes without engaging in lengthy court procedures.  Law 60 of 2017 on domestic arbitration procedures is based on the UNCITRAL Model Law.

Investment dispute settlement clauses are frequently included in investment contract between the foreign enterprise and GOH.  Hungarian law allows the parties to set the jurisdiction of any courts or arbitration centers. The parties can also agree to set up an ad hoc arbitration court.  The law also allows investors to agree on settling investment disputes by turning to foreign arbitration centers, such as the International Centre for Settlement of Investment Disputes (ICSID), UNCITRAL’s Permanent Court of Arbitration (PCA), or the Vienna International Arbitral Centre.  In Hungary, foreign parties can turn to the Hungarian Chamber of Commerce and Industry arbitration court, which has its own rules of proceedings (HYPERLINK “https://mkik.hu/en/court-of-arbitration” HYPERLINK “https://mkik.hu/en/court-of-arbitration”  https://mkik.hu/en/court-of-arbitration ) and in financial issues to the Financial and Capital Market’s arbitration court. Local courts recognize and enforce foreign or domestic arbitral awards.  An arbitral ruling may only be annulled in limited cases, and under special conditions.

Domestic courts do not favor State-owned enterprises (SOEs) disproportionately.  Investors can expect a fair trial even if SOEs are involved and in case of an unfavorable ruling, may elevate the case to the European Court of Justice (ECJ).  Investors do not generally complain about non-transparent or discriminatory court procedures.

The Act on Bankruptcy Procedures, Liquidation Procedures, and Final Settlement of 1991, covers all commercial entities except banks (which have their own regulatory statutes), trusts, and State-owned enterprises, and brought Hungarian legislation in line with EU regulations.  Debtors can initiate bankruptcy proceedings only if they have not sought bankruptcy protection within the previous three years. Within 90 days of seeking bankruptcy protection, the debtor must call a settlement conference to which all creditors are invited. Majority consent of the creditors present is required for all settlements.  If agreement is not reached, the court can order liquidation. The Bankruptcy Act establishes the following priorities of claims to be paid: 1) liquidation costs; 2) secured debts; 3) claims of the individuals; 4) social security and tax obligations; 5) all other debts. Creditors may request the court to appoint a trustee to perform an independent financial examination.  The trustee has the right to challenge, based on conflict of interest, any contract concluded within 12 months preceding the bankruptcy.

The debtor, the creditors, the administrator, or the Criminal Court may file liquidation procedures with the court.  Once a petition is filed, regardless of who filed it, the Court notifies the debtor by sending a copy of the petition.  The debtor has eight days to acknowledge insolvency. If the insolvency is acknowledged, the company declares if any respite for the settlement of debts is requested.  Failure to respond results in the presumption of insolvency. The Court may allow up to of 30 days for the debtor to settle the debt upon request. If the Court finds the debtor insolvent, it appoints a liquidator.

Bankruptcy itself is not criminalized unless it is made in a fraudulent way, deliberately, and in bad faith to prevent the payment of debts.

Law 122 of 2011 obliges banks and credit institutions to establish and maintain the Central Credit Information System to assess creditworthiness of businesses and individuals to facilitate prudent lending (HYPERLINK “http://www.bisz.hu ” HYPERLINK “http://www.bisz.hu” http://www.bisz.hu ).

4. Industrial Policies

Hungary has a well-developed incentive system for investors, the cornerstone of which is a special incentive package for investments over a certain value (typically over EUR 10 million or $11 million).  The incentives are designed to benefit investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, and bioenergy facilities, or those who make tourism industry investments.  Incentive packages may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies. The incentive system is compliant with EU regulations on competition and state aid and is administered by the Hungarian Investment Promotion Agency (HIPA) and managed by the Ministry of Innovation and Technology (MIT) and the Ministry of Foreign Affairs and Trade (MFAT). The government provides non-refundable subsidies to foreign investments in less developed areas and certain sectors including research and development, innovation, and high-tech manufacturing, based on case-by-case government decisions. In 2020, the GOH extended additional incentives or support to foreign investments as part of its economic response to the pandemic. For more information please see:  https://hipa.hu/additional-favourable-changes-in-the-non-refundable-cash-incentives-system  .

In 2017 Hungary introduced a new Renewable Energy Support Scheme (METAR) – replacing the former feed-in tariff system (KAT) – in which producers of renewable energy can bid for state subsidies, paid as a premium over the market reference price. Newly established renewable energy producing facilities from 0.5 to 1 MW can apply for a feed-in premium in addition to the market price, and over 1 MW the support level is set through competitive auctions. Applicants can be companies with a registered office in the EU, the EEA or the Energy Community, Hungarian branch offices of foreign companies and Hungarian business entities or municipalities, but the tender is only available to projects located in Hungary. Since the first METAR tender in 2019, the Hungarian Energy Authority has launched six successful tenders, each time generating a significant interest and oversubscription from bidders. For more information on the METAR scheme, please see: HYPERLINK “http://www.mekh.hu/information-on-the-renewable-energy-support-system” http://www.mekh.hu/information-on-the-renewable-energy-support-system

Foreign trade zones were eliminated because of EU accession.

Hungary does not mandate the hiring of local employees. The number of work permits issued for third-country nationals is limited by law, but in recent years, this limit was well above the actual number of registered third-country employees.  Residency and work permits are issued by the Immigration Office and the local labor offices.

As of 2021, investments in certain strategic sectors including the military, intelligence, public utilities, financial services, and electronic information systems require investment permits issued by the Ministry of Interior; in other key sectors, the Ministry for Innovation and Technology issues permits.  There are no laws in place requiring the fulfilment of special labor force related conditions to get investment permits. However, in certain cases, the GOH has established retention of workforce as a condition to award state grants to investors.

Hungary has no forced data localization policy.  Foreign IT providers do not need to turn over source code or provide access to encryption.  Hungary follows EU rules on transfer of personal data outside the economy. Storage of personal data is regulated by a data protection law and falls under the authority of a Data Protection Ombudsman.

There are no general performance requirements for investors in Hungary.  However, investors may receive government subsidies in the event they meet certain performance criteria, such as job creation or investment minimums, which are available to all enterprises registered in Hungary and are applied on a systematic basis.  To comply with EU rules, the GOH no longer grants tax holidays based on investment volume. There is no requirement that investors must purchase from local sources, but the EU Rule of Origin applies. Investors are not required to disclose proprietary information to the GOH as part of the regulatory process.

Hungary, as an EU Member State, follows the General Data Protection Regulation (GDPR) on transmitting data outside of the EU and local data storage requirements.  The National Authority for Data Protection and Freedom of Information is responsible for enforcing GDPR rules.

5. Protection of Property Rights

Hungary maintains a reliable land registry, which provides public information for anyone on the ownership, mortgage, and usufruct rights of a real estate or land parcel.  Secured interests in property (mortgages), both moveable and real, are recognized and enforced but there is no title insurance in Hungary.

Please see the section on Limits on Foreign Control and Right to Private Ownership and Establishment for information regarding restrictions on purchasing farm landfarmland.

Hungarian law allows acquisitive prescription for unoccupied real property if the user of the property occupies it continuously for at least 15 years. Real estate and land purchase contracts must be countersigned by an attorney registered in Hungary.

Hungary has an adequate legal structure for protecting intellectual property rights (IPR), although sentences for civil and criminal IPR infringement cases are not usually adequately harsh to serve as a deterrent.  There has been no new major IPR legislation passed over the last year. According to some representatives of the pharmaceutical and software industries, enforcement could be improved if the Prosecutor General’s Office were to establish specialized IPR units.  The most common IPR violations in Hungary include the sale of imported counterfeit goods, including pharmaceuticals and Internet-based piracy. Most counterfeit goods sold in Hungary are of Chinese origin.

Hungary acceded to the European Patent Convention in 2003 and has accordingly amended the Hungarian Patent Act.  Hungary is a party to the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and many other major international IPR agreements, including some administered by the World Intellectual Property Organization (WIPO), such as the Berne Convention, the Paris Convention, the WIPO Copyright Treaty, and the WIPO Performance and Phonograms Treaty.  As an EU Member State, Hungary is required to implement EU Directives and so is party to the EU Information Society Directive and EU Enforcement Directive, among others.

The United States and Hungary signed a Comprehensive Bilateral Intellectual Property Rights Agreement in 1993 that addresses copyright, trademarks, and patent protection.

In 2010, the U.S. Patent and Trademark Office (USPTO) and the Hungarian Intellectual Property Office (HIPO) launched a pilot program to facilitate patent recognition between the United States and Hungary.  In 2012 the USPTO and HIPO signed a Memorandum of Understanding to further streamline and expedite bilateral patent recognition. More details about this Patent Processing Highway (PPH) program can be found on HIPO’s website at   www.hipo.gov.hu/English/szabadalom/pph/  .

Hungary is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at HYPERLINK “http://www.wipo.int/directory/en/” HYPERLINK “http://www.wipo.int/directory/en/”  http://www.wipo.int/directory/en/ .

Resources for Rights Holders

6. Financial Sector

The Hungarian financial system offers a full range of financial services with an advanced information technology infrastructure.  The Hungarian Forint (HUF) has been fully convertible since 2001, and both Hungarian financial market and capital market transactions are fully liberalized.  The Capital Markets Act of 2001 sets out rules on securities issues, including the conversion and marketing of securities. As of 2007, separate regulations were passed on the activities of investment service providers and commodities brokers (2007), on Investment Fund Managing Companies (2011), as well as on Collective Investments (2014), providing more sophisticated legislation than those in the Capital Markets Act.  These changes aimed to create a regulatory environment where free and available equity easily matches with the best investment opportunities. The 2016 modification of the Civil Code removed remaining obstacles to promote collection of public investments in the course of establishing a public limited company.

The   Budapest Stock Exchange (BSE)   re-opened in 1990 as the first post-communist stock exchange in the Central and Eastern European region.  Since 2010, the BSE has been a member of the Central and Eastern Europe (CEE) Stock Exchange Group. In 2013, the internationally recognized trading platform Xetra replaced the previous trading system.  In 2021, the BSE has 23 members and 139 issuers. The issued securities are typically shares, investment notes, certificates, corporate bonds, mortgage bonds, government bonds, treasury bills, and derivatives.  In December 2021, the BSE had a market capitalization of $30.2 billion, and the average monthly equity turnover volume amounted to $2.1 billion. The most traded shares are OTP Bank, pharmaceutical company Richter, MOL, Magyar Telekom, and 4iG.

Financial resources flow freely into the product and factor markets.  In line with IMF rules, international currency transactions are not limited and are accessible both in domestic and foreign currencies. Individuals can hold bank accounts in either domestic or foreign currencies and conduct transactions in foreign currency. Since March 2020, commercial banks introduced real time bank transfers for domestic currency transactions.

Commercial banks provide credit to both Hungarian and foreign investors at market terms.  Credit instruments include long-term and short-term liquidity loans. All banks publish total credit costs, which includes interest rates as well as other costs or fees.

There are no rules preventing a foreigner or foreign firm from opening a bank account in Hungary.  Valid personal documents (i.e., a passport) are needed and as of 2015, when the Foreign Account Tax Compliance Act (FATCA) came into force, also a declaration of whether the individual is a U.S. citizen.  Banks have not discriminated against U.S. citizens in opening bank accounts based on FATCA.

The Hungarian banking system has strengthened over the past few years, and the capital position of banks is generally adequate even in the challenging economic environment created by COVID-19.  Following several years of deleveraging after the 2008 crisis, the banking system is mainly deposit funded. The penetration of the banking system decreased slightly in 2019 due to a relatively high GDP growth rate. The sector’s total assets amounted to 92.6 percent of GDP.

The Hungarian banking system is healthy, and banks have a stable capital position.  The loan-to-deposit ratio has been gradually decreasing from its 160 percent peak in 2009 after the financial crisis to 85 percent in 2015 and has been fluctuating between this value and a 92.4 percent peak in 2019. In spring 2020, during the first wave of the COVID-19 in Hungary, it reached 91.6 percent but decreased to 81.7 percent by the end of the year. The liquidity cover ratio was 160 percent in the first wave of COVID-19, then climbed to 220.8 percent by the end of the year. In response to the COVID-19 crisis, the Central Bank restructured and expanded its monetary policy tools to provide liquidity to the financial sector through currency swaps, fixed-rate loans, and exemptions from minimum reserve requirements. The Central Bank also introduced instruments to influence short- and long-term term yields. It offered low-interest loans through commercial banks to the SME sector and launched a government securities purchase program on the secondary market.

The ratio of non-performing loans (NPLs) decreased from a high of 18 percent in 2013 to 3.3 percent in 2021 as a result of portfolio cleaning, the improving economic environment, and increased lending.  The banking sector became profitable after several years of losses between 2010 and 2015, reaching a return on equity (ROE) record high of 16.8 percent in 2017. Since then, ROE has decreased close to zero in 2020 as a result of the pandemic but recovered to 11.6 percent by the end of 2021. The banking sector’s total assets exceeded 112 percent of GDP in 2021, of which 73 percent were held by five banks. The largest bank in Hungary is OTP Bank, which is mostly Hungarian-owned and controls about 25 percent of the market.

Hungary has a modern two-tier financial system and a developed financial sector.  Between 2000 and 2013, the Hungarian Financial Supervisory Authority (PSZAF) served as a consolidated financial supervisor, regulating all financial and securities markets. PSZAF, in conjunction with the MNB, managed a strong two-pillar system of control over the financial sector, producing stability in the market, effective regulation, and a system of checks and balances.  In 2013, the MNB absorbed the PSZAF and over the past few years has efficiently strengthened its supervisory role over the financial sector and established a customer protection system.

In accordance with the GOH’s stated goal of reducing foreign ownership in the financial sector, the proportion of foreign banks’ total assets in the financial sector decreased to about 40 percent in 2019, down from a peak of 70 percent before the 2008-2009 financial crisis. Following the sale of Budapest Bank and merge with the other Hungarian-owned banks and the Hungarian Savings’ Bank network, it has fallen to about 40 percent by 2021. Foreign banks are subject to central bank uniform regulations and prudential measures, which are applied to Hungary’s entire financial market without discrimination. On March 2, 2020, MNB launched an immediate e-transfer system up to a maximum of HUF 10 million (about $32,000) for domestic transactions in HUF. Commercial banks have extensive direct correspondent banking relationships and are capable of transferring domestic or foreign currencies to most banks outside of Hungary.  Since 2018, however, the cashing of U.S. checks is no longer possible. No loss or jeopardy of correspondent banking relations has been reported.

Recent regulations restrict foreign currency loans to only those that earn income in foreign currency, an effort to eliminate the risk of exchange rate fluctuations.  Foreign investors continue to have equal – if not better – access to credit on the global market, apart from special GOH credit concessions such as small business loans.

Foreign Exchange

The Hungarian forint (HUF) has been convertible for essentially all business transactions since January 1, 1996, and foreign currencies are freely available in all banks and exchange booths.  Act 93 of 2001 on Foreign Exchange Liberalization lifted all remaining foreign exchange restrictions and allowed free movement of capital in line with EU regulations. Hungary complies with all OECD convertibility requirements and IMF Article VIII.

Hungary’s EU accession agreement dictates that Hungary must adopt the Euro once it meets the relevant criteria. The GOH has not set a specific target date even though Hungary meets most of the necessary fiscal and financial criteria.  According to the Ministry of Finance, Hungary’s economic performance should mirror the Eurozone average more closely before adapting the Euro.

Short-term portfolio transactions, hedging, short, and long-term credit transactions, financial securities, assignments and acknowledgment of debt may be carried out without any limitation or declaration.  While the Forint remains the legal tender in Hungary, parties may settle financial obligations in a foreign currency. Many Hungarians took out mortgages denominated in foreign currency prior to the global financial crisis and suffered when the Forint depreciated against the Swiss Franc and the Euro.  Despite strong pressure, the Hungarian Supreme Court ruled that there is nothing inherently illegal or unconstitutional in loan agreements that are foreign currency denominated, upholding existing contract law. New consumer loans, however, are denominated in Forints only, unless the debtor receives regular income in a foreign currency.

Market forces determine the value of the Hungarian Forint. Analysts note that the MNB’s consistently low interest rates have contributed to a nearly 30 percent decline in the value of the of the Forint against the Euro since 2010.

Remittance Policies

Sovereign Wealth Funds

Hungary does not maintain a sovereign wealth fund.

8. Responsible Business Conduct

Hungary encourages multinational firms to follow the OECD Guidelines for Multinational Enterprises, which promotes a due diligence approach to responsible business conduct (RBC).  The government has established a National Contact Point (NCP) in the Ministry of Finance for stakeholders to obtain information or raise concerns in the context of RBC. The Hungarian NCP has organized events to promote OECD guidelines among the business community, trade unions, government agencies, and NGOs.  Members of the Hungarian NCP include representatives of the Ministries of Finance, Foreign Affairs and Trade, Innovation and Technology, and Agriculture. The Hungarian NCP submits annual reports to the OECD Investment Commission, except for 2020 when its activity was strongly impacted by the COVID-19 pandemic. For more information, see:   http://oecd.kormany.hu/a-magyar-nemzeti-kapcsolattarto-pont  .

In recent years, the Hungarian NCP has organized several conferences, the last one in January 2020, to promote RBC and OECD guidelines. It announced in 2017 its intention to formulate a new National Action Plan on Businesses and Human Rights.  According to the first National Corporate Social Responsibility (CSR) Action Plan formulated in 2015, key RBC priorities of the GOH included the employment of discriminated, disadvantaged, and disabled groups, environmental protection, and the expansion of sustainable economy.  Hungary’s NCP peer review is scheduled in 2023. The Hungarian Public Relations Association, CSR Hungary, and other NGOs are involved in elaborating the second National Action Plan. The Hungarian NCP reviews complaints from trade unions against multinational companies’ subsidiaries operating in Hungary and coordinates with relevant NPCs of the multinational company’s home country. RBC does not typically play a role in GOH procurement decisions, although the 2015 Public Procurement Act integrates concepts of CSR, responsible business conduct, and good practice.

Several NGOs and business associations promote RBC and CSR.  The one with the most members, CSR Hungary Forum, created in 2006, established an annual award and trademark in 2008 to recognize business CSR efforts; others include the Hungarian Public Relations Association, “Kovet.”

According to a 2018 survey conducted by CSR Hungary, 60 percent of businesses have a CSR policy and 44 percent of businesses attribute a CSR orientation to increased competitiveness.  However, only about 34 percent of multinational and SOEs and 9 percent of SMEs report formally formulating a CSR action plan. According to a 2021 study on corporate social responsibility in Hungary, stakeholder pressure is weak, and they expect increased state-level intervention in CSR issues.

In 2017, Hungary’s independent agencies for labor rights protection, consumer protection, cultural heritage protection, and environment protection were merged into relevant ministries and county-level government offices.  Environmental NGOs criticized the transformation of the system and warned about the lack of independent agencies.

Climate Issues

In January 2020, the GOH approved and published its new long-term energy strategy and an EU-required National Energy and Climate Plan – both of which focused heavily on decarbonization and sustainable climate policy. According to the documents, Hungary aims to reduce its carbon emissions by at least 40 percent by 2030 (compared to the 1990 level), an additional 10 percent by 2040, and achieve carbon neutrality by 2050.  Given that Hungary emits 33 percent less CO2 than it did in 1990, the real cut would be seven percent in the next eight years and 17 percent in the next 20 years. The seven percent cut would be easily achieved with the phase-out of the lignite coal fired Matra Power Plant by 2025. Experts have noted that the plan to have Hungary cut the remaining 50 percent (to achieve carbon neutrality) in the 2040-2050 period is an ambitious goal. Although in December 2020, the GOH committed itself to the new EU goal (“Fit for 55”) of reducing carbon emissions by 55 percent by 2030, the details of achieving the more ambitious goal are to be worked out. The GOH estimates the total costs of Hungary achieving climate neutrality by 2050 at $145 billion.

Private sector contributions to reach the climate goals include increasing Hungary’s solar power capacity from the currently available more than 2000 MW to 6000 MW by 2030 and to 10,000 MW by 2040. In energy efficiency, the GOH’s aim is to limit Hungary’s total final energy demand on the 2005 level by 2030. To reach this goal, the GOH introduced a tax incentive for businesses investing into energy efficiency. Although the GOH strategies stress the great potential in decreasing the energy demand of households, so far there have been only limited efforts.

Despite the February 2021 ruling of the European Court of Justice saying that Hungary had “systematically and persistently” breached legal limits on air pollution, the GOH still has failed to take any efficient measures to deal with the problem. Although the GOH maintains an extensive system of national parks and nature reserves, there are no other government policies, or regulatory incentives helping to preserve biodiversity. The second National Climate Change Strategy adopted in 2018 contains the National Adaptation Strategy which is based on the climate vulnerability assessment of ecosystem and industrial sectors.

Although Hungary’s Public Procurement Act of 2015 allows the government to consider environmental and green growth aspects, the GOH has not yet issued a decree governing the detailed rules of green procurements. Hungary is one of the five EU member states without a national action plan on green public procurements according to the State Audit Office. In April 2021, Hungary’s Public Procurement Authority launched a sustainability working group and in September 2021 issued a Green Codex to provide some guidelines on green procurements.

9. Corruption

The Hungarian Ministry of Justice and the Ministry of Interior are responsible for combating corruption.  Although a legal framework exists to support their efforts, critics have asserted that the government has done little to combat grand corruption and rarely investigates cases involving politically connected individuals, even when recommended to do so by the European Antifraud Office (OLAF). Hungary is a party to the UN Anticorruption Convention and the OECD Anti-Bribery Convention and has incorporated their provisions into the penal code, as well as subsequent OECD and EU requirements on the prevention of bribery.  Parliament passed the Strasbourg Criminal Law Convention on Corruption of 2002 and the Strasbourg Civil Code Convention on Corruption of 2004. Hungary is a member of GRECO (Group of States against Corruption), an organization established by members of Council of Europe to monitor the observance of their standards for fighting corruption.  GRECO’s reports on evaluation and compliance are confidential unless the Member State authorizes the publication of its report.  For several years, the GOH has kept confidential GRECO’s most recent compliance reports on prevention of corruption with respect to members of parliament, judges, and prosecutors, and a report on transparency of party financing.

Following calls from the opposition, NGOs, and other GRECO Member States, and a March 2019 visit by senior GRECO officials to Budapest, the GOH agreed to publish the reports in August 2019. The reports revealed that Hungary failed to meet 13 out of 18 recommendations issued by GRECO in 2015; assessed that Hungary’s level of compliance with the recommendations was “globally unsatisfactory,” and concluded that the country would therefore remain subject to GRECO’s non-compliance procedure. The compliance report on transparency of party financing noted some progress but added that “the overall picture is disappointing.” A November 2020 GRECO report came to the same conclusion, adding that Hungary had made no progress since the prior year on implementing anticorruption recommendations for MPs, judges, and prosecutors.

In December 2016, the GOH withdrew its membership in the international anti-corruption organization the Open Government Partnership (OGP).  Following a letter of concern by transparency watchdogs to OGP’s Steering Committee in summer 2015, OGP launched an investigation into Hungary and issued a critical report.  The OGP admonished the GOH for its harassment of NGOs and urged it to take steps to restore transparency and to ensure a positive operating environment for civil society. The GOH, only the second Member State to be reprimanded by the organization, rejected the OGP report conclusions and withdrew from the organization.

In recent years, the GOH has amplified its attacks on NGOs including transparency watchdogs, accusing them of acting as foreign agents and criticizing them for allegedly working against Hungarian interests.  Observers assess that this anti-NGO rhetoric endangered the continued operation of anti-corruption NGOs crucial to promoting transparency and good governance in Hungary. In 2017 and 2018, Parliament passed legislations that many civil society activists criticized for placing undue restrictions on NGOs. In its June 2018 and November 2021 rulings, the European Court of Justice found both legislations in conflict with EU law.

Transparency International (TI) is active in Hungary.  TI’s 2021 Corruption Perceptions Index rated Hungary 73 out of 180 countries.  Out of the 27 EU member states, Hungary ranked 26th, outperforming only Bulgaria. TI has noted that state institutions responsible for supervising public organizations were headed by people loyal to the ruling party, limiting their ability to serve as a check on the actions of the GOH.  TI and other watchdogs note that data on public spending remains difficult to access since the GOH amended the Act on Freedom of Information in 2013 and 2015. Moreover, according to watchdogs and investigative journalists, the GOH, state agencies, and SOEs are increasingly reluctant to answer questions related to public spending, resulting in lengthy court procedures to receive answers to questions.  Even if the court orders the release of data, by the time it happens, the data has lost significance and has a weaker impact, watchdogs warn. In some cases, even when ordered to provide information, state agencies and SOEs release data in nearly unusable or undecipherable formats.

U.S. firms – along with other investors – identify corruption as a significant problem in Hungary.  According to the World Economic Forum’s 2017 Global Competitiveness Report, businesses considered corruption as the second most important obstacle to making a successful business in Hungary.

State corruption is also high on the list of EC concerns with Hungary.  The European Anti-Fraud Office (OLAF) has found high levels of fraud in EU-funded projects in Hungary and has levied fines and withheld development funds on several occasions.  Over the past few years, the EC has suspended payments of EU funds several times due to irregularities in Hungary’s procurement system.

TI and other anti-corruption watchdogs have highlighted EU-funded development projects as the largest source of corruption in Hungary.  A TI study found indications of corruption and overpricing in up to 90 percent of EU-funded projects. Reports by Corruption Research Center (CRCB) from April and May 2020 found – after analyzing more than 240,000 public procurement contracts from 2005-2020 – that companies owned by individuals with links to senior government officials enjoy preferential treatment in public tenders and face less competition than other companies. The studies also revealed that the share of single-bidder public procurement contracts was over 40 percent in 2020, and that the corruption risk reached its highest level since 2005. In a March 2022 report CRCB found that in the 2011-2021 period, more than 20 percent of the EU-funded public contracts were won by 42 companies owned by 12 entrepreneurs closely affiliated with the government. In 2020, a year which was particularly difficult for many businesses because of the Covid-crisis, this small group of entrepreneurs won almost one-third of the EU-funded public tenders.

Hungary has legislation in place to combat corruption.  Giving or accepting a bribe is a criminal offense, as is an official’s failure to report such an incident.  Penalties can include confiscation of assets, imprisonment, or both. Since Hungary’s entry into the EU, legal entities can also be prosecuted.  Legislation prohibits members of parliament from serving as executives of state-owned enterprises. An extensive list of public officials and many of their family members are required to make annual declarations of assets, but there is no specified penalty for making an incomplete or inaccurate declaration.  It is common for prominent politicians to be forced to amend declarations of assets following revelations in the press of omission of ownership or part-ownership of real estate and other assets in asset declarations. Politicians are not penalized for these omissions.

Transparency advocates claim that Hungarian law enforcement authorities are often reluctant to prosecute cases with links to high-level politicians.  For example, they reported that, in November 2018, Hungarian authorities dropped the investigation into $50 million in EU-funded public lighting tenders won by a firm co-owned by a relative of the prime minister, despite concerns raised by OLAF about evidence of conflict of interest and irregularities involving the deal. According to media reports, OLAF concluded that several of the tenders were won due to what it considered organized criminal activity. In December 2021, the Prosecutor General’s Office charged a senior government politician for accepting bribes to influence cases at the request of the president of the Court Bailiff Chamber. The senior government official resigned immediately but kept his position as an MP and was left at large for the time of the investigation.

Annual asset declarations for the family members of public officials are not public and only parliamentary committees can investigate them if there is a specified suspicion of fraud.  Transparency watchdogs warn that this makes the system of asset declarations inefficient and easy to circumvent as politicians can hide assets and revenues in their family members’ names.

The Public Procurement Act of 2015 initially included broad conflict of interest rules on excluding family members of GOH officials from participating in public tenders, but Parliament later amended the law to exclude only family members living in the same household.  While considered in line with the overarching EU directive, the law still leaves room for subjective evaluations of bid proposals and tender specifications to be tailored to favored companies.

While public procurement legislation is in place and complies with EU requirements, private companies and watchdog NGOs expressed concerns about pervasive corruption and favoritism in public procurements in Hungary.  According to their criticism, public procurements in practice lack transparency and accountability and are characterized by uneven implementation of anti-corruption laws.  Additionally, transparency NGOs calculate that government-allied firms have won a disproportionate percentage of public procurement awards.  The business community and foreign governments share many of these concerns.  Multinational firms have complained that competing in public procurements presents unacceptable levels of corruption and compliance risk.  A 2019 European Commission study found that Hungary had the second-highest rate (40 percent) of one-bidder EU funded procurement contracts in the European Union.  In addition, observers have raised concerns about the appointments of Fidesz party loyalists to head quasi-independent institutions such as the Competition Authority, the Media Council, and the State Audit Office. Because it is generally understood that companies without political connections are unlikely to win public procurement contracts, many firms lacking such connections do not bid or compete against politically connected companies.

The GOH does not require private companies to establish internal codes of conduct.

Generally, larger private companies and multinationals operating in Hungary have internal codes of ethics, compliance programs, or other controls, but their efficacy is not uniform.

Resources to Report Corruption

GOH Office Responsible for Combatting Corruption:

National Protective Service
General Director Zoltan Bolcsik
Phone: +36 1 433 9711
Fax: +36 1 433 9751
E-mail: nvsz@nvsz.police.hu  

Transparency International Hungary
1055 Budapest
Falk Miksa utca 30. 4/2
Phone: +36 1 269 9534
Fax: +36 1 269 9535
E-mail: info@transparency.hu  

10. Political and Security Environment

The security environment is relatively stable.  Politically motivated violence or civil disturbance is rare.  Violent crime is low, with street crimes the most frequently reported crimes in the country. Political violence is not common in Hungary.  The transition from communist authoritarianism to capitalist democracy was negotiated and peaceful, and free elections have been held consistently since 1990.

11. Labor Policies and Practices

Hungary’s civilian labor force of 4.7 million is highly educated and skilled.  Literacy exceeds 98 percent and about two-thirds of the work force has completed secondary, technical, or vocational education.  Hungary’s record low 3.3 percent unemployment rate at the end of 2019 increased to 3.8 percent in December 2021 as a result of the pandemic, but it is lower than the EU average of 7.3 percent.  Hungary’s employment rate for the population aged 15-64 years was 73.9 percent in 2021, higher than the EU average of 68.3 percent. Hungary is particularly strong in engineering, medicine, economics, and science training, although emigration of Hungarians from these sectors to other EU member states has increased in recent years. In the first wave of the COVID-19 pandemic, out-migration temporarily declined but resumed during the second half of 2020.

Multinationals increasingly cite a skilled labor shortage as their biggest challenge in Hungary and note that Hungarian vocational institutions and universities need to adapt more quickly to changes in the marketplace.  An increasing number of young people are attending U.S.- and European-affiliated business schools in Hungary. Foreign language skills, especially in English and German, are becoming more widespread, yet Hungary still has the lowest level of foreign language proficiency in the EU.  According to 2018 data, only 37 percent of working-age Hungarians speak at least one foreign language, while the EU average is 66 percent.

As the unemployment rate has declined, certain sectors have begun to face shortages of skilled and highly educated employees.  As Hungarians increasingly seek work abroad, shortages of highly educated and skilled labor are negatively affecting growth in certain regions and industries.  In addition, declining OECD Program of International Student Assessment (PISA) scores may signal that the workforce is losing its ability to learn new skills and adapt to changing market conditions. The government is attempting to address labor shortage by increasing the minimum wage, offering retraining programs, incentivizing employment of young mothers and pensioners by lowering employer-paid welfare contributions, and reforming the education and vocational training system.  Shortages of skilled workers, particularly in the IT, financial, and manufacturing sectors, are more acute in the northwest and central regions of the country. In the eastern half of the country, unemployment levels are above average, even though the cost of labor is lower. Wages in Hungary are still significantly lower than those in Western Europe, despite the recent increase in minimum wage. Average Hungarian labor productivity is lower than the EU average but exceeds that of other Central and Eastern European economies.

In 2016, the government, trade unions, and employer representatives signed a three-year agreement to increase the minimum wage for unskilled and skilled workers. The deal also included a more than 50-percent cut in the business tax for large companies from 19 percent to 9 percent as of 2017, as well as gradually lowering the payroll tax from 21.5 percent in 2016 by 2 percent each year, down to 15.5 percent as of July 2020, to offset increasing labor costs. In subsequent years the parties signed annual minimum wage agreements which increased the minimum wage by 8 percent in 2020, by 3.6 percent in 2021, and as of January 2022, by 20 percent. The GOH also facilitates the employment of workers from neighboring countries, primarily ethnic Hungarian minority communities in those countries. The GOH requires hiring of nationals in certain strategic sectors and some areas of public administration.

Labor law stipulates a severance payment in case of lay-off, as well as under certain conditions for an employee terminating a work contract.  The government pays unemployment benefits for three months and offers the services of local employment offices. The GOH did not extend this benefit beyond the normal three months during the pandemic. Labor laws are uniform and there are no waivers available to attract or retain investment.  Collective bargaining is increasingly common in large companies, education, public transport, retail, and medical services.

The 2012 changes to the Labor Law transferred some collective bargaining rights from trade unions to work councils (Although work councils have a similar mission to those of labor unions, each firm has its own work council, and thus lacks the collective reach of an industry-wide trade union).  Hungary’s trade union membership rate is below 10 percent, while the EU average is 25 percent. About 20 percent of businesses have a collective bargaining agreement on labor conditions and benefits, well below the EU average of about 80 percent. During the COVID-19 pandemic the government passed regulations that allow businesses to unilaterally terminate collective bargaining agreements, which led to a few strikes, which have been resolved by negotiations. Beginning in 2021, the GOH decreased state support to trade unions and implemented budget changes to allow discretional funding to each trade union, which replaced the previously uniform system. Hungary has ratified all eight International Labor Organization (ILO) core conventions.

Labor dispute resolution includes mediation as well as court procedures.  Employees, however, typically agree with employers outside court or mediation procedures. In 2019, a six-day strike at Audi Hungary was resolved with an agreement between employers and employees for a 15- to 20-percent wage increase.  The success of this high-profile strike has led to a series of short-term strikes, or threats of strikes, at other companies. Most of these strikes have been resolved quickly with wage increase concessions from management and changes in overtime payment and conditions.  All recent strikes have been peaceful and complied with Hungarian labor laws.

Hungary has been a member of the ILO since 1955.  Hungary’s labor law and practice are in line with international labor standards.  Discussions between the ILO and the GOH are ongoing on certain provisions of the 2012 modification of Hungary’s labor law, including the freedom of expression, registration of trade unions, and minimum level of public service in case of strike.

Hungary passed amendments to its Labor Code in December 2018 that increased the amount of overtime an employer can request and gives employers up to three years to reconcile and pay for overtime.  These highly unpopular changes led to a series of large protests throughout Hungary and currently are being reviewed by the European Commission. As a part of its COVID-19 economic response plan, the government decreed in 2020 that employers can implement flexible working hours and a 24-month working time frame to calculate overtime without prior agreement from the employee or union. Local labor organizations complained that the move rolled back hard-won concessions from the 2018 labor reform and that certain businesses abuse overtime possibilities to compensate for shutdowns during the COVID-19 pandemic.

The constitution and laws prohibit discrimination based on race, sex, gender, disability, language, sexual orientation and gender identity, infection with HIV or other communicable diseases, or social status. The labor code provides for the principles of equal treatment. The government failed to enforce these regulations effectively. Penalties were not commensurate with those under laws related to civil rights.

Observers asserted that discrimination in employment and occupation occurred with respect to Roma, women, persons with disabilities, and LGBTQI+ persons. According to NGOs, there was economic discrimination against women in the workplace, particularly against job seekers older than 50 and those who were pregnant or had returned from maternity leave. The country does not mandate equal pay for equal work. A government decree requires companies with more than 25 employees to reserve 5 percent of their work positions for persons with physical or mental disabilities. While the decree provides fines for noncompliance, many employers generally paid the fines rather than employ persons with disabilities. The National Tax and Customs Authority issued “rehabilitation cards” to persons with disabilities, which granted tax benefits for employers employing such individuals.

Roma were the country’s largest ethnic minority. According to the 2011 census, approximately 315,000 persons (3 percent of the population) identified themselves as Roma. A University of Debrecen study published in 2018, however, estimated there were 876,000 Roma in the country, or approximately 9 percent of the country’s population. There were approximately 1,300 de facto segregated settlements in the country where Roma constituted the majority of the population. Romani communities are not socially integrated with broader Hungarian society and are characterized by considerably lower indicators on most socioeconomic measures than the majority population. Conditions for the community deteriorated since the collapse of communism in 1989-90 but were rooted in centuries of social exclusion. Lacking advanced education and employment skills, many Roma occupied the margins of society and experienced long-term unemployment, which bred a cycle of poverty and welfare dependence.

14. Contact for More Information

U.S. Embassy Political and Economic Section
Szabadsag Ter 12
1054 Budapest, Hungary
BUDEcon@State.gov
+36 1 475 4400

 

Poland

Executive Summary

Poland’s strong fundamentals and timely macroeconomic policies have enabled the country’s economy to withstand several recent turbulent periods. In 2021, the Polish economy was recovering rapidly from the pandemic-induced recession, which had interrupted almost 30 years of continuous economic expansion. Policy actions including broad fiscal measures and unprecedented monetary support cushioned the socio-economic impact of the pandemic. Already in the second quarter of 2021, output returned to pre-crisis levels and annual growth in 2021 averaged 5.7 percent. The post-pandemic recovery has been sustained by robust private consumption. Despite pandemic-related challenges and the deterioration of some aspects of the investment climate, Poland remained an attractive destination for foreign investment. Solid economic fundamentals and promising post-COVID recovery forecasts continued to draw foreign, including U.S., capital. The Family 500+ program and additional pension payments continued in 2021 as key elements of the Law and Justice (PiS) party’s social welfare and inequality reduction agenda. The government increased the minimum wage and the labor market remained relatively strong, supported by a package of measures introduced in 2020 and continued in 2021 known as the “Anti-Crisis Shield.” The support measures amounted to approximately $55 billion. Prospects for future growth of the Polish economy are uncertain due to the outbreak of the war in Ukraine. High inflation, the highest in 20 years, is likely to continue and interest rates, which will rise along with it, will negatively impact the economy. The approval of Poland’s National Recovery Plan (KPO), however, and the transfer of EU funds envisaged therein, should make a positive impact.

In 2021, the government introduced an “Anti-Inflation Shield’ including a temporary reduction in value added tax (VAT) on electricity, gas, and heating as well as foodstuffs to prevent significant deterioration in consumption. A fiscal stimulus program (the “Polish Deal”) was also introduced and took effect in 2022. After only a few months of its implementation, the government has radically amended it. New solutions aimed at insulating the economy from the effects of the war in Ukraine will be introduced under the banner of an “Anti-Putin Shield.” These measures will include compensation to Polish businesses that operated in Russia, Ukraine, or Belarus; subsidies to the state-owned gas pipeline operator; regulated gas tariffs for households and “sensitive recipients” such as hospitals; subsidies for farmers to combat rising fertilizer prices; and a reduction of the income tax threshold. The proposal is still subject to consultations but is expected to be enacted into law in 2022. The current anti-inflationary measures are likely to be extended until the end of 2022. All of these policies will drastically increase fiscal spending and curtail tax revenue.

The Polish government has made gradual progress in simplifying administrative processes for firms, supported by the introduction of digital public services, but weaknesses persist in the legal and regulatory framework. Implemented and proposed legislation dampened optimism in some sectors (e.g., retail, media, energy, digital services, and beverages). Investors point to lower predictability and the outsized role of state-owned and state-controlled companies in the Polish economy as an impediment to long-term balanced growth. The government continues to push for the creation of state-controlled “national champions” that are large enough to compete internationally and lead economic development. Despite a polarized political environment, and a few less business-friendly sector-specific policies, the broad structures of the Polish economy are solid. Foreign investors are not abandoning projects planned before the outbreak of the war in Ukraine and some are even transferring activities from Ukraine and Belarus to Poland. Prospects for future growth will depend on the course of the war in Ukraine, but in the near-term, external and domestic demand and inflows of EU funds, as well as various government aid programs, are likely to continue to attract investors seeking access to Poland’s market of over 38 million people, and to the broader EU market of over 500 million.

In mid-2021, the Ministry of Economic Development and Technology finished public consultations on its Industry Development White Paper, which identifies the government’s views on the most significant barriers to industrial activity and serves as the foundation for Poland’s Industrial Policy (PIP) – a strategic document focused on digitization, security, industrial production location, the Green Deal, and modern society which sets the direction for long-term industrial development. In early 2022, the Ministry announced there was need for further analysis and introduction of new economic solutions due to the considerable changes in the EU energy policy, supply chain disruptions, and the geopolitical situation.

Poland’s well-diversified economy reduces its vulnerability to external shocks, although it depends heavily on the EU as an export market. Foreign investors also cite Poland’s well-educated work force as a major reason to invest, as well as its proximity to major markets such as Germany. U.S. firms represent one of the largest groups of foreign investors in Poland. The volume of U.S. investment in Poland was estimated at over $4.2 billion by the National Bank of Poland in 2020 and at around $25 billion by the Warsaw-based American Chamber of Commerce (AmCham). With the inclusion of indirect investment flows through subsidiaries, it may reach over $62 billion, according to KPMG and AmCham. Historically, foreign direct investment (FDI) was largest in the automotive and food processing industries, followed by machinery and other metal products and petrochemicals. “Shared office” services such as accounting, legal, and information technology services, including research and development (R&D), is Poland’s fastest-growing sector for foreign investment. The government seeks to promote domestic production and technology transfer opportunities in awarding defense-related tenders. There are also investment and export opportunities in the energy sector—both immediate (natural gas), and longer term (nuclear, hydrogen, energy grid upgrades, photovoltaics, and offshore wind)—as Poland seeks to diversify its energy mix and reduce air pollution. Biotechnology, pharmaceutical, and health care industries opened wider to investments and exports as a result of the COVID-19 experience. 2021 turned out to be a record year for venture capital investment in Poland. Compared to 2020, the value of investments in this area increased by 66 percent, exceeding $800 million. Around 15 percent of these transactions were investments in the sector of medical technologies.

Defense remains a promising sector for U.S. exports. The Polish government is actively modernizing its military inventory, presenting good opportunities for the U.S. defense industry. A law increasing the defense budget was adopted in March 2022. The law also amends the mechanism of military financing, expansion, and procurement. The defense budget is to increase to 3 percent of GDP from 2023, exceeding the NATO target of 2 percent. Under the new law, the Council of Ministers will be tasked with determining, every four years, the direction of the modernization and development of the armed forces for a 15-year planning period. Information technology and cybersecurity along with infrastructure also are sectors that show promise for U.S. exports, as Poland’s municipalities focus on smart city networks. A $10 billion central airport project may present opportunities for U.S. companies in project management, consulting, communications, and construction. The government seeks to expand the economy by supporting high-tech investments, increasing productivity and foreign trade, and supporting entrepreneurship, scientific research, and innovation through the use of domestic and EU funding. The Polish government is interested in the development of green energy, hoping to utilize the large amounts of EU funding earmarked for this purpose in the coming years and decades.

The Polish government plans to allocate money from the EU Recovery Fund (once Poland’s plan is approved) to pro-development investments in such areas as economic resilience and competitiveness, green energy and the reduction of energy intensity, digital transformation, the availability and quality of the health care system, and green and intelligent mobility. A major EU project is to synchronize the Baltic States’ electricity grid with that of Poland and the wider European network by 2025. Another government strategy aims for a commercial fifth generation (5G) cellular network to become operational in all cities by 2025, although planned spectrum auctions have been repeatedly delayed.

Some organizations, notably private business associations and labor unions, have raised concerns that policy changes have been introduced quickly and without broad consultation, increasing uncertainty about the stability and predictability of Poland’s business environment. For example, the government had announced an “advertising tax” on media companies with only a few months warning after firms had already prepared budgets for the current year. Broadcasters were concerned the tax, if introduced, could irreparably harm media companies weakened by the pandemic and limit independent journalism. Other proposals to introduce legislation on media de-concentration and limitations on foreign ownership have raised concern among foreign investors in the sector; however, those proposals seem to have stalled for the time being. The Polish tax system has undergone a major transformation with the introduction of many changes over recent years, including more effective tax auditing and collection, with the aim of increasing budget revenues. Through updated regulations in November 2020, Poland has adopted a range of major changes concerning the taxation of doing business in the country. The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation to publish tax strategies by large companies; and a new model of taxation for real estate companies. In the financial sector, legal risks stemming from foreign exchange mortgages constitute a source of uncertainty for some banks. The Polish government has supported taxing the income of Internet companies, proposed by the European Commission, considering it a possible new source of financing for the post-COVID-19 economic recovery. A tax on video-on-demand services and the proposed advertising tax are two examples of this trend.

On April 8, 2021, Poland’s president signed legislation amending provisions of Poland’s customs and tax laws in an effort to simplify certain customs and tax procedures.

The “Next Generation EU” recovery package will benefit the Polish economic recovery with sizeable support. Under the 2021-2027 European Union budget, Poland will receive $78.4 billion in cohesion funds as well as approximately $27 billion in grants and $40 billion in loan access from the EU Recovery and Resilience Facility. The Polish government projects this injection of funds, amounting to around 4.5 percent of Poland’s 2021 GDP, should contribute significantly to the country’s growth over the period 2021-2027. As the largest recipient of EU funds (which have contributed an estimated 1 percentage point to Poland’s GDP growth per year), any significant decrease in EU cohesion spending would have a large negative impact on Poland’s economy. The risk of a suspension of EU funds is low, but the government has refused to comply with several rulings of the European Court of Justice.

Observers are closely watching the European Commission’s three open infringement proceedings against Poland regarding rule of law and judicial reforms initiated in April 2019, April 2020, and December 2021.  The Commission’s concerns include the introduction of an extraordinary appeal mechanism in the enacted Supreme Court Law, which could potentially affect economic interests in that final judgments issued since 1997 can now be challenged and overturned in whole or in part, including some long-standing judgments on which economic actors have relied.  Other issues regard the legitimacy of judicial appointments after a reform of the National Judicial Council that raise concerns about long-term legal certainty and the possible politicization of judicial decisions and undermining of EU law.

Russia’s invasion of Ukraine has led to an increase in economic, financial, and political risks.

Managing the fallout from the war in Ukraine will be the government’s priority. Poland faces a large-scale refugee influx and, as of April 2022, has already received close to three million refugees. The Polish government reacted rapidly, granting refugees the right of temporary residence and access to key public services (health, education), social assistance, and housing. According to the European Bank for Reconstruction and Development (EBRD), the war in Ukraine, if it ends within a few months, will cause a small and short slowdown in the growth of the Polish economy. The relatively limited consequences of the invasion for Poland’s economy are primarily due to the large influx of refugees to Poland. The EBRD expects this to be a strong consumption stimulus that will cushion the impact of weakening exports due to the war.

The Polish and global economies are currently operating in conditions of high uncertainty. Any forecasts, therefore, are subject to a large margin of error. The state of the Polish economy and the validity of forecasts will depend on the further course of the war in Ukraine, the decision of Ukrainian refugees on whether to stay in Poland, and the EU’s approval of Poland’s KPO.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 42 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 40 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 11,127 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 15,240 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign 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 2020, according to IMF and National Bank of Poland data, Poland had attracted around $250 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States. In 2020, 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. Since February 1, 2022, changes to the ban on Sunday trading are in force. According to these rules, it is possible to open stores that provide postal services on non-trading Sundays if the revenues from this activity exceed 40 percent of the total revenues of a given branch. Sales records must be kept separately for each commercial outlet, even if the entrepreneur has several such outlets. Fines for breaking the Sunday trading ban are from $230 to $23,250 (PLN 1,000 to PLN 100,000). From February 1, 2022, the same penalty applies for not keeping required monthly records. From 2020, the trade ban applies to all but seven Sundays a year. In 2020, a law was adopted requiring producers and importers of certain sugary and sweetened beverages to pay a fee.

The government has been planning to introduce 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. Polish authorities have also publicly favored introducing a comprehensive digital services tax.

While the government continues to acknowledge the value of FDI as a driver of growth, it has tended to focus on lessening Poland’s dependence on foreign capital by championing re-industrialization largely in the knowledge-based industries as well as shifting to more self-reliance in lending to small- and medium-sized firms in the banking sector.

There are a variety of agencies involved in investment promotion:

The Ministry of Economic Development and Technology 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 (Washington, D.C, 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 

In July 2021, PAIH and AmCham signed a cooperation agreement. Its purpose is to promote and create favorable conditions for the development of exports and investments on the Polish and American markets.

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. In December 2021, the President vetoed modifications to the media law limiting foreign ownership of the sector. There is concern that governing party politicians have not completely abandoned their plans and may attempt to bypass the president’s veto in such a way as to modify the media law.

Over the past six years, Poland’s ranking on Reporters without Borders’ Press Freedom Index has dropped to 64th from 18th. 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 Economic 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 ($22,300,000) 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, legislation entered into force extending significantly the FDI screening mechanism in Poland for 24 months. In the absence of new permanent regulations and due to the Russian invasion in Ukraine, there is a high probability that this legislation will be extended. 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 ($10.5 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); or 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 PiS 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 and establishing a National Food Holding. 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.

The government has not undergone any third-party review focused on investment policy by a multilateral or civil society organization in the last five years,

The OECD published its 2020 economic survey of Poland. It can be found here:

https://www.oecd.org/economy/poland-economic-snapshot/ 

Additionally, the OECD Working Group on Bribery has provided recommendations on the implementation of the OECD Anti-Bribery Convention in Poland here:

https://www.oecd.org/poland/poland-should-urgently-implement-reforms-to-boost-fight-against-foreign-bribery-and-preserve-independence-of-prosecutors-and-judges.htm 

In 2021, government activities and regulations focused primarily on addressing challenges related to the COVID-19 pandemic.

The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the small- and medium-enterprise (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.

Running a business in Poland will be facilitated by e-invoices. From January 2022, entrepreneurs will be able to use it voluntarily. Taxpayers choosing an e-invoice will receive a VAT refund faster – the refund period will be shortened by 20 days (from 60 to 40). The government plans, starting in 2023, to have entrepreneurs use this solution obligatorily.

A special tax unit, the “Investor Desk,” has been established at the Finance Ministry to handle tax matters of strategic investors. This unit, working with other agencies focused on foreign investments in Poland, will support large investors with administrative requirements.

In Poland, business activity may be conducted in the forms of a sole proprietorship, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code. Sole proprietorship and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed with the Ministry of Economic Development and Technology 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. 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 ($0.23) while other types of registration require 5,000 PLN ($1,126) or 50,000 PLN ($11,260). A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board. The provision for PSAs entered into force in July 2021.

From October 12, 2022, an amendment to the Commercial Companies Code and certain other acts will enter into force. It introduces the so-called “holding law,” developed by the Commission for Owner Oversight Reform in the Ministry of State Assets. The amendment lays down the principles of how a parent company may instruct its subsidiaries and stipulates the parent company’s liability and the principles of creditor, officer, and minority shareholder protections.

This amendment constitutes an important change for many companies operating in Poland, including foreign parent companies. Holding companies meeting certain requirements will be eligible for an exemption from CIT of 95 percent of dividends received from subsidiaries and full exemption from CIT of capital gains from the sale of shares of subsidiaries for unrelated entities. Only a limited liability company or a joint stock company, being considered a Polish tax resident, may be considered a holding company. The requirement of holding at least 10 percent of shares of a subsidiary and for a period of at least one year applies. Both the holding company and the subsidiary cannot belong to a tax capital group and cannot benefit from tax exemptions (e.g., activity in the special economic zone). The holding company must conduct genuine business activity in Poland. Capital gains from the sale of real estate-rich companies are not exempt. New regulations will apply only to capital companies.

On January 1, 2021, a new law on public procurement entered into force. This law had been adopted by the Polish Parliament on September 11, 2019. The new law aims to reorganize the public procurement system, further harmonize it with EU law, and improve transparency.

Beginning in July 2021, commercial companies were required to submit electronically all applications for registration, deletion, and changes to the National Court Register. All company files are now available electronically and the registration process should speed up significantly.

National Court Register (KRS): https://www.gov.pl/web/gov/uslugi-dla-przedsiebiorcy  A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website:  https://www.nccert.pl/ 

Agencies with which a business will need to file in order to register in the KRS include:

Central Statistical Office to register for a business identification number (REGON) for civil-law partnership http://bip.stat.gov.pl/en/regon/subjects-and-data-included-in-the-register/ 

ZUS – Social Insurance Agency http://www.zus.pl/pl/pue/rejestracja 

Ministry of Finance http://www.mf.gov.pl/web/bip/wyniki-wyszukiwania/?q=business percent20registration 

Both registers (KRS and REGON) are available in English and foreign companies may use them.

Poland’s Single Point of Contact site for business registration and information is: https://www.biznes.gov.pl/en/ 

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 6, Financial Sector and at its website: https://pfr.pl/ .

PAIH has 58 offices worldwide, including four in the United States. PAIH assists entrepreneurs with the administrative and legal procedures related to specific projects. PAIH also works with entrepreneurs in the development of legal solutions and finding suitable locations, 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. In May 2019, the national development bank, Bank Gospodarstwa Krajowego (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 2022, there were nine core sponsors involved in the Fund. There were no breakthroughs in 2021 for the Three Seas Initiative, however, 2021 did bring long-awaited stabilization as well as the recognition of the initiative among the majority of international partners in the region. The Three Seas Initiative may be able to play a significant role in the inclusion process for Ukraine in European structures.

Under the Government Financial Support for Exports Program, BGK 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 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 the 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/polish-international-development-fund.html 

3. Legal Regime

The Polish Constitution contains a number of provisions related to administrative law and procedures.  It states administrative bodies have a duty to observe and comply with the law of Poland.  The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decisions, and forms of appeal and review.

As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation.  Rule-making and regulatory authority exist at the central, regional, and municipal levels.  Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Economic Development and Technology.  Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.

Polish accounting standards do not differ significantly from international standards.  Major international accounting firms provide services in Poland.  In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied.  However, investors have complained of regulatory unpredictability and high levels of administrative red tape.  Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment.  Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.

Poland has improved its regulatory policy system over the last several years.  The government introduced a central online system to provide access for the general public to regulatory impact assessments (RIA) and other documents sent for consultation to selected groups such as trade unions and business.  Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations.  Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem.  Participation in public consultations and the window for comments are often limited.

New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation.  Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making.  The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem.  OECD considers steps taken to introduce ex post evaluation of regulations encouraging.

Bills can be submitted to Parliament for debate as “citizens’ bills” if authors collect 100,000 signatures in support for the draft legislation.  NGOs and private sector associations most often take advantage of this avenue.  Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized.  Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.

Administrative authorities are subject to oversight by courts and other bodies (e.g., the Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsperson, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees.  Polish parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads.  Committees’ oversight of administrative matters consists of: reports on state budget implementation and preparation of new budgets, citizens’ complaints, and reports from NIK.  In addition, courts and prosecutors’ offices sometimes bring cases to Parliament’s attention.

The Ombudsperson’s institution works relatively well in Poland.  Polish citizens have a right to complain and to put forward grievances before administrative bodies.  Proposed legislation can be tracked on the Prime Minister’s webpage, RPL Strona Główna (rcl.gov.pl)  and the Parliament’s webpage:  https://www.sejm.gov.pl/sejm9.nsf/proces.xsp 

The government promotes and encourages companies’ environmental, social, and governance (ESG) disclosure. For example, the Strategic Investments Program launched by Bank Gospodarstwa Krajowego (BGK) offers co-financing, up to 95 percent of the value, for investments by local governments. As part of the assessment of applications, implementation of innovative technologies and compliance with sustainable development goals are taken into account. Tax relief for corporate social responsibility (CSR), intended for all entrepreneurs, will come into force in 2022. Companies will be able to deduct an additional 50 percent from the tax base for costs incurred on activities such as sports, culture, higher education, and science. CSR relief may be deducted up to the amount of income obtained in the tax year. The government also organizes or supports conferences and campaigns such as “Our Climate” and “TOGETAIR 2022,” with the aim of raising awareness of ways to transition to a climate-neutral, green, competitive, and inclusive economy.

Poland has consistently met the Department of State’s minimum requirements for fiscal transparency: 2021 Fiscal Transparency Report – United States Department of State

Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online. The budget was substantially complete and considered generally reliable. NIK audited the government’s accounts and made its reports publicly available, including online. The budget structure and classifications are complex, and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures. State budgets encompass only part of the public finances sector.

The European Commission regularly assesses the public finance sustainability of Member States based on fiscal gap ratios. In 2022, Poland’s public finances will be exposed to a higher general government deficit, uncertainty in financial markets resulting from the Russian invasion of Ukraine, the macroeconomic environment with elevated inflation, and the monetary policy of the National Bank of Poland (NBP) and major central banks, including the European Central Bank and the U.S. Federal Reserve.

Since its EU accession in May 2004, Poland has been transposing European legislation and reforming its own regulations in compliance with the EU system. Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry. Poland participates in the process of creation of European norms. There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization. In areas not covered by European normalization, the Polish Committee for Standardization (PKN) introduces norms identical with international norms, i.e., PN-ISO and PN-IEC. PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN has been a founding member of the International Organization for Standardization (ISO) and a member of the International Electro-technical Commission (IEC) since 1923.PKN also cooperates with the American Society for Testing and Materials (ASTM) International and the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Poland has been a member of the WTO since July 1, 1995 and was a member of GATT from October 18, 1967. All EU member states are WTO members, as is the EU in its own right. While the member states coordinate their positions in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs. PKN runs the WTO/TBT National Information Point in order to apply the provisions of the TBT with respect to information exchange concerning national standardization.Useful Links:

http://ec.europa.eu/growth/single-market/european-standards/harmonised-standards/ 

http://eur-lex.europa.eu/oj/direct-access.html?locale=en )

The Polish legal system is code-based and prosecutorial.  The main source of the country’s law is the Constitution of 1997.  The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory.  Poland accepts the obligatory jurisdiction of the European Court of Justice (ECJ), but with reservations.  In civil and commercial matters, first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels. District Courts (Sad Rejonowy) handle the majority of disputes in the first instance.  When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as those regarding intellectual property rights), Circuit Courts (Sad Okregowy) serve as first instance courts.  Circuit Courts also handle appeals from District Court verdicts.  Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.  The Polish judicial system generally upholds the sanctity of contracts.  Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized.  There are many foreign court judgments, however, which Polish courts do not accept or accept partially.  There can also be delays in the recognition of judgments of foreign courts due to an insufficient number of judges with specialized expertise.  Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights.  Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration.  (More detail in Section 4, Dispute Settlement.)

Since coming to power in 2015, the PiS-led government has pursued far-reaching reforms to Poland’s judicial system. The reforms have led to legal disputes with the European Commission over threats to judicial independence. The reforms have also drawn criticism from legal experts, NGOs, and international organizations. Poland’s government contends the reforms are needed to purge the old Communist guard and increase efficiency and democratic oversight in the judiciary.

Observers have noted, in particular, the introduction of an extraordinary appeal mechanism in the 2017 Supreme Court Law.  The extraordinary appeal mechanism states that final judgments issued since 1997 can be challenged and overturned in whole or in part during a three-year period starting from the day the legislation entered into force, April 3, 2018.  On February 25, 2021, the lower house of Parliament (Sejm) passed an amendment to the law further extending the deadline for submitting extraordinary complaints by three years (until April 3, 2024).  The President signed the bill into law on March 31, 2021. During 2021, the Extraordinary Appeals Chamber received 744 new complaints of which 280 were recognized and accepted for examination. During 2021, the Chamber reviewed 103 complaints.

On April 8, 2020, the European Court of Justice (ECJ) issued interim measures ordering the government to suspend the work of the Supreme Court Disciplinary Chamber with regard to disciplinary cases against judges. The ECJ is evaluating an infringement proceeding launched by the European Commission in April 2019 and referred to the ECJ in October 2019. The Commission has argued that the country’s disciplinary regime for judges “undermines the judicial independence of…judges and does not ensure the necessary guarantees to protect judges from political control, as required by the Court of Justice of the EU.” The Commission stated the disciplinary regime did not provide for the independence and impartiality of the Disciplinary Chamber, which is composed solely of judges selected by the restructured National Council of the Judiciary, which is appointed by the Sejm. The ECJ has yet to make a final ruling. The European Commission and judicial experts have complained the government has ignored the ECJ’s interim measures.

On April 29, 2020, the European Commission launched another infringement procedure regarding a law that came into effect on February 14, 2020. The law allows judges to be disciplined for impeding the functioning of the legal system or for questioning another judge’s professional state or the effectiveness of his or her appointment. It also requires judges to disclose memberships in associations. The Commission stated the law “undermines the judicial independence of Polish judges and is incompatible with the primacy of EU law.” It also stated the law “prevents Polish courts from directly applying certain provisions of EU law protecting judicial independence and from putting references for preliminary rulings on such questions to the [European] Court of Justice.” On December 3, 2020, the Commission expanded its April 29 complaint to include the continued functioning of the Disciplinary Chamber in apparent disregard of the ECJ’s interim measures in the prior infringement procedure.  On January 27, 2021, the European Commission sent a reasoned opinion to the Polish government for response.

On July 14 and 15, 2021, the ECJ issued two rulings against Polish government changes to Poland’s judicial disciplinary system. These rulings directly conflicted with a July 14, 2021, Polish Constitutional Tribunal ruling that said the ECJ had exceeded its authority. On July 20, 2021, the European Commission threatened financial sanctions and gave the Polish government until August 16, 2021, to confirm compliance with the ECJ rulings. On August 16, the Polish government sent a letter to the Commission in response to the ultimatum, promising new legislation in “the coming months” to fix Poland’s judicial disciplinary regime and liquidate the controversial Disciplinary Chamber of the Supreme Court. On September 7, 2021, the Commission announced it had requested the ECJ impose financial penalties against Poland for not complying with ECJ rulings. The Commission also initiated a new infringement procedure against Poland to ascertain details about the Polish government’s planned legislation. On October 27, 2021, the ECJ imposed a €1 million daily fine against Poland for the government’s failure to suspend the Disciplinary Chamber of the Supreme Court, as ordered by the ECJ in July. As of April 2022, the Polish Parliament has not completed the legislative process to consider legislation that responds to the European Commission’s concerns.

Foreign nationals can expect to obtain impartial proceedings in legal matters. Polish is the official language and must be used in all legal proceedings. It is possible to obtain an interpreter. The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code. The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships and professional partnerships). These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.With few exceptions, foreign investors are guaranteed national treatment. Companies that establish an EU subsidiary after May 1, 2004 and conduct or plan to commence business operations in Poland must observe all EU regulations. However, in some cases they may not be able to benefit from all privileges afforded to EU companies. Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company. Parties can freely determine the content of contracts within the limits of European contract law. All parties must agree on essential terms, including the price and the subject matter of the contract. Written agreements, although not always mandatory, may enable an investor to avoid future disputes. The Civil Code is the law applicable to contracts.

Useful websites (in English) to help navigate laws, rules, procedures, and reporting requirements for foreign investors:

Polish Investment and Trade Agency: https://www.paih.gov.pl/en 

Polish Financial Supervision Authority (KNF):  https://www.knf.gov.pl/en/ 

Office of Competition and Consumer Protection (UOKIK):  https://uokik.gov.pl/legal_regulations.php 

Biznes.gov.pl is intended for people who plan to start a new business in Poland. The portal is designed to simplify the formalities of setting up and running a business. It provides up-to-date regulations and procedures for running a business in Poland and the EU; it supports electronic application submission to state institutions; and it answers questions regarding running a business. Information is available in Polish and English. https://www.biznes.gov.pl/en/przedsiebiorcy/ 

In 2022, the Polish Government introduced a new measure – an investment agreement – for strategic investors who would like to obtain clarity and certainty regarding the tax consequences of a given investment. The agreement (commonly referred to as “Interpretation 590”) is concluded with the Ministry of Finance and will be binding on the tax administration.

An Interpretation 590 includes the following features:

  • Its objective is to provide flexibility, completeness, and comprehensiveness in determining the tax consequences of an investment project.
  • It is available to investors planning an investment in Poland worth at least PLN 100 million (approximately $22 million) and, from 2025 onward, PLN 50 million (approximately $11 million).
  • The agreement will be valid for the stated period, limited to five tax years (with the possibility to extend).
  • Separate applications to various tax authorities (e.g., individual tax rulings, advance pricing arrangements (APA), anti-GAAR clearance, etc.) are not required as all of these matters would be covered with one investment agreement.
  • The scope of information provided in the agreement should not be limited by the provisions of the Tax Code governing individual tax rulings. One agreement could cover all potential tax consequences of an investment.
  • The agreement will be subject to a fee of PLN 50,000 (approximately $11,200) for the initial application and PLN 100,000 to 500,000 (approximately $22,400 to $112,000) after concluding the agreement, with the exact fee depending on the volume of the investment and scope of the investment agreement).

The above changes reflect an increasing focus of the Polish Government to attract significant investments into Poland.

A special tax unit, the “Investor Desk” has been established, at the Finance Ministry, to handle tax matters of strategic investor. This unit, along with other agencies focused on foreign investments in Poland, will support significant investors passing through administrative requirements.

The tax authorities are often open to discussing strategic investments and providing support in applying formal measures which, with new measures in place, should be even more common and accessible to investors.

Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty. Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK. This is supposed to change to be in line with EU norms, however, as of April 2022, the Prime Minister was still exercising his right to remove and nominate UOKiK’s presidents.

The Act on Competition and Consumer Protection  was amended in mid-2019. The most important changes, which concern geo-blocking and access to fiscal and banking secrets, came into force on September 17, 2019. Other minor changes took effect in January 2020. The amendments result from the need to align national law with new EU laws.

Starting in January 2020, UOKiK may intervene in cases when delays in payment are excessive. UOKiK can take action when the sum of outstanding payments due to an entrepreneur for three subsequent months amounts to at least PLN 5 million ($1.1 million). In 2022, the minimum amount decreases to PLN 2 million ($450,000).

The President of UOKiK issues approximately 100 decisions per year regarding practices restricting competition and infringing on collective interests of consumers. Enterprises have the right to appeal against those decisions to the court. In the first instance, the case is examined by the Court of Competition and Consumer Protection, and in the second instance, by the Appellate Court. The decision of the Appellate Court may be challenged by way of a cassation appeal filed to the Supreme Court. In major cases, the General Counsel to the Republic of Poland will act as the legal representative in proceedings concerning an appeal against a decision of the President of UOKiK.

As part of COVID-related measures, the Polish Parliament adopted legislation amending the Act of July 24, 2015, on the Control of Certain Investments, introducing full-fledged foreign direct investment control in Poland and giving new responsibilities to UOKiK. Entities from outside the EEA and/or the OECD have to notify the Polish Competition Authority of the intention to make an investment resulting in acquisition, achievement or obtaining directly or indirectly “significant participation” or the status of a dominant entity within the meaning of the Act of July 24, 2015, on the Control of Certain Investments in an entity subject to protection. The law entered into force on July 24, 2020 and is valid for 24 months. In view of the war taking place across Poland’s eastern border and in the absence of significant amendments to the original Act on the Control of Certain Investments, there is a high likelihood that the temporary amendment adopted in 2020 will be extended, with possible modifications.

In late 2020, the government proposed legislation concerning UOKiK’s investigative powers, cooperation between anti-monopoly authorities, and changes to fine imposition and leniency programs. One of the amendments also stipulates that the President of UOKiK will be elected to a 5-year term and the dismissal of the anti-monopoly authority will only be possible in precisely defined situations, such as a legally valid conviction for a criminal offense caused by intentional conduct and the deprivation of public rights or of Polish citizenship. Adoption of these solutions is linked to the implementation of the EU’s ECN+ directive.

All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks, or permanent sales in Poland.

Examples of competition reviews can be found at:

https://uokik.gov.pl/aktualnosci.php?news_id=17406  (PKN Orlen/Polska Press)

https://www.uokik.gov.pl/news.php?news_id=17198  (Agora/Eurozet)

https://www.uokik.gov.pl/news.php?news_id=17202  (Orlen/Polska Press)

https://www.uokik.gov.pl/news.php?news_id=17198  (BPH Bank spread clauses)

Decisions made by the President of UOKiK can be searched here: https://decyzje.uokik.gov.pl/bp/dec_prez.nsf 

In December 2021, UOKiK launched its first competition probe into a major online platform, beginning an investigation into whether Apple’s latest privacy update unlawfully favors its own personalized advertising service. UOKiK has also initiated two proceedings concerning the application of competition law to employment-related arrangements. This follows a growing global trend of competition authorities combating no-poach or wage-fixing arrangements.

The President of UOKiK has the power to impose significant fines on individuals in management positions at companies that violate the prohibition of anticompetitive agreements and in the case of violations of consumer rights. The maximum fine that can be imposed on a manager is PLN 2 million ($450,000) and, in the case of managers in the financial sector, up to PLN 5 million ($1.12 million).

UOKiK imposed such fines on individuals for the first time in 2021 and as of March 2022, they have been imposed in three cases. Two cases concerned horizontal agreements regarding price fixing and market sharing, and one case concerned vertical restraints on resale prices. More decisions imposing fines on individuals can be expected as there are additional pending cases.

In October 2020, UOKiK issued a €6.48 billion ($6.8 billion) fine on Gazprom for failing to notify the agency about a joint financing agreement.

Article 21 of the Polish Constitution states that “expropriation is admissible only for public purposes and upon equitable compensation.”  The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest.  The government must pay full compensation at market value for expropriated property.  Acquiring land for road construction investment, and recently also for the Central Communication Port and the Vistula Spit projects, has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act. Most acquisitions for road construction are resolved without problems.  There have been a few cases, however, in which the inability to reach agreement on remuneration has resulted in disputes.  Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.

Poland’s bankruptcy law has undergone significant change and modernization in recent years. There is now a bankruptcy law and a separate, distinct restructuring law. Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time or if a company ceases to pay its liabilities. https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings

In order to reduce the risk of overwhelming the bankruptcy courts with an excess of cases resulting from the COVID-19 pandemic, changes were introduced in the bankruptcy process for consumers, shifting part of the duties to a trustee. A second significant change was the introduction of simplified restructuring proceedings. During restructuring proceedings, a company appoints an interim supervisor and is guaranteed protection against debt collection while seeking approval for specific restructuring plans from creditors. The simplified proceedings enjoy great support among entities at risk of insolvency. These changes were originally intended to remain in force only until June 30, 2021, later extended until November 30, 2021. The popularity of simplified restructurings among distressed entrepreneurs led the Polish Parliament to retain them for an indefinite period of time.

The latest implementation of the amendments to the bankruptcy law brought about other amendments to the proceedings, as follows:

  • The announcement on the opening of the proceedings to approve the arrangement will be made by the arrangement supervisor, not by the debtor himself or herself;
  • The announcement may be made only after the debtor has submitted the list of receivables and the list of disputed receivables;
  • The arrangement supervisor will list the agreements that are essential for the functioning of the debtor’s enterprise so as to prevent its termination;
  • The court’s decision on the cancellation of the effects of making the announcement may be appealed; and
  • The case files will be kept by the arrangement supervisor.

These amendments entered into force on December 1, 2021.

On December 1, 2021, the National Debtors Register (NDR or Krajowy Rejestr Zadluzonych) began operations. Its purpose is to increase the safety of business transactions through easier verification of contractors, as well as to contribute to the acceleration of bankruptcy and restructuring proceedings. This registry makes proceedings more transparent and easier to follow because all important information regarding the proceedings is available online in one place. In addition to its informational function, the National Debtors Register also serves as a platform for bankruptcy and restructuring proceedings. Applications and letters in proceedings are filed exclusively via the NDR system. Voting on the arrangement and collecting creditors’ votes also takes place via this system, as does the preparation and delivery of court judgments. Certain statutorily defined groups of entities will be exempt from the obligation to file letters in bankruptcy and restructuring proceedings through the NDR.

4. Industrial Policies

Poland’s Plan for Responsible Development identified eight industries for development and investment incentives: aviation, defense, automotive parts manufacturing, ship building, information technology, chemicals, furniture manufacturing, and food processing. More information about the plan can be found at this link: https://www.gov.pl/web/fundusze-regiony/plan-na-rzecz-odpowiedzialnego-rozwoju . Poland encourages energy sector development through its energy policy adopted by the government in February 2021. The policy can be found at: https://www.gov.pl/web/klimat/polityka-energetyczna-polski . On March 29, 2022, the government adopted an update to “Poland’s Energy Policy until 2040” (PEP2040) According to the update, Poland will strengthen its energy sovereignty through faster development of renewable energy sources, including hydroelectric plants, photovoltaics, and offshore windmills. By 2040, these energy sources should account for nearly half of the national electricity production, an increase from 34 percent assumed in the previous plan.  On March 30, 2022, the government also confirmed its intention to loosen the rules for building onshore wind farms. The assumptions can be found here: https://www.gov.pl/web/klimat/zalozenia-do-aktualizacji-polityki-energetycznej-polski-do-2040-r

The policy foresees a primary role for fossil fuels until 2040 as well as strong growth in electricity production. The government will continue to pursue developing nuclear energy and offshore wind power generation, as well as distributed generation. Poland’s National Energy and Climate Plan for years 2021-2030 (NECP PL) developed in line with the EU Regulation on the Governance of the Energy and Climate Action, together with PEP2040, pave the road to the new European Green Deal. Poland may spend approximately $420 billion on the transformation of its energy sector in 2021-2040, according to the energy policy. These investments would include about $230 billion in the fuel and energy sectors and about $90 billion in the generation segment, of which 80 percent will be spent on nuclear energy and renewables investments.A new economic program called the “Polish Deal” includes significant changes to the tax system including incentives to attract capital to Poland. The program is undergoing additional amendments after implementation in January 2022. The program consists of support schemes for enterprises, new investment and development projects, and incentives for innovators, as well as reforms of the healthcare system and social welfare, education, environmental, and energy policies.

Incentives for innovators include the IP Box, tax relief for R&D costs, innovative employers, robotization and prototype development. Other incentives include tax relief for expansion, consolidation, IPO, and CSR activities.

More information on the changes that may affect international business can be found at:

https://insightplus.bakermckenzie.com/bm/tax/poland-the-polish-deal 

The government has a strategy for establishing a commercial 5G network in all cities by 2025. Due to repeated postponements of frequency auctions, however, this goal may not be feasible.

In mid-2021, the Ministry of Economic Development and Technology finished public consultations on its Industry Development White Paper, which identified the government’s views on its most significant barriers to industrial activity.  The document was to serve as a foundation for Poland’s Industrial Policy (PIP). Public comments received focused on issues related to the education system not being tailored to the needs of industry, a workforce deficit, difficulties in obtaining funding for R&D, environmental regulations, complex administrative procedures and legislation, labor regulations, and high energy prices.  The PIP was slated to become a strategic document, setting the direction for long-term industrial development and focusing on five areas:  digitization, security, industrial production location, the Green Deal, and modern society.  In early 2022, the Ministry of Economic Development and Technology decided that the PIP did not take into account the dynamic changes that took place in 2021, in particular, the energy market situation, the disruption of the supply chain of raw materials and semi-finished products, or the impact of the “Fit for 55” package on the functioning of industry in Poland. The Ministry has stated it will present appropriate economic policy tools after analyzing the current situation.A company investing in Poland, either foreign or domestic, may receive assistance from the Polish government. Foreign investors have the potential to access certain incentives such as: income tax and real estate tax exemptions; investment grants; grants for research and development, and grants for other activities such as environmental protection, training, logistics, or use of renewable energy sources.

Large priority-sector investments may qualify for the “Program for Supporting Investment of Considerable Importance for the Polish Economy for 2011-2030.” The program, amended in October 2019, is one of the instruments enabling support for new investment projects, particularly relevant for the Polish economy. Its main goal is to increase innovation and the competitiveness of the Polish economy. Under the amended program, it is possible to co-finance large strategic investments as well as medium-sized innovative projects. Projects that adapt modern technologies and provide for research and development activities are awarded. The program is also conducive to establishing cooperation between the economic sector and academic centers. The support is granted in the form of a subsidy, based on an agreement concluded between the Minister of Economic Development and Technology and the investor. The agreement regulates the conditions for the payment of subsidies and the investment implementation schedule. Under the program, investment support may be granted in two categories: eligible costs for creating new jobs and investment costs in tangible and intangible assets. Companies can learn more at: https://www.paih.gov.pl/why_poland/investment_incentives/programme_for_supporting_investments_of_major_importance_to_the_polish_economy_for_2011_-_2030 

https://www.gov.pl/web/rozwoj/program-wspierania-inwestycji-o-istotnym-znaczeniu-dla-gospodarki-polskiej-na-lata-2011-2030 

The Polish Investment Zone (PSI), the system of tax incentives for investors which replaced the previous system of special economic zones (SEZ), was launched September 5, 2018. Under the law on the PSI, companies can apply for a corporate income tax (CIT) exemption for a new investment to be placed anywhere in Poland.

More information on government financial support is available at: https://www.paih.gov.pl/why_poland/investment_incentives 

The Polish government is seeking to increase Poland’s economic competitiveness by shifting toward a knowledge-based economy. Public and private sector investment in R&D has been steadily growing since 2016, supported by EU funds dedicated to R&D and innovation. Businesses may also take advantage of the EU Horizon Europe program which succeeded the research funding program Horizon 2020. The EU institutions set the 2021–2027 budget for Horizon Europe at €95.5 billion (including €5.4 billion from the Next Generation of the EU Recovery Fund). The first Horizon Europe Strategic Plan (2021-2024), which sets out key strategic orientations for the support of research and innovation, was adopted on March 15, 2021.

More information is available at: Ministry of Funds and Regional Development: https://www.gov.pl/web/fundusze-regiony/otwarte-konkursy-nabory-dotacje-i-dofinansowania 

Ministry of Economic Development and Technology:

https://www.gov.pl/web/rozwoj/programy-i-projekty 

Horizon Europe 2021-2027: https://ec.europa.eu/info/horizon-europe_en#proposal 

As of January 1, 2019, the Innovation Box, or IP Box, reduces the tax rate applicable to income derived from intellectual property rights to 5 percent. Taxpayers applying the IP Box are entitled to benefit from the tax preference until a given right expires (20 years in the case of a patented invention). In order to benefit from the program, taxpayers are obliged to separately account for the relevant income. Foreign investors may take advantage of this benefit as long as the relevant IP is registered in Poland. Pursuant to new regulations in force from January 1, 2022, entrepreneurs will be able to use the R&D relief and the IP Box relief simultaneously. Taxpayers have the right to deduct eligible R&D costs when determining income from qualifying intellectual property rights.

Effective starting the 2021 tax year, Poland introduced a set of optional rules, referred to as the “Estonian CIT,” for corporate taxpayers. The new rules permit eligible companies to defer payment of corporate income tax up to the time they distribute their profits.

The update of the National Reform Program (NRP) heralded the introduction of a new incentive measure for enterprises in the form of tax relief related to investments in automation and robotization (robotization relief). This relief is introduced for a period of 5 years and covers expenses from the beginning of the 2022 fiscal year until the end of the 2026 fiscal year. It is available to all entities subject to income tax and investing in robotization, regardless of the sector or size of operations. The new tax relief operates in a similar manner as the existing R&D tax relief, enabling taxpayers to make an additional deduction of eligible costs (expenses detailed in an exhaustive list) from the tax base. Within the framework of robotization relief, it will be possible to deduct 50 percent of eligible costs.

There are numerous grants, preferential loans, and other financial instruments to encourage investment that protects the environment by increasing energy efficiency and to promote renewable energy sources and cogeneration systems. Incentives are available mostly from EU

funds and national funds and can cover up to 85 percent of eligible costs.The Polish government does not issue sovereign guarantees for FDI projects. Co-financing may be possible for partnering on large FDI projects, such as the planned central airport project or a nuclear power plant project.

Foreign-owned firms have the same opportunities as Polish firms to benefit from foreign trade zones (FTZs), free ports, and special economic zones (since January 2019, they make up the Polish Investment Zone). The 2004 Customs Law (with later amendments) regulates the operation of FTZs in Poland. The Minister of Finance establishes duty-free zones. The Minister designates the zone’s managing authorities, usually provincial governors, who issue operating permits to interested companies for a given zone.Most activity in FTZs involves storage, packaging, and repackaging. As of October 2021, there were seven FTZs: Gliwice, near Poland’s southern border; Terespol, near Poland’s border with Belarus; Mszczonow, near Warsaw; Warsaw’s Frederic Chopin International Airport; Szczecin; Swinoujscie; and Gdansk. Duty-free shops are available only for travelers to non-EU countries.There are bonded warehouses in: Bydgoszcz-Szwederowo; Krakow-Balice; Wroclaw-Strachowice; Katowice-Pyrzowice; Gdansk-Trojmiasto; Lodz-Lublinek; Poznan-Lawica; Rzeszow-Jasionka, Warszawa-Modlin, Lublin, Szczecin-Goleniow; Radom-Sadkow, and Olsztyn-Mazury. Commercial companies can operate bonded warehouses. Customs and storage facilities must operate pursuant to custom authorities’ permission. Only legal persons established in the EU can receive authorization to operate a customs warehouse.

The Polish Investment Zone (PSI), a system of tax incentives for investors which replaced the previous system of special economic zones (SEZ), was launched September 5, 2018. Under the law on the PSI, companies can apply for a corporate income tax (CIT) exemption for a new investment to be placed anywhere in Poland. The CIT exemption is calculated based on the value of the investment multiplied by the percentage of public aid allocated for a given region based on its level of development (set percentage). The CIT exemption is for 10-15 years, depending on the location of the investment. Special treatment is available for investment in new business services and R&D. A point system determines eligibility for the incentives. Entities operating in special economic zones are entitled to change the depreciation rates for new assets starting in 2021.

The deadline for utilizing available tax credits from the previous SEZ system is the end of 2026 (extended from 2020). The regulations also contain important changes for entities already operating in SEZs, even if they do not plan new investment projects. This includes the possibility of losing the right to tax incentives in the event of fraud or tax evasion. Investors should consider carefully the potential benefits of the CIT exemption in assessing new investments or expansion of existing investments in Poland.

On January 1, 2022, an amendment to the Act on Special Economic Zones came into force, which was largely related to a change in the regional aid map. Information on the latest changes is available at: https://www.paih.gov.pl/why_poland/Polish_Investment_Zone 

On April 8, 2021, legislation amending provisions of Poland’s customs and tax laws was signed into law. The main customs-related change combines into a single procedure the issuance of decisions on customs and tax duties with the payment of fuel surcharges and emission fees on imported goods.

Here is a link to the platform for electronic fiscal and customs services: https://puesc.gov.pl/ 

Poland has no policy of “forced localization” designed to force foreign investors to use domestic content in goods or technology. Investment incentives apply equally to foreign and domestic firms. Over 40 percent of firms in Special Economic Zones are Polish. There is little data on localization requirements in Poland and there are no requirements for foreign information technology (IT) providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption). Exceptions exist in sectors where data are important for national security such as critical telecommunications infrastructure and in gambling. Operators of public telecommunications networks and providers of publicly available telecommunications services must store certain telecommunications data in the territory of Poland for a period of 12 months. In the case of online gambling, the devices for processing and archiving of data concerning gambling games are installed and stored in the EU/EEA. Financial sector laws restrict or preclude the ability of certain entities (e.g., banks, payment service providers) to outsource some key activities to providers located or operating outside of the EU. This restriction may affect storage of client data in a cloud environment, for example.

Data protection in Poland is primarily governed by the  General Data Protection Regulation (Regulation (EU) 2016/679)  (GDPR) which has been implemented into Polish law by the Act of 10 May 2018 on the Protection of Personal Data . In addition, the Act of 21 February 2019 Amending Sectoral Laws to Ensure Application of GDPR adjusts the Polish legal system to the requirements under the GDPR. The Act introduced changes to over 160 sectoral acts, including the Labor Code, the Banking Law, and the Act on Electronic Services.

In Poland, there are several statutory minimum or maximum data retention periods set out by law. In other cases, retention periods must be established based on the GDPR storage limitation principle stating that personal data should not be retained for longer than is necessary. Examples of retention periods set out by law include:

  • Employee documentation for ten to 50 years;
  • Accidents and injury at work documentation for ten years from making of the files;
  • Employee CCTV recordings for three months from the date of recording (if the recorded event is subject to further proceedings, then as long as needed); and
  • Tax documentation for five years from the end of the calendar year in which tax payment was due.

In the case of personal data processing in relation to journalistic, artistic, or literary activity, retention periods do not apply.

In the telecommunication sector, the Office of Electronic Communication (UKE) ensures telecommunication operators fulfill their obligations. In radio and television, the National Broadcasting Council (KRRiT) acts as the regulator. Polish regulations protect an individual’s personal data that are collected in Poland regardless of where the data are physically stored. The Personal Data Protection Office (UODO) enforces personal data regulations.

On December 8, 2021, the provisions of the Act on Open Data and the Re-use of Public Sector Information entered into force. This Act, passed on August 11, 2021, introduced into the Polish legal system the provisions of Directive (EU) 2019/1024 of the European Parliament and of the Council of June 20, 2019, on open data and the re-use of public sector information. It retains the principle of unconditional and free of charge access to or provision of public sector information for the purpose of its re-use (with certain exceptions). It provides for the implementation of solutions that go beyond the minimum set in the Directive, making the re-use of public sector information more efficient and bringing about an increase in the innovation of products and services of the private sector that uses this data. The new regulations make it possible to increase the volume of public data that can be used, for example, to carry out analysis and research, or for the needs of AI solutions or the Internet of Things. New regulations make it possible, in particular, for public authorities to develop repositories, such as data portals. The re-use of public sector information must be carried out in compliance with the relevant rules, including the regulations on personal data protection, in particular, the provisions of the GDPR.

Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting sectors, as well as in airport and seaport operations. There are also legal limits on foreign ownership of farm and forest lands as outlined in Section 2 of this report under Limits on Foreign Control and Right to Private Ownership and Establishment. Pursuant to the Broadcasting Law, a TV broadcasting company may only receive a license if the voting share of its foreign owners does not exceed 49 percent and if they hold permanent residence in Poland. In the insurance sector, at least two members of management boards, including the chair, must speak Polish.

5. Protection of Property Rights

Poland recognizes and enforces secured interests in property, movable and real. The concept of a mortgage exists in Poland, and there is a recognized system of recording such secured interests. There are two types of publicly available land registers in Poland: the land and mortgage register (ksiegi wieczyste), the purpose of which is to register titles to land and encumbrances thereon; and the land and buildings register (ewidencja gruntow i budynkow), the function of which is more technical as it contains information concerning physical features of the land, class of land, and its use. Generally, real estate in Poland is registered and legal title can be identified on the basis of entries in the land and mortgage registers which are maintained by relevant district courts. Each register is accessible to the public and excerpts are available on application, subject to a nominal fee. The registers are available online.

Poland has a non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages. However, foreigners (both individuals and entities) must obtain a permit to acquire property (See Section 1 Limits on Foreign Control and Right to Private Ownership and Establishment). Many investors, foreign and domestic, complain the judicial system is slow in adjudicating property rights cases. Under the Polish Civil Code, a contract to buy real property must be made in the form of a notary deed. Foreign companies and individuals may lease real property in Poland without having to obtain a permit.

Widespread nationalization of property during and after World War II has complicated the ability to establish clear title to land in Poland, especially in major municipalities.  While the Polish government has an administrative system for reviewing claims for the restitution of communal property, former individual property owners must file and pursue claims in the Polish court system in order to receive restitution.  There is no general statute of limitations regarding the filing or litigation of private property restitution claims, but there are exceptions for specific cases.  For example, in cases involving the communist-era nationalization of Warsaw under the Bierut Decree, there were claims deadlines that have now passed, and under current law, those who did not meet the deadlines would no longer be able to make a claim for either restitution or compensation.  During 2021, Warsaw city authorities continued implementing a 2015 law dubbed the Small Reprivatization Act.  This law aimed to stop the problem of speculators purchasing Warsaw property claims for low values from the original owners or their heirs and then applying for a perpetual usufruct or compensation as the new legal owner.

NGOs and advocacy groups expressed serious concerns that the 2015 law fell short of providing just compensation to former owners who lost property as a result of the nationalization of properties by the communist-era government, and also properties taken during the Holocaust era. Legal experts expressed concern that the law limited the ability of petitioners to reclaim property unjustly taken from their lawful owners. The World Jewish Restitution Organization asserted that the time limits included in the law were insufficient for potential claimants, particularly Holocaust survivors and their heirs, to meet difficult documentary requirements.

Critics state the law might extinguish potential claims by private individuals of properties seized during World War II or the communist era, if no one comes forward to pursue a restitution claim within the time limit.  Any potential claimants who come forward within six months after publication of the affected property by the City of Warsaw will have an additional three months to establish their claim.  The city began publishing lists in 2017 and continued to do so during 2021.  The city’s website contains further information on these cases and the process to pursue a claim:

https://bip.warszawa.pl/Menu_podmiotowe/biura_urzedu/SD/ogloszenia/default.htm 

In 2021, the government significantly altered legal and administrative procedures for private property restitution and compensation. On June 24, Parliament adopted a revision to the Code of Administrative Procedure that significantly restricted the ability of individuals to seek the return of private property seized under Nazi occupation or during the Communist era. The law made it impossible to challenge any administrative decision issued more than 30 years prior and ended any pending administrative challenges to those decisions. The legislation limited the primary process by which claimants can seek restitution or compensation for expropriated property, according to NGOs and lawyers specializing in the issue. Individuals who already successfully challenged administrative decisions were still able to seek return of their property or compensation in the courts. The president signed the legislation into law on August 14, and the law entered into force on September 16. It is sometimes difficult to establish clear title to properties.  There are no comprehensive estimates of land without clear title in Poland.

The 2016 Agricultural Land Law banned the sale of state-owned farmland under the administration of the National Center for Support of Agriculture (NCSA) for five years.  Long-term state-owned farmland leases are available for farmers looking to expand their operations up to 300 hectares.  Foreign investors can (and do) lease agricultural land.  The 2016 Agricultural Land Law also imposed restrictions on sales of privately-owned farmland, giving the NCSA preemptive right of purchase.  In June 2019, the Polish Parliament amended the Agricultural Land Law to loosen land sale requirements.  The amendment increased the size of private agricultural land, from 0.3 to 1.0 hectare that could be sold without the approval of the NCSA.  The new owner is not allowed to sell the land for five years. The Law on Forest Land similarly prevents Polish and foreign investors from purchasing privately-held forests and gives state-owned entities (Lasy Panstwowe) preemptive right to buy privately-held forest land.

The 2011 amendment to the law of Management of Farmland Administered by NCSA and 2016 Agricultural Land Law adversely affected tenants with long-term state-owned land leases.  Several entities, including U.S. companies, faced the prospect of returning some currently leased land to the Polish government over the coming years.  Three of these entities appealed to the Ombudsman, who requested the Constitutional Tribunal (CT) to verify the law’s compliance with the constitution, but the cases were dismissed by the CT in the fall of 2020.  On March 17, 2021, a law amending the 2016 Agricultural Land Law was adopted.  The amendment extended the ban on selling state-owned farmland under the administration of the NCSA for another five years, until May 1, 2026.  The 2021 amendment did not change the land lease situation for larger operators, who remain ineligible to have their land leases extended unless 30 percent of the land under lease had been returned.  Additionally, eligible renters can apply for the prolongation of the lease contracts, but for larger farmers, under 2020 Order of the Director General of NCSA, they can be extended up to eight years.

Polish intellectual property rights (IPR) law is more strict than European Commission directives require.  Poland is a member of the World Intellectual Property Organization (WIPO) and a party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. Enforcement is improving across all sectors of Poland’s IPR regime.

2021 saw a sudden drop in piracy statistics in Poland, compared to other EU countries. According to Blu Media Study’s “Poles’ Finances in Times of the 2021 Pandemic,” as many as six out of ten Poles use online subscription services. Poles use services that provide access to movies and series (39 percent of participants) most often, and to music (15 percent), games and online journalism (11 percent each) less frequently. Pirated series in Poland in 2021 were dominated by productions from platforms that were inaccessible to Polish consumers.

A popular Polish cyberlocker platform is included on the 2021 Notorious Markets List. Poland does not appear in the U.S. Trade Representative’s Special 301 Report.

In cases of IPR violations, Polish law requires a rights holder to start the prosecution process.  In Poland, authors’ and creators’ organizations and associations track violations and share these with prosecutors.  Rights holders express concern that penalties for digital IPR infringement are not high enough to deter violators.

In August 2021, the Chancellery of the Prime Minister of Poland published assumptions to the draft of the new Act on Industrial Property Law, which would replace the current Act of 30 June 2000 – Industrial Property Law. Below are the main assumptions to the draft of the new act:

  • Utility models – the bill provides for the introduction of provisions streamlining and speeding up the application procedure, by replacing the current examination system with a registration system. It means that (similarly as with trademarks and industrial designs) the Polish Patent Office would no longer by default examine the substantive conditions for granting a protection right to a utility model but would focus only on the formal aspects of the application. This amendment aims to speed up the examination of applications for registration and shorten the time from an average 24 months to about 12 months.
  • Industrial designs – the definition of an industrial design and the conditions for obtaining protection have been changed, so that the national regulations are fully harmonized with Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 on the legal protection of designs.
  • Trademarks – the bill provides for shortening the period of filing opposition to two months from the date of publication of information about the application, dropping the current mandatory two-month settlement period for the parties during the opposition proceedings (the so-called cooling-off period), and abolition of the joint protection right.
  • Geographical indications – the bill provides for a new procedure of registration of these rights. The proposed provisions would apply only to non-agricultural products.
  • Trade secrets – to solve the problem of unlawful acquisition of information, the bill provides for the introduction of a so-called deposit, corresponding to the provisions of Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. A deposit, containing technical and technological information constituting a trade secret, may make it easier to prove the priority of the existence of information constituting a trade secret and the subject matter of that information.
  • Official fees – the bill provides for systematization of the regulations on the fee collection structure and record keeping, eliminating doubts as to the amount of and eligibility for the payment of fees. The draft act also introduces a new solution, according to which when filing applications for at least three different objects of industrial property within three months, the fee for the application for each of them may be reduced by 30 percent. The proposed solution offers greater support to innovators who are at the stage of building their portfolio of intellectual property rights with a commercialization aim.

The planned date of the adoption of the draft of the new legislation was the first quarter of 2022.

On July 1, 2020, intellectual property courts, in the form of Intellectual Property Divisions (IPDs), were introduced in Poland. This role was entrusted to five Regional Courts – Gdansk, Katowice, Lublin, Poznan and Warsaw. Courts of Appeal in Warsaw and Poznan deal with cases at second instance. In accordance with applicable regulations, cases involving greater technical complexity, namely cases concerning computer programs, inventions, utility models, topographies of integrated circuits, plant varieties and business secrets of a technical nature, are in principle dealt with only in Warsaw.

The creation of the intellectual property courts, with their judges specializing in adjudication in the area of intellectual property law, is a step in the right direction, and the experience gained so far from the proceedings before these courts seems to confirm the validity of this decision.

Tax incentives for IPR known collectively as “IP Box” or “Innovation Box,” included in the November 2018 tax amendment, have been applicable since January 2019. See Section 4 – Investment Incentives.

Polish customs tracks seizures of counterfeit goods. In 2021, compared to 2018, 67 percent more goods infringing intellectual property arrived in Poland.  According to the DLA Piper and Amazon report the value of smuggling reached $45 million (PLN 203 million), which was 3.5 times more than a year earlier. Illegal practices are likely to increase due to the war in Ukraine.

General information on copyright in Poland:

https://www.paih.gov.pl/polish_law/intellectual_property_rights 

Polish Patent Office: http://www.uprp.pl/o-urzedzie/Lead03,14,56,1,index,pl,text/ 

Chancellery of the Prime Minister: https://www.gov.pl/cyfryzacja/co-robimy 

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en/

6. Financial Sector

The Polish regulatory system is effective in encouraging and facilitating portfolio investment. Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives. Poland’s equity markets facilitate the free flow of financial resources. Poland’s stock market is the largest and most developed in Central Europe. In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report. The stock market’s capitalization generally falls in the range of 30-40 percent, however, in 2021 it reached 50 percent of GDP. Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company.

In April 2021, the WSE celebrated its 30-year anniversary. Over the three decades, it has become a hub for foreign institutional investors targeting equity investments in the region. It has also become an increasingly significant source of capital.

In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland). This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform. Wholesale treasury bonds and bills denominated in zlotys and some securities denominated in euros are traded on the Treasury BondSpot market. Non-government bonds are traded on Catalyst, a WSE managed platform. The capital market is a source of funding for Polish companies. While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market. The Polish government acknowledges the capital market’s role in the economy in its development plan. Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares. The impact of the pandemic was still being felt in 2021, stimulating volatility in financial markets and improving liquidity.

The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions. Some key challenges include low levels of savings and investment, insufficient efficiency, transparency, and liquidity of many market segments, and lack of taxation incentives for issuers and investors. The primary aim of the strategy is to improve access of Polish enterprises to financing. The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment, and the use of competitive new technologies. The strategy is not a law but sets the direction for further regulatory proposals. The Ministry of Finance assumes in its development directions for 2021-2024, the liquidation of approximately 50 percent of barriers to the development of the financial market identified in the strategy.

The development activities pursued in 2021 included the adoption of the WSE Group ESG Strategy 2025 in December 2021. The ESG Strategy sets out the ambitions and objectives in the area of sustainable development for 2022-2025.

In 2021, the Warsaw Stock Exchange (WSE) published its first ESG reporting guidelines for listed companies – a handbook developed in collaboration with industry experts. WSE joined a group of approximately 60 stock exchanges around the world that have written guidance on ESG reporting. Poland’s consumer and business environment is  increasingly concerned  with environmental, social, and governance (ESG) factors, although a lack of standardized reporting mechanisms is leaving investors confused about the true extent of their portfolio’s ESG performance.  The guidelines provide small and mid-sized companies with a roadmap for measuring their impact on the environment while defining a code of good practice for market leaders. From the international perspective, the guidelines will strengthen the position of the Polish capital market and investor interest in companies listed on the WSE. In December 2020, the WSE partnered with the European Bank for Reconstruction and Development (EBRD) to bring clarity to ESG reporting by listed companies in Poland and the region of Central and Southeast Europe.

Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.

The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing. The program has been delayed due to the outbreak of the COVID-19 pandemic.High-risk venture capital funds are an increasingly important segment of the capital market which is developing fast. The funds remain active and Poland is a leader in this respect in Central and Eastern Europe. 2021 was a breakthrough year for Polish start-up firms and most of these firms have shrugged off the impact of the pandemic or even benefitted from it. The development of Polish start-ups also translates into jobs creation. The 15 companies that raised the most venture capital (VC) funding in 2019–2021 employed more than 1,300 people in 2021. The average share of Polish employees in these companies was 58 percent. Poland had its first two start-ups reach “unicorn” status in 2021, medical appointment service DocPlanner and hair appointment app Booksy.

More unicorns are expected to emerge in 2022. VC funding most often goes to companies working in the health innovation domain, according to a report by PFR Ventures and Inovo Venture Partners. In 2021, they accounted for more than 14 percent of all transitions. SaaS (subscription model) remains the most popular business model. VC investment hit a record high in Poland in 2021, increasing 66 percent over the year before to reach almost $900 million.

The government’s package of tax relief for IPOs, investment in stock exchange debutants, and VC fund investing became available in January 2022.

Poland provides full IMF Article VIII convertibility for current transactions. Banks can and do lend to foreign and domestic companies. Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States. The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland. In general, no special restrictions apply to foreign investors purchasing Polish securities.Credit allocation is on market terms. The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners. Foreign investors and domestic investors have equal access to Polish financial markets. Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings. Polish firms raise capital in Poland and abroad.Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation. KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.

On July 20, 2021, a draft act was published on the amendment of certain acts in connection with ensuring the development of the financial market and protection of investors in this market. As follows from the justification to the draft act, the act aims to organize and improve the functioning of financial market institutions by eliminating barriers to access to the financial market, improving supervision over the financial market, protecting clients of financial institutions and minority shareholders, and increasing the level of digitization in performance of supervisory duties by KNF. The draft act provides for tightening of many administrative sanctions that may be imposed on entities subject to the supervision of KNF. In practice, this may lead to the imposition of fines in a much higher amount, which in turn will significantly increase the risk related to the conduct of business activity subject to supervision.

On July 21, 2021, the Polish Financial Supervision Authority presented its strategy for the years 2021-2025. The document is the overarching plan that defines the mission, vision, and values of the KNF organization.

The Polish financial sector is well capitalized and has limited direct exposure to Russia, Ukraine, and Belarus.  The economic fallout from the pandemic has not threatened banking sector stability. Fiscal, monetary, and macroprudential support measures implemented at the beginning of the pandemic have helped the sector emerge from the pandemic-induced recession relatively unscathed.

The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets. The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company. Poland had 30 locally incorporated commercial banks at the end of 2021, according to KNF. The number of locally-incorporated banks has been declining over the last five years. Poland’s 520 cooperative banks play a secondary role in the financial system but are widespread. The state owns eight banks. Over the last few years, growing capital requirements, lower prospects for profit generation, and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions. KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.The Polish National Bank (NBP) is Poland’s central bank. At the end of 2021, the banking sector was overall well capitalized and solid. Poland’s banking sector meets European Banking Authority regulatory requirements. The share of non-performing loans decreased in 2021 after a sharp rise in 2020. In December 2021, the share of non-performing loans was 5.7 percent of portfolios, an improvement from 6.8 percent a year earlier. Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed.

Poland is a member of the EU, but not of the euro currency area or banking union. As a result, it shares a single market and many harmonized economic rules with the EU but retains its own currency and monetary policy.

The banking sector is liquid, remains profitable, and major banks are well capitalized, although disparities exist among banks. Banks remained under pressure in 2020 and the first half of 2021 due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into Polish zlotys, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds). Banks managed to restore their profits in 2021, but the low profitability of the banking sector remains a challenge, especially for smaller banks, although it does not generate risks to the system’s stability.

Legal risks for foreign exchange mortgages issued in primarily Swiss francs during 2006-2008, remain a major source of risk in the banking system. The probability of the most costly scenarios unfolding for banks, however, has diminished. In a process begun by the government and shaped by court decisions handed down by the European Court of Justice and Poland’s Supreme Court, since 2019, Polish citizens have been able to convert Swiss franc denominated loan principal into local currency while continuing to pay interest on the terms of the original loan agreement (Swiss franc LIBOR) with the banks absorbing any foreign exchange loss. About one-third of housing loans are still in foreign currency, particularly Swiss francs, according to the NBP. This is down from 62 percent at the start of 2011, but the fall in the value of the zloty has made such loans costly for borrowers and a risk to commercial banks’ asset quality. The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations. Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.

Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions. Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector. The state controls around 40 percent of total assets, including the two largest banks in Poland. These two lenders control about one third of the market. Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector. There is concern that lending decisions at state-owned banks could come under political pressure. Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.

Poland has well developed payments systems, integrated with those of the EU and overseen by the NBP. Apple Pay and Google Pay have launched operations in Poland.

In 2020, NBP had relationships with 27 commercial and central banks and was not concerned about losing any of them.

Poland does not have a sovereign wealth fund sensu stricto. However, the Polish Development Fund (PFR) is often referred to as Poland’s Wealth Fund. PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds. A strategy for PFR was adopted in September 2016 registered in February 2017. PFR supports the implementation of the Responsible Development Strategy. PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies. The group implements programs enhancing long-term investment and economic potential and supporting equal opportunities as well as environmental protection. The budget of PFR initially reached PLN 14 billion ($3.1 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion ($20-22 billion). Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital. Depending on the instruments, PFR expects different rates of return. While supportive of overseas expansion by Polish companies, the PFR’s mission is domestic.

PFR directs the strategic vision for the corporate group which includes four distinct subsidiaries:

  • PFR Ventures – the largest fund of funds (FoF) in the CEE region offering repayable financing to innovative SMEs through selected financial intermediaries such as venture capital funds or business angels;
  • PFR Portal PPK – a company dedicated to supervising the Employee Capital Plans (PPK), which is a common and voluntary long-term saving system for employees in Poland, developed and co-financed by employers and the state;
  • PFR TFI – a company focused on incepting and managing closed-end investment funds oriented towards alternative assets (e.g., real estate, infrastructure projects, PE or VC) as well as managing a part of the assets raised in the PPK program;
  • PFR Nieruchomosci – the real estate arm of the group which aims to improve the potential of the national housing market by implementing investments of significant importance to local communities.

PFR’s core function was initially focused on fostering private sector development by direct (equity) and indirect investment across a wide range of sectors, including technology, infrastructure, and energy. Over the years, the group’s mandate has broadened and now includes the following areas:

  • Bridging infrastructure gaps in the Polish economy (including transport, municipal, and digital infrastructure);
  • Venture capital market development (direct investment and via existing private sector venture capital funds);
  • Facilitating the government’s pension reform by managing a long-term pension savings scheme; and
  • Fostering investment in affordable housing and developing the housing rental market.

PFR group has been used by the government to implement several unique policy projects, including emergency support to private sector entities, promotion of the private pension savings scheme and, more recently, the provision of sizable financial support (PLN 100 billion or $22 billion) to the private sector amid the COVID-19 pandemic. PFR ‘s assets currently represent about 3.2 percent of Poland’s GDP.

ESG (environmental, social, and corporate governance) reporting is becoming a standard for more and more organizations. To meet the needs of entrepreneurs, the PFR team has prepared a special list of start-ups and tools supporting ESG reporting, which is aimed at facilitating the adaptation of companies to the new standards.

In March 2022, the European Investment Bank and PFR signed an agreement on strategic cooperation. The cooperation agreement concerns the co-financing of investments mainly in the areas of sustainable economy development, environmental protection, climate change mitigation and adaptation, improvement of energy efficiency and increasing the use of renewable energy sources.

In the period 2022-2025, financing the energy transformation will be one of the three basic pillars of the Polish Development Fund’s activity. The main emphasis will be placed on the development of infrastructure contributing to increasing energy security and reducing the emission intensity of the Polish energy sector, both at the national and local levels.

7. State-Owned Enterprises

State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking, and insurance sectors. The main Warsaw stock index (WIG) is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking, energy, foodstuffs, and media sectors. Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes. Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels. Since the Law and Justice (PiS) government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally. There have also been cases of takeovers of foreign private companies by state-controlled companies the viability of which has raised doubts. SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.

A list of companies classified as “important for the economy” is at this link: https://www.gov.pl/web/premier/wykaz-spolek 

Among them are companies of “strategic importance” whose shares cannot be sold, including: Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., Energa S.A., and the Central Communication Port.

The government sees SOEs as drivers and leaders of its innovation policy agenda. For example, several energy SOEs established a company to develop electro mobility. The performance of SOEs has remained strong overall and broadly similar to that of private companies. International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.

As of June, 2021 there were 349 companies in partnership with state authorities. Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares. According to the Minister of State Assets, companies controlled by the state create 15 percent of GDP. Here is a link to the list of companies, including under the control of which ministry they fall: http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa .

The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over almost 180 enterprises. Their aggregate value reaches several dozens of billions of Polish zlotys. Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; and transport companies. This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture, or the State Securities Printing Company (PWPW) supervised by the Interior Ministry. Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.

The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies. Government officials occasionally exercise discretionary authority to assist SOEs. In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.

On February 21, 2019, an amendment to the Act on the Principles of Management of State-Owned Property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund. The fund is a source of financing for the purchase and subscription of shares in companies. The fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.

Starting October 12, 2022, the Act amending the Commercial Companies Code and certain other acts will enter into force. It introduces the so-called “holding law” developed by the Commission for Owner Oversight Reform with the Ministry of State Assets. It lays down the principles of how a parent company may instruct its subsidiaries and stipulates the parent company’s liability and the principles of creditor, officer, and minority shareholder protections.

This amendment constitutes an important change for many companies operating in Poland including foreign parent companies. The new regulations, which have encountered some controversy, will apply only to capital companies. The legislation distinguishes between the separate activities of holding companies and of groups of companies. Protections have been extended to minority shareholders and creditors of subsidiaries, identifying threats that may result from binding instructions of the parent company for these groups.

The PiS-led government has increased control over Poland’s banking and energy sectors.

Proposed legislation to “deconcentrate” and “repolonize” Poland’s media landscape, including through the possible forced sale of existing investments, has met with domestic and international protest. Critical observers allege that PiS and its allies are running a pressure campaign against foreign and independent media outlets aimed at destabilizing and undermining their businesses. These efforts include blocking mergers through antimonopoly decisions, changes to licensing requirements, and the proposed new advertising tax. Increasing government control over state regulatory bodies, advertising agencies and infrastructure such as printing presses and newsstands, are other possible avenues. Since 2015, state institutions and state-owned and controlled companies have ceased to subscribe to or place advertising in independent media, cutting off an important source of funding for those media companies. At the same time, public media has received generous support from the state budget.

In December 2020, state-controlled energy firm PKN Orlen, headed by PiS appointees, acquired control of Polska Press in a deal that gives the governing party indirect control over 20 of Poland’s 24 regional newspapers. Because this acquisition was achieved without legislative changes, it has not provoked diplomatic repercussions with other EU member states or a head-on collision with Brussels over the rule of law. Having successfully taken over a foreign-owned media company with this model, there are concerns PKN Orlen will continue to be used for capturing independent media not supportive of the government.

In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise. The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies). In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws. In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest. Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines. State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders. The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government. The Commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.

SOE employees can designate two fifths of the SOE’s Supervisory Board’s members. In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the management board. SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law. The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements. SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports. In practice, detailed reporting data for non-listed SOEs is not easily accessible. State representatives to supervisory boards must go through examinations to be able to apply for a board position. Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”

On September 30, 2015, the Act on Control of Certain Investments entered into force. The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, copper mining, petrochemical and telecoms) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state controlled. In 2020, the government amended the legislation preventing hostile take overs. The amendments will be in force for 24 months. They are a part of the pandemic-related measures introduced by the Polish government. The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually. The framework formally keeps the oversight of SOEs centralized. The Ministry of State Assets exercises ownership functions for the majority of SOEs. A few sector-specific ministries (e.g., Culture and Infrastructure) also exercise ownership for SOEs with public policy objectives. The Prime Minister’s office oversees development agencies such as the Polish Development Fund, the Industry Development Agency, and ElectroMobility Poland S.A.

The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance. With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects. In general, privatization bidding criteria have been clear and the process transparent. The majority of SOEs classified as “economically important” or “strategically important” are in the energy, mining, media, telecommunications, and financial sectors. The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control. The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.

8. Responsible Business Conduct

In Poland, the principle of sustainable development has been given the rank of a fundamental right resulting from the provisions of the Constitution of the Republic of Poland. Article 5 of the Constitution says: “The Republic of Poland guards the independence and inviolability of its territory, ensures the freedoms and rights of people and citizens as well as the security of citizens, protects the national heritage and protects the environment, guided by the principle of sustainable development.”

Polish law provides for many restrictions imposed on investors in order to ensure that all undertaken investments do not affect the environment with respect to provided indicators. Public authorities have a significant role in granting appropriate permits, and public consultations are carried out beforehand.

The Ordinance of the Minister of Investment and Development (the name has since changed to the Economic Development and Technology Ministry) of May 10, 2018, established working groups responsible for sustainable development and corporate social responsibility. The chief function of the working groups is to create space for dialogue and exchange of experiences between the public administration, social partners, NGOs, and the academic environment in corporate social responsibility (CSR) and responsible business conduct (RBC). Experts cooperate within five working groups: 1) Innovation for CSR and sustainable development; 2) Business and human rights; 3) Development of non-financial reporting; 4) Socially responsible administration; and 5) Socially responsible universities.

Zespół ds. Zrównoważonego Rozwoju i Społecznej Odpowiedzialności Przedsiębiorstw – Ministerstwo Funduszy i Polityki Regionalnej – Portal Gov.pl (www.gov.pl) 

The greater team issues recommendations concerning implementation of the CSR/RBC policy, in particular, the objectives of the Strategy for Responsible Development. More information on recent developments in the CSR area and future events is available under this link: https://www.gov.pl/web/fundusze-regiony/spoleczna-odpowiedzialnosc-przedsiebiorstw-csr2 

On October 8, 2021, the Council of Ministers adopted the National Action Plan for the implementation of the UN Guiding Principles on Business and Human Rights for 2021-2024 (NAP). The implementation of the first edition of the National Action Plan for 2017-2020 was completed and the Final Report was prepared. The report concerns tasks aimed at improving the observance of human rights, the implementation of which was carried out on the basis of schedules developed by individual ministries and other institutions involved in the NAP. Biznes i prawa człowieka – Ministerstwo Funduszy i Polityki Regionalnej – Portal Gov.pl (www.gov.pl) 

The mission is not aware of reports of human or labor rights concerns relating to RBC in Poland.An increasing number of Polish enterprises are implementing the principles of CSR/RBC in their activities. One of these principles is to openly inform the public, employees, and local communities about the company’s activities by publishing non-financial reports. An increasing number of corporate sector entities understand that sharing experience in the field of integration of social and environmental factors in everyday business activities helps build credibility and transparency of the Polish market. Many companies voluntarily compile ESG/CSR activity reports based on international reporting standards. Most reports are published by companies from the fuel, energy, banking, food industries, logistics, and transport sectors. There is also growing interest in voluntary reporting in the healthcare, retail, and construction sectors. Surveys indicate, however, that companies still have a long way to go in ESG reporting.The attitude of Poles to environmental issues is changing, and so are their expectations regarding business. According to a study by ARC Rynek i Opinia for the Warsaw School of Economics, 59 percent of Poles consciously choose domestic products more often and 57 percent avoid products that harm the environment. In Poland, provisions relating to responsible business conduct are contained within the Public Procurement law and are the result of transposition of very similar provisions contained in the EU directives. For example, there is a provision for reserved contracts, where the contracting authority may limit competition for sheltered workshops and other economic operators whose activities include social and professional integration of people belonging to socially marginalized groups.

Independent organizations including NGOs and business and employee associations promote CSR in Poland. The Responsible Business Forum (RBF), founded in 2000, is the oldest and largest NGO in Poland focusing on corporate social responsibility: http://odpowiedzialnybiznes.pl/english/ 

CSR Watch Coalition Poland, part of the OECD Watch international network aims to advance respect for human rights in the context of business activity in Poland in line with the spirit of the UNBHR-GPs and the OECD Guidelines for Multinational Enterprises (MNEs): https://www.oecdwatch.org/organisations/csr-watch-coalition-poland/ 

Poland’s largest CSR and sustainable development review, published by the Responsible Business Forum, confirms the enormous mobilization and commitment in the fight against the pandemic. Many businesses have launched new CSR activities to deliver assistance and support. The 19th edition of the “Responsible Business in Poland. Good Practices” report has seen a more than 40 percent increase in activities reported. The total number of reported practices hit an all-time high of almost 2,000. Experts from the RBF note a lower number of long-standing practices which shows that the pandemic has led to suspension or discontinuation of certain CSR activities. The pandemic has also fueled the development of CSR partnerships, which is reflected in the activities reported. Businesses collaborated, for instance, in the production of sanitizer gel, provision and delivery of medicines and PPE to hospitals, and social welfare centers.

Research shows that sustainability and CSR are increasingly translating into consumer choices in Poland. According to SW Research for Stena Recycling, nearly 70 percent of Poles would like their favorite products to come from sustainable production and are willing to switch to more sustainably produced products. More than half believe that the circular economy can have a direct, positive impact on the environment.

In December 2016, Poland was the first country in the world to issue a green bond. The bond served to highlight the government’s support for projects with clear environmental benefits, as well as finance Poland’s key environmental goals, i.e., Poland’s National Renewable Energy Plan and the National Program for the Augmentation of Forest Cover. Green bonds are becoming increasingly popular in Poland.

In December 2020, the Warsaw Stock Exchange (WSE) partnered with the European Bank for Reconstruction and Development (EBRD) to bring clarity to ESG reporting from listed companies in Poland and the region of Central and Southeast Europe. In 2021, the WSE published its first ESG reporting guidelines for listed companies – a handbook developed in collaboration with industry experts. The WSE joined a group of approximately 60 stock exchanges around the world that have written guidance on ESG reporting. Poland’s consumer and business environment is  increasingly concerned  with ESG factors, although a lack of standardized reporting mechanisms is leaving investors confused about the true extent of their portfolio’s ESG performance.  The guidelines provide small and mid-sized companies with a roadmap for measuring their impact on the environment while defining a code of good practice for market leaders.

Poland launched the Chapter Zero Poland Program, which is part of the international Climate Governance Initiative established by the World Economic Forum. The program brings together members of the supervisory boards and presidents of major companies to raise awareness of the consequences of climate change for business and the impact of business on climate.

Poland maintains a National Contact Point (NCP) for OECD Guidelines for Multinational Enterprises: https://www.gov.pl/web/fundusze-regiony/krajowy-punkt-kontaktowy-oecd  Starting in March 2021, the EU regulation SFDR 2019/2088 on disclosure of information related to sustainable development (environmental, labor, human rights, and anti-corruption) in the financial services sector applies in Poland and other EU countries.The NCP promotes the OECD MNE Guidelines through seminars and workshops. Investors can obtain information about the Guidelines and their implementation through Regional Investor Assistance Centers. Information on the OECD NCP activities is under this link: https://www.gov.pl/web/fundusze-regiony/oecd-national-contact-point 

Poland is not a member of the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights. The primary extractive industries in Poland are coal and copper mining.  Onshore, there is also hydrocarbon extraction, primarily conventional natural gas, with limited exploration for shale gas.  The Polish government exercises legal authority and receives revenues from the extraction of natural resources and from infrastructure related to extractive industries such as oil and gas pipelines through a concessions-granting system, and in most cases through shareholder rights in state-owned enterprises.  The Polish government has two revenue streams from natural resources: 1) from concession licenses; and 2) from corporate taxes on the concession holders.  License and tax requirements apply equally to both state-owned and private companies.  Natural resources are brought to market through market-based mechanisms by both state-owned enterprises and private companies. Poland was among the original ratifiers of the Montreux Document on Private Military and Security Companies in 2008. One company from Poland is a member of the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Department of State

Department of the Treasury

Department of Labor

The updated nationally determined contributions (NDC) as of December 18, 2020, submitted by Poland envision an at least 55 percent domestic reduction in GHG emissions by 2030 compared to 1990.

On March 29, 2022, the Council of Ministers adopted the assumptions for updating the “Energy Policy of Poland until 2040” (PEP2040) – Strengthening Energy Security and Independence.  The updated energy policy of Poland will take into account energy sovereignty, a particular element of which is to ensure rapid independence of the national economy from imported fossil fuels from the Russian Federation.  The assumptions provide for increasing technological diversification and expansion of capacities based on domestic sources, including further development of renewable energy sources and consistent implementation of nuclear energy and improvement of energy efficiency, but also further diversification of supplies and providing alternatives to oil and natural gas.  Actions taken will be aimed at the development of new low-carbon technologies and their integration into the system.  Priority will be given to actions that strengthen the development of electricity grids and energy storage, while the use of coal-fired units may increase from time to time in the face of uncertainty in the natural gas market.  Poland shall also undertake negotiating efforts to reform the EU climate policy mechanisms to enable a low-carbon and ambitious transformation, contributing to the achievement of the EU’s targets, while taking into account the temporary increased use of conventional generation capacity.  Due to recent unlawful Russian aggression against Ukraine, Poland’s neighbor, the Polish government decided to periodically increase the use of domestic hard coal deposits in case of a threat to the energy security of the state.  Originally the government assumed that coal units would be replaced more quickly and to a greater extent by gas units, but under current circumstances there will be a greater transition directly from coal sources to renewables and nuclear ones.  The requirement to end the use of coal by 2049 will still be binding.

Even though Poland has committed to the Fit for 55 package, it has not yet adopted an individual commitment to become climate-neutral by 2050.  Instead, Poland continues to say that the EU as a whole will be climate-neutral by that date, suggesting that other EU members may have to have negative emissions by 2050 to make up for Poland’s emissions.  The PEP2040 with recent amendments, however, sets up ways of reducing the use of coal and gas while increasing the role of RES (wind, solar, biomass) and nuclear. Other policies which aim to achieve climate goals include PEP2030 – Polityka Ekologiczna Panstwa 2030 (which encompasses 3 specific objectives: Environment and Health, Environment and Economy, and Environment and Climate). There is also Poland’s Hydrogen Strategy to 2030 with an Outlook to 2040 which sets out the main objectives of hydrogen economy development in Poland and the directions of activities needed to achieve them.  The Circular Economy program ( GOZ – gospodarka o obiegu zamknietym) is supervised by the Ministry of Economic Development and Technology. The National Fund for Environmental Protection and Water Management, along with the Ministry of Climate and Environment, established and financed a pilot program entitled “Circular economy in municipalitie” in 2017.  The pilot ran until 2020 with three municipalities participating (Łukowica -Małopolskie Province, Tuczno – Zachodniopomorskie Province and Wieluń – Łódzkie Province).

The private sector is already implementing some solutions to achieving relevant targets and goals due to EU regulations and pressure from the financial/banking sector and foreign investors.

Poland has an unfavorable energy mix due to its heavy dependency on coal (71 percent of energy comes from coal fired plants). The cost of transitioning to a net-zero economy by 2050 will be approximately 350 billion euros ($370 billion) and with be realized through the implementation of several programs which aim to achieve clean air, preserve biodiversity, and promote ecological solutions. Most of the government’s flagship programs should be implemented by 2030 or 2040. Programs to promote clean and accessible energy include Poland’s energy policy until 2040 (PEP2040), which emphasizes energy security; amendments to the Energy Efficiency Act and to the RES Act (still not finalized); the Polish nuclear energy program (PPEJ), and biomethane and hydrogen programs. There are also programs implemented and financed by the National Fund for Environmental Protection and Water Management (a body supervised by the Ministry of Climate and Environment). These include Mój Prąd, Agroenergia, District heating, and Polska Geotermia Plus, which are all planned to run until 2025 and are focused on local governments, institutions, and individual citizens. Programs dedicated to fight air pollution are: Stop SMOG, Clean Air Program, and Thermal modernization relief. There also are programs dedicated to supporting cities and municipalities in adapting to the challenges caused by climate changes: Adaptation to climate change and limiting the effects of environmental threats and City with Climate (blue and green infrastructure and green public transport).

Available tax solutions and loans:

  • Thermo-modernization relief up to PLN 53,000 ($12,000) per taxpayer in the home, to be used for items such as insulation or replacement of the heating system. In the case of spouses who are co-owners of a building, the limit increases to PLN 106,000 ($24,000).
  • R&D relief which allows the deduction of up to 200 percent of R&D expenses. In practice, most of the activities eligible for the R&D tax credit can be described as ecological, such as an increase in energy efficiency, improvement in the recyclability of materials, and various industrial innovations.
  • A tax on non-recycled plastic in force since the beginning of 2021. The fee is added to Poland’s EU membership fee and has not yet been passed on to businesses. In addition, a so-called “plastic directive” prohibiting the sale of disposable cutlery, plates, and ear buds will come into force in Poland in March/April 2022.
  • Zero excise tax for natural gas intended to power internal combustion engines, i.e., liquefied natural gas (LNG), compressed natural gas (CNG), biogas, and hydrogen and biohydrogen. The policy has been in force since August 2019.
  • Zero excise tax on electric and hybrid vehicles (according to the Act of 11 January 2018 on electromobility and alternative fuels). The provision originally applied to hybrid vehicles only until January 2021 but was extended for two more years for cars with internal combustion engines of no more than two liters.

Ecolabelling:  Many companies in Poland have already earned the right to label their products with the European Ecolabel.  The certificates are awarded by the Polish Centre for Testing and Certification (PCBC). Entrepreneurs who obtain the certificate for specific products have the right to mark them with a distinctive sign with the Ecolabel logo.

Protected areas:  The 2004 Act on Nature Conservation describes the following forms of nature conservation: national parks; nature reserves; landscape parks; protected landscape areas; NATURA 2000 areas; species protection of plants, animals and fungi, and other forms of nature conservation: monuments of nature, documentation sites, ecological arable lands, and landscape/nature complexes.species protection of plants, animals and fungi, and; other forms of nature conservation: monuments of nature, documentation sites, ecological arable lands, and landscape/nature complexes.

Ecosystem management plans: Projects related to this topic are run by the National Fund for Environment Protection and Water Management and supervised by the Ministry of Climate as the Operator of the program, “Environment, Energy and Climate Change.”

Nature-based solutions (NBS): Includes all solutions based on green and blue infrastructure (ex: greening of cities, water management) and are mainly introduced by local governments and as an education topic to raise awareness among citizens.

9. Corruption

Poland has laws, regulations, and penalties aimed at combating corruption of public officials and counteracting conflicts of interest.  Anti-corruption laws extend to family members of officials and to members of political parties who are members of Parliament.  There are also anti-corruption laws regulating the finances of political parties.  According to a local NGO, an increasing number of companies are implementing voluntary internal codes of ethics.  In 2021, the Transparency International (TI) index of perceived public corruption ranked Poland as 42nd least corrupt among 180 countries/territories (three places higher than on the 2020 TI index).

The Polish Central Anti-Corruption Bureau (CBA) and national police investigate public corruption.  The Justice Ministry and the police are responsible for enforcing Poland’s anti-corruption criminal laws.  The Finance Ministry administers tax collection and is responsible for denying the tax deductibility of bribes.  Reports of alleged corruption most frequently appear in connection with government contracting and the issuance of a regulation or permit that benefits a particular company.  Allegations of corruption by customs and border guard officials, tax authorities, and local government officials show a decreasing trend.  If such corruption is proven, it is usually punished.  Overall, U.S. firms have found that maintaining policies of full compliance with the U.S. Foreign Corrupt Practices Act (FCPA) is effective in building a reputation for good corporate governance and that doing so is not an impediment to profitable operations in Poland.  Poland ratified the UN Anticorruption Convention in 2006 and the OECD Convention on Combating Bribery in 2000.  Polish law classifies the payment of a bribe to a foreign official as a criminal offense, the same as if it were a bribe to a Polish official. For more information on the implementation of the OECD Anti-Bribery Convention in Poland, please visit:   http://www.oecd.org/daf/anti-bribery/poland-oecdanti-briberyconvention.htm 

Centralne Biuro Antykorupcyjne (Central Anti-Corruption Bureau – CBA)
al. Ujazdowskie 9, 00-583 Warszawa
+48 800 808 808
kontakt@cba.gov.pl

To report corruption, use this link: www.cba.gov.pl ; and:  https://www.cba.gov.pl/pl/zglos-korupcje/445,Zglos-korupcje-osobiscie-lub-pisemnie.html 

The Batory Foundation, as part of a broader operational program (ForumIdei), continues to monitor public corruption, carries out research into this area, and publishes reports on various aspects of the government’s transparency.  Contact information for Batory Foundation is:  batory@batory.org.pl; 22 536 02 00.

10. Political and Security Environment

Poland is a politically stable country.  Constitutional transfers of power are orderly.  The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair.  The Organization for Security and Cooperation in Europe, which conducted the election observation during the June 2020 presidential elections, found the presidential elections were administered professionally, despite legal uncertainty during the electoral process due to the outbreak of the COVID-19 epidemic.  Prime Minister Morawiecki’s government was re-appointed in November 2019.  Local elections took place in October 2018.  Elections to the European Parliament took place in May 2019.  The next parliamentary elections are scheduled for the fall of 2023.  There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years.

The February 24, 2022, Russian invasion of Ukraine is likely to have major consequences for Poland. Poland, a leading NATO member, has become a special hub for transporting military equipment to the Ukrainian armed forces. Poland is dealing with a massive inflow of refugees, which could impact domestic political stability.

11. Labor Policies and Practices

Poland has a well-educated, skilled labor force.  Productivity, however, remains below OECD averages but is rising rapidly and unit costs are competitive.  In the last quarter of 2021, according to the Polish Central Statistical Office (GUS), the average gross wage in Poland was PLN 5,995 per month ($1,500) compared to 5,458 ($1,444) in the last quarter of 2020.  Poland’s economy employed roughly 16.780 million people in the fourth quarter of 2021.  Eurostat measured total Polish unemployment at 2.9 percent, with youth unemployment at 11 percent in December 2021.  The unemployment rate was the same among male and female workers. GUS reports unemployment rates differently and tends to be higher than Eurostat figures.  Unemployment varied substantially among regions: the highest rate was 8.6 percent (according to GUS) in the north-eastern part of Poland (Warmia and Mazury), and the lowest was 3.1 percent (GUS) in the western province of Wielkopolska, at the end of the fourth quarter of 2021.  Unemployment was lowest in major urban areas.  Polish workers are usually eager to work for foreign companies, in Poland and abroad.  Since Poland joined the EU, up to two million Poles have sought work in other EU member states.

According to the Ministry of Family and Social Policy, more than 2 million “simplified procedure” work declarations were registered in 2021, of which 1.7 million were for Ukrainian workers (compared to 1.3 million a year earlier).  Under the revised procedure, local authorities may verify if potential employers have actual job positions for potential foreign workers.  The law also authorizes local authorities to refuse declarations from employers with a history of abuse, as well as to ban employers previously convicted of human trafficking from hiring foreign workers.  The 2018 revision also introduced a new type of work permit for foreign workers, the so-called seasonal work permit, which allow for legal work up to nine months in agriculture, horticulture, tourism, and similar industries.  Ministry of Family and Social Policy statistics show that during 2021, more than 400,000 seasonal work permits of this type were issued, of which more than 387,000 went to Ukrainians.  Ministry of Family and Social Policy statistics also show that in 2021, more than 504,000 foreigners received work permits, including more than 325,000 Ukrainians, compared with 295,272 in 2020.  On March 12, 2022, the new law on assistance to Ukrainian citizens in connection with the armed conflict on the territory of the country entered into force. Under the new law, Ukrainian citizens who fled their country as a result of the war can legally stay and work in Poland for up to 18 months.

Polish companies suffer from a shortage of qualified workers.  According to a 2022 report, “Barometer of Professions,” commissioned by the Ministry of Family and Social Policy, several industries suffer shortages, including the construction, manufacturing, healthcare, transportation, education, food processing, and financial industries.

The most sought-after workers in the construction industry include concrete workers, steel fixers, carpenters, and bricklayers.  Manufacturing companies seek electricians, electromechanical engineers, tailors, welders, woodworkers, machinery operators, and locksmiths.  Employment has expanded in service industries such as information technology, manufacturing, and administrative and support service activities.  The business process outsourcing industry in Poland has experienced dynamic growth.  The state-owned sector employs about a quarter of the work force, although employment in coal mining and steel are declining.

Since 2017, the minimum retirement age for men has been 65 and 60 for women.  Labor laws differentiate between layoffs and dismissal for cause (firing).  In the case of layoffs (when workers are dismissed for economic reasons in companies which employ more than 20 employees), employers are required to offer severance pay.  In the case of dismissal for cause, the labor law does not require severance pay.

Most workers hired under labor contracts have the legal right to establish and join independent trade unions and to bargain collectively. Individuals who are self-employed or in an employment relationship based on a civil law contract are also permitted to form a union. The law provides for the rights of workers to form and join independent trade unions, bargain collectively, and conduct legal strikes. The law prohibits antiunion discrimination and provides legal measures under which workers fired for union activity may demand reinstatement. Trade union influence is declining, though unions remain powerful among miners, shipyard workers, government employees, and teachers.  The Polish labor code outlines employee and employer rights in all sectors, both public and private, and has been gradually revised to adapt to EU standards. However, employers tend to use temporary and contract workers for jobs that are not temporary in nature.  Employers have used short-term contracts because they allow firing with two weeks’ notice and without consulting trade unions.  Employers also tend to use civil instead of labor contracts because of ease of hiring and firing, even in situations where work performed meets all the requirements of a regular labor contract.

Polish law requires equal pay for equal work and equal treatment with respect to signing labor contracts, employment conditions, promotion, and access to training.  The law defines equal treatment as nondiscrimination in any way, directly or indirectly on the grounds of gender, age, disability, race, religion, nationality, political opinion, ethnic origin, denomination, sexual orientation, and whether or not the person is employed temporarily or permanently, full time or part time.

The 1991 Law on Conflict Resolution defines the mechanism for labor dispute resolution.  It consists of four stages: first, the employer is obliged to conduct negotiations with employees; the second stage is a mediation process, including an independent mediator; if an agreement is not reached through mediation, the third stage is arbitration, which takes place at the regional court; the fourth stage of conflict resolution is a strike.

The Polish government adheres to the International Labor Organization’s (ILO) core conventions and generally complies with international labor standards.  However, there are several gaps in enforcing these standards, including legal restrictions on the rights of workers to form and join independent unions.  Cumbersome procedures make it difficult for workers to meet all of the technical requirements for a legal strike.  The law prohibits collective bargaining for key civil servants, appointed or elected employees of state and municipal bodies, court judges, and prosecutors.  There were some limitations with respect to identification of victims of forced labor.  Despite prohibitions against discrimination with respect to employment or occupation, such discrimination occurs.  Authorities do not consistently enforce minimum wage, hours of work, and occupational health and safety, either in the formal or informal sectors.

The National Labor Inspectorate (NLI) is responsible for identifying possible labor violations; it may issue fines and notify the prosecutor’s office in cases of severe violations.  According to labor unions, however, the NLI does not have adequate tools to hold violators accountable and the small fines imposed as punishment are an ineffective deterrent to most employers.  The United States has no FTA or preference program (such as GSP) with Poland that includes labor standards.

The grey economy’s share in Poland’s GDP is expected to increase to 18.9 percent in 2022, from 18.3 percent in 2021, according to Poland’s Institute of Forecasts and Economic Analyses (IPAG). IPAG estimates that the total value of the shadow economy in Poland will reach EUR 126.4 billion (PLN 590 billion) in 2022. According to IPAG, Russia’s ongoing war in Ukraine remains a significant factor of uncertainty and may additionally boost the grey economy to 19.4 percent. According to worldeconomics.com, the size of Poland’s informal economy is estimated to be 22.4 percent which represents approximately $354 billion at GDP PPP levels.

In 2021, Poland ranked 18 in the Mastercard Index of Women Entrepreneurs (MIWE) ranking offering women good conditions for running a business, down 12 places from 2020. According to the Mastercard report, 29 percent of companies in Poland are run by women. At the end of 2021, the share of women on the boards of the companies listed on the Warsaw Stock Exchange was only 17 percent, a decrease by one percent compared to 2020.

According to the analysis of data from the National Court Register carried out by the Dun & Bradstreet business intelligence agency, the number of companies owned by women in Poland at the end of 2021 decreased by three percent compared to 2020 and accounted for 32.5 percent of all companies. The number of women in the position of CEO decreased from 23.5 percent to 19.5 percent and as members of management boards from 30 percent to 25 percent. According to the Central Statistical Office (GUS) data, the share of women in the Polish labor market amounts to over 40 percent.

The pandemic undoubtedly contributed to the decline in women’s business activity. According to the report of the Foundation Success Written with Lipstick, one-third of surveyed business owners and co-owners admitted that they had problems with running a business in 2021, over a quarter recorded a drop in revenues, and eight percent had to suspend activities. Every fifth entrepreneur had to change the business profile of her company due to the pandemic.

The COVID-19 pandemic continued to dominate 2021, affecting the business world and forcing employers and employees to adapt to new working conditions. Due to the growing popularity of remote work, the Ministry of Labor has continued works aimed at introducing remote work to the provisions of the Labor Code for good. New regulations will be introduced in the first half of 2022.

14. Contact for More Information  

Anna Jaros
Economic Specialist
U.S. Embassy Warsaw
+48 22 504 2000
econwrw@state.gov

 

Slovakia

Executive Summary

Slovakia is a small, open, export-oriented economy with a population of 5.5 million people. It joined the EU and NATO in 2004 and the Eurozone in 2009. Slovakia is an attractive destination for foreign direct investment (FDI), with a favorable geographic location in the heart of Europe and an investment-friendly regulatory environment. The current ruling coalition, which took power in March 2020, has implemented a range of measures to improve the investment and business climate.

The Slovak economy grew by 3.1 percent in 2021, slowed by three waves of COVID-19, which profoundly affected the hospitality, tourism, retail, sports and recreation, transport, and culture sectors. These industries remained shuttered for extended periods of time or were open only to limited groups of the population based on their COVID-19 or vaccination status. Business representatives noted that pandemic measures changed frequently, were announced at the last moment, or lacked sufficient clarity. Anti-pandemic measures were lifted in March 2022.

Employers’ combined social and health contributions are equivalent to 35 percent of wages. The corporate income tax is 21 percent for companies with revenues at or above €100,000. The tax rate for companies with revenues below €100,000 is 15 percent.

Attracting higher value-added investment is a priority for the current ruling coalition, as well as attracting investment in less-developed regions of Slovakia. In April 2021, the government approved Slovakia’s Recovery and Resilience Plan, which presents a roadmap for spending €6.3 billion in EU grants by 2026 on key reforms and investments in the areas of green economy, education and research, healthcare, digitization, and rule of law. Inefficiencies in drawing EU funds persist, however. Slovakia’s government continued its anti-corruption agenda and measures in 2021, resulting in an improvement in the business community’s perception of its impact on the business environment.

Slovakia’s economy relies heavily on energy-intensive manufacturing. These companies were particularly affected by global supply chain disruptions leading to shortages of key components including semiconductors and chips, as well as by the rapid price growth of key inputs, including raw materials and energy.

Slovakia remains the largest per capita car producer in the world, with four major car producers and hundreds of suppliers. Manufacturing industries, including automotive; machinery and transport equipment; metallurgy and metal processing; electronics; chemicals; and pharmaceuticals remain attractive and have the potential for further growth.

Positive aspects of the Slovak investment climate include:

  • Membership in the EU and the Eurozone

An open, export-oriented economy close to western European markets

  1. Investment incentives, including for foreign investors
  2. A firm government commitment to EU deficit and debt targets
  3. A sound banking sector deeply integrated with Europe

Negative aspects of the Slovak investment climate include:

  1. High sensitivity to regional economic developments
  2. Weak public administration and an inefficient judiciary
  3. Significant regional disparities, suboptimal national transport network
  4. Low rates of public and private R&D investment
  5. Heavy reliance on EU structural funds, chronic deficiencies in allocation of funds
Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 56 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 37 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $778 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $18,920 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

Slovakia has 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.

The benefits of investing in Slovakia, including access to skilled labor, the country’s EU and Eurozone membership, and its 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, stimulate innovation, and attract investment, and it also coordinates 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, as well as for providing in-depth information on the Slovak business environment, investment incentives, the process for setting up a business, and advising on suitable locations and real estate leasing. The government encourages investment through tax incentives and grants to support employment, regional development, and training. The current ruling coalition, in power since March 2020, has made it clear that it intends to award government incentives primarily for investments in less-developed regions of Slovakia. Section Four of the Regional Investment Aid Act (57/2018 Coll.) specifies the eligibility criteria for receiving assistance.

According to the National Bank of Slovakia’s preliminary data, in 2020, inward FDI flows to Slovakia reached €1.7 billion, and inward FDI stock was €52 billion.  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 a Special Levy on Regulated Sectors (235/2012 Coll.) 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.  A special levy on the banking sector, in effect since January 2012, was abolished effective January 2021.

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. Those that do not face withholding taxes ranging from 19 to 35 percent on the fees collected that are paid to foreign entities.

The government has a formalized process in place to involve employers in policymaking, including in the process of setting the minimum wage, via a social dialog process that includes government representatives, trade unions, and employer/business associations. The government also regularly engages in bilateral talks with major investors and employers to address their needs or concerns.

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 a business. Foreigners must provide their passport or residence permit numbers when registering a business.

In February 2021, the 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. While the Economy Ministry announced it would replace the fast-tracked legislation with a more robust Foreign Investment Screening Mechanism in 2021, based on EU Investment Screening Regulation 2020/1298, as of March 2022 the mechanism is pending government and parliamentary approval.

Slovakia has no formal performance requirements for establishing, maintaining, or expanding foreign investments.  Large-scale privatizations are possible via direct sale or public auction.  Apart from the above-mentioned procedure for reviewing ownership changes in “critical infrastructure” installations, 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 Coll.) 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 by increasing the maximum time to finish work on an 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. In 2023 this share is set to decrease to 100 percent, but a new deductible in the amount of 15 to 55 percent for selected higher value-added investments into moveable property will enter into force.

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 airline operators seeking to operate in Slovakia.

Please consult the following websites for more information:

  • R&D Tax-Deductions:

Slovakia’s investment and business climate is independently assessed on an annual basis by the European Commission in the course of the so-called European Semester. For more information, please see the European Commission’s latest Country Report on Slovakia  from 2020 as well as the its Analysis of the Recovery and Resilience Plan of Slovakia  from 2021, which replaced the Country Report for 2021. The OECD’s Economic Survey of Slovakia , released in January 2022, provides an independent assessment of major challenges faced by Slovakia, evaluates the short-term outlook, and makes specific policy recommendations.

The following local civil society organizations carry out regular reviews of investment policy-related concerns in Slovakia – the Institute of Economic and Social Studies (INESS ), the Institute for Economic and Social Reforms (INEKO ), Transparency International Slovakia (TIS ).

According to the World Bank’s Doing Business 2020 report, the last one available, 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 private business development companies that help navigate the process of establishing a new business. The main agencies with which a company must register are the business registry, tax office, social security agency, and, if the company employs at least one employee, a healthcare insurance company.

In 2022, the government approved a package of nearly 200 measures meant to decrease the administrative burden on businesses, adding to 114 measures introduced by a previous package focused on cutting red tape, which was adopted in 2020. The Ministry of Economy also implemented regular regulatory fitness checks and reviews of EU directive implementing legislation to ensure that implementing laws do not create additional administrative burdens beyond what is required by EU law.

The Central Government Portal “slovensko.sk” provides useful information on e-Government services for starting and running a business, citizenship, 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, social security agency and health insurance companies. 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:

  1. Central Government Portal:
  2. Commercial Register:
  3. Slovak Business Agency:
  4. Slovak Investment and Trade Development Agency:

Due to their limited size, Slovak companies have not made significant outward foreign direct investments, registering just €5.2 million in 2020.

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 supports exports and outward investments with financial instruments to reduce risks related to insurance, credit, credit guarantees, 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 Ministry for Investments, Informatization, and Regional Development (MIRRI) also play a role in facilitating external economic relations. Slovakia does not restrict domestic investors from investing abroad.

3. Legal Regime

Companies in Slovakia frequently complain about the country’s complex and unpredictable legislative and regulatory environment. The current ruling coalition is making significant efforts to address this issue. Starting June 1, 2021, all government ministries as well as 20 non-ministry central government institutions are legally bound to adhere to a “one-in-one-out” principle, meaning every new regulation that will increase administrative burden by €1 must be matched with a proposal to decrease the administrative burden by €1. As of January 2022, the principle has been further expanded to “one-in-two-out.” Failure to comply does not, however, result in the annulment of the regulation or any other material consequences. The Ministry of Economy flags violations through a mandatory interdepartmental consultation procedure on all draft legislation and prepares an annual report on implementation of the rule.

Regulations are drafted on the local and national level with the latter usually having 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 interdepartmental 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, with a comment period of usually between two to three weeks. When fast tracking legislation and regulations comment periods may shrink to one-week, leaving little time for public comment. Affected business associations note that government reactions to comments are often superficial and generic, rather than substantive.

While the process of adopting new laws and regulations follows clearly defined rules, MPs or parliamentary groups have the option of proposing legislation without having to adhere to the same legislative rules as the government and without having to hold any public consultations, thus rendering the legislative process less predictable and less transparent than draft laws introduced by the government. Legislative rules are also frequently circumvented by using the “accelerated legislative procedure.” This procedure is, by law, conditioned on extraordinary circumstances, threat to public safety, or imminent economic damage. However, in practice, the procedure is sometimes used to approve bills that do not appear to meet these criteria. In an effort to reduce abuse of the procedure, the President has repeatedly exercised her suspensive veto right in cases when the accelerated procedure was used to pass legislation without clearly meeting the aforementioned criteria.

Legislation and regulations are, in most cases, not reviewed on the basis of scientific data assessments and critics assert that some mandatory impact assessments are conducted superficially. Analytical institutes at some ministries produce data-driven assessments of proposed policies or large investment projects, but not all ministries have the needed personnel and/or technical capacity to ensure a uniform and high-quality level of data-driven policymaking across the whole of government. Impact assessments for proposed legislation are available online, as are most policy and/or investment assessments prepared by the analytical units at government ministries.

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 in striking an adequate balance between protecting competition and eliminating corruption, while keeping the bureaucratic burden and average tendering time at acceptable levels. The PPO has made efforts to improve transparency and communication with stakeholders, as well as to strengthen supervisory activities. Since March 2021, the PPO accepts self-declarations from U.S. companies that are bidding in public procurements, rather than requiring companies to produce non-standard documentation issued by U.S. state or federal entities – which had been overly burdensome to obtain. In October 2021, parliament approved an amendment to the public procurement act aimed at accelerating and streamlining the public procurement process by increasing the threshold for when public tenders are required from €5,000 to €10,000 and by preventing the abuse of the complaint procedures to stall tenders via repetitive formal complaints. The amendment also introduces changes to increase the transparency of the tendering process by moving all tender-related communication online via a specialized electronic platform, by strengthening the independence of the PPO, and by prohibiting selected public servants from doing business with the state. The amendment to the public procurement act will enter into force on March 31, 2022.

Oversight over the legality of administrative and regulatory processes, and decisions of the central government, as well as municipalities, is carried out by the prosecution service and an administrative court system consisting of first-instance courts, which are part of regional courts, and a Supreme Administrative Court. Complaints related to administrative malpractice can also be raised via the Public Defender of Rights and, in case these include breaches of fundamental rights and freedoms, also via the Constitutional Court.

The government does not proactively promote or require companies’ environmental, social, and governance (ESG) disclosure. As an EU member state, Slovakia is bound by the EU Taxonomy Regulation, which seeks to create a common framework to determine whether certain economic activities can be regarded as environmentally sustainable. All measures implemented through Slovakia’s Recovery and Resilience Plan, including investments and reforms, must be in line with the environmental objectives laid down by the EU Taxonomy and must not breach the ‘do no significant harm’ principle.

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 and 2022 national budgets 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.

In February 2022, the government adopted sweeping changes to construction and zoning legislation with the aim to significantly accelerate, streamline, and digitize the process of obtaining construction permits and prevent the ex-post legalization of buildings built without requisite permits. While the business community generally welcomed the legislative changes as long overdue, municipalities and some non-governmental organizations argue that the legislation will strengthen the position of large real-estate developers, while reducing public scrutiny over proposed construction projects.

Please consult the following websites for more information:

  • Legislative and Information Portal Slov-Lex:    (Note: all legal acts and regulations mentioned throughout this report can be found on this portal.)
  • World Bank:
  • Anti-Monopoly Office of the Slovak Republic:
  • Office for Public Procurement:
  • Public Administration Budget, Ministry of Finance:
  • The European Commission Country Report – Slovakia 2020:

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:

  • WTO:

Slovakia is a civil law country. The Slovak judicial system is comprised of the Constitutional Court and general courts, including the Specialized Criminal Court, the Supreme Court, and the Supreme Administrative Court, functional from August 1, 2021.  General courts decide civil, commercial, and criminal matters, and review the legality of decisions by administrative bodies. However, as of March 2022, a proposal to create a new system of separate first-instance administrative courts in January 2023 is pending Parliament’s approval, as part of the government’s judicial reform plan. The Supreme Administrative Court serves as the second-instance administrative court, including as a disciplinary court for judges, prosecutors, and some other legal professions. 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 regulations is limited to some state institutions and selected public officials.

The Slovak Constitution and the European Convention on 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 rulings by EU Member States are recognized and enforced in compliance with existing EU regulations.  Third country rulings are governed by bilateral treaties or by the Act on International Private Law.  Contracts are enforced through litigation or arbitration.

Laws guarantee judicial independence; however, public perception of judicial independence is among the lowest in the EU.  According to the 2021 EU Justice Scoreboard, public trust in the judiciary is low, with trust among the general public standing at 28 percent and 30 percent among the business community. The trend has been improving, however, with the trust in the judiciary among businesses doubling since 2020. In 2019 and 2020 numerous investigations into judicial corruption were opened and about 20 judges were arrested on suspicion of corruption, while several additional judges resigned from office. Businesses and NGOs report that the justice system remains relatively slow and inefficient, and characterizing some verdicts as unpredictable and often poorly justified.  Investors generally prefer international arbitration to resolution in the national court system.

The government is pursuing an ambitious set of judicial reforms, aiming to address alleged corruption ties, low public trust, and inefficiency, and is also following the recommendations of the Council of Europe Commission for the Efficiency of Justice (CEPEJ). Judges remain divided on the need for reform though, and a consensus on the reform’s elements within the ruling coalition has not been reached as of March 2022. Accountability mechanisms ensuring judicial impartiality and independence exist and are increasingly utilized. Courts use a digital system for random case assignment to increase transparency. As of 2021, the functional immunity of judges related to their decision-making was significantly reduced, to prevent arbitrary and poorly justified rulings, and a new offence of “abuse of law”, inspired by German law, was introduced to enable prosecution of judges for arbitrary, unlawful decisions.

Please consult the following websites for more information:

  1. Constitutional Court:
  2. Supreme Court:
  3. Supreme Administrative Court:
  4. Ministry of Justice, Analytical Centre, judicial map reform plan:
  5. EU Justice Scoreboard:
  6. European Commission 2021 Rule of Law Report:
  7. European Commission for the Efficiency of Justice (CEPEJ) 2017 report on the Slovak judiciary:

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 (see Section 1 for more detail).

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.

In the World Bank’s Doing Business 2020 report, the most recently published edition, Slovakia placed 45 out of 190 countries in the report’s overall ranking.

Please consult the following websites for more information:

  1. Ministry of Economy:
  2. Startup Visa: https://www.economy.gov.sk/inovacie/podnikatelsky-zamer-na-realizaciu-inovativneho-projektu
  3. Slovak Business Agency:
  4. Slovak Investment and Trade Development Agency:
  5. Information on requirements for investing or registering a business: https://sario.sk/sites/default/files/data/pdf/sario-invest-in-slovakia-ENG.pdf
  6. Central Public Administration Portal:
  7. Interior Ministry:
  8. World Bank Ease of Doing Business Ranking:

The Anti-Monopoly Office of the Slovak Republic is an independent body charged with the protection of economic competition.  This office intervenes in cases of cartels, abuse of a dominant position, vertical agreements, and validates that state aid and mergers comply with antitrust law. Decisions of the Anti-Monopoly Office can be appealed to an independent committee and, in the second instance, to administrative courts. The key antitrust legislation regarding fair competition is the Competition Law (136/2001 Coll.). Slovakia complies with EU competition policy. Certain decisions related to competition policy and enforcing competition rules are directly under the purview of the European Commission.

In January 2022, the Anti-Monopoly Office fined three Slovak companies nearly €9 million, the second highest issued fine in the authority’s history, for allegedly entering an illegal cartel agreement related to a €38 million renovation of an electricity substation for the Slovak transmission system operator. The involved companies appealed the decision to the Committee of the Anti-Monopoly Office and the case is pending.

Please consult the following website for more information:

  1. The Anti-Monopoly Office:
  2. The European Commission:

The Slovak Constitution guarantees the right to property.  There is an array of legal acts stipulating property rights, including the Constitution.  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 based on fair market value, and shall only occur when the goal of expropriation cannot be achieved through agreement or other means. In April 2021, the Slovak Parliament voted to extend by 10 years a sunset clause on expropriations of property for roads, which expired at the end of 2020. Expropriations are used by the government primarily for acquiring land on which planned highways are built, or large industrial parks, and only in the event that direct negotiations with landowners fail.

In February 2022, the government proposed, without prior stakeholder consultation, and adopted a 50 percent tax on “excess profit” from electricity generated in nuclear power plants. Reportedly, this would have cost Slovakia’s nuclear operator, a majority foreign-owned company (with state minority ownership), more than €300 million annually, depending on wholesale electricity prices. The proposed tax was withdrawn just before parliamentary approval, after the government and the utility signed an MOU, under which the electricity generation company will provide a set volume of electricity at below market rates for household consumers through the end of 2024. According to a joint press conference announcing the agreement, the government, in turn, agreed to not alter the business environment for the company through 2025. The company is reportedly set to lose an estimated €850 million on the deal.

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. In October 2021, a U.S. firm registered a request to commence arbitration proceedings against Slovakia at the ICSID, with a claim under the U.S.- Slovakia BIT related to oil and gas extraction. As of February 2022, the case remained pending.

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, the last one available, 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 for consumer disputes 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:

  1. List of alternative dispute resolution entities:
  2. List of permanent arbitration courts:
  3. List of Mediators:
  4. U.S.- Slovakia Bilateral Investment Treaty:
  5. Finance Ministry – International Arbitrations:
  6. Slovak Chamber of Commerce:
  7. World Bank Ease of Doing Business Ranking:

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. After its implementation, the International Monetary Fund praised this law for speeding up the bankruptcy 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 Law on Bankruptcy and Restructuring 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, with an average of four years for resolving insolvency.

Please consult the following websites for more information:

  1. Slovak Banking Credit Bureau:
  2. Non-Banking Credit Bureau:
  3. Justice Ministry:
  4. Insolvency Register:
  5. Dlznik.sk:
  6. Central Register of Debtors:

4. Industrial Policies

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, that companies can use to innovate their products, services, or technology through cooperation with research and development institutions. The Economy Ministry also provides special loans through its Investment Fund. Individual ministries run EU-supported projects to spur investment 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. The European Commission must approve state aid schemes above a certain threshold.

Producers of electricity from renewable sources receive feed-in-tariffs, which are included in the final cost of electricity paid by all consumers. The government also has numerous schemes in place to support clean energy investments, including energy storage, energy efficiency, low-carbon transport and fuels, and decarbonization. These schemes are managed by the Ministries of Economy and Environment and are primarily funded from the EU structural and investment funds and the EU Recovery and Resilience Facility. While Slovakia has made important progress in reducing carbon emissions and the share of renewables in its energy mix since the fall of communism in 1989, there is still significant potential for green investments to reduce the energy intensity and carbon footprint of the economy, which remain one of the highest in Europe.

Please consult the following websites for more information:

  1. Investment Aid:
  2. State Aid:
  3. Ministry for Investments, Information, and Regional Development:
  4. Recovery and Resilience Plan:
  5. Ministry of Economy:
  6. Ministry of Environment:

Slovakia eliminated all foreign trade zones and free ports in 2006.  There are no Special Economic Zones in the country.

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 signal transfer concealment must, at their own expense, provide information requested through a legally issued wiretap or network monitoring order 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 Ministry of Investments, Informatization, and Regional Development and the Office for Personal Data Protection.

Slovakia does not engage in “forced localization,” with the exception of military equipment tenders, where, in some cases, the involvement of the local defense industry is either specifically required or is considered in the evaluation of submitted bids.

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 Section 1 on Investment Incentives.

5. Protection of Property Rights

The mortgage market in Slovakia is growing rapidly and Slovak households are taking up new debt, primarily in the form of mortgages, at the highest rate in the European Union. In 2021, Slovakia enjoyed the third lowest interest rates among the EU countries, which oscillated around 1 percent. A reliable system of record keeping for both mortgages and liens 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.

The fragmentation of land ownership and complications in user relations in Slovakia have their roots in Hungarian inheritance law and later in collectivization. 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 relationships.  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. A dedicated web portal allows users to verify land information and property ownership.

Foreign individuals and private companies can acquire real property without restrictions.  In 2021, plans by the Hungarian government to buy Slovak agricultural land through its State Capital Fund met with fierce opposition in Slovakia. While diplomatic talks resulted in the proposed land purchases being withdrawn, in October 2021 the Agriculture Ministry launched an amendment to the Act on the Acquisition of Ownership of Agricultural Land (140/2014 Coll.), with the aim of preventing future foreign government purchases of agricultural land in Slovakia. New regulatory requirements introduced by the legislation include establishing preemption rights for the government and selected public entities and mandatory publication of all offers for the transfer of agricultural land and expressions of interest in such land. As of February 2022, the legislative amendment was not yet approved by parliament.

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:

  1. Cadastral portal on land and property ownership:
  2. World Bank Doing Business 2020:

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, Beijing Treaty on Audiovisual Performances, 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, the central government body that oversees industrial property protection including patents, and the Culture Ministry, 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, including the fight against counterfeit goods. Since a new president was appointed to lead the Financial Administration in 2020, the institution has become more open about its law-enforcement activities. In case of IPR infringements, 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. Intellectual property theft is uncommon in Slovakia.

In February 2021, the Slovak Parliament approved an amendment to the Copyright Act (185/2015 Coll.), which also transposed EU Directives on copyright 2019/790 and 2019/789 into law. The Amendment, which went into effect at the end of March 2022, brought an extension of mandatory copyright exceptions to include, for example, cultural heritage preservation; introduced a new regulation of obligations and rights in online content sharing services; rolled out new licensing possibilities and dispute resolution methods; and incorporated the country-of-origin principle. In January 2021, an amendment to the Broadcasting and Retransmission Act (308/2000 Coll.), the Telecommunications Act (195/2000 Coll.), and to the Act on Digital Broadcasting of Program Services and Provision of Other Content Services via Digital Transmission (220/2007 Coll.), came into effect, which brought deregulation, the liberalization of conditions for commercial media communication, and removed previous limitation on the number of broadcasting licenses available. Slovakia is not included in USTR’s Special 301 Report Watch Lists or the Notorious Markets List.

There were 1,826 suspected breaches of IPR in 2020 for goods imported from third countries (down from 2,781 cases in 2019), primarily in the form of perfumes, cosmetics, jewelry and accessories, sports shoes, and toys. The value of seized counterfeit goods decreased sixteen-fold from 2019 to €414,000. The number of domestic IPR infringement cases decreased from 1,108 in 2019 to 364 in 2020 with a respective decrease in value by 57.5 percent to €892,000. In November 2021, the Financial Administration, together with its Czech and Polish counterparts, disbanded an organized crime group of illicit tobacco producers operating in Slovakia and seized illicit goods with a market price of over €32 million.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at  http://www.wipo.int/directory/en/ .

Please consult the following websites for more information:

  1. Ministry of Culture, Copyright Act: and its current Amendment
  2. Intellectual Property:
  3. Industrial Property Office:
  4. Financial Administration:
  5. Financial Administration Annual Report for 2020 (latest):   https://www.financnasprava.sk//_img/pfsedit/Dokumenty_PFS/Zverejnovanie_dok/Vyrocne_spravy/FS/2021.06.04_VS_2020.pdf
  6. American Chamber of Commerce in the Slovak Republic:

6. Financial Sector

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 (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 2021, the total volume of transactions at the BSSE was slightly less than €240 million (a 23 percent increase compared to 2020).  As of December 31, 2021, the total nominal value of book-entry securities in Slovakia’s Central Depository of Securities reached €102 billion, compared to €94 billion in 2020. The nominal value of shares was roughly €37 billion and the value of bonds €64 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:

  1. Bratislava Stock Exchange:
  2. Central Depository of Securities:
  3. Central Bank of Slovakia:
  4. Central Register of Regulated Information:

Slovakia joined the Eurozone on January 1, 2009, becoming part of the Euro system, which forms the central banking system of the euro area within the European System of Central Banks.  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 more than €106 billion and the total capital adequacy ratio of Slovak banks was on average 19.67 percent at the end of 2021.

Significant negative impacts of the COVID-19 pandemic on the local banking sector, anticipated at the onset of the pandemic, have failed to fully materialize and the Slovak financial and banking sector continues to be stable and profitable. Owing to two serious waves of the pandemic crisis and associated closures of certain economic segments in early and late 2021, the non-performing loan (NPL) ratios increased slightly across all products but remained at sustainable levels with the ratio for non-performing housing loans standing at just 2.2 percent. The NPL ratio for consumer credit stood at 8.8 percent and the ratio for loans to non-financial corporations at 3 percent in September 2021. The net profit of Slovak banks in 2021 is estimated at €229 million, compared to €185 million in 2020 and €167 million in pre-pandemic 2019. The annualized return on equity of Slovak banks increased from 5.88 percent to 7.33 percent q-o-q in Q2 2021 and stood just below the EU median of 7.96 percent. The rise in profitability is attributed primarily to the abolishment of a special levy on the banking industry in 2021.

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:

  • Central Bank of Slovakia:

Foreign Exchange and Remittances

Foreign Exchange

Slovakia joined the Eurozone on January 1, 2009.  The exchange rate is free floating.

The Foreign Exchange Act (312/2004 Coll.) governs foreign exchange operations and allows for easy conversion or transfer of funds associated with an investment.  The Act liberalizes operations with financial derivatives and abolishes any limits on the export and import of domestic and foreign banknotes and coins.  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 US-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 Coll.), 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.

Slovakia does not impose limitations on remittances.  Dividends are taxed at seven 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:

  1. U.S.-Slovakia Bilateral Investment Treaty:
  2. U.S.- Slovakia Bilateral Taxation Treaty:
  3. MONEYVAL:

Slovakia does not maintain a Sovereign Wealth Fund.  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:

  • Slovak Investment Holding:

8. Responsible Business Conduct

Responsible Business Conduct (RBC) has not yet been officially defined nor standardized by the Slovak government. In 2018, the Slovak Association of Corporate Governance, a non-profit civic organization grouping CEOs and managers from two dozen companies, issued a Code of Administration for state-owned companies to be used as guidelines. Slovakia has adopted and agreed to support and monitor the implementation of the OECD Due Diligence Guidance for Responsible Business Conduct. The Ministry of Interior on its webpage refers to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. 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 in 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. In line with OECD Guidelines, Slovakia has adopted key legislation on product safety, protection of the economic interests of consumers, and legislative norms on consumer health protection enforced by the Department of Consumer Protection of the Ministry of Economy. The Slovak Trade Inspection authority supervises the implementation of Consumer Protection Act (634/1992 Coll.). Slovakia has accepted the United Nations Guiding Principles on Business and Human Rights and is setting up a working group tasked with preparing a national action plan on business and human rights. 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 Slovak Public Procurement Act has integrated several RBC objectives related into public procurements.

The NCP can be contacted here:

Ministry of Economy of the Slovak Republic
The Strategy Unit
Department of Bilateral Trade Cooperation
Mlynské nivy 44/A827 15 Bratislava 212
Slovak Republic
Tel.: +421 2 4854 2309 E-mail: nkm@mhsr.sk 

Slovakia’s principle human rights challenges are related to the poor living standards and societal discrimination of the sizable local Roma minority, which according to some estimates makes up nearly 10 percent of the total population of Slovakia. According to civil society organizations, a large part of the Slovak Roma minority lives in marginalized settlements without access to basic amenities and services, and faces discrimination in almost all aspects of life, including access to education and employment. Human rights organizations also cite a lack of acceptance in society and occasional instances of physical or verbal violence against members of the LGBTQI+ community. Inequities in the labor market affect women and mothers, where women are less likely to be offered employment and face a 15 percent pay gap. A lack of affordable childcare effectively prevents many women from reentering the labor market after maternity leave. There have not been any claims filed by indigenous or other communities for land or natural resources ownership. Slovakia adopted Act 330/1991 Coll. that regulates the process of land consolidation and ownership rights, under which an individual or entity whose property was wrongly confiscated may have ownership reinstated.

The Slovak government respects the rights of workers and enforces the law prohibiting child labor and discrimination effectively, though does not specifically prohibit discrimination based on HIV status. The law concerning acceptable conditions of work and occupational health and safety is enforced effectively. There have been occasional reports of abuse targeting migrant workers and members of the Roma minority by private employers. Despite progress in recent years, the Slovak government continues to face some challenges in effectively enforcing legislation prohibiting forced or compulsory labor and trafficking in persons. NGOs reported male and female migrants, especially from non-EU countries, substance abusers, people with disabilities, and marginalized Roma, and children in welfare systems or aging out of such systems were particularly vulnerable to become trafficking victims.

The Acts on Environmental Impact Assessment (24/2006 Coll.), Air (137/2010 Coll.), and Waste (313/2016 Coll.) govern environmental protection affecting businesses.  The mandatory Environmental Impact Assessment (EIA) process applies to a number of industries, including mining, energy, steel, chemical, pharmaceutical, wood, food, agriculture, and infrastructure projects.  The Act on Air defines legal obligations for emitters, 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.

Slovakia has corporate governance legislation that protects and facilitates the exercise of shareholder rights and ensures equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders have the right to obtain effective redress for violation of their rights and the right for compensation arrangements pursuant to this legislation. The primary sources of the legislation are the Commercial Code, the Accounting Act, and the Securities Act.

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.

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. The country also enforces similar domestic measure through Act 332/2020 Coll. regulating supply chain due diligence for companies that source minerals from conflict-affected areas.

Slovakia has ratified the Extractive Industry Transparency Initiative (EITI) but is not a participant in Voluntary Principles on Security and Human Rights Initiative (VP). 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).

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Slovakia’s environmental regulatory framework is in line with EU policies. Limits imposed by Slovak environmental legislation are stricter than the OECD average, though some critics note that implementation and environmental law enforcement lag. The government’s “Environmental Policy Strategy until 2030,” adopted in 2019, outlines a path toward increased environmental protection and minimizing the use of non-renewable natural resources by 2030. In 2020, Slovakia adopted its Integrated National Energy and Climate Plan (INECP) for 2021 to 2030 to meet its EU greenhouse gas emission (GHG) reduction commitments. The INECP addresses five dimensions: decarbonization, energy efficiency, energy security, internal energy markets and research, innovation, and competitiveness. Slovakia has committed to the EU Green Deal and endorsed the EU Commission’s “Fit for 55” legislative package, with the aim to achieve a 55 percent reduction of GHG emissions by 2030 and carbon neutrality by 2050. In January 2020, the Slovak government passed the “Low-Carbon Development Strategy until 2030 with a View to 2050.” This Strategy lays down a roadmap for moving to a low-carbon economy and introduces sectoral targets of GHG emission reductions through 2030. Both the INECP and the Low carbon Strategy are set to be updated in 2022, to reflect the new EU-wide GHG emission reduction target of 55 percent and updated EU emissions calculations.

The state provides regulatory incentives, many of which can be co-financed with EU funds. Some businesses have noted that the conditions for environmental compensations are often set inappropriately by administrators, resulting in incentive money being left on the table. In March 2022 the Environment Ministry reported that only by 38 percent of the total allocated for the State Program for Remediation of Environmental Burdens budget was expended.

Due to record-high prices of emission allowances and energy inputs starting in 2021, energy intensive industry leaders have advocated for higher levels of reimbursement from the Environmental Fund for modernization valued at over €1 billion, which is funded in part by emission allowances. The Fund returned €11million to industry as of March 2022, while in 2021 it was only €3 million. Some large industrial emitters are working with the government to develop comprehensive emission reduction action plans that include state aid schemes. Electromobility and hydrogen have been government priorities, with the government providing subsidies to consumers for electric cars purchases and grants. State energy authorities have been working on a plan to increase electricity network capacity, solutions to which may be an opportunity for foreign investment.

As one of the EU’s most industrialized countries with a large energy-intensive economy, Slovakia will have to invest significant public and private resources to achieve its ambitious climate and environmental objectives. Slovakia has allocated €2.17 billion of its €6.3 billion Recovery and Resilience Plan towards green investments in energy efficiency and building renovation, renewable energy, sustainable transport, decarbonization, and climate adaption and biodiversity. Some 40 percent of the €13 billion of European Structural and Investments Funds available to Slovakia in the 2021-2027 programing period will also be spent on green investments. Polluters are able to access significant public funding for projects related to decarbonization, energy efficiency, energy storage, and renewable sources from the Modernization Fund and the Environmental Fund, which are funded from profits from Emission Trading Schemes (including the EU ETS) covering about 50 percent of all emissions. Slovakia is also eligible for nearly €1 billion in EU funding from the EU’s “Just Transition Fund” to transition away from coal. Slovakia committed to end the use of domestic coal in electricity and heat generation by 2023. It pledged to end state aid for coal mining beginning January 2024.

In January 2022, the government launched a new deposit return scheme for plastic bottles and aluminum cans in which larger retailers are required to participate. The government’s aim is to achieve a ninety percent return rate of recyclable packaging by 2025.

Agriculture is a sector vulnerable to both climate change and especially effected by environmental legislation related to land use, animal husbandry practices, and herbicide/pesticide use. In February 2022, the Slovak government approved a Strategic Plan of the Common Agricultural Policy for 2023-2027, which included EU-wide priorities on environmental protection and a domestic focus on modernization and innovation with a budget of €4.3 billion.

The Slovak Environmental Inspectorate provides regulatory relief to certified companies by reducing the frequency of inspections to once every ten years. Landowners are granted property tax relief for land use choices, such as leaving intact habitats such as swamps, sodium-rich soils, peat bogs and groves, windbreaks, and water protection zones. Slovakia also introduced tax incentives for environmentally friendlier modes of transport such as a tax exemption for electricity and natural gas in railway, water, and public transport. Slovakia is active in green public procurement and has a National Action Plan for Green Public Procurement (GPP) in place that mandates that central and local contracting authorities apply GPP rules. The Slovak Environment Agency organizes educational activities on green public procurement for public authorities. Within its Strategy for a Greener Slovakia, a component of the Environmental Policy Strategy, the Slovak government committed that GPP will cover at least 70 percent of the total value of public procurement by 2030. The strategy also obliges contracting authorities that carry out ten or more public procurement procedures in a calendar year to make environmental considerations in at least six percent of contracts; reduce negative environmental impacts of the procurement; contribute to environment protection; promote adaptation to climate change; and support sustainable development.

Slovakia ranked 20 on the 2021 Global Energy Innovation Index, up four places from 2016. It scored 4.4 points in the MIT Technology Review’s Green Future Index, putting it at 50th place. According to Global Green Growth Institute’s 2019-2020 Global Green Growth Index, Slovakia ranked 7 in Europe, improving 10 places since 2005.

Please consult the following websites for more information:

  1. Environment Ministry’s Law Carbon Strategy:
  2. Economy Ministry’s Integrated National Energy and Climate Plan:
  3. Ministry of Agriculture:
  4. Recovery and Resilience Plan, Green Economy Section:
  5. Action Plan for the Transformation of the Upper Nitra Region:

9. Corruption

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 (UNTOC), the UN Anti-Corruption Convention (UNCAC), 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) and the Open Government Partnership (OGP). The Corruption Prevention Department of the Prime Minister’s Office is a member of the Council of Europe’s Network of Corruption Prevention Authorities. Slovakia is a party to the International Anti-Corruption Academy (IACA).

Giving or accepting a bribe constitutes a criminal act according to Slovak law.  Since 2021, the law was expanded to include a definition of indirect corruption, making it a crime to accept or offer unjustified benefits or undue advantages. Slovak criminal law incorporates criminal liability for legal persons, including corporations.

A major concern for years among the business community, data suggest that corruption concerns among the public and investors are improving.  According to the Special Eurobarometer survey from December 2019, the latest one available, 79 percent of respondents believed that corruption is part of Slovakia’s business culture (above the EU average of 61 percent).  However, in Transparency International’s 2021 Corruption Perceptions Index, Slovakia ranked 56 out of 180 countries, up four spots since 2020, and improved its score to its all-time best.  Thirty-nine percent of Slovak respondents in Transparency’s 2021 Global Corruption Barometer, indicated a decrease in their perceptions of the level of corruption over the previous year and 61 percent said the government is doing well in tackling corruption. The trend stands out in the Visegrad region and is attributed to the increased efforts and performance in the investigation and prosecution of corruption, as well as the government’s anti-corruption measures. There is no data available on whether U.S. firms identify corruption as an obstacle to foreign direct investment. A regular survey conducted by seven foreign chambers of commerce showed positive movement in the business community’s assessment of the government’s fight against crime corruption, moving from a negative attribute in surveys since 2004 to a neutral one in 2021.

The ruling coalition’s agenda has focused heavily on strengthening anti-corruption measures.  In 2020, it amended legislation regulating selection procedures for the Prosecutor General and the Special Prosecutor, and introduced new leadership in key law enforcement institutions. A new Whistleblower Protection Office commenced operations in September 2021.  In 2019, Parliament streamlined an anti-shell company law that requires private companies to reveal their ownership structure in the Register of Public Sector Partners before entering into business contracts with public entities.  Disclosure of contracts in the Central Registry of Contracts by public authorities and state-owned enterprises is compulsory.  In addition to EU legislation, the public procurement law provides for fair and transparent government procurement, and the Public Procurement Office (PPO) oversees its implementation, including countering possible conflicts of interest. The PPO has a reputation for being effective and independent. A major reform of public procurement law designed to reduce red tape and gold-plating by speeding up procurements organized by government agencies and municipalities entered into force in March 2022. Since 2021, a new law on asset seizure and forfeiture prevents the legalization of assets through their transfer to third parties, and thus extends to family members or close associates. A new Office for the Management of Seized Assets operational from August 2021 should provide for streamlining of the related processes in close cooperation with law enforcement.

In January 2020, a regulation on conflicts of interest in the civil service was adopted by Cabinet decree, introducing a Code of Conduct for Civil Servants (400/2019 Coll.). 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.   In its Integrity Review, the OECD recommends Slovakia consider strengthening institutional and technological capacity to process, verify, and audit asset declarations for public officials, and to strengthen parliamentary oversight of adherence to integrity standards. Despite the government’s commitment to address the absence of lobbying regulation, neither a regulatory framework for lobbying nor an associated mandatory register of lobbyists and a code of conduct have been introduced. The OECD Integrity Review published in March 2022 acknowledges Slovakia’s progress towards a strategic approach to public integrity but recommends a range of measures to step up its implementation and delivery of goals. These include applying a risk-based approach, allocating appropriate financial resources, strengthening monitoring and evaluation, and fostering a culture of public integrity.

Corruption related probes, including those against former high-ranking officials and influential businesspeople advanced in 2021; during which 136 individuals were indicted for corruption-related crimes, up from 124 in 2020 and 83 in 2019. From 2019-2021 a number of judges, the former Prosecutor General, the former Special Prosecutor, the former Economy and Environment Minister, former Deputy Ministers of Justice and Finance, two former Police Corps Presidents, two former Financial Administration Presidents, several high-ranking Agriculture Ministry officials, several businesspeople and lawyers were charged with corruption, interference in the independence of courts, and organized crime.  At least 26 former officials pleaded guilty.

Government authorities do not require private companies to establish internal codes of conduct that would prohibit bribery of public officials. However, businesses have adopted such measures voluntarily, especially those with foreign ownership that often have company-wide internal codes of conduct. In many cases such companies extend these codes of conduct to their contractors.  Public entities and private companies with at least 50 employees are required by law to set up an internal channel to report corruption or unlawful conduct.

NGOs investigating corruption do not enjoy any special protection, however, they are regularly consulted by government agencies, such as the Prime Minister’s Office, the Ministry of Justice, and the Public Procurement Office.

Please consult the following websites for more information:

  1. European Commission, Special Eurobarometer 502, Corruption, December 2019:
  2. Transparency International 2021 Corruption Perceptions Index:
  3. Transparency International 2021 Global Corruption Barometer – European Union:
  4. Spring 2021 Foreign Chambers of Commerce Joint Survey:
  5. GRECO’s 5th Evaluation Round Compliance Report on the Slovak Republic, 2021:
  6. OECD Integrity Review of the Slovak Republic, March 3, 2022:
  7. Whistleblower Protection Office:
  8. The Register of Public Sector Partners:
  9. Central Registry of Contracts:
  10. Public Procurement Office:
  11. Office for the Management of Seized Assets:
  12. Code of Conduct for Civil Servants:

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 

Lubomir Danko
Director of the National Criminal Agency
Ministry of Interior, National Police Headquarters
Racianska 45
812 72 Bratislava
Telephone: +421 964052102
Lubomir.Danko@minv.sk 

Contact details of “watchdog” organizations:

Michal Pisko
Executive Director
Transparency International Slovakia
Bajkalska 25
82718 Bratislava
Telephone: +421 905 613 779
pisko@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

Hubeneho 7
P. O. Box 75
830 05 Bratislava
Telephone: +421 911 724 189
kunder@fair-play.sk 

10. Political and Security Environment

Politically motivated violence and civil disturbances are rare in Slovakia, but as the government continued imposing stringent measures and a series of lockdowns in response to the COVID-19 pandemic, the country has seen an increase in the number of anti-government demonstrations. The protests often attracted hundreds to thousands of people and remained largely peaceful, though several protests resulted in minor damage to government property, riot police intervention, traffic disruptions, arrests, and minor injuries to police officers and participants. During two separate protests against anti-pandemic measures in July 2021, protestors paralyzed traffic in downtown Bratislava for several hours and verbally and physically harassed journalists. One of the protests resulted in a crowd of several dozen attempting to forcibly enter the parliament building.

There have been no recent reports of politically motivated damage to property, projects, and installations nor violence directed toward foreign-owned companies. However, in October and November 2021, coordinated groups targeted large grocery stores (which were generally international grocery retailers) for anti-mask defiance actions, in protest against anti-pandemic measures. On several occasions the incidents resulted in hours-long store closures, causing financial losses to the retailers. In response, an association of the largest companies in retail and wholesale sector in Slovakia, including Billa, Kaufland, Lidl, Metro, and Tesco, issued a call to public authorities to urgently address the situation and take swift and effective action, which drew increased police engagement. There have been no recent reports of similar incidents after government relaxed anti-pandemic rules.

The two years of the COVID-19 pandemic measures and their politicization, as well as an antagonistic domestic political scene have contributed to increased political and societal polarization and made space for extremist rhetoric in the mainstream. While some threats were made against Slovak politicians for their support of a politicized international agreement, there have been no reports, however, of actual politically motivated violence.

11. Labor Policies and Practices

Slovakia is one of the most industrialized economies in the EU with almost 28 percent of the workforce employed in industry, 70 percent in services (including construction), and the rest in agriculture.  After a sharp increase in the unemployment rate during the first year of the COVID-19 pandemic, the unemployment rate declined in 2021, dropping from 7.81 percent in January 2021 to 6.96 percent in January 2022, though unemployment still remained well above the pre-pandemic low of 4.92 percent in December 2019.  Long-term unemployment remains prevalent in poorer regions, especially in the marginalized Roma communities.

Foreign companies frequently praise the labor force’s motivation and productivity, and especially commend younger workers for their proficiency with foreign languages.  However, businesses consistently 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 the education system’s insufficient focus on teaching critical thinking and soft skills.  Slovak PISA (Program for International Student Assessment) scores are persistently below the EU average. 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 4 percent to €646 per month in 2022.  Nominal wages grew by 6.8 percent and real wages by 3.5 percent in 2021.  The average nominal wage in 2021 increased to €1,171 per month, with wages in the wholesale and hospitality segments increasing the most at 15 and 10 percent y-o-y, respectively. In 2020, the average hourly labor cost was €13.40, significantly lower than the EU average of €28.50.  According to Eurostat, the gender pay gap declined from 19.8 to 15.8 percent between 2018 and 2020 but remained above the EU average of 13 percent. The gender employment gap stood at 7.3 percent in 2020.  A lack of childcare facilities for children below three years of age combined with three years of paid maternity and parental leave discourages mothers from returning to work and aggravates the gender pay gap.  According to the European Commission Education and Training Monitor from January 2022, participation in early childhood education in Slovakia remains among the lowest in the EU.  As part of its Recovery and Resilience Plan, Slovakia has allocated significant resources to improve the availability of formal childcare and early childhood education.

The Slovak Labor Code (311/2001 Coll.) 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.  Employers also note that the system for determining the annual increase in the minimum wage are disconnected from productivity gains, weighing on production costs and reducing the competitiveness of local businesses in comparison to foreign competitors.

As of March 2022, a permanent “kurzarbeit” social insurance program entered into force, under which employers may reduce their employees’ work hours instead of laying them off, while receiving a government subsidy of up to 60 percent of a worker’s salary. The “kurzarbeit” scheme may be triggered in an extraordinary situation, including for example the COVID-19 pandemic.

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 reducing the wait time for work permits to 20 days.

The number of foreign nationals from both EU and non-EU countries in the Slovak labor market had been steadily increasing since Slovakia’s 2004 accession to the EU but saw a dip at the onset of the COVID-19 pandemic. In 2021 there were 167,000 foreign nationals residing in Slovakia, of which 66,000 were legally employed. The number of Ukrainian workers in the Slovak labor market, who together with Serbian nationals already accounted for 80 percent of all non-EU foreign laborers, is expected to rise exponentially in connection with the Russian invasion of Ukraine and the decision of the Slovak government to extend a temporary refuge status to all Ukrainian nationals fleeing war, which permits their stay and enables status holders to legally work and access government services.

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 legally unemployed, although many are believed to work in the informal economy.

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, ranging from two to three months’ severance pay, depending 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 – the employer’s combined social and health contributions amount to 35 percent of wages. The combined tax and mandatory contribution cost-wedge on labor in Slovakia is above average in the region and may discourage legal employment. According to the World Bank Informal Economy Database, the informal economy in Slovakia represented 16.1 percent of GDP in 2018 but experts asserted that the share likely declined since then, consistent with a gradually improving tax collection rate.

Collective bargaining is voluntary and takes place without interference from the state. There is a formal trilogue used in negotiating national minimum wage levels for the following year. In absence of an agreement, which has been the norm for several years, the minimum wage is automatically adjusted using a mathematical formula based on average wages. Provisions agreed in multi-employer 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 mechanisms for dealing with collective labor disputes is conciliation – 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 employer associations.  Slovakia is a member of the International Labor Organization and has ratified all eight core conventions.  Labor strikes are infrequent in Slovakia.  In February 2022, truck drivers organized a series of smaller scale strikes, disrupting traffic at major thoroughfares and border crossing points.

Please consult the following websites for more information:

  1. The European Commission Country Report – Slovakia 2020:
  2. OECD Economic Survey – Slovak Republic 2022:
  3. Central Office of Labor, Social Affairs and Family:

14. Contact for More Information

Senior Economic Officer
U.S. Embassy Bratislava
Hviezdoslavovo námestie
+421 (2) 5922 3069