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.
1. Openness To, and Restrictions Upon, Foreign Investment
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.
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
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
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.
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.
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.
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.
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.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
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.
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.
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
Transparency International Hungary
Falk Miksa utca 30. 4/2
Phone: +36 1 269 9534
Fax: +36 1 269 9535
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
+36 1 475 4400
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.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
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.
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.
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.
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/
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).
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).
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
U.S. Embassy Warsaw
+48 22 504 2000
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
Investment incentives, including for foreign investors
A firm government commitment to EU deficit and debt targets
A sound banking sector deeply integrated with Europe
Negative aspects of the Slovak investment climate include:
High sensitivity to regional economic developments
Weak public administration and an inefficient judiciary
Significant regional disparities, suboptimal national transport network
Low rates of public and private R&D investment
Heavy reliance on EU structural funds, chronic deficiencies in allocation of funds
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
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
Tel.: +421 2 4854 2309 E-mail: firstname.lastname@example.org
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).
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:
Environment Ministry’s Law Carbon Strategy:
Economy Ministry’s Integrated National Energy and Climate Plan:
Ministry of Agriculture:
Recovery and Resilience Plan, Green Economy Section:
Action Plan for the Transformation of the Upper Nitra Region:
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:
European Commission, Special Eurobarometer 502, Corruption, December 2019:
Transparency International 2021 Corruption Perceptions Index:
Transparency International 2021 Global Corruption Barometer – European Union:
Spring 2021 Foreign Chambers of Commerce Joint Survey:
GRECO’s 5th Evaluation Round Compliance Report on the Slovak Republic, 2021:
OECD Integrity Review of the Slovak Republic, March 3, 2022:
Whistleblower Protection Office:
The Register of Public Sector Partners:
Central Registry of Contracts:
Public Procurement Office:
Office for the Management of Seized Assets:
Code of Conduct for Civil Servants:
Resources to Report Corruption
Contact details of government agencies responsible for combating corruption:
Head of the Special Prosecutor’s Office
Office of the Special Prosecution under the General Prosecutor’s Office
902 01 Pezinok
Telephone: +421 33 690 3171 Daniel.Lipsic@genpro.gov.sk
Director of the National Criminal Agency
Ministry of Interior, National Police Headquarters
812 72 Bratislava
Telephone: +421 964052102 Lubomir.Danko@minv.sk
Contact details of “watchdog” organizations:
Transparency International Slovakia
Telephone: +421 905 613 779 email@example.com
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:
The European Commission Country Report – Slovakia 2020:
OECD Economic Survey – Slovak Republic 2022:
Central Office of Labor, Social Affairs and Family:
14. Contact for More Information
Senior Economic Officer
U.S. Embassy Bratislava
+421 (2) 5922 3069