Transparency of the Regulatory System
Businesses in Slovakia frequently complain about the country’s complex and unpredictable legislative and regulatory environment. The current ruling coalition has undertaken some efforts to address this issue. As of June 1, 2022, all government ministries as well as 20 non-ministry central government institutions are legally bound to adhere to a “one-in-two-out” principle, meaning every new regulation that will increase the administrative burden by €1 must be matched with a proposal to decrease the administrative burden by €2. The Ministry of Economy flags violations through a mandatory interdepartmental consultation procedure on all draft legislation and prepares an annual report on implementation of the rule.
Regulations are drafted on the local and national level. The Legislative and Information Portal of the Ministry of Justice, Slov-Lex, is a publicly accessible centralized online portal for laws and regulations, including draft texts and information about the interdepartmental and public review processes. Draft bills, including investment laws proposed by ministries through a standard legislative procedure, are available for public comment through the portal, with a comment period of usually between two to three weeks, although this period may be shortened to one week in some cases, leaving little time for public comment. Affected business associations note that government reactions to comments are often superficial and generic.
While the process of the government proposing and adopting new laws and regulations follows clearly defined rules, MPs or parliamentary groups have the option of proposing legislation without having to adhere to the same legislative rules and without public consultations, thus rendering the legislative process less predictable and less transparent. Legislators sometimes apply the “accelerated legislative procedure,” which allows for limited or no public consultation and is, by law, conditioned on extraordinary circumstances, threat to public safety, or imminent economic damage. In an effort to reduce abuse of the procedure, the President has repeatedly exercised her suspensive veto right in cases when the accelerated procedure was used to pass legislation without clearly meeting this criteria. In 2022, the President also referred an act passed through the accelerated procedure to the Constitutional Court, which ruled that conditions for an accelerated procedure had not been met, struck down the legislation, and formulated a new binding doctrine related to the use of the procedure.
Legislation and regulations are, in most cases, not reviewed using scientific data assessments and critics assert that some mandatory impact assessments are conducted superficially. Analytical institutes at some ministries produce data-driven assessments of proposed policies or large investment projects, but not all ministries have the personnel and/or technical capacity to ensure a uniform and high-quality level of data-driven policymaking across the whole of government. Impact assessments for proposed legislation are available online, as are most policy and/or investment assessments prepared by the analytical units at government ministries.
The Commercial Code ( 98/1991 Coll.) and the Economic Competition Protection Act (136/2001 Coll.) govern competition policy in Slovakia. As an EU Member State, Slovakia follows relevant EU legislation. The Anti-Monopoly Office, a part of the EU’s European Competition Network (ECN), is an independent and neutral state administrative body responsible for ensuring a competitive marketplace.
The Public Procurement Office (PPO) is an independent authority responsible for the supervision and regulation of public procurement. Public procurement legislation is frequently amended in the pursuit of striking a balance between protecting competition and preventing corruption, while keeping the bureaucratic burden and average tendering time at acceptable levels. The PPO has made efforts to improve transparency and communication with stakeholders, as well as to strengthen supervisory activities. Since March 2021, the PPO accepts self-declarations from U.S. companies that are bidding in public procurements, rather than requiring companies to produce non-standard documentation issued by U.S. state or federal entities – which had been overly burdensome to obtain. In March 2022, an amendment to the public procurement act entered into force that increased the minimum procurement value for required public tenders from €5,000 to €10,000. Additionally, it limits repetitive formal complaints, put in place to prevent abuse of the complaint procedures as a means to stall tenders. The amendment also introduced changes to increase the transparency of the tendering process through digitization, strengthen the independence of the PPO, and prohibit selected public servants from doing business with the state.
Oversight over the legality of administrative and regulatory processes, and decisions of the central government, as well as municipalities, is carried out by the prosecution service and a dedicated administrative court system consisting of first-instance courts and a Supreme Administrative Court. Complaints related to administrative malpractice can also be raised with the Public Defender of Rights and, in cases where complaints include breaches of fundamental rights and freedoms, also in the Constitutional Court.
The government does not currently require companies’ environmental, social, and governance (ESG) disclosure. However, as an EU member state, Slovakia is bound by the EU Taxonomy Regulation, which seeks to create a common framework to determine whether certain economic activities can be regarded as environmentally sustainable. All measures implemented through Slovakia’s Recovery and Resilience Plan, including investments and reforms, must be in line with the environmental objectives laid down by the EU Taxonomy.
As an EU Member State, Slovakia conforms to the European System of National and Regional Accounts (ESA 2010), which is the EU’s most recent internationally compatible accounting framework, as well as the International Financial Reporting Standards (IFRS-EU). Slovakia meets the minimum criteria of the U.S. Fiscal Transparency Report. State budget proposals, enacted budgets, and closing statements are substantially complete and publicly available. Although departures from budget goals are common, these are mostly connected to external factors such as the COVID-19 pandemic and Russia’s war against Ukraine, and remain well below 10 percent of the overall budget. Over the past years, the government has introduced a number of changes that have improved fiscal transparency and led to better forecasting. The Ministry of Finance publishes monthly reviews of budget execution, which provide an overview of public revenues and expenditures broken down by source and type. Annex 6 of the State budget describes the Debt Management Strategy including volume, total cost, debt service, structure, financing, forecast, and risk assessments.
In April 2022, Parliament approved sweeping changes to construction and zoning legislation with the aim to significantly accelerate, streamline, and digitize the process of obtaining construction permits and prevent the ex-post legalization of buildings built without requisite permits. Due to its complexity, the new legislation is scheduled to enter into force in April 2024.
International Regulatory Considerations
Slovakia is subject to European Court of Justice (ECJ) jurisdiction and must comply with all EU legislation and standards, including the Trade Facilitation Agreement (TFA). The national regulatory system is enforced in areas not governed by EU regulatory mechanisms. Slovakia is a WTO member, and the government notifies the WTO Committee on Technical Barriers to Trade of changes to technical regulations.
Legal System and Judicial Independence
Slovakia is a civil law country. The Slovak judicial system is comprised of the Constitutional Court and general courts, including the Specialized Criminal Court, the Supreme Court, and the Supreme Administrative Court. General courts decide civil, commercial, and criminal matters, and review the legality of decisions by administrative bodies. As of June 2023, a new system of three separate first-instance administrative courts will enter into force as part of a wider judicial reform. The Supreme Administrative Court serves as the second-instance administrative court, and as a disciplinary court for judges, prosecutors, and some other legal professions. The Specialized Criminal Court focuses on cases involving corruption, organized crime, serious crimes like premeditated murder, crimes committed by senior public officials, and crimes related to extremism, such as hate crimes. Enforcement actions are appealable and are adjudicated in the national court system. The right to appeal regulations is limited to some state institutions and selected public officials.
The Slovak Constitution and the European Convention on Human Rights guarantee property rights. Slovakia has a written Commercial Code and Civil Code including contract law in the civil and commercial sectors. The basic framework for investment protection and dispute resolution between Slovakia and the U.S. is outlined in the 1992 U.S.-Slovakia Bilateral Investment Treaty.
Court rulings by EU Member States are recognized and enforced in compliance with existing EU regulations. Third country rulings are governed by bilateral treaties or by the Act on International Private Law. Contracts are enforced through litigation or arbitration.
While laws guarantee judicial independence, Slovak public perception is among the lowest in the EU. According to the 2022 EU Justice Scoreboard, 25 percent of the general public and 29 percent of the business community rated the independence of the justice system as “very” or “fairly” good. Only 33 percent tend to trust the justice and legal system in Slovakia, based on the Winter 2022 – 2023 Eurobarometer survey. In 2019 and 2020, law enforcement authorities opened numerous investigations into judicial corruption, arresting approximately 20 judges on suspicion of corruption, while several additional judges resigned from office amid allegations of misconduct. Businesses and NGOs report that the justice system remains relatively slow and inefficient, characterizing some verdicts as unpredictable and poorly justified. Investors generally prefer international arbitration to resolution in the national court system.
The government is pursuing an ambitious set of judicial reforms, aiming to address alleged corruption ties at local levels, low public trust, and inefficiency. It is also following the recommendations of the Council of Europe Commission for the Efficiency of Justice (CEPEJ) in its reforms. Judges remain divided on the need for reform, even as changes to the court system are scheduled to enter into force in June 2023. Accountability mechanisms ensuring judicial impartiality and independence are used with more frequency, including disciplinary proceedings and a more efficient asset verification of judicial officials. Courts use a digital system for random case assignment to increase transparency. As of 2021, the government significantly reduced the functional immunity of judges related to their discretion in decision-making to prevent arbitrary and poorly justified rulings, introducing a new criminal offence of “abuse of law,” inspired by German law. In February 2023, a Slovak court handed down the first sentence under this criminal statute.
Laws and Regulations on Foreign Direct Investment
Slovakia is a politically and economically safe destination for foreign investment. Investment incentives are available to motivate investors to place new projects in regions with higher unemployment and to attract projects with higher added value. In March 2023, a new comprehensive national security screening mechanism for high-risk foreign investments entered into force (see Section 1 for more detail).
The Slovak Investment and Trade Development Agency (SARIO) is a specialized government agency in charge of attracting foreign investments to Slovakia and serves as a one-stop shop. Their website offers easily accessible information on laws, rules, procedures, and reporting requirements relevant to investors or those wanting to register a business. The Slovak Business Agency (SBA) runs a National Business Center (NBC) in Bratislava and several other cities; it provides information and services for starting and establishing businesses. Startups can use a simplified procedure to register their company in order to facilitate the entry of potential investors. The Interior Ministry operates Client Centers around the country where many formal administrative procedures can be completed under one roof.
In the World Bank’s Doing Business 2020 report Slovakia placed 45 out of 190 countries in the report’s overall ranking.
Competition and Antitrust Laws
The Anti-Monopoly Office of the Slovak Republic is an independent body tasked with the protection of economic competition. This office intervenes in cases of cartels, abuse of a dominant position, vertical agreements, and validates that state aid and mergers comply with antitrust law. Decisions of the Anti-Monopoly Office can be appealed to an independent Council and, in the second instance, to administrative courts. The key antitrust legislation regarding fair competition is the Competition Law (136/2001 Coll.). Slovakia complies with EU competition policy. Certain decisions related to competition policy and enforcing competition rules are directly under the purview of the European Commission.
In January 2022, the Anti-Monopoly Office fined three Slovak companies nearly €9 million, the second highest issued fine in the institution’s history, for allegedly entering an illegal cartel agreement related to a €38 million renovation of an electricity substation for the Slovak transmission system operator. The involved companies appealed the decision to the Council of the Anti-Monopoly Office, which in February 2023 overturned the first-instance decision and returned the matter to the lower instance for additional investigation.
Expropriation and Compensation
The Slovak Constitution guarantees the right to property and there is an array of additional legal acts stipulating property rights. The Act on Expropriation of Land and Buildings (282/2015 Coll.) mandates that expropriation must only occur to the extent necessary, be in the public interest, provide appropriate compensation based on fair market value, and shall only occur when the goal of expropriation cannot be achieved through agreement or other means. In April 2021, the Slovak Parliament voted to extend by 10 years a sunset clause on expropriations of property for roads, which expired at the end of 2020. Expropriations are used by the government primarily for acquiring land on which planned highways are built, or large industrial parks, and only in the event that direct negotiations with landowners fail.
In December 2022, Parliament approved in an accelerated legislative procedure a new 55 percent “solidarity contribution” on “excess profit” generated by companies active in the segment of oil, natural gas, coal, or refineries (Act 519/2022 Coll.). In March 2023, Parliament further increased the contribution to 70 percent for fiscal year 2023. The contribution, which is based on EU Council Regulation 2022/1854, is payable also retroactively for fiscal year 2022 on all profit exceeding 120 percent of the average profit over the past five years. Representatives of Slovakia’s sole oil refinery, which is expected to be the primary contributor under the new tax, have called the contribution discriminatory, and have announced plans to launch arbitration proceedings against Slovakia. Industry representatives argue that by selecting a 55, and later 70, percent rate, Slovak authorities went well beyond the minimum 33 percent rate recommended by the EU Regulation, thereby harming the interests of business operating in Slovakia and damaging their competitiveness.
In response to surging energy prices, in 2022 the government issued several decrees and regulations under “general economic interest” statutes, requiring the suppliers of electricity, gas, and heat to provide their commodities to households and other “vulnerable consumers” at well-below-market prices. While the government announced that suppliers would be duly compensated, as of March 2023 it remains unclear when, how, and to what extent.
Dispute Settlement
ICSID Convention and New York Convention
Slovakia is a contracting state to the International Centre for Settling International Disputes (ICSID) and the World Bank’s Commercial Arbitration Tribunal (established under the 1966 Washington Convention). Slovakia is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitrage Awards, which obligates Slovakia to accept binding international arbitration. The Finance Ministry leads on bilateral investment treaty matters and manages and represents Slovakia in international arbitration. Investment contracts with foreign investors in Slovakia are covered by respective ministries depending on the sector, in most cases by the Ministry of Economy.
Investor-State Dispute Settlement
The basic framework for investment protection and dispute resolution between Slovakia and the United States is the 1992 U.S.-Slovakia Bilateral Investment Treaty with an additional protocol that came into force in 2004 when Slovakia joined the EU.
To date, twelve known cases of international arbitration have concluded. In October 2021, a U.S. firm registered a request to commence arbitration proceedings against Slovakia at the ICSID, with a claim related to oil and gas extraction.
The legal system generally enforces property and contractual rights, but decisions are often protracted. According to the World Bank Doing Business 2020 report, Slovakia ranked 46 out of 190 countries in the “enforcing contracts” indicator, with a 775-day average for enforcing contracts. The report notes that Slovakia simplified the process by implementing electronic processing services. Slovak courts recognize and enforce foreign judgments, subject to the same delays.
Although the commercial code and other legislation generally appear to be applied consistently, the business community continues to cite limited protection of creditor rights, corruption, political influence, lengthy procedures, obstruction related to environmental impact assessments and permitting, and weak enforcement of court rulings as persistent problems. U.S. and other investors have described instances of multi-million-dollar losses that were settled out of court.
International Commercial Arbitration and Foreign Courts
There are two acts applicable to alternative dispute resolution in Slovakia – the Act on Mediation (420/2004 Coll.) and the Act on Arbitration (244/2002 Coll.). The Slovak Act on Arbitration is largely modeled after the UNCITRAL model law. Local courts in Slovakia recognize and enforce foreign arbitral awards.
Alternative dispute resolution mechanisms in Slovakia are relatively fast compared to the court system. The list of permanent arbitration courts authorized by the Slovak Ministry of Justice is published on the Ministry’s website. Decisions should be reached within 90 days of filing. It is possible to lodge an appeal to a civil court against an arbitration decision within three months of the date of its issuance or lodge a complaint about an arbitration decision to the chairman of the permanent arbitration court or to the Ministry of Justice.
Alternative dispute resolution proceedings for consumer disputes can also be initiated by filing a motion with one of the alternative dispute resolution entities from a list maintained by the Ministry of Economy. Dispute settlement takes place through written communication and has a 90-day timeframe for completion. Unless the parties reach an agreement, the alternative dispute resolution entity will prepare a justified opinion. If any attempt to settle the dispute by mutual agreement fails, and the arbitration entity issues an opinion, there is no avenue for appeal.
The other option for extrajudicial dispute settlement is mediation. Mediation can be used even after a court proceeding has started. The agreement resulting from mediation is legally enforceable only if it has the form of a notarial record or court settlement. The list of mediators is published on the website of the Association of Mediators. In the case of an unsuccessful mediation, parties can still take the case to arbitration or to court.
Bankruptcy Regulations
The Bankruptcy and Restructuring Act (377/2016 Coll.) governs bankruptcy issues. Companies can undergo court-protected restructuring, and both individuals and companies can discharge their debts through bankruptcy. After its implementation, the International Monetary Fund praised this law for speeding up the bankruptcy process, strengthening creditor rights, limiting the discretion bankruptcy judges may use in adjudicating cases, and randomizing the allocation of cases to judges to reduce potential corruption. The Bankruptcy and Restructuring Act contains provisions to prevent preferential treatment for creditors over company shareholders, reduce arbitrariness in bankruptcy administrators’ conduct, and impose stricter liability rules for those initiating the bankruptcy proceedings. In March 2023, the Parliament narrowly rejected an amendment to the law, which would have introduced more transparency related to debtors and ongoing insolvency and restructuring proceedings. The Government is expected to re-introduce the amendment later in 2023. The Commercial Code also contains provisions on bankruptcy and restructuring preventing speculative mergers during ongoing bankruptcy proceedings.