HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Slovak Republic

# 					2018 Investment Climate Statements: Slovak Republic			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

With a population of 5.4 million, the Slovak Republic is a small, open, export-oriented economy. Slovakia joined the European Union (EU) in 2004 and the Eurozone in 2009. In 2017 Slovak GDP grew by an estimated 3.4 percent, fueled by increased domestic consumption and strong labor market recovery, and good economic growth is projected for the coming years.

A favorable geographic location in the heart of Central Europe, relatively low-cost yet skilled labor force, and a generally investment -friendly climate make Slovakia an attractive destination for foreign direct investment (FDI). Many established companies continue to make new investments in their production facilities, and only a few major investors have exited.

Nevertheless, businesses begin to feel a growing tightness in the labor market, and Slovakia’s immigration policies make it difficult to employ large numbers of workers from outside the EU. Social insurance contributions are compulsory and include healthcare, unemployment, and pension insurance. The relatively heavy reliance on social insurance increases the cost of labor, especially on low-skilled, low-wage workers.

Persistent corruption issues and an inadequate judiciary, as well as a lack of investment in innovation, could potentially harm the attractiveness of the Slovak market. A recent political crisis led to the resignation of the ruling government and its replacement by a new government consisting of the same coalition partners but headed by new Prime Minister Peter Pellegrini. The new cabinet has received the vote of confidence in Slovak parliament and is expected to remain in power until the next general elections, scheduled for March 2020. However, a recent investment survey by foreign chambers of commerce indicated that continued concerns about corruption and rule of law could potentially damage the image of Slovakia and raise questions about future stability.

The automotive industry continues to attract significant FDI, and Slovakia remains the largest per capita car producer in the world, with four major car producers and more than 340 auto suppliers. Traditionally, manufacturing industries, including machinery and precision engineering, metallurgy and metal processing, electronics, chemical and pharmaceutical remain attractive and have further growth potential. Slovakia has the ambition to focus more on high added value investments in research and development (R&D), innovation, design, technology centers, and business process outsourcing. The Deputy Prime Minister’s Office for Investments is currently drafting a National Investment Plan 2018-2030, which will focus on investment programs in the green economy, including transport, ICT, energy, green infrastructure, waste management, climate change mitigation, R&D/innovations, healthcare, and education.

Positive aspects of the Slovak investment climate include:

- Membership in the EU and the Eurozone, unique among the Visegrad Four Group (Slovakia, Czechia, Hungary, and Poland);
- Open, export-oriented economy close to western European markets;
- Qualified and relatively inexpensive workforce;
- Financial incentives for investors, including foreigners;
- Firm government commitment to EU deficit and debt targets;
- Sound banking sector, deep economic and financial integration within Europe.

Negative aspects of the Slovak investment climate include:

- High sensitivity to regional economic developments;
- Shortages in qualified labor, due in part to education system inadequacies;
- Inefficiencies in public administration and allegations of corruption;
- Inefficiencies in the judicial system with uneven enforcement of contracts and laws;
- Regional disparities and incomplete national transport network;
- Heavy reliance on EU structural funds, with limited accountability in administration and allocation;
- Low rate of public and private R&D High electricity costs for industries.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Towards Foreign Direct Investment**

Slovakia is one of the most open economies in the EU, and the government’s overall attitude toward foreign direct investment (FDI) is positive, not limiting or discriminating against foreign investors. FDI plays an important role in the country’s economy, traditionally attracting investments in manufacturing and industry, banking, information and communication technologies (ICT), and Business Service Centers where U.S. companies have a significant presence.

Slovakia’s assets, including skilled labor, EU and Eurozone membership, and location at the crossroads of Europe, have attracted a significant U.S. commercial presence, including Hewlett-Packard, Cisco, IBM, Dell, AT&T, Accenture, Whirlpool, Adient, Amazon, GlobalLogic, and U.S. Steel. Laws and practices in Slovakia do not discriminate against foreign investors and the government is often ready to provide investment incentives to foreign investors, including U.S. companies. Extensions of existing investments are also often eligible for incentives.

The government supports foreign investors and offers investment incentives based on specific criteria, and are usually delivered in the form of tax allowances, and grants to support employment, regional development, and training. Eligibility is specified in the Act on Investment Aid (561/2007 Coll.), last amended in 2017, to be replaced by a new Act on Regional Investment Aid (57/2018) in April 2018. Section four covers investment incentives in more detail.

Foreign investors credit the government for maintaining an open dialogue regarding business concerns, while protecting Slovakia’s strategic interests. The Ministry of Economy drafts strategies and concepts to improve business environment, innovation intensity, and support for least developed regions. Improving the business climate is an inter-agency effort involving a number of state institutions and other actors. The most significant laws and regulations are described in more detail in section three.

According to the National Bank of Slovakia, inward FDI flows to Slovakia reached EUR -267 million (EUR 698 million in equity capital and reinvested earnings, and EUR -965 million in other capital), and inward FDI stock reached EUR 41.5 billion. According to the Department of Commerce’s Bureau of Economic Analysis, the U.S. direct investment position in Slovakia (outward) was USD 568 million in 2016, a decrease of 24 percent from 2015; however, a lot of U.S. investment is funneled through U.S. entities based elsewhere in the EU and not tracked by this data. Fellow EU member states are traditionally largest foreign investors, including the Netherlands, Austria, Czechia, Luxemburg, and Germany. South Korea remains an important investor among non-EU countries, given its importance in global automotive supply chains.

After a sharp decline in investments in 2016, private and public investments picked up again in the second half of 2017. Analysts foresee solid growth in investment in 2018, driven by new private investment in the automotive industry (Jaguar Land Rover), as well as public investment spending in infrastructure projects, including drawing of EU funds. The Slovak Investment and Trade Development Agency (SARIO) identified the best investment opportunities in R&D, design, innovation, technology centers, ICT, business process outsourcing, and tourism.

Traditionally, manufacturing industries, including machinery and precision engineering, automotive, metallurgy and metal processing, electronics, chemical and pharmaceutical remain attractive and have further growth potential. The United States, the UK, France, Germany, the Netherlands and other EU member states, as well as Japan, South Korea, Israel, the Middle East and the Gulf countries, Singapore, Hong-Kong and China, will remain priority countries in the area of investment cooperation, offering a strong FDI potential.

SARIO is a specialized Economy Ministry’s agency responsible for proactively identifying potential foreign investors. SARIO counsels potential investors about the Slovak political, business, and investment climate, discusses investment incentives, assists with investment project implementation, and advises on business launch issues such as site location. SARIO’s services are available to all potential investors. The Deputy Prime Minister’s Office for Investments and Informatization is currently drafting a National Investment Plan 2018-2030, which will focus on investment programs in the areas of green economy, including transport, ICT, energy, green infrastructure, waste management, climate change mitigation, R&D and innovations, healthcare, and education.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity in Slovakia (Commercial Code, 98/1991  Coll.).

Businesses can contract directly with foreign entities. Private enterprises are free to establish, acquire, and dispose of business interests, but must pay all Slovak obligations of liquidated companies before transferring any remaining funds out of Slovakia. Non-residents from EU and OECD member countries can acquire real estate for business premises.

Slovakia has no formal performance requirements for establishing, maintaining, or expanding foreign investments. Large-scale privatizations can be done via direct sale or public auction.

Foreign entities face no impediments in participating in R&D programs financed and/or subsidized by the Slovak government, and are treated like domestic entities when established in Slovakia. Much of R&D funding is financed though EU funds; private R&D intensity remains modest. Total R&D investment in 2016 represented just 0.8 percent of GDP, down from 1.2 percent in 2015. Year 2017 was marked by a scandal at the Ministry of Education regarding a non-transparent distribution of several hundred million euros EUR worth of EU funds for R&D, which consequently led to investigation by domestic institutions and by the European Anti- Fraud Office (OLAF), and to significant delays in allocation and drawing of R&D funds. The Minister of Education resigned after information of these activities became public. In its “Country Report – Slovakia 2018,” the European Commission (EC) noted overall weakness in the governance of R&D policy, lack of reform efforts, and inefficiencies in Slovakia’s R&D environment. In an attempt to improve transparency of projects financed through EU funds, the Deputy Prime Minister’s Office for Investments and Digitalization introduced an Action Plan consisting of 38 measures which should be implemented through spring 2018. Furthermore, as a part of measures aiming to improve the business environment, the Finance Ministry increased the tax deductible R&D costs to 100 percent from the previous 25 percent.

The Slovak government holds stakes in a number of energy companies, and has proven less open to private investment in key energy assets that are considered sensitive to national security interests. The Government has expressed potential interest to increase state ownership of some key energy assets. There are no domestic ownership requirements for telecommunications and broadcast licenses. Operation of air transportation is limited to enterprises with a non-EU foreign equity participation not exceeding 49 percent.

The Slovak Constitution protects ownership rights. Expropriation or enforced restriction of ownership rights is admissible only if it is unavoidable and in the public interest, on the basis of law, and in return for adequate compensation (Act on Expropriation of Land and Buildings, 282/2015 Coll.).

There are no formal requirements to approve FDI besides the provision of investment incentives, which are ultimately approved by the Government. If investment incentives apply, the Economy Ministry manages the associated legislative process. Eligibility is specified in the Act on Investment Aid (561/2007 Coll.), last amended in 2017, to be replaced by a new Act on Regional Investment Aid (57/2018) in April 2018.

**Other Investment Policy Reviews**

The OECD has produced a 2018 Economic Forecast Summary for Slovakia:http://www.oecd.org/economy/slovak-republic-economic-forecast-summary.htm .

In March 2018 the European Commission published its regular Country Report – Slovakia 2018, addressing various aspects of the Slovak economy:https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-slovakia-en.pdf .

**Business Facilitation**

According to the World Bank’s Doing Business 2018 report, Slovakia ranks 83 out of 190 countries surveyed in ease of starting a business. It takes around 12 days to start a business in Slovakia. Generally, the process is as follows:

- Select company name at the Commercial Register (less than a day at the District Court);
- Notarize articles of association and related documents (one day at the Notary Public);
- Apply for a trade license at the One Stop Shop and income tax registration with the District Court (three days);
- Obtain partners’ tax arrears forms at the Tax Authority Office (five days);
- Open a bank account (one day);
- Register for pension, sickness, and disability insurance and unemployment insurance at the local social insurance company (one day).

Registered businesses (LLC) in Slovakia can be tracked at an online registry (www.orsr.sk ).

The Economy Ministry’s Slovak Investment and Trade Development Agency (SARIO) is a specialized government agency in charge of attracting foreign investments to Slovakia, and serves as a one-stop-shop for foreign investors. The Slovak Business Agency runs a National Business Center (NBC) in Bratislava, another one-stop-shop providing information and services to starting and established businesses. The Economy Ministry aims to establish NBCs in all regions across Slovakia. Furthermore, since January 2017, startups can use a simplified procedure to register their company in order to facilitate entries of potential investors. The Interior Ministry operates Client Centers around the country where many formal procedures for both natural persons and companies can be done under one roof.

Programs to support female entrepreneurs and underrepresented minorities are usually supported by NGOs. Slovak Business Agency runs programs targeting female entrepreneurs. The Ministry of Labor, Social Affairs and Family in cooperation with the Central Office of Labor, Social Affairs and Family set rules for, and assist with the establishment of Social Enterprises, and Social Enterprises for Labor Integration. Furthermore, there is a set of tools for active labor market policies including integration of disadvantaged groups, training, and others.

The Central Public Administration Portal provides useful information on eGovernment services in the area of starting and running a business, citizenship, justice, registering vehicles, social security, etc. The Economy Ministry plans to launch a portal providing all necessary information for starting a business. The state of play of eGovernment in Slovakia is moderate to fair compared to other EU countries, according to European Commission report on eGovernment in Slovakia 2017 (the report features useful links to various public administration services provided online, please see the link below).

Please consult the following websites for more information:

Slovak Business Agency:http://www.sbagency.sk/en/national-business-center#.WrzvnNtMS9I .

Slovak Investment and Trade Development Agency:http://www.sario.sk .

Central Public Administration Portal:https://www.slovensko.sk/en/title/ .

Portals offering useful information on taxes, new legislation, and other business-related topics exist, but their full content may not always be available in English: https://podnikam.webnoviny.sk/  and http://www.sbagency.sk/en/about-us .

European Commission report on eGovernment:https://joinup.ec.europa.eu/sites/default/files/inline-files/eGovernment_in_Slovakia_March_2017_v2_00.pdf .

**Outward Investment**

The Slovak government does not restrict domestic investors from investing abroad. The Government priorities in the area of investment and trade are set forth in the Strategy for External Economic Relations of the Slovak Republic for 2014-2020.

There are several state agencies that share responsibilities for supporting investment (inward and outward) and trade. Slovak Investment and Trade Development Agency (SARIO) is officially responsible for export facilitation and attracting investment. The Slovak Export-Import Bank (EXIM BANKA) supports exports and outward investments with financial instruments to reduce risks related to insurance, credit, guarantee, and financial activities; it assists both large companies and SMEs, and is the only institution in Slovakia authorized to provide export and outward investment-related government assistance. The Ministry for Foreign and European Affairs runs a Business Center that provides services in the area of the export and investment opportunities. The Slovak Republic’s diplomatic missions, the Ministry of Finance’s Slovak Guarantee and Development Bank, and the Deputy Prime Minister’s Office for Investments and Digitalization also play a role in facilitating external economic relations.

The majority of Slovak exports are directed to fellow EU countries. Outward investment opportunities by Slovak companies are limited by their relatively small size. In terms of sectors, the Government would like to promote collaboration on innovations and technology transfers, with key partners including the United States, Japan, Israel, South Korea, China, Turkey, Switzerland, and the EU. According to SARIO, the Western Balkans, Turkey, Vietnam and potentially some African countries will be priority areas for Slovak capital export, particularly for exports of technological equipment, including power plants and manufacturing technologies, but these markets also offer opportunities for suppliers in the area of construction, infrastructure and services.

							2. Bilateral Investment Agreements and Taxation Treaties					

Slovakia has signed several bilateral investment treaties in accordance with the European Outline Convention on Trans-frontier Cooperation between Territorial Communities or Authorities. Some of these are legacies of the former Czechoslovakia, while others have come into force following independence in 1993. The 1992 U.S.-Slovakia Bilateral Investment Treaty specifies the basic framework for investment protection and dispute resolution. Slovakia signed a Bilateral Taxation Treaty with the United States in 1993.

Like other newer EU members, when it joined the EU, Slovakia had to negotiate an amendment to its bilateral investment treaty with the United States to address inconsistencies with EU legislation. The amended treaty entered into force on May 14, 2004.

The United States and Slovakia agreed to the Foreign Account Tax Compliance Act (FATCA) in July 2015, and Slovakia subsequently approved the Act on Automatic Exchange of Information on Financial Accounts (359/2015) in order to fully comply with FATCA. Slovak financial institutions are now required to report tax information of American account holders to the Slovak Government, which then forwards that information to the U.S. Internal Revenue Service (IRS).

The Act on Special Levy on Regulated Sectors (235/2012 Coll., and later amendments) imposes a special tax on regulated industries, including the energy and network industries, insurance companies, electronic communications companies, healthcare, air transport, and others. The levy applies to profits generated from regulated activities above EUR 3 million, and the coefficient applied is currently set at 0.00726 per month (8.712 percent per year). A special 0.2-percent levy also applies to the banking sector based on the Act Special Levy on Selected Financial Institutions (384/2011 Coll., and later amendments). The Finance Ministry views both measures as temporary, and they should remain valid until 2021.

An amendment to the Act on Income Tax (344/2017 Coll.) valid as of January 1, 2018, introduced an obligation for sharing economy platforms to register a permanent platform in Slovakia if they systematically offer their services in the area of transport and housing. The income will be taxed in accordance with the valid income tax rules of 21 percent for corporate income tax in Slovakia. If the service provider does not register a platform, the firm will obligated to pay either a 19 or 35-percent withholding tax on the fees it pays to a foreign entity, based on the residence of the recipient of such fee, and based on whether bilateral taxation treaties exist.

Furthermore, in line with the OECD and Global Forum principles, and amidst an EU-wide discussion on taxing digital businesses, the Slovak Finance Ministry is currently considering ways to tax digital companies for the proportion of their business activities on the territory where the activity occurs, or where profits and revenues are registered.

Cryptocurrencies are not accepted as an official currency in Slovakia or in the EU; nevertheless, being aware of the necessity to adapt to the 21st century instruments, and recognizing possible positive impact of the new innovative technologies (blockchain, security chain), the Finance Ministry issued a guidance on cryptocurrencies stating that all income has to be taxed based on valid corporate income tax legislation.

The complete list of Slovakia’s bilateral investment agreements, including copies of the agreements, can be found on the Finance Ministry’s website: http://www.finance.gov.sk/Default.aspx?CatID=4597 ; and on UNCTAD’s website: http://investmentpolicyhub.unctad.org/IIA/CountryBits/191#iiaInnerMenu .

The complete list of Slovakia’s bilateral taxation treaties can be viewed on the Finance Ministry’s website: http://www.finance.gov.sk/Default.aspx?CatID=8688 .

Please consult the following websites for more information:

U.S.- Slovakia Bilateral Investment Treaty:http://2001-2009.state.gov/documents/organization/43587.pdf .

U.S.- Slovakia Bilateral Taxation Treaty:https://www.irs.gov/businesses/international-businesses/slovak-republic-tax-treaty-documents .

Digital Taxation:http://europa.eu/rapid/press-release_IP-18-2041_en.htm .

							3. Legal Regime					

**Transparency of the Regulatory System**

Slovakia lacks full transparency in its regulatory system, and the long-term predictability of regulation affecting the business and legal environment is weak.

The Legislative and Information Portal of the Ministry of Justice Slov-Lex is a publicly accessible centralized online portal for laws and regulations, including information about inter-agency and public review processes. Draft bills proposed by ministries through a standard legislative procedure are available for public comment through the portal; however, the public is often granted little time to comment on draft legislature, and there is no obligation to react to comments prior to final submission to the cabinet. Additionally, MPs or parliamentary groups propose draft bills outside the standard participatory legislative procedure, which has no strict rules guaranteeing opportunities for public comment, thus rendering the legislative process less predictable and less transparent. In January 2018, the Cabinet approved a document proposed by the Economy Ministry called the Better Regulation Strategy – Regulatory Impact Assessment 2020 (RIA) which aims to further improve the business environment and reduce bureaucratic burden. The goal of RIA 2020 is to have better quality laws and regulations by providing a more transparent and open legislative process, including expert and public consultations, conducting systematic impact assessments of both proposed and existing regulations.

Regulations are not reviewed on the basis of scientific data assessments. Analytical institutes at some ministries (mostly under the value- for- money umbrella) produce data-driven assessments of state policies or big investment projects at their discretion. However, projects for assessment are selected by the institutes or by the ministries and they are not publicly available for comment. Assessments are often published once completed.

Slovakia still struggles with a lack of transparency in the regulatory processes in several industries. The business community has registered concerns that a number of regulatory bodies are not fully impartial and their decisions are unpredictable. A frequently changing and complex legislative environment is often cited as a business obstacle for both local and global companies.

The European Commission (EC) has criticized burdensome regulation in the energy sector, with its 2018 Slovakia Country Report saying the regulatory framework governing the energy sector “still has deficiencies”, pointing to the fact that “all household consumers and SMEs are considered as vulnerable consumers and therefore are supplied electricity and gas at regulated prices, which hampers market development.” Slovakia leads the EU in terms of share of regulated fees in the final price of electricity, supporting generous subsidies for both renewable energy and domestic lignite mining at the same time.

In early 2017, the Regulatory Office for Network Industries (URSO) played a central role in political turbulence caused by regulatory changes that caused dramatic price hikes for some customers. Quick cancellation of the changes and replacement of the Head of URSO damped the loudest complaints, although the election of the new URSO Head was criticized for being political and not producing a more independent regulator. In 2017 and early 2018, Slovak courts ruled against a controversial URSO regulation on the so-called G-component, which was forcing electricity producers to pay distribution companies for access to their distribution networks. The courts decided that the distribution companies must return those payments to producers, contributing to the perception of an uncertain and unpredictable regulatory framework.

The latest available OECD sectorial indicators on product market regulation show that Slovakia performs close to the OECD average in terms of regulatory burdens in electricity, gas, telecom, post, rail and road transport. The OECD praised Slovakia for having some of the largest improvements in sectoral indicators.

The Commercial Code (98/1991  Coll.) and the Act on Protection of Economic Competition (136/2001 Coll.) govern competition policy in Slovakia. The Protection of Competition Act prohibits bid rigging, and contains a leniency provision which allows the Anti-Monopoly Office to impose or reduce fines for entrepreneurs’ participation in a cartel. The reward for providing evidence of a cartel agreement is fixed at one percent of the total amount of fines imposed on cartel participants capped at EUR 100,000. Slovakia also transposed into its domestic legislation Directive 2014/104/EU of the European Parliament and of the Council on Certain Rules Governing Actions for Damages under National Law for Infringements of the Competition Law Provisions of the Member States and of the European Union Text with EEA relevance.

The Anti-Monopoly Office, a part of the EU’s European Competition Network (ECN), is an independent state administration body responsible for ensuring competition, including in state aid. It investigates cartel cases, monopolies, the abuse of vertical agreements, and the interactions between state and local governments. It also serves to enhance competition by representing Slovakia during international negotiations or fora on competition, supporting competition principles, and implementing other protection measures.

The Office for Public Procurement supervises and administers public procurement. Public procurement legislation is being reformed but challenges remain to fair competition and eradicating corruption. According to Transparency International Slovakia findings, more than 50 percent of public tenders in 2016 from all levels of government were either sole-sourced or had only two bidders. The Public Procurement Act (343/2015) implements three European directives and mandates a more centralized approach towards general government purchases, which are currently administered by the Interior Ministry. The Act also aims to increase the efficiency of public procurement through e-commerce and simplified access for SMEs. A September 2017 amendment to the Act should help streamline and further simplify procedures.

All state institutions, municipalities, districts and other entities managed by these institutions (such as hospitals and schools) must procure through an online platform. However, services and goods are capped that public institutions can purchase via this “e-market”; larger procurements are still managed through the traditional process. The Interior Ministry credits the platform with saving an average of 16 percent on purchases. The Ministry of Health has introduced price benchmarking and quality criteria for certain hospital equipment purchases, which reduces the risk of corruption and manipulation of procurement value. Despite these positive steps, aggregated procurement still appears to be under-utilized. New leadership selected for the Public Procurement Office in September 2017 concluded an agreement with the National Audit Office, Anti-Monopoly Office, and the Prosecutor’s General Office in order to be more effective in managing public spending and responding when fraudulent activities are identified.

There is no regulation on lobbying in Slovakia.

Please consult the following websites for more information:

Legislative and Information Portal Slov-Lex:https://www.slov-lex.sk/domov *(Note: all legal acts and regulations mentioned throughout this report can be found on this portal).*

Anti-Monopoly Office of the Slovak Republic:http://www.antimon.gov.sk/antimonopoly-office-slovak-republic/ .

Office for Public Procurement:https://www.uvo.gov.sk/ .

Electronic Auctions Portal:http://www.etrhovisko.sk/# .

World Bank:http://bpp.worldbank.org/en/reports .

**International Regulatory Considerations**

Slovakia is an EU Member State, thus, EU legislation and standards fully apply in Slovakia. The national regulatory system is enforced in areas not governed by EU regulatory mechanisms. Slovakia is a WTO member and the government’s latest notification to the WTO Committee on Technical Barriers to Trade occurred in April 2010. A Trade Facilitation Agreement (TFA) is an EU competence; the EU approved in 2015 a Protocol of Amendment to insert the WTO TFA into Annex 1A of the WTO Agreement. The EC notified the WTO about implementation of individual articles of the agreement throughout 2017 and 2018.

**Legal System and Judicial Independence**

Slovakia is a civil law country. The Slovak judicial system is comprised of general courts, the Supreme Court, and the Constitutional Court. General courts decide civil and criminal matters and also review the legality of decisions by administrative bodies. The 54 district courts are the courts of first instance. The eight regional courts hear appeals. The Supreme Court of the Slovak Republic is the court of final review in selected cases. 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; they are adjudicated in the national court system.

The Constitutional Court of the Slovak Republic is an independent judicial body that determines the conformity of legal norms, adjudicates conflicts of authority between government agencies, and hears complaints – including individuals’ and legal entities’ complaints regarding constitutional rights violations, e.g. human rights violations – and interprets the Constitution or constitutional statutes. The President appoints Constitutional Court Judges from a list of candidates elected by Parliament. Judges are appointed to 12-year terms.

The Judicial Council – the highest self-governing judicial body – nominates general court judges. Judges receive lifetime appointments from the President of the Slovak Republic and may only be removed for cause. The President can remove a judge upon reaching the age of 65 based on a proposal submitted by the Judicial Council. The judicial system remains independent of the executive branch, with the Justice Ministry exercising control of the judiciary’s budget and initiating legislation concerning the judiciary.

In practice, public confidence in the judicial system is among the lowest in the EU. Despite recent improvements, the justice system remains relatively slow and inefficient, and judges remain divided on the need for reform. Some judges have been suspected of manipulating the case assignment system, and critics suggest verdicts lack predictability and are often poorly justified. As a result, investors generally prefer international arbitration to resolution in the national court system. U.S. companies have complained of a leaked court decision before it was officially announced, and biased procedural decisions violating the principle of equal treatment.

Recent judicial reforms includes new rules for selection of judges, a new specialized court to deal with the enforcement agenda, and legislation on personal bankruptcy.

Property rights are guaranteed by the Slovak Constitution and the European Convention of Human Rights. The country has a written Commercial Code including contract law in the civil and commercial sectors. The basic framework for investment protection and dispute resolution between Slovakia and the U.S. is outlined in the 1992 U.S.-Slovakia Bilateral Investment Treaty.

Court judgments by EU member states are recognized and enforced in compliance with existing EU Regulations. Third country judgments are governed by bilateral treaties or by the Act on International Private Law.

Please consult the following website for more information:

U.S.- Slovakia Bilateral Investment Treaty:http://www.state.gov/documents/organization/43587.pdf .

**Laws and Regulations on Foreign Direct Investment**

Several government entities are involved in building an investment-friendly environment, including the Economy Ministry, the Finance Ministry, the Deputy Prime Minister’s Office for Investments and Digitalization, and the Justice Ministry.

The Deputy Prime Minister’s Office for Investments and Digitalization is currently drafting a National Investment Plan for 2018-2030, which will focus on investment programs in the green economy, including transport, ICT, energy, green infrastructure, waste management, climate change mitigation, R&D and innovations, healthcare, and education.

A whole range of Slovak laws and regulations affect the business climate and foreign direct investment. In 2017, the Slovak government approved several measures designed to improve the investment climate. In the area of tax collection, the Cabinet approved the Action Plan to Combat Tax Fraud 2017 – 2018, which includes 21 measures aiming at fighting tax evasion. The plan covers company mergers, registering sales from cash registers, excessive deductions, and indexing the reliability of taxpayers. As part of the plan, the Act on Tax Administration (563/2009 Coll.) was amended to include a “tax reliability index” starting in 2018 that will classify taxpayers as reliable, less reliable, or unreliable. The ranking aims to encourage and reward transparent tax behavior. The law also transposes an EU directive on access of tax authorities to information used to combat money laundering, and should improve efforts to fight tax fraud and increase transparency.

The 2017 amendment to the Commercial Code (513/1991 Coll.) addresses fraudulent company mergers and bankruptcies, and introduces greater responsibilities and liabilities for statutory bodies in order to tackle “straw man transactions.”

The cabinet approved the new “Act Against Bureaucracy” in February 2018. The goal is to reduce the bureaucratic burden for companies and private individuals as a part of continuing e-Government efforts. The act is based on the “once is enough” philosophy, obliging state agencies to share information and use digital communication rather than requiring multiple files of the same information with different government entities. The act is now awaiting Parliament’s approval.

In January 2018, the Cabinet approved a document proposed by the Economy Ministry called the Better Regulation Strategy – Regulatory Impact Assessment 2020 (RIA) which aims to further improve the business environment and reduce bureaucratic burdens. The goal of RIA 2020 is to have better quality laws and regulations thanks to a more transparent and open legislative process, expert and public consultations, systematic impact assessments of proposed regulations, including ex-ante approach, and ex-post evaluation.

In terms of international rankings, Slovakia ranked 39th out of 190 countries in the World Bank’s Doing Business 2018 ranking (down from 33rd), and 59th out of 137 in the 2017-2018 World Economic Forum’s Global Competitiveness Index (up from 65th in previous ranking). With the aim to further improve the business climate and reduce the regulatory burden, the Economy Ministry has proposed, and the Cabinet approved, a set of 35 measures divided into five priority areas: employment, public service, competitiveness, taxes, and business support. A second package of pro-business measures is currently being drafted by the Ministry.

The American Chamber of Commerce in Slovakia regularly issues valuable Legislative and Policy updates, covering a wide range of issues: http://www.amcham.sk/policy-advocacy/legislative-updates .

**Competition and Anti-Trust Laws**

The Anti-Monopoly Office of the Slovak Republic is an independent body charged with the protection of economic competition. The Office intervenes in cases of cartels, abuse of a dominant position, vertical agreements, and it also controls compliance of mergers with antitrust law. The key antitrust legislation regarding fair competition is the Competition Law (136/2001 Coll.). Slovakia complies with the EU competition policy.

All of the competition cases (abuse of dominant position and other competitive cases) are published online at the Anti-Monopoly Office’s website, see link below.

Please consult the following website for more information:

The Anti-Monopoly Office:http://www.antimon.gov.sk/antimonopoly-office-slovak-republic/ http://www.antimon.gov.sk/2066-en/cases-in-slovak/ 

**Expropriation and Compensation**

The Slovak legislation related to expropriation has been criticized for being split among many different regulations and for favoring state and private investors’ interests. For example, the Constitution of Slovakia and the Commercial and Civil Codes permit expropriation only in the case of public interest, with a requirement to provide compensation. The law also provides for an appeal process. At the same time, the Act on Expropriation of Land and Buildings (282/2015 Coll.) sets legal conditions for expropriation, including that it must only occur to the extent necessary; be in the public interest; provide appropriate compensation; and the goal of expropriation cannot be reached through any other means.

In the past, significant expropriation efforts included the government’s plan to revert to a single-payer healthcare system and to expropriate two private health insurance companies (currently on hold). Expropriation most often occurs in the construction of road or industrial infrastructure.

**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 also 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 also 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 U.S. is governed by our 1992 Slovakia Bilateral Investment Treaty.

To date, ten known cases of international arbitration have concluded. There is currently one ongoing international arbitration case.

An important milestone was reached in an arbitration case involving private health insurance company Achmea, which claimed it had suffered damages based on a 2008 law that banned private health insurance companies from paying dividends to their shareholders, severely limited allowable overhead costs, and required companies to direct their profits from public health insurance back into the healthcare system. In March 2018, the European Court of Justice (CJEU) issued a decision on a preliminary ruling from Germany’s Federal Court of Justice. The CJEU concluded that the arbitration clause in the Slovakia-Netherlands BIT applicable to the arbitration between Achmea and Slovakia had an adverse effect on the autonomy of EU law and declared that the 2008 Slovak law was incompatible with EU law. This CJEU decision is seen as a precedent affecting investment agreements between EU members, as it underscores the Commission’s long-standing position that investor-State dispute settlement is not viable between members. The ruling has no implications for commercial arbitration.

The legal system generally enforces property and contractual rights, but decisions may take years, thus limiting the courts’ relevance in dispute resolution. According to the World Bank Doing Business 2018 report, Slovakia ranked 84th out of 190 countries in the “enforcing contracts” indicator, with a 775 day average for enforcing contracts (up from 538 days in 2016). Slovak courts recognize and enforce foreign judgments, subject to the same delays. Although the commercial code generally appears to be applied consistently, the business community continues to cite a lack of legislation protecting creditor rights, corruption, political influence, lengthy procedures, and weak enforcement of court rulings as significant problems. U.S. and other investors privately describe instances of multi-million dollar losses that were settled out of court because of doubts about the court system’s ability to offer a credible legal remedy.

*International Commercial Arbitration and Foreign Courts*

There are two acts applicable to alternative dispute resolution in Slovakia – the Act on Mediation (420/2004 Coll.) and the Act on Arbitration (244/2002 Coll.). In addition, the Slovak Chamber of Commerce and Industry (SOPK) has a court of arbitration for alternative dispute resolution, and has a number of bilateral cooperation agreements with Chambers of Commerce or similar institutions abroad. Nearly all cases involve disputes between Slovak and foreign parties.

Local courts in Slovakia recognize and enforce foreign arbitral awards, subject to delays, thus limiting the courts’ relevance in dispute resolution.

A recent arbitration involving an SOE was the case when electric utility Slovenske Elektrarne (34 percent state-owned) sued fully state-owned Vodohospodarska Vystavba (VV) over a cancellation of a contract for operations of a major hydropower plant in Gabcikovo, signed between the two companies, and later cancelled by VV. In July 2017, the Vienna International Arbitration Center rejected SE’s EUR 600 million claim against the Economy Ministry (which owns VV).

Please consult the following websites for more information:

U.S.- Slovakia Bilateral Investment Treaty:http://2001-2009.state.gov/documents/organization/43587.pdf .

Belmont Resources claim:https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB%2f14%2f14 .

**Bankruptcy Regulations**

The Law on Bankruptcy and Restructuring (377/206 Coll.) governs bankruptcy issues. The law allows companies to undergo court-protected restructuring and both individuals and companies to discharge their debts through bankruptcy. The International Monetary Fund credited the Act for speeding up processing, strengthening creditor rights, reducing discretion by bankruptcy judges, and randomizing the allocation of cases to judges to reduce potential corruption. Extensive amendments to the Act have been in effect since 2016 to prevent preferential treatment for creditors over company shareholders. Further measures limiting space for arbitrariness in bankruptcy administrators’ conduct and stricter liability rules for those responsible to initiate bankruptcy proceedings entered into force in January 2018.

Slovakia ranked 42nd out of 190 in the World Bank’s Doing Business 2018 ranking of the ease of resolving insolvency, with an average of four years for resolving insolvency.

Please consult the following websites for more information:

Slovak Banking Credit Bureau:http://www.sbcb.sk/ .

Non-Banking Credit Bureau:http://www.nbcb.sk/ .

Justice Ministry:https://www.justice.gov.sk/Stranky/Sudy/Zoznam-dlznikov.aspx?OrgZlozka=MSSR_AN4100 .

Insolvency Register:https://ru.justice.sk/ru-verejnost-web/pages/home.xhtml .

Dlznik.sk:https://dlznik.zoznam.sk/ .

							4. Industrial Policies					

**Investment Incentives**

Eligibility for investment incentives is specified in the Act on Investment Aid (561/2007 Coll., 231/2011), last amended in 2017, to be replaced by a new Act on Regional Investment Aid (57/2018 Coll.) in April 2018. The Economy Ministry manages and coordinates investment aid. The Finance Ministry and the Ministry of Labor, Social Affairs and Family also have specific competencies, depending on the form of investment aid granted.

The new Act on Regional Investment Aid (57/2018) valid as of April 2018 reflects the changing economic environment, and better addresses current needs of the Slovak economy. The two main goals of the new Act are tackling persisting regional differences, and supporting Slovakia’s transition to “industry 4.0,” i.e. investments in progressive technologies and high added value sectors. The investment incentives are available to foreign and domestic investors for projects in sectors including industry, technology centers, shared service centers, and tourism. The incentives are provided as tax relief, cash grant, contributions for the newly created jobs, and transfer of state/municipal property for a discounted price. Eligible costs include acquisition of land, acquisition and construction of buildings, acquisition of technology equipment and machinery, as well as intangible assets (i.e. licenses, patents, etc.), and wages of new employees for the period of two years.

A quick overview of the basic provisions, including minimum investment amounts per category of eligible investment, and maximum aid intensity, is available on the portal of the Slovak Investment and Trade Development Agency (SARIO). SARIO has identified the best investment opportunities in R&D, design, innovation, technology centers, ICT, business process outsourcing, and tourism. Traditionally, manufacturing industries, including machinery and precision engineering, automotive, metallurgy and metal processing, electronics, chemicals and pharmaceuticals remain attractive and have further growth potential.

Slovakia granted investment aid amounting to nearly EUR 84 million in 2017 to fifteen categories (over EUR 1.7 billion in 2002-2017), of which 48 percent was in the form of tax relief. Apart from investment aid, the Economy Ministry also runs projects eligible for support from EU funds, with a particular focus on research and innovations; the ministry also offers innovation vouchers and special loans through its Investment Fund, as well as support for industrial clusters. Other ministries run EU-supported projects in their respective areas of expertise (i.e. agriculture, environment, infrastructure, R&D, etc.).

State aid granted by the Slovak government must comply with valid EU regulations. The Anti-Monopoly Office of the Slovak Republic is the coordinating body for state aid granted by individual ministries, as per Act on State Aid (358/2015 Coll.), and there is a dedicated state aid web portal (link below). Other relevant domestic acts include: the Act on Supporting Least Developed Districts (336/2015 Coll. and successive amendments, the most recent one being 58/2018 Coll.), the Act on Employment Services (5/2004 Coll. And successive amendments, the most recent one being 64/2018 Coll.), the Act on Income Tax (595/2003 Coll. and successive amendments, the most recent one being 344/2017 Coll.), and a government regulation defining the maximum intensity of investment aid and the amount of investment aid (481/2011 Coll. and successive amendments, the last one being 219/2015 Coll.).

Please consult the following websites for more information:

Investment Aid:http://www.sario.sk 

State aid:http://ec.europa.eu/competition/state_aid/overview/index_en.html# ; http://www.statnapomoc.sk/ .

**Foreign Trade Zones/Free Ports/Trade Facilitation**

All foreign trade zones and free ports were eliminated in Slovakia in 2006.

**Performance and Data Localization Requirements**

There are no special requirement for foreign IT providers to turn over their source code or to provide access to encrypted documents. However, according to the Act on Electronic Communications (351/2011 Coll.), entities providing public networks or public services that use coding, compression, encryption, or other form of concealing signal transfer must at their own expense, provide information obtained through wire-tapping and network traffic recording or monitoring to relevant authorities. As of early 2018, there are no measurements that would prevent companies from freely transmitting customer or other business related data outside the country. However, as a member of the EU, Slovakia will implement the EU General Data Protection Regulation 2016/679 (GDPR) imposing stricter data protection compliance regime. There are also no mechanisms in place that would enforce rules on local data storage. Slovakia supports the proposed EU regulation on the free flow of data 2017/0228 (COD) that abolishes data localization requirements within the EU space while ensuring access rights to competent authorities for regulatory control. The relevant authority for data localization issues is Deputy Prime Minister’s Office for Investments and Digitalization.

In January 2018, the Slovak parliament adopted its first law on cybersecurity. The bill, prepared by the National Security Authority (NBU), transposes the EU Directive on Security of Network and Information Systems (NIS Directive). The Act aims to address system security, incident response, and reporting requirements with minimal regulation of the private sector. It also proposes housing a Computer Security Incident Response Team at every Ministry relying heavily on ICT. Along with the NBU, the main public stakeholders in Slovak cybersecurity sector are Deputy Prime Minister’s Office for Investments and Digitization and National Agency for Network and Electronic Services (NASES).

It is hard to estimate Slovak cyber preparedness as Slovakia has never faced a major cyber-attack. In early 2018, Slovakia was ranked first of 64 countries in the National Cyber Security Index, a global index compiled by Estonian NGO e-Governance Academy Foundation that measures country preparedness for cyber threats. The assessment was based on publicly accessible sources and data collection was done in cooperation with the NBU. However, the index does not look at policy implementation or the actual performance of relevant institutions. In October 2017, security experts identified and publicized a vulnerability in Slovak e-ID cards making it possible to falsify a person’s electronic signature and putting approximately 300 000 Slovaks at risk. The government responded by invalidating the affected e-ID certificates.

Slovakia does not mandate local employment, follow “forced localization,” or impose conditions on permission to invest.

Foreign entities have equal access to investment incentives on a case-by-case basis, as per the Act on Regional Investment Aid (57/2018 Coll.). For more details on eligible projects, please see the section on Investment Incentives. The decision on investment aid may be cancelled based on provisions stipulated in the Act, and these requirements apply to domestic and foreign recipients of investment aid equally. Along with investment incentives, other tools to support investment, including the EU structural funds or other schemes, are motivational tools and every investor can freely decide whether to apply for them or not; as such, any procedures linked to these tools should not be perceived as investment performance requirements per se.

Temporary and long-term residence permits are issued by the Alien Police Department (APD). The legislative framework on residence and adjacent permits is specified in the Act on Residency of Foreign Nationals (404/211 Coll. and successive amendments, last amended in 2017 as 179/2017 Coll.). Although foreign nationals have criticized the process of obtaining residency permits as difficult and time-consuming, Slovak authorities have made significant concessions to expedite this process for American citizens. This has included accepting expired FBI background checks, accepting applications at the Slovak embassy in Washington, D.C. prior to departure for Slovakia, and adopting suggested new wording on their APD and embassy sites to clear up common misconceptions. The embassy’s Consular Section has reported a significant drop in Americans looking for help with this issue since the implementation of these changes. However, even with these welcome changes, there are still problems with authorities not always being consistent in their recommendations or enforcement of regulations. The regulations themselves, however, do not differ significantly from those of other EU countries.

Please consult the following websites for more information:

Alien Police Department:https://www.minv.sk/?residence-of-an-foreigner .

The application for a work permit must be submitted at a competent Labor Office, using an official application form:https://www.mic.iom.sk/en/work/work-permit/252-work-permit.html .

The Migration Information Center IOM portal features useful information for foreign nationals:https://www.mic.iom.sk/en/doing-business/general-information.html .

The Foreign Affairs Ministry provides information and services for foreign nationals:https://www.mzv.sk/web/en/consular_info/residence_of_foreigners_in_territory_of_slovakia .

The Ministry of Labor, Social Affairs and Family and the competent Labor Office provide services to foreign nationals related to their employment:http://www.upsvar.sk/sluzby-zamestnanosti/zamestnavanie-cudzincov.html?page_id=272197 ; https://www.employment.gov.sk/sk/ .

Deputy Prime Minister’s Office for Investments and Digitalization of Society:https://www.vicepremier.gov.sk/ .

							5. Protection of Property Rights					

**Real Property**

The mortgage market in Slovakia is growing rapidly, and a reliable system of record keeping exists. In 2017 and early 2018, National Bank of Slovakia introduced measures to cool down the mortgage market by introducing more strict assessments and limiting the size of the mortgage. Secured interests in property and contractual rights are recognized and enforced.

Even though the Cadastral office records that less than 10 percent of the land in Slovakia lacks a clear title, there are rare instances when the property owner is unknown. This is a result of unclear record keeping dating back to 20th century. In such cases, real estate titles can take significant amounts of time to determine. Legal decisions may take years, thus limiting the utility of the court system for dispute resolution.

A dedicated web portal makes it possible to verify information about land and property ownership.

Foreigners and EU citizens can acquire property in Slovakia under the same conditions as Slovak residents with the exception of agricultural and forest land, which can be purchased after having a residency permit in Slovakia for ten years and farming land for at least three years. In 2017, Slovak government proposed a law liberalizing these measures, dropping the condition of holding a residency permit for at least 10 years but retaining the requirement of farming land in the location of interest for at least three years. The law was still in legislative process as of March 2018.

Approximately 80 percent of all agricultural land in Slovakia is leased. In 2017, an amendment to the law on the lease of agricultural land was passed, with the goal of strengthening protections against speculators who have leased land without the intention to use it for agricultural purposes. When leasing agricultural land, the Slovak Property Fund will prioritize young and new farmers, as well as farmers creating a final food product. The maximum lease period will decrease from 25 to 15 years.

It is estimated that Slovak residents own approximately 75 percent of the land in Slovakia. However, Slovakia lacks a database specifying country of origin of the landowners.

Squatting is illegal in Slovakia and ownership of unoccupied property will not be reverted to squatters or other parties unless they are entitled to own the land.

Slovakia remained 7th out of 190 countries in the World Bank’s 2018 Doing Business “registering property” indicator, averaging 16.5 days to register property.

Please consult the following websites for more information:

Cadastral portal on land and property ownership:http://www.katasterportal.sk/kapor/ .

**Intellectual Property Rights**

Slovak law protects patents, copyrights, trademarks and service marks, trade secrets, and semiconductor chip design. The protection of intellectual property rights (IPR) falls under the jurisdiction of two agencies. The Industrial Property Office is responsible for most areas, including patents, while the Culture Ministry is responsible for copyrights, including software.

Slovakia is a member of the WTO, the European Patent Organization, and the World Intellectual Property Organization (WIPO). The WTO TRIPS agreement is legally in force in Slovakia, although no cases have occurred to test enforcement. Slovakia adheres to other major intellectual property agreements including the Bern Convention for Protection of Literary and Artistic Works, the Paris Convention for Protection of Industrial Property, and numerous other international agreements on design classification, registration of goods, appellations of origin, patents, etc. The Industrial Property Office of the Slovak Republic is the central government body overseeing industrial property protection. The Financial Administration (under the Finance Ministry) deals with customs and adjacent IPR, including the fight against counterfeit goods.

A robust amendment to the “patent law” came into force in October 2017, aimed at strengthening the protection and rights of patent holders as well as improving enforcement of industrial property rights. The most prominent measures are extending the statute of limitation in cases of infringement of industrial property rights, improving coordination among relevant authorities, and better definition of what compensation for rights holders.

Slovakia was taken off the Watch List of the U.S. Trade Representative’s annual interagency “Special 301” review thanks to significant progress that the government had made in addressing concerns related to the protection of pharmaceutical patents in Slovakia. Slovak authorities adopted legal and administrative measures to ensure that patent-infringing drugs are not given market authorization; some of those measures have since been weakened to comply with current EU norms. The government built a new secure facility to house confidential pharmaceutical test data.

Slovakia is not listed in the notorious market report.

According to the Financial Administration, there were 1,363 suspected breaches of intellectual property rights in 2017 (for goods imported from third countries, especially textile and shoes), with a value of seized counterfeit goods reaching more than EUR 1.5 million (down 42 percent from 2016).

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

Please consult the following websites for more information:

Ministry of Culture, Act on Intellectual Property: http://www.culture.gov.sk/extdoc/5831/Zakon_185_2015_Autorsky%20zakon .

Intellectual Property:https://www.dusevnevlastnictvo.gov.sk/web/guest .

Industrial Property Office:http://www.upv.sk/?introduction .

Financial Administration:https://www.financnasprava.sk/en/homepage .

Financial Administration Annual Report for 2017: https://www.financnasprava.sk/_img/pfsedit/Dokumenty_PFS/Financna_sprava/Vyrocne_spravy/2018.03.26_VS_2017.pdf .

American Chamber of Commerce in the Slovak Republic:http://www.amcham.sk/home .

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

According to an expert analysis issued by the Central Bank of Slovakia (NBS), the stock market in Slovakia is among the smallest in Europe, and largely dominated by bonds that represent more than 99 percent of all volume.

The Bratislava Stock Exchange (BSSE) is a joint-stock company operating in compliance with the Stock Exchange Act No 429/2002. The BSSE was admitted as an associate member of the Federation of European Securities Exchanges (FESE) in 2002, and became a full member in 2004. In 2017, the total volume of transactions at the BSSE reached slightly over USD 8 billion. Market capitalization of shares reached roughly USD 5.5 billion, and market capitalization of bonds USD 52.1 billion.

The European Single Market and existing European policies facilitate the free flow of financial resources. Slovakia respects the IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms in Slovakia and is available to foreign investors on the local market.

In April 2014, the Slovak Government approved the national strategy for developing the Slovak capital market, prepared by the Finance Ministry in cooperation with the National Bank and the BSSE. The strategy aims to motivate private stakeholders to invest in liquid tradable securities and increase shares at the BSSE. It includes measures to support institutional investors, modernize market infrastructure, and decrease administrative and tax burdens. The Central Depository of Securities was established in 2014 and is responsible for maintaining the shareholders’ register and records of dematerialized and certificated securities, as well as to settle financial instrument transactions.

Slovakia follows the EU rules and regulation on securitization of properties for lending purposes. Slovakia does not have a national regime for securitization. In January 2018, an amendment to the Act on Banks (483/2001 Coll.) came into force profoundly changing the system of covered bonds – the old system of mortgage deeds was replaced by a new regime of covered bonds, making it conform with internationally recognized rules on covered bonds and recommendations of European Banking Authority on covered bonds.

Please consult the following websites for more information:

Bratislava Stock Exchange:http://www.bsse.sk/bcpben/MainPage/tabid/104/language/en-US/Default.aspx .

Central Depository of Securities:https://www.cdcp.sk/en/ .

Central Bank of Slovakia:https://www.nbs.sk/en/about-the-bank .

EU regulation on securitization:http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52015PC0472&from=SK .

EBA recommendations on covered bonds:https://www.eba.europa.eu/-/eba-recommends-a-harmonised-eu-wide-framework-for-covered-bonds .

**Money and Banking System**

Slovakia became part of the Eurosystem, which forms the central banking systems of the euro area within the European System of Central Banks, upon its integration into the Eurozone on January 1, 2009. The Central Bank of Slovakia (NBS) is the independent central bank of the Slovak Republic, with a primary objective to maintain price stability through inflation targeting. NBS supervises financial market participants (banking, capital market, insurance and pension funds), and is a party to the European System of Financial Supervision  (ESFS). As part of its supervision of the financial market, NBS also conducts macro-prudential policy . NBS participates in the Single Supervisory Mechanism (SSM),  which entered into operation in November 2014 as the first pillar of the EU banking union. NBS issues euro banknotes and coins, promotes the smooth operation of payment and clearing systems, regulates currency circulation, maintains and disposes of foreign reserve assets, implements foreign exchange operations, supports the stability of the financial system, and issues financial statistics.

While most banks operating in Slovakia are subsidiaries of foreign-owned institutions, they report minimal dependence on their mother companies for financing. The combined total assets of the monetary financial institutions active in the Slovak market were over EUR 77 billion at the end of 2017.

As of December 2017, three major banks were under direct supervision of the European Central Bank (ECB) – Tatra Banka (Raiffeisen), Vseobecna Uverova Banka (Intesa Sanpaolo), and Slovenska Sporitelna (Erste Group Bank). Due to the size of the international groups they belong to, the ECB also supervised: Ceskoslovenska Obchodna Bank and CSOB Stavebna Sporitelna (KBC Group); mBank S.A., (Commerzbank); Komercni banka, a.s., (Societe Generale); UniCredit Bank Czech Republic and Slovakia, a.s. (UniCredit).

All three major Slovak banks (Tatra Banka, Vseobecna Uverova Banka, and Slovenska Sporitelna) that participated in the ECB “stress tests” in October 2014 assessing the quality of individual bank assets were certified as sound and stable. The results of a 2016 EU-wide “stress tests” in which the parent institutions of the Slovak branches participated, demonstrated resilience of the EU banking sector**.**

According the 2017 Financial Stability Report issued by NBS, rap­id growth in household debt increased households’ vulnerability to any worsening of the economic situation. The debt burden of Slo­vak households is twice as high as it was in the pre-crisis period. NBS introduced statutory limits on the debt-service to income for housing loans and the loan-to-value ratio for such loans. Starting in 2018, NBS’s prudential recommenda­tions for lending conditions will also become le­gally binding for consumer loans. Banks compensate with falling interest margins with increased lending, making themselves more vulnerable. The second vulnerability identified by NBS is liquidity risk also associated to strong credit growth. Corporate credit is expanding, and lend­ing to non-financial corporations (NFC) increased by 9 percent year-on-year. Loans from domestic banks were only its third largest component, as foreign loans and bond is­sues recorded greater growth. Another contribu­tor to the overall growth was intercompany credit. The ag­gregate non-performing loan ratio for NFC loans fell to 5.6 percent in September 2017. Housing loans continued to record a zero net default rate, while non-performing consumer loans had stabilized at around five percent. The banking sector’s net profit remained stable. Banks’ total capital and leverage ratios increased. Profitability of asset management companies increased in both the pension fund sector and investment fund sector.

Besides banks, other types of financial institutions that operate in the Slovak market include factoring companies, leasing companies and consumer credit companies, insurance companies and pension funds, and investment funds. Non-banking credit institutions are under strict supervision by NBS and need a license to operate.

Foreign nationals can open bank accounts by presenting their passport and/or residence permit, depending on the bank.

The Ministry of Finance established a working group Centre for Financial Innovations (CFI) dedicated to development of new financial technologies in February 2018. Its goal is to create a platform for discussion on introducing financial innovations to Slovak financial market. Its stakeholders are the Ministry of Finance, the National Bank of Slovakia, and the Deputy Prime Minister’s Office for Investments and Digitalization of society and market participants. Part of the discussion is application of blockchain technology or distributed ledger technologies (DLT) for the needs of the Slovak market. Specific measures should be proposed by the end of the year. If agreement is reached on the positive contribution of DLT, the group will proceed with implementation of the measures. Stakeholders have confirmed there is open and positive approach to exploring these options both from the government and the market.

Please consult the following websites for more information:

Central Bank of Slovakia:https://www.nbs.sk/en/publications-issued-by-the-nbs/financial-stability-report ;https://www.nbs.sk/en/statistics/financial-institutions ;https://subjekty.nbs.sk/?aa=&bb=&cc=&qq =.

European Central Bank:https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.list_of_supervised_entities_201712.en.pdf?cd41d56864391dc69f2b9752558ce4a8 ;https://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2016/results .

Finance Ministry:http://www.finance.gov.sk/en/Default.aspx?CatID=10&id=85 .

**Foreign Exchange and Remittances**

*Foreign Exchange Policies*

Slovakia joined the Eurozone on January 1, 2009. As an OECD member, Slovakia meets all international standards for conversion and transfer policy. The exchange rate is free floating.

The Foreign Exchange Act (312/2004) governs foreign exchange operations and allows for easy conversion or transfer of funds associated with an investment. The Act liberalized operations with financial derivatives and abolished the limit on the export and import of banknotes and coins (domestic and foreign currency). It also authorizes Slovak residents to open accounts abroad and eliminates the obligation to transfer financial assets acquired abroad to Slovakia.

Non-residents may hold foreign exchange accounts. No permission is needed to issue foreign securities in Slovakia, and Slovaks are free to trade, buy, and sell foreign securities.

There are strict rules governing commercial banking and credit institutions in Slovakia, which must abide by existing banking and anti-money laundering laws. As a result of the 2008 financial and economic crisis, some EU countries started a discussion on a potential tax on financial transactions (EU FTT), but this yet to be implemented.

*Remittance Policies*

There are very few controls on capital transactions, except for rules governing commercial banking and credit institutions, which must abide by existing banking and anti-money laundering laws. The basic framework for investment transfers between Slovakia and the United States is set within the 1992 U.S. – Slovakia Bilateral Investment Treaty.

The United States and Slovakia agreed to the Foreign Account Tax Compliance Act (FATCA) in July 2015, and Slovakia subsequently approved the Act on Automatic Exchange of Information on Financial Accounts (359/2015) in order to fully comply with FATCA. Slovak financial institutions now have the obligation to report tax information of American account holders to the Slovak Government, which then forwards that information to the U.S. Internal Revenue Service (IRS).

Slovakia is not a Financial Action Task Force (FATF) member; nevertheless, Slovakia receives FATF recommendations, and is a member of MONEYVAL which is a FATF associate member.

Slovakia does not impose any limitations on remittances. In 2016 Slovakia introduced a 7 percent tax on dividends. Transfer pricing for controlled transactions must be based on market prices. For a fee, the Financial Administration provides tax consulting services which can result in issuance of a deed of compliance on transfer pricing valid for up to five years, in line with the Advance Pricing Agreement.

Please consult the following websites for more information:

U.S.-Slovakia Bilateral Investment Treaty:http://www.state.gov/documents/organization/43587.pdf .

MONEYVAL:https://www.coe.int/en/web/moneyval/jurisdictions/slovak_republic .

**Sovereign Wealth Funds**

Slovakia does not maintain a Sovereign Wealth Fund (SWF). However, in 2014, Slovakia established a fund of funds – the Slovak Investment Holding (SIH), which launched operations in 2016 and is managed by SZRB Asset Management, a subsidiary of the Slovak Guarantee and Development Bank. SIH is financed by drawing three percent of allocations from five EU 2014 – 2020 operational programs, currently totaling EUR 622 million in capitalization. Resources are allocated as revolving financial instruments (guarantees, risk sharing loans, equity and mezzanine instruments) mainly through financial intermediaries, i.e. commercial lenders who will leverage the funds. Resources are focused on strategic investment priorities in the following sectors: transport infrastructure, energy efficiency, waste management, energy production, small and medium-sized enterprises, and social economy.

Please consult the following websites for more information:

Slovak Investment Holding:http://www.szrbam.sk/en .

							7. State-Owned Enterprises					

State-owned enterprises (SOEs) and private companies generally compete on a level playing field. SOEs are mostly active in certain strategic sectors, including health and social insurance, airports, railways, and electricity transmission networks. There are almost 70 SOEs in Slovakia, 80 percent of which are wholly state-owned. There are approximately 250,000 employees working in SOEs with the state-owned Slovak Rails, a rail infrastructure company, and Slovak Post being the two biggest employers in Slovakia, each with approximately 14,000 employees.

Transparency International Slovakia (TIS) reports that five of the ten biggest employers in Slovakia are SOEs and 80 public companies (including municipally and regionally owned companies) have a combined budget of EUR 9.5 billion, which represents half of the total state budget. The thirty biggest SOEs have a combined value of EUR 25 billion.

In the energy sector, combined state and private ownership is common. The state fully owns the national gas supplier Slovak Gas Industry (SPP), and it also holds 51 percent stakes in all three electricity distribution companies (without managerial control), and a 49 percent stake in the gas transmission system operator. Based on an MOU signed with the Italian utility giant Enel, the Economy Ministry holds an option to increase its stake in Slovenske Elektrarne, which controls around 70 percent of the domestic electricity generation market, from the current 34 percent to a 51 percent majority.

The Ministry of Economy is currently planning to convert SPP to an Energy Holding, that would entail not only gas but also other energy SOEs. This would follow the model of neighboring countries’ energy frameworks, such as Hungary’s MOL, Austria’s OMV, or Czech Republic’s CEZ.

In 2017, private railway company Regiojet decided to stop providing rail services between the two biggest Slovak cities, Bratislava and Kosice, claiming it cannot compete with the state-owned railway company which enjoys subsidized intercity trains with free travel for pensioners and students.

The government imposed strict return guarantee requirements and fee limits on private pension funds in the past. This step could have negatively influenced competition with the state-run “pay-as-you-go” pension system, and the government actively encouraged investors to move their savings back into the state system.

The government has attempted to legislatively limit profits of health insurers in the past. Although the Constitutional Court ruled that the law was anti-constitutional, the government is still looking at other means to limit the profits of health insurers in accordance with the Constitution.

Most SOEs are structured as joint-stock companies governed by boards that include government representatives and government appointees. Significant SOEs are required to publish their audited financial statements in accordance with the Accounting Act. They submit their audited financial statements to the Finance Ministry’s dedicated portal. Nonetheless, Transparency International has deemed the SOEs to be generally non-transparent.

The Finance Ministry posts a list of companies that are fully or partially state-owned and most other ministries also publish a list of such companies on their web portals. The list includes SOE equities and profits broken down by enterprise, and is publicly available.

Slovakia is a signatory of the WTO Agreement on Government Procurement (GPA) since 2004, which also covers SOEs. Slovak SOE ownership is exercised in accordance with the Act on State-owned Enterprises (111/1990), which is consistent with the OECD Guidelines on Corporate Governance for SOEs.

Please consult the following website for more information:

Register of Financial Statements:http://www.registeruz.sk/cruzpublic/home .

Analysis on SOEs by Transparency International Slovakia:http://www.transparency.sk/wpcontent/uploads/2015/12/statne_firmy_web_a5_eng.pdf .

List of SOEs in Slovakia:http://www.finance.gov.sk/Components/CategoryDocuments/s_LoadDocument.aspx?categoryId=11521&documentId=15836.

**Privatization Program**

Foreign investors are free to participate in privatization programs for SOEs, however, no privatization efforts are currently under way. Privatization frequently occurs through direct sale, although Slovakia has a track record of doing major privatization projects through public tender, especially in the energy sector. The last significant SOE considered for privatization was the wholly state-owned Bratislava airport, but the process has been stopped. In late 2017, the government announced it is committed to plans to lease the airport for 30 years.

More generally, statements by government officials and political leaders indicate that the trend is not in favor of privatization but the opposite. There is interest in increasing the state’s stake in so-called “strategic” sectors, particularly energy. Current government strategic documents calls for a ban on further privatization of “strategic” SOEs.

According to Act on Transfer of State Assets to Other Entities (92/1991 Coll.,) privatization of an SOE in case of a direct sale is decided by the government based on a proposal from the relevant Ministry and in case of a public tender, the relevant Ministry decides about the privatization project. In both instances, the Ministry plays a central part in the process. Privatization of natural monopolies such as electricity distribution companies or a gas distribution company are always based on a government decision. Once a decision is made over the privatization of a project, the Ministry is obliged to publish an advert in domestic media. In previous cases of privatization through public tenders, the relevant Ministry also opened a tender for a privatization advisor (awarded to a major consultancy firm). The advisor placed adverts in domestic and international media outlets (such as the Financial Times) and contacted potential international investors. Websites of relevant ministries owning the SOEs are also a good place to find more information in case a tender is opened. Public tenders are monitored by the Public Procurement Office, which makes sure the process is transparent. Nonetheless, previous instances of public tender privatization were criticized by the media as nontransparent.

Please consult the following website for more information:

Public procurement Office:https://www.uvo.gov.sk/ .

Ministry of Economy:http://www.mhsr.sk/ .

Ministry of Transport:https://www.mindop.sk/ 

							8. Responsible Business Conduct					

Responsible business conduct (RBC) is the basis of the European Commission’s “Europe2020” strategy aimed at creating conditions for smart, sustainable, and inclusive growth. The Ministry of Labor, Social Affairs and Family prepares reports on RBC and its business implications, but states that the term is not yet clearly defined. By adhering to the EU directive on social responsibility, state institutions can demand through public procurement requirements that the offered goods and services consider ecological, social, and ethical criteria. Slovakia currently has no unified or comprehensive national plan towards RBC at the government level.

As an OECD member, Slovakia adheres to the OECD Guidelines for Multinational Enterprises, which represent the global gold-standard on the due diligence approach to RBC. SARIO was designated in 2000 as the National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises. Please see below for the NCP’s contact information:

Mr. Marcel SladokSlovak Investment and Trade Development Agency (SARIO)Trnavska cesta 100, 821 01 Bratislava, SlovakiaTel: +421 2 4854 2309Email: sladok@mhsr.sk

Additionally, Slovakia encourages observance of related OECD voluntary guidelines, such as the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. Slovakia has also ratified the Extractive Industry Transparency Initiative (EITI).

An increasing number of NGOs, businesses, and multinational companies promote the due diligence approach of RBC and are aware of its associated expectations and standards. The Pontis Foundation – an NGO promoting corporate philanthropy, transparency, and ethics – has an almost 20 year tradition of recognizing the country’s best RBC programs with its prestigious Via Bona Awards attended by top Slovak companies.

In a 2017 public survey, 53 percent of respondents were able to name a company with a corporate social responsibility (CSR) program. Under Slovak law, corporations can contribute up to 2 percent of their corporate income taxes to non-governmental organizations (NGOs), making this program a key funding source for NGOs. Many corporations have their own CSR programs. Programs range from employment and education programs for marginalized groups, to environmental initiatives, to fundraising for charities and NGOs. Multiple U.S. companies have been recognized by the government and civil society for excellence in their community service efforts.

In late 2017, the Ministry of Labor, Social Affairs and Family proposed a law that will define a “social enterprise” as an entity aimed at profoundly improving the conditions for integrating disadvantaged and vulnerable groups. Labor Code updates in recent years were enacted to strengthen employee rights protections while increasing employer obligations.

A number of laws and regulations address and enforce environmental protection, including waste management, air protection, nature and landscape, and water management. After legislative changes in recent years, environmental impact assessments are now systematically carried out for all proposed new projects. Slovakia is a party to the Aarhus Protocol. In December 2017, the Ministry of Environment published draft Environmental Strategy 2030 that analyzes key challenges including air pollution, deforestation, and waste management, and calls for a binding “green public procurement” in certain categories of procurement. Consumer protection is guaranteed and enforced through the Civil Rights Act, Consumer Protection Act, and the Act on E-Commerce.

The Acts on Environmental Impact Assessment (24/2006), Air (137/2010), and Waste (313/2016) govern the environmental protections affecting businesses. The mandatory Environmental Impact Assessment (EIA) process applies to a number of industries, including mining, energy, steel, chemical, pharmaceutical, wood, food, and agriculture, as well as infrastructure projects. The Act on Air defines legal obligations for businesses operating equipment producing emissions, including emissions limits, monitoring, and reporting in line with valid national and EU legislation. The Act on Waste valid as of January 2017 establishes the obligations for companies producing packaging, as well as rules on waste recycling and recovery, and other waste management issues. The Environment Ministry and its agencies, as well as dedicated public administration structures in municipalities, share responsibility for implementing and enforcing legal obligations on environmental protection.

Large industrial companies also annually report their emissions, hazardous waste, and environmental management programs. Due to recent EU legislation aiming for low-carbon economy, U.S. Steel Kosice, the biggest employer in Eastern Slovakia, is planning a multimillion investment to curb their emissions. The project will receive EUR 100 million in co-financing from EU funds.

Some concerns about RBCs persist as Roma face ongoing discrimination in private sector employment and services. Not all victims seek legal redress for discrimination. Nonetheless, domestic courts have -in a few cases – ruled in favor individuals who were represented by NGOs. After several media articles were published about poor conditions for Serbs working in Slovakia, the Ministry of Labor, Social Affairs and Family confirmed that labor agencies had circumvented domestic labor regulations by issuing falsified work permits for hundreds of Serbs working in the auto manufacturing industry. In early 2018, parliament adopted a law making it easier for third country nationals (statistically affecting mostly Serbs, Ukrainians, and Vietnamese) to find work in Slovak regions with less than 5 percent unemployment.

Please consult the following website for more information:

Ministry of Labor, Social Affairs and Family:https://www.employment.gov.sk/sk/ministerstvo/spolocenska-zodpovednost/ .

							9. Corruption					

Slovakia is a party to international treaties on corruption. Among them the OECD Convention on Combating Bribery of Foreign Public Officials, the UN Anti-Organized Crime Convention, the UN Anti-Corruption Convention, and the Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Slovakia is a member of the Group of States against Corruption (GRECO).

The giving or accepting of a bribe constitutes a criminal act according to Slovak law. In July 2016, criminal liability for legal persons, including corporations, was introduced into Slovak criminal law. Nevertheless, corruption continues to be among the most serious issues for the business community. According to the World Economic Forum survey, Slovakia placed among the worst performers in the EU on the diversion of public funds, favoritism in decision-making and irregular payments and bribes. According to the Special Eurobarometer survey of October 2017, 81 percent of respondents believed that corruption is part of Slovakia’s business culture. There are no data available on whether U.S. firms identify corruption as an obstacle to foreign direct investment. In a February – March 2018 survey by five foreign chambers of commerce (Slovak-German Chamber of Commerce, Slovak-Austrian Chamber of Commerce, Dutch Chamber of Commerce, Swedish Chamber of Commerce, and Advantage Austria), respondents marked the fight against criminality and corruption as the worst among evaluated investment criteria. The investors further noted that concerns about corruption and rule of law could potentially damage the image of Slovakia and raise questions about future stability.

Some opposition politicians and NGO analysts claim that conflict of interest and asset declaration regulations lack the necessary level of detail to be implemented and enforced in practice. Government authorities do not require private companies to establish internal codes of conduct that would prohibit bribery of public officials, although some companies have adopted such measures voluntarily. While law enforcement has effectively investigated some cases of petty bribes and mid-level corruption, anti-corruption non-governmental organizations say high-level corruption is rarely investigated or prosecuted effectively; only two ministerial-level officials have been convicted of corruption-related crimes since Slovak independence in 1993, and their case is still under appeal.

Some members of civil society and most opposition politicians claim political influence over the police and prosecution services impedes corruption investigations, allowing individuals with strong political connections to the ruling coalition to avoid prosecution for corrupt practices. Some police investigators claim that the police corps’ politically nominated leadership discourages investigation of politically sensitive cases, manipulates police statistical data on criminality, and forces honest police officers to leave the force. One of the steps the government took to increase transparency in governmental contracting is an anti-shell company law (315/2016 Coll.) requiring private companies to specify their ownership structure before entering into business contracts with state entities, in effect since 2017. In March 2017, the government also adopted a third National Action Plan to combat corruption under the Open Government Partnership (OGP).

In January 2018 strict new rules on mergers between companies came into force. The rules were designed to eliminate the widespread practice of companies abusing mergers to avoid contractual and statutory obligations to pay debts and taxes without legal consequences.

Slovak law provides for an independent judiciary; however, public confidence in the judicial system is among the lowest in the EU, according to 2017 EU Justice Scoreboard. Experts argue the justice system is inefficient and officials remain divided on the need for reform. There are concerns about manipulation of case assignments, and court verdicts are often inconsistent and poorly justified.

In 2017, new rules for selecting judges came into effect. The changes are designed to increase transparency of the selection process and competency of the judicial corps. A new specialized court to deal more efficiently with enforcement actions. A number of communication technology projects were introduced in 2016 to improve the quality of the justice system, but they have not yet been completed.

Disclosure of contracts in the Central Registry of Contracts by public administrators and state-owned enterprises s is compulsory, providing additional transparency. However, media reports alleging corruption in public tenders and EU subsidy programs remain frequent. In summer 2017 the Minister of Education resigned following accusations of bribery and non-transparent evaluation of projects seeking EU funds for research and development.

Following the publishing of reports by murdered investigative journalist Jan Kuciak about serious irregularities in the distribution of agriculture subsidies, the European Anti-Fraud Office (OLAF) opened in March an investigation into EU agricultural subsidies abuses by the Agriculture Ministry’s Land Office.

Private businesses, especially those with foreign ownership, often have internal codes of ethics, in many cases also extending to contractors.

Some commercial banks offer services to clients for vetting potential local investment partners. The Slovak Business Angels offer services to facilitate contacts between “adequately prepared entrepreneurs and potential serious investors” (http://businessangels.sk/ ).

**Resources to Report Corruption**

Contact details of government agencies responsible for combating corruption:

Dusan KovacikHead of the Special Prosecutor’s OfficeOffice of the Special Prosecution under the General Prosecutor’s OfficeSturova 2812 85 BratislavaTelephone:+421 33 690 3171Dusan.Kovacik@genpro.gov.sk

Martin FritzDeputy Director of the National Anti-Corruption UnitMinistry of Interior, National Police HeadquartersNational Criminal AgencyPribinova 2812 72 BratislavaTelephone: +420 9610 56371Martin.Fritz@minv.sk

Contact details of “watchdog” organizations:

Gabriel SiposExecutive DirectorTransparency International SlovakiaBajkalska 2582718 BratislavaTelephone: +421 2 5341 7207sipos@transparency.sk

Pavel SibylaExecutive DirectorStop Corruption FoundationStare Grunty 18841 04 Bratislavasibyla@zastavmekorupciu.sk

Zuzana WienkExecutive DirectorFair Play AllianceSmrecianska 21811 05 BratislavaTelephone: +421 2 207 39 919zuzana@fair-play.sk

							10. Political and Security Environment					

Politically motivated violence and civil disturbance are rare in Slovakia.

There have been no recent reports of politically motivated damage to property, projects, and installations or violence directed toward foreign-owned companies.

While the environment in the country is generally stable and secure, the murder of an investigative journalist and his fiancee in February 2018, believed by police to be related to the journalist’s work, led to an escalation of tension and dissatisfaction in society. A series of country-wide anti-government protests throughout the month of March drew the largest crowds since the fall of communism and the Velvet Revolution in November 1989. The peaceful protests coincided with the resignation of the ruling government and its replacement by a new government consisting of the same coalition partners but led by a new Prime Minister. The new cabinet has passed a parliamentary confidence vote in March and will remain in power until the next general elections, scheduled for March 2020. Peaceful public protests remained ongoing into April.

							11. Labor Policies and Practices					

The Slovak labor market continued to improve in 2017, reaching historically low levels during some parts of the year. The unemployment rate in 2017 dropped to 8.1 percent according to preliminary data, down from a peak of over 14 percent in 2013, and is projected to continue to drop through 2018. The employment rate for the first three quarters of 2017 reached 71 percent, and employment is projected to grow at a 1.7 percent rate in 2018. Youth unemployment has improved, but remains significantly higher than average at more than 18 percent for the first three quarters of 2017. Structural long-term unemployment and unemployment of marginalized communities remain a challenge, with significant regional variation due to diverse regional economic development and low labor mobility. Integration of Roma remains problematic, with the employment rate of Roma at only 25 percent according to OECD, while unemployment reaches nearly 50 percent. A lack of childcare facilities discourages mothers from returning to work – according to OECD, only 3 percent of small children attend nurseries, compared to over 30 percent on average in OECD. Part-time work is relatively rare in Slovakia.

Slovakia’s economically active population was 2.75 million in 2017, of which roughly 73 percent work in services, 23 percent in industry, and the rest in agriculture. Slovakia’s engineering and mechanical production sectors remain strong. Foreign companies frequently praise younger workers’ motivation, abilities, and productivity, especially in foreign language and computer skills. However, some businesses have complained 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, but also a lack of support for critical thinking and managerial skills.

The education system poses a challenge – while 70 percent of population aged 25-64 has attained at least upper secondary education (compared with an OECD average of 43 percent), and 22 percent tertiary education (OECD average 36 percent), Slovakia’s educational outcomes lag behind. Quality of tertiary education in international standards, including university research, is low by OECD standards. As a result, employers across the economy, and in the IT and manufacturing sectors in particular, lament a shortage of qualified labor. The Education Ministry aims to make the dual education more attractive, currently working on an amendment to the Act on Dual Education (vocational 61/2015 Coll.). Through incentives for companies to partner on vocational training programs for students, the Ministry aims to attract 12,000 students to enroll in apprenticeship programs by 2020, up from the current level of under 3,000.

The Ministry of Labor, Social Affairs and Family in cooperation with the Central Office of Labor, Social Affairs and Family has established rules for the establishment of Social Enterprises for Labor Integration. This includes a set of tools for active labor market policies including integration of disadvantaged groups, training, and others. Nevertheless, according to the OECD Economic Survey of the Slovak Republic from June 2017, spending on active labor market policies is low, and training remains insufficient or inadequate.

Nominal wages grew at 4.6 percent in 2017 and are expected to grow at over 5 percent in 2018. Labor productivity grew at a 2.6 percent rate. Average wage in the economy reached EUR 944 in the second quarter of 2017. Nevertheless, average hourly wage in Slovakia at EUR 9.50 is significantly lower than EU average (EUR 22.80).

The Slovak Labor Code (311/2001 Coll. and later amendments, the latest as of February 2018) governs relations on the labor market, including for foreigners. Businesses cite labor regulations and frequent changes to the Labor Code as one of obstacles to doing business in Slovakia. The newly introduced provisions include limits on seasonal work, temporary posting, and increased pay for night and Sunday shifts and work on holidays. Employers in Slovakia also have an obligation to contribute to food expenses during work hours of between EUR 1.86 and EUR 2.48 per meal, and this contribution constitutes taxable income.

Slovakia has a standard workweek of 40 hours, and the Labor Code caps overtime at 400 hours annually, and sets minimum remuneration for overtime work (25-35 percent of average earnings). A 2016 minimum wage law indexes the minimum wage to overall wage growth in the economy. The minimum wage in 2017 was EUR 435 per month, and had increased to EUR 480 in 2018, which corresponds to EUR 2.76 per hour.

The Labor Code contains provisions against discrimination at the work-place (also stipulated in Anti-discrimination Act, 365/2004 Coll.) based on gender, race, nationality, sexual orientation, health impairment, age, language, religion, political affiliation, and other forms of discrimination.

Few foreign nationals from non-EU countries currently work in Slovakia. According to the Slovak Labor Office statistics, the number of foreign workers from non-EU countries was below 9,000 in December 2017, with the nationals of Serbia and Ukraine accounting for nearly 70 percent of total. A February 2018 amendment to the Act on Employment Services (5/2004 Coll.) aims to ease the conditions for employment of non-EU nationals in selected professions where there is a lack of qualified domestic labor force, and only in the regions with unemployment rate below five percent. At the same time, the number of such employees will be limited to 30 percent of all employees (per employer). To further support labor mobility and to mitigate regional differences, the amendment also increased contributions for relocation.

The corporate income tax is currently 21 percent. The rate is below the OECD average of 23 percent and in line with comparable small OECD economies; however, it is the highest among the “Visegrad Four Group” of regional partners (Slovakia, Czechia, Poland, Hungary), who often compete for the same investments.

Social insurance contributions are compulsory and include healthcare, unemployment, and pension insurance. The cap to calculate health contributions for employees with higher wages was abolished. The social insurance cap is still in use, and was recently increased from five times the average wage to seven times the average wage. Both employers and employees must pay social contributions – employers’ combined social and health contributions amount to 35 percent of wages. The relatively heavy reliance on social insurance increases the cost of labor, especially on low-skilled, low-wage workers.

The tax wedge for a single person with no children at 67 percent of average wage reached 39 percent in 2016 (compared to OECD average of 32 percent). Tax revenue (i.e. the revenues collected from taxes on income and profits, social security contributions, taxes levied on goods and services, payroll taxes, taxes on the ownership and transfer of property, and other taxes) represented 32.7 percent of GDP in Slovakia in 20116, compared to OECD average of 34.3 percent.

Union membership has declined in recent years. The so-called “tripartite arrangement,” is used as a discussion platform including state representatives, labor unions, and the employers’ associations. Slovakia is a member of the International Labor Organization and has ratified all eight core conventions.

Strikes are infrequent in Slovakia. In recent years, there were labor actions by both teachers and nurses, with both groups complaining about insufficient budgets and low salaries, but also in some industries.

The cost to lay off employees stipulated by the Labor Code is generally less expensive than in Western Europe. These costs depend mostly on the employee’s service time:

- up to 1 year – 1 month notice period, with no severance pay;
- 1 to 5 years – 2 month notice period, 1 or 2 months’ salary severance;
- 5 to 10 years – 3 month notice period, 2 or 3 months’ salary severance;
- 10 and more years – 3 month notice period, 3 to 5 months’ salary severance.

Nevertheless, many companies have collective agreements that go beyond these thresholds.

Please consult the following websites for more information:

European Commission Country Report – Slovakia 2018:https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-slovakia-en.pdf .

OECD Economic Survey – Slovak Republic:http://www.oecd.org/eco/surveys/economic-survey-slovak-republic.htm .

The Migration Information Center IOM portal features useful information for foreign nationals:https://www.mic.iom.sk/en/doing-business/general-information.html .

The Foreign Affairs Ministry provides information and services for foreign nationals:https://www.mzv.sk/web/en/consular_info/residence_of_foreigners_in_territory_of_slovakia .

The Ministry of Labor, Social Affairs and Family and the competent Labor Office provide services to foreign nationals related to their employment:https://www.employment.gov.sk/en/labour-employment/employment-support/ ;https://www.employment.gov.sk/en/information-foreigners/employment/ .

							12. OPIC and Other Investment Insurance Programs					

The Overseas Private Investment Corporation (OPIC) offers U.S. investors in Slovakia insurance against political risk, expropriation of assets, damages due to political violence, and currency inconvertibility through its 1990 agreement between Slovakia and the United States. OPIC can provide specialized insurance coverage for certain contracting, exporting, licensing, and leasing transactions that U.S. investors undertake in Slovakia. Slovakia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) that also provides political risk insurance.

Collection of data on investment insurance provided to incoming FDI is not a national competence; however, the OECD and the Berne Union (i.e. The International Union of Credit and Investment Insurers, https://www.berneunion.org/ ) might be able to provide country-level data on investment insurance activities.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

* Sources:Eurostat, GDP data: http://ec.europa.eu/eurostat/data/database ;Central Bank of Slovakia, FDI data: http://www.nbs.sk/sk/statisticke-udaje/statistika-platobnej-bilancie/priame-zahranicne-investicie ;UNCTAD, FDI data: http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx .(Note: Values from host country sources are converted from their original euro denomination)

**USD 218 million in equity capital and reinvested earnings; USD -290 million in other capital. National data on inward U.S. FDI position provided by the Central Bank of Slovakia (NBS) is consistent with the IMF data (http://data.imf.org/regular.aspx?key=61227424 ).

*Table 3: Sources and Destination of FDI*

* Sources:

IMF: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482186404325 ;Data are consistent with host country data provided by the Central Bank of Slovakia (http://www.nbs.sk/sk/statisticke-udaje/statistika-platobnej-bilancie/priame-zahranicne-investicie );Data on FDI are inconsistent as much of U.S. FDI is channeled through subsidiaries located inside the EU.

*Table 4: Sources of Portfolio Investment*

* Sources:IMF: http://data.imf.org/regular.aspx?key=60587804 .

							14. Contact for More Information					

D.R. SeckingerSenior Economic OfficerU.S. Embassy Bratislava+421 (2) 5922 3412SeckingerDR@state.gov

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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