Investments in Slovakia - One Success Story

Slovakia is a full member of the EU, NATO, OECD and has been described in the media headlines as:

“Slovakia - Detroit of the East”
The Financial Times, February 20, 2007

„Today, the country of 5.4 million is fast becoming a model for change among the ten countries that joined the European Union in May 2004.“
The Wall Street Journal, January 12, 2005

”An economic tiger purrs in once backward East Europe.“
The New York Times, December 28, 2004

”Slovakia is now widely seen as Europe‘s fastest reformer“.
Newsweek, November 29, 2004

”Slovakia is the leading reformer.“in ”Doing Business in 2005: Removing Obstacles to Growth“
Report by The World Bank, September 8, 2004

;reklama;

Since the declaration of independence in 1993, Slovakia has handled several hundred successful investment projects from various countries and in a wide range of industrial sectors. These investment projects have had a substantial impact on the economic growth of the country. The total volume of FDI inflow to Slovakia reached 14.747 million USD as of 30 June 2006.

Slovakia is generally recognised as an open market economy whose ability and willingness to pay its liabilities puts it, according to prestigious rating agencies, into the ”Investment” level, and this level is expected to increase. Based on ratings of Standard and Poor’s, a credit rating agency, Slovakia has become a leader of the Central European region.

Comprehensive and deep structural reforms of the Slovak Government in the last 4 years have focused on creating a business friendly environment for investors. The following is an overview of the main reforms directly or indirectly influencing economic stability.

• New System of Taxation - Simple, Fair, Neutral, Effective – is probably the best known of all reforms. All types and amounts of income are taxed at a flat rate of 19%; there is no double taxation and a 0% dividend tax; Slovakia offers the third lowest tax burden of all 25 EU countries. A reduced VAT for medications has been introduced in autumn 2006, but this has no impact on the business environment.

• Banking & Finance – As of December 2006 the banking sector has been privatized with 97% foreign ownership. This sector has undergone a dramatic recovery.

• New Pension reform – Individual pension saving accounts in pension administration companies.

• New Labour Code – Recognized by the World Bank as one of the most flexible in the EU. It allows layoffs to meet economic cycles.

• Health Care System Reform – Introduction of market principles into the health care system.

• Social System Reform – New measures to avoid abuse of the social system, better aimed targeting of social allowances. Introduction of Employers‘ Obligation to Pay Sickness Insurance Benefits in first 10 days of employee’s illness leave has resulted in a decrease from 9% to 3% sickness rate, the lowest in all EU countries.

• Act on Commercial Registry – Amount of time required to register a new company has been cut to a maximum of five days; the same applies to the issuance of trade license with a maximum allotted time of seven days.

• New Investment Incentives Program – As of July 2007 a new law will be issued that will enable faster and more transparent negotiation; a company can determine the potential amount of State aid. Slovakia has successfully implemented most of the structural reforms. The task today is to maintain and utilize their positive results and to look out for possible future improvements.

The Slovak Government has approved the competitiveness strategy of Slovakia. This strategy includes the governmental program for a knowledge economy.

Our vision is Slovakia rapidly achieves the living standards of the most advanced western European countries. Slovakia is synonymous at home and abroad with a country having exceptionally educated and creative people, a blossoming science and technology sector and producing innovative products and services of the highest quality. Slovakia is home to people capable of creating incredible and technologically superior products which can compete with products from the most advanced countries in the world, such as Japan, Germany and the USA.

To utilize knowledge of the Slovak people the investment incentives focus on the investment projects from the high-tech sector and strategic services. The impact of State aid in these projects could reach 50% of the eligible investment costs. Companies can also benefit from the positive effects MINERVA has on the microeconomic environment and talent base in Slovakia. Today‘s best business opportunities can be found in these areas:

● R&D, Design & Innovation
● Technology Centers
● ICT & SW Development
● BPO
● Regional Headquarters
● High-tech sectors

Additional opportunities are found in the traditionally strong sectors with growth potential in Slovakia:

● Machinery & Precision Engineering
● Automotive
● Metallurgy & Metal Processing
● Electronics
● Chemistry & Pharmacy

According to a survey by Deloitte & Touche, Slovakia had the third lowest employment costs in the EU in 2005 with a figure of EUR 8,235 per employee/year. The survey takes into account tax and social security costs as well as the average wage. Slovakia has a 15-40% lower average wage than the Czech Republic, Hungary and Poland and is six times lower than the average of the European Union.

Social security contributions in Slovakia cover all contributions and there are no extra or hidden costs for the employer. The contributions in Slovakia and Poland are capped, in Czech Republic and Hungary there is no cap. In Slovakia the cap is approximately 1.200 EUR and everything earned above this figure is not subject to social security payments. Furthermore the social security contributions and taxation for employees in Slovakia are the lowest of the above listed countries.

The expected labour cost increase between the years 2004 and 2009 according to Roland Berger Analysis has been calculated on the basis of average total labour costs per month (gross salary, social security contributions and wage-related taxes paid by the employer), 160 working hours per month, for 2009 labour costs are projected:

The labour productivity index expressed in terms of GDP per hour worked in the table below shows very strong labour productivity growth in Slovakia. The growth is much higher not only in comparison to the 15 original EU countries but more importantly it is higher than in the neighbouring countries like Hungary, Poland and Czech Republic which have similar conditions.

The workforce of more than 2.1 million has a strong tradition in engineering and mechanical production. Foreign companies frequently praise the motivation and abilities of younger workers, who also have good language and computer skills. According to the World Bank’s Student Learning Assessment Database, Slovaks outscore all other central and eastern European students in maths and are placed third in science. The educational system is a springboard to a high quality workforce entering the labour market.

The Slovak Investment & Trade Development Agency (SARIO) is the Slovak Government investment promotion agency. In Slovakia and around the world, SARIO provides a complete range of services to companies looking to make a home for their investment in Slovakia. Their team of experts is ready to help with all parts of the investment process.

SARIO offers a full range of services free of charge for foreign investors including:

● Advice on any question on starting a business in Slovakia
● Providing sector-specific information
● Analyses of labour market, taxation, macroeconomics etc.
● Recommendations on best location and appropriate real estate
● Facilitating contacts and processes with authorities
● Assisting with the process to apply for investment incentives

More info:
SLOVAK INVESTMENT AND TRADE DEVELOPMENT AGENCY (SARIO), Martincekova 17, 821 01 Bratislava, Slovak Republic.
Tel.: 00421-2-58 260 100, Fax: 00421-2-58 260 109.
E-mail: sario@sario.sk, www.sario.sk

By SK Magazine
Photo: iStockphoto

Audio/Video

Fotogaléria