Slovakia has come a long way since the 1989 velvet revolution. Today, Slovaks are proud that one of the EU’s youngest member countries is also one of the most attractive to foreign investors, both for business start-ups and business expansion. Its excellent reputation stems not just from a skilled and low-cost workforce, friendly people and marvellous countryside but also from the presence of a 19% flat tax on all corporate and individual income. Despite a recent influx of major investors, including PSA and Hyundai, there is still room for more. Definitely, Slovakia is a place worth exploring.
Established after the peaceful partition of Czechoslovakia in 1993, Slovakia may be one of Europe’s youngest countries but its position in Europe is a pivotal one. Occupying a landlocked area of just 49,035 sq. km in Europe’s geographical centre, it acts as a crucial transit country linking the different parts of a united Europe. It borders Poland on the north, Ukraine on the east, Hungary on the south, Austria on the southwest, and the Czech Republic on the northwest. Bratislava, the capital city, is less than an hour from Vienna by car and from Prague by air and about 200 km far from Budapest.
History
Early inhabitants of what is now Slovakia included Celtic, Illyrian and German tribes. The first Slavs arrived in the 5th and 6th centuries AD. Having had their own state called Samo’s Kingdom in the 7th century, they later became part of the Slavic empire of Great Moravia in the 9th century. Slovakia was a territory of the Austro-Hungarian Empire from the 11th century until 1918, when it united with the Czech lands of Bohemia and Moravia to form Czechoslovakia. During the next 20 years, the new independent state enjoyed rapid economic development and, by the 1930s, was numbered among the word’s most industrial nations.
Shortly before the start of World War II, Slovakia declared its independence under pressure from the German dictatorship. Following liberation in 1945, Czechoslovakia was re-established as an independent state which, from 1948 until 1989, was under communist rule.
After a series of peaceful mass protests, the communist regime was overthrown in the “velvet revolution” of 1989. The peaceful division of Czechoslovakia followed in 1993. The former opposition parties (Slovak Democratic Coalition, Democratic Left Party, Party of Civic Understanding, Hungarian Coalition) formed a coalition government in November 1998, with Mikulas Dzurinda as Prime Minister. After eight years was Mikulas Dzurinda replaced by Robert Fico, who created new govering coalition from parties as SMER, HSDS-LS and SNS.
Slovakia is now a parliamentary democracy, with a President as its constitutional head of state, elected for a five-year term. Parliament is a single chamber of representatives, called the National Council, with 150 deputies elected by proportional representation for a four-year term. The government is appointed by the President and then approved by Parliament. There is a written constitution with provisions protecting fundamental human and property rights, rights to education and religion.
The first democratically elected President was Rudolf Schuster, elected in May 1999, while the current President, Ivan Gasparovic, was sworn into office in June 2004.
Two of Slovakia’s key achievements in recent years have been its admission into the EU and NATO in Spring 2004. It also belongs to other international organisations, including:
- United Nations,
- Central European Free Trade Association,
- Organisation for Economic Cooperation and Development,
- Organisation for Security and Cooperation in Europe,
- Council of Europe,
- United Nations Educational, Scientific and Cultural Organisation,
- World Trade Organisation
- INTERPOL
Economic progress
Since the fall of Communism in 1989, Slovakia has transformed itself into a functioning market economy. The period following partition was difficult, both politically and economically, and has resulted in continuing high unemployment.
Like its neighbours, Slovakia has had to cope with losing traditional export markets due to the collapse of the Council for Mutual Economic Aid. However, what it lost in foreign trade it made up for at home: in 1994, Slovakia had one of the highest growths in GDP.
To avoid inflationary spirals and accelerate the transition, the Government introduced restrictive monetary and fiscal policies, with limits on bank landing and subsidies, careful currency control and cautious public spending. In 1999, a series of austerity measures were introduced, including VAT increases, price deregulation for electricity, heat and natural gas and measures targeting the corporate and banking sectors. These helped to restore financial balance, cut public spending and increase budgetary revenues.
Since 2001, remarkable economic progress has been achieved under Mikulas Dzurinda, with the completion of major privatisations and significantly increased foreign investment: over SKK 20 billion (€515 million) in the first half of 2003, mostly into the corporate sector, and over SKK320 billion (€8.26 billion) in total.
Slovakia’s current economic focus is on meeting the Maastricht conditions for entry into the Euro, on achieving long-term growth, decreasing inflation and reducing unemployment. The economy is growing quickly, as evidenced by a 3% increase in consumer spending over the past year. In 2005, GDP grew by more than 6%: the highest for ten years. In 2004, its budget deficit was 3.5% of GDP and in a following year budget deficit decreased of almost another 3%, putting it on track to meet the 3% Maastricht target by 2006-2007 and adopt the Euro in 2009.
The combination of low taxes, cheap and skilled labour and a favourable social security system make Slovakia an ideal centre for foreign corporations operating in Central and Eastern Europe.
Setting up a business in Slovakia
The Slovak Commercial Code allows businesses in Slovakia to be any of the following, each of which must be registered in the Slovak Commercial Register:
- Enterprise or branch office of a foreign company
- Joint-stock company
- Limited liability company
- Limited partnership
- General partnership
- Co-operative
Apart from enterprises and branch offices, these are all Slovak legal entities. There is no limit to the percentage interest a foreign investor may have in a Slovak legal entity, nor are there any legal requirements for local participation. Foreigners may establish both joint ventures and wholly owned subsidiaries.
