Top 10 challenges of doing business in Slovakia

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Slovakia sits in the heart of Europe, sharing borders with five countries, giving businesses access to a huge consumer base, but navigating the complex tax, legal and regulatory requirements can be difficult without having the right help on board.

Modernisation and change have become ever present facets of the Slovakian economy since gaining independence from neighbouring Czech Republic in 1993. Part of the common EU market, it boasts a simple and competitive taxation system (19% flat tax rate and 0% dividend tax) and a wealth of highly skilled and educated labour which is the most productive in the Central and Eastern Europe region.

Bordered by Poland, Ukraine, Hungary, Austria and the Czech Republic, its developed infrastructure gives businesses quick access to other high-growth regions in Europe as well as developed nations to the west. The stable political and economic environment is also appealing to firms looking to expand in Europe, with positive scores received from international rating companies and a healthy position in the World Bank and International Finance Corporation’s (IFC) Doing Business Report.

But despite the obvious economic appeals, Slovakia remains a complex place in which to do business. The World Bank and IFC rank it in the bottom 100 countries in the world in three of its ten indicators, and having local help on board can be a real asset for expanding businesses.

Starting a Business
When establishing a corporate entity, companies should first check the uniqueness of the company name, before notarising articles of association and obtaining trade licenses, income tax registration and health insurance at the One Stop Shop. A bank account must also be opened and registration with the District Court and for worker insurance needs to be completed.

Dealing with Construction Permits
The Municipal Authority deals with the lion’s share of procedures when obtaining construction permits. Once the relevant inspections have been completed the building must be registered with the Real Estate Registry. The entire process takes an average of 286 days to complete, although the cost of completing the process is very cheap.

Getting Electricity
ZSE Distribucia is responsible for connecting new businesses to the grid, and will also conduct most of the works on the property, although an electrical contractor can be sought for certain aspects. It takes 158 days in total to complete on average.

Registering Property
Registering property is a very streamlined task, taking just over two weeks to complete. Extracts from the commercial register are to be obtained by each party before registration of the transfer can be completed.

Getting Credit and Protecting Investors
Slovakia has a transparent business environment, which means getting credit is a relatively easy task. Investor protection, however, is an area which requires substantial improvement. The World Bank and IFC rank Slovakia in 117th place in the world for protecting investors.

Paying Taxes
There are 20 corporate tax payments to make each year which take more than 200 hours of business time to arrange. VAT is the most burdensome aspect of the corporate tax regime, with 12 payments to make per year taking an average of 103 hours to process.

Trading Across Borders
Trading across borders is both a costly and time-consuming endeavour in Slovakia, taking more than two weeks to both import and export. It costs upwards of $1,500 per container to trade both ways, which is far higher than the OECD average of US$1,028.

Enforcing Contracts
There are 32 procedures to navigate when enforcing contracts which takes around 545 days to complete.

Resolving Insolvency
Resolving insolvency takes a massive four years to process, with a lower recovery rate than the OECD norm of 70 cents on the dollar. The cost of completing the procedure is also twice as high as the OECD average.

Although westernisation is increasingly influencing Slovak business culture, there are still many traditional values which are upheld in the corporate realm. There is a considerable distance between managers and subordinates, and employees are not accustomed to openly expressing their ideas and opinions to those of higher rank. When it comes to key business decisions, negotiations will take place within a closed circle of professionals, and building relations with the right people is crucial.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Slovakia or just want to streamline your Slovak operations, talk to us.