Investment Incentives for Foreign Direct Investments

From an investment perspective, Slovakia is one of the most attractive countries in Central and Eastern Europe. It has been the focus of much attention and discussion on both a domestic and international level, due to the reforms introduced by the government from 1998 onwards. One of the goals set by the government for the future was to attract foreign capital by stimulating investment. In practice, this has led to a rapid increase in investment flowing into various sectors of the Slovak economy.

The backbone of the legal regulation for this investment is the Investment Stimulus Act, which sets out conditions for the provision of individual investment incentives. The investment incentives are intended for initial investments and new jobs created in connection with the latter, and for the acquisition of assets necessary for starting or extending production or services, or the acquisition of a company. The incentives may, in general, be granted in the form of corporate tax relief (the corporate tax rate is currently 19%), new job subsidies or subsidies for training staff hired to fill newly created jobs. However, the last two forms set out in the act refer to the Employment Act, which has now been repealed; therefore, they will not be applicable until a new regulation is in place.

Application Process

In principle, in order to qualify for investment incentives the applicant's activities in Slovakia must comply with the following conditions:

• the establishment of a new plant or the extension or modernization of an existing one in order to implement the production of new services, the extension or modernization of existing production, a change in the products under production or a radical change in the production process;
• expenditure of not less than SKK 400 million for the acquisition of assets, from which at least SKK 200 million must be covered from the applicant's own sources;
• 80% of all revenues achieved from business activities set out in the application; and
• the acquisition of assets and the start of business activities completed within three years of the decision to award investment incentives.

The Ministry of Economy may grant investment incentives to either the applicant or another entity, the foundation of which must be safeguarded by the applicant. If the business activities are to be performed in a region with an unemployment rate of at least 10%, the expenditure threshold (as set out above) will be halved. Once the application has been submitted, the ministry will prepare an assessment and projection for provision of the investment incentives. After communication between the ministry and the applicant, and subject to the latter's consent, the ministry will submit the projection to a committee. If the committee approves the projection it goes to the government for approval. If the projection is not approved by the committee, the ministry will reject the application. When looking at the projection, the government will consider the overall economic importance of the investment and how the investment incentives will affect competition on the relevant market. Once the investment incentives are approved by the government, the ministry renders its decision.

Using Investment Incentives

The recipient of the investment incentives must start utilizing its funds for the acquisition of assets or performing its business activities as set out in its application within three years of the ministry's decision; otherwise the funds must be returned. In general, the investment incentives may be subject to inspections performed by the Ministry of Finance, the respective tax authority or an employment centre. However, the most recent amendment to the act (in 2004) refers, in respect of new jobs and training of employees financed by investment incentives, to the Employment Act, which has now been repealed. As the inspection must now be carried out under a regulation that no longer exists, it raises the question of whether such inspection is enforceable at all.