Slovakia

Slovakia

Slovakia: Market Profile

Picture: Slovakia factsheet
Picture: Slovakia factsheet

1. Overview

With exports representing over 100% of GDP in 2017, Slovakia’s extremely open economy has benefitted from access to the European Union (EU) customs union. Although this has enabled the country’s export-led growth over the past five years, it also poses challenges in the future. Slovakia’s automotive sector will remain a major source of export growth and deficit financing through foreign direct investment inflows. Slovakia is a transit hub on China’s Belt and Road Initiative, which will influence the development and upgrading of transport infrastructure to facilitate anticipated increases in cargo traffic between Europe and Asia. That said, eurozone growth is expected to remain below pre-crisis levels, implying that domestic demand will have to pick up the slack if Slovakia’s robust rates of economic growth are to be maintained.

Source: Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

March 2016
Robert Fico’s Smer party lost its majority after parliamentary elections in which the far-right Slovakia party, led by Marian Kotleba, entered parliament for the first time.

July 2016
Slovakia assumed the EU's rotating presidency.

March 2018
After Slovakia’s President Andrej Kiska called for either substantial changes in the government or snap elections, in the wake of the murder in February of an investigative journalist who had reported on alleged tax frauds, Prime Minister Fico resigned on March 15. Peter Pellegrini replaced him a week later.

July 2018
At a bilateral meeting in Sofia, Bulgaria, with China’s Prime Minister Li Keqiang, Prime Minister Pellegrini expressed Slovakia’s ambition to become the gateway for Chinese investment in Europe. He also said that Slovakia wanted to play a strategic role in the east-west transportation of oil and natural gas, and that he hoped China would be interested in investing in a Slovakian terminal planned as part of that transport infrastructure.

Sources: BBC country profile – Timeline, Fitch Solutions, Slovak Spectator

3. Major Economic Indicators

Graph: Slovakia real GDP and inflation
Graph: Slovakia real GDP and inflation
Graph: Slovakia GDP by sector (2017)
Graph: Slovakia GDP by sector (2017)
Graph: Slovakia unemployment rate
Graph: Slovakia unemployment rate
Graph: Slovakia current account balance
Graph: Slovakia current account balance

e = estimate, f = forecast
Sources: International Monetary Fund, World Bank
Date last reviewed: September 19, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Slovakia merchandise trade
Graph: Slovakia merchandise trade

Source: WTO
Date last reviewed: September 19, 2018

Graph: Slovakia major export commodities (2017)
Graph: Slovakia major export commodities (2017)
Graph: Slovakia major export markets (2017)
Graph: Slovakia major export markets (2017)
Graph: Slovakia major import commodities (2017)
Graph: Slovakia major import commodities (2017)
Graph: Slovakia major import markets (2017)
Graph: Slovakia major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: September 19, 2018

4.2 Trade in Services

Graph: Slovakia trade in services
Graph: Slovakia trade in services

Source: WTO
Date last reviewed: September 19, 2018

5. Trade Policies

  • Slovakia became a member of the WTO in January 1995.
  • As a member of the EU since 2009, Slovakia is part of a customs union and single market that allows it to benefit from tariff-free trade between it and its EU counterparts. Intra-EU trade accounts for about 85% of Slovakia’s exports.
  • Slovakia has the among the lowest average tariff rates (along with its fellow EU members) in the Central and Eastern Europe region, at 1.5%, thereby putting it ahead - from a trading-cost perspective – of many of its non-EU regional counterparts.
  • Slovakia is very Eurocentric, as its top five exporting partners are all EU members (Germany, the Czech Republic, Poland, France and Italy).
  • Bilateral Investment Treaties exist between Slovakia and the following countries: Austria, Belarus, BLEU (Belgium-Luxembourg Economic Union), Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cuba, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Iran, Israel, Jordan, Kazakhstan, the Democratic People’s Republic of Korea, the Republic of Korea, Kuwait, Latvia, Lebanon, Macedonia, Malaysia, Malta, Mexico, Moldova, Montenegro, Morocco, the Netherlands, Norway, Poland, Portugal, Romania, the Russian Federation, Serbia, Singapore, Slovenia, Spain, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan and Vietnam.

Sources: WTO – Trade Policy Review, Fitch Solutions, European Union

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. EU Common External Tariff (CET): As Slovakia’s main trade partners are in the EU, the absence of customs charges with member countries greatly enhances its trade volumes.

  2. EU-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): The European Economic Area (EEA) unites the EU Member States and the four EFTA States (Iceland, Liechtenstein, Norway and Switzerland) into an Internal Market governed by the same basic rules. These rules aim to enable goods, services, capital and persons to move freely about the EEA in an open and competitive environment. While it enhances trade flows between these countries and Slovakia, only Switzerland is a fairly major trading partner.

  3. EU-Turkey Customs Union: the EU and Turkey are linked by a Customs Union agreement, which came into force on December 31, 1995. Turkey has been a candidate country to join the EU since 1999, and is a member of the Euro-Mediterranean partnership. The customs union with the EU provides tari?-free access to the European market for Turkey, benefitting both exporters and importers. Turkey is the EU's fourth largest export market and fifth largest provider of imports. The EU is by far Turkey's number one import and export partner. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. At present the Customs Union agreement covers all industrial goods, but does not address agriculture (except processed agricultural products), services or public procurement. Bilateral trade concessions apply to agricultural as well as coal and steel products. In December 2016, the European Commission proposed the modernisation of the Customs Union and to further extend the bilateral trade relations to areas such as services, public procurement and sustainable development.

  4. EU-Canada Comprehensive Economic and Trade Agreement (CETA): CETA is expected to strengthen trade ties between the two regions, having come into e?ect in September 2017. Some 98% of trade between Canada and the EU is duty-free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice-versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

  5. EU-South Korea: South Korea is Slovakia’s fourth-largest importing partner, especially for industrial machinery. The agreement eliminates duties for industrial and agricultural goods in a progressive, step-by-step approach. The majority of import duties had already been removed when the FTA entered into force on July 1, 2011. On July 1, 2016, all remaining import duties were eliminated, except for those on a limited number of agricultural products.

Ratification Pending

  1. EU-Japan Trade Agreement: In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the European Commission, the EU-Japan Economic Partnership Agreement (EPA) will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and is expected to come into force by the end of the current mandate of the European Commission in 2019. The total trade volume of goods and services between the EU and Japan is EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, in particular financial services, e-commerce, telecommunications and transport. As of August 2018, the agreement is awaiting ratification by the European Parliament and the Japanese Diet, following which it could enter into force in 2019. At the same time, negotiations with Japan continue on investment protection standards and investment protection dispute resolution. Japan is the EU’s second-biggest trading partner in Asia after China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery. The agreement awaits ratification from all parties concerned.

  2. EU-SADC Economic Partnership Agreement (Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland, Angola, Comoros, Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Seychelles, Tanzania, Zambia and Zimbabwe): An agreement between EU and SADC delegations was reached in 2016 and is awaiting ratification, with 13 of the 35 needed states having ratified the agreement as of April 2018.

  3. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize, and Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of April 2018).

Under Negotiation

  1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, while bilateral trade in services added an additional EUR27 billion. The negotiations aim at removing trade barriers, streamlining standards and putting European companies exporting to or doing business in Australia on an equal footing with those from countries that have signed up to the Trans-Pacific Partnership  or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-US (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under a Trump administration in the US.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Slovakia FDI stock
Graph: Slovakia FDI stock
Graph: Slovakia FDI flow
Graph: Slovakia FDI flow

Source: UNCTAD
Date last reviewed: September 19, 2018

7.2 Foreign Direct Investment Policy

  1. The government has established the Slovak Investment and Trade Development Agency in order to provide information for new investors on the Slovakian economy and investment opportunities, and encourage FDI inflows to targeted development sectors, including heavy industry and manufacturing, technology centres, business services and outsourcing, and tourism.

  2. There are no domestic ownership requirements for Slovak business entities and foreign investors, and businesses generally have the right to engage in any business activity in the country. Nonetheless, there are some obligations with regard to liquidated companies when transferring out of Slovakia.

  3. Foreign investors can freely participate in the privatisation programmes of state-owned enterprises (SOEs), with the exception of sectors considered ‘strategic’ by the government (for example, energy). This programme has resulted in a scaled-back role for government in the economy, which means that private businesses face fewer unfair disadvantages due to the presence of SOEs.

Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Nitra Industrial Park- The basic legal framework for the Slovak authorities' provision of investment aid is fully harmonised with EU legislation.

- Various tax and fiscal incentives are available. The three categories of projects that can be supported by the investment incentives are industrial production, technological centres and business service centres.

- Each category has specifically defined conditions, which have to be met in order to apply for the investment incentives. The incentives are provided in the form of: a cash grant (a subsidy for the acquisition of material assets and immaterial assets); income tax relief; a contribution for new jobs created; and the ability to transfer immovable property or rent of immovable property at a price lower than a general asset value.

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2018

  • Value Added Tax: 20%
  • Corporate Income Tax: 21%

Source: PwC Worldwide Tax Summaries 2018

8.1 Important Updates to Taxation Information

  • While the country's high corporate taxation rate has been reduced from 22% to 21%, a withholding tax of 7.0% (35% for dividends received from non-treaty jurisdictions) has been re-introduced that may apply to certain dividend payments.

  • As of January 2019, the corporate income tax base of controlled foreign companies will be included in the corporate income tax base of its Slovak controlling company and taxed in accordance with the Slovak tax legislation.

  • The government is currently discussing the introduction of a patent box regime which would support industrial research and development by partially exempting from tax any income for the use of granted and registered patents, utility models and software created by the taxpayer.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax21%
Capital Gains TaxCapital gains from the disposal of assets are included in the CIT base. The tax treatment of capital losses depends on the type of asset on which they arose.
Value Added Tax (VAT)
20%, with exceptions for certain medical products, printed materials and 'basic goods' (such as bread, meat, milk and butter), which have a rate of 10%
Special Tax on regulated industriesThere is a special tax that becomes liable when the accounting profit exceeds EUR3 million from the activities of entities in regulated industries, which includes energy, electronic communications, pharmaceuticals, railway transport, public water distribution and air transport, among others. The tax is calculated as a multiple of the tax base, coefficient and the tax rate. Currently, the annual rate of the special tax can be up to 8.71%. This will decrease to a maximum of 6.54% per annum in 2019 and 2020, and to a maximum of 4.35% per annum in 2021.
Social security contributions payable by employersEmployer’s health insurance and social security contributions total 34.4% of employee remuneration. Employers also pay injury insurance contributions of 0.8% of employees’ total salary costs per month, which are not capped.
Withholding taxes (rate for foreign parties where no double taxation agreement exists)- 35% on dividend income
- 35% on royalties
- 35% on interest

Source: PwC Tax Summaries 2018
Date last reviewed: September 19, 2018

9. Foreign Worker Requirements

9.1 Foreign Worker Permits

There are few restrictions for visas and work permits, allowing for businesses to import workers efficiently and at low cost. Slovakia has visa-free arrangements with 141 countries, which is one of the highest totals in the region. EU citizens, EEA citizens, Swiss citizens and members of their families do not require a work permit to be employed in Slovakia, which is a major advantage for businesses operating in the country. Non-EU/EEA/Swiss citizens must get a work permit from the National Employment Agency and the permit must be requested by an employer for those with a specific skill or specialised knowledge. It is issued for one year and can be renewed for a further three years.

9.2 Localisation Requirements

Membership of the EU means that Slovakia has minimal restrictions for foreigners. It is considering implementing a range of immigration-supporting economic policies; however, at present, the country is struggling to attract significant levels of migrant workers - this is partly attributable to inadequate compensation levels compared to competing Emerging Europe states.

9.3 Visa/Travel Restrictions

Most citizens outside the Schengen Area require a visa to travel to Slovakia.

9.4 Religious/Cultural Barriers

Slovak society is generally accepting of different cultures and religions. Tourists and residents are advised not to photograph military establishments and avoid rowdy behaviour between 10 p.m. and 6 a.m.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
A2 (Positive)09/03/2018
Standard & Poor'sA+ (Stable)31/07/2015
Fitch Ratings
A+ (Stable)27/07/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
30/18933/19039/190
Ease of Paying Taxes Index
73/18956/19049/190
Logistics Performance Index
41/160N/A53/160
Corruption Perception Index
54/17654/180N/A
IMD World Competitiveness40/6151/6355/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank25/202
Short-Term Economic Risk Score75.280.479.8
Long-Term Economic Risk Score68.572.973.5
Political Risk Index Rank31/202
Short-Term Political Risk Score73.173.171.9
Long-Term Political Risk Score79.280.380.3
Operational Risk Index Rank46/201
Operational Risk Score61.462.762.9

Source: Fitch Solutions
Date last reviewed: September 19, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
With exports representing over 100% of GDP in 2017, Slovakia’s open economy has monetary stability and has benefitted from access to the EU customs union. Although this has facilitated the country’s export-led growth over the past five years, it will also pose challenges in the future. Eurozone growth is expected to remain below pre-crisis levels, implying that domestic demand will have to pick up the slack to maintain Slovakia’s robust rates of economic growth.

OPERATIONAL RISK
Slovakia is an attractive option for investors in Emerging Europe thanks to its extensive road and rail connections with key trading partners in Europe, few restrictions on foreign ownership and excellent access to credit through a well-developed banking sector. However, investors face challenges in the form of a costly and limited labour market, and high tax rates. Also, although the legal system generally enforces property and contractual rights, decisions can take years and that limits the usefulness of the courts for the resolution of disputes.

Sources: Fitch Solutions, US Department of Commerce
Date last reviewed: September 22, 2018

10.5 Fitch Solutions Political & Economic Risk Indices

Graph: Slovakia short term political risk index
Graph: Slovakia short term political risk index
Graph: Slovakia long term political risk index
Graph: Slovakia long term political risk index
Graph: Slovakia short term economic risk index
Graph: Slovakia short term economic risk index
Graph: Slovakia long term economic risk index
Graph: Slovakia long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: August 21, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Slovakia score62.949.767.760.773.5
Central and Eastern Europe Average61.155.063.463.662.5
Central and Eastern Europe Position (out of 11)710694
Emerging Europe Average56.754.158.457.456.8
Emerging Europe Position (out of 31)9258126
Global Average49.749.850.049.349.9
Global Position (out of 201)46105385334

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Slovakia vs global and regional averages
Graph: Slovakia vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Secruity Risk Index
Estonia71.059.177.270.577.0
Czech Republic70.657.7
70.070.284.5
Poland
68.955.6
69.272.378.4
Lithuania67.455.2
71.871.371.5
Latvia65.157.5
68.467.966.6
Hungary63.255.663.462.471.3
Slovakia62.949.767.760.773.5
Belarus57.156.559.262.749.9
Russia56.063.656.263.440.9
Moldova
45.339.849.248.743.4
Ukraine45.154.945.649.530.5
Regional Averages61.155.063.463.662.5
Emerging Markets Averages46.8
48.0
47.545.846.0
Global Markets Averages49.749.8
50.049.349.9

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Slovakia

Graph: Major export commodities to Slovakia (2017)
Graph: Major export commodities to Slovakia (2017)
Graph: Major import commodities from Slovakia (2017)
Graph: Major import commodities from Slovakia (2017)
Graph: Merchandise exports to Slovakia
Graph: Merchandise exports to Slovakia
Graph: Merchandise imports from Slovakia
Graph: Merchandise imports from Slovakia

Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: September 19, 2018


2017
Growth rate (%)
Number of Slovakian residents visiting Hong Kong5,68914.0

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of EU companies in Hong Kong2,053
N/A
- Regional headquarters4592.5
- Regional offices685-2
- Local offices9094.1

Source: Hong Kong Census and Statistics Department

11.3 Treaties and agreements between Hong Kong and Slovakia

  • Slovakia and China have a Bilateral Investment Treaty that came into force in December 1992, but it does not apply to Hong Kong.

  • Slovakia's double taxation treaty with China came into force in December 1987, but it applies only to the mainland and excludes Hong Kong.

Sources: International Investment Agreements Navigator, Ministry of Finance of the Slovak Republic

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Slovakian Consulate in Hong Kong
Address: 11/F, Milo's Industrial Building, 2–10 Tai Yuen Street, Kwai Chung, New Territories, Hong Kong
Email: slovakconsulatehk@milos.com.hk
Tel: (852) 2484 4568
Fax: (852) 2194 0722

Source: Protocol Division Government Secretariat

11.5 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not require a visa if the maximum duration of stay is less than 90 days in any 180-day period.

Source: Hong Kong Immigration Department
Date last reviewed: September 19, 2018


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