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Self-employment still tough for expats

While foreigners who want to live and work in Slovakia are technically allowed to set up small businesses as self-employed people (živnostníci), only a few have done so since the first licences were issued nine years ago.
The reason, say labour experts, is that setting oneself up in business in Slovakia remains difficult and expensive - particularly for foreigners who lack the language and cultural skills to negotiate the barriers.
Nor is this situation likely to change fast. Despite a June 14 revision to the Law on Small Businesses, making it compatible with similar legislation in the European Union, officials who drew up the amendments have said that they don't expect a rush of foreigners requesting a business licence (živnostenský list).

While foreigners who want to live and work in Slovakia are technically allowed to set up small businesses as self-employed people (živnostníci), only a few have done so since the first licences were issued nine years ago.

The reason, say labour experts, is that setting oneself up in business in Slovakia remains difficult and expensive - particularly for foreigners who lack the language and cultural skills to negotiate the barriers.

Nor is this situation likely to change fast. Despite a June 14 revision to the Law on Small Businesses, making it compatible with similar legislation in the European Union, officials who drew up the amendments have said that they don't expect a rush of foreigners requesting a business licence (živnostenský list).

"Although some procedures with regards to the founding and running of a small business have been liberalised, I think that foreigners [who want to work in Slovakia] will still tend to find a job with an established company, because that way they won't have to find clients and spend a long time learning accounting and finding out which institutions they have to register with," said Ján Dutko, head of the tradesman's department at the Interior Ministry July 2.

Self-employed blues

The only alternative to the more expensive process of setting up a limited liability company, obtaining a business licence is a complicated, lengthy process for foreigners wanting to practice business on their own in Slovakia.

The Interior Ministry has no record of how many small businesses have been established by foreigners, but Dutko said that complicated administrative procedures had led to "only a fraction" of the total 274,000 business licences issued to physical entities in Slovakia since the start of 1993 going to foreign nationals.

Still, the prospect is tempting. Having a business licence allows a foreigner essentially to work for him or herself, and permits various expenses - rent, phone, transport etc. - to be written off from one's taxable income which otherwise could not be as an employee of another company. Many foreigners, especially language teachers, see the licence system as a way of both taking home more money and securing their own employment.

"It's definitely a good thing because, for example, I could teach without having to do so through a school. Language schools often collapse, so a foreigner is left stuck. But with a živnosť they can sign contracts with clients themselves, and don't have to rely on an employer," said John Dale, an English teacher planning to set up a small publishing house in Slovakia.

The recent amendments to the Law on Small Businesses shorten the period for issuing business licences for individual trades to 30 days from the current 60, narrows the range of professions classed as 'specific' - for which it takes longer to get a licence - to 98 from 168, and reduces the administrative work needed to run a production facility. Professions classed as 'specific' include, for example, any craftsman's trade, the production of chemicals, trading with weapons, and teaching.

However, the amendments will not change what the Interior Ministry admits is a long and difficult process for obtaining a licence (see box, this page), and one which foreigners attempting the task say is expensive.

"Foreigners who come here alone and want to stay for a while feel the need to have a small business in Slovakia, but there is no way to do it without legal advice, so they often prefer to find a job with a firm. I'm in the process of getting a licence, but only because I have lawyers who are my friends and will help me," said Dale.

"It might seem that to get a živnosť is an easy task, but to get qualified advice costs a fortune. So, if a foreigner is clever enough, he finds a Slovak corporate partner [and uses their business licence], or just finds a job with an already established firm instead," added Martin Magál, a lawyer with legal firm Allen & Overy.

Managers of firms which employ foreigners said that they couldn't imagine how newcomers to the country, speaking little of the language, could manage registering and then running their own company.

"We arrange green cards [residency permits] for them [our teachers], and we often find it complicated to follow all the rules ourselves, so how would they manage to do it on their own? And to talk about getting a živnostenský list, when a green card is one of several things they need first, is out of the question for most of them," said Andrea Milecová, sales manager with Berlitz language school.

"Apart from this, it would be difficult for them to administer a company," she added.

Even if a foreigner succeeds in founding a small business and receives a živnostenský list, everyday contact with Slovak state administration is not over. He or she has to register with several institutions immediately afterwards. Registration at the tax office has to be filed within 15 days of issuance of the licence, at the state social insurance company within eight working days, and at a health insurance company also within eight working days. The self-employed person has to start paying unemployment contributions to the unemployment fund immediately.

Another option

While people like Dale have the legal contacts to help them at least attempt the process, consulting firms advising foreigners in Slovakia on how to set up a business often advise clients to opt for the foundation of a limited liability company (spoločnosť s ručením obmedzeným - s.r.o.) run by a Slovak or foreign legal representative.

The process takes longer than that for a živnostenský list - 200 days as opposed to about 150 - but saves the worry of having to back debts with any movable and/or fixed assets the foreigner owns. With an s.r.o., liability for debts runs only to the initial investment required to set up the company - 200,000 crowns ($4,000).

However, the cost of the initial investment can be prohibitive for some foreigners in Slovakia, and may sway them from this second option.

"It's not worth a foreign person trying to launch an s.r.o. if they want to set up a small business in Slovakia," said Allen & Overy's Magál.

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