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No longer first, but still on the map

NEW rules embedded in Slovakia’s revised tax legislation and modified Labour Code, which became valid at the beginning of 2013, have evidently lowered Slovakia’s attractiveness as an investment location, a survey conducted by seven foreign chambers of commerce in Slovakia in February 2013 suggests.

NEW rules embedded in Slovakia’s revised tax legislation and modified Labour Code, which became valid at the beginning of 2013, have evidently lowered Slovakia’s attractiveness as an investment location, a survey conducted by seven foreign chambers of commerce in Slovakia in February 2013 suggests.

In a change from previous years, Slovakia was not assessed in 2013 as the most attractive destination in central and eastern Europe by investors active in Slovakia, falling behind the Czech Republic. Nevertheless, 81 percent of the 187 firms surveyed would still pick Slovakia as a destination for their investments.

The survey was prepared by the British Chamber of Commerce, the French-Slovak Chamber of Commerce, the Dutch Chamber of Commerce in Slovakia, the Austrian Embassy’s commercial attaché, the German-Slovak Chamber of Commerce and Industry, the Swedish Chamber of Commerce and the Slovak-Austrian Chamber of Commerce, with 187 local firms surveyed.

EU membership, a willing, productive and low-cost labour force as well as availability and quality of local suppliers are the determining factors when assessing Slovakia’s attractiveness as an investment location, according to the survey.

When looking at local factors, the surveyed firms were the least satisfied with the country’s ability to fight against corruption and crime, assessing it at 4.19 points on a scale of 1 to 5, with 1 being ‘very satisfied’ and 5 ‘very unsatisfied’. Transparency in public procurement was the second worst evaluated factor, earning 4.04 points, followed by the approach to state and EU support mechanisms, with 3.84 points, and law enforcement, with 3.83 points. The tax system scored 3.7, according to the survey.

Last year, the surveyed investors cited the fight against corruption as a top priority as well.
Firms are feeling the grip of the economic crisis, with most expecting economic developments in 2013 to be worse than last year. Only 10.8 percent of the surveyed companies considered the current economic situation in Slovakia to be good, while 54.3 percent said it was satisfactory and 34.9 percent of the companies called the situation bad.

“The survey shows that the difficult sales situation on the world market is also reflected in the perspective of growth of foreign investors in this country,” said Vladimír Slezák, president of the German-Slovak Chamber of Commerce and Industry. “Though many companies have lowered their expectations in comparison with previous years, it will not have a significant impact on employment. Almost 80 percent would want, despite the difficult situation, to keep or even widen their labour force.”

On the question of how the number of employees of each company would change this year compared to previous years, 52.4 percent of those polled said it would remain unchanged, with 22.7 percent saying it would drop and 24.9 percent assuming an increase, according to the survey.

Many investors assess labour costs compared to the previous years in less positive terms.

“The unification of the maximum calculation base for social insurance has inflated labour costs, mainly for firms which are employing many highly qualified employees,” Slezák said in an official release.

According to Slezák, reducing the labour-legal flexibility in practice results in higher costs for the employer.

The government of Robert Fico has equalised payroll tax deductions (i.e. health and social insurance contributions) for those on limited employment agreements and those in regular employment, raising employment expenses for many firms that employ temporary staff.

Nevertheless, the companies are particularly critical about the cancellation of the flat tax and the hike in corporate income taxes.

“The tax system, as well as the tax burden, has changed from the original positive local factor to a negative one,” said Slezák.

Patrick Sagmeister, the commercial attaché of the Austrian Embassy to Slovakia, suggested that with the debate on the tax burden, other countries also need to be taken into consideration.

“It is a fact that within a European comparison the tax burden is lower,” said Sagmeister in the official release.

Nevertheless, Sagmeister also said that Slovakia is still a country “with an excellent business environment and it remains an attractive market for foreign firms”.

Stagnation

Slovakia has been stagnating, in terms of improving its business environment, in international comparisons, Economy Minister Tomáš Malatinský said on March 25 when discussing a report on the condition of the business environment with the social partners, the trade unions and employers.

“Our ambitions to consolidate the public finances have an impact on this situation and also bring burdens for the business environment, which cannot be evaluated as the most successful in this case,” Malatinský said as quoted by the SITA newswire.

Thus, Malatinský’s department has submitted 24 measures to reduce the administrative burden on businesses. One of these measures is a portal for businesses through which businesspeople will be able to notify the government about administrative duplication they encounter when fulfilling their legally-defined duties.

“In administrative burdens there are several duplications which obviously must be erased from the obligations employers have to meet,” said Malatinský, according to SITA.

Meanwhile, Justice Minister Tomáš Borec said his department will be changing the structure of court proceedings, which should contribute to the enforceability of the law in Slovakia as well as improving the business environment.

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