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Slovakia: Market Profile

Picture: Slovakia factsheet
Picture: Slovakia factsheet

1. Overview

Slovakia's extremely open economy has benefitted from access to the European Union (EU)'s Customs Union, with exports estimated to account for nearly 100% of Slovakia's GDP in 2018. Although this has enabled the country's export-led growth over the past six years, it also poses challenges in the future. Slovakia's automotive industry will remain a major source of export growth and deficit financing through foreign direct investment inflows. Slovakia is a transit hub for the 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. Economic growth in Slovakia is to remain solid and broad-based over the coming quarters, outperforming its regional and eurozone peers. Domestic and foreign demand will continue to drive growth in 2019, while expansion will slow in the longer term. Slovakia is well positioned to transition towards a more value-added economic model, which would raise its long-term economic growth potential, especially in light of Parliament's approval to cap the retirement age at 64. However, for this to be achieved, investment will need to remain on an upward trajectory and the shortcomings in education and institutional quality will need to be addressed.

Sources: National sources, 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 People's Party Our Slovakia, led by Marian Kotleba, entered parliament for the first time.

July 2016
Slovakia assumed the EU's rotating presidency.

March 2018
After Slovakia's then-president Andrej Kiska called for either substantial changes in the government or snap elections, Prime Minister Robert Fico resigned on March 15. Peter Pellegrini replaced him a week later.

July 2018
At a bilateral meeting with Mainland China's Prime Minister Li Keqiang in Sofia, Bulgaria, 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 that Mainland China would be interested in investing in a Slovakian terminal planned as part of that transport infrastructure.

January 2019
During the New Year's address, then-president Andrej Kiska, a political outsider until 2014, confirmed his earlier decision not to run for a second term in office.

March 2019
Zuzana Caputova became Slovakia's first female president.

Sources: BBC Country Profile – Timeline, Slovak Spectator, Fitch Solutions

3. Major Economic Indicators

Graph: Slovakia real GDP and inflation
Note: 2018 estimate is for GDP data
Graph: Slovakia real GDP and inflation
Note: 2018 estimate is for GDP data
Slovakia GDP by sector (2018)
Slovakia GDP by sector (2018)
Graph: Slovakia unemployment rate
Graph: Slovakia unemployment rate
Graph: Slovakia current account balance
Graph: Slovakia current account balance

e = estimate, f = forecast
Sources: IMF, World Bank
Date last reviewed: September 3, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Slovakia merchandise trade
Graph: Slovakia merchandise trade

Source: WTO
Date last reviewed: September 3, 2019

Graph: Slovakia major export commodities (2018)
Graph: Slovakia major export commodities (2018)
Graph: Slovakia major export markets (2018)
Date last reviewed: August 15, 2019
Graph: Slovakia major export markets (2018)
Date last reviewed: August 15, 2019
Graph: Slovakia major import commodities (2018)
Graph: Slovakia major import commodities (2018)
Graph: Slovakia major import markets (2018)
Graph: Slovakia major import markets (2018)

Sources: Trade Map, Fitch Solutions
Date last reviewed: September 3, 2019

4.2 Trade in Services

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

e = estimate
Source: WTO
Date last reviewed: October 30, 2019

5. Trade Policies

  • Slovakia became a member of the World Trade Organization 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 with its EU counterparts. Intra-EU trade accounts for about 85% of Slovakia’s exports.

  • Slovakia has one of 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, Czech Republic, Poland, France and Italy).

  • Bilateral investment treaties exist between Slovakia and the following countries: Austria, Belarus, the Belgium-Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cuba, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Iran, Israel, Jordan, Kazakhstan, North Korea, South Korea, Kuwait, Latvia, Lebanon, North Macedonia, Malaysia, Malta, Mexico, Moldova, Montenegro, Morocco, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovenia, Spain, Sweden, Switzerland, Syria, Tajikistan, Turkey, Turkmenistan, Ukraine, the United Arab Emirates, the United Kingdom, the United States, Uzbekistan and Vietnam.

Sources: WTO – Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. The EU Common Market: There is free movement in the transfer of capital, goods, services and labour between member nations. The common market extends to the 28 member nations of the EU, namely: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

  2. European Economic Area (EEA)-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): While it enhances trade flows between these countries and the EU, only Switzerland is a fairly major trading partner.

  3. EU-Turkey: The customs union within the EU provides tariff-free access to the European market for Turkey, benefitting exporters and importers.

  4. EU-Japan Economic Partnership Agreement (EPA): 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 EC, the agreement 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 came into force on February 1, 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated 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, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after Mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

  5. EU-Southern African Development Community (SADC) EPA (Botswana, Lesotho, Mozambique, Namibia, South Africa and eSwatini): An agreement between the EU and SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six members of the SADC that are not included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking EPAs with the EU as part of other trading blocs such as the East or Central African communities.

Provisionally Active

The Comprehensive Economic and Trade Agreement (CETA): The CETA is an agreement between the EU and Canada. CETA was signed in October 2016 and ratified by the Canadian House of Commons and EU Parliament in February 2017. However, the agreement has not been ratified by every European state and has only provisionally entered into force. CETA is expected to strengthen trade ties between the two regions, having come into effect in 2016. Some 98% of trade between Canada and the EU will be duty free under CETA. The agreement is expected to boost trade between partners by more than 20%; it 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.

Ratification Pending

  1. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the 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 October 2018). The agreement has been provisionally applied since 2013.

  2. EU-Singapore Free Trade Agreement (FTA) and Investment Protection Agreement: The parties signed the agreement in October 2019 and the European Parliament consented to the agreement in February 2019. The EC states that the ratification process is ongoing. 

  3. EU-Vietnam FTA: In July 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam Investment Protection Agreement. In June 2019, the final text of the agreement was signed by both parties in Hanoi, Vietnam. It is now awaiting consent from the Vietnamese National Assembly and the European Parliament.

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, and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up for 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-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but will require consent from the European Council's 28 members, a majority within the European Parliament, as well as both Houses of Congress and President Donald Trump, to be passed.

  3. EU-New Zealand: In June 2018, the EU and New Zealand launched trade negotiations to remove trade barriers for goods and services, and the development of trade rules to facilitate easier and sustainable trade between both parties.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Slovakia FDI stock
Date last reviewed: September 3, 2019
Graph: Slovakia FDI stock
Date last reviewed: September 3, 2019
Graph: Slovakia FDI flow
Date last reviewed: October 30, 2019
Graph: Slovakia FDI flow
Date last reviewed: October 30, 2019

Source: UNCTAD
Date last reviewed: September 3, 2019

7.2 Foreign Direct Investment Policy

  1. The government has established the Slovak Investment and Trade Development Agency (SARIO) in order to provide new investors with information on the Slovakian economy and investment opportunities. The SARIO also aims to encourage foreign direct investment 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. However, 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 the government in the economy, which means that private businesses face fewer unfair disadvantages due to the presence of SOEs.

Sources: WTO – Trade Policy Review, 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, 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 – 2019

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

Source: Ministry of Finance for the Slovak Republick

8.1 Important Updates to Taxation Information

  • While the country's high corporate taxation rate has been reduced from 22% to 21%, a witholding 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.

  • In December 2018, Slovakia’s parliament approved legislation to tax on retail chains 2.5% of their reveunues in order to raise money to support the marketing of local food production. The tax will be applicable to retailers where foodstuffs account for over 25% of their revenues and are present in more than 2 regions of the country.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax (CIT)
21%
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 Tax20%, 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

Sources: Ministry of Finance for the Slovak Republick, Reuters
Date last reviewed: September 3, 2019

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 attributed to inadequate compensation levels compared with competing emerging Europe states.

9.3 Visa/Travel Restrictions

Most citizens outside the Schengen Area require a visa to travel to Slovakia. Citizens from Hong Kong do not need a visa to travel to Slovakia (valid for a stay of 90 days).

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)17/05/2019

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

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
33/19039/19042/190
Ease of Paying Taxes Index
56/19049/19048/190
Logistics Performance Index
N/A53/160N/A
Corruption Perception Index
54/18057/180N/A
IMD World Competitiveness51/6355/6353/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A26/20224/202
Short-Term Economic Risk Score80.479.875.2
Long-Term Economic Risk Score72.973.574.6
Political Risk Index RankN/A31/20231/202
Short-Term Political Risk Score73.171.971.9
Long-Term Political Risk Score80.380.380.3
Operational Risk Index RankN/A44/20144/201
Operational Risk Score62.763.662.8

Source: Fitch Solutions
Date last reviewed: September 3, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
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 six years, it will also pose challenges in the future. Eurozone growth is expected to remain below pre-crisis levels, however, domestic demand will remain robust, aided by a strong consumer outlook. Downside risks to growth outlook are building on account of the country's tightening labour market and this could gradually undermine Slovakia's status as a low-cost manufacturing hub in the EU region.

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

Sources: US Department of Commerce, Fitch Solutions
Date last reviewed: August 16, 2019

10.5 Fitch Solutions Political and 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: September 3, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Slovakia score62.851.8
66.563.469.6
Central and Eastern Europe Average62.1
57.563.566.361.2
Central and Eastern Europe Position (out of 11)6
10.0
6.0
7.0
5.0
Emerging Europe Average57.455.959.158.655.9
Emerging Europe Position (out of 31)7
267
10
6
Global Average49.650.3
49.849.049.2
Global Position (out of 201)4495
39
46
35

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 Security Risk Index
Estonia71.4
62.9
76.3
72.1
74.3
Lithuania69.6
60.2
71.475.6
71.0
Czech Republic
69.5
60.0
67.8
73.7
76.5
Poland68.9
58.4
69.3
75.0
72.8
Latvia66.7
60.7
67.1
71.5
67.4
Slovakia62.8
51.8
66.5
63.4
69.6
Hungary62.7
55.6
62.0
66.9
66.3
Belarus58.0
58.7
58.6
63.4
51.3
Russia56.5
63.6
58.6
63.0
40.6
Moldova48.7
41.751.7
52.2
49.3
Ukraine48.3
58.5
49.0
52.0
33.6
Regional Averages62.1
57.5
63.5
66.3
61.2
Emerging Markets Averages46.9
48.6
45.4
47.4
46.1
Global Markets Averages49.6
50.3
49.8
49.0
49.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: September 3, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Slovakia

Graph: Major export commodities to Slovakia (2018)
Graph: Major export commodities to Slovakia (2018)
Graph: Major import commodities from Slovakia (2018)
Graph: Major import commodities from Slovakia (2018)

Note: Graph shows the main Hong Kong exports to/imports from Slovakia (by consignment)
Date last reviewed: September 3, 2019

Graph: Merchandise exports to Slovakia
Graph: Merchandise exports to Slovakia
Graph: Merchandise imports from Slovakia
Graph: Merchandise imports from Slovakia

Note: Graph shows Hong Kong exports to/imports from Slovakia (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Source: Hong Kong Census and Statistics Department
Date last reviewed: September 3, 2019


2018
Growth rate (%)
Number of Slovakian residents visiting Hong Kong6,0686.7

Source: Hong Kong Tourism Board


2018
Growth rate (%)
Number of European residents visiting Hong Kong1,961,448
1.7

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: September 3, 2019

11.2 Commercial Presence in Hong Kong


2018
Growth rate (%)
Number of EU companies in Hong Kong2,327
N/A
- Regional headquarters4988.5
- Regional offices7042.77
- Local offices9383.2

Source: Hong Kong Census and Statistics Department

11.3 Treaties and agreements between Hong Kong and Slovakia

  • Slovakia and mainland 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 mainland China came into force in December 1987, but it applies only to the mainland and excludes Hong Kong.

Source: Investment Policy Hub

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 3, 2019

Zuzana Caputova became Slovakia's first female president.
Content provided by Picture: Fitch Solutions – BMI Research
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