Guide To Doing Business in Slovakia: Lex Mundi

Lex Mundi
GUIDE TO DOING BUSINESS IN SLOVAKIA
Prepared by:
This guide is designed to provide basic information on the legal aspects of business climate in Slovakia. It is not completely exhaustive and may not be regarded as a legal advice. The information contained herein is accurate as of 1 November 2004 unless otherwise stated herein and is subject to change without notice.
All rights are reserved to the authors
Doing Business in Slovakia
TABLE OF CONTENTS 1. 2. Slovak Republic - General Information 5 Forms of Doing Business in Slovakia . 5
2.1 Limited Liability Company (LLC) ... 6 2.2 Joint Stock Company (JSC) .. 7 2.3 Branch Office 9 2.4 General Note on the Commercial Registry and the Collection of Deeds .. 9
3. Investment Incentives ... 11 4. Permits and Licenses 11

4.1 Trade Licence / Trade Certificate . 11 4.2 Residency Permit .. 13 4.3 Work Permit .. 14
5. Regulatory Issues .. 14
5.1 Banking . 14 5.2 Insurance 15 5.3 Securities Regulation . 16 5.4 Foreign Exchange Control . 17
6. Tax, Social Security 18

6.1 General ... 18 6.2 Slovak Tax Reform of 2003 .. 18 6.3 Income Tax 18 6.4 Value Added Tax .. 19 6.5 Real Estate Transfer Tax 19 6.6 Real Estate Tax .. 19 6.7 Road Tax 20 6.8 Excise Taxes 20 6.9 Social Security Payments 20 6.10 Pension Funds Administrators .. 21 6.11 Proposal of Reform of Social Security System 21
7. Real Estate ... 22

7.1 Lease of Business Premises 22 7.2 Sub-Lease 23 7.3 Acquiring the Real Estate 23
Doing Business in Slovakia 3
7.4 Ownership Certificate .. 23 7.5 Expropriation 24
8. Employment ... 24
8.1 General . 24 8.2 Employment Contract .. 24 8.3 Termination of Employment 25 8.4 Contract for Performance of Work and Contracts for Brigade Work .. 27 8.5 Protection of Confidential Information and Non-Competition 27 8.6 Labour Unions .. 28
9. Competition ................................................................................................................ 28
9.1 General .. 28 9.2 Remedies ... 29 9.3 Practices Restricting Competition . 29
10. Intellectual Property .. 32

10.1 Patents . 32 10.2 Trademarks .. 32 10.3 Copyright . 33 10.4 Trade Secret . 34 10.5 Other Intellectual Property Rights .. 35
11. Common Section - Formal Requirements of Deeds Used in Slovakia .. 35 12. Firm Profile of echov Rakovsk .. 35
1.
Slovak Republic - General Information Population: Area: Capital City: Lawful Currency: Governmental system:
5.5 mil. (2003) 48,845 sq km Bratislava, approx. 500,000 inhabitants Slovak Crown (SKK) divided into 100 hellers (as to 1 November 2004) EUR 1 = approx. SKK 40 USD 1 = approx. SKK 30 Parliamentary republic headed by a president with primarily representative functions, executive powers exercised by the government consisting of the prime minister and ministers, legislative powers vested to the National Council of the Slovak Republic, one-chamber parliament that is responsible for enacting of laws based on statutory law, marginally supplemented by case law 1 May 2004 (the list is not exhaustive) United Nations, Council of Europe, Organisation for Economic Cooperation and Development, Central European Free Trade Association, European Union, North Atlantic Treaty Organisation
Legal system: Date joined EU: Membership:
2.
Forms of Doing Business in Slovakia

Foreign entrepreneurs may perform business activities in Slovakia either via its subsidiary (established as separate entity in one of legal forms mentioned below) or via its branch office in Slovakia. Business activities are defined in Slovak law as a systematic activity (not occasional) conducted by the entrepreneur to make a profit in its own name and upon its own responsibility. The following legal entities are recognized as business corporations under Slovak law: a) joint-stock company (akciov spolonos), b) limited liability company (spolonos s ruenm obmedzenm), c) general partnership (verejn obchodn spolonos), d) limited partnership (komanditn spolonos), e) co-operative (drustvo). Slovak law also regulates European Society (SE) (eurpska spolonos), European Economic Interest Grouping (EEIG) (eurpske zdruenie hospodrskych zujmov) and European Co-operative (eurpske drustvo). For the purposes of a subsidiary, foreign investors often favour a limited liability company because of its relatively simple procedure of incorporation and governance. A joint stock company (which registered capital consists of shares), is also used commonly
used by foreign investors as a form of establishment in Slovakia that is suitable for the joint venture transactions or projects that include external financing (e.g. credit facilities, listing of shares at the stock exchange). Alternatively, foreign entity may conduct business in Slovakia by the establishment of a branch office that is registered with the Slovak commercial registry. The branch office is not a separate legal entity, it is only establishment registered with Slovak Commercial Registry that acts in the name and on behalf of the foreign entity. Below are outlined significant issues linked to the establishment and governance of a limited liability company, a joint stock company and a branch office, that are most commonly used forms of undertakings by the foreign investors in Slovakia.
2.1 Limited Liability Company (LLC) General

LLC is a legal entity registered with the Commercial Registry, with mandatory registered capital; Registered capital is created by the contributions of shareholders; shareholders share on the registered capital of LLC represents his participation on the assets of LLC, share on profit and also share on voting rights at the General Assembly of LLC.
Incorporation
LLC may be established by a sole founder or more founders in form of a foundation deed (in case of sole founder) or a memorandum of association (in case of more founders), however, a Slovak limited liability company having sole shareholder may not be a sole founder or a sole shareholder of another limited liability company; contribution to the registered capital may be either monetary or in-kind, minimum participation of the shareholder at the registered capital of LLC is SKK 30,000 (approx. EUR 750), the minimum amount of registered capital may be SKK 200,000 (approx. EUR 5,000); at least 30% of each monetary contribution and the full amount of an inkind contributions to the LLC has to be paid by its founders prior to the registration with the Commercial Registry, LLC is incorporated upon the day of its registration with the Commercial Registry maintained at the relevant District Court in Slovakia (for general issues connected to the registration with the Commercial Registry please see Section 2.4 below).
Governance
Statutory representatives: LLC has one or more executives, who may act jointly or independently (depending on the relevant provisions of the foundation deed/memorandum of association of LLC) on behalf of the company without any limitation. Executives have to conduct business of LLC with due care and are responsible to the company for the breach of such obligation,
General Assembly of shareholders is the supreme body of the company authorised to appoint and recall executives, amend the foundation deed/memorandum of association of LLC, decide on distribution of profits or winding-up of LLC. General Assembly consists of all shareholders that are present therein. General Assembly is constitutes quorum only if shareholders having majority in LLC are present unless foundation deed or a memorandum of association states otherwise. General Assembly makes its decisions in form of a resolution by the simple or two-third majority vote of shareholders present at the General Assembly (or other majority set in the foundation deed/memorandum of association), Supervisory Board is not mandatory in LLC, it may be established if the General Assembly decides so; Supervisory Body is responsible for the supervision of the conduct of executives as well as for the supervision of the proper maintenance of the accounts of LLC.
Other
Foreign shareholders of LLC enjoy the same legal protection as their Slovak counterparts, LLC is liable for the breach of its obligations with all of its assets, while shareholders are liable for the breach of obligations of LLC only up to their pledged but unpaid contributions to the registered capital registered with the Commercial Registry, LLC is tax liable in Slovakia (for details please see Section 6 below), Scope of business activities of LLC primarily depend on the scope of Trade Licences issued by the Trade Licensing Office (for details see Section 4.1 below), Articles of Association are not mandatory.
2.2 Joint Stock Company (JSC) General

JSC is a legal entity registered with the Commercial Registry, with mandatory registered capital; registered capital represents the asset contributions of the shareholders to JSC, registered capital of JSC is denominated into shares that represent shareholders participation in the registered capital and assets of JSC, share on profit and also share on voting rights at the General Assembly of JSC, shares are securities bearing physical form or form of registration in the accredited securities clearing institution (in Slovakia Central Depository of Securities of the Slovak Republic), that may be registered in name or in bearer form, Slovak Commercial Code recognizes two basic kinds of shares: preferential shares, which contain right (as an additional right to the regular rights connected to shares) for the priority payment of profit (dividend) and ordinary shares, which encompass regular voting rights at the General Assembly and right for the payment of the dividend; issuance of the other kinds of shares is prohibited.
Incorporation
JSC may be established by one founder, who is a legal entity or more founders being legal entities or individuals by executing the foundation deed/foundation
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agreement in form of a notary deed, whereby the founders subscribe shares of JSC and assume the obligation to pay their issue ratio, JSC may be established as so-called public joint stock company, in which case the initial founders subscribe shares less than whole amount of registered capital and provide for a public call for the subscription of the remaining shares; only monetary contributions to the registered capital of the JSC may be accepted in case of public JSC; such public JSC may be registered with the Commercial Registry only if all shares have been subscribed and at least 30% of monetary contributions has been paid up within the period stated in the public call, the minimum amount of registered capital may be SKK 1,000,000 (approx. EUR 25,000); at least 30% of the total subscribed monetary contributions has to be contributed to the JSC by its founders prior to the registration with the Commercial Registry; in-kind contribution has to be paid up in full, both registered capital and shares may be denominated in Slovak Crowns or in Euro; registered capital may be denominated in Euro only if shares of JSC are denominated in such currency, JSC is incorporated upon the day of its registration with the Commercial Registry maintained at the relevant District Court in Slovakia (for general issues of registration please see Section 2.4 below).
Governance
Board of Directors (the BoD) of JSC is a statutory body and its members are authorised to act towards third parties without any limitation; it consists of the chairman of BoD, who is responsible mainly for the procedural tasks in the decision making process and of its regular members; BoD approves decisions by a simple majority vote unless Articles of Association of JSC (the AoA) state otherwise; however, it is possible that BoD has only 1 member, General Assembly of shareholders is the supreme body of the company authorised inter alia to appoint and recall members of BoD (AoA may provide that BoD is elected by the SuB), appoint and recall members of SuB (if JSC has 50 or more employees, at least one third of members of SuB is elected by employees), amend the Articles of Association of JSC, decide on the distribution of profits and on winding-up of JSC. General Assembly consists of all shareholders that are present therein. General Assembly constitutes quorum only if shareholders holding majority of shares in JSC are present. The General Assembly makes decisions by simple or two-third majority of shareholders present at the General Assembly (or a other majority set in the Articles of Association), Supervisory Board (the SuB) is a mandatory supervisory body of JSC responsible for the supervision of the activities of the BoD, the performance of the business activities of JSC and its accounting books. SuB is entitled to convene the General Assembly if it is in the interests of JSC.
Other
Foreign shareholders of JSC enjoy the same legal protection as their Slovak counterparts, JSC is liable with its entire property for breach of its obligations. The shareholder is not liable for the obligations of the company. However, the shareholder is liable to the company to pay the issue rate of the subscribed shares ,
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JSC is tax liable in Slovakia (for details please see Section 6 below), Scope of business activities of JSC primarily depend on the scope of Trade Licences issued by the Trade Licensing Office (for details see Section 4.1 below), Articles of Association are mandatory.
2.3 Branch Office General

Branch office is not a legal entity, Branch office does not have the registered capital. Assets of the branch office belong to the founder and are maintained in the separate accounting books of the founder as separate undertaking of the founder, Branch office performs business activities in the territory of Slovakia and performs any other acts on behalf of its founder.
Establishment
Branch office is established by the resolution of the founder and is subject to the registration with the Commercial Registry,
Governance Other
Founder of the branch office is liable for the obligations of the branch office with all of its assets (including assets belonging to the branch office), Branch office is tax liable in Slovakia (for details please see Section 6 below), Scope of business activities of branch office primarily depend on the scope of Trade Licences issued by the Trade Licensing Office (for details see Section 4.1 below). Branch office manager registered with the Commercial Registry is authorised to act in the name of the founder of the branch office towards third parties in all matters connected to the branch office, Branch office manager is registered with the Commercial Registry and is appointed and recalled by the founder of the branch office.
2.4 General Note on the Commercial Registry and the Collection of Deeds Commercial Registry
Commercial Registries are maintained by the District Courts residing in the seat of Slovak Regional Courts. Currently there are 8 Commercial Registries in Slovakia (equally as number of Regional Courts) that operate in the same circuits as Regional Courts (and accordingly are competent to deal with resident companies). Commercial Registry contains all relevant data related to the registered legal entity, which include inter alia:
Business name of the registered entity, Legal form (JSC, LLC, branch office, etc.), Identification number, Date of registration, Names, permanent addresses, dates of birth and/or birth numbers of statutory representatives, Names, permanent addresses, dates of birth and/or birth numbers of the supervisory body, Other data depending on the legal form of the registered entity.
Registration with the Commercial Registry is filed on a prescribed form set by the decree of the Ministry of Justice of the Slovak Republic. Administrative fee for the registration is payable when filing the application. The amount of fee is dependant on the type of registration (e.g. SKK 10,000 (approx. EUR 250) for the first registration of LLC, SKK 20,000 (approx. EUR 500) for the first registration of JSC, SKK 5,000 (approx. EUR 125) for the first registration of branch office, SKK 1,500 (approx. EUR 37.5) for the registration of any change in registered data of any registered entity, etc.). Provided that all required documents are attached to the application and the administrative fee is duly paid, Commercial Registry should make the registration within 5 working days from the date of the application.
Collection of Deeds
Commercial Registry contains also the Collection of Deeds, which is a publicly accessible library of all relevant documents connected to the corporate existence of registered entity. Each registered entity is obliged to submit documents to the Collection of Deeds within 30 days from their execution. Documents filed with the Collection of Deeds of the Commercial Registry include: Foundation Deed/Memorandum of Association of the registered entity, Each amendment to the Foundation Deed/Memorandum of Association/Articles of Association of the registered entity, Consolidated version Foundation Deed/Memorandum of Association/Articles of Association of the registered entity after each amendment, Signature specimens of statutory representatives of registered entity, Trade licences, trade certificates or other certificates authorising registered entity to the performance of business activities, Document on the appointment/recall of the statutory representative of registered entity, Document on the appointment/recall of the persons of the supervisory body of registered entity, Experts appraisal of an in-kind contribution of the shareholder to the registered capital of the registered entity, Approved financial statements and (if required by law) annual report of the registered entity. As of 1 October 2004, filing of documents with the Collection of Deeds is free of charge.
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3. Investment Incentives
Generally, Slovak system of investment incentives is compliant with the legislation of the European Community in the field of state aid. By the tax reform of 2003 (for details please see Section 6 below) and other reforms mainly in the area of social security payments (see below in this Section and in Section 6) which have occurred in the course of years 2003 and 2004, the government intended to reduce specialized investment incentives and to attract the foreign investors by the legible and relatively investor-favourable legal framework (connected mainly to tax and social security issues). Therefore, specialized incentives (e.g. tax loans) are generally no longer available, but on the other hand, the general tax and social system incorporates benefits that were previously awarded only to persons who received specialised incentives. As the effect of these structural reforms of investor-relevant legal framework (mainly in tax and social security area), certain acts providing for the particular investment incentives became obsolete. However, the general rules on the state aid that are almost identical to those contained in the Articles 87 et seq. of EC Treaty and to secondary EC legislation in this field, still exist. Further, the Slovak government still provides the incentives to municipalities for the creation of industrial parks under conditions provided in the Act on Support of the Establishment of Industrial Parks. The government may further use a specialized procedure of acquiring of land for the plant of the investor contained in the Act on Certain Measures Connected to the Preparation of Significant Investments. This act empowers the Slovak government to decide that the plant of investor worth at least SKK 1 billion (approx. EUR 25 million) and in the regions in Slovakia, where the rate of unemployment exceeds 15% even plant worth SKK 500 million (approx. EUR 12.5) that meets additional criteria set by the act is in the public interest, and thus give grounds for the expropriation proceedings with respect to the land on which the plant shall be built. For details on expropriation procedure please see Section 7.5 below.
4. Permits and Licenses

This Section briefly summarises requirements for various licences and permits issued by official authorities in Slovakia that the Slovak subsidiaries of foreign entities or a branch office (jointly referred as to the Entrepreneur) needs to obtain in order to conduct business in Slovakia. This Section deals only with general requirements and does not describe special regulatory issues with respect to the special branches of industry or services (such as banking, trade in securities a brief information on these issues is contained in Section 5. below).
4.1 Trade Licence / Trade Certificate

Practically, the business activities falling under regulation by trade license and trade certificate may be divided into three categories: (i) free trade licences, (ii) fixed trade licences and (iii) trade certificates depending upon the date from which such regulated activities may be performed by the Entrepreneur as well as upon professional qualification required for the performance of such activities. The business activities falling under the regulation of the free trade licence (which is inter alia wholesale, retail, intermediary activities etc.) may be performed in as of the day of
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the notification of such business activities with the Trade Licensing Office, while Entrepreneur has to comply with the general conditions required for the performance of the trade licence, which are: (a) age of Entrepreneur natural person / statutory representative of Entrepreneur in case of legal entity over 18, (b) no criminal records, and (c) full legal capacity. The second category of business activities that are regulated by fixed trade licences (being activities, where the special qualification is required or special criteria must be met, such as assembly or repair of electronic devices, etc.) may be performed as of the day of the notification of such business activities with the Trade Licensing Office, provided that the notification is accompanied by documents proving that the applicant meets the special criteria required for the performance of such activity in addition to the general conditions mentioned above. Finally, business activities regulated under trade certificates (usually activities, where the higher degree of skills is required) may be performed only after Trade Licensing Office issues the trade certificate to the Entrepreneur. In order to perform activities subject to the fixed license or the trade certificate Entrepreneur has to appoint a responsible representative that shall be in charge of the business. Such responsible representative has to hold special licenses or certificates required for the performance of licensed business activities. For the purpose of obtaining of trade license the Entrepreneur must submit its foundation deed/memorandum of association to the Trade Licensing Office showing its scope of the business activities. The Entrepreneur also has to prove its title to use the business premises for purposes of its registered seat in the territory of Slovakia (e.g. by lease agreement, agreement on sub-lease). Further, the Entrepreneur has to submit to the Trade Licensing Office document issued by relevant public authority proving that Entrepreneur (in case of self-entrepreneur), its statutory representative and/or responsible representative have no criminal records. Such documents have to be translated into Slovak by an official sworn translator. The Entrepreneur is allowed to perform its business activities within the scope of issued trade licences and trade certificates as of the date of its registration with the Commercial Registry. Trade licenses are usually issued within 7 days, trade certificates within 30 days, depending on types of business activities, from presentation of the complete application with attachments. The trade certificates are usually required for more complex activities (such as a trade with military equipment or operation of road transport business, etc.), where the higher degree of skills and professional qualification is required than for the trade licences (which include wholesale, retail, intermediary business activities etc.). One trade license may contain several business activities. The administrative fee of SKK 1,000 (approximately EUR 25) for a trade license and SKK 2,000 (approximately EUR 50) for a trade certificate is due with filing of application. Special licences are naturally required in regulated industries, such as banking or electricity production, distribution, etc (See Section 5).
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4.2 Residency Permit

Generally, a foreign citizen (i.e. other than Slovak citizen) (the Foreigner) is required to obtain a Residency Permit in Slovakia if he/she intends either to (i) work, or (ii) perform business activities (as statutory representative of legal entity or as a selfemployed entrepreneur) in Slovakia. The Residency Permit allows the Foreigner to stay in the Slovak Republic and to travel to foreign countries and back within the time period stated in the permit. However, a Residency Permit is not required if a Foreigner travels to Slovakia occasionally and does not spend in Slovakia generally more than 90 days during the half of calendar year. The requirement for a Residency Permit does not apply to the citizens of EU and European Economic Area, who intend to reside in Slovakia temporarily. Nonetheless, a person who does not need a Residency Permit may be required to have an entry visa to Slovakia, unless Slovakia has entered into and international treaty on the abolishment of the visa requirement with respective country. A Foreigner who is a business person statutory representative of a Slovak company, obtains the Residency Permit on grounds of document proving the appointment to the position (i.e. Memorandum of Association of a company or decision of a company on the appointment to the position of a statutory representative). An employee of a Slovak company receives the Residency Permit on grounds of the Work Permit issued by respective Slovak labour authority. Residency Permit is issued by the Slovak Police Office on grounds of application filed by the Foreigner at the Slovak Consular Office in the country where he has his current residence or in the country that has issued his passport. However, there are certain exemptions when the Foreigner is allowed to file application for Residency Permit with the Foreign Police in Slovakia. The application is submitted in the standard form available at the Slovak Consular Office or Foreign Police. Generally, the following documents (not older than 3 months) should be attached to the application for the Residency Permit: - document evidencing the purpose (i.e. business or employment) of the Foreigners stay in Slovakia; - extract from the criminal register or any equivalent document proving that the Foreigner has no criminal records. A Foreigner must submit (i) extract from the Slovak criminal register, (ii) the extract from the criminal register from the country of his citizenship and (iii) extract from the criminal register issued by the state where the Foreigner has been residing during past three years, if different from (ii); - copy of a bank statement proving that the Foreigner has enough funds to stay in Slovakia; - photographs of prescribed size; - document confirming the housing for the Foreigner in Slovakia (typically a lease agreement and the Land Register Certificate proving landlords ownership to the apartment/house); - confirmation that the Foreigner has health insurance covering the territory of Slovakia;
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- as an additional document, the Foreign Police may (but not always does) ask for example for a health certificate confirming that the applicant does not suffer from any contagious disease. The Foreigner must submit the application personally with his passport to the Slovak Consular Office. Office will verify the data in the passport and will return the passport immediately. The administration fee of approximately Euro 130 is payable together when filing the application. The Residency Permit is issued within 90 days from the date of application provided that all required documents have been submitted by the applicant. The Foreigner who was granted a Residency Permit for the business purposes is not allowed to enter into employment relationship and a Foreigner - employee may not do a business in Slovakia.
4.3 Work Permit

Before the Residency Permit can be issued, the Foreigner who intends to work as an employee of a Slovak employer should obtain a Work Permit issued by the respective Slovak labour authority. A Work Permit is issued on the basis of (i) a formal secondment agreement between the foreign employer and the Slovak entity, to which the Foreigner should be seconded, or (ii) a decision of the foreign employer on the temporary intracorporate transfer of its employee to the Slovak branch of the employer in accordance with the Treaty establishing the World Trade Organisation, or (iii) written declaration of the Slovak employer that it will employ the Foreigner. The application is filed in standard form issued by the respective labour authority. The Labour Office issues the Work Permit within 30 days from filing of the application. The Work Permit then forms attachment to the application for the Residency Permit. Issuing of the Work Permit is free of charge. From entry of the Slovak Republic to the EU, citizens of EU member states are not required to have work permit in Slovakia and are treated equally as Slovak citizens for the purposes of their employment in Slovakia.
5. Regulatory issues 5.1 Banking

In Slovakia, banking sector is specially regulated by the Banking Act (Act No. 483/2001 Coll. on Banks, as amended). Slovak banks and branches of foreign banks are supervised by the National Bank of Slovakia. Generally, in Slovakia banking activities (including financial brokerage) may be performed by: (A) banks established in form of a joint stock company in the Slovak Republic having banking license granted by the National Bank of Slovakia,
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(B) (C)
branch office of foreign bank1 having banking license granted by the National Bank of Slovakia, foreign bank2 authorized for performance of banking activities (excluding mortgage transactions and activities of central depositary of securities) in any of EU member states on the basis of the single European passport envisaged by the Second Banking Directive, which was replaced by the Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions, or foreign financial institution with a registered office in a EU member country which is a subsidiary of a foreign bank or a subsidiary of two or more foreign banks, while Articles of Association or Memorandum of Association allow for the performance of these activities under the terms stipulated by the Banking Act.
(D)
The basic scope of the banking license permits the banking institution to accept financial deposits and grant financial loans. Nonetheless, the banking license may be (and usually is) extended beyond the basic banking activities allowing banks to provide variety of other services, e.g. payments and clearing, investment in securities, financial leasing, providing of guarantees, opening and confirmation of letters of credit, issuing and administration of payment means, provision of advisory services in business matters, financial brokerage, depositing of securities or other values, etc.
5.2 Insurance
Insurance activities may be performed in the territory of Slovakia only upon fulfilment of the conditions of the Act on Insurance (Act No. 95/2002 Coll. on Insurance Activities, as amended). The principal condition for the providing of the insurance activities is the insurance licence issued by the Financial Market Authority or the licence issued by the authority of other EEA member state exercising similar competences. The other conditions refer mainly to the financial stability and prudence of the founders. Insurance license in Slovakia is issued on either one (or both) types of insurance: (i) life insurance, and (ii) non-life insurance. With regard to the Act on Insurance and principles of community law referring to the freedom to provide services, there are three types of entities authorised to perform insurance activities in Slovakia. These are as follows: (A) insurance companies established in form of a joint stock company in the Slovak Republic authorized to perform insurance activities on the basis of the insurance license issued by the Financial Market Authority,
Branch office of a foreign bank is an organizational unit of a foreign bank located in the territory of the Slovak Republic which directly performs activities specified in the Banking Act; all branch offices of a foreign bank established in the territory of the Slovak Republic by a bank with a registered office in a member country of the EU are deemed to constitute a single branch office for the purposes of the license to perform banking activities. 2 A foreign bank is a legal entity with a registered office outside the territory of the Slovak Republic, which has a license to perform these activities granted in its home country. Doing Business in Slovakia 15
(B)
branch office of a foreign insurance company that has its registered seat outside the territory of EU on the basis of insurance license issued by the Financial Market Authority, foreign insurance company with the registered seat in the territory of the European Economic Area having insurance license in that state. Such insurance company may perform insurance activities (i) via its branch office (including representative office headed by the employee of such foreign entity in Slovakia) on the basis of that license or (ii) on the basis of the principle of freedom to provide services principle contained in the relevant EU legislation on the basis of the previous written consent of the supervisory authority over the insurance activities relevant in the state where the insurance company has its registered seat.
(C)
The scope of the insurance activities is quite extensive. The licensed entity has particularly the right to (i) conclude insurance contracts, (ii) provide for the asset management of the insurance premiums, (iii) settle insurance claims, (iv) perform other obligations arising from the insurance contracts, etc.
5.3 Securities Regulation

Below are outlined most significant issued to the securities regulation, in particular acquiring and possession of dematerialised (book-entered) securities as well as brief general overview of Slovak financial markets.
Registration of Book-Entered Securities

After the adoption of the Securities Act in 2001, the system of issuance and registration of book-entered (dematerialised) securities has been modified. Securities Act gives powers to register the issuance of book-entered securities (such as book-entered shares, bonds etc.) to the Central Depositary of Securities of the Slovak Republic (the Central Depositary). The Central Depositary is a private joint stock company licensed by the Financial Market Authority. On the basis of such license the Central Depository is responsible for the issuance of book-entered securities, for the clearing of trades with the securities and for the maintenance of the securities accounts for selected state authorities (such as National Bank of Slovakia). On the other hand, maintenance of the securities accounts for the private investors as well as all actions connected to the disposition with book-entered securities (e.g. transfer, pledge or assignment) fall into the competence of the members of the Central Depositary (the Members). Currently, the majority of Slovak banks and also certain dealers in securities are the Members. The Member is a legal entity admitted by the Central Depositary to provide operations within the information and clearance system of the Central Depositary. In the event that the private entity intends to acquire book-entered securities, he/she has to open the securities account with any Member. Subsequently, the private owner gives orders for the transfer (or other type of transaction) to the Member, which maintains respective securities account.
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Slovak Financial Markets and Trading in Securities

Slovak Financial Market is currently represented by Bratislava Stock Exchange (Burza cennch papierov v Bratislave, a.s.) (the BSSE). The BSSE, that has currently acquired the membership in European Federation of Stock Exchanges (FESE), operates in Slovakia since 1991. As of 2001, BSSE operates under the license issued by the Financial Market Authority. BSSE as a private joint stock company is owned by the National Property Fund of the Slovak Republic and by major Slovak banks. The basic framework of the operation and governance of the stock exchange is regulated in the Stock Exchange Act and Rules of Bratislava Stock Exchange (the BSSE Rules) issued by the Board of Directors of the BSSE. Trading in securities at the stock exchange may be performed only by the members of the stock exchange. Membership may be granted only to the entity holding the licence allowing the performance of investment services or to the investment fund (operating in accordance with the Act on Collective Investments), that meets the criteria of BSSE Rules. Trading at the BSSE is performed basically in two markets: (i) at the market of listed securities, and (ii) at free stock exchange market. For admission to either market the issuers of securities have to meet strict criteria set by the Stock Exchange Act and BSSE Rules. These criteria include the financial stability of the issuer, preparation of offering circular of securities, publication of financial statements and other information required by the BSSE Rules.
5.4 Foreign Exchange Control

Under the foreign exchange control regulated by the Foreign Exchange Act, domestic entities (i.e. individuals residing in Slovakia and legal entities with registered seat in Slovakia including Slovak branch of the foreign entity) are obliged to notify the National Bank of Slovakia particularly about the following facts: opening of bank accounts outside the territory of the Slovak Republic, payments made abroad and incomes received from abroad from the foreign entities or domestic entities (save for payments to the Slovak branch of a foreign entity, which is a direct investment or other form of investment, financial loan, securities transaction or other operation on the financial market),as well as receivables and liabilities towards foreign entities. Breach of notification duty may result in a penalty up to SKK 1 million (approx. EUR 25,000) imposed by the National Bank of Slovakia. Foreign Exchange Act also contained limitations on acquiring of real estate in Slovakia by the foreign entities. After 1 May 2004, substantial part of these limitations has been abolished. Currently, foreign entities may acquire real estate without limitation with exception of the agricultural and forest land. Agricultural and forest land may be generally acquired only by Slovak citizens or citizens of other EU member states who have been farming on such land at least three years after the entry of Slovakia to the EU (which has occurred on 1 May 2004).
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Foreign Exchange Act further regulates trading in the foreign currency. Such trading may be performed on the basis of the banking licence or on the basis of the special license issued by the National Bank of Slovakia.
6. Tax, Social Security 6.1 General

Slovak tax system has been created after the partition of Czechoslovakia on 1 January 1993. It is broadly based on other systems in the EU and includes corporate and personal income taxes, standard value added tax, taxes levied on selected assets (such as real estate, vehicles-road tax) or under selected circumstances (e.g. real estate transfer tax this tax is payable for transfers performed until the end of 2004) as well as system of excise taxes levied on specific goods such as alcohol or tobacco products.
6.2 Slovak Tax Reform of 2003

In late 2003, the Slovak parliament approved laws that have laid grounds for the major changes to the Slovak tax system. As of 1 January 2004, Slovakia has introduced flat 19% income and value added tax rate. Flat rate income tax is levied to both individuals and legal entities disregarding the amount of their income and a 0% withholding tax rate is levied on dividends as capital gains of the shareholder (either individual or legal entity that is tax liable in Slovakia) of the Slovak company after January 2004. Further, certain taxes, such as inheritance tax and gift tax have been abolished.
6.3 Income Tax

Due to a tax reform effective as of 1 January 2004, that has introduced modern income tax system, Slovakia has become an attractive and tax friendly investment location. First of all, 19% income tax rate that is calculated from their respective tax base is applicable to both legal entities and individuals that have their registered seat, residence or place of management of business in the territory of the Slovak Republic. The Slovak flat income tax at rate of 19% is generally one of the lowest income taxes amongst the EU member states. Further, both tax base of legal entities and individuals is subject to reduction by quite extensive range of tax deductible items (e.g. in case of an individual tax base is reduced by the amount of personal allowances currently approximately EUR 2,200/person per year; spouse allowances approx. EUR 1100 per year, monthly tax bonuses for children and other). The other advantage of new Slovak income tax system is substantial simplification of tax proceedings. Foreign entities may as well become tax liable for the performance of their activities in Slovakia. Tax base of business entities is paid on the basis of statutory accounting profits. Tax base is reduced, inter alia, by the amount of depreciation of assets; tax depreciation is divided into 4 categories, period of depreciation ranges from 4 to 20 years (for example real estate is subject to 20-year depreciation). Two methods are available for spreading tax depreciation: a straight-line method and an accelerated method. The choice of method must be made on asset-by-asset basis and, once made, cannot be changed.
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The government also plans to reduce the social security contributions of both employer and employee (for details on this issue please see part on Social Security which appears below in this Section).
6.4 Value Added Tax

At present, the value added tax (the VAT) is in the Slovak Republic levied on taxable supplies, which are divided into four categories (a) supply of goods for remuneration performed in the territory of Slovakia by VAT liable entities, (b) providing of services for remuneration performed in the territory of Slovakia by VAT liable entities, (c) acquiring of goods for remuneration performed in the territory of Slovakia from other member states of the European Community (EC), (d) import of goods to Slovakia (from outside the territories of EC member states). Flat 19% VAT is levied on all taxable supplies from 1 January 2004. A business entity that has reached a turnover of more than SKK 1,500,000 (approx. EUR 37,500) in the twelve preceding consecutive calendar months is obliged to register for VAT with respective tax office. Also persons with their seat, place of business or establishment in Slovakia, which are performing business activities jointly on the basis of the association or similar agreement in Slovakia have VAT registration duty if their total turnover for 12 preceding consecutive calendar months exceeded SKK 1,500,000. Despite the fact that the above conditions for the registration are not met, business entities may register as voluntary VAT payers with relevant tax office. Deduction of input tax paid may be claimed by the VAT registered entities on goods and services purchased for the performance of taxable supplies. The VAT deductions may be claimed on the day when the taxable supply was made. Supplies exempt from the Value Added Tax include for example postal services, financial services or insurance services.
6.5 Real Estate Transfer Tax

Real Estate Transfer Tax is charged for the transfer of real estate for remuneration. An inkind contribution of the real estate to the registered capital of business company is also considered to be the transfer of the real estate and thus such contribution would be subject to this tax. Tax rate is at present set at 3 per cent of value of the real estate set by the experts appraisal. The real estate transfer tax may be levied only on transfers performed until the end of 2004, all taxable transfers that occur after this date shall be not be subject to the real estate transfer tax.
6.6 Real Estate Tax

Real estate tax is payable by the owners of the real estate annually to the municipal authorities. The tax rate ranges from 0.25% to 0.75% of the value of the real estate (while such value is set by the experts appraisal or by the regulation of the Ministry of Agriculture in case of agricultural land). In order to reach the final amount of tax, the mentioned sum shall be further multiplied by the special index set by the Real Estate Act
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(index ranges from 1.0 to 4.5 depending on the location and occupancy of respective territory by inhabitants).
6.7 Road Tax

Road tax is levied on vehicles used for business purposes. The progressive scale of the tax ranges from SKK 1,600 to SKK 5,600 (approx. EUR 40 to 140) for passenger cars and from SKK 1,800 to SKK 71,800 (approx. EUR 45 to 1800) for utility vehicles and buses depending on the type of vehicle.
6.8 Excise Taxes

Excise taxes are levied on certain sorts of goods such as mineral oils, spirits, liqueurs, beers, wines and tobacco products. This tax is payable monthly by a lump sum per volume of goods by producers and importers of such goods.
6.9 Social Security Payments

In Slovakia, both business entity as employer and employees pay certain social security contributions calculated from the respective gross salary of employees. An individual entrepreneur is also under specific circumstances liable for the payment of social security contributions. The contributions to the Social Security funds in Slovakia are as indicated in the table below. These payments include pension, disability, unemployment insurance and health insurance. Such contributions are generally payable by both employer and employee who are employed with employer in Slovakia. The table below describes the amounts of current contributions to the Social Security funds of both employer and employee:
Employee % Pension insurance Disability insurance Unemployment insurance Reserve fund Accident insurance Health insurance Sickness insurance
4.0 3.0 1.00 ----4.00 1.4
Employer %
14.0 18.0 3.0 1.00 2.75 0.3 - 2.1 10.00 1.4 0.25
Total contribution %
18.0 22.0 6.0 2.00 2.75 0.3 - 2.1 14.00 2.8 0.25
Maximum amount from which the contribution is calculated

3 x average monthly salary* in the Slovak Republic for the preceding year (currently SKK 43,000 (approx. EUR 1,080)) Unlimited SKK 32,000 (approx. EUR 800) 1.5 x average monthly salary in the Slovak Republic for the preceding year
Guarantee insurance ---
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(currently SKK 21,500 (approx. EUR 540)) 13.40 32.70 38.50 46.10 51.90 Total * Basis for calculation is a gross monthly salary of employee. All the above contributions are paid/realized by employers. Employees do not pay anything directly and employers deduct the relevant contributions to be paid by employees from their salaries/wages and realize the payments instead of them. All insurance contributions are paid to the Social Insurance Company, a state agency that is responsible for the administration of social funds and for the payments of social rents. Similarly, health insurance contributions are paid to the respective Health Insurance Companies, which exercise the same competences in the field of health care as Social Insurance Company in the sphere of the social security. In the course of years 2003 and 2004, the Slovak government has substantially reformed the system of payment of statutory social rents (e.g. unemployment payments, sick leave payments or social rents). The new system has abolished certain social rents and reduced most of the remaining payments. The system has nonetheless introduced new extra payments that shall be provided only to persons, who are actively seeking for any form of the economic activity (e.g. employment, business activity or other form of active cooperation with the state agencies). Under the new system, the government intends to concentrate the financial support to those persons, who evidently show interest for the employment or business activities and cooperate with the state agencies in this respect.
6.10 Pension Funds Administrators

Due to the pensions reform introduced by the Slovak government in 2004, the part of the mandatory pension insurance contributions (in the amount of maximum 9% of the base of assess pursuant to special regulation Act No. 43/2004 Coll. on Pension Insurance, as amended) shall be directed to the personal accounts of the insured persons, which shall be administered by the Pension Funds Administrators (the PFAs). The PFAs, which are finance institutions having registered capital of at least SKK 300 million (approx. EUR 7.5 million) holding the special licence issued by the Financial Market Authority, will be responsible for the administration and investment of the means kept by the personal accounts of the insured persons. After reaching the age for the pension retirement (or in special circumstances even earlier), the insured persons will be entitled to payment of the periodical insurance premiums (which will consist in the capitalized pension insurance contributions). In event of death of the insured, it shall create the part of the hereditary estate.
6.11 Proposal of Reform of Social Security System

Currently, the Government of the Slovak Republic deals with a proposal of the Slovak employers associations that have prepared substantial simplification of the social security scheme. The material introduced by the employers associations proposes the abolishment of all of the mentioned payments and the introduction of a single social security payment. Further,
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employers associations have proposed that only employee will be paying such contributions. This means that the gross salary and the total price of work (which is currently gross salary plus social security contributions) would be the equal sum. However, employers would be obliged to increase the gross salary up to the amount of the total price of the work. Further, the government would provide for the social security bonus to persons employed for the minimum salary to compensate social effect of low payments such as minimum salary (this would be a form of a negative taxation). As an effect, the government would support the low-cost work and costs of employers for such low-cost labour would remain low. The proposed reform should substantially simplify the social security scheme and also slightly reduce the labour costs of employers. Nonetheless, this proposal is only at the early stage of negotiations with the Government of the Slovak Republic and shall not be in force (in whole or in part) sooner than in 2006.
7. Real Estate
In order to establish a commercial presence in Slovakia (e.g. by incorporating the LLC or JSC or by founding a branch office (jointly as the Entrepreneur)), the first step following the decision of founders on the incorporation would be obtaining the trade licenses or trade certificates as already mentioned in Section 4.1 above. For the purposes of obtaining the trade licence or trade certificate the entrepreneur (JSC, LLC or branch office) is required to prove its title to use the business premises for purposes of its registered seat in the territory of Slovakia. This may be done either by lease, sub-lease or purchase of a suitable real estate. Below we outline certain considerations connected to this issue.
7.1 Lease of Business Premises

General principles of the lease of business premises are contained in the Civil Code (Act No. 40/1964 Coll. Civil Code, as amended) and the Act on the Lease and Sub-Lease of Non-Residential Premises (Act No. 116/1992 Coll. on the Lease and Sub-Lease of NonResidential Premises, as amended. Lease of the business premises is not subject to any registration or filing. Lessee is obliged to pay the rent according to the agreement amongst the parties. The amount of the rent is one of the basic requisites of the agreement on the lease of nonresidential premises. At the starting date of the lease lessor is obliged to hand over to lessee business premises subject to lease in a state suitable for its agreed use. During the period of the lease, lessor is obliged to maintain leased business premises in the state suitable for the purpose of the lease at its own expense. To secure the receivables of the rent, lessor has the statutory retention right to the movable assets located in leased business premises. As a proof of the registered seat for the purposes of issuance of trade license/trade certificate, the Entrepreneur submits to the Trade Licensing Office (i) a lease agreement, and also (ii) a certificate of title of the lessor issued by the Land Registry (see below) proving lessor`s ownership to such premises.
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In event that the contract has been concluded for limited time period, both lessee and sublessee may terminate the contract only for reasons set by the Act on the Lease and SubLease of Non-Residential Premises. Statutory notice period is three months, unless otherwise agreed between the parties.
7.2 Sub-Lease
For the purposes of the proof of the registered seat and for the issuance of the trade license/trade certificate the Entrepreneur may alternatively use a sub-lease. In this event, Entrepreneur submits to the Trade Licensing Office in addition to the documents mentioned above also an agreement on the sub-lease which would be concluded with the lessee. The agreement on sub-lease of business premises enables the Entrepreneur (as the sub-lessee) to use the part of premises leased by the lessee. The regulation of the sublease is contained in the Civil Code and the Act on the Lease and Sub-Lease of NonResidential Premises. Lessee may enter into a sub-lease agreement only if the original lease agreement between the lessor and the lessee permits a sub-lease of leased premises.
7.3 Acquiring the Real Estate

Generally, both Slovak and foreign entities (legal persons or individuals) or their establishments in Slovakia (i.e. branch office) are allowed to acquire ownership to the real estate in Slovakia. (except for agricultural and forest land (See Section 5.4). Under Slovak law, land and buildings are treated as separate assets in legal means; therefore the owner of the land is not automatically owner of the building built on such land. If the Entrepreneur decides to purchase the building (or other real estate) in Slovakia, it effectively acquires the ownership title on the basis of the purchase contract upon the registration of such title to the ownership certificate with the Land Registry.
7.4 Ownership Certificate

In Slovakia, all rights in rem (such as ownership, mortgage, easement, etc.) as well as certain other rights (e.g. long-term land leases with a term of at least five years) connected to the real estate as well as data of real estate (i.e. land/building, plot no., covered area, building registration number) and data of the owner are listed in the ownership certificates maintained by the relevant Land Registry. The Land Registry is a publicly accessible register of data related to the real estate and anyone may obtain (upon payment of the respective administrative fee) extracts from the ownership certificate, transcriptions of land maps or land plans thereof. Land Registry respective according to the location of the real estate provides for the registration of ownership title (as well as other rights mortgage, easement) to the ownership certificate. The process of registration is regulated by the Cadastral Act (Act No. 162/1995 Coll. on Land Registry and on Registration of the Proprietary Rights to the Real Estate, as amended). The purchaser of the real estate effectively acquires the ownership to the real estate upon the registration of the title to the ownership certificate. As a proof of the registered seat for the purposes of issuance of trade license/trade certificate in case of ownership of the real estate the Entrepreneur submits to the Trade
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Licensing Office a certificate of title of the Entrepreneur issued by the Land Registry proving that the Entrepreneur is the owner of such real estate.
7.5 Expropriation
Expropriation as one of the manners of acquisition of the ownership to the real estate situated in Slovakia from private owners without their consent is possible only exceptionally, if the following legal requirements set by the Slovak Constitution, the Civil Code and the Construction Act are met: the expropriation is in the public interest , the expropriation is carried out for purpose stipulated by the law it must be demonstrated that the purpose of the expropriation cannot be achieved by other means, the expropriation may be carried out only in the extent necessary to achieve stipulated purpose, the expropriation may be carried out only if the agreement on the purchase (particularly on the purchase price) of land (building) could not be reached, appropriate consideration must be paid to the owner (the consideration is set as the market price of the land (building) subject to the expropriation set by the experts appraisal), the expropriation must be carried out within the legal frame of the proceedings set by law (in Slovakia such legal framework is contained in the Construction Act (Act No. 50/1976 Coll. on Zoning and Construction Regulations (the Construction Act)). The expropriation proceedings are held before the municipal authority, competent for the area where the land (building) subject to the expropriation is situated. Detailed rules on expropriation are contained in the Construction Act.
8. Employment 8.1 General

In 2001, Slovakia has adopted a new Labour Code (Act No. 311/2001 Coll. Labour Code, as amended) that has significantly liberalised employment relationships. The new Labour Code, which is considered in general employer-friendly, has given a wider scope of instruments to the employee with regard to the termination of employment and also granted higher degree of protection to the employer (with regard to the protection of business secrets and restriction of competition of employee).
8.2 Employment Contract

Employment relationship is established on the basis of employment contracts concluded between the employer and the employee who must be in written form. The employment contract must contain: (i) the type of work to be carried out and its brief characteristics, (ii) the commencement date of work, (iii) the place of employment, and (iv) the salary. The salary conditions do not need to be contained in the employment contract, if a collective bargaining agreement contains regulation of salary of the employees. The employment contract must be in Slovak language (dual version is also acceptable).
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An employment relationship is agreed for an indefinite period of time, unless the employment contract stipulates its duration. In case the employment contract is concluded for a definite period of time, such period cannot be longer than 3 years. The employment contract for the definite period of time is automatically terminated upon its expiry, unless the employee continues to perform the work under the employment contract with the consent of the employer (in such case the employment contract for the definite period of time is deemed to be converted to the employment contract for the indefinite period of time). The contract concluded for a definite period for maximum of 3 years; this period may be extended only under special circumstances provided for the Labour Code (e.g. for replacement of an employee on maternity leave, contracts with retired employees). The parties can agree on a probationary period of maximum 3 months, which commences at the first day at work. During the probationary period either party may terminate employment with immediate effect without stating reason. The employment contract has to contain also other labour conditions such as maturity of salary, working time, annual vacation period and length of a notice period in case of termination of the employment relationship by notice (see below). Such provisions may be incorporated to the contract by a reference to the relevant collective bargaining agreement or to the relevant provisions of the Labour Code. Maximum working time is 40 hours per week. The working time of employee, including the overtime work, is 48 hours per week at maximum. The total overtime work requested by the employer may not exceed 150 hours per year. The employer may, however, due to serious organisational reasons agree with the employee on additional 250 hours of the overtime work. The salary of employee may be stipulated as that it includes also the salary for the overtime work, in which case the employer does not have to pay the employee extra salary for overtime work. The employer is required to acquaint the employee with his/her rights and obligations including all relevant employers internal working regulations, working conditions and remuneration before concluding the contract.
8.3 Termination of Employment

Under Slovak law, employment may be terminated in accordance with the Labour Code by: (i) agreement, (ii) immediate termination of employment, (iii) termination with notice, (iv) expiry of employment contract, (v) termination in the probationary period.
Termination by Agreement
The simplest way of terminating the employment would be by the agreement between the parties. The parties express their consent in writing and specify the date of termination.
Immediate Termination of Employment
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An employee may be immediately dismissed upon delivery of a notice to that effect on the following grounds: (i) if employee is convicted of a wilful criminal offence, or (ii) he/she has committed serious breach of the working discipline.
Termination with Notice

The grounds on which the employer may give notice of termination to employees are limited by law. According to the Labour Code, termination with notice may be generally given by the employer to an employee only for the following reasons: (a) organisational changes, (b) health reasons of the employee, (c) failure of employee to meet the requirements set by legal regulations for the performance of the agreed work, employee ceases to fulfil the requirements of appointment or election to the position he/she discharges, failure to fulfil the requirements for the proper performance of the agreed work determined by the employer in internal regulations, or unsatisfactory performance of working tasks of the employee, (d) if there are reasons on the part of the employee, for which the employer might immediately terminate the employment, or on grounds of less serious breach of discipline at work; If the notice is given on any of the above grounds, employment would be terminated upon the lapse of the 2 or 3 month notice period, which commences at the beginning of the month following the month when the written notice has been delivered to the employee.3 Dismissals are subject to the consultation with the employees representatives (who may be either employees trustee, council of employees or labour union), otherwise such dismissal is invalid. The employee may not be dismissed under certain circumstances, when the dismissal is prohibited by the law (e.g. maternity leave of an employee, sickness, performance of the mandatory military (or civil) service, etc.). An employee dismissed on grounds mentioned under (a), or (b) above is entitled to severance pay if he/she consents to the termination of employment without the notice period. The severance pay shall amount according to the Labour Code to three times average salary in case of employees, who have been employed with the Company for at least at least 5 years and two times average salary to other employees, but the collective bargaining agreement may (and usually does) provide for the higher amount of severance pay.
Collective Redundancies
Notice period of 3 month would be applicable to employees who have been employed with the employer (who serves a notice) for at least 5 years; 2 month period applies to other employees. 26
If an employer intends to dismiss 20 or more employees within 90 days on grounds of organisational changes (so-called collective redundancies), employer has to further negotiate with the Employees representatives such redundancies, inform and negotiate the same the respective Slovak labour authority.
Termination by the Expiry of Employment Contract

In event that the employment contract has been concluded for a definite period of time (which may not be longer than 3 years), employment is terminated automatically upon expiry of the period of employment contained in the contract. In event that employee continues to work after the expiry of such period and employee is aware of it, such employment relation is deemed to continue and to be changed to the indefinite period of time.
Termination in the Probationary Period

Either party may terminate employment without stating the reason during the probationary period. Such period has to be expressly agreed in writing in the employment contract. Probationary period begins as of the date of the commencement of the employment and may not be longer than 3 months. Employment is terminated in the probationary period upon the delivery of a written notice.
8.4 Contract for Performance of Work and Contracts for Brigade Work
As an alternative to the employment contract, employers may conclude contracts for performance of work or contract for brigade work. Such contract, however, may be concluded only exceptionally if the employment contract would be inefficient for such type of work. The contract for performance of work must be concluded in written and the extent of work does not exceed 300 hours. The written contract must describe work tasks, remuneration of the employee, type of work, and the time frame for performance of the working task in such contract. The contract for brigade work may be concluded only with university students. Such contract also must be concluded in written. This type of contract must contain a nature of working activity, remuneration of the student, number of working hours, and period for which the contract is concluded. The maximum work time is 20 hours per week. Such contract can be terminated upon written notice in 15-days notice period.
8.5 Protection of Confidential Information and Non-Competition

During the employment, employee is bound to keep confidential all information related to the business activities of employer, which should be kept confidential in the best interests of employer. Further, employee may not perform during the employment other gainful activity identical or similar to that performed under the employment contract without prior written consent of the employer. The employee may, however, perform pedagogic, literacy or scientific activity even without consent of the employer.
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Trade secret of an entrepreneur as its intellectual property right is also protected by the Slovak Commercial Code (Act No. 513/1991 Coll. Commercial Code, as amended) (See Section 10.4 below).
8.6 Labour Unions

According to the Labour Code, employees may participate in decision-making of the employer concerning their economic and social interests, either directly or by means of competent trade union body, or the works council or the works trustee, in form of joint decision-making, negotiation, right to information and inspection activities. Employees are entitled to collective bargaining only through the competent trade union body. If both trade union body and works council operate with the employer, the trade union body has the right to collective bargaining, control of fulfilment of obligations resulting from collective agreements and to information, and the works council has the right to joint decision-making, negotiating, information and control activities. The employer is obliged to allow the operation of a labour union organisation at the workplace, which is represented by a trade union body. Labour union body concludes a collective bargaining agreement with the employer governing working conditions, including wage conditions, and conditions of employment, relations between employers and employees, relations between employers or their organizations and one or more employees organizations in a more favourable way than does the Labour Code or any other labour-law regulation. Several trade union organizations may operate alongside each other concurrently with one employer. A trade union organisation is a legal entity and it organises those employees which are interested in such an organisation. The employer negotiates in advance with employees representatives particularly the following: - the state, structure and presumed development of employment and planned measures, mainly if the employment is threatened, - principal issues of companys social policy, measures for the improvement of hygiene at work and the work environment, - decisions which may lead to basic changes in the organization of labour or in contractual conditions, - organizational changes which include limitation or cessation of the activities of the employer or its part, amalgamation, merger, splitting or change to the legal form of the employer, - measures for the avoidance of the occurrence of injuries and occupational diseases, and for the health protection of employees.
9. Competition 9.1 General

Slovak competition law is largely compliant with the principles applied in EC law and in other member states competition regulation. The Slovak Commercial Code contains provisions prohibiting an unfair competition. The unfair competition is by the definition of Commercial Code (Act No. 513/1991 Coll. Commercial Code, as amended) behaviour which is contrary to standard competition practices and which may be detrimental to other competitors or consumers. The Commercial Code provides for the list (although not
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exhaustive) of common practices that are regarded as unfair competition and thus are prohibited. These are as follows: - unauthorised use of business name, - deceptive advertising, - deceptive description of goods and services, - misrepresentation, - benefiting from the exploitation of a competitors reputation, - bribery, - defamation, - breach of trade secrets, - endangering of health and the environment, - practices restricting the competition. The Act No. 136/2001 Coll. on Protection of Economic Competition, as amended (the Competition Act) provides for the detailed regulation of practices restricting the competition. These are as follows:
agreements restricting competition, abuse of dominant position in market, concentration.

The mentioned practices restricting the competition as regulated by the Competition Act are subject to the supervision of the Anti-Monopoly Office of the Slovak Republic (the Antimonopoly Office). Brief description of the mentioned practices restricting the competition is contained in Section 9.3 below.
9.2 Remedies
In event that an undertaking (or its employee) would be in breach of rules governing the unfair competition, the party injured by such breach (other undertaking or consumer) could claim the court protection by demanding (a) to abstain from his/her conduct, (b) restitution to the previous state of affairs (if possible) and (c) financial relief. The injured party could also claim from the party being in breach of such rules (d) to pay the unjustified enrichment and (e) financial compensation for damages. The above mentioned conduct of the undertaking (or its employee) could also be regarded as a criminal offence.
9.3 Practices Restricting Competition Agreements Restricting Competition

Any agreement, concerted practice between undertakings, as well as decision of an association of undertakings, which has as its object or effect the prevention, restriction or distortion of competition is prohibited. Such agreements may involve in particular:
direct or indirect price fixing, or fixing of other commercial conditions; commitments to limit or control production, sale, technological development or investment; division of market or sources of supply;
Doing Business in Slovakia 29
commitments to tied sales and agreements involving discrimination against third parties; conclusion of contracts subject to the conditions of acceptance of other supplementary obligations not related to the subject of the contracts, either by their nature or according to their commercial usage; co-ordination of offers in public tenders.
Agreements restricting competition are prohibited unless falling within the two available exemptions the de minimis exemption or one of the block exemptions stipulated in EC law and referred to by Slovak Competition Act. Under de minimis rule laid down by the Competition Act, the restrictive agreements are not prohibited if neither combined market share of the parties thereto, nor the market share of any of the parties exceeds 10% on the relevant Slovak market, save for: (i) agreements stipulating hardcore restrictions stipulated in the Competition Act (e.g. price fixing, market sharing); (ii) restriction of competition by a cumulative effect of several restrictive agreements stipulating equivalent restrictions and having similar effect on the relevant market, provided that the combined market share of the parties involved on the relevant Slovak market exceeds 10%.
Abuse of Dominant Position on the Market

Under the Competition Act, another form of prohibited anti-competitive behaviour is an abuse of a dominant position on the market. The dominant position on the relevant market is deemed to be held by one or more undertakings that do not face a substantial competition and are able to act independently due to their economic power. Similarly to Art. 82 of the EC Treaty, the Competition Act provides a non exhaustive list of abusive behaviour. Any abuse of a dominant position on the market is prohibited by law.
Concentration
Under the Competition Act, a concentration is deemed to arise in case of (a) a merger of two or more previously independent undertakings or (b) an acquisition of direct or indirect control by one or more undertakings over the whole or parts of another undertaking or undertakings. The concentration shall also be an establishment of a full function joint venture performing on a lasting basis all economic function of independent economic unit. A concentration is subject to the control of the Antimonopoly Office if (i) the combined aggregate world-wide turnover of undertakings concerned was at least SKK 1.2 billion (approx. EUR 30 million) and, at the same time, at least two of the undertakings concerned generated each the aggregate turnover of at least SKK 360 million (approx. EUR 9 million) in the Slovak Republic; or (ii) at least one of the undertakings concerned generated the aggregate turnover of at least SKK 500 million (approx. EUR 12.5 million) in the Slovak Republic and at the same time at least one of the other undertakings concerned generated the world-wide turnover of at least SKK 1.2 billion (approx. EUR 30 million).
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For the purpose of calculation of the turnover, the world-wide as well as Slovakian-wide aggregate turnover shall be the sum of turnovers of an undertaking concerned and all undertakings being controlled by or controlling, directly or indirectly, the undertaking concerned. The financial aid provided to the undertaking concerned shall be added to the aggregate turnover. The concentration that is subject to control of the Antimonopoly Office must be notified to the Antimonopoly Office within 30 business days from the date of conclusion of the agreement, or other relevant triggering event. Until the decision of the Antimonopoly Office on the concentration becomes effective, the parties to the concentration are not allowed to perform any rights and obligations arising from the concentration. In exceptional cases, the Antimonopoly Office may, upon the request of a party and existence of material reasons, grant an exemption from the said suspension ban.
Waiting Periods under the Competition Act, Issuance of the Clearance Decision
The clearance decision shall be issued by the Antimonopoly Office within 60 days following the receipt of a complete notification (in complicated cases, this time period can extended by the chairman of the Antimonopoly Office up to additional 90 days). In case of simplified procedure under which concentrations with no or negligible impact on competition can be treated the clearance shall be given within 30 days following submission of a complete notification.
Assessment of the Concentration by the Antimonopoly Office

The Competition Act stipulates that the Antimonopoly Office shall approve the concentration that does not create nor strengthen a dominant position as a result of which the significant impediments to effective competition on the relevant market would be created. The approval can be subject to conditions imposed by the Antimonopoly Office with the aim to restore effective competition on the market (e.g. disposal of the part of acquired business or assets).
Fines
In case of breach of provisions of the Competition Act, the Antimonopoly Office shall impose penalties up to 10% of the worldwide turnover of undertaking concerned for a closed previous accounting period and in case the turnover did not reach SKK 10,000, or there was no turnover, or the turnover cannot be established, the penalty up to SKK 10 million can be imposed. As the basis for the calculation of penalties, the worldwide own turnover of undertaking concerned (i.e. of the legal entity of undertaking concerned and not the group turnover) is relevant. The Antimonopoly Office can impose penalties within four years following the commencement of relevant administrative procedure (concerning imposition of penalties), however, no later than within eight years from the date of breaching the Competition Act. Further, when deciding on the concentration that is subject to merger control review (including the concentration that was not notified timely) the Antimonopoly Office may
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impose remedial measures on the parties, including separation of an enterprise of undertakings concerned.
10. Intellectual Property 10.1 Patents

In Slovakia, inventions that meet the conditions set out in the Patent Act (Act No. 435/2001 Coll. the Patent Act, as amended), provided that are: (a) new, (b) involve inventive activity, and (c) are susceptible of industrial application may be protected by the patent. The patent is granted to the applicant by the Industrial Property Office of the Slovak Republic (the IPO). The owner of the patent, i.e. a legal or natural person registered as the owner in the Patent Registry of the IPO, has exclusive right of use of the invention, grant consent for the use of the invention by other persons, to assign the patent to another person, issue a patent license or to establish a pledge over the patent. Licensing agreement and pledge become effective only after they are registered with the IPO. Patent proceedings before IPO start by filing a patent application with the IPO. As of the date of the filing of the patent application the applicant acquires the priority right for the protection of his/her invention. Within the preliminary examination phase of the proceedings the IPO shall examine whether the application meets specific conditions prescribed by the Patent Act. The IPO shall without delay publish the patent application after expiry of 18 months from the rise of the priority right and shall announce this publication in the Official Journal of IPO. After the publication of the patent application any person may object the authorship of the invention with the IPO. IPO shall consider such objections during the patent proceedings. In the course of such proceedings, IPO assesses whether the application meets the statutory conditions for the patent. Provided that invention that is subject to the patent application meets the stipulated conditions and the respective administrative fee has been paid by the applicant, the IPO shall issue the patent certificate to the applicant, whereby the applicant becomes the owner of the patent. The IPO shall issue a patent deed to the owner and granting of the patent shall be published in the Official Journal of IPO. Duration of the patent is twenty years from the date of the patent application. The owner of the patent is obliged to pay administrative annual fees for maintenance of the patent.
10.2 Trademarks
Slovakia is a party to all material multilateral international treaties concerning trademark protection. Trademarks and their protection in Slovakia are regulated by these treaties and the Trademark Act. Trademark is any sign capable of being represented graphically, particularly words, including personal names, letters, numerals, designs, the shape of goods or of their packaging, or eventually combination thereof, provided that such signs are capable of distinguishing the goods or services of one person from those of other persons and is compulsory registered by IPO in the Trademark register kept by the IPO.
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An applicant acquires title to a trademark on the date of its registration with the Trademark Register. As of the date of the filing of the application the applicant acquires a priority right to the trademark. The owner of the trademark has the exclusive right to imprint the trademark on all his/her products or use trademark while providing the services, for which the trademark is registered. The trademark owner has the right to transfer its trademark to a third person by a written agreement, such transfer becoming effective towards third parties on the date of its registration with the Trademark Register. The trademark owner has also right to grant a trademark license and create a pledge over a trademark. Both, the licence agreement and creation of a pledge over a trademark, become effective as of their registration with the Trademark Register. The trademark protection period is 10 years and commences on the date of submission of the trademark application to the IPO. The protection period may be extended upon request of the trademark's owner for a time period of additional ten years.
10.3 Copyright
All literary, artistic, musical, dramatic or scientific works, computer programs, cartographic works, compilation of these works and their databases created by Slovak citizens or persons permanently residing in Slovakia are protected in Slovakia by a copyright. The same protection is vested to the works of other persons, if they are for the first time published in the Slovak Republic and to works falling within the scope of protection of an international treaty. The copyright is vested to the copyrights holder, who is an author of the work, or, under special circumstances, the employer of the author. The copyright protection over mentioned works originate automatically as from the date when the work is created without any need for the registration or notice. The copyright protection consists of two categories of rights of a copyright holder: (i) personal rights and (ii) proprietary rights. Personal rights are those granted only to the author, they are non-transferable and cease to exist after the authors death. Proprietary rights, on the other hand, may be transferred to a third party and they exist after the authors death. Personal rights consist of: (a) the right to indicate, or not to indicate name or pseudonym of the author on the work and all its copies during any use of his/her work in public, (b) the right to decide on publishing of a work, (c) the right for inviolability of his work (this right include protection against unapproved change or other intervention into a work and protection against defamatory use of work), and (d) the right for corrections of the work. The proprietary rights of an author consist of the right to use the work and to grant consent for any further use of the work, in particular: (a) copying of the work, (b) public distribution of the work by means of sale, other ownership transfer, lease or free lending, (c) public exhibitions, performance or transmission of the work, (d) editing, translation or adaptation of the work, and (e) contribution of the work into collective works. The protection period of proprietary rights to work is the authors life and 70 years commencing on the first day of the calendar year following his death. In case of
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anonymous works, where the author is not known, the protection period is 70 years from the date of publishing thereof. Special organisations for collective administration of copyrights administering and licensing certain works and receiving royalties exist in Slovakia. These organisations also approve retransmission of works on cable networks and receive compensations from the producers and importer of copying and data storage equipment. At present, the following organisations for collective administration of rights are active in the Slovak Republic: SOZA - Slovak Authors Protective Union for Musical Works, Slovgram representing performing artists and producers of records, OZIS Protective Union of Performers of Slovakia also representing performing artists, SAPA Slovak Association of Producers in Audiovision, LITA representing authors of literary works.
10.4 Trade Secret

Certain facts, data and information of commercial, manufacturing or technological nature that are connected to the business activities of an entrepreneur provided that such information have actual, or at least potential, tangible or intangible value, and that are not normally available in the appropriate industry, where the entrepreneur performs its business activities while the entrepreneur provides for the secrecy of such information, are considered to be trade secrets. As such, information subject to the trade secret enjoys special statutory protection and the entrepreneur has an exclusive right of their use and to grant consent with their use. All employees of the entrepreneur as well as any third parties are obliged to comply with the trade secret and keep all information confidential without obtaining a prior written consent of the entrepreneur. The trade secret is not limited by any statutory period. Trade secret protection lasts for so long as the criteria for the trade secret protection are met. In event that the employee or any third party would be in breach of duty not to use trade secrets of the entrepreneur, the entrepreneur could claim the court protection by demanding (a) such person to abstain from his conduct, (b) restitution to the previous state of affairs (if possible), and (c) financial relief. The entrepreneur could also claim (d) payment of the unjustified enrichment, and (e) financial compensation for damages.
10.5 Other Intellectual Property Rights

Slovak law gives protection also to other immaterial values belonging to the entrepreneur, which include: design, utility model, new species of plants and breed of animals, designation of origin of products and topographies of semiconductor products. Generally protection of the above mentioned immaterial values is dependant upon their registration with the relevant register kept by the IPO. Other category of immaterial values that is protected automatically without any need for the registration or notification include for example know how, goodwill and the protection of the business name. Slovak law gives to these immaterial values the similar scope of protection as to the trade secret.
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11. Common Section - Formal Requirements of Deeds Used in Slovakia

All documents which are to be submitted to Slovak official authorities, e.g. for the purposes of trade license, registration with the commercial register, or in the other court or administrative proceedings, must be in Slovak language. In event that documents are written in other than Slovak language, they are required to be officially translated into Slovak by an official translator. Those documents which shall be used in Slovakia for the purposes mentioned above, that have been signed abroad before a notary public or other similar official institution verifying signatures of private parties or have been issued by the notary public (such as notarial deeds) or other foreign official authorities, must be superlegalised up to the Slovak Consular Office in the respective country if there is no legal assistance treaty between the country of origin and Slovakia or must be apostilled if the foreign state where the document was issued is a party to the Hague Convention of 1961 on Abolishment of the Requirements of Legalisation for Foreign Public Documents.
12. Firm Profile of echov Rakovsk

Law firm echov Rakovsk was established in 1990 soon after substantial political changes in former Czechoslovakia. The firm has experienced strong development both in terms of professional skills and a client base since its establishment. Roots of current maturity of echov Rakovsk lie in combination of deep knowledge of Slovak legal environment and considerable international experience. Professional standard of echov Rakovsk is maintained and even improved through intensive training made available to lawyers and support staff. Head office of echov Rakovsk is based in Bratislava, Slovakia and its branch in Brussels, Belgium. At present, the firm operates with 14 lawyers, 2 paralegals and 10 members of support staff. All lawyers are members or associates of the Slovak Bar Association. Some of partners are also members of the International Bar Association and the American Bar Association. Legal services are provided in English, French, Italian or Slovak language. echov Rakovsk has considerable experience in mergers and acquisitions, privatization, including privatization of former monopoly state companies, competition matters, restructuring and reorganizations, insolvency and composition proceedings, trademark matters, greenfield and brownfield investments. echov Rakovsk has gained extensive experience in general commercial and corporate matters including advising on all aspects of corporate existence of companies, their commercial relations and business activities. In addition to the standard commercial practice, the firm has advised a number of banking clients, broker houses and other financial institutions on their debt or equity linked projects, and project finance, securities deals and other financial and even more sophisticated capital markets transactions.
Areas of Practice
Antitrust and Unfair Competition Banking Bankruptcy
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Civil Law Commercial and Contract Commercial Litigation Corporate and Business Corporate Litigation Employment and Labour Energy Finance Foreign Investment Insolvency and Restructuring Intellectual Property Mergers & Acquisitions Privatization Project Financing Real Estate Telecommunications Trademarks
Independent Ratings echov Rakovsk is valued by the following international law directories: IFLR 1000 recommends the firm in the area of Banking, Capital Markets, M&As and Project Finance. The European Legal 500 recommends echov Rakovsk as one of the leading legal advisors with the expertise in Banking, Finance and Capital Markets and Corporate and Commercial transactions. PLC Global Counsel 3000 highly recommends echov Rakovsk in Banking and Finance and in Company and Corporate transactions. Contacts:
Katarna echov, Zuzana Petrov, Tom Maretta Hurbanovo nm. 5 Bratislava 811 03, Slovakia Tel: +421 2 5441 4441 Fax: +421 2 5443 4598 E-mail: katarina.cechova@cechrak.sk zuzana.petrasova@cechrak.sk tomas.maretta@cechrak.sk Website:www.cechrak.sk
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Guide To Doing Business in Slovakia: Lex Mundi

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GUIDE TO DOING BUSINESS IN SLOVAKIA

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Doing Business in Slovakia

3. Investment Incentives ... 11 4. Permits and Licenses 11

6. Tax, Social Security 18

7. Real Estate ... 22

7.4 Ownership Certificate .. 23 7.5 Expropriation 24

10. Intellectual Property .. 32

Doing Business in Slovakia

Legal system: Date joined EU: Membership:

Forms of Doing Business in Slovakia

Doing Business in Slovakia

2.1 Limited Liability Company (LLC) General

Doing Business in Slovakia

2.2 Joint Stock Company (JSC) General

Doing Business in Slovakia

Doing Business in Slovakia

2.3 Branch Office General

Doing Business in Slovakia

Doing Business in Slovakia

4. Permits and Licenses

4.1 Trade Licence / Trade Certificate

Doing Business in Slovakia

Doing Business in Slovakia

4.2 Residency Permit

Doing Business in Slovakia

4.3 Work Permit

5. Regulatory issues 5.1 Banking

Doing Business in Slovakia

5.3 Securities Regulation

Registration of Book-Entered Securities

Doing Business in Slovakia

Slovak Financial Markets and Trading in Securities

5.4 Foreign Exchange Control

Doing Business in Slovakia

6. Tax, Social Security 6.1 General

6.2 Slovak Tax Reform of 2003

6.3 Income Tax

Doing Business in Slovakia

6.4 Value Added Tax

6.5 Real Estate Transfer Tax

6.6 Real Estate Tax

Doing Business in Slovakia

6.7 Road Tax

6.8 Excise Taxes

6.9 Social Security Payments

Maximum amount from which the contribution is calculated

Guarantee insurance ---

Doing Business in Slovakia

6.10 Pension Funds Administrators

6.11 Proposal of Reform of Social Security System

Doing Business in Slovakia

7.1 Lease of Business Premises

Doing Business in Slovakia

7.3 Acquiring the Real Estate

7.4 Ownership Certificate

Doing Business in Slovakia

8. Employment 8.1 General

8.2 Employment Contract

Doing Business in Slovakia

8.3 Termination of Employment