Slovakia’s convenient location in the heart of Europe makes it an attractive proposition for overseas investors.
While Western European companies have been attracted by the availability of relatively cheap labour in Asia over the past decade or so, some investors are now again looking at Central Europe.
Thirty years after the fall of the ‘Iron Curtain’, the region boasts excellent sustainability credentials and a skilled work-force, as well as a reputation for making high-quality products and closer proximity to final European customers.
Slovakia in particular enjoys a strategic geographical location in the heart of Europe, with 300 million potential customers within a radius of 1,000km.
Strong automotive sector
The country has long been strong in mechanical engineering and the automotive sector. Slovakia produces more cars per capita than any other country in the world and is home to four large car manufacturers: Volkswagen, PCA, Kia Motors and Jaguar Land Rover.
Indeed, the automotive sector drives Slovakia’s FDI flow, which was £2.12bn in 2017, and contributes significantly to the EUR79.78bn worth of exports produced by the country. Germany and The Czech Republic are its largest export markets receiving 22.2% and 11.9% of Slovakian exports respectively. This has lead to steady GDP growth of around 3%, with an inflation figure of about 2% during 2019.
The automotive industry also invests a lot in research and development (R&D), the latest example being the announcement that Porsche Werkzeugebau is to build a new technology centre in Slovakia.
It’s clear that with the ongoing push towards electric cars, R&D projects will be decisive for the future of Slovakia as an automotive power. To support this there is a National R&D Specialisation Strategy, and also various tax incentives available – key reasons why the AeroMobil, one of the first flying cars, is now being built in Slovakia.
Apart from mechanical engineering, Slovakia also has a strong electronics industry, representing 11% of total industrial production. Because of the high quality data and voice networks available, some 60 shared service centres and information and communication technology centres have opened in the country.
Slovakia also boasts a very high level of integration into Europe, being both an EU member and part of the Eurozone, and is a leader in European labour productivity while providing a stable political environment.
Taxes tend to change frequently in Slovakia, which previously boasted the region’s most attractive flat tax rate of 19% until neighbouring countries started a race to lower taxation.
Nevertheless, with a tax rate of 15% for small business, as of 2020, Slovakia remains competitive, especially with the possibility of smart investments in R&D through a 200% ‘super-deduction’ of eligible R&D costs against tax.
However, foreign investors should take note of basic transfer pricing rules, which the local tax authorities have made a much higher priority than many other tax authorities in western European countries, having introduced 35 new transfer pricing controls during 2018 and 2019, generating millions of additional Euros in tax revenue.
Slovakia remains an attractive choice for investment, but as the tax situation shows, it pays to seek advice from local experts who can provide invaluable knowledge before taking the first steps.
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Date: January 2020