WT/TPR/S/7
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III. TRADE-RELATED ASPECTS OFTHE FOREIGN DIRECT INVESTMENT REGIME
1. Slovakia hasencouraged inflows offoreign direct investment (FDI) throughout thecourse of
itstransition fromacentrally planned toamarket economy. Thepositive rôlegiven tosuchinvestment
inSlovakia isreflected inthesubstantial increases ofFDIthathavetaken place since theendof1992.
Thestock offoreign capital more thandoubled during thefirsttwoyears inwhich Slovakia wasa
sovereign State andexceeded US$100 percapita attheendof1994.
2. Foreign direct investment intoSlovakia islargely unrestricted. TheGovernment does, however,
seektopromote certain forms ofinvestment andinvestment intocertain sectors. According tothe
Prime Minister inJanuary 1995, "The Government willencourage atargeted entry offoreign capital
intotheSlovak economy andallow thesetting upofjointventures withforeign investors sothatforeign
financial resources canbeprimarily channelled towards modernization andthepurchase ofnew
technologies, orafinancial revitalization ofthese enterprises. Itwillalsogivepriority tosuchaview
inthesaleof[State] enterprises toforeign investors".1According totheauthorities, priority sectors
forinvestment promotion include chemicals andpharmaceuticals industries, foodprocessing andother
consumer industries, mechanical andelectrical engineering industries, andtourism industries. An
example ofhowtheGovernment maygiveeffect tothese priorities istopursue privatization through
international public tender rather thanthrough amanagement buy-out.
(1) Investment Approvals andRestrictions
3. Approval ofFDIinSlovakia isrequired onlyinparticular circumstances, discussed below.
Likedomestic firms, however, foreign firms mustregister theirbusiness inatraderegister andobtain
anylicences necessary fortheiroperations.2Following registration, foreign firms andindividuals may,
except inspecific circumstances, conduct business inSlovakia under thesame conditions andtothe
same extent astheir Slovak counterparts;3limitations onnational treatment foraforeign-owned
commercial presence include, forexample, arequirement thatonethirdoftheBoard ofDirectors of
anenterprise providing banking andother financial services becitizens ofSlovakia (Chapter V(6)(iii)).
4. Theapproval oftheNational Bank ofSlovakia (NBS) isrequired forforeign investments in
thefinancial sector. TheNBSrequests aminimum investment ofSk$500 million, andapproval may
takesixmonths.
5. Foreign investments areprohibited intheareas ofdefence, national security, railways, postal
services,someareasoftelecommunications,andthedistillationofpurealcohol.Therearenorestrictions
ontheproportion offoreign ownership other thanthose thatmaybeimposed, onacase-by-case basis,
1Address byPrime Minister Meciar totheNational Council, 19January 1995.
2Slovakia hasnotnotified theWTO Council forTrade inGoods ofanymeasures notinconformity with
theWTO Agreement onTrade Related Investment Measures (TRIMs).
3Theright toconduct business inSlovakia isachieved onthedatethebusiness isfiled intheCompanies
Register. Applications normally takefourweeks foracceptance andregistration. Therelevant legal provisions
arecontained intheBusiness Code, Schedule II,"Entrepreneurial activities ofaliens."TheSlovak Republic WT/TPR/S/7
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oninvestmentsinthefinancialservicessectorasaconditionofapprovalbytheNationalBankofSlovakia
(NBS).4
6. Therightofprivate ownership ofrealproperty isguaranteed bytheConstitution. OnlySlovak
nationals andSlovak-registered businesses arenormally permitted toownrealestate; however, the
factthatabusiness iswholly orpartly foreign-owned isnotanobstacle toproperty ownership. Branches
offoreign companies maynotholdland.
(2) Foreign Direct Investment Incentives
7. Firmsthatwereestablishedafter1January1993andhadatleast30percentforeignparticipation
qualified, beginning inApril 1993, foraone-year taxexemption; thiswasfollowed byareduced
corporate income taxrateof30percentfortwoyears.5Thisspecial two-year taxrateof30percent
wasreduced to20percentifthefirmhaditsregistered office, oritreinvested itsprofits, inatargeted
district ofSlovakia. Special provisions existed forlicensed banks withatleast75percentforeign
participation; these provisions allowed thereduced rateof30percentforuptonineyears insome
circumstances. According totheauthorities, these investment incentives were discontinued on
1January 1995andhavenotbeenreplaced withsimilar provisions, although theMinistry ofFinance
maygrant some special taxconcessions.
8. Exemption from duties andvalue-added taxisallowed fornewequipment andtechnology
purchases (lessthanoneyearoldandwithavalue ofatleastSk$10 million) made aspartofaforeign
investment, solongastheforeign share accounts foratleast35percentoftheequity intheSlovak
enterprise.6Thisexemption maybeclaimed onlyonetime.
(3) Dividend Repatriation
9. Foreign investors maytransfer theirentire share ofafter-tax profits totheircountry oforigin.
Intheevent ofdissolution orliquidation ofanenterprise, foreign-owned capital maybefullyrepatriated.
There arenogeneral restrictions onthepayment ofinterest, royalties ormanagement feestoforeign
parent companies.7Foreign investors thatoperate through abranch are,however, subject tosome
restrictions.8Some restrictions existontherepatriation ofsalaries byexpatriate employees.9
4According toSlovakia 'sschedule under theGeneral Agreement onTrade inServices, banking services may
beprovided onlybybanks authorized bytheNBS, inagreement withtheMinistry ofFinance. Private banks
maybeestablished onlyasjointstock companies. Foreign banks mayestablish branches inSlovakia orparticipate
through their capital share inalready established banks onlywiththeauthorization oftheNBS, which willact
inagreement withtheMinistry ofFinance.
5Firms withforeign participation ofatleasttheequivalent ofDM1 million qualified evenifthisforeign equity
fellbelow the30percentthreshold.
6Thedecree oftheMinister ofFinance authorizing such exemptions terminates attheendof1995.
7Foreign Exchange Act,Articles 35-36.
8Foreign Exchange Act,Article 25.
9Foreign Exchange Act,Article 16.WT/TPR/S/7
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(4) ThePattern ofInward Foreign Direct Investment
10. Thestock offoreign direct investment inSlovakia attheendof1994wasnearly two-and-a-half
times greater thanitslevel atthetimeofthedissolution oftheCzech andSlovak Federal Republic
twoyears earlier (Table III.1). Thedataoninward foreign direct investment indicate thatSlovakia 's
percapita stock offoreign direct investment, which attheendof1994 stood atUS$103, isnearthe
average ofthatinother central European countries.10
Table III.1
Foreign direct investment intheSlovak Republic
1992 1993 1994
Stock offoreign capital (Sk$millions) 6,607 10,756 16,542
Stock offoreign capital (US$ millions) 231 366 552
Stock offoreign capital (US$ percapita) 43.5 68.7 103.1
Number ofcountries withdirect investment inSlovakia 54 69 81
Number ofSlovak enterprises withforeign capital participation 2,825 5,143 7,207
Share offoreign capital stock bysector
Manufacturinga50.0 50.8 46.9
Retail andrepair services 29.2 22.7 31.2
Banking andinsurance 7.9 12.2 11.0
Realestate; research anddevelopment 7.4 5.7 5.0
Hotels andcatering 0.2 4.9 3.2
Share offoreign capital stock, selected countries:
Austria 27.3 24.5 20.6
Czech Republic ... 11.2 15.2
France 0.6 10.5 7.0
Germany 24.9 21.0 22.4
United States 19.2 12.9 14.4
... Notavailable.
a Thatis,50percentofthestock ofFDIatend-1992 wasinmanufacturing.
Source Slovak Statistical Office; WTO Secretariat calculations based ondataprovided bytheSlovak Statistical Office.
11. Foreign equity ownership inSlovakia attheendof1994 wasspread among 7,200 firms and
originated from81countries. Investment inmanufacturing accounted for47percentofthetotal, with
therestcentred inretail, banking andinsurance. Countries withthelargest investments attheend
of1994wereGermany, US$124 million; Austria, US$114 million; Czech Republic, US$84 million;
UnitedStates,US$78million;andFrance,US$39million.Othercountriesholdingmorethan1percent
oftheforeign direct investment inSlovakia areSweden, TheNetherlands, Italy, Korea, Canada, the
United Kingdom, theDutch Antilles, andSwitzerland.
10Attheendof1993, Slovakia 'spercapita foreign direct investment wasequal toUS$83, while theaverage
oftenformer centrally planned economies incentral Europe wasUS$99. Included inthegroup ofcountries
areAlbania,Bulgaria,Croatia,theCzech Republic,Hungary,Poland,Romania,Slovakia,Slovenia,andMacedonia
(Mikelka, 1995, Table 1.1).TheSlovak Republic WT/TPR/S/7
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12. Manufacturing hasattracted nearly halfoftheforeign direct investment intoSlovakia. Retailing
andbanking andinsurance havealsoattracted large shares.
(5) International Treaties
13. TheCSFR Foreign Investment Law, which remains ineffect, protects against nationalization
offoreign-owned property andguarantees faircompensation intheevent ofexpropriation. This
complements anumber ofbilateral investment treaties, which were negotiated under theCSFR and
remain inforce. Bilateral investment treaties areinforcewithAustria, Finland, France, Spain, Sweden
andSwitzerland, alldating from 1991; andBelgium andLuxembourg, Canada, China, Denmark,
Germany, theNetherlands, Norway, theUnited Kingdom, andtheUnited States, alldating from1992.
BilateralinvestmenttreatieswithBulgaria,Indonesia,Poland,Romania,theRussianFederation,Slovenia,
Tadzhikistan, Turkmenistan, andUkraine areintheprocess ofratification.