Note: This article was written in 2003. Since business changes fast in Slovakia, the information contained in it might be out of date. Please review newer articles or contact a professional consultant before making business decisions.

These articles were published in the Spectacular Slovakia travel guide, published annually by The Slovak Spectator since 1996. The latest editions can be obtained from our online shop.

Slovakia to meet the challenges ahead

By Mark Gibbins

The recent successfully completed referendum on joining the EU means that Slovakia should shortly join both the EU and NATO having already joined the OECD, so cementing its position in the developed, market orientated world. Slovakia's jobless rate has fallen to its lowest level in five years and is anticipated to fall further; established foreign investors continue to expand their operations and new investors show increasing interest in setting up in Slovakia. Many of the privatized domestic Slovak companies have been substantially restructured to meet the demands of a developing market economy. Overall Slovakia's future appears very positive

At the same time potential risks remain. The OECD warns that there is a risk that the market expectations of massive inflows of foreign direct investment, linked to EU accession in May 2004, could lead to excessive strengthening of the Slovak crown, which would undermine export competitiveness and output growth. The OECD, while offering praise for the Slovak government's dedication to radical structural reforms, also warned that any delay in the implementation of fundamental healthcare and pension, (as well as tax and labour market), reforms would make the government's public finance targets difficult to achieve.

We can therefore expect no slackening in the pace of change over the next few years and in this Business Focus Section we address some of the key specific areas in which Slovakia will change, either by choice in trying to enhance its competitive position, or as a result of changed circumstances. Firstly we look at the radical tax reform package scheduled for 2004, which, as we write, is still subject to change and passage into law but with the fundamentals now clear. These proposals are attracting increasing interest from many other countries; either because they are seen as a potential threat to their competitive position or as a potential model for reforms in their own territory. Secondly we look at some of the key tax changes resulting from EU Accession, not only in VAT and Customs which take up most of the headlines but also in direct tax. That theme is picked up in the third article when we examine the current status of tax incentives which have been used by a number of foreign investors coming to Slovakia but which have had to be modified to take account of EU State Aid rules. In our fourth article we look at major changes to Labour Law designed to increase flexibility in the labour market. In our final article we address some of the key accounting issues resulting from Slovakia's move to a system more closely based on International Financial Reporting Standards.

The author is Senior Tax and Legal Partner at KPMG Slovakia.

These articles and related information were published in Spectacular Slovakia 2003.

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