Slovak Republic (“Slovakia”)

The Slovak Commercial Code provides five main forms of for-profit representation in the Slovak Republic:

•            A joint-stock company;
•            A limited-liability company;
•            A general partnership;
•            A limited partnership;
•            A simple joint-stock company; and
•            A cooperative.

Moreover, special acts allow also establishment of three forms of representation regulated by the European Union laws:

•            European Company (SE);
•            European Economic Interest Grouping (EEIG); and
•            European Cooperative Society (SCE).

The most common for-profit organizational form utilized in Slovakia is the limited liability company (“LLC”). They represent the most widely used form of business companies in the country. It is more appropriate where a simpler and less regulated company is required. An LLC may be established by one or more founders, the number of which shall not exceed 50. Its advantages include a registered capital of only EUR 5,000, shareholder´s liability limited only up to the amount of his unpaid contribution to the registered capital, which thus creates a solid protection in the form of a corporate veil. Contribution to the registered capital may be either monetary or in-kind. Minimum shareholding in the registered capital of LLC is EUR 750 (In case of a sole founder of LLC, the whole amount of the registered capital has to be paid up prior to the registration of the LLC).   

Another common for-profit organizational form is the joint-stock company (“JSC”), which is generally more suitable for larger projects in terms of raising the initial capital and at the same time provides a greater level of anonymity for its shareholders, however ultimate beneficial owners (“UBOs”) are registered with the respective Commercial Register and are as well registered with the Register of UBO´s. The JSC is in principle analogous to an English public limited company. The company is liable for any breach of its obligations with its entire property. A shareholder in a joint-stock company is not liable for the obligations of the company. It is, however, liable to the company to the extent of any amounts unpaid on the shares it holds. JSC may be formed by a private agreement to subscribe for shares or by a public offer for subscription. The legal regulation of the joint-stock company distinguishes between a “private” and a “public” joint-stock company.  Its registered capital in the amount of EUR 25,000 (with certain exemptions where legal regulation specifies a higher amount of registered capital for joint-stock companies operating certain business activities, such as banks, securities traders, and the like) helps to evoke the general impression of a strong and stable business partner. A joint-stock company must have two or more founders, unless the sole founder is a legal entity.   

The remaining organizations mentioned above are not that common in practice.

Please note that an extensive legal reform on business corporations has been announced in Slovakia by the government in the upcoming future. Substantive changes are envisaged (e.g. de-regulation of simple joint-stock companies, changes regarding the registered capital obligations, etc.).

a. LLCs are, by number, the most common for-profit organizational form in Slovakia. Second to them are JSCs. Both of them may have multiple owners and are open to investor’s incentives.  

b.  According to the official Register of social enterprises maintained by the Slovak Ministry of Labor, Social Affairs and Family (“Ministry”), registered social enterprises overwhelmingly favor LLCs (included below under Question 4. as a form of social enterprise).

As for other for-profit organizational forms (not covered in Question 4. below) – we are not particularly aware of such other organizational forms. However, the official Register of social enterprises only comprises such social enterprises, which underwent the process of registration in order to obtain the status of “Registered social enterprise”, thus there may be also other social enterprises (as defined in this questionnaire) not registered at all, operated informally and voluntarily.

The respective provisions of the Slovak Commercial Code explicitly stipulate such legal requirement for the executive directors (in case of LLC) / members of the board of managers (in case of JSC) in this matter, and that is to perform their duties with due care and diligence and in accordance with interests of the company and its shareholders without putting their own interests or interests of only certain shareholders or third parties over the interests of the company. Thus, nothing in principle restricts the above individuals to take also other (legally permissible) interests into consideration (e.g. if such interests are stipulated in foundation documents), as far as they are in line with the above criterion.

No, there are no organizational forms specifically designed solely as Social Enterprises (as defined in this questionnaire).

But there are certain organizational forms listed below, which were basically already recognized by law (long) time ago, in relation to which the legislator decided to designate them and choose these organizational forms as suitable for operating as social enterprises. In other words, also other potential organizational forms not explicitly mentioned below may serve as Social Enterprises (as defined by this questionnaire), but they cannot be recognized as social enterprises (in Slovak: Sociálne podniky) under the Slovak regulations (see below) – the term used is the same, but the definition under this questionnaire is broader than the one contained in the Slovak regulations. Where we are referring to the definition under this questionnaire, we use capital letters (“Social Enterprise”). Where we are referring to the social enterprises as understood by Slovak laws, we do not use capital letters (“social enterprise”).

In Slovakia, the existence and operation of social enterprises is governed primarily by Act No. 112/2018 Coll., on Social Economy and Social Enterprises and on changing and supplementing certain acts, as amended (hereinafter the “Act”).

Firstly, it needs to be distinguished that the Act uses various closely-related terms: “subject of social economy”, “social enterprises” or “enterprise with the social impact”, whereas all of them may theoretically fall under the definition of Social Enterprise as defined in this questionnaire. In our answers, we will focus particularly on the social enterprises, but a brief description of other remaining terms is necessary to understand the legislation.

Subject of social economy is a civic association, foundation, non-investment fund, nonprofit organization providing services of general benefit (or “NO” in short, as understood by Slovak laws), special purpose church facility, business company (corporation), cooperative and natural person – entrepreneur, who is also an employer, whereas they:

• are not majority controlled by a state authority, the state authority does not finance them for the most part, does not appoint or elect a statutory body or more than half of its members and does not appoint or elect more than half of the members of the management body or supervisory body;
• carry out an economic activity or a non-economic activity within the framework of social economy activities; and
• do business or perform other gainful activity in accordance with special regulations, they do not perform them exclusively for the purpose of making a profit or use the profit from them in the manner provided for in the Act.

If the subject of social economy meets certain additional conditions stipulated within the Act, it can fall under the definition of (i) social enterprises or (ii) enterprises with the social impact (with the sole exemption of a noninvestment fund, which cannot be an enterprise with the social impact).

1. Pursuant to the Act, a social enterprise is a subject of social economy:
2. which carries out an economic activity on a continuous basis, independently, on its own behalf and under its own responsibility;
3. whose main goal is to achieve a measurable positive social impact;
4. in which the goods or services, which it produces, supplies, provides or distributes, or the way in which they are produced or provided, contribute to the attainment of the positive social impact; which, if

• makes a profit from its activities, uses more than 50% of the profit after tax to achieve the main objective under point b) above;
• distributes a part of its profits according to the Slovak Commercial Code, it is distributed according to procedures and rules that do not interfere with the main goal according to letter b) above;

5. which involves so called “interested persons” as defined by the Act in the management of its economic activities.

As for an enterprise with a social impact, it can be a civic association, foundation, NO (for a specific definition, please see below), special purpose church facility, business company (corporation), cooperative or natural person – entrepreneur, which continuously, independently, conducts its economic activities in its own name and under its own responsibility, while the main goal of at least one of their economic activities is achieving a positive social impact and meet at least two of these conditions:

• goods or services which they produce, supply, provide or distribute, or the way in which they are produced or provided, contribute to the achievement of a positive social impact;
• use more than 50% of the after-tax profits from its economic activities, which main objective is to have the positive social impact, in order to achieve that main objective;
• involve “interested persons” in the management of economic activities aimed at achieving the positive social impact.

To sum up, the abovementioned three recognized terms may all fall within the definition of Social Enterprise as understood in this questionnaire. For the purpose of this questionnaire, we will further focus only on the “social enterprise" as defined by the Act (see above).

a. See the definition of the “social enterprise” as defined by the Act above. Since it is also a “subject of social economy”, the following organizational forms are therefore possible: a civic association, foundation, non-investment fund, NOs (as understood by Slovak laws), special purpose church facility, business company (corporation), cooperative and natural person – entrepreneur, who is also an employer. The lastly-mentioned is not strictly speaking an organization (enterprise), thus we do not elaborate on it more.

From the wording of question, we understand that we are required to compare the organizational forms listed below with a traditional organizational form – LLC (see above Question 1).

Civic associations (in Slovak: ObÄianske združenia):

2. The purpose of civic associations is to gather citizens and legal persons on the basis of their common interests and to represent such interests. Pursuant to the respective Slovak legislation, civic associations are not forbidden to do business, however it cannot be the main object (goal) of their activities. Given that they constitute Nonprofit institutions, the focus of their activity must be on conducting non-profit activities, which benefit their members or common good, while their income comes mostly from various donations, gifts, grants, EU funds and, most importantly, membership fees. Thus, in practice, if a civic association is e.g. focused on fighting against government corruption, its supplemental (business) income may come from organizing educational workshops and seminars for the general public. Profit generated from such activity should to be used in order to support and further the interests and goals of the civic association. Further operational details are governed by Act No. 83/1990 Coll. on Association of Citizens.
3. Registering civic associations is fairly easy, quick and cost-efficient. Moreover, the income that they receive from the activity for which they had been registered is not subject to income tax (such as membership fees), plus, they are entitled to receive 2% (or 3%) from income tax paid by taxable subjects. As for the VAT, services provided in return for membership fees for their own members are exempt from the VAT.
4. See the limitations mentioned within the definition of the social enterprise itself.
5. Civic associations are registered within 15 days of delivery of the application for their registration and the fee is EUR 66 (EUR 33 in case of an electronic submission). On the other hand, an LLC is set up by registration with the Commercial Register, which formally takes two business days (in practice, however, it usually takes much longer), while the fee is EUR 150. LLCs cannot be registered by other than electronic means. If a particular civic association wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6. Civic associations are quite prevalent, since they have been existing in Slovakia already for approx. 30 years, i.e. since 1990, when the respective act regulating their formation and operation had been adopted. There are approximately 54,000 civic associations in Slovakia, while ten social enterprises operate as civic associations (according to the Register of social enterprises).

Foundations (in Slovak: Nadácie):

2. A foundation represents a special purpose association of assets, whose purpose is to help public benefit by providing both financial and non-financial support to the subjects in need. Slovak Act on Foundations lays out exhaustively, what activities are considered helpful/beneficial in relation to public benefit, such as e.g. support of scientific research, protection of environment, health protection, humanitarian aid etc. The founder of the foundation in Slovakia can be both natural as well as legal person. Further operational details are governed by Act No. 34/2002 Coll. on Foundations and on changing Civil Code as amended.
3. As in the case of civic associations, the main benefits are quick and cost-efficient registration, no income tax on income received from activity for which a foundation has been registered and entitlement to receive 2% (3%) from income tax paid by taxable subjects. However, profit from secondary activity is subject to income tax deductions.
4. Foundations are explicitly restricted to conduct business, except for the operation of a charitable lottery, leasing real estate or organizing cultural, educational and sporting events (in accordance with their determined goals). Moreover, the foundation capital (basically the registered capital of a foundation) cannot be gifted, deposited in favor of a business company, encumbered or used in order to secure foundation´s liabilities. See also the limitations mentioned within the definition of the social enterprise itself.
5. Foundations are created within 30 days of delivery of the application for their registration and the fee is EUR 66 (EUR 33 in case of an electronic submission). On the other hand, an LLC is set up by registration with the Commercial Register, which formally takes two business days (in practice, however, it usually takes much longer), while the fee is EUR 150. LLCs cannot be registered by other than electronic means. If a particular foundation wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6.  Foundations are quite prevalent and well known (mainly thanks to the public media). According to the official Foundation Register, there are currently approx. 1,500 foundations operating in Slovakia. As of now, there are no registered social enterprises that operate as foundations (according to the Register of social enterprises).

Non-investment funds (in Slovak: NeinvestiÄné fondy):

2. The non-investment fund is a Nonprofit legal entity that brings together financial funds intended for the fulfillment of a publicly beneficial purpose or individually determined humanitarian aid for an individual or a group of individuals, who have found themselves in danger of death or need of urgent assistance in the event of a natural disaster. Funds may be established by natural persons, as well as legal entities. Further operational details are governed by Act No. 147/1997 Coll. on Non-Investment Funds.
3. It is fairly easy and quick to establish a non-investment fund, plus the minimal initial deposit is only EUR 66.
4. The resources of the fund may not be used for business and for financing the activities of political parties and political movements. Furthermore, the use of donations is also quite restricted, because if a person (either natural or legal) has provided a gift or contribution to a fund for a specific purpose, the fund is entitled to use it for another purpose only with the prior written consent of the person, who provided the gift or contribution. Once again, in terms of taxes, funds are exempt from income tax for activities for which they were created and for the profit arising from secondary activities, they do get an income tax deduction. Furthermore, they are entitled to receive 2% (3%) from income tax paid by taxable subjects. See also the limitations mentioned within the definition of the social enterprise itself.
5. Non-investment funds are created within 30 days of delivery of the application for their registration and the fee is EUR 66 (EUR 33 in case of an electronic submission). On the other hand, an LLC is set up by registration with the Commercial Register, which formally takes two business days (in practice, however, it usually takes much longer), while the fee is EUR 150. LLCs cannot be registered by other than electronic means. If a particular fund wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6. This form is quite known and has been available for quite some time. There are 588 non-investment funds in Slovakia, whereas no social enterprises operate as non-investment funds (according to the Register of social enterprises).

Nonprofit organization providing services of general benefit (“NOs”) (in Slovak: Neziskové organizácie poskytujúce všeobecne prospešné služby):

Please note that we differentiate between the definition of Nonprofit organization (as defined in this questionnaire) and the definition of NOs (as defined by Slovak regulations – see below). A nonprofit organization does not have a general definition; however, Act No. 346/2018 Coll. on the Register of Nongovernmental Nonprofit Organizations distinguishes and recognizes foundations, nonprofit organizations providing services of general benefit, non-investment funds and civic associations as non-governmental nonprofit organizations (along with other organizations, which do not seek profit and cannot operate as social enterprises). Therefore, in the text below, we will work with the term nonprofit organization providing services of general interest (“NO”) and only use the definition of Nonprofit organizations (as defined in this questionnaire), where explicitly needed.

2. The most substantive material difference lies within the purpose for which a NO is formed – to provide services of general interest under pre-determined conditions for all users and the whole profit must be used solely to secure and enhance the provision of the said services. As for the services themselves along with further operational details, they are governed by Act No. 213/1997 Coll. on Nonprofit organization providing services of general benefit.
3. Income tax exemption for activities for which the organization was created, is probably the biggest motivator, plus income from their secondary activities is subject to income tax deductions. Moreover, NOs are entitled to request back the amount of VAT paid in connection with sending products out of the EU and are also entitled to receive 2% (3%) from income tax paid by taxable subjects.
4. NO is allowed to conduct business; however, it must be done under the condition that this activity achieves a more efficient use of its assets and does not jeopardize the quality, scope and availability of the services for which it was established. See also the limitations mentioned within the definition of the social enterprise itself.
5. NOs are registered within 30 days of delivery of the application for their registration and the fee is EUR 66 (EUR 33 in case of an electronic submission). On the other hand, an LLC is set up by registration with the Commercial Register, which formally takes two business days (in practice, however, it usually takes much longer), while the fee is EUR 150. LLCs cannot be registered by other than electronic means. If a particular NO wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6. NOs are one of the most used and well-known legal entities in Slovakia. There are 3,377 NOs in Slovakia, whereas there are six registered social enterprises operating as NOs.

Special purpose church facility (in Slovak: ÚÄelové zariadenie cirkvi):

2. Special purpose church facilities represent sui generis subjects due to the fact that they derive their legal subjectivity from the existence of a recognized church and religious society, which means, that only such church and religious society may create a special purpose church facility. Further operational details are governed by Act No. 308/1991 Coll. on Freedom of Religion and on the Status of Churches and Religious Societies.
3. The advantages are quite similar to those of NOs. The creation of a facility is simple, however, only a recognized church and a religious society may do so and operate it afterwards. Recognized churches and religious societies are exempt from income tax, thus profit of such facility arising from activity for which it was created is also exempt. On the other hand, profit from secondary activity is subject to income tax deductions. Moreover, such facilities are also entitled to receive 2% (3%) from income tax paid by taxable subjects.
4. As stated above, the biggest restriction is the fact that only recognized churches and religious societies may create such facilities. See also the limitations mentioned within the definition of the social enterprise itself.
5. Special purpose church facilities are created within 30 days of delivery of the application for their registration and the fee is EUR 66 (EUR 33 in case of an electronic submission). On the other hand, an LLC is set up by registration with the Commercial Register, which formally takes two business days (in practice, however, it usually takes much longer), while the fee is EUR 150. LLCs cannot be registered by other than electronic means. If a particular special purpose church facility wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6. There are not that many facilities, since only recognized churches may create them. As of December 2020, there are currently approx. 75 special purpose church facilities in Slovakia, whereas none of registered social enterprises operate as special purpose church facilities (according to the Register of social enterprises).

Business companies (corporates) (in Slovak “Obchodné spoloÄnosti):

2. Business companies (specifically LLCs and JSCs) represent the most commonly used organizational form (see Question 1 above). Generally speaking, further operational details are governed by Act No. 513/1991 Coll. Commercial Code.
3. The most relevant benefit is under our opinion naturally the possibility to conduct business. As for a simple JSCs, it is a company with a simpler and more flexible managing structure, smaller possible registered capital, and an option to issue shares with special rights. This type of company is intended for startup businesses moreover, the minimum share capital of the simple joint stock company is EUR 1.
4. Various conditions are set depending on the specific form of business company (corporate) established (see Question 1 above in relation to the LLCs and JSCs). Those are governed in detail by the Slovak Commercial Code and other regulations.
5. Not applicable. However, if a particular business company wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6. Business companies (corporations) are definitely prevalent in Slovakia, since they represent one of the fundamental pillars of the Slovak economy. Just to give an example, there are about 298,000 LLCs (and hundreds of other types of corporates as described in Question 1), operating in Slovakia, whereas the majority of registered social enterprises (239 out of 261 registered in total) operates as LLCs.

Cooperative (in Slovak: Družstvo):

2.  A cooperative is an organization with an unspecified number of members, which is founded to undertake business or other activities. A cooperative is a legal entity comprising unrestricted number of participants/members and may be founded for multiple purposes, i.e. entrepreneurial activity or securing the economic, social or other needs of its members. Minimum number of members at any time is five, unless at least two members are legal entities. A cooperative is fully liable for its obligations. Members are not personally liable for the obligations of the cooperative. It is not generally an appropriate vehicle for foreign investment. Further operational details are governed by Act No. 513/1991 Coll. Commercial Code.
3.  As for the potential benefits, a membership is easy to both establish and terminate and members are not liable for the cooperative´s obligations (see above). The transfer of membership rights and obligations does not require cooperative´s approval (like in same cases within LLCs) and the personal data of cooperative’s members are not publicly disclosed in the Commercial Register (which means a higher degree of anonymity). Furthermore, the minimum amount of the registered capital is only EUR 1,250 (i.e. less than in case of LLC).
4.  As regards to potential restrictions, a cooperative requires at least five individuals or two legal persons in order to be created. See also the limitations mentioned within the definition of the social enterprise itself.
5.  As for the cooperatives, they are created within the same period and for the same fee as LLCs. If a particular cooperative wants to become a social enterprise as well, registration with the Register of social enterprises is required as well.
6.  This form has been well known for decades. As for its prevalence in practice, they are fairly used ever since the fall of communism in 1989. There are 1,870 cooperatives conducting business, whereas 6 registered social enterprises are operating as cooperatives (according to the Register of social enterprises).

Natural person – entrepreneur (in Slovak: Fyzická osoba – podnikateľ):

Since individual natural persons do not represent an organizational form, we do not consequently elaborate more here.

Yes, some of the legal organizational forms mentioned above may have also a Nonprofit character (e.g. civic associations, NOs, etc. - see above).

(a) No, the Act clearly stipulates what constitutes a social enterprise and does not specify more precise differences based on the individual organizational forms.

(b) Only registered social enterprises (including both Nonprofit, as well as for-profit organizational forms) are eligible to receive certain forms of aid pursuant to the Act and other legal acts (please see below in chapter Funding, question 4.). Thus, it is more beneficial to be registered as a (Nonprofit) social enterprise (e.g. social enterprise in a form of civic association) rather than being “simple” Nonprofit organization without the status of social enterprise (e.g. civic association).

Moreover, if a NO, foundation, non-investment fund or civic association do not have a status of a registered social enterprise, their income is exempt from tax, except for secondary income, which is subject to the tax deduction. Practically speaking, the same also applies in case of social enterprises, which have gained the status of a registered social enterprise. Moreover, in case of registered social enterprises, another difference lies within the requirements and procedure for submitting the annual report and financial statements, which must follow the respective provisions of the Act.

(c) Under our knowledge, no.

(d) Very little. The majority of registered social enterprises in Slovakia is incorporated as LLCs. On the other hand, we cannot answer with such certainty with regard to unregistered social enterprises (i.e. such Enterprises, which are not registered but execute socially beneficial activities voluntarily on their own account).

Yes, the Slovak jurisdiction does recognize and regulate cooperatives (please see above).

Under the Act, a registered social enterprise shall prepare an annual report for the calendar year within the deadline specified by its statutory body or its foundation document, but no later than until 30 June of the following calendar year.

The annual report of a registered social enterprise contains in particular:

• an assessment of the achievement of the positive social impact that the registered social enterprise has mentioned in its foundation document, and an overview of the activities carried out in the calendar year;
• a financial statement and evaluation of basic data contained therein;
• an auditor´s report, if the registered social enterprise has a statutory audit obligation;
• a statement of cash receipts and payments;
• an overview of incomes differentiated by their source;
• status and transfers of assets and liabilities;
• the composition of bodies of the registered social enterprise and their changes that took place during the respective calendar year; and
• data determined by the general meeting, the board of directors or another similar body of the registered social enterprise.

The registered social enterprise submits the annual report to the Ministry by 15 July of the following calendar year, which publishes it on its websites.

Furthermore, the registered social enterprise is obliged to publish an annual report on its websites, if it operates such.

Not to our knowledge.

Generally, no.

Slovak legal framework only recognizes general principles such as not to harm anyone, act in accordance with good morals, protection of environment, ensuring health and safety during the work, protection of weaker subjects/parties (e.g. pregnant women, mothers, disabled individuals, vulnerable persons, etc.). Exemptions may apply to certain rare activities or individuals, e.g. asset managers and their duty to take the ESG principles into consideration when integrating the exercise of shareholder´s rights into asset manager´s investment strategy (these principles specify how an asset manager should monitor JSCs, negotiate with JSCs, exercise shareholder´s rights, cooperate with other shareholders, etc.). The abovementioned general principles are stipulated within various legal acts for a relatively long time, but there is no complex and comprehensive legislation on the ESG principles applicable to the Enterprises in general.

Nevertheless, in general, it may be said that especially in connection with globalization, imperfections and issue of existing social systems and structural problems of the labor market, the social economy and social entrepreneurship are becoming increasingly important in Slovakia.

Yes, those are stipulated primarily in the Act itself.

Please kindly refer to the Question 2, where the definition of social enterprise is contained. The Act itself further stipulates what constitutes a “socially beneficial activity”, what constitutes a “positive social impact” (i.e. fulfilment of “public” or “communal” interests, which are defined in the Act as well), who is considered as a “disadvantaged individual”, “vulnerable individual”, etc.

Thus, fulfilment of the principles of socially responsible business arises from the very essence of social enterprises, as their general purpose is to fulfill the public or community interest by providing socially beneficial services, such as provision of social assistance, humanitarian aid, protection and creation of the environment, protection of human rights and fundamental freedoms, etc.

Under our knowledge, no. Foreign investments are in general not restricted in the Slovak Republic, and any investor is welcomed to carry out its investment in Slovakia. In order to support foreign and domestic investments, the Ministry of Economy of the Slovak Republic, established The Slovak Investment and Trade Development Agency (SARIO). SARIO provides a wide portfolio of services to domestic and foreign investors. The Investment Projects Department (OIP) of the SARIO Agency is working on the implementation to increase an influx of investments with higher added value, with an emphasis on investments in research and development.

Foreign investors may receive incentives and state aid in the Slovak Republic. Forms in which such aid is varies; it includes direct state aid (e.g. subsidy, grant, contribution, etc.) or indirect state aid (e.g. state guarantee, tax relief, option to acquire property at a lower price in comparison to its market value, etc.). State aid may be provided for various (legally presumed) purposes, e.g. regional development, education of employees, employment support, research and development, environment, etc.

Investment aid in the Slovak Republic is fully harmonized with EU legislation. The details on possible types of investments incentives are governed primarily by the Slovak Act on Investment Aid, which includes general conditions under which investment incentives are made available to investors (no specific ESG criteria though). Other particular acts may stipulate further conditions though (depending on the investor’s goal and incentive requested).

State aid in connection specifically to the social enterprises are described further below.

Under our knowledge, investors in Slovakia are not obliged to take into account the fulfilment of ESG principles.

On the other hand, the growing popularity of socially responsible entrepreneurship is also reflected in the recommendations of the UN, OECD or the EU, which should guide enterprises to implement the principles of ESG into their businesses. Naturally, some investors take these principles into account, but on a voluntary basis. It is also important to mention that, on a higher level, the corporate social responsibility (“CSR”) represents the main goal of the Europe 2020 Strategy and makes a significant contribution to meeting the objectives of the Treaty on European Union, which are sustainable development and a highly competitive social market economy.

(a) N/A

(b) Yes, please see above.

(c) When considering an investment in the Slovak Republic, it is advisable to consider whether an investment protection treaty is in place between the Slovak Republic and the investor’s country of residence. The Slovak Republic has taken over the rights and obligations of the former CSFR under various investment protection treaties. There are treaties in force e.g. with the United Kingdom, United States, France, and Germany. The list of the applicable treaties is available at the website of the Ministry of Finance of the Slovak Republic. Moreover, factors such as political stability, inflation, (road) infrastructure, quality of workforce, strategic location, labor productivity, quality of business environment, bureaucracy burden, etc. also need to be taken into consideration (depending on investor’s aim).

In terms of respective provisions of the Act, social enterprises can receive various forms of state aid (please see Question 4 below), whereas outside the scope of the Act, there are various philanthropic funding forms possible, e.g. donations, grants, etc. The type of funding typically varies based on the Enterprise form that the social enterprise chooses.

Under our knowledge, not very prevalent so far, since ESG is a fairly new concept in the Central Europe still ongoing its implementation into the Slovak social and legal life.

Several examples of for-profit impacts investments in Slovakia have occurred in the past though, thus it may be said that for-profit impact investments are slowly increasing.

Government funding and its conditions in Slovakia aimed at social enterprises are governed by the respective provisions of the Act (and other materially related acts, but for the purposes of this question, they are not strictly relevant) and can be divided into direct and indirect aid.

Direct aid includes various means, particularly (i) investment aid, (ii) compensatory grant and (iii) placement and compensation allowance. As for the indirect means of aid, Slovak legislation recognizes (i) income tax relief (please see below), (ii) lower VAT rate, (iii) aid aimed at supporting demand and service vouchers, (iv) realization of exclusive orders within the public sector (by reserving the right for social enterprises to participate in a public procurement and by reserving the performance of a contract within the programs of sheltered employment programs, provided that in both cases, at least 30% of the employees of such social enterprises are disabled or otherwise disadvantaged persons), (v) duty of contracting authorities to take into consideration the “social factor” within at least 6% of public procurements and (vi) quota system.

(a) Meeting the statutory conditions and thus obtaining government funding is under our opinion relatively undemanding (with probably a sole exception of non-refundable investment grant); it is however important and necessary to be officially registered as a social enterprise with the Ministry. The conditions and process of registration is covered by the Act, whereas the applying social enterprise must evidence various facts, e.g. that it is trustworthy, without a criminal record, has not breached a ban on illegal employment within last three years, has prepared a project of activities of registered social enterprise, etc. It should be noted that as of October 2020, the Ministry launched the national project called “Investing Support of Registered Social Enterprises – Non-Refundable aid”, in which more than EUR 43 mil. of financial funds will be allocated to the social enterprises.

(b) Aid stipulated (both direct and indirect, as stated above) within the Act (and other related laws) provided directly for social enterprises is available solely to them. On the other hand, similar forms of aid are available to other subjects (i.e. which are not social enterprises - please see further below).

As for other forms of government aid, special act on state aid distinguishes once again direct (subsidy, grant, payment of interests or a part of the interest on the loan, repayable financial assistance provided on more favorable terms than market terms, etc.) and indirect forms (a state guarantee or a bank guarantee provided on more favorable terms than market terms, tax relief, relief from penalties, fines, penalty interest or other sanctions, etc.) of aid, provided that relevant subjects (all subjects, not only social enterprises) meet all statutory conditions (mainly purpose, for which the specific type of aid is granted).

No. There are currently no public JSCs registered as social enterprises with the Ministry. We cannot say the same for Social Enterprises (as defined in this questionnaire), which are not registered, i.e. some publicly traded companies may be actually supporting socially beneficial activities or principles of ESG.

Not all of the publicly traded Enterprises are automatically required to disclose ESG information. But, if a particular Enterprise can be subsumed under the legal definition of so called “subject of public interest”, certain ESG reporting duties exist, which were incorporated into the Slovak legal framework by Directive 2014/95/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (see below).

Subjects of public interest (in particular an entity which has issued securities and they have been admitted to trading on a regulated market of any Member State of the EU), whose average recalculated number of employees for the accounting period exceeded 500 employees, are also obliged to provide in the annual report non-financial information on the development, conduct, position and impact of the entity's activities on the environment, social and employment, information on respect for human rights and information on the fight against corruption and bribery, namely:

• brief description of the business model,
• a description and results of the application of the entity's CSR policy, including due diligence procedures,
• a description of the principal risks of the entity's effect on CSR arising from the entity's operations that could have adverse consequences and, where appropriate, a description of the business relationships, products or services that the entity provides and how the entity provides these risk management,
• a reference to the information on the amounts recognized in the financial statement and an explanation of these amounts in terms of the effects on CSR, if appropriate.

Impact bonds are not prevalent in any way in Slovakia.

No, under our knowledge, there are no restrictions. On the other hand, the Ministry of Economy of the Slovak Republic envisages monitoring foreign direct investments, which could disrupt security and public order.

Yes, crowdfunding is legal in Slovakia. There are already several platforms, mostly focused on innovative and creative ideas for businesses. Some operate both in Slovakia and Czech Republic at the same time.

As for the second question, there are no such rules under our knowledge.

Please note that we are not registered tax/accounting advisors and thus our answers are of purely general nature. Any particularities should be discussed with registered tax/accounting advisors, if needed.

Yes, there is a unique possibility to reduce the VAT rate on goods and services (Section 27 of the Slovak Act on VAT) and to apply for an income tax relief (Section 30d of the Slovak Act on Income Tax). However, these benefits only apply to social enterprises that underwent the process of registration with the Ministry and were granted the official status of a registered social enterprise.

(a) Tax exemptions in Slovakia can be considered both partial or full. In terms of income tax, the income tax relief can be applied for, when the registered social enterprise (i) is a legal person, (ii) fulfills and supports public, not community benefit, (iii) does not apply for an income tax relief designated for recipients of investment aid or stimulus, (iv) does not does not apply for a deduction of expenses and (v) is not a recipient of a share of the tax paid by taxable subjects (i.e. the so called “2% or 3%” in Slovakia). If a social enterprise successfully applied for such income tax relief, it must use the full amount of the tax relief for further achieving of the main goal. If a social enterprise decides to commit 100% of its profit to the cause they strive for, it should pay no income tax. Other criteria and conditions are set in Section 30d of the Slovak Act on Income Tax.

In relation to the VAT - the VAT rate base is reduced from 20% to 10%, if several statutory conditions are met by the registered social enterprise (in this case both natural and legal persons can obtain a reduced VAT rate base). Such a reduction can be obtained for goods and services supplied by a registered social enterprise which uses 100% of its profit after tax to achieve its main goal (and thus fulfills and supports both public and community benefit) to an eligible customer within the activities of a social economy, provided that this does not cause a distortion of the economic competition incompatible with the internal market, whereas the eligible customer is a person other than a taxable person if it is a natural person, a subject of social economy or a public authority.

(b) No. As mentioned above, when it comes down to registered social enterprises, the key factor determining the income tax relief is the amount of “profit commitment” set out in the base document, not the choice of a specific organizational form. Practically speaking, if an LLC operating as a registered social enterprise decides to commit 100% of its profit, then it should pay no income tax.

(c) Please see paragraph (a) above.

Yes, donations (to social enterprises) are generally not subject to taxation, however, certain exceptions apply. In case of a natural person, donations given to a natural person in connection with the performance of dependent work, entrepreneurship, other self-employment activity or donations given to a healthcare provider are subject to income tax.

As regards to legal persons, only donations given to legal person operating as a healthcare provider or by inheritance are subject to income tax.

Under our knowledge, no. The Slovak legal framework does not stipulate any other forms of tax benefits exclusive to social enterprises, but there are other means of tax relief generally available to taxpayers, which can also be applied in case of social enterprises, such as tax relief for recipients of investment aid. However, as mentioned above, these reliefs cannot be used in parallel with the income tax relief designated for social enterprises.

It is also important to mention the possibility for a municipality or self-governing region to issue a general binding regulation (despite not being uniquely available for social enterprises), which would exempt social enterprises from certain local taxes, or lower the rate of such taxes, such as taxes on real estate, buildings, housing and non-residential premises etc.).

To our current knowledge, no. In such case, the taxation regime and applying for tax reliefs should be governed by international treaties on prevention of double taxation concluded between Slovakia and other countries.

Under our current knowledge, such regulatory Sandboxes are not implemented yet in Slovakia, but the Slovak National Bank, in cooperation with the Center for Financial Innovations, has launched an initiative to create the first Regulatory Sandbox (approximately in 2021).

The support of small and medium-sized Enterprises is generally within the competence of the Slovak Business Agency (co-founded by the Ministry of Economy of the Slovak Republic, which, during these days, is responsible for helping individual businesses with getting through the COVID-19 pandemic and the related economic crisis), which utilizes both financial (microloan programs, Innovation and Technology Fund, etc.) and non-financial services (counseling, mentoring, co-working etc.).Other state authorities may also provide particular supportive programmers for small and medium Enterprises.

As for other (more general) forms of government aid, special Act on State Aid distinguishes once again direct (subsidy, grant, payment of interests or a part of the interest on the loan, repayable financial assistance provided on more favorable terms than market terms, etc.) and indirect forms (a state guarantee or a bank guarantee provided on more favorable terms than market terms, tax relief, relief from penalties, fines, penalty interest or other sanctions, etc.) of aid, provided that relevant subjects (all subjects, not only small businesses or social enterprises) meet all statutory conditions (mainly purpose for which aid is granted).

As regards particularly social enterprises - in 2018, the Ministry has launched the National Project of the Institute of Social Economy. The aim of the project is to create and verify adjustment of the support for the development of the social economy in the Slovak Republic on the basis of the Act. Its implementation will enable to create and verify the accuracy of functioning of the support system for the development and adjustment of the social economy, information dissemination about possibilities provided by the Act – searching for potential applicants for establishment and registration of social enterprises, their motivation, management and support, organization of professional conferences on the national level, creation and continual updating of the website which contain comprehensive information on social economy entities support, presentation of the best practices in Slovakia and abroad. As a part of the project’s activities, there is a network of supportive Regional Social Economy Centers being established. There are well trained coordinators available in who provide detailed information in the first steps before registration of a social enterprise according to the law, e.g. what conditions is candidate obliged to fulfill, what basic documents are required, what should the documents include and where to address them. The implementation of the project should create a space for a socially oriented economy as an integral part of the public economy. During the project, designing, implementing, monitoring and verifying of models of social economy entities is being performed. The suitability of these models will be assessed in terms of institutional, organizational, financial, tax, management, labor law and personnel perspective. After the evaluation of social economy entity models, there will be proposed recommendations of the best practices of social economy entities. It will include recommendations for legislative changes in order to identify and subsequently support the successful models in Slovak conditions.

To sum up, there are no Regulatory Sandboxes in operation as of now (with the exception of the one mentioned above within question 1.), however, it is worth mentioning that the Slovak Business Agency has started a new program for the year 2021, which aims to operate as a virtual incubator for new businesses by providing mentorship and consultations, developing proper networking and thus allowing potential business creators to gain various resourceful contacts.

Yes, there are some differences. In case of registered social enterprises, the annual report is published within the Register of Financial Statements as well as on the webpage of the Ministry. Additionally, the material content of the annual report is different for registered social enterprises due to the higher degree of state control (in comparison with traditional Enterprises). Practically speaking, if a social enterprise is not registered with the Ministry, it is governed by the relevant legal regulations stipulating its rights and duties including those relating to the publication of annual reports.

Yes, the Ministry is the designated government authority along with other “umbrella organizations” (so called “organizations of sector of social politics”).

The former conducts its statutory duties, some of which we have mentioned above, e.g. granting and abolishing the status of a registered social enterprise as well as of an umbrella organization, imposing fines, conducting control of compliance with duties under the Act, maintaining the Register of social enterprises etc.  

The latter is responsible for representing the interests of its members (individual social enterprises) within the sector of the social economy through participating in creation of public policies (regarding social economy), decision-making, planning the obtaining of EU funds and their use, etc.  

No.

That depends on the type of organizational form one wishes to choose. For details, please see below and the response to question No. 4, part I. herein above.

Business companies (LLC, JSC, general partnership, simple joint stock company and limited partnership) and cooperatives are set up by electronic registration with the respective Commercial Register, which formally takes two business days (in practice, however, it usually takes much longer, depending on various criteria, e.g. work overload of the registration court, being often understaffed, etc.- approx. three weeks or similar), while the fee is EUR 375 for the joint stock company and EUR 150 for the remainder of the above--stated. In order to duly submit an application for registration with the Commercial Register, relevant documents are also required. The fees mentioned above do not include other potential costs, e.g. notarial fees, translation costs, legal services costs, etc.

In addition, in order to register with the Commercial Register, other permissions, such as a trade license are required. No entity or individual may trade or perform any business activity on a regular basis with the aim to generate profits without having a trade license or a specific license required for particular business activity. Generally, a trade certificate must be obtained prior to and as a condition for entry in the Commercial Register. 

Trades are created by submitting a notification to the respective Trade Licensing Office. If all statutory conditions are met, the Trade Licensing Office will standardly issue a trade certificate within three business days since the delivery of the duly submitted notification. The fee depends on the specific type of trade applied for; it is either EUR 5 or EUR 15 per registered trade (EUR 0.00 and EUR 7.50 per trade, respectively, in case of electronic submission). 

The remaining forms – NOs, foundations, civic associations, non-investment funds and special purpose church facilities are registered within 30 (or 15 days in case of civic associations) days since the delivery of the duly submitted application for their registration and the fee is EUR 66 (EUR 33 in case of electronic submission). The remaining conditions are stipulated within respective laws.

Perhaps the most important certification is the abovementioned status of
a registered social enterprise, which is issued by the Ministry within a period of 30 days from the date of submission of the written application. The conditions for obtaining the status are defined in the respective Act (see above), whereas the main conditions for a successful registration include, without limitation, the obligation to commit at least 50% of its profit to achieve its (socially-oriented) main goal, as well as integrity, the absence of arrears on health insurance benefits, the Enterprise has not been declared bankrupt, etc. If the status is granted, a registered social enterprise is entitled to receive various benefits we mentioned above.

In order to maintain such status, a registered social enterprise has to (i) mandatorily use an abbreviation after its (business) name “r.s.p”, meaning registered social enterprise, (ii) deliver annual reports to the Ministry and have them published on the Ministry´s website and (iii) notify the Ministry about any change in the nature and type of its activity within 10 day since the change occurred.

Except for the above, we are currently not aware of any further government or third-party certifications.

In our opinion, yes.

Enterprises generally can easily form and flourish in Slovakia. Moreover, in order to facilitate the creation of startups and other forms, a new form of business company was adopted – simple joint stock company. At the same time, startups find support in a number of programs led by private individuals, banks, but also the state, which supports startups in various forms (e.g. crowdfunding platforms, various well-known corporate/financing subjects with their own programs for new entrepreneurs, Slovak Business Agency, etc.).

However, the mentioned Enterprise form (simple joint stock company) may be de-regulated in the close future, as an extensive reform on corporate legal framework in Slovakia has been announced recently by the Slovak Government. Nevertheless, the mentioned reform promises further de-bureaucratization and liberalization of the business environment in general (which should allow for even higher level of flourishment for startups and entrepreneurial Enterprises in general).

Yes, in our opinion, the establishment of social enterprises themselves is not any different from the establishment of other Enterprises/companies and it can be relatively easily reached.

If an established Enterprise (e.g. LLC) meets the criteria stipulated by the respective provisions of Act, it will be considered a social enterprise. Furthermore, in order to get benefits (such as income tax reliefs mentioned above), such social enterprise needs to get registered with the Ministry to obtain the official status of a registered social enterprise. For benefits arising out of registration, please see our answers above. The fulfillment of conditions of the registration process is also in our opinion not particularly difficult or lengthy.

To our knowledge, no (please refer to our answer to the previous question).

The overall concept of social entrepreneurship is regarded as a positive, beneficial instrument, which aims to uplift and benefit the public benefit. Thus, it is in our opinion reasonable to say that such activity is generally supported and unobstructed.

As far as for the obtainment of the registration status (as the key factor granting all the benefits for a social enterprise), the statutory conditions laid down by the Act cannot be under our opinion considered as too obstructive or difficult to fulfill, as these reflect the nature of social entrepreneurship.

Yes, we are aware of some major fraud/corruption concerns that occurred back in 2008, when Social Enterprises had their first start. However, ever since then, Slovakia has adopted several serious measures with the aim to combat and get rid of corruption within government affairs, such as implementation of Register of UBOs, whistleblowing legislation, extensive reform of the judiciary, higher degree of prosecution office´s activity, anti-bureaucracy legislation, etc.   

Since 2018, when Act was adopted (which remade the concept of social enterprises), there are no known cases/concerns of fraud or corruption in the area. As of now, the concept begins to unfold its results and thus, it is too soon to give any preliminary assessment.

In our opinion, further tax benefits would only help the overall advancement of social enterprises in Slovakia.

Despite the strong and prevalent motivation to do business in accordance with the ESG principles, which is primarily represented by some international Enterprises established also in Slovakia or also new investors, an explicit statutory obligation to integrate the principles of socially responsible business would probably be our recommendation to make these principles generally followed and respected in everyday business practice.

Thank you for instructing us with this interesting and helpful questionnaire.