Business Articles - Slovenia Life

Doing business in Slovenia

Introduction

Slovenia, a relatively young independent country with a turbulent history, is located amidst three distinctly different European worlds – Mediterranean, Alpine and Pannonian – each leaving its own mark and making Slovenia a unique countryside combining various geographies and cultural characteristics. With no doubt, this historical and geographical background also has influence on doing business in Slovenia. This article will provide a short and summarized overview of Slovenia’s business climate – both generally speaking, as well as in more detail with regard to laws and taxes.

Business environment

Slovenia’s largely heterogeneous and adaptable economy and its hard working and highly skilled labour force have contributed to the country’s economic success. For example, a high percentage of Slovenes is academically skilled or even possesses an MBA-grade – either obtained in Slovenia or abroad. In the town of Bled, one of the leading management schools of Central and Eastern Europe is located.

Since the country’s independence in 1991, Slovenia’s balanced macro-economic politics resulted in a stable economy. Economic growth reached an all time high of 6.1% in 2007. The main sectors that contributed to this success were building and construction, Industrial, trade and financial services. Hence, with no surprise, Slovenia was the first of the 10 newcomers to the EU to be allowed to introduce the Euro in 2007, after becoming an EU-member in 2004.

Large numbers of new companies were established since 1991, especially active in niche markets. By the end of 2006 the Court Register showed more than 105,000 registered companies. This number is increasing gradually each year and the majority is active in building and construction, real estate and financial services. Percentage wise, 98,6% of the registered companies consists of small businesses (1-50 employees); midsized businesses (50-250 employees) represent 1,2 % and businesses with more than 250 employees amount to 0.3%. Small business generate 40% of the total income and larger corporations approximately 39%.

Slovenia’s business culture, as previously being part of the Austrian-Hungarian monarchy, can be characterized as entrepreneurial and Western (or even German), but with keen understanding of the Southern European culture. In business Slovenes are serious and disciplined. Promises are kept and although friendly and polite, Slovenes tend to be rather formal. English and German are widely spoken among the business community. Numerous private, governmental and international initiatives are undertaken in order to stimulate foreign trade such as the SDBP (“Slovene Dutch Business Platform”), and the number of expatriates living and working in Slovenia is climbing.

Nevertheless, as with every emerging market, Slovenia still has some hurdles for foreign investments. Some larger companies are still state owned, and privatization is not always dealt with as smooth as some would wish. Also, specific measures for attracting investors are not widely adopted. However, Slovenia is certainly developing its investment climate. For instance, the previous government has drafted a so-called “Resolution on National Development Projects 2007-2023” which contains an overview of required investments. In total 35 projects are being described, with a total budget of almost 24 billion Euro.

Further, as an EU-member, Slovenia is entitled to European funds. In the period 2007-2013 Slovenia will receive about 4.2 billion Euro, especially intended for environmental, transport and regional development. However, compared to some other EU-members, Slovenia does not yet benefit optimally from the potential of EU-funds due to national bureaucratic hurdles. Slovene companies that in principle could enjoy EU-funding, choose not to because of the time-consuming procedure. Logically, several private initiatives for performing such intermediary services have emerged during the last few years – and with success.

Slovenia: gateway to Southeast-Europe

Slovenia has several nicknames (such as “chicken” – due to its geographical looks – or “sunny side of the Alps”), but its bridge function towards the formerly Yugoslav countries is certainly an important (business) characteristic. Profound knowledge of the region and of its languages, and being familiar with the local business culture, Slovenia has a major advantage in comparison to other countries. Unsurprisingly, many Slovene companies and businessman are active in this region, or act as an intermediary for Western companies. For this, Slovenia has formally been appointed by Brussels as the gateway to the Western Balkans, in both directions. For instance, governmental departments of Slovenia assist the candidate EU-members in becoming EU-members.

Nevertheless, Slovenia’s business could certainly be characterised as oriented westward. And also necessary to mention are the important business connections with Russia.

Legal system

The Slovene civil law system is for a large part deducted from German civil law, for which reason the several types of legal business entities are more or less similar to corresponding German entities (such as the GmbH).

A distinction is being made between personal and capital-driven entities. Personal entities are: sole traders (s.p. – samostojnega podjetnika), partnerships with modified legal personality (d.n.o. – družba z neomejeno odgovornostjo), limited partnerships (komanditna družba), and civil or “silent” partnerships (t.d. – tiha družba). The capital entities are: limited partnership with shares (k.d.d. - komanditna delniška družba) limited liability company (d.o.o. – družba z omejeno odgovornostjo) and public company (d.d. – delniška družba) and the European Company or SE (evropska delniška družba).

As in many European countries, the most common entities are the s.p. and the d.o.o. Due to the European Cross-Border Merger Directive, it is now also possible to merge e.g. a Dutch limited liability company with a Slovene d.o.o.

A company formation in Slovenia is relatively easy and formalistic, but usually requires the assistance of a notary public. Companies are being registered at the trade register, held by the Slovene Courts. Information from the trade register is easily accessible via “Ajpes”, an online and free-admission databank.

Company formation for the d.o.o. has recently been simplified. On 1. February 2008 a so-called single access point (“VEM”) began to operate, aiming at lowering costs for the incorporation of the d.o.o. and providing a simplification of administrative procedures. Founders may establish a d.o.o. at the VEM point under two conditions: (1) all the contributions have to be paid in cash and prior to the registration of the company, and (2) the articles of association have to be drafted in a special form (in short: only the mandatory and most common provisions can be incorporated in this form). In order to found a d.o.o., founders have to visit the VEM entry point in person, as the authorized person has to carry out their identification.

Don’t forget to buy a corporate rubber stamp after the incorporation of your company. This device is practically needed for everything in the start-up phase and it is advisable to carry it with you all the time.

Taxes

During the past years, the Slovene government has initialised many tax incentives and abolished payroll taxes. Further, Slovenia has concluded double taxation treaties with more than 40 countries.

The recently elected government (as elections were held in September this year) has specifically announced intentions to continue reducing several tax burdens, and to introduce some more tax incentives.

Corporate income tax is levied on the taxable profit of private companies at a rate of 23% for the year 2007 (for 2008 the corporate profit tax rate will be 22%, for the year 2009 the corporate profit tax rate is going to be 21% and for the year 2010 and beyond, the corporate profit tax rate is set at 20%), with a reduced rate of not less than 10% applying to corporations established in Special Economic Zones and a special rate of 0% for investment funds, pension funds and insurance undertakings for pension plans under certain conditions.

Conclusion

Slovenia definitely has an interesting, positive, and energetic business climate. Even in spite of some administrative obstacles from the past, Slovenia’s market provides many business opportunities – also with regard to its gateway function to its southern neighbours. And one should not forget that Slovenia is in general a very pleasant country, with a beautiful countryside, good food and wine, and nice people. Without a doubt, this has a positive effect on doing business here.

Authors:

Maja Bole & Jeroen Kok

partners at Consultants International – the Slovene international legal and tax advisory company

(www.consultants-int.com or jeroen.kok@consultants-int.com)