guide_slovakrepublic on taxes

8/6/2019 Guide_SlovakRepublic on Taxes

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Lex Mundi

GUIDE TO DOING BUSINESS IN SLOVAKIA

Prepared by:


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Doing Business in Slovakia 2

This guide is designed to provide basic information on the legal aspects of business climate inSlovakia. It is not completely exhaustive and may not be regarded as a legal advice. Theinformation contained herein is accurate as of 1 November 2004 unless otherwise stated

herein and is subject to change without notice.

All rights are reserved to the authors


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TABLE OF CONTENTS

1. Slovak Republic - General Information 5

2. Forms of Doing Business in Slovakia . 5

2.1 Limited Liability Company (LLC) ... 6

2.2 Joint Stock Company (JSC) .. 7

2.3 Branch Office 9

2.4 General Note on the Commercial Registry and the Collection of Deeds .. 9

3. Investment Incentives ... 11

4. Permits and Licenses 11

4.1 Trade Licence / Trade Certificate . 11

4.2 Residency Permit .. 13

4.3 Work Permit .. 14

5. Regulatory Issues .. 14

5.1 Banking . 14

5.2 Insurance 15

5.3 Securities Regulation . 16

5.4 Foreign Exchange Control . 17

6. Tax, Social Security 18

6.1 General ... 18

6.2 Slovak Tax Reform of 2003 .. 18

6.3 Income Tax 18

6.4 Value Added Tax .. 19

6.5 Real Estate Transfer Tax 19

6.6 Real Estate Tax .. 19

6.7 Road Tax 206.8 Excise Taxes 20

6.9 Social Security Payments 20

6.10 Pension Funds Administrators .. 21

6.11 Proposal of Reform of Social Security System 21

7. Real Estate ... 22

7.1 Lease of Business Premises 22

7.2 Sub-Lease 237.3 Acquiring the Real Estate 23


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7.4 Ownership Certificate .. 23

7.5 Expropriation 24

8. Employment ... 24

8.1 General . 24

8.2 Employment Contract .. 24

8.3 Termination of Employment 25

8.4 Contract for Performance of Work and Contracts for Brigade Work .. 27

8.5 Protection of Confidential Information and Non-Competition 27

8.6 Labour Unions .. 28

9. Competition ................................................................................................................ 28

9.1 General .. 28

9.2 Remedies ... 29

9.3 Practices Restricting Competition . 29

10. Intellectual Property .. 32

10.1 Patents . 32

10.2 Trademarks .. 32

10.3 Copyright . 33

10.4 Trade Secret . 34

10.5 Other Intellectual Property Rights .. 35

11. Common Section - Formal Requirements of Deeds Used in Slovakia .. 35

12. Firm Profile of echov Rakovsk .. 35


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1. Slovak Republic - General Information

Population: 5.5 mil. (2003)

Area: 48,845 sq km

Capital City: Bratislava, approx. 500,000 inhabitants

Lawful Currency: Slovak Crown (SKK) divided into 100 hellers(as to 1 November 2004) EUR 1 = approx. SKK 40

USD 1 = approx. SKK 30Governmental system: Parliamentary republic headed by a president with primarily

representative functions, executive powers exercised by thegovernment consisting of the prime minister and ministers,legislative powers vested to the National Council of the Slovak

Republic, one-chamber parliament that is responsible forenacting of laws

Legal system: based on statutory law, marginally supplemented by case law

Date joined EU: 1 May 2004

Membership: (the list is not exhaustive) United Nations, Council of Europe,Organisation for Economic Cooperation and Development,Central European Free Trade Association, European Union,

North Atlantic Treaty Organisation

2. Forms of Doing Business in Slovakia

Foreign entrepreneurs may perform business activities in Slovakia either via itssubsidiary (established as separate entity in one of legal forms mentioned below) or viaits branch office in Slovakia. Business activities are defined in Slovak law as a systematicactivity (not occasional) conducted by the entrepreneur to make a profit in its own nameand upon its own responsibility.

The following legal entities are recognized as business corporations under Slovak law:

a) joint-stock company (akciov spolonos),b) limited liability company (spolonos s ruenm obmedzenm),c) general partnership (verejn obchodn spolonos),d) limited partnership (komanditn spolonos),e) co-operative (drustvo).Slovak law also regulates European Society (SE) (eurpska spolonos), EuropeanEconomic Interest Grouping (EEIG) (eurpske zdruenie hospodrskych zujmov) andEuropean Co-operative (eurpske drustvo).

For the purposes of a subsidiary, foreign investors often favour a limited liability

company because of its relatively simple procedure of incorporation and governance. Ajoint stock company (which registered capital consists of shares), is also used commonly


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used by foreign investors as a form of establishment in Slovakia that is suitable for thejoint venture transactions or projects that include external financing (e.g. credit facilities,listing of shares at the stock exchange).

Alternatively, foreign entity may conduct business in Slovakia by the establishment of a

branch office that is registered with the Slovak commercial registry. The branch office isnot a separate legal entity, it is only establishment registered with Slovak CommercialRegistry that acts in the name and on behalf of the foreign entity.

Below are outlined significant issues linked to the establishment and governance of alimited liability company, a joint stock company and a branch office, that are mostcommonly used forms of undertakings by the foreign investors in Slovakia.

2.1 Limited Liability Company (LLC)

General

LLC is a legal entity registered with the Commercial Registry, with mandatoryregistered capital;

Registered capital is created by the contributions of shareholders; shareholdersshare on the registered capital of LLC represents his participation on the assets ofLLC, share on profit and also share on voting rights at the General Assembly ofLLC.

Incorporation

LLC may be established by a sole founder or more founders in form of afoundation deed (in case of sole founder) or a memorandum of association (incase of more founders), however, a Slovak limited liability company having soleshareholder may not be a sole founder or a sole shareholder of another limitedliability company;

contribution to the registered capital may be either monetary or in-kind, minimumparticipation of the shareholder at the registered capital of LLC is SKK 30,000(approx. EUR 750),

the minimum amount of registered capital may be SKK 200,000 (approx. EUR5,000); at least 30% of each monetary contribution and the full amount of an in-kind contributions to the LLC has to be paid by its founders prior to the

registration with the Commercial Registry, LLC is incorporated upon the day of its registration with the Commercial Registry

maintained at the relevant District Court in Slovakia (for general issues connectedto the registration with the Commercial Registry please see Section 2.4 below).

Governance

Statutory representatives: LLC has one or more executives, who may act jointlyor independently (depending on the relevant provisions of the foundationdeed/memorandum of association of LLC) on behalf of the company without anylimitation. Executives have to conduct business of LLC with due care and are

responsible to the company for the breach of such obligation,


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General Assembly of shareholders is the supreme body of the company authorisedto appoint and recall executives, amend the foundation deed/memorandum ofassociation of LLC, decide on distribution of profits or winding-up of LLC.General Assembly consists of all shareholders that are present therein. GeneralAssembly is constitutes quorum only if shareholders having majority in LLC are

present unless foundation deed or a memorandum of association states otherwise.General Assembly makes its decisions in form of a resolution by the simple ortwo-third majority vote of shareholders present at the General Assembly (or othermajority set in the foundation deed/memorandum of association),

Supervisory Board is not mandatory in LLC, it may be established if the GeneralAssembly decides so; Supervisory Body is responsible for the supervision of theconduct of executives as well as for the supervision of the proper maintenance ofthe accounts of LLC.

Other

Foreign shareholders of LLC enjoy the same legal protection as their Slovakcounterparts,

LLC is liable for the breach of its obligations with all of its assets, whileshareholders are liable for the breach of obligations of LLC only up to their

pledged but unpaid contributions to the registered capital registered with theCommercial Registry,

LLC is tax liable in Slovakia (for details please see Section 6 below), Scope of business activities of LLC primarily depend on the scope of Trade

Licences issued by the Trade Licensing Office (for details see Section 4.1 below), Articles of Association are not mandatory.

2.2 Joint Stock Company (JSC)

General

JSC is a legal entity registered with the Commercial Registry, with mandatoryregistered capital; registered capital represents the asset contributions of theshareholders to JSC,

registered capital of JSC is denominated into shares that represent shareholdersparticipation in the registered capital and assets of JSC, share on profit and alsoshare on voting rights at the General Assembly of JSC,

shares are securities bearing physical form or form of registration in theaccredited securities clearing institution (in Slovakia Central Depository ofSecurities of the Slovak Republic), that may be registered in name or in bearerform, Slovak Commercial Code recognizes two basic kinds of shares: preferentialshares, which contain right (as an additional right to the regular rights connectedto shares) for the priority payment of profit (dividend) and ordinary shares, whichencompass regular voting rights at the General Assembly and right for the

payment of the dividend; issuance of the other kinds of shares is prohibited.

Incorporation

JSC may be established by one founder, who is a legal entity or more founders being legal entities or individuals by executing the foundation deed/foundation


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agreement in form of a notary deed, whereby the founders subscribe shares of JSCand assume the obligation to pay their issue ratio,

JSC may be established as so-called public joint stock company, in which case theinitial founders subscribe shares less than whole amount of registered capital and

provide for a public call for the subscription of the remaining shares; only

monetary contributions to the registered capital of the JSC may be accepted incase of public JSC; such public JSC may be registered with the CommercialRegistry only if all shares have been subscribed and at least 30% of monetarycontributions has been paid up within the period stated in the public call,

the minimum amount of registered capital may be SKK 1,000,000 (approx. EUR25,000); at least 30% of the total subscribed monetary contributions has to becontributed to the JSC by its founders prior to the registration with theCommercial Registry; in-kind contribution has to be paid up in full,

both registered capital and shares may be denominated in Slovak Crowns or inEuro; registered capital may be denominated in Euro only if shares of JSC aredenominated in such currency,

JSC is incorporated upon the day of its registration with the Commercial Registrymaintained at the relevant District Court in Slovakia (for general issues ofregistration please see Section 2.4 below).

Governance

Board of Directors (the BoD) of JSC is a statutory body and its members areauthorised to act towards third parties without any limitation; it consists of thechairman of BoD, who is responsible mainly for the procedural tasks in thedecision making process and of its regular members; BoD approves decisions by a

simple majority vote unless Articles of Association of JSC (the AoA) stateotherwise; however, it is possible that BoD has only 1 member, General Assembly of shareholders is the supreme body of the company authorised

inter alia to appoint and recall members of BoD (AoA may provide that BoD iselected by the SuB), appoint and recall members of SuB (if JSC has 50 or moreemployees, at least one third of members of SuB is elected by employees), amendthe Articles of Association of JSC, decide on the distribution of profits and onwinding-up of JSC. General Assembly consists of all shareholders that are presenttherein. General Assembly constitutes quorum only if shareholders holdingmajority of shares in JSC are present. The General Assembly makes decisions bysimple or two-third majority of shareholders present at the General Assembly (or

a other majority set in the Articles of Association), Supervisory Board (the SuB) is a mandatory supervisory body of JSC

responsible for the supervision of the activities of the BoD, the performance of thebusiness activities of JSC and its accounting books. SuB is entitled to convene theGeneral Assembly if it is in the interests of JSC.

Other

Foreign shareholders of JSC enjoy the same legal protection as their Slovakcounterparts,

JSC is liable with its entire property for breach of its obligations. The shareholderis not liable for the obligations of the company. However, the shareholder is liableto the company to pay the issue rate of the subscribed shares ,


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JSC is tax liable in Slovakia (for details please see Section 6 below), Scope of business activities of JSC primarily depend on the scope of Trade

Licences issued by the Trade Licensing Office (for details see Section 4.1 below), Articles of Association are mandatory.

2.3 Branch Office

General

Branch office is not a legal entity, Branch office does not have the registered capital. Assets of the branch office

belong to the founder and are maintained in the separate accounting books of thefounder as separate undertaking of the founder,

Branch office performs business activities in the territory of Slovakia andperforms any other acts on behalf of its founder.

Establishment

Branch office is established by the resolution of the founder and is subject to theregistration with the Commercial Registry,

Governance

Branch office manager registered with the Commercial Registry is authorised toact in the name of the founder of the branch office towards third parties in allmatters connected to the branch office,

Branch office manager is registered with the Commercial Registry and isappointed and recalled by the founder of the branch office.Other

Founder of the branch office is liable for the obligations of the branch office withall of its assets (including assets belonging to the branch office),

Branch office is tax liable in Slovakia (for details please see Section 6 below), Scope of business activities of branch office primarily depend on the scope of

Trade Licences issued by the Trade Licensing Office (for details see Section 4.1below).

2.4 General Note on the Commercial Registry and the Collection of Deeds

Commercial Registry

Commercial Registries are maintained by the District Courts residing in the seat ofSlovak Regional Courts. Currently there are 8 Commercial Registries in Slovakia(equally as number of Regional Courts) that operate in the same circuits as RegionalCourts (and accordingly are competent to deal with resident companies).

Commercial Registry contains all relevant data related to the registered legal entity,which include inter alia:


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Business name of the registered entity, Legal form (JSC, LLC, branch office, etc.), Identification number, Date of registration, Names, permanent addresses, dates of birth and/or birth numbers of statutory

representatives, Names, permanent addresses, dates of birth and/or birth numbers of the

supervisory body, Other data depending on the legal form of the registered entity.

Registration with the Commercial Registry is filed on a prescribed form set by the decreeof the Ministry of Justice of the Slovak Republic. Administrative fee for the registrationis payable when filing the application. The amount of fee is dependant on the type ofregistration (e.g. SKK 10,000 (approx. EUR 250) for the first registration of LLC, SKK

20,000 (approx. EUR 500) for the first registration of JSC, SKK 5,000 (approx. EUR125) for the first registration of branch office, SKK 1,500 (approx. EUR 37.5) for theregistration of any change in registered data of any registered entity, etc.).

Provided that all required documents are attached to the application and theadministrative fee is duly paid, Commercial Registry should make the registration within5 working days from the date of the application.

Collection of Deeds

Commercial Registry contains also the Collection of Deeds, which is a publicly

accessible library of all relevant documents connected to the corporate existence ofregistered entity. Each registered entity is obliged to submit documents to the Collectionof Deeds within 30 days from their execution.

Documents filed with the Collection of Deeds of the Commercial Registry include: Foundation Deed/Memorandum of Association of the registered entity, Each amendment to the Foundation Deed/Memorandum of Association/Articles

of Association of the registered entity, Consolidated version Foundation Deed/Memorandum of Association/Articles of

Association of the registered entity after each amendment, Signature specimens of statutory representatives of registered entity, Trade licences, trade certificates or other certificates authorising registered entity

to the performance of business activities, Document on the appointment/recall of the statutory representative of registered

entity, Document on the appointment/recall of the persons of the supervisory body of

registered entity, Experts appraisal of an in-kind contribution of the shareholder to the registered

capital of the registered entity, Approved financial statements and (if required by law) annual report of the

registered entity.

As of 1 October 2004, filing of documents with the Collection of Deeds is free of charge.


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3. Investment Incentives

Generally, Slovak system of investment incentives is compliant with the legislation of theEuropean Community in the field of state aid. By the tax reform of 2003 (for details please

see Section 6 below) and other reforms mainly in the area of social security payments (seebelow in this Section and in Section 6) which have occurred in the course of years 2003 and2004, the government intended to reduce specialized investment incentives and to attract theforeign investors by the legible and relatively investor-favourable legal framework (connectedmainly to tax and social security issues). Therefore, specialized incentives (e.g. tax loans) aregenerally no longer available, but on the other hand, the general tax and social systemincorporates benefits that were previously awarded only to persons who received specialisedincentives.

As the effect of these structural reforms of investor-relevant legal framework (mainly in taxand social security area), certain acts providing for the particular investment incentives

became obsolete. However, the general rules on the state aid that are almost identical to thosecontained in the Articles 87 et seq. of EC Treaty and to secondary EC legislation in this field,still exist. Further, the Slovak government still provides the incentives to municipalities forthe creation of industrial parks under conditions provided in the Act on Support of theEstablishment of Industrial Parks.

The government may further use a specialized procedure of acquiring of land for the plant ofthe investor contained in the Act on Certain Measures Connected to the Preparation ofSignificant Investments. This act empowers the Slovak government to decide that the plant ofinvestor worth at least SKK 1 billion (approx. EUR 25 million) and in the regions in Slovakia,where the rate of unemployment exceeds 15% even plant worth SKK 500 million (approx.EUR 12.5) that meets additional criteria set by the act is in the public interest, and thus givegrounds for the expropriation proceedings with respect to the land on which the plant shall be

built. For details on expropriation procedure please see Section 7.5 below.

4. Permits and Licenses

This Section briefly summarises requirements for various licences and permits issued byofficial authorities in Slovakia that the Slovak subsidiaries of foreign entities or a branchoffice (jointly referred as to the Entrepreneur) needs to obtain in order to conduct businessin Slovakia. This Section deals only with general requirements and does not describe special

regulatory issues with respect to the special branches of industry or services (such as banking,trade in securities a brief information on these issues is contained in Section 5. below).

4.1 Trade Licence / Trade Certificate

Practically, the business activities falling under regulation by trade license and tradecertificate may be divided into three categories: (i) free trade licences, (ii) fixed tradelicences and (iii) trade certificates depending upon the date from which such regulatedactivities may be performed by the Entrepreneur as well as upon professionalqualification required for the performance of such activities.

The business activities falling under the regulation of the free trade licence (which is interalia wholesale, retail, intermediary activities etc.) may be performed in as of the day of


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the notification of such business activities with the Trade Licensing Office, whileEntrepreneur has to comply with the general conditions required for the performance ofthe trade licence, which are: (a) age of Entrepreneur natural person / statutoryrepresentative of Entrepreneur in case of legal entity over 18, (b) no criminal records,and (c) full legal capacity.

The second category of business activities that are regulated by fixed trade licences(being activities, where the special qualification is required or special criteria must bemet, such as assembly or repair of electronic devices, etc.) may be performed as of theday of the notification of such business activities with the Trade Licensing Office,

provided that the notification is accompanied by documents proving that the applicantmeets the special criteria required for the performance of such activity in addition to thegeneral conditions mentioned above.

Finally, business activities regulated under trade certificates (usually activities, where thehigher degree of skills is required) may be performed only after Trade Licensing Office

issues the trade certificate to the Entrepreneur.

In order to perform activities subject to the fixed license or the trade certificateEntrepreneur has to appoint a responsible representative that shall be in charge of the

business. Such responsible representative has to hold special licenses or certificatesrequired for the performance of licensed business activities.

For the purpose of obtaining of trade license the Entrepreneur must submit its foundationdeed/memorandum of association to the Trade Licensing Office showing its scope of the

business activities. The Entrepreneur also has to prove its title to use the business premises for purposes of its registered seat in the territory of Slovakia (e.g. by leaseagreement, agreement on sub-lease).

Further, the Entrepreneur has to submit to the Trade Licensing Office document issued byrelevant public authority proving that Entrepreneur (in case of self-entrepreneur), itsstatutory representative and/or responsible representative have no criminal records. Suchdocuments have to be translated into Slovak by an official sworn translator.

The Entrepreneur is allowed to perform its business activities within the scope of issuedtrade licences and trade certificates as of the date of its registration with the CommercialRegistry.

Trade licenses are usually issued within 7 days, trade certificates within 30 days,depending on types of business activities, from presentation of the complete applicationwith attachments. The trade certificates are usually required for more complex activities(such as a trade with military equipment or operation of road transport business, etc.),where the higher degree of skills and professional qualification is required than for thetrade licences (which include wholesale, retail, intermediary business activities etc.). Onetrade license may contain several business activities. The administrative fee of SKK1,000 (approximately EUR 25) for a trade license and SKK 2,000 (approximately EUR50) for a trade certificate is due with filing of application.

Special licences are naturally required in regulated industries, such as banking orelectricity production, distribution, etc (See Section 5).


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4.2 Residency Permit

Generally, a foreign citizen (i.e. other than Slovak citizen) (the Foreigner) is requiredto obtain a Residency Permit in Slovakia if he/she intends either to (i) work, or (ii)

perform business activities (as statutory representative of legal entity or as a self-employed entrepreneur) in Slovakia. The Residency Permit allows the Foreigner to stayin the Slovak Republic and to travel to foreign countries and back within the time periodstated in the permit. However, a Residency Permit is not required if a Foreigner travels toSlovakia occasionally and does not spend in Slovakia generally more than 90 days duringthe half of calendar year. The requirement for a Residency Permit does not apply to thecitizens of EU and European Economic Area, who intend to reside in Slovakiatemporarily.

Nonetheless, a person who does not need a Residency Permit may be required to have anentry visa to Slovakia, unless Slovakia has entered into and international treaty on the

abolishment of the visa requirement with respective country.

A Foreigner who is a business person statutory representative of a Slovak company,obtains the Residency Permit on grounds of document proving the appointment to the

position (i.e. Memorandum of Association of a company or decision of a company on theappointment to the position of a statutory representative). An employee of a Slovakcompany receives the Residency Permit on grounds of the Work Permit issued byrespective Slovak labour authority.

Residency Permit is issued by the Slovak Police Office on grounds of application filed bythe Foreigner at the Slovak Consular Office in the country where he has his currentresidence or in the country that has issued his passport. However, there are certainexemptions when the Foreigner is allowed to file application for Residency Permit withthe Foreign Police in Slovakia. The application is submitted in the standard formavailable at the Slovak Consular Office or Foreign Police.

Generally, the following documents (not older than 3 months) should be attached to theapplication for the Residency Permit:

- document evidencing the purpose (i.e. business or employment) of the Foreigners stayin Slovakia;

- extract from the criminal register or any equivalent document proving that the Foreignerhas no criminal records. A Foreigner must submit (i) extract from the Slovak criminalregister, (ii) the extract from the criminal register from the country of his citizenship and(iii) extract from the criminal register issued by the state where the Foreigner has beenresiding during past three years, if different from (ii);- copy of a bank statement proving that the Foreigner has enough funds to stay inSlovakia;- photographs of prescribed size;- document confirming the housing for the Foreigner in Slovakia (typically a leaseagreement and the Land Register Certificate proving landlords ownership to theapartment/house);

- confirmation that the Foreigner has health insurance covering the territory of Slovakia;


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- as an additional document, the Foreign Police may (but not always does) ask forexample for a health certificate confirming that the applicant does not suffer from anycontagious disease.

The Foreigner must submit the application personally with his passport to the Slovak

Consular Office. Office will verify the data in the passport and will return the passportimmediately. The administration fee of approximately Euro 130 is payable together whenfiling the application. The Residency Permit is issued within 90 days from the date ofapplication provided that all required documents have been submitted by the applicant.

The Foreigner who was granted a Residency Permit for the business purposes is notallowed to enter into employment relationship and a Foreigner - employee may not do a

business in Slovakia.

4.3 Work Permit

Before the Residency Permit can be issued, the Foreigner who intends to work as anemployee of a Slovak employer should obtain a Work Permit issued by the respectiveSlovak labour authority. A Work Permit is issued on the basis of (i) a formal secondmentagreement between the foreign employer and the Slovak entity, to which the Foreignershould be seconded, or (ii) a decision of the foreign employer on the temporaryintracorporate transfer of its employee to the Slovak branch of the employer inaccordance with the Treaty establishing the World Trade Organisation, or (iii) writtendeclaration of the Slovak employer that it will employ the Foreigner. The application isfiled in standard form issued by the respective labour authority.

The Labour Office issues the Work Permit within 30 days from filing of the application.The Work Permit then forms attachment to the application for the Residency Permit.Issuing of the Work Permit is free of charge.

From entry of the Slovak Republic to the EU, citizens of EU member states are notrequired to have work permit in Slovakia and are treated equally as Slovak citizens forthe purposes of their employment in Slovakia.

5. Regulatory issues

5.1 BankingIn Slovakia, banking sector is specially regulated by the Banking Act (Act No. 483/2001Coll. on Banks, as amended). Slovak banks and branches of foreign banks are supervised

by the National Bank of Slovakia.

Generally, in Slovakia banking activities (including financial brokerage) may beperformed by:

(A) banks established in form of a joint stock company in the Slovak Republichaving banking license granted by the National Bank of Slovakia,


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(B) branch office of a foreign insurance company that has its registered seat outsidethe territory of EU on the basis of insurance license issued by the FinancialMarket Authority,

(C) foreign insurance company with the registered seat in the territory of theEuropean Economic Area having insurance license in that state. Such insurancecompany may perform insurance activities (i) via its branch office (includingrepresentative office headed by the employee of such foreign entity inSlovakia) on the basis of that license or (ii) on the basis of the principle offreedom to provide services principle contained in the relevant EU legislationon the basis of the previous written consent of the supervisory authority overthe insurance activities relevant in the state where the insurance company hasits registered seat.

The scope of the insurance activities is quite extensive. The licensed entity has particularly the right to (i) conclude insurance contracts, (ii) provide for the asset

management of the insurance premiums, (iii) settle insurance claims, (iv) perform otherobligations arising from the insurance contracts, etc.

5.3 Securities Regulation

Below are outlined most significant issued to the securities regulation, in particularacquiring and possession of dematerialised (book-entered) securities as well as briefgeneral overview of Slovak financial markets.

Registration of Book-Entered Securities

After the adoption of the Securities Act in 2001, the system of issuance and registrationof book-entered (dematerialised) securities has been modified. Securities Act gives

powers to register the issuance of book-entered securities (such as book-entered shares,bonds etc.) to the Central Depositary of Securities of the Slovak Republic (the CentralDepositary).

The Central Depositary is a private joint stock company licensed by the Financial MarketAuthority. On the basis of such license the Central Depository is responsible for theissuance of book-entered securities, for the clearing of trades with the securities and forthe maintenance of the securities accounts for selected state authorities (such as National

Bank of Slovakia). On the other hand, maintenance of the securities accounts for the private investors as well as all actions connected to the disposition with book-enteredsecurities (e.g. transfer, pledge or assignment) fall into the competence of the members ofthe Central Depositary (the Members). Currently, the majority of Slovak banks andalso certain dealers in securities are the Members.

The Member is a legal entity admitted by the Central Depositary to provide operationswithin the information and clearance system of the Central Depositary. In the event thatthe private entity intends to acquire book-entered securities, he/she has to open thesecurities account with any Member. Subsequently, the private owner gives orders for thetransfer (or other type of transaction) to the Member, which maintains respective

securities account.


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Slovak Financial Markets and Trading in Securities

Slovak Financial Market is currently represented by Bratislava Stock Exchange (Burzacennch papierov v Bratislave, a.s.) (the BSSE). The BSSE, that has currently acquiredthe membership in European Federation of Stock Exchanges (FESE), operates in

Slovakia since 1991. As of 2001, BSSE operates under the license issued by the FinancialMarket Authority. BSSE as a private joint stock company is owned by the NationalProperty Fund of the Slovak Republic and by major Slovak banks. The basic frameworkof the operation and governance of the stock exchange is regulated in the Stock ExchangeAct and Rules of Bratislava Stock Exchange (the BSSE Rules) issued by the Board ofDirectors of the BSSE.

Trading in securities at the stock exchange may be performed only by the members of thestock exchange. Membership may be granted only to the entity holding the licenceallowing the performance of investment services or to the investment fund (operating inaccordance with the Act on Collective Investments), that meets the criteria of BSSE

Rules.

Trading at the BSSE is performed basically in two markets: (i) at the market of listedsecurities, and (ii) at free stock exchange market. For admission to either market theissuers of securities have to meet strict criteria set by the Stock Exchange Act and BSSERules. These criteria include the financial stability of the issuer, preparation of offeringcircular of securities, publication of financial statements and other information required

by the BSSE Rules.

5.4 Foreign Exchange Control

Under the foreign exchange control regulated by the Foreign Exchange Act, domesticentities (i.e. individuals residing in Slovakia and legal entities with registered seat inSlovakia including Slovak branch of the foreign entity) are obliged to notify the NationalBank of Slovakia particularly about the following facts: opening of bank accounts outside the territory of the Slovak Republic, payments made abroad and incomes received from abroad from the foreign entities ordomestic entities (save for payments to the Slovak branch of a foreign entity, which is adirect investment or other form of investment, financial loan, securities transaction orother operation on the financial market),as well as receivables and liabilities towardsforeign entities.

Breach of notification duty may result in a penalty up to SKK 1 million (approx. EUR25,000) imposed by the National Bank of Slovakia.

Foreign Exchange Act also contained limitations on acquiring of real estate in Slovakiaby the foreign entities. After 1 May 2004, substantial part of these limitations has beenabolished. Currently, foreign entities may acquire real estate without limitation withexception of the agricultural and forest land. Agricultural and forest land may begenerally acquired only by Slovak citizens or citizens of other EU member states whohave been farming on such land at least three years after the entry of Slovakia to the EU(which has occurred on 1 May 2004).


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Foreign Exchange Act further regulates trading in the foreign currency. Such trading maybe performed on the basis of the banking licence or on the basis of the special licenseissued by the National Bank of Slovakia.

6. Tax, Social Security

6.1 General

Slovak tax system has been created after the partition of Czechoslovakia on 1 January1993. It is broadly based on other systems in the EU and includes corporate and personalincome taxes, standard value added tax, taxes levied on selected assets (such as realestate, vehicles-road tax) or under selected circumstances (e.g. real estate transfer tax this tax is payable for transfers performed until the end of 2004) as well as system ofexcise taxes levied on specific goods such as alcohol or tobacco products.

6.2 Slovak Tax Reform of 2003

In late 2003, the Slovak parliament approved laws that have laid grounds for the majorchanges to the Slovak tax system. As of 1 January 2004, Slovakia has introduced flat19% income and value added tax rate. Flat rate income tax is levied to both individualsand legal entities disregarding the amount of their income and a 0% withholding tax rateis levied on dividends as capital gains of the shareholder (either individual or legal entitythat is tax liable in Slovakia) of the Slovak company after January 2004. Further, certaintaxes, such as inheritance tax and gift tax have been abolished.

6.3 Income Tax

Due to a tax reform effective as of 1 January 2004, that has introduced modern incometax system, Slovakia has become an attractive and tax friendly investment location. Firstof all, 19% income tax rate that is calculated from their respective tax base is applicableto both legal entities and individuals that have their registered seat, residence or place ofmanagement of business in the territory of the Slovak Republic. The Slovak flat incometax at rate of 19% is generally one of the lowest income taxes amongst the EU memberstates. Further, both tax base of legal entities and individuals is subject to reduction byquite extensive range of tax deductible items (e.g. in case of an individual tax base isreduced by the amount of personal allowances currently approximately EUR2,200/person per year; spouse allowances approx. EUR 1100 per year, monthly tax

bonuses for children and other). The other advantage of new Slovak income tax system issubstantial simplification of tax proceedings.

Foreign entities may as well become tax liable for the performance of their activities inSlovakia. Tax base of business entities is paid on the basis of statutory accounting profits.Tax base is reduced, inter alia, by the amount of depreciation of assets; tax depreciation isdivided into 4 categories, period of depreciation ranges from 4 to 20 years (for examplereal estate is subject to 20-year depreciation). Two methods are available for spreadingtax depreciation: a straight-line method and an accelerated method. The choice of methodmust be made on asset-by-asset basis and, once made, cannot be changed.


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The government also plans to reduce the social security contributions of both employerand employee (for details on this issue please see part on Social Security which appears

below in this Section).

6.4 Value Added Tax

At present, the value added tax (the VAT) is in the Slovak Republic levied on taxablesupplies, which are divided into four categories (a) supply of goods for remuneration

performed in the territory of Slovakia by VAT liable entities, (b) providing of services forremuneration performed in the territory of Slovakia by VAT liable entities, (c) acquiringof goods for remuneration performed in the territory of Slovakia from other memberstates of the European Community (EC), (d) import of goods to Slovakia (from outsidethe territories of EC member states).

Flat 19% VAT is levied on all taxable supplies from 1 January 2004.

A business entity that has reached a turnover of more than SKK 1,500,000 (approx. EUR37,500) in the twelve preceding consecutive calendar months is obliged to register forVAT with respective tax office. Also persons with their seat, place of business orestablishment in Slovakia, which are performing business activities jointly on the basis ofthe association or similar agreement in Slovakia have VAT registration duty if their totalturnover for 12 preceding consecutive calendar months exceeded SKK 1,500,000.Despite the fact that the above conditions for the registration are not met, businessentities may register as voluntary VAT payers with relevant tax office.

Deduction of input tax paid may be claimed by the VAT registered entities on goods andservices purchased for the performance of taxable supplies. The VAT deductions may beclaimed on the day when the taxable supply was made.

Supplies exempt from the Value Added Tax include for example postal services, financialservices or insurance services.

6.5 Real Estate Transfer Tax

Real Estate Transfer Tax is charged for the transfer of real estate for remuneration. An in-kind contribution of the real estate to the registered capital of business company is alsoconsidered to be the transfer of the real estate and thus such contribution would be subject

to this tax. Tax rate is at present set at 3 per cent of value of the real estate set by theexperts appraisal. The real estate transfer tax may be levied only on transfers performeduntil the end of 2004, all taxable transfers that occur after this date shall be not be subjectto the real estate transfer tax.

6.6 Real Estate Tax

Real estate tax is payable by the owners of the real estate annually to the municipalauthorities. The tax rate ranges from 0.25% to 0.75% of the value of the real estate (whilesuch value is set by the experts appraisal or by the regulation of the Ministry ofAgriculture in case of agricultural land). In order to reach the final amount of tax, the

mentioned sum shall be further multiplied by the special index set by the Real Estate Act


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(index ranges from 1.0 to 4.5 depending on the location and occupancy of respectiveterritory by inhabitants).

6.7 Road Tax

Road tax is levied on vehicles used for business purposes. The progressive scale of thetax ranges from SKK 1,600 to SKK 5,600 (approx. EUR 40 to 140) for passenger carsand from SKK 1,800 to SKK 71,800 (approx. EUR 45 to 1800) for utility vehicles and

buses depending on the type of vehicle.

6.8 Excise Taxes

Excise taxes are levied on certain sorts of goods such as mineral oils, spirits, liqueurs, beers, wines and tobacco products. This tax is payable monthly by a lump sum pervolume of goods by producers and importers of such goods.

6.9 Social Security Payments

In Slovakia, both business entity as employer and employees pay certain social securitycontributions calculated from the respective gross salary of employees. An individualentrepreneur is also under specific circumstances liable for the payment of social securitycontributions.

The contributions to the Social Security funds in Slovakia are as indicated in the tablebelow. These payments include pension, disability, unemployment insurance and healthinsurance. Such contributions are generally payable by both employer and employee whoare employed with employer in Slovakia. The table below describes the amounts ofcurrent contributions to the Social Security funds of both employer and employee:

Employee%

Employer %Totalcontribution%

Maximum amountfrom which thecontribution iscalculated

Pension insurance 4.0 14.0 18.0 18.0 22.0

Disability insurance 3.0 3.0 6.0

Unemploymentinsurance 1.00 1.00 2.00

Reserve fund --- 2.75 2.75

3 x average monthlysalary* in the SlovakRepublic for the

preceding year(currently SKK43,000 (approx. EUR1,080))

Accident insurance --- 0.3 - 2.1 0.3 - 2.1Unlimited

Health insurance4.00 10.00 14.00

SKK 32,000 (approx.EUR 800)

Sickness insurance 1.4 1.4 2.8

Guarantee insurance --- 0.25 0.25

1.5 x averagemonthly salary in theSlovak Republic forthe preceding year


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(currently SKK21,500 (approx. EUR540))

Total 13.40 32.70 38.50 46.10 51.90 -* Basis for calculation is a gross monthly salary of employee.

All the above contributions are paid/realized by employers. Employees do not payanything directly and employers deduct the relevant contributions to be paid byemployees from their salaries/wages and realize the payments instead of them. Allinsurance contributions are paid to the Social Insurance Company, a state agency that isresponsible for the administration of social funds and for the payments of social rents.Similarly, health insurance contributions are paid to the respective Health InsuranceCompanies, which exercise the same competences in the field of health care as SocialInsurance Company in the sphere of the social security.

In the course of years 2003 and 2004, the Slovak government has substantially reformedthe system of payment of statutory social rents (e.g. unemployment payments, sick leave

payments or social rents). The new system has abolished certain social rents and reducedmost of the remaining payments. The system has nonetheless introduced new extra

payments that shall be provided only to persons, who are actively seeking for any form ofthe economic activity (e.g. employment, business activity or other form of activecooperation with the state agencies). Under the new system, the government intends toconcentrate the financial support to those persons, who evidently show interest for theemployment or business activities and cooperate with the state agencies in this respect.

6.10 Pension Funds Administrators

Due to the pensions reform introduced by the Slovak government in 2004, the part of themandatory pension insurance contributions (in the amount of maximum 9% of the base ofassess pursuant to special regulation Act No. 43/2004 Coll. on Pension Insurance, asamended) shall be directed to the personal accounts of the insured persons, which shall beadministered by the Pension Funds Administrators (the PFAs).

The PFAs, which are finance institutions having registered capital of at least SKK 300million (approx. EUR 7.5 million) holding the special licence issued by the FinancialMarket Authority, will be responsible for the administration and investment of the meanskept by the personal accounts of the insured persons. After reaching the age for the

pension retirement (or in special circumstances even earlier), the insured persons will beentitled to payment of the periodical insurance premiums (which will consist in thecapitalized pension insurance contributions). In event of death of the insured, it shallcreate the part of the hereditary estate.

6.11 Proposal of Reform of Social Security System

Currently, the Government of the Slovak Republic deals with a proposal of the Slovakemployers associations that have prepared substantial simplification of the socialsecurity scheme.

The material introduced by the employers associations proposes the abolishment of all ofthe mentioned payments and the introduction of a single social security payment. Further,


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employers associations have proposed that only employee will be paying suchcontributions. This means that the gross salary and the total price of work (which iscurrently gross salary plus social security contributions) would be the equal sum.However, employers would be obliged to increase the gross salary up to the amount ofthe total price of the work. Further, the government would provide for the social security

bonus to persons employed for the minimum salary to compensate social effect of lowpayments such as minimum salary (this would be a form of a negative taxation). As aneffect, the government would support the low-cost work and costs of employers for suchlow-cost labour would remain low.

The proposed reform should substantially simplify the social security scheme and alsoslightly reduce the labour costs of employers. Nonetheless, this proposal is only at theearly stage of negotiations with the Government of the Slovak Republic and shall not bein force (in whole or in part) sooner than in 2006.

7. Real Estate

In order to establish a commercial presence in Slovakia (e.g. by incorporating the LLC orJSC or by founding a branch office (jointly as the Entrepreneur)), the first stepfollowing the decision of founders on the incorporation would be obtaining the tradelicenses or trade certificates as already mentioned in Section 4.1 above. For the purposesof obtaining the trade licence or trade certificate the entrepreneur (JSC, LLC or branchoffice) is required to prove its title to use the business premises for purposes of itsregistered seat in the territory of Slovakia. This may be done either by lease, sub-lease or

purchase of a suitable real estate. Below we outline certain considerations connected tothis issue.

7.1 Lease of Business Premises

General principles of the lease of business premises are contained in the Civil Code (ActNo. 40/1964 Coll. Civil Code, as amended) and the Act on the Lease and Sub-Lease ofNon-Residential Premises (Act No. 116/1992 Coll. on the Lease and Sub-Lease of Non-Residential Premises, as amended. Lease of the business premises is not subject to anyregistration or filing.

Lessee is obliged to pay the rent according to the agreement amongst the parties. Theamount of the rent is one of the basic requisites of the agreement on the lease of non-

residential premises. At the starting date of the lease lessor is obliged to hand over tolessee business premises subject to lease in a state suitable for its agreed use. During the period of the lease, lessor is obliged to maintain leased business premises in the statesuitable for the purpose of the lease at its own expense. To secure the receivables of therent, lessor has the statutory retention right to the movable assets located in leased

business premises.

As a proof of the registered seat for the purposes of issuance of trade license/tradecertificate, the Entrepreneur submits to the Trade Licensing Office (i) a lease agreement,and also (ii) a certificate of title of the lessor issued by the Land Registry (see below)

proving lessor`s ownership to such premises.


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In event that the contract has been concluded for limited time period, both lessee and sub-lessee may terminate the contract only for reasons set by the Act on the Lease and Sub-Lease of Non-Residential Premises. Statutory notice period is three months, unlessotherwise agreed between the parties.

7.2 Sub-Lease

For the purposes of the proof of the registered seat and for the issuance of the tradelicense/trade certificate the Entrepreneur may alternatively use a sub-lease. In this event,Entrepreneur submits to the Trade Licensing Office in addition to the documentsmentioned above also an agreement on the sub-lease which would be concluded with thelessee. The agreement on sub-lease of business premises enables the Entrepreneur (as thesub-lessee) to use the part of premises leased by the lessee. The regulation of the sub-lease is contained in the Civil Code and the Act on the Lease and Sub-Lease of Non-Residential Premises. Lessee may enter into a sub-lease agreement only if the originallease agreement between the lessor and the lessee permits a sub-lease of leased premises.

7.3 Acquiring the Real Estate

Generally, both Slovak and foreign entities (legal persons or individuals) or theirestablishments in Slovakia (i.e. branch office) are allowed to acquire ownership to thereal estate in Slovakia. (except for agricultural and forest land (See Section 5.4). UnderSlovak law, land and buildings are treated as separate assets in legal means; therefore theowner of the land is not automatically owner of the building built on such land.

If the Entrepreneur decides to purchase the building (or other real estate) in Slovakia, iteffectively acquires the ownership title on the basis of the purchase contract upon theregistration of such title to the ownership certificate with the Land Registry.

7.4 Ownership Certificate

In Slovakia, all rights in rem (such as ownership, mortgage, easement, etc.) as well ascertain other rights (e.g. long-term land leases with a term of at least five years)connected to the real estate as well as data of real estate (i.e. land/building, plot no.,covered area, building registration number) and data of the owner are listed in theownership certificates maintained by the relevant Land Registry. The Land Registry is a

publicly accessible register of data related to the real estate and anyone may obtain (upon

payment of the respective administrative fee) extracts from the ownership certificate,transcriptions of land maps or land plans thereof.

Land Registry respective according to the location of the real estate provides for theregistration of ownership title (as well as other rights mortgage, easement) to theownership certificate. The process of registration is regulated by the Cadastral Act (Act

No. 162/1995 Coll. on Land Registry and on Registration of the Proprietary Rights to theReal Estate, as amended). The purchaser of the real estate effectively acquires theownership to the real estate upon the registration of the title to the ownership certificate.

As a proof of the registered seat for the purposes of issuance of trade license/trade

certificate in case of ownership of the real estate the Entrepreneur submits to the Trade


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Licensing Office a certificate of title of the Entrepreneur issued by the Land Registryproving that the Entrepreneur is the owner of such real estate.

7.5 Expropriation

Expropriation as one of the manners of acquisition of the ownership to the real estatesituated in Slovakia from private owners without their consent is possible onlyexceptionally, if the following legal requirements set by the Slovak Constitution, theCivil Code and the Construction Act are met:

the expropriation is in the public interest , the expropriation is carried out for purpose stipulated by the law it must be demonstrated that the purpose of the expropriation cannot be achieved

by other means, the expropriation may be carried out only in the extent necessary to achieve

stipulated purpose, the expropriation may be carried out only if the agreement on the purchase

(particularly on the purchase price) of land (building) could not be reached, appropriate consideration must be paid to the owner (the consideration is set as

the market price of the land (building) subject to the expropriation set by theexperts appraisal),

the expropriation must be carried out within the legal frame of the proceedings setby law (in Slovakia such legal framework is contained in the Construction Act(Act No. 50/1976 Coll. on Zoning and Construction Regulations (the ConstructionAct)).

The expropriation proceedings are held before the municipal authority, competent for the

area where the land (building) subject to the expropriation is situated. Detailed rules onexpropriation are contained in the Construction Act.

8. Employment

8.1 General

In 2001, Slovakia has adopted a new Labour Code (Act No. 311/2001 Coll. Labour Code,as amended) that has significantly liberalised employment relationships. The new LabourCode, which is considered in general employer-friendly, has given a wider scope ofinstruments to the employee with regard to the termination of employment and also

granted higher degree of protection to the employer (with regard to the protection ofbusiness secrets and restriction of competition of employee).

8.2 Employment Contract

Employment relationship is established on the basis of employment contracts concludedbetween the employer and the employee who must be in written form. The employmentcontract must contain: (i) the type of work to be carried out and its brief characteristics,(ii) the commencement date of work, (iii) the place of employment, and (iv) the salary.The salary conditions do not need to be contained in the employment contract, if acollective bargaining agreement contains regulation of salary of the employees. The

employment contract must be in Slovak language (dual version is also acceptable).


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An employment relationship is agreed for an indefinite period of time, unless theemployment contract stipulates its duration. In case the employment contract isconcluded for a definite period of time, such period cannot be longer than 3 years. Theemployment contract for the definite period of time is automatically terminated upon itsexpiry, unless the employee continues to perform the work under the employment

contract with the consent of the employer (in such case the employment contract for thedefinite period of time is deemed to be converted to the employment contract for theindefinite period of time). The contract concluded for a definite period for maximum of 3years; this period may be extended only under special circumstances provided for theLabour Code (e.g. for replacement of an employee on maternity leave, contracts withretired employees). The parties can agree on a probationary period of maximum 3months, which commences at the first day at work. During the probationary period either

party may terminate employment with immediate effect without stating reason.

The employment contract has to contain also other labour conditions such as maturity ofsalary, working time, annual vacation period and length of a notice period in case of

termination of the employment relationship by notice (see below). Such provisions may be incorporated to the contract by a reference to the relevant collective bargainingagreement or to the relevant provisions of the Labour Code.

Maximum working time is 40 hours per week. The working time of employee, includingthe overtime work, is 48 hours per week at maximum. The total overtime work requested

by the employer may not exceed 150 hours per year. The employer may, however, due toserious organisational reasons agree with the employee on additional 250 hours of theovertime work. The salary of employee may be stipulated as that it includes also thesalary for the overtime work, in which case the employer does not have to pay theemployee extra salary for overtime work.

The employer is required to acquaint the employee with his/her rights and obligationsincluding all relevant employers internal working regulations, working conditions andremuneration before concluding the contract.

8.3 Termination of Employment

Under Slovak law, employment may be terminated in accordance with the Labour Codeby:(i) agreement,

(ii)

immediate termination of employment,(iii) termination with notice,(iv) expiry of employment contract,(v) termination in the probationary period.Termination by Agreement

The simplest way of terminating the employment would be by the agreement between theparties. The parties express their consent in writing and specify the date of termination.

Immediate Termination of Employment


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An employee may be immediately dismissed upon delivery of a notice to that effect onthe following grounds: (i) if employee is convicted of a wilful criminal offence, or (ii)he/she has committed serious breach of the working discipline.

Termination with Notice

The grounds on which the employer may give notice of termination to employees arelimited by law. According to the Labour Code, termination with notice may be generallygiven by the employer to an employee only for the following reasons:

(a) organisational changes,

(b) health reasons of the employee,

(c) failure of employee to meet the requirements set by legal regulations for the performance of the agreed work, employee ceases to fulfil the requirements ofappointment or election to the position he/she discharges, failure to fulfil the

requirements for the proper performance of the agreed work determined by theemployer in internal regulations, or unsatisfactory performance of working tasks of theemployee,

(d) if there are reasons on the part of the employee, for which the employer mightimmediately terminate the employment, or on grounds of less serious breach of disciplineat work;

If the notice is given on any of the above grounds, employment would be terminatedupon the lapse of the 2 or 3 month notice period, which commences at the beginning ofthe month following the month when the written notice has been delivered to theemployee.3

Dismissals are subject to the consultation with the employees representatives (who may be either employees trustee, council of employees or labour union), otherwise suchdismissal is invalid.

The employee may not be dismissed under certain circumstances, when the dismissal isprohibited by the law (e.g. maternity leave of an employee, sickness, performance of themandatory military (or civil) service, etc.).

An employee dismissed on grounds mentioned under (a), or (b) above is entitled to

severance pay if he/she consents to the termination of employment without the notice period. The severance pay shall amount according to the Labour Code to three timesaverage salary in case of employees, who have been employed with the Company for atleast at least 5 years and two times average salary to other employees, but the collective

bargaining agreement may (and usually does) provide for the higher amount of severancepay.

Collective Redundancies

3 Notice period of 3 month would be applicable to employees who have been employed with the employer (whoserves a notice) for at least 5 years; 2 month period applies to other employees.


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If an employer intends to dismiss 20 or more employees within 90 days on grounds oforganisational changes (so-called collective redundancies), employer has to furthernegotiate with the Employees representatives such redundancies, inform and negotiatethe same the respective Slovak labour authority.

Termination by the Expiry of Employment Contract

In event that the employment contract has been concluded for a definite period of time(which may not be longer than 3 years), employment is terminated automatically uponexpiry of the period of employment contained in the contract. In event that employeecontinues to work after the expiry of such period and employee is aware of it, suchemployment relation is deemed to continue and to be changed to the indefinite period oftime.

Termination in the Probationary Period

Either party may terminate employment without stating the reason during the

probationary period. Such period has to be expressly agreed in writing in the employmentcontract. Probationary period begins as of the date of the commencement of theemployment and may not be longer than 3 months. Employment is terminated in the

probationary period upon the delivery of a written notice.

8.4 Contract for Performance of Work and Contracts for Brigade Work

As an alternative to the employment contract, employers may conclude contracts for performance of work or contract for brigade work. Such contract, however, may beconcluded only exceptionally if the employment contract would be inefficient for suchtype of work.

The contract for performance of work must be concluded in written and the extent ofwork does not exceed 300 hours. The written contract must describe work tasks,remuneration of the employee, type of work, and the time frame for performance of theworking task in such contract.

The contract for brigade work may be concluded only with university students. Suchcontract also must be concluded in written. This type of contract must contain a nature ofworking activity, remuneration of the student, number of working hours, and period forwhich the contract is concluded. The maximum work time is 20 hours per week. Suchcontract can be terminated upon written notice in 15-days notice period.

8.5 Protection of Confidential Information and Non-Competition

During the employment, employee is bound to keep confidential all information relatedto the business activities of employer, which should be kept confidential in the bestinterests of employer. Further, employee may not perform during the employment othergainful activity identical or similar to that performed under the employment contractwithout prior written consent of the employer. The employee may, however, perform

pedagogic, literacy or scientific activity even without consent of the employer.


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Trade secret of an entrepreneur as its intellectual property right is also protected by theSlovak Commercial Code (Act No. 513/1991 Coll. Commercial Code, as amended) (SeeSection 10.4 below).

8.6 Labour Unions

According to the Labour Code, employees may participate in decision-making of theemployer concerning their economic and social interests, either directly or by means ofcompetent trade union body, or the works council or the works trustee, in form of jointdecision-making, negotiation, right to information and inspection activities. Employeesare entitled to collective bargaining only through the competent trade union body. If bothtrade union body and works council operate with the employer, the trade union body hasthe right to collective bargaining, control of fulfilment of obligations resulting fromcollective agreements and to information, and the works council has the right to jointdecision-making, negotiating, information and control activities.

The employer is obliged to allow the operation of a labour union organisation at theworkplace, which is represented by a trade union body. Labour union body concludes acollective bargaining agreement with the employer governing working conditions,including wage conditions, and conditions of employment, relations between employersand employees, relations between employers or their organizations and one or moreemployees organizations in a more favourable way than does the Labour Code or anyother labour-law regulation. Several trade union organizations may operate alongsideeach other concurrently with one employer. A trade union organisation is a legal entityand it organises those employees which are interested in such an organisation.

The employer negotiates in advance with employees representatives particularly thefollowing:- the state, structure and presumed development of employment and planned measures,mainly if the employment is threatened,- principal issues of companys social policy, measures for the improvement of hygiene atwork and the work environment,- decisions which may lead to basic changes in the organization of labour or incontractual conditions,- organizational changes which include limitation or cessation of the activities of theemployer or its part, amalgamation, merger, splitting or change to the legal form of theemployer,

- measures for the avoidance of the occurrence of injuries and occupational diseases, andfor the health protection of employees.

9. Competition

9.1 General

Slovak competition law is largely compliant with the principles applied in EC law and inother member states competition regulation. The Slovak Commercial Code contains

provisions prohibiting an unfair competition. The unfair competition is by the definitionof Commercial Code (Act No. 513/1991 Coll. Commercial Code, as amended) behaviour

which is contrary to standard competition practices and which may be detrimental toother competitors or consumers. The Commercial Code provides for the list (although not


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exhaustive) of common practices that are regarded as unfair competition and thus areprohibited. These are as follows:- unauthorised use of business name,- deceptive advertising,- deceptive description of goods and services,- misrepresentation,- benefiting from the exploitation of a competitors reputation,- bribery,- defamation,- breach of trade secrets,- endangering of health and the environment,- practices restricting the competition.The Act No. 136/2001 Coll. on Protection of Economic Competition, as amended (theCompetition Act) provides for the detailed regulation of practices restricting thecompetition. These are as follows:

agreements restricting competition, abuse of dominant position in market, concentration.The mentioned practices restricting the competition as regulated by the Competition Actare subject to the supervision of the Anti-Monopoly Office of the Slovak Republic (theAntimonopoly Office). Brief description of the mentioned practices restricting thecompetition is contained in Section 9.3 below.

9.2 RemediesIn event that an undertaking (or its employee) would be in breach of rules governing theunfair competition, the party injured by such breach (other undertaking or consumer)could claim the court protection by demanding (a) to abstain from his/her conduct, (b)restitution to the previous state of affairs (if possible) and (c) financial relief. The injured

party could also claim from the party being in breach of such rules (d) to pay theunjustified enrichment and (e) financial compensation for damages.

The above mentioned conduct of the undertaking (or its employee) could also be regardedas a criminal offence.

9.3 Practices Restricting Competition

Agreements Restricting Competition

Any agreement, concerted practice between undertakings, as well as decision of anassociation of undertakings, which has as its object or effect the prevention, restriction ordistortion of competition is prohibited. Such agreements may involve in particular:

direct or indirect price fixing, or fixing of other commercial conditions; commitments to limit or control production, sale, technological development orinvestment; division of market or sources of supply;


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commitments to tied sales and agreements involving discrimination against thirdparties; conclusion of contracts subject to the conditions of acceptance of other supplementaryobligations not related to the subject of the contracts, either by their nature or accordingto their commercial usage; co-ordination of offers in public tenders.Agreements restricting competition are prohibited unless falling within the two availableexemptions the de minimis exemption or one of the block exemptions stipulated in EClaw and referred to by Slovak Competition Act.

Underde minimis rule laid down by the Competition Act, the restrictive agreements arenot prohibited if neither combined market share of the parties thereto, nor the marketshare of any of the parties exceeds 10% on the relevant Slovak market, save for:

(i) agreements stipulating hardcore restrictions stipulated in the Competition Act (e.g.price fixing, market sharing);(ii) restriction of competition by a cumulative effect of several restrictive agreementsstipulating equivalent restrictions and having similar effect on the relevant market,

provided that the combined market share of the parties involved on the relevant Slovakmarket exceeds 10%.

Abuse of Dominant Position on the Market

Under the Competition Act, another form of prohibited anti-competitive behaviour is anabuse of a dominant position on the market. The dominant position on the relevantmarket is deemed to be held by one or more undertakings that do not face a substantialcompetition and are able to act independently due to their economic power. Similarly toArt. 82 of the EC Treaty, the Competition Act provides a non exhaustive list of abusive

behaviour. Any abuse of a dominant position on the market is prohibited by law.

Concentration

Under the Competition Act, a concentration is deemed to arise in case of (a) a merger oftwo or more previously independent undertakings or (b) an acquisition of direct orindirect control by one or more undertakings over the whole or parts of another

undertaking or undertakings. The concentration shall also be an establishment of a fullfunction joint venture performing on a lasting basis all economic function of independenteconomic unit.

A concentration is subject to the control of the Antimonopoly Office if (i) the combinedaggregate world-wide turnover of undertakings concerned was at least SKK 1.2 billion(approx. EUR 30 million) and, at the same time, at least two of the undertakingsconcerned generated each the aggregate turnover of at least SKK 360 million (approx.EUR 9 million) in the Slovak Republic; or (ii) at least one of the undertakings concernedgenerated the aggregate turnover of at least SKK 500 million (approx. EUR 12.5 million)in the Slovak Republic and at the same time at least one of the other undertakings

concerned generated the world-wide turnover of at least SKK 1.2 billion (approx. EUR30 million).


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For the purpose of calculation of the turnover, the world-wide as well as Slovakian-wideaggregate turnover shall be the sum of turnovers of an undertaking concerned and allundertakings being controlled by or controlling, directly or indirectly, the undertakingconcerned. The financial aid provided to the undertaking concerned shall be added to the

aggregate turnover.

The concentration that is subject to control of the Antimonopoly Office must be notifiedto the Antimonopoly Office within 30 business days from the date of conclusion of theagreement, or other relevant triggering event.

Until the decision of the Antimonopoly Office on the concentration becomes effective,the parties to the concentration are not allowed to perform any rights and obligationsarising from the concentration. In exceptional cases, the Antimonopoly Office may, uponthe request of a party and existence of material reasons, grant an exemption from the saidsuspension ban.

Waiting Periods under the Competition Act, Issuance of the Clearance Decision

The clearance decision shall be issued by the Antimonopoly Office within 60 daysfollowing the receipt of a complete notification (in complicated cases, this time periodcan extended by the chairman of the Antimonopoly Office up to additional 90 days). Incase of simplified procedure under which concentrations with no or negligible impact oncompetition can be treated the clearance shall be given within 30 days followingsubmission of a complete notification.

Assessment of the Concentration by the Antimonopoly Office

The Competition Act stipulates that the Antimonopoly Office shall approve theconcentration that does not create nor strengthen a dominant position as a result of whichthe significant impediments to effective competition on the relevant market would becreated. The approval can be subject to conditions imposed by the Antimonopoly Officewith the aim to restore effective competition on the market (e.g. disposal of the part ofacquired business or assets).

Fines

In case of breach of provisions of the Competition Act, the Antimonopoly Office shallimpose penalties up to 10% of the worldwide turnover of undertaking concerned for aclosed previous accounting period and in case the turnover did not reach SKK 10,000, orthere was no turnover, or the turnover cannot be established, the penalty up to SKK 10million can be imposed. As the basis for the calculation of penalties, the worldwide ownturnover of undertaking concerned (i.e. of the legal entity of undertaking concerned andnot the group turnover) is relevant. The Antimonopoly Office can impose penaltieswithin four years following the commencement of relevant administrative procedure(concerning imposition of penalties), however, no later than within eight years from thedate of breaching the Competition Act.

Further, when deciding on the concentration that is subject to merger control review(including the concentration that was not notified timely) the Antimonopoly Office may


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An applicant acquires title to a trademark on the date of its registration with theTrademark Register. As of the date of the filing of the application the applicant acquires a

priority right to the trademark.

The owner of the trademark has the exclusive right to imprint the trademark on all his/her products or use trademark while providing the services, for which the trademark isregistered. The trademark owner has the right to transfer its trademark to a third person

by a written agreement, such transfer becoming effective towards third parties on the dateof its registration with the Trademark Register. The trademark owner has also right togrant a trademark license and create a pledge over a trademark. Both, the licenceagreement and creation of a pledge over a trademark, become effective as of theirregistration with the Trademark Register.

The trademark protection period is 10 years and commences on the date of submission ofthe trademark application to the IPO. The protection period may be extended upon

request of the trademark's owner for a time period of additional ten years.

10.3 Copyright

All literary, artistic, musical, dramatic or scientific works, computer programs,cartographic works, compilation of these works and their databases created by Slovakcitizens or persons permanently residing in Slovakia are protected in Slovakia by acopyright. The same protection is vested to the works of other persons, if they are for thefirst time published in the Slovak Republic and to works falling within the scope of

protection of an international treaty. The copyright is vested to the copyrights holder,who is an author of the work, or, under special circumstances, the employer of the author.The copyright protection over mentioned works originate automatically as from the datewhen the work is created without any need for the registration or notice.

The copyright protection consists of two categories of rights of a copyright holder: (i)personal rights and (ii) proprietary rights. Personal rights are those granted only to theauthor, they are non-transferable and cease to exist after the authors death. Proprietaryrights, on the other hand, may be transferred to a third party and they exist after theauthors death.

Personal rights consist of: (a) the right to indicate, or not to indicate name or pseudonym

of the author on the work and all its copies during any use of his/her work in public, (b)the right to decide on publishing of a work, (c) the right for inviolability of his work (thisright include protection against unapproved change or other intervention into a work and

protection against defamatory use of work), and (d) the right for corrections of the work.

The proprietary rights of an author consist of the right to use the work and to grantconsent for any further use of the work, in particular: (a) copying of the work, (b) publicdistribution of the work by means of sale, other ownership transfer, lease or free lending,(c) public exhibitions, performance or transmission of the work, (d) editing, translation oradaptation of the work, and (e) contribution of the work into collective works.

The protection period of proprietary rights to work is the authors life and 70 yearscommencing on the first day of the calendar year following his death. In case of


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anonymous works, where the author is not known, the protection period is 70 years fromthe date of publishing thereof.

Special organisations for collective administration of copyrights administering andlicensing certain works and receiving royalties exist in Slovakia. These organisations also

approve retransmission of works on cable networks and receive compensations from theproducers and importer of copying and data storage equipment. At present, the followingorganisations for collective administration of rights are active in the Slovak Republic:SOZA - Slovak Authors Protective Union for Musical Works, Slovgram representing

performing artists and producers of records, OZIS Protective Union of Performers ofSlovakia also representing performing artists, SAPA Slovak Association of Producersin Audiovision, LITA representing authors of literary works.

10.4 Trade Secret

Certain facts, data and information of commercial, manufacturing or technological nature

that are connected to the business activities of an entrepreneur provided that suchinformation have actual, or at least potential, tangible or intangible value, and that are notnormally available in the appropriate industry, where the entrepreneur performs its

business activities while the entrepreneur provides for the secrecy of such information,are considered to be trade secrets. As such, information subject to the trade secret enjoysspecial statutory protection and the entrepreneur has an exclusive right of their use and togrant consent with their use.

All employees of the entrepreneur as well as any third parties are obliged to comply withthe trade secret and keep all information confidential without obtaining a prior writtenconsent of the entrepreneur. The trade secret is not limited by any statutory period. Tradesecret protection lasts for so long as the criteria for the trade secret protection are met.

In event that the employee or any third party would be in breach of duty not to use tradesecrets of the entrepreneur, the entrepreneur could claim the court protection bydemanding (a) such person to abstain from his conduct, (b) restitution to the previousstate of affairs (if possible), and (c) financial relief. The entrepreneur could also claim (d)

payment of the unjustified enrichment, and (e) financial compensation for damages.

10.5 Other Intellectual Property Rights

Slovak law gives protection also to other immaterial values belonging to theentrepreneur, which include: design, utility model, new species of plants and breed ofanimals, designation of origin of products and topographies of semiconductor products.Generally protection of the above mentioned immaterial values is dependant upon theirregistration with the relevant register kept by the IPO.

Other category of immaterial values that is protected automatically without any need forthe registration or notification include for example know how, goodwill and the

protection of the business name. Slovak law gives to these immaterial values the similarscope of protection as to the trade secret.


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11. Common Section - Formal Requirements of Deeds Used in Slovakia

All documents which are to be submitted to Slovak official authorities, e.g. for thepurposes of trade license, registration with the commercial register, or in the other courtor administrative proceedings, must be in Slovak language. In event that documents are

written in other than Slovak language, they are required to be officially translated intoSlovak by an official translator.

Those documents which shall be used in Slovakia for the purposes mentioned above, thathave been signed abroad before a notary public or other similar official institutionverifying signatures of private parties or have been issued by the notary public (such asnotarial deeds) or other foreign official authorities, must be superlegalised up to theSlovak Consular Office in the respective country if there is no legal assistance treaty

between the country of origin and Slovakia or must be apostilled if the foreign statewhere the document was issued is a party to the Hague Convention of 1961 onAbolishment of the Requirements of Legalisation for Foreign Public Documents.

12. Firm Profile of echov Rakovsk

Law firm echov Rakovsk was established in 1990 soon after substantial politicalchanges in former Czechoslovakia. The firm has experienced strong development both interms of professional skills and a client base since its establishment. Roots of currentmaturity of echov Rakovsk lie in combination of deep knowledge of Slovak legalenvironment and considerable international experience. Professional standard of echovRakovsk is maintained and even improved through intensive training made available tolawyers and support staff.

Head office of echov Rakovsk is based in Bratislava, Slovakia and its branch inBrussels, Belgium. At present, the firm operates with 14 lawyers, 2 paralegals and 10members of support staff. All lawyers are members or associates of the Slovak BarAssociation. Some of partners are also members of the International Bar Association andthe American Bar Association. Legal services are provided in English, French, Italian orSlovak language.

echov Rakovsk has considerable experience in mergers and acquisitions, privatization, including privatization of former monopoly state companies, competitionmatters, restructuring and reorganizations, insolvency and composition proceedings,

trademark matters, greenfield and brownfield investments. echov Rakovskhas gainede