Embarking on an investment journey in a foreign country requires careful consideration and strategic planning. Among the hidden gems of European countries, Slovenia is an attractive investment destination for investors seeking opportunities in diverse industries. Nestled in the heart of Central Europe, Slovenia boasts a strategic location, a stable political environment, and a well-developed infrastructure. This guide gives prospective investors a holistic overview, offering insights into the key factors shaping their investing in Slovenia.
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Factors To Be Considered Before Investing in Slovenia
Location: Slovenia stands out as a compelling destination for Foreign Direct Investment (FDI) owing to its cutting-edge infrastructure, strategic access to vital EU transportation networks, a significant port along the Adriatic Sea, a well-educated workforce, proximity to Central European and Balkan markets, and its affiliation with the Schengen Area, European Union (EU), and the Eurozone.
Legal framework: Slovenia has implemented comprehensive FDI legislation since May 31, 2020, with effect from March 1, 2023. Some foreign investments in Slovenian companies may undergo review, and the acquisition of real estate linked to critical infrastructure may also be subject to review.
Financial incentives: Slovenia provides advantageous tax incentives for investment, research and development, and employment to promote swift and seamless adaptation to the demands of the green economy.
Screening mechanism: The Slovenian government has implemented a permanent foreign investment screening regime to replace the temporary COVID-era framework. This new mechanism could affect the ease of foreign investments in the country.
Economic growth: Slovenia's economy has experienced faster growth than many other EU member states, with increasing incomes, growing domestic consumption, declining unemployment, low inflation, and a boost in consumer confidence. However, approximately one-fourth of Slovenia's economy is still state-owned or state-controlled, and foreign investors have noted a need for more transparency in economic and commercial decision-making.
Foreign Direct Investments: According to UNCTAD's 2022 World Investment Report, FDI inflows into Slovenia declined to only USD 206 million in 2020 but surged to over USD 1.5 billion in 2021, surpassing pre-COVID-19 levels. The total stock of FDI was estimated at USD 20 billion.
The key sectors for foreign direct investment in Slovenia are the manufacturing sector, finance and insurance, and wholesale and retail trade. These sectors consistently attract a significant portion of FDI due to modern infrastructure, access to EU transportation corridors, a skilled workforce, and proximity to Central European and Balkan markets. Slovenia also offers favourable tax incentives. However, potential investors may encounter challenges such as lack of transparency, bureaucratic procedures, and regulatory red tape, requiring careful navigation of the strategic investment climate and regulatory environment.
The legal framework for foreign direct investment (FDI) in Slovenia is regulated by the Investment Promotion Act (ZSInv) and the amended Investment Promotion Act (ZSInv-1), with a temporary FDI framework in place until June 30, 2023. The FDI screening mechanism is based on the Act Determining the Intervention Measures, with the Ministry of the Economy, Tourism, and Sport responsible for determining the impact of FDI on public order or security.
The most common types of companies in Slovenia include Limited Liability Company (LLC), Sole Proprietorship (SP), Joint Stock Company, and other variations. Foreign entrepreneurs often prefer LLCs and SPs due to their characteristics. Understanding the specific requirements and seeking professional advice when considering starting a business in Slovenia is essential.
The procedure needs to be followed as per the steps below.
Choose a Company Type: Select a suitable company type, such as LLC, SP, joint-stock company, or others.
Founding Capital: Ensure the required founding capital is available for the chosen company type.
Submit Required Documents: Submit necessary documents, such as the Act on Establishment, online through the government's portal SPOT or a notary public.
Register with the Court and Business Register: The company is registered with the Court Register and the Slovenian Business Register after document submission.
Obtain a Tax Number: Obtain a Slovenian tax number at the Tax Administration office before registering the company.
Open a Bank Account: Open a bank account and obtain a receipt, typically completed within one day.
Register with the Health Insurance Institute: Register with the Health Insurance Institute of Slovenia, typically completed in one day.
The CPA was formed in 2013 as an independent administrative body after restructuring the previous Slovenian Competition Protection Office, which was previously part of the Ministry of the Economy. Some private sector representatives expressed concern about the CPA's susceptibility to outside influence and ability to reach timely decisions on complex cases, adding unpredictability for some investors and their legal counsel. As per Article 69 of Slovenia's Constitution, the government can acquire real property or restrict property rights for public purposes in the public interest, providing compensation in kind or financial compensation as specified by law.
The registration process takes 4 to 6 days, depending on the company type and relevant authorities' schedules. Certain conditions must be met for online registration or through SPOT; otherwise, registration must be done through a notary public. Professional advice and understanding legal and financial aspects are essential for informed decisions.
The investment screening mechanism in Slovenia mandates that foreign investments, encompassing a minimum of 10 per cent of share capital or voting rights in Slovenian companies, are subject to approval from the Ministry of Economic Development and Technology. This requirement applies specifically to investments involved in critical infrastructure, critical technologies, dual-use items, the supply of essential inputs, access to sensitive information, the freedom and pluralism of the media, and specific projects and programs aligned with the interests of the European Union. In essence, the review process aims to regulate and assess foreign investments in strategic or sensitive sectors, ensuring they align with national and EU interests.
In Slovenia, companies are subject to share ownership notification requirements, mandating that any entity acquiring shares must promptly inform the company when their ownership stake reaches, exceeds, or falls below specified thresholds. These thresholds, commonly set at 5%, 10%, 20%, 25%, 33%, 50%, or 75% of total shares, ensure transparency and facilitate companies in monitoring significant changes in their ownership structure. This legal provision aims to promote good corporate governance and transparency in share ownership, aligning with international practices prevalent in many countries.
Investing in Slovenia is attractive due to its central location in Europe, well-developed transportation networks, favourable investment climate, modern infrastructure, and educated workforce. While Slovenia follows EU standards, potential investors may face challenges such as opaque economic decision-making and bureaucratic procedures. The government actively seeks foreign direct investment by offering financial assistance, fiscal incentives, and support through Invest Slovenia. Despite promising economic growth, potential investors should carefully navigate Slovenia's business environment and regulatory framework.
What is the health of the financial markets in Slovenia?
Slovenia's financial markets are small, with limited depth and liquidity, domestically focused, and supervised by multiple authorities. The state actively participates in these markets, and the legal framework complies with EU legislation. Slovenia's economy heavily relies on foreign trade, particularly with EU member states and non-EU countries in the Western Balkans and Eastern Europe, making it susceptible to international price and supply chain issues.
What was the total FDI in 2022 in Slovenia?
In 2022, Slovenia attracted EUR 20.2 billion in total FDI, marking a 7.6% increase from the previous year. The stock of inward FDI from EU Member States totalled EUR 15.9 billion, constituting 78.8% of total inward FDI in Slovenia.
What is the role of the Bank of Slovenia?
The Bank of Slovenia, established in 1991, is responsible for maintaining price stability, implementing monetary policy, supervising the banking system, managing the Central Credit Register, ensuring deposit security, overseeing bank resolution, managing official foreign reserves, operating payment systems, and issuing euro banknotes.
What is the current state of Mergers and acquisitions activity in Slovenia?
M&A activity in Slovenia has been dynamic, with a rise in recent years. Despite fewer deals in 2022 than in 2021, the market remained active. The stable political and economic environment has attracted foreign investors. Share deals and joint ventures are common, especially in renewable energy projects. The IT sector has seen significant activity, and despite the impact of COVID-19, the outlook for M&A in Slovenia is positive.