Doing Business as Individuals (Natural Persons) – Operation of a Trade
Anybody wishing to carry out business as a natural person may do so either under a trade license, or under other license issued according to special legal regulations (e.g. as a health care or law professional).
This form of business is appropriate mainly for those wishing carry out business individually and independently of additional business partners.
The mandatory obligation to create registered capital does not apply to this type of business.
The downside of this option is the fact that the entrepreneur is liable for the debts resulting from the business activities with his/her entire assets, whether such assets are, or are not used for business purposes.
On the other hand, the advantage attached to this form of doing business is the simple and hassle free establishment and winding up of the business, and relatively low costs of both these processes.
Nationals of EU or OECD countries are authorized to establish businesses in the Slovak Republic as individuals without any major restrictions, while third country nationals (such as Ukrainian nationals) must first obtain a residence permit in order to be allowed to establish a business, and this may be an administratively burdensome process.
Limited Liability Company (s.r.o.)
Limited liability company is the most widely used form of doing business in Slovakia.
A limited liability company may be established by one to 50 members who may be either individuals or legal persons.
The company’s executive and representative body (štatutárny orgán) is comprised of one or more than one executive officers (konateľ) representing the company against third parties.
Establishment of the supervisory board is not mandatory, but this corporate body may be created in accordance with the company’s Memorandum of Association.
As indicated in the name itself, the liability for company’s debts is limited.
Upon its establishment, a limited liability company must create a registered capital of at least EUR 5,000.-, provided that the minimum contribution in the registered capital by a member is EUR 750.-. Contributions may be either pecuniary (cash) or in-kind (such as land, technologies, IT rights and such).
An ownership interest in a limited liability company, and thus the ownership of and control over the company, may be transferred through a simple agreement.
Joint-Stock Company (a.s.)
The registered capital of a joint-stock company is distributed among a number of shares with certain nominal values.
Founders of a joint-stock company sell shares in the company to shareholders in order to obtain funds. A joint-stock company is liable for its debts with all its assets, while shareholders themselves are not liable for the company’s debts.
A joint-stock company may be founded also by single, i.e. sole, shareholder who must be a legal person; otherwise, joint-stock companies may by founded by at least two or more than two founders.
Shares in a joint-stock company may be in the documentary or book-entered forms. The law allows also for ownership of bearer shares that, however, must be exclusively in the book-entered form in order to prevent anonymous shareholding in a Slovak joint-stock company.
The executive and representative body (štatutárny orgán) of a joint-stock company is its Board of Directors. Individual Directors and the Chairman of the Board act in the Company’s name.
Creation of a supervisory board is mandatory for a joint-stock company.
Joint-stock companies mandatorily create a registered capital of at least EUR 25,000.-.
The advantage of a joint-stock company is that it may obtain the necessary financial means for implementation of its more extensive business plans through its shares.
Simplified Joint-Stock Company (j.s.a.)
Simplified joint-stock is a a type of business company combining certain traits of an s.r.o. and a.s.
A company is concerned whose registered capital is distributed among certain types of shares with certain nominal values.
A simplified joint-stock company is liable for non-performance of its liabilities with its entire assets, while shareholders are not liable for the company’s debts in any manner.
Shares in this type of a business company may only be in the book-entered form and must be registered to particular names.
The executive and representative body (štatutárny orgán) of a simplified joint-stock company is its Board of Directors. Individual Directors and the Chairman of the Board act in the Company’s name.
A simplified joint-stock company is not required to constitute a supervisory board.
A company of this type may be founded by one or more than one persons, and the amount of the registered capital of a simplified joint-stock company must be at least EUR 1.00-.
The advantage of a simplified joint-stock company is that it can issue a variety of types of shares meaning that certain shareholders may exercise voting rights while other are entitled only to a share in the company’s profits.
General Partnership (v.o.s.)
General partnership is a business company established under a memorandum of association where at least two persons participate in its business under shared business name and are jointly and severally liable for the company’s debts with all their assets. The company is also liable for its debts with all its assets.
Each of the partners, who are also the company’s executive and representative body, (štatutárny orgán) acts in the company’s name vis-a-vis third parties.
The company’s capital is comprised of contributions made by each partner, and the company is not required to create registered capital, unless this is required under the memorandum of association.
In the memorandum of association, partners may address in more detail internal relationships within the company.
This type of business companies is characterized with an appreciable engagement of its partners who also assume increased risks associated with the company’s business.
Limited Partnership (k.s.)
A limited partnership is comprised of at least two partners. One of the partners has unlimited liability for the company’s debts (General Partner), while the other partners are liable only up to the amount of their unpaid contribution in the company’s capital (Limited Partner).
Limited Partners having paid-in their contributions (that must not be less than EUR 250.-) in full are no longer liable for the company’s debts. Limited partnerships are established under a memorandum of association.
This type of a business company may be regarded as a hybrid between the general partnership and limited liability company, as the provisions of the Commercial Code dealing with general partnerships apply mutatis mutandis to the company (in its capacity as legal person) itself, while the legal position of limited partners is regulated by the provisions of the Commercial Code dealing with limited liability companies.
The company’s business is managed solely by its general partners who are entitled to a higher share in the company’s profits, while also assuming a higher liability. General partners also act as the company’s executive and representative body and each of the general partners is authorized to act in the company’s name independently, unless the memorandum of associations requires otherwise.
Cooperatives are legal persons and represent a specific form of entrepreneurship. A cooperative is not a business company.
Cooperatives are communities comprised of an open number of persons establishing the cooperative in order to carry out business, or to secure other economic, social or other needs of their members.
A cooperative must be comprised of at least five members who are individuals, or at least two members who are legal persons. Cooperative members are not liable for the cooperative’s debts.
Cooperatives must have a registered capital of at least EUR 1,250.-. The registered capital of a cooperative is comprised of an aggregate of individual contributions its embers undertook to pay-in. The advantage of cooperatives is the unlimited maximum number of their members and the possibility to join or exit the cooperative at any time.
Taxation of Businesses in Slovakia
All entrepreneurs, whether doing business as individuals or legal persons, are required to pay income taxes in Slovakia.
Tax rates apply to the income of individuals in a specific manner. Namely, they are based on the tax base achieved by the individual in the given tax period. Annually, this base rate itself is based on the actually valid minimum subsistence figure. Depending on that figure, the tax rates applicable to income from business and other independent gainful activities may be 15%, 19% or 25%.
The amount of taxable income must be followed also for legal persons in order to establish whether the prescribed thresholds have been achieved. Depending on this, the tax rate is either 15% or 21%, if the applicable threshold has been exceeded.
Dividends paid out to eligible beneficiaries are also subject to taxation. Two types of tax rates apply here, namely tax rates of 7% or 35%. If an individual is a beneficiary of a dividend payable from a Slovak legal person, the legal person will pay out to the individual a dividend to which a withholding tax at the rate of 7% has already been applied. This tax rate is applied also where a natural person is a beneficiary of a dividend payable from a legal person who is a taxpayer in a foreign country with whom Slovakia has a double taxation agreement in place.
A tax rate of 35% is applied to dividends payable from legal persons that are taxpayers in a non-cooperating foreign country.
Value added tax is a generally applicable tax, meaning that it applies indiscriminately to all goods and services. The Slovak tax legislation recognizes a general VAT rate of 20% and a reduced VAT rate of 10% applying to selected goods and services.
Mandatory Registrations in Slovak Public Registers
Entrepreneurs who are natural persons (individuals) must register in the Slovak Trade Register (živnostenský register).
Entrepreneurs wishing to establish a business company in Slovakia, or a local branch (organizačná zložka) must be registered in the Commercial Register (obchodný register).
Entrepreneurs wishing to bid in public tenders or otherwise obtain funds from the public purse, whether in a capacity of principal contractor or sub-contractor, are required to register also in the Public Sector Partners Register (Register partnerov verejného sektora) and List of Operators (Zoznam hospodárskych subjektov).