Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic in 2019

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The submitted Report on the State of Small and Medium Enterprises in the SR in 2019 presents a comprehensive view of the state and development of the business environment in the sector of small and medium-sized enterprises and support of SMEs in the period under review. The objective of the Report is to highlight the developmental trends and the most significant approved and effective legislative changes in course of the year which have an impact on SMEs. It also seeks to highlight the existing barriers, together with proposals for measures to improve the business environment for the benefit of SMEs.

The importance of small and medium-sized enterprises in the Slovak economy may be described using several indicators. In 2019, they represented 99.9% of the total number of business entities in the Slovak economy. SMEs employed approximately three quarters (73.8%) of the active labour force in corporate economy and helped to create more than a half of the added value (54.9%). The slowdown in the growth of the Slovak economy was also reflected in the economic performance of the sector of small and medium-sized enterprises. The value added of SMEs in the non-financial corporate economy reduced its growth rate to 3.6% year-on-year. In absolute terms, there was a year-on-year increase in the gross output of SMEs – legal entities (4.3%). On the contrary, profit before tax of SMEs – legal entities decreased (by 7.8%). According to the preliminary results of the SOSR, the volume of SME exports decreased by 2.5% year-on-year. Despite the reduced volume of SME exports, the share of SMEs increased year-on-year, which was due to the fact that in the reference year of 2019 there was a more significant decrease in the volume of exports of large enterprises compared to small and medium-sized enterprises.

According to records of the Statistical Office of SR (hereinafter referred to as “SOSR”), the number of active business entities in 2019 reached 595,042 while SMEs represented 559,371 out of the above-stated figure. Compared to 2018, the number of active SMEs increased by 6.3%. Out of the total number of enterprises, microenterprises represented 96.9% (577,827), small enterprises 2.4% (14,601) and medium-sized enterprises 0.5% (2,943) and large enterprises 0.1 % (671). The position of the category of micro-enterprises in Slovakia is more significant in comparison with EU countries, given their achieved share of the total number of business entities in Slovakia.

Due to the increase in the number of small and medium-sized enterprises, the rate of business activity of SMEs also increased to 21.6% in 2019. Among the EU countries, Slovakia ranks among the countries with the highest number of small and medium-sized enterprises per total population.

In 2019, there was a positive trend in the number of established small and medium-sized enterprises with their number increasing by 8.7% year-on-year to 84 883 entities. The most significant was the year-on-year increase in the liberal professions. A less positive fact in 2019 was represented by the decrease in the number of disestablished business entities by 7.5%, i.e. 56,097 entities. The higher increase in the number of established entities compared to the disestablished was reflected in the year-on-year growth of the net increase of business entities, which increased by 11.1%, i.e., to 28,786 business entities.

In 2019, the trend of increasing representation of women among natural persons – entrepreneurs was interrupted. The share of women in the total number of natural persons – entrepreneurs decreased by 1.0 pp. to the level of 28.2%. The development of the age structure of natural persons – entrepreneurs has recently been characterized by an increase in the representation of entrepreneurs in younger age categories of less than 30 years of age. In 2019, the trend of increasing representation of young people also stopped, while the largest representation of entrepreneurs was in the age category from 30 to 49 years.

In line with long-term development trends observed in the sectoral structure of SMEs, in 2019 entities operating in the field of services had the most significant representation (46.4%). A slight increase in representation has been perceived in recent years in the construction sector, which represented 17.9% of all entities within the size category of SMEs in 2019. 17.8% of small and medium-sized enterprises were active in trade, 13.8% in industry and 4.1% in agriculture.

As for the foreign-trade exchange of goods, large enterprises have maintained their long-term dominant position. According to the preliminary results of the SO SR, a year-on-year decrease in SME exports of 2.5% was recorded in 2019. On the other hand, due to a more significant decrease in exports of large enterprises (by 5.0%) than in the case of SMEs (by 2.5%), there was a year-on-year increase in the share of SMEs by 0.5 pp. (to 28.0%). There was also an increase in the SME passive balance, which has been observed continuously for the sixth monitoring period.

The business environment in Slovakia is characterized by frequent legislative changes affecting, among other things, obligations and requirements with an impact on the SME sector. In 2019, a number of major legislative changes affecting SMEs were recorded. The most important of these include the following: the reduction of the VAT rate on accommodation services, the new legal regulation of conditions in the area of taxi services provision, which brings extensive changes in the operation of the taxi service. Other significant changes in the legislation includes the reduction of the administrative burden in connection with the adoption of other measures through which it was possible to amend the Act against bureaucracy. Furthermore, this included the start of functioning of public administration systems which abolished the obligation of natural persons and legal entities to submit several extracts from various registers and from the end of 2019 other obligations were abolished to avoid the need to submit a certificate of tax arrears, a certificate of customs arrears and confirmation of arrears on health insurance.

In 2019 (with effect from 2020), a reduction in the corporate income tax rate was adopted from the original 21% to 15%. The amendment will also affect self-employed persons, whose income tax rate will also be reduced from the original 19% to 15%. In both cases, these are entities whose annual income does not exceed EUR 100,000. At the same time, there has been a legislative change aimed at relieving the courts by stopping some distraint executions. The effective solution to the problem of conducting some long-term distraint executions applies to cases in which the debtor’s property is not seized or the execution is not stopped, even though the debtor is poor. In addition, an extensive amendment to the Act on the Social Economy and Social Enterprises was approved. The primary goal of the amendment to the Act was to supplement the legislative regulation of the social economy sector and to create suitable conditions for the social economy to develop and be a benefit not only for increasing employment. The legislator also intended to adjust the support system to be socially acceptable and to fully comply with state aid rules. The amendment is intended to help eliminate specific application problems. The concept of a company with a social impact has also been fundamentally redefined so that more entities can meet the conditions set for a company with a social impact as an “intermediate step” to meet the conditions specified for a social enterprise.

On the other hand, during the monitoring period, the formation or extension of several obligations occurred, in particular the introduction of a new insurance tax. The subject of the tax is insurance in the non-life insurance sectors, which are listed in the annex to the relevant Act. The tax base rate is 8% for the relevant insurance. Insurance tax does not apply to Mandatory contracting insurance (MCI).

The total volume of SME support in 2019 was of the level of EUR 694,626,313.80. In terms of the structure of forms of financing, the direct form of support was the most common and reached a level of EUR 597,824,906.20, i.e., 86.1% of total SME support. A total of EUR 96,801,407.60 was provided in the form of indirect support for small and medium-sized enterprises, i.e., 13.9%. The overall real use was higher year-on-year, but the year-on-year development in the area of SME support lost its dynamic trend. The most significant share in the support of SMEs in terms of individual categories is attributed to the category of loans or credits (40.6% of the total support provided to SMEs) and the category of subsidies, NFP, grants (40.4% of the total support provided to SMEs). Bank guarantees (7.5%) and venture capital (5.1%) were also among the most important categories. A more detailed overview of SME support is provided in Chapter 3.

In 2019, the Slovak Business Agency (hereinafter referred to as “SBA”) continued to meet the objectives of providing comprehensive assistance focused on the SME sector, while continuing to support them through the implementation of several national or international projects. In 2017 the SBA launched several national projects funded by the OP Research and Innovation, offering a wide portfolio of services for SMEs and business enthusiasts, whether in Bratislava or in individual regions of the Slovak Republic.

The SBA actively assessed materials with an impact on the business environment, provided opinions and comments on proposals for new regulations through the Better Regulation Centre (hereinafter “BRC”). In 2018, the BRC assessed (from the content and procedural point of view) the reality of the captured impacts in all the Business Environment Impact Analysis and provided detailed opinions containing suggestions for better capturing the impacts of the new regulation on business environment.

The submitted Report on the State of Small and Medium Enterprises in the SR in 2019 contains also comprehensive proposals and recommendations for further improvements of the business environment in the SME sector the main goal of which is to support positive trends and to contribute to a growth of the SME sector and its dynamics and in particular to enhance its competitiveness.

In line with the needs of SMEs, it is necessary to continue to streamline support for SMEs. In order to promote a stable business environment, it is necessary to continue in a systematic cooperation and coordinated approach of all relevant departments, as well as taking into account the proposals and recommendations of individual entities. Mutual and intensive cooperation should be aimed at improving business conditions and, ultimately, at increasing the competitiveness of not only SMEs but also Slovakia as a whole.