Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic in 2018

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The submitted Report on the State of Small and Medium Enterprises in the SR in 2018 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 Report is to highlight the developmental trends and the most significant 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 2018, they represented 99.9% of the total number of business entities in the Slovak economy. SMEs employed approximately three quarters (73.2%) of the active labour force in corporate economy and helped to create more than half of the added value (54.6%). Compared to 2017, the employment in SMEs increased by 1.4%, the added value by 11% with the year-on-year growth being the most significant in the last 8 years. The pre-tax profit generated increased year-on-year by 18.4% and the gross production of SMEs by 7.8%. According to preliminary results of the SO SR, the year-on-year growth rate of SME exports also increased by 3.6%. Despite the positive development in several indicators, small and medium-sized enterprises were not successful in following the previous positive development in investment activity. The decline in investment shows a possible slowdown in the economic performance of SMEs in the future.

According to records of the Statistical Office of SR (hereinafter referred to as “SOSR”), the number of active business entities in 2018 reached 560,521, while SMEs represented 559,841 out of the above-stated figure. Compared to 2017, the number of active SMEs increased by 1.3%. Out of the total number of enterprises, microenterprises represented 96.8% (542,525), small enterprises 2.6% (14,328) and medium-sized enterprises 0.5% (2,988) and large enterprises 0.1 % (680). The position of the category of micro-enterprises in Slovakia is more significant in comparison with EU countries, given their achieved share in Slovakia.

In recent years, the number of micro-enterprises has oscillated around 97% of the total number of business entities. In the year 2018, their number decreased slightly (by 1.4%), mainly due to a decrease in the number of active self-employed persons as well as continuous growth of employment in SMEs in the last three reporting periods, which led to the transfer of business entities to higher business categories (with a higher number of employees).

In 2018, there was a positive trend in the number of established small and medium-sized enterprises with their number increasing by almost one fifth (19.4%) year-on-year to 78 075 entities. The most significant was the year-on-year increase in the self-employed category. Another positive fact in 2018 was a decrease in the number of disestablished business entities by 0.8%, i.e. 52 168 entities. The net increase in business entities was twice the amount compared to last year (25,907 business entities).

The position of women in the business sector in Slovakia did not change significantly in 2018. Nevertheless, their share increased by 0.2 pp compared to 2017, i.e. to 29.2%.

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. On the contrary, after the previous increase in 2018 the share of

natural persons – entrepreneurs aged 60 and over decreases. In the period under review, most entrepreneurs were included in the age group from 30 to 49 years.

More than three-quarters (76.4%) of small and medium-sized enterprises in Slovakia performed their main business activities in the following four sectors: business services, trade, construction and industry. In terms of the sectoral structure of small and medium-sized enterprises, more than one quarter (26.7% meaning 149,528 entities) were small and medium-sized enterprises operating in the business services sector. Almost one fifth of SMEs (19% meaning 106,643 entities) performed their core business in the trade sector. This was followed by the construction sector, with a share of 17% (95,315) of active SMEs. In the industrial sector, a total of 76,454 small and medium-sized enterprises (SMEs) performed their core business and their share in terms of sectoral structure reached 13.7%. The share of other sectors in the monitored category of SMEs did not exceed 10%, while the lowest share in the long term was reported by the agriculture sector (4.1%) together with the accommodation and catering sector (3.3%).

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, the growth rate of SME exports increased by 3.6% in 2018, which means that it is also the highest growth rate recorded in the last 3 years. On the other hand, due to a stronger acceleration in the growth of large enterprise exports compared to SMEs, there was a year-on-year decrease in the share of SMEs in total exports (27.4% in 2018) which means the lowest share since 2010 in terms of SME monitoring. There was also an increase in the SME passive balance, which has been observed continuously for the fifth 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 2018, a number of major legislative changes affecting SMEs were recorded. The most important of these are adoption of the Act against bureaucracy, adoption of the Act on social economy and social enterprises, amendment to the Act on Public Procurement referring to the introduction of reserved contracts, extensive amendment to the Land Registry Act and legal enshrining of new tax on non-life insurance. The Value Added Tax Act introduced a reduction in the tax rate on accommodation services, and a new provision regulating the recreational vouchers for employees was added as part of the Act on Support of Tourism.

The adoption of the Act against bureaucracy, which came into force on 1 September 2018, can be considered a positive. The aim of the adopted Act is to reduce the administrative burden of natural and legal persons and to exempt them from the obligation to submit the most frequently requested extracts from registers in the most common life situations in which citizens communicate with the state.

Another positive fact is the adoption of the Social Economy Act, which entered into force on 1 May 2018. The Act is part of the overall strategy of social economy development in the Slovak Republic and establishes social economy entities, social enterprises, organizations of the social economy sector, providing support for enterprises in the wider area of ​​social economy, defines the social economy sector and state administration in the social economy sector. The aim of the law is to create space for a socially oriented economy as an integral part of the public economy, by defining the conditions for the creation of social economy entities and their support. Social economy entities should focus on meeting societal objectives by achieving measurable positive social impact. The Act, in its wording, distinguishes the positive social impact by fulfilling the public or community interest. The Act specified the conditions for granting the status of “registered social enterprise” while stipulating that a registered social enterprise is obliged to meet the conditions of the granted status at all times. Registration has the effect of obtaining state support (in direct or indirect form). The use of direct forms of support in the form of investment and compensatory financial assistance is graded depending on the social economy entity. In addition, a registered social enterprise can receive aid in the form of support for demand in the form of service vouchers, income tax relief (from that part of the profit it decides to use to achieve its main objective), a reduced VAT rate of 10% (after fulfilment of the condition that 100% of its profits will be invested in the fulfilment of the main objective) and support in the form of substitute fulfilment.

Furthermore, it was an extensive amendment to the Cadastral Act, the purpose of which is to accelerate and improve the registration of real estate, as well as to create legislative conditions reflecting the requirements of application practice. Currently, it is possible to request a list of real estate, which is a summary of data on all properties located in the territory of the Slovak Republic owned by one person.

Another positive fact also includes the reduction of the VAT rate on accommodation services, from the original 20% to 10%, effective from 1 January 2019. This reduced tax rate applies not only to hotel and similar accommodation services but also to accommodation services in student homes or dormitories or accommodation in workers’ dormitories and the like.

On the other hand, during the monitoring period, the formation or extension of several obligations occurred together with legal 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. Insurance tax does not apply to mandatory-contracting-insurance (MCI). The tax base rate is 8% for the relevant insurance.

In 2018, support for SMEs was mainly provided from the resources of the European Structural and Investment Funds (hereinafter referred to as “ESIF”) and from the state budget. Non-repayable assistance in the form of grants prevailed. Based on the documents received from individual institutions, the number of funds disbursed through SMEs amounted to EUR 686,846,194. In 2018 the disbursements reached the volume seen two years ago. Non-financial form of assistance included providing business-related information and consultancy, business education, organizing and supporting participation in exhibitions, national, international or cooperation events or other activities focused on promoting enterprising. A more detailed overview of the assistance provided to SMEs in the previous year is provided in Chapter 3. Support programs, measures and initiatives in relation to SMEs.

In 2018, the Slovak Business Agency 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 the previous monitoring year, 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.

SBA also actively assessed materials and provided its opinions and commentaries through the Better Regulation Centre (hereinafter referred to as “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 (143 in total with impact on the business environment) and provided detailed opinions containing suggestions for better capturing the impacts of the new regulation on business environment. Impact assessment was carried out through the SME test (ex ante and ex post). At the same time, the BRC has been actively and on its own initiative involved in providing content-related comments on new regulatory proposals (consultations), which have resulted in the incorporation of some important BRC initiatives, which has somewhat reduced the regulatory impact on SMEs.

As part of the Bureaucratic Nonsense of the Year poll, the Better Regulation Centre expertly evaluated the collected suggestion, quantified the extent of their impact on the businesses concerned, and drafted material measures to optimize the regulatory burden. At the same time, it participated in the preparation of the training manual for the SME Test of the Uniform Methodology, especially in order to increase the importance of the development of the SME Test as well as the actual updating of the Uniform Methodology. Furthermore, BRC’s proposals contributed to the development of the 2nd and 3rd package of the Proposal for measures to Improve the Business Environment. In addition to the above, BRC won the national European Enterprise Promotion Award in 2018 in the Business environment support category and participated in several conferences and seminars with an emphasis on entrepreneurship, informing about the content of these via social networks.

The submitted Report on the State of Small and Medium Enterprises in the SR in 2018  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. At the same time, however, 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. Improving business conditions should contribute to the overall improvement of the quality of the business environment in Slovakia.