Company Formations: A jurisdictional guide to setting up a business

QUESTION ONE – What are the most common structures used when international clients want to form a company in your jurisdiction? Any examples?

The most common structures used when international clients want to form a com­pany in Slovakia are the limited liability company joint stock company and a branch of a foreign entity, which however is not a legal entity.

In general, the limited liability company is the preferred legal vehicle, because there are fewer steps in the procedure of company formation, and fewer capital require­ments, thus the process of limited liability company formation is faster and cheaper.

Running a limited liability company is more flexible from the point of simpler organisational structures and decision making for the company’s shareholders, compared to the joint stock company.

A limited liability company is generally used by international clients, as a subsidiary of their foreign parent company. A joint stock company is used by international clients when their intention is to set up a joint venture with a strategic partner in the Slovak Republic.

There is also a new legal form of a so-called simple joint stock company. It was introduced in 2017 and it is a hybrid type of partnership, having the features of a joint stock company, but also of the limited liability company. Comparing it with the standard joint stock company where minimum registered capital is EUR25,000, the simple joint stock company is significant for a low minimum registered capital of 1 EUR. This legal form of company is suitable for start-ups, making it easier to attract investors and venture capital.

The popular structure among international clients is a limited partnership, used as a holding company mostly for the purpose of tax mitigation when the client uses the synergy of advantages of limited partnership and taxation of individuals according to a double tax treaty.

QUESTION TWO – Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in your jurisdiction should be aware of? How can you help them to streamline the process?

Slovakia is ranked 42nd among 190 economies, by the World Bank, for ease of doing business. However, the Slovak legal landscape continues to be subject to fre­quent changes and therefore there is no stability in legislation and also the quality of legislation itself is questionable. With regard to company formations, the Slovak Commercial Code has changed several times and in particular, the administration of the process of company formations has increased.

Some of the most unfavourable legislations include construction permits, high social and health insurance payments and strict regulation of establishment and termination of employment. Also, last year surcharges for night work and work during Saturdays, Sundays and during the public holidays increased.

Such regulations make the labour market in Slovakia less flexible than other coun­tries. Slovakia has the highest corporate tax (21 per cent) among Central Europe countries (19 per cent on average), but on the other hand, the dividend tax is just 7 per cent, which is among the lowest in the region.

The main advantages of Slovak regulation are the simplicity of property transfers, insol­vency legislation and easy access to bank loans. Law enforcement is improving promisingly too, where new civil procedure codes (effective from July 2016) and newly implemented electronic services from the state should help to speed up court procedures.

In order to streamline the process of establishing a presence in Slovakia, our firm provides the client with comprehensive legal services starting with suggesting the suitable structure of doing business. This typically continues with the service of company formation, commercial and employment contracts, advising on various tax issues, rental or purchase of a property. We have communicated with the state authorities electronically for the past couple of years, which saves time and money for the client.

QUESTION THREE – What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in your jurisdiction?

The following steps have to be undertaken by a company formation agent prior to commencement of business relations between a company formation agent and the client;

1. Identification of an entity and its verification, which shall be done via proof of identification of the client on the basis of ID card or passport, in case of natural persons and on the basis of the documents and data from official registers in case of legal entities.
2. Identification of ultimate beneficial owners (UBO) and taking of appropriate verification measures, including those ones to identify the ownership structure and management structure of the client.
3. Obtaining information on the purpose and intended nature of the business.
4. Ascertaining whether the client or UBO of the client is a politically exposed person (PEP) or sanctioned person.
5. Ascertaining the origin of finances (source of funds) and property used in the business.

The company formations agent is obliged to monitor continuously the truth and validity of KYC made according to the above-mentioned steps, during the whole period of business relations with the client. The company formations agent is obliged to keep the data and documents collected from the client for the purpose of KYC for five years from the termination of business relations with the client. Collecting data and documents about the client for the purpose of KYC is closely linked with the pro­tection of personal data, however, for the purpose of protection towards anti-money laundering and financing of terrorism, the company formations agent is obliged to collect the above-mentioned data about the client without the client’s consent.

Slovak banks strictly follow anti-money laundering laws and indeed now require from clients more data and documents than in the past. It is also not certain anymore that Slovak banks will open bank accounts for persons or entities of whom KYC tests are positive, as we were used in the past. For instance, the banks consider the nationality of the UBO itself more strictly, and it is almost impossible nowadays to open bank accounts for Russian citizens, Cypriot or even US entities.

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