While other EU countries benefit from a favorable tax environment and regulations that allow for the free movement of capital, Slovakia, instead of attracting investors, is mired in legislative inaction. Passporting could open the door to fintech, crowdfunding, and cryptoassets, but the business environment is hampered by unnecessary regulations and unfavorable tax conditions.
Membership in the European Union brings a number of significant economic benefits that could substantially strengthen Slovakia’s economic stability. Nevertheless, our country is not taking full advantage of them.
One such benefit is passporting—a mechanism that allows business entities authorized in one member state to provide their services throughout the EU without the need for additional extensive licensing processes.
Slovakia is a small country, and therefore this mechanism can provide it with significant advantages. Despite this, none of the relevant authorities are addressing this issue. Slovakia is thus missing the boat, and it will be difficult to catch up.
Passporting as a Strategic Advantage in Regulated Sectors
Passporting is not enshrined in a single universal regulation but is based on several harmonized EU legal acts that create a common framework for individual member states. It is most commonly used in regulated sectors where a license or regulatory approval is required.
Typical examples include crowdfunding and the crypto-asset market, where the legal basis for the free provision of these services within the EU and the European Economic Area is established by:
- Regulation (EU) 2020/1503 of the European Parliament and of the Council of October 7, 2020 on European business crowdfunding service providers, which introduces harmonized rules for crowdfunding platforms across the EU and enables them to provide services on a cross-border basis.
- Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023 on Markets in Crypto-Assets (MiCA), which establishes a legal framework for the issuance, trading, and provision of services related to crypto-assets within the EU, thereby providing regulated entities with the possibility of passporting.
This mechanism allows entities in the crowdfunding and crypto-asset sectors to operate in the single European market without the need to obtain separate licenses in each member state.
This represents a significant advantage for fintech companies looking to expand across the EU. Several smaller EU countries that seized this opportunity have attracted a number of interesting projects from third countries.
Despite a very proactive approach to these issues and a cooperative stance from the National Bank of Slovakia, our country continues to miss out on huge opportunities because it lacks the legislative and tax incentives that would support the growth of these sectors.
How could Slovakia benefit from passporting?
If Slovakia established a competitive tax burden—for example, lower taxes for these regulated sectors that can utilize passporting—it could attract a number of foreign entities.
These entities would be based in Slovakia but would provide their services across the entire EU, thereby contributing to higher revenues for the state budget thanks to the infrastructure established in our country. Of course, the issue of taxation is more complicated, but the benefit to the country—including in the form of revenue for the state budget—is undeniable.
Being a small country is sometimes an advantage, but you have to be “smart” and support the right things with higher added value. The accumulation of capital and leveraging this advantage for Slovak startups could be significant.
Of course, passporting is only part of the picture; there are more conditions for further development and attracting interesting projects to Slovakia. However, this is an important topic, and we must finally start thinking in a European way.
This model works in countries like Ireland, Estonia, and Malta, which have established favorable tax conditions and attracted a large number of financial and technology companies. Slovakia has the same opportunity, but has not yet taken advantage of it.
Instead of attracting capital, we are increasing the tax burden
Instead of creating an attractive business environment, Slovakia is constantly increasing the tax burden and even introducing new taxes, such as a transaction tax, thereby creating negative conditions for business. The result is:
- Companies relocating to countries with more favorable tax systems (such as the Czech Republic, Hungary, and Ireland).
- The closure of numerous businesses due to unbearable tax and regulatory costs.
- Loss of tax revenue, which the state compensates for by introducing new taxes, thereby further worsening the business environment.
The Slovak capital market is practically nonexistent, which means that any expectations for growth in this sector are minimal. The transaction tax is more of an attempt to kill off the last viable thing we have in Slovakia.
There are entities trying to develop crowdfunding, fintech, or the crypto-asset sector, but under the current framework, most of them resemble castaways on a deserted island—they are underfunded, with a low inflow of resources, and waiting to be rescued.
However, they deserve credit for their determination and good work. This is the sector of the future. Not only regulatory and tax frameworks, but also the overall social structure and societal issues in the country do not contribute to the development of innovation in these areas.
Current tax policy regarding, for example, debt financing significantly limits entrepreneurs’ ability to raise capital. Instead of supporting alternative forms of financing that could contribute to the development of innovation and entrepreneurship in Slovakia, capital is unnecessarily tied up without providing real added value to the economy.
It is precisely this absence of an effective capital market that is one of the main reasons why many promising projects seek more favorable conditions abroad. Better-designed tax and legislative incentives would not only attract investors but also directly support job creation and the growth of the entire entrepreneurial ecosystem.
Time for Change: Slovakia as a Regulatory-Smart Country
It is essential to consider whether a different strategy might offer greater efficiency—namely, building Slovakia into a regulatory-smart country that would fully leverage the benefits of EU membership.
Properly designed tax and regulatory conditions could turn our country into a modern business hub that would attract foreign entities and strengthen economic stability.
If we want to prosper, we must stop discouraging entrepreneurs and instead create conditions in which it pays for them to stay and invest in Slovakia. The key lies in an attractive tax burden, modern regulatory policy, and support for entities in regulated sectors.
It is not too late—there are opportunities on the horizon that can be seized. However, it is essential that those in charge finally wake up and stop addressing trivial issues that contribute nothing to Slovakia’s development.
