While other EU countries benefit from a favorable tax environment and regulations allowing free movement of capital, Slovakia is struggling with legislative inaction instead of attracting investors. Passporting could open the door to fintech, crowdfunding, and crypto assets, 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 significantly strengthen Slovakia's economic stability. However, our country is not taking full advantage of them.
One such advantage is passporting, a mechanism that allows businesses 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 offer it considerable advantages. Despite this, no one in a position of authority is paying attention to this area. Slovakia is missing out on an opportunity that will be difficult to catch up on.
Passporting as a strategic advantage in regulated sectors
Passporting is not enshrined in a single universal regulation, but is based on several harmonized EU laws that create a common framework for individual member states. It is most commonly used in regulated areas where a license or approval from a regulator is required.
Typical examples are 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 laid down in:
- Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for businesses, which introduces harmonized rules for crowdfunding platforms across the EU and allows them to provide services on a cross-border basis.
- Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets (MiCA), which establishes a legal framework for the issuance, trading and provision of services in the field of crypto-assets within the EU, thereby providing regulated entities with the possibility of passporting.
This mechanism allows crowdfunding and crypto asset entities to operate in the single European market without having to obtain separate licenses in each member state.
This is a significant advantage for fintech companies looking to expand across the EU. Several smaller EU countries that have seized the opportunity have attracted a number of interesting projects from third countries.
Despite a very proactive approach to these issues and a welcoming attitude on the part of the National Bank of Slovakia, our country continues to miss out on huge opportunities because it lacks the legislative and tax advantages that would support the growth of these sectors.
How could Slovakia benefit from passporting?
If Slovakia set a competitive tax burden – for example, lower taxes for these regulated industries that can use passporting – it could attract a number of foreign entities.
They would be based in Slovakia but would provide their services across the EU, contributing to higher revenues for the state budget thanks to the infrastructure created in our country. Of course, the issue of taxation is more complicated, but the benefits for the country, including in the form of revenue for the state budget, are 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 the use of this advantage for Slovak companies in development 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, it is an issue that needs to be addressed, and we must finally start thinking in a European way.
This model works in countries such as 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 moving to countries with more favorable tax systems (such as the Czech Republic, Hungary, and Ireland).
- Several entities ceasing business activities due to unbearable tax and regulatory costs.
- Loss of tax revenue, which the state compensates for by introducing new taxes, further worsening the business environment.
The Slovak capital market is virtually non-existent, 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, and crypto assets, but in the current setup, most of them resemble castaways on a desert island—they are malnourished, underfunded, and waiting to be rescued.
However, they deserve credit for their determination and good work. This is a sector of the future. Not only the regulatory and tax settings, but also the overall mindset of society and social issues in the country do not contribute to the development of innovation in these areas.
The current tax policy on debt financing, for example, significantly limits the ability of entrepreneurs 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 blocked without real added value for the economy.
It is precisely this absence of an effective capital market that is one of the main reasons why many promising projects are seeking more favorable conditions abroad. Better tax and legislative incentives would not only attract investors but also directly support job creation and the growth of the entire business ecosystem.
Time for change: Slovakia as a regulation-smart country
It is essential to consider whether a different strategy would offer greater efficiency – namely, building Slovakia as a regulation-smart country that would take full advantage of the benefits of EU membership.
The right tax and regulatory conditions could turn our country into a modern business center that would attract foreign entities and strengthen economic stability.
If we want to prosper, we must stop discouraging entrepreneurs and instead create conditions that make it worthwhile for them to stay and invest in Slovakia. The key is an attractive tax burden, modern regulatory policy, and support for entities in regulated industries.
It is not too late – there are opportunities on the horizon that can be seized. However, it is essential that those in power finally wake up and stop dealing with issues that have zero benefit for Slovakia's development.
