Business Environment in EU after Enlargement

Rome, July 9, 2004

Business Environment in EU after Enlargement

Rome, July 9, 2004

• Business Environment in EU• Priorities for Internationalisation• Slovak Tax Reform• EU Challenges• Summary

Rome, July 9, 2004

Business Environment in EU

Rome, July 9, 2004

Global Competitiveness by World Economic Forum

Rank Country1 Finland2 USA3 Sweden4 Denmark5 Taiwan6 Singapur7 Switzerland8 Island9 Norway10 Australia

Rome, July 9, 2004

GDP per capita

1.Luxembourg

33.Slovakia

44.Latvia

40%

0%

60%

60%

Non EU EU 25 EU 15 New EU Members

Rome, July 9, 2004

GDP Growth in last 7 years

2.Ireland

13.Slovakia

67.Belgium

60%

30%

40%

10%

Non EU EU 25 EU 15 New EU Members

Rome, July 9, 2004

FDI bringing New Technology

1.Ireland

7.Slovakia

87.Slovenia

70%

25%

30%

5%

Non EU EU 25 EU 15 New EU Members

Rome, July 9, 2004

Quality of Math and Science Education

2.Belgium

11.Slovakia

76.Portugal

50% 25%50%

25%

Ine staty EU 25 EU 15 Novi clenovia EU

Rome, July 9, 2004

SWOT

StrengthsGrowth in new EU countries

The largest Single Market

Purchase Power

Stable Currency

WeaknessesCAP

Structure of EU budget

State Budget Deficits

OpportunitiesEasy Market Access

Flexible Labor Market

Simple Tax and Administrative Rules

ThreatsShort Term Approach

Decision Making Process

Rome, July 9, 2004

Priorities for Internationalisation

Rome, July 9, 2004

Priorities

1/ Easy Market Access2/ Flexible Labor Market3/ Simple Tax and Administrative Rules

Rome, July 9, 2004

1/ Easy Market Access

• Entry Cost to Market– Denmark 0 fee– In most EU countries high fee (1500-6000

EUR)• Entry Time to Market

– Denmark 3 days, UK 5 days– 2-3 months in some new EU countries

• Simplification of Administration for Start of new business

Rome, July 9, 2004

2/ Flexible Labor Market

• Need for Improvement of Labor Mobility• More flexible Labor Code

– Working Time– Variable Job Contracts– Temporary Workers Use

• Comparison with US• 25 – 54 OK• <25 far behind• >54 far behind

Rome, July 9, 2004

3/ Simple Tax and Administrative Rules

• Income tax level is lower than in US (average 13.3% vs. 15.7%)

• Social cost is doubled than in US (29.9% vs.14.2%)• Social cost reform is necessary in most

European countries• Simple and Stable Rules• Flat Tax

Rome, July 9, 2004

Support for European Enlargement

• European Integration will lead to the Efficiency Improvement

• Economic Standardization• Cultural Localization• Regular communication between Business

and Politics is inevitable

Rome, July 9, 2004

Slovak Tax Reform

Rome, July 9, 2004

Slovak Top Points

• Referendum for EU entry – the highest percentage voting YES (92.5%)

• European Parliament voting – The lowest number of MEP’s against (21)

• The fastest growing economy in Central Europe (4% CAGR 1997-2004)

• The largest country entering to EU and NATO in 2004

• First EU country introducing one VAT rate and one Flat Corporate and Personal Income Tax (19%)

Rome, July 9, 2004

Barriers for Doing Business

• Very often changes of legislation– Income Tax Law -31x, Administration of

Taxes and Fees -20x– Too big contents – Income Tax Law 4x

bigger in 10 years• Ad hoc reaction

– Unexpected fast changes of legislation– Non-univocal explanation of law and

potential conflicts with Tax Offices

Rome, July 9, 2004

Tax Strategy

• Need for new complex Tax Strategy– Taxes should secure funding of public service– Taxes should have as neutral as possible

impact for doing business

Rome, July 9, 2004

Tax System

• Direct Tax– Profit

• Flat Corporate and Personal Income Tax– Equity

• Real Estate Tax• Motor Vehicles Tax

• Indirect Tax– General Consumption

• Value Added Tax– Specific Consumption

• Consumer Alcohol Tax • Consumer Beer Tax• Consumer Wine Tax• Consumer Tobacco and Tobacco Products Tax• Consumer Mineral Oil Tax

Rome, July 9, 2004

Results of Slovak Tax Reform

• Cancelled Inheritance Tax and Tax on Sale of Real Estate

• Flat Tax Introduction• Savings of only one VAT rate• Simplicity of Tax System• Transparency for all Stakeholders• Stimulation for higher Earnings

Rome, July 9, 2004

EU Challenges

Rome, July 9, 2004

EU Challenges

• Constitution Treaty• Structure of EU budget• Tax harmonization• Position of European Institutions after

breaching Growth and Stability Pact• Liberalization• SME Development• GDP Growth

Rome, July 9, 2004

Summary

Rome, July 9, 2004

Summary

• EU is on 70% level of US (GDP per capita)• New EU Members

– GDP per capita– GDP Growth– Direct Taxes Decline

• Reforms for Growth– 1/ Easy Market Access– 2/ Flexible Labor Market– 3/ Simple Tax and Administrative Rules

Rome, July 9, 2004

Joint Objectives with Politicians

• European Union Active Membership• Simplification of Legislation in order to

minimize subjective decisions• Decrease of Social Cost in order to support

the economical growth and to decrease unemployment

• Support of pro-investment environment for local and foreign business including more flexible labor market

• Activities focusing on Ethical Standards improvement and corruption minimization in society

Rome, July 9, 2004

Business will contribute by the growth to the

improvement of quality of lives in EU