On 28 February 1999 the Government of the Slovak Republic approved the 'Strategy for promotion of the entry of foreign investment into the Slovak Republic.' The Government will be promoting in particular such foreign direct investment (FDI) which is oriented toward manufacturing final products with a higher degree of added value and toward mostly export-oriented production and services; the Government will grant additional advantages to those investors who will put capital into the establishment of a firm high-employment region.

The Government will prepare an amendment to Act No. 286/1992 Col. on income taxation, as altered and amended, containing the following motivation measures for new undertakings set up as companies limited by shares from 1 April 1999 onward, in which a foreign stake is at least 75 per cent:

Tax credit amounting to 100 per cent of profit tax during the first five years (commencing the year in which the undertaking posted a profit, if and when the undertaking has satisfied the conditions below:

Tax credit amounting to 100 per cent of profit tax during the first five years (commencing the year in which the undertaking posted a profit, if and when the undertaking has satisfied the conditions below:

This tax credit may be increased each year by a sum of 20 per cent of activated costs of development formed through own activity. Such amended law will take effect as of 1 April 1999.

The Government will encourage the entry of FDI even by way of the following measures:

Zero-rated import duty on machinery and equipment that are part of the selected Organisation for Economic Co-operation and Development (OECD) list (sections HS and HS85 - hi-tech technologies) on the understanding that the machinery is new and not yet undepreciated in another country. It will apply to a tax entity that has its inception after 1 September 1999 and with its registered office in the territory of the Slovak Republic whose line of business is largely the production of goods and provision of services except for the services of banks and insurance companies, commercial services (retail and wholesale) and intermediary services and will pay toward stock capital through money or material contributions from resources abroad. (Such amended customs rules should take effect on 1 September 1999.

Providing an investment-ready area for a token price. To this end, it is necessary to make adjustments to the granting of a free loan to a municipality up to 50 per cent of costa associated with building an industrial infrastructure. Also the differentiated appraisal of real estates for domestic and foreign businessmen should be removed until 31 August 1999.

Providing contributions to support creating new jobs, maintaining existing jobs and retraining under the promotion for FDI inflows into high-unemployment regions.

Reducing or remitting the obligation to pay the unemployment insurance contribution to the employer doing business with foreign capital under the above principles is to be regulated ex lege until 31 December 1999.

Perspective reductions (no later than 2001) in the current rate of income tax which is the highest in Central Europe.

Taking measures to improve the functioning of the financial and capital markets as a major intermediator of liquidity for the corporate sphere.

The law on industrial parks, the law on industrial zones and the law on duty-free zones should take effect on 1 January 2000.

Sector priorities for further FDI inflows into the economy of the Slovak Republic

In the area of production of chemical products, especially, but not limited to, the following is prospective to see further FDI inflows:

• 533 - pigments, paints and lacquers and particular materials - with FDI export and technological innovation orientation;
• 541, 542 - medical, pharmaceutical produccts and medicaments - with FDI oriented towards exports as well as export substitution;
• 533 - perfumes, cosmetics and toilet products (excluding soap) with FDI technological-innovation and substitution-import orientation.

In the area of commodity group 6 - market products, FDI inflows appear to be seen with four commodities, namely:

• 657 - special yarns, textiles and products - with FDI substitution-import, technological-product-innovationor export orientation;
• 658 - textile products not categorised elsewhere (tents, watertight sheets, curtains, housing textiles) - with FDI oriented toward substitution of imports or exports;
• 666 - ceramics with FDI technological innovation and substitution-import or export-orientation;
• 697 - household metal appliances - with FDI oriented toward substitution of imports or towards exports.

In the area of mechanical products and means of transport, possibilities are arising for Slovakia's international co-operation based on FDI in nearly all selected dynamic commodities of the world trade. First of all the need has been identified with:

• 713 - combustion piston engines - with FDI technological innovation and export orientation;
• 728 - machinery and equipment specialised for individual sectors and parts (stone, woodworking machines and the like) - with FDI oriented largely toward technological innovation, import substitution, or in combination with exportation of components and parts;
• 741 - heating and refrigerating equipment - with FDI technological-product-innovation, subsitution-import and export orientation, or in combination with exports;
• 742 - pumps and liquids - with FDI technological-product-innovation, substitution-import orientation in combination with exports of final products or of components and parts;
• 743 - pumps, air and gas compressors, fans - with FDI technological-product-innovation, substitution-import and export orientation or with possible exportation of compomnents.
• 781 - passenger cars - FDI oriented toward substitution of imports and toward exports;
• 783 - motor vehicles - FDI oriented toward technological-product innovations, toward substitution of imports or toward exports;
• 784 - motor vehicle parts and accessories with FDI in relation to Groups 781 and 783;
• 791 - rail vehicles with FDI oriented toward technological-product-innovations (altered programme of production) and toward exports.

Also the area of electrical products stands to gain relatively much from a possible international co-operation based on FDI. It appears desirable to place FDI, especially, without being limited to the following commodities:

• 752 - automatic data processing machines - with FDI oriented in particular toward substitution of imports, or in combination of production and exportation of components and parts thereof;
• 761 - television receivers - with FDI oriented toward exports;
• 764 - telecommunications devices - with FDI oriented toward substitution of imports, also, as the case may be, in combination with production and exportation of components and parts thereof;
• 771 - electric machines (transformers, converters) - with FDI largely oriented toward exports;
• 772 - electric instruments to connect and protect electric circuitry - with FDI oriented toward substituting imports and boosting exports;
• 774 - electrodiagnostic apparatus for medical, surgical, dental or veterinary purposes and radiological apparatus - with FDI oriented toward technological-product innovations, import substitution or toward exports with alternative production and exportation of components;
• 776 - electronic integrated circuits - with FDI technological-product-innovation, substitution-import or export orientation;
• 778 - galvanic cells, lamps, discharge tubes and other electric equipment - with FDI oriented at the same time toward technological innovations, import substitution and exports.

Certain possibilities for FDI inflows could be expected also with:

• 831 - travel haberdashery - with FDI oriented toward product innovations and exports;
• 872 - instruments and applicators other than for medical, surgical, dental and veterinary purposes - with FDI oriented toward exports.