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Then she said something astounding. “The gentleman you need to meet will be on vacation when you visit Bratislava. But I’m sure he’ll want to meet with you anyway.” Whoa, wait a minute. A bureaucrat taking time off from vacation to meet with a journalist? This is something you would never experience in Austria, or almost anywhere else. No, I hadn’t misunderstood. So, I made my appointment with this official, along with some other contacts, and, a few days later, took the morning train from Vienna’s Südbahnhof to Bratislava. An Old-World Museum…But Where’s Starbucks? Once you cross the Danube from Austria into Slovakia, it’s almost like entering a time warp. Immaculate Austrian villages give way to abandoned factories and dilapidated warehouses as you approach Bratislava. But, once you arrive at the railway station and take a taxi into the center, things change completely. Bratislava, or at least the center of it, is a picturesque old-world city of 400,000. There are beautifully restored Baroque area buildings…tree-lined piazzas and fountains…but I sensed something was missing. Austria and the rest of western Europe “Americanized” years ago. Vienna is chock-full of Starbucks, H&M Clothing stores and western-style residential high-rises, in addition to the wonderful old-world ambience of the former center of the Habsburg Empire. In Bratislava, you get the old-world ambiance…but not much more. Back in the glory days of the Soviet Union, Slovakia was part of Czechoslovakia, Eastern Europe’s center for heavy industry. Tanks, AK-47s and even automobiles rolled off its assembly lines in staggering quantities. But while most of what Czechoslovakia produced was fine for the Red Army, it wasn’t of a high enough quality to compete in global markets. After the Soviet collapse in 1989, Czechoslovakia once more became a sovereign nation. Four years later, Slovakia split from the Czech Republic and decided to remain a “socialist paradise” rather than embrace capitalism as the Czechs were doing. But instead of getting better, things got worse. Factories closed…young people started leaving in droves…and Slovakia got a reputation as being the “rust belt” of eastern Europe. Finally, in 1998, Slovakia began throwing off five decades of socialist economic dogma and tried a new approach: to lower taxes and cut regulation in an effort to turn Slovakia into Monaco on the Danube…or at least, Detroit. And in 2002, it enacted a truly radical law—a flat 19% tax on all income—both business and corporate—capital gains and value-added tax. The results of these efforts are nothing short of breathtaking. While high-tax EU countries (especially France and Germany) are furious, since 1998, companies like Peugeot, Volkswagen, Siemens, Johnson Controls, Whirlpool, U. S. Steel, Motorola, Verizon, Samsung, Sony, AT&T and Dell—just to name a few—have built factories or made other investments in Slovakia. And, the world is starting to take notice. The World Bank gave Slovakia the distinction of showing the world’s greatest progress in business reforms during 2003. It also ranks Slovakia highest among world economies in creating the most beneficial conditions for doing business. The time needed to establish a business in Slovakia dropped from 89 days in 2001 to 52 days in 2003. Finally, in May 2004, Slovakia became a member of the EU. Moreover, the enthusiasm young Slovakians have for free markets and for Western influences is amazing. For instance, the demand for native English-speakers is nearly insatiable. Indeed, the head of the American Chamber of Commerce in Slovakia told me that he could find a native English speaker a job teaching English in a reputable school in one day. Talk about an opportunity for a young (or young-thinking) person seeking adventure and profit. Land in Bratislava one day…and be earning enough money to support yourself the next! And, speaking of the cost of living…while it’s no longer possible to buy a one-bedroom apartment in a restored mansion for US$15,000, or buy a pack of cigarettes for US$1, like you could two years ago, you can still live well on an income of US$1,500/month, including good seats at the opera for US$15 (versus US$250 in Vienna), a bottle of first-class Slovakian wine for US$2 and a renovated city-center apartment for US$500/month. (You can find a nice apartment in an outlying area of Bratislava for about half that amount.) And, if you form a business in Slovakia, you can hire highly-educated employees for one-fourth the going rate in Austria. And the taxes? Well, if you are a Slovak tax resident, you pay a 19% tax on your worldwide personal income (plus Social Security taxes, but with a very low wage cap)…and if you form a Slovak company, you’ll pay 19% tax on the profits. But, there are clever ways to reduce even this tax burden. For instance, Slovakia doesn’t generally tax its residents’ interests in profits from foreign and Slovak corporations that they control. You could, for instance, form a Panamanian international business company (IBC) and have the IBC open a bank account in neighboring Austria (with its nearly impenetrable bank secrecy laws) and use your debit card to withdraw US$1,500 or so each month to live on. There are also tax incentives available for investment in particularly depressed areas of Slovakia (although no longer in Bratislava). One tax advisor I spoke to told me about a family that owns one of the leading soft drink franchises in the Czech Republic. They decided to build a plant in Slovakia, and the Slovak government gave them a _2 million tax incentive. They won’t pay a dime in corporate tax, even at the low 19% rate, until they make at least _2 million in profit. Another popular tax-planning idea is to form a Slovak company with foreign shareholders (again, perfectly legal). Have the company invest in, say, a fixer-up building that you plan to turn into Bratislava’s first Starbucks—or its first Kentucky Fried Chicken. Even if business isn’t great (although it probably will be, because Slovakians are intrigued by anything American, plus you’ll get a lot of the burgeoning tourist traffic), in a few years you should be able to sell the business, building and all, for a hefty profit. For foreign shareholders, the tax-wise way to do this is to sell the shares of the Slovak company to another group of foreign shareholders. That way, you don’t have to pay any Slovak tax—not a single Koruna—on your capital gain from sale of shares. Buy A Castle For Three Cents…And Other Ways To Make A Killing In Slovakia Is there a “best” way to make money in Slovakia? No…like anywhere else, the best way to uncover the opportunities is to make a personal visit and look around. In the little time I spent in Slovakia, though, I came across a couple of ideas that I think are worth investigating: Buy and restore a castle. In some parts of Slovakia, you can buy a castle for SK1—the equivalent of about three U.S. cents. These are mostly properties seized 50 or 60 years ago by the Communists and given over to party hacks. When there was no longer money available to keep them up, they were abandoned. It strikes me that an entrepreneur could purchase one of these old gems, perhaps near a historic city, ski resort or other tourist attraction—and turn it into a one-of-a-kind bed-and-breakfast. Is there a catch? Actually, there are several. First, the castles sometimes haven’t been lived in for decades. While exterior walls are usually in good shape (they were built to last centuries), you’ll need to install new windows, a new roof, and completely gut the interior (although EU funding is available to pay for part of the renovation cost). Second, many of these properties are located in really remote (albeit beautiful) places. Third, you’re also supposed to finish your renovations in five years or less. One thing you won’t have to worry about, though, is good title—the deadline for former owners of these properties to reclaim them is long past. Finally, these deals aren’t easy to find. There’s no central database; the best way to discover them, according to Jake Slegers, head of the American Chamber of Commerce in Bratislava, is to drive around the Slovak countryside until you see a big, old and obviously empty dwelling. If there’s no “Na Predaj” (for sale) sign (often there’s not), ask the neighbors (or the mayor of the nearest village) who owns it. In these matters it’s immensely useful to have someone fluent in the Slovak language make the initial contact and to have a local lawyer review the sale documents before you sign them. The American Chamber can provide references to qualified lawyers. Antiques. Slovakia is a living museum, but most Slovaks, especially the younger ones, don’t like living in a museum. They want everything new, and are willing to sell most of what’s old for prices far below what you’d pay in the United States—or just across the border in Austria. I don’t know much about antiques, but if I did, I would consider starting a business buying some of the treasures you see for sale for next to nothing and shipping them back to the United States for resale there. The places to look for the best deals are in the smaller villages, not necessarily in Bratislava, where prices are much higher. Slovakia lacks so many things, and is so eager to embrace western ways, that I think these opportunities are just the tip of the iceberg. It’s also centrally located and within a two-hour plane flight for nearly 500 million people. It’s educated…democratic…free market…and primed for fast growth. Now is the time to get in on the ground floor of opportunity. It’s easy to get to Slovakia—the discount airline Sky Europe (http://www.skyeurope.com) flies to Bratislava daily from London, Paris, Barcelona, Zurich and other cities, for fares starting at _50 round-trip. Or, you can take a train to Bratislava, as I did, from Vienna, for the sum of only $12.20 round-trip. Contacts In Slovakia To learn more about opportunities in Slovakia, I recommend you begin by contacting the American Chamber of Commerce in Bratislava. Follow that up with visits to SARIO (the government agency responsible for promoting industrial development in Slovakia) and, if you’re interested in tax-planning opportunities, a good accounting firm. American Chamber of Commerce Hotel Danube; Rybné nám. 1 813 38 Bratislava Tel.: +(42) 1 2 5934 0508; Fax: +(42) 1 2 5934 0556 E-mail: director@amcham.sk; Link: http://www.amcham.sk Slovak
Investment and Trade Development Agency (SARIO) Martincekova 17;
821 01 Bratislava; Tel.: +(42) 1 2 5810 0310; Fax: +(42) 1 2 5810 0319;
E-mail: sario@sario.sk; Link: http://www.sario.sk
Petr
Spacil c/o Ernst & Young, Zochova 6-8, 811 03 Bratislava; Tel.: +(42)
1 2 5922 9620; E-mail: petr.spacil@ sk.ey.com;
Link: http://www.ey.com/global/content.nsf/
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