Today and tomorrow: a field of business opportunities
Fuelled by large-scale state infrastructure projects, such as the EUR1 billion investment into the construction of the second railway track from the Port of Koper to Divača and the second Karavanke tunnel tube, construction activities are currently paving the way towards economic recovery from the COVID-19 shock. With foreign investors increasing their presence in Slovenia due to logistical challenges brought to light by the COVID-19 crisis, the Slovenian construction and real estate sector are booming, with increased activity in the construction of production, logistic and retail facilities, as well as the existing retail facilities changing hands.
The residential real estate market is growing as well due to the demand for new residential real estate still far exceeding its supply. This demand-supply discrepancy results in the majority of new apartments – especially in the state capital – being sold before construction even starts. This puts the investors in a highly advantageous position, as they are able to dictate the terms of sale. While regulations are in place to protect the buyers of new residential real estate, their reach is limited allowing strongly positioned investors to condition the sale on various highly innovative terms, such as for example requesting the buyers’ advance consent allowing other owners to make their units available for short-term leases through different internet platforms (which in the past had to be agreed through a special procedure between the community of owners in each specific building). Such high demand also drives the prices of residential buildings, which are expected to continue to grow, although at a slower pace compared with the previous years (when the prices of used apartments on average increased by almost 43% from 2015 to 2020).
A special Act was adopted by the Slovenian parliament in order to accelerate kick-start of significant investments in Slovenia as soon as possible after the COVID-19 pandemic ends. The Act applies to all investments that will, by 31 December 2021, be determined as significant investments by the Slovenian Government, on the basis of a proposal by the Minister of the Environment and Spatial Planning. As of March 2021, there are 314 such investments.
Pursuant to the Act, all significant investments are considered to be made for the public benefit and must be addressed as a matter of priority by the competent authorities. This applies regardless of the source of financing of an individual investment, which may also include private funds or private funds combined with public sources of funding. Additionally, court proceedings relating to legal protection in construction permit issuance procedures will be considered urgent and priority matters, in order to obtain a final decision as quickly as possible.
The legal criteria for labelling an investment as a “significant investment” include the value of each such investment exceeding EUR5 million or EUR25 million, depending upon the classification, and implementation of certain objectives of national and European Union strategic policies and programmes in the field of transport, energy, economic development infrastructure, environment, agriculture, housing, health care, home care, construction of sheltered housing, education, sports and science, defence, public administration, culture, internal and foreign affairs and justice. Each such investment must be ready for implementation by the end of 2021 and appropriate financial resources for the implementation have to be ensured by the same deadline.
Due to the small size and export-orientation of the Slovenian economy, further recovery of Slovenian economy will also be focused on companies finding alternatives to enter new markets and optimising and digitalising their business processes. Market trends in the last months show that there are opportunities for companies in Slovenia to introduce new business models responding to changing preferences and needs of consumers. Today, this primarily means investments of businesses into e-commerce sales channels and their expansion, as well as in innovations with respect to digitalisation, remote working, online education and tele-medicine. Such investing will inevitably require courage of the financial sector to support the businesses’ growing demand for working capital and capex financing and their overall financial needs in these times of uncertainty. The changed business reality is therefore also an opportunity to ignite post-pandemic lending activities on one side, and an opportunity for businesses in Slovenia to acquire favourable financing to boost their business transformation and become the driving force for growth and innovation in the post-pandemic time.
Key legislative changes affecting future investments in Slovenia
Whilst the Slovenian government introduced numerous emergency public health measures and mitigating financial interventions to help and protect the Slovenian economy, several legislative changes affecting future investments in Slovenia were also introduced over the past year in Slovenia.
As part of the legislation addressing the effects of COVID-19 on the economy, Slovenia introduced a new foreign direct investment (FDI) screening regime in June 2020. Generally, the new rules correspond to the EU FDI Screening Regulation and are intended to catch transactions which could threaten Slovenian strategic industries and businesses. There is, however, one major difference making the Slovenian regime more burdensome: the regime applies also to investments from other EU member states. Moreover, the new rules are somewhat unclear and ambiguous, both as regards the notification obligation as well as the screening procedure.
The FDI screening is required for acquisition of 10% or more of share capital or voting rights in Slovenian companies whose activities concern (i) critical infrastructure, (ii) critical technologies and dual-use items, (iii) supply of critical inputs, (iv) access to sensitive information, including personal data, or the ability to control such information, (v) the freedom and pluralism of the media, and (vi) projects and programmes that are of European Union interest. Especially “access and the ability to control personal data” under point (iv) could cause many otherwise unproblematic transactions to require an FDI approval. Under the applicable legislation, the Slovenian Ministry of Economy may authorise, condition, prohibit or unwind a transaction. However, in practice the Ministry usually issues an informal opinion. Additionally, the Ministry has a five-year period to screen an investment, whereby it is not clear whether or not a positive initial opinion prevents potential prohibitions in the future.
Even more recently, in February 2021, the Slovenian laws imposed stricter conditions on foreign persons who wish to register as shareholders in Slovenian companies. The changes do not affect acquisition of existing shares in joint stock companies. In all other cases, a foreign person (either an individual or a legal entity, from an EU member state or from a third country) may only be registered as a shareholder of a Slovenian company provided that it has in its own home jurisdiction (i) not been found guilty of certain criminal acts, (ii) in the last 12 months duly paid all taxes, submitted all necessary tax returns and been compliant with VAT obligations, and (iii) not been subject to more than one administrative fine relating to work remuneration or relating to undeclared work in the last three years. Additionally, requirement on compliance with tax obligations under point (ii) shall also apply to all subsidiaries in which the registering shareholder holds, directly or indirectly, more than 25% of the share capital. The law foresees that the relevant limitations will be checked through mutual exchange of information between countries once established; however, for the time being no such exchange exists. Therefore, in order to satisfy the requirements, the registering shareholder will need to procure sufficient official evidence from its home jurisdiction and possibly home jurisdictions of its subsidiaries.
These new requirements need to be taken into consideration in the timing of a transaction and selection of the investing entity as the respective documents and statements may not be readily available in all jurisdictions.
Odvetniki Šelih & partnerji, o.p., d.o.o.
- Barbara Hočevar
- Nataša Pipan Nahtigal
- Špela Remec
- Miha Štravs