Category: Slovenia

In contrast to the previous financial crisis, when many construction companies in Slovenia declared bankruptcy, the current pandemic crisis has not affected the infrastructure sector to the same extent as other sectors. In fact, public infrastructure projects in Slovenia are currently on the rise. The focus of the current investment cycle is on the rail and road infrastructure for international and domestic use.

Although there are many ongoing projects, they are not implemented through public-private partnerships but through public procurements or concessions, both being time-consuming procedures under mandatory Slovenian laws. Even though there are some, public-private partnerships (PPP) do not play any significant role in Slovenia.

Major Infrastructure Projects

Major projects currently in the construction phase include the second railway line between Koper and Sezana, the third development axis (road), and the second pipe of the Karavanke tunnel, which play an important role in the Trans-European Transport Network.

The second track is a 27.1-kilometer railway line between Divaca and Koper, managed by the state-owned company 2TDK and financed by the state, bank loans, and EU grants. The project is of international importance as it connects the main Slovenian port of Koper with the interior. The port of Koper plays an important regional role as it covers an area from Bavaria to Slovakia and Hungary. The project foresees first upgrading the existing line and then building an additional line.

The Karavanke Tunnel’s second pipe project, which is being built in parallel to the existing tunnel, will improve on an already successful previous project. The first Karavanke Tunnel, almost eight kilometers long, was a major investment that facilitated the connection and improved road transport between Austria and Slovenia by linking two major motorways. The projects are co-funded by the EU as part of a wider European transport network.

The third development axis will improve internal links and facilitate connectivity between neighboring countries. The northern route will link Austrian Carinthia with the interior of Slovenia, while the southern route will continue from the interior to the Croatian border. The route is divided into several sections which are put out to tender individually. The overall project value at constant prices is estimated at EUR 1.3 billion, of which EUR 937.62 million are allocated for the northern part and EUR 406.54 million for the southern part. The first section awarded in the north had a value of EUR 45.86 million, while the other sections have not been tendered yet.

Other projects in the pipeline, such as upgrading the existing Maribor-Sentilj-state border railway line and the railway line connecting the capital with the Austrian border, are mainly improving the internal movement of people, but also the connection and cooperation with neighboring countries.

In addition to the above-mentioned projects, several other projects are planned, such as the construction of a new railway and bus station in Ljubljana, the capital of Slovenia, which was rumored to be a PPP project, whereas for the time being Hungarian companies seem to be most active on this project.

Legislation

Due to the deficient legal basis and the lack of political will to make necessary legislative changes, the absolute majority of all economic cooperation between the public and the private sector is carried out either through public tenders or by means of concessions.

In Europe, public-private partnerships are quite common, and their key advantages and disadvantages are well known. In Slovenia, more than 20 years have passed since the first PPP projects were realized, but since then there has been no significant progress like in other EU countries.

The first specific PPP law was adopted in 2006 but, in practice, the law never had a real practical relevance as it has several shortcomings. Among other critical voices, the Court of Auditors in Slovenia cited the lack of adequate organizational support and lack of adequate implementation support for PPP operators from the competent state authorities, along with various other problems.

With elections to the National Assembly due in April, it remains to be seen whether the new government will take a different approach toward public-private partnerships.

By Maja Subic and Ales Lunder, Partners, Senica & Partners

This Article was originally published in Issue 9.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

ODI Law has advised Slovenian real estate developer Eta Invest on refinancing its financial debt owed to Elements Capital Management with a new loan obtained from a commercial bank. Ketler & Partners, a member of Karanovic, advised ECM.

According to ODI, “the refinancing represents the completion of a financial restructuring initiated in 2019 by the private equity fund acquiring all financial claims existing at the time,” (as reported by CEE Legal Matters on November 13, 2019).

“Eta Invest is currently managing the construction of 28 villas near Nova Gorica, Slovenia. The construction is a welcomed novelty in an otherwise undernourished regional housing market,” the firm informed.

The ODI team was led by Partner Tine Misic and Senior Associate Primoz Mikolic and included Associate Eva Hafnar.

The Ketler & Partners team included Partner Igor Angelovski and Senior Associates Vesna Lozak Polanec and Petra Lipovsek.

ODI Law has advised Slovenian diagnostic system manufacturer Mesi on a strategic investment from Heine Optotechnik CEO Oliver Heine. EY Law Germany reportedly advised the investor.

According to Mesi, Heine joins the company as a new investor and strategic advisor to accelerate growth, with the goal of increasing the number of Mesi mTablet users to more than 100,000 over the next few years.

Mesi is a Slovenian company providing clinicians with predictive medical assessment devices, aiming to empower first-contact care to diagnose diseases early and provide on-time treatment.

Heine Optotechnik is a German diagnostic instruments manufacturer. The company is present in 120 countries around the world, with subsidiaries in Australia, the US, Canada, and Switzerland.

“Mesi is digitalizing the medical practice with the latest benefits that digital technology and AI have to offer,” Heine commented. “An all-in-one diagnostic measurement system, automatic administration, and the instant recording of results are just some examples. I look forward to advising the Mesi team as they strive to make the work of healthcare professionals faster and more effective.”

“Welcoming Oliver Heine as an investor and board member is a great honor,” Mesi CEO Jakob Susteric added. “Heine Optotechnik has been synonymous with product quality for more than 75 years. Our common values are sustainability, customer commitment, and timely diagnostics for effective treatment. The strategic partnership with a visionary like Heine is proof that our efforts have been recognized at a global level.”

The ODI team was led by Senior Associate Primoz Mikolic and included Senior Associate Klemen Kos and Associate Eva Hafnar.

All is quiet on the western front for Slovenia – apart from the outcome of the April 2022 parliamentary elections – but concerns over energy, exports, and the potential EU embargo against Russian oil and gas are mounting, according to Karmen Rebesco Law Firm Partner Karmen Rebesco.

“Although to a certain extent predictable, the high percentage of people that decided to vote (70%), the highest since the elections in 2000, is still surprising,” she says. The Freedom Movement and its leader, Robert Golob, captured 34,5% of the votes against the 23,6% garnered by the ruling party. Golob is a former state secretary for energy and the former CEO of a state-controlled Slovenian energy company and, according to Rebesco, “his mandate as chairman ended in November 2021 and was not renewed because it was strongly opposed by the ruling party.”

“In any case, a skilled manager from the field of energy with experience in state administration is certainly something that Slovenia could use, considering the possible embargo the European Union is contemplating against imports of Russian gas,” Rebesco notes. “If it were to come to pass, I think there would be a serious chain reaction impacting swaths of businesses in Slovenia in a very negative way.”

Additionally, Rebesco reports of increased activity on renewables and green energy projects in the country. “The new EU ESG Taxonomy is quite important, of course, but specific legislation incentives would still have to be introduced in Slovenia to make it market-interesting for investors,” she explains. “There will have to be changes made on all levels, from capital adequacy rules onwards – otherwise things will not move.” With the potential to have a major problem with gas imports, she says such changes “would be crucial to enable an efficient switch towards more sustainable and independent sources of energy.”

With a significant number of Slovenian businesses being heavily dependent on export/import activities, it is easy to see why Rebesco feels an embargo would be a negative outcome for the country. “Quite some companies in Slovenia have business models that focus on exporting to Russia specifically and, with Russia being such a large and diversified market, it’s clear why,” she explains. “If Russia gets taken completely off the board – including as a consequence of the transaction ban imposed on the Russian banking sector,” Rebesco says that it would be “quite difficult for Slovenian companies to find an adequate substitute market quickly, if at all.”

The Financial Administration of the Republic of Slovenia (Tax Authority) had already issued its first extensive guidelines regarding cryptocurrency taxation in 2017. According to the guidelines, capital gains generated from trading in virtual currencies by a natural person outside the scope of performing a business activity are not subject to personal income tax (PIT). Nevertheless, any income generated by a natural person as part of a business or entrepreneurial activity associated with cryptocurrencies is taxable.

The guidelines also cover income due to the acquisition of crypto-assets, which is usually important in initial coin offerings or new token launches. Accordingly, taxable income due to a free-of-charge or for a value lower than market value acquisition of crypto-assets is considered realized when the individual actually receives the crypto-assets, even when there may be restrictions on the disposal (e.g., lock-up period). Fundamentally, there are five categories of income that the tax authority considered in the acquisition of tokens, where facts and circumstances of each case should be examined, as presented below.

The first category is income from an employment relationship. For example, the tax authority can treat the received tokens as salary if it establishes the existence of employment relationship elements defined under Article 4 of the Slovenian Employment Relationship Act. These elements are voluntary inclusion into an organized work process of the employer, the performance of work for payment, personally and uninterruptedly, according to the employer’s instructions and supervision. Therefore, if the tax authority concludes that these elements exist, the allocated tokens are subject to compulsory social security contributions and progressive taxation.

Secondly, tokens can be treated as income from an employment relationship based on other contractual relationships when tokens are given to individuals not employed by the company or given as a reward or payment for services in connection with project development. Accordingly, such a reward is included in the individual’s taxable income after deduction of compulsory social security contributions and flat-rate expenses (10%). In such case, the PIT is prepaid at a 25% rate, and the income is included in the annual personal income tax return, subject to progressive taxation when the recipient is a tax resident of Slovenia.

Thirdly, if the natural person has less than a 25% holding in the company associated with allocated tokens, it is taxed as other income. Consequently, other income is taxed at a 25% rate, is included in the annual PIT return, and is subject to progressive taxation when the recipient is a tax resident of Slovenia.

The fourth possibility is the treatment of tokens as a hidden dividend distribution. Suppose the recipient acquires tokens below market value based on their participation of at least 25% in the equity of a company. Such a benefit is considered hidden profit distribution and is taxed as dividend income under the PIT Act. Tax is levied at the final 27,5% rate when the income is received/paid to the natural person or otherwise made available, i.e., when it is transferred to the individual’s digital wallet. Correspondingly, this possibility seems to be the most favorable one from the taxpayer’s point of view.

Lastly, tokens can be treated as income generated by a natural person from an individuals’ business activity. Income from the business activity is considered income from independently performing an activity, regardless of the purpose or result of performing the activity, as per Article 46 of the PIT Act. The key qualifying factor of entrepreneurial activity is that it is performed regularly rather than occasionally, performed in the market or for the market, and the individual operates as an entrepreneur. Consequently, a natural person performing such activity is obliged to pay PIT on business activity income and calculate and pay social security contributions.

All things considered, the obvious choice for individuals involved in crypto-asset transactions is to work with tax advisors to determine taxation in advance to mitigate potential future tax risks. However, even if the tax perspective of their crypto transactions is not covered before the token’s launch, it may still be worthwhile to consult with tax advisors regarding appropriate tax reporting.

By Janja Ovsenik, Partner, and Lucijan Klemencic, Tax Director, Senica & Partners

This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.

Imminent elections, tax framework overhauls, and potential shortages in an otherwise solid economy are the immediate concerns in Slovenia, according to Senica & Partners Partner Janja Ovsenik.

“The current front runner for the upcoming elections is Robert Golob, a businessman with limited political experience,” Ovsenik begins. “He has a very tight lead over Janez Jansa, who has quite a loyal and disciplined voter base and a very concrete political program. I think this could make the elections very, very close.” Ovsenik explains that the “parties on the left side of the political spectrum have been quite vocal about not wanting to be a part of any coalition including Jansa. With over 25% of voters left undecided – it’s hard to predict the outcome – I believe that four or more parties will have to work out an agreement in order to form a government,” she says.

Focusing on recent legislative updates of note, Ovsenik mentions an overhaul of a part of the tax framework. “In addition to corporate income tax changes, which started to be applied as of this year, there have been strong additional incentives put into play for stimulating green economy investments,” she reports. “Also, there have been changes to the personal income tax, which were passed just recently and apply retroactively, from January 1, 2022. The long-awaited updates have led to a higher net salary for every citizen, given that they cut some taxes down,” Ovsenik explains. “Additionally, Slovenia has introduced a number of performance-related payments and other options schemes, in order to attract high-quality specialists from abroad,” she adds. Assessing the tax updates, Ovsenik reports that these were all “very welcome,” although expectations were higher. “Slovenia still has one of the highest levels of social security contributions in all of Europe – there were hopes of introducing a potential cap on these, but it hasn’t happened,” she says.

Further, Ovsenik reports that a “draft law regulating digital currencies is being discussed right now. It is supposed to become effective in 2023, which means that even with the current slowdown of all legislative processes due to the upcoming elections, it is likely we will see it passed this year,” she says.

Speaking of the economy in general, Ovsenik says that the effects of the war in Ukraine are being felt. “There have been some five thousand refugees already registered in Slovenia, and the country is hard at work at integrating them and giving them a safe harbor. The war is impacting agriculture and food products, with the main concern being the potential shortage of energy and mineral fertilizers,” she explains. With the country experiencing 8.1% GDP growth in 2021, it remains to be seen how the war impacts growth in 2022.

Finally, touching on important deals of late, Ovsenik points to the recent sale of Pipistrel, an “aviation pioneer in Europe. Pipistrel has been producing electrically powered airplanes for a while now, and its sale to Textron is a strong indication of the quality and further growth,” she explains. “It is also a good sign that its R&D department will stay in Slovenia, meaning that the economy will only benefit,” Ovsenik concludes.

Fabiani, Petrovic, Jeraj, Rejc Attorneys-at-Law has advised the Pipistrel Group on its sale to Textron. Ketler & Partners, a member of Karanovic, advised Textron on the deal. Solo practitioner Matija Premrl reportedly advised the Pipistrel Group as well, with Latham & Watkins reportedly advising Textron.

Pipistrel is an electrically powered aircraft company based in Slovenia and Italy. In 2020, Pipistrel’s Velis Electro was the first electric aircraft to receive full type certification from the European Union Aviation Safety Agency.

Textron Inc is an American industrial conglomerate based in Providence, Rhode Island. Textron’s subsidiaries include Arctic Cat, Bell Textron, Textron Aviation, and Lycoming Engines.

“Pipistrel puts Textron in a uniquely strong position to develop technologies for the sustainable aviation market and develop a variety of new aircraft to meet a wide range of customer missions,” said Textron Chairman and CEO Scott Donnelly.

The Fabiani, Petrovic, Jeraj, Rejc team included Partners Jernej Jeraj, Tomaz Petrovic, and Luka Fabiani, Senior Associate Klavdija Kek, and Junior Associate Martin Pirkovic.

The Ketler & Partners team included Partner Igor Angelovski, Senior Counsel Sasa Orazem, and Senior Associates Nina Krajnc and Kevin Rihtar.

Selih & Partners, working alongside Dutch Delissen Martens, has advised Ingersoll Rand on its EUR 27 million acquisition of Houdstermaatschappij Jorc. Fabiani, Petrovic, Jeraj, Rejc Attorneys-at-Law, working alongside Dutch Boels Zanders, advised Jorc while Law Office Zaman and Partners represented its Slovenian management.

Ingersoll Rand is a global provider of mission-critical flow creation and industrial solutions. According to Ingersoll, Jorc – a manufacturer of condensate management products, primarily condensate drains, oil/water separators, and air-saving equipment – will join Ingersoll Rand’s Industrial Technologies and Services segment.

“The addition of Jorc fills a strategic gap in our portfolio that enables us to provide a more end-to-end solution to our customers,” commented Ingersoll Rand Senior Vice President Enrique Minarro Viseras. “From their energy-saving electronic drain to oil/water separators compliant with environmental regulatory agencies, Jorc’s family-built business and focus on sustainability is a natural fit with our values and purpose to ‘Lean on Us to Help You Make Life Better.’ I am excited to welcome the Jorc team into the Ingersoll Rand family and look forward to the great things we can do together.”

The Selih team was led by Partner Natasa Pipan Nahtigal and included Partner Darja Miklavcic, Senior Associate Ema Patricija Koncan, and Associate Marusa Polak.

The Fabiani, Petrovic, Jeraj, Rejc team was led by Partner Jernej Jeraj and included Senior Associate Matevz Klobucar and Junior Associate Martin Pirkovic.

The Zaman and Partners team included Partners Marko Zaman and Peter Lipoglavsek and Attorney Anze Pavsek.

On February 2, 2022, CEE Legal Matters reported that Ketler & Partners, a member of Karanovic, had advised Invera Equity Partners on its acquisition of a 58.2% stake in Marles Hise Maribor. CEE In-House Matters spoke with Janez Skrubej, Partner at Invera Equity Partners, to learn more about the matter.

CEEIHM: Let’s start with a few words about Invera Equity Partners.

Skrubej: Invera Private Equity Fund is a EUR 60 million PE fund headquartered in the Netherlands and focusing on the region of Southeastern Europe as its core investment territory. Invera’s investor base is made up solely of large, reputable institutional investors (EIF, EBRD, and pension and investment funds). Invera Equity Partners, fund manager of Invera Private Equity Fund, is seeking to acquire controlling interests in small and mid-sized enterprises, via buyouts or capital increases (or both), with the goal of achieving new levels of corporate strategy, market access, and technology. Currently, the fund has offices in Amsterdam, Ljubljana, Zagreb, and Sarajevo.

CEEIHM: What was the business case behind the acquisition – what made Marles Hise Maribor a particularly attractive target?

Skrubej: Marles is the oldest and largest Slovenian manufacturer of wooden prefabricated houses/buildings and for more than 50 years, has been a synonym for prefabricated houses not only in Slovenia but in the ex-Yu region as well. Throughout its history, there were 27,000+ individual wooden prefabricated buildings and 380+ kindergartens and schools constructed in Marles production sold across multiple markets (Austria, Slovenia, Italy, Switzerland, etc.). We believe that the sector of prefabricated buildings is very attractive due to its green component, ESG as well as future trends in the construction industry.

CEEIHM: What can we look forward to now, post-acquisition?

Skrubej: We aim to further strengthen the position of the company and its operations in existing markets (most notably Slovenia, Austria, Switzerland, Italy, and Germany), leverage its potential in cooperation with industry experts, increase production capacities, and open new opportunities in existing and new markets.

CEEIHM: What was the most complex aspect of this deal from a legal perspective?

Skrubej: We are all experienced in deal-making so we dealt with the usual complexity expected in such deals. It was very helpful that both parties had also very experienced legal advisors so we were able to focus on important matters from the start and overcome the usual nuances relatively quickly

CEEIHM: And why did you choose Ketler & Partners to advise you on this deal?

Skrubej: We wanted to have a strong legal advisor in our team and since we know and have very good experience with Marko Ketler from the past we decided to engage them. Marko also showed very strong personal dedication to the project which is always important in such deals.

Originally reported by CEE In-House Matters.

Karmen Rebesco has advised mandated lead arranger Nova Ljubljanska Banka on a EUR 230 million syndicated loan to members of the SIJ Group. Reportedly, Allen & Overy advised NLB as well and Dentons advised SIJ on the deal.

According go Karmen Rebesco, “the banking syndicate consisted of NLB d.d. as the agent and original lender, as well as of Nova Kreditna banka Maribor d.d., SID – Slovenska Izvozna in Razvojna Banka, d.d, Ljubljana, SKB Banka d.d. Ljubljana, Erste Group Bank AG, Banka Sparkasse d.d., Banka Intesa Sanpaolo d.d., UniCredit Banka Slovenija d.d. and the European Bank for Reconstruction and Development (EBRD), as original lenders.” 

SIJ – Slovenian Steel Group, is the largest Slovenian steel producer and one of the largest producers of stainless and special steel in Europe.