The social economy is a set of activities whose primary goal is to achieve a positive social impact. Activities within the social economy serve primarily to advance the public and community interest. These are socially beneficial services that can be implemented across a wide range of areas of social and economic life: from healthcare, through social assistance, education, and upbringing, to the development of physical culture and environmental protection. You can learn about the goals of the new legislation in our new article.
Today, the social economy is a recognized and established sector of the economy in EU countries. Its integration into public policies has a positive impact on the achievement of objectives of public interest.
The functioning of the social economy and social entrepreneurship is governed by Act No. 112/2018 Coll. on the Social Economy and Social Entrepreneurship and on Amendments to Certain Acts (hereinafter referred to as the “Act”). Legislative process PI/2021/49 is currently underway, which is expected to result in an amendment to the Act. The aim of the new legislation is to clarify definitions, regulate and remove barriers, and create a support system that is socially acceptable and in line with state aid rules. The amendment to the Act should result in the creation of suitable conditions for the full-scale development of the social economy and social entrepreneurship in Slovakia.
We anticipate a fundamental change in connection with the planned legislative amendment regarding so-called family businesses. This is because the Act on the Social Economy and Social Entrepreneurship plans to establish a separate legal framework for family businesses. We expect this change to be significant because currently no specific legal regulation exists for this “form of business” in Slovakia, even though it operates commonly in practice and specific regulation of it is also common abroad. Legal regulation could provide new opportunities for this form of business in Slovakia, for example, in the regulation of internal relationships or in support options for family businesses that would take into account the specific characteristics of these business relationships.
The law defines a social enterprise as an entity of the social economy that markets its goods and services, with its primary objective being social benefit rather than profit. If it generates a profit from its activities, it reinvests the majority of it into its primary objective (at least 51% is used for the company’s operations, e.g., including the payment of routine invoices)—social benefit, in accordance with the scope of activities and the relevant business plan.
A social enterprise involves its employees, consumers, local residents, or other individuals who care about the successful fulfillment of its mission in its activities. A social enterprise must be viable and financially sustainable, which also includes the ability to repay loans that may be granted to it on favorable terms. A social enterprise may carry out its socially beneficial service in the following areas:
- provision of healthcare,
- provision of social assistance and humanitarian care,
- creation, development, protection, restoration, and promotion of spiritual and cultural values,
- protection of human rights and fundamental freedoms,
- education, upbringing, and promotion of physical culture,
- research, development, scientific and technical services, and information services,
- creation and protection of the environment and protection of public health,
- services to support regional development and employment,
- provision of housing, management, maintenance, and renovation of the housing stock,
- provision of financial resources to social economy entities for the performance of socially beneficial services.
A newly established enterprise or an existing enterprise may apply for the status of a social enterprise. The main documents used to assess an enterprise’s eligibility for social enterprise status include the articles of incorporation/partnership agreement, business plan, proof of good standing, and similar documents.
In terms of business focus, a registered social enterprise may be (multiple registrations are also possible simultaneously):
- an integration enterprise (employment of persons with disabilities and disadvantaged/severely disadvantaged job seekers, or vulnerable persons)
- a social housing enterprise (construction and rental of social housing)
- a generally registered social enterprise.
Support options for social enterprises:
- direct support
- investment aid (calls for proposals from ESIF / Ministry of Labor, Social Affairs, and Family)
- compensatory aid (reimbursement of wage costs for integration enterprises up to 75%)
- aid to support demand
- indirect support
- income tax relief
- VAT relief for individuals
- loans on preferential terms.
During the COVID-19 pandemic, transitional and final provisions were incorporated into the law, which, during the state of emergency caused by the pandemic, eased legal obligations concerning, in particular, requirements for electronic document signing and the expiration of deadlines. The proposed amendment aims to extend the exceptions that apply during a state of emergency, a state of emergency, or a state of exception declared in connection with the COVID-19 pandemic, as it is precisely during periods of adverse economic conditions that it is necessary to retain disadvantaged individuals in employment and support the development of socially beneficial activities.
The legislature is aware that during emergencies, it is difficult even for morally upright companies to fulfill all social security and tax obligations. The amendment should include a suspension of the conditions regarding social security and tax obligations, whether for newly established or existing social enterprises, for the duration of emergencies. Furthermore, it is proposed to expand the currently applicable exemptions to include exemptions regarding employment contracts for disadvantaged persons, with the aim of keeping disadvantaged persons employed even if they work under shorter-term contracts.
