On 10 April 2020, the Government of the Republic of Serbia adopted the long-awaited legal framework for implementation of the Program of Economic Measures to reduce the adverse effects caused by the COVID-19 pandemic. The adoption of part of the legal framework supporting this program was announced at a press conference by the Minister of Finance and the Head of the Coordination Body Sinisa Mali. One part of this adopted legal framework is the Decree on Fiscal Benefits and Direct Benefits to Private Sector Companies and Financial Assistance to Citizens to Mitigate the Economic Consequences of COVID-19 (“the Decree“).
As we previously pointed out (see here), the measures can be classified into four categories: tax policy measures, direct assistance to the public sector, liquidity measures for the private sector, and direct assistance to every adult citizen. This Decree deals with tax policy measures, including specifying the rules for grants made from the budget of the Republic of Serbia, VAT treatment of traffic of goods and without charges for healthcare-related purposes, and the payment of one-time financial aid to all adult citizens of the Republic of Serbia from the budget.
Who Can Benefit from the Measures?
All private sector business entities can benefit from the measures prescribed by this Decree through their tax return, provided that they did reduce the size of their workforce by more than 10 percent between March 15, 2020 and the date when the Decree comes into force. The limit excludes employees on fixed-term contracts whose contracts end on dates between March 15, 2020, and the date the Decree comes into force.
It is important to note that beneficiaries of these measures are also entrepreneurs who pay flat tax rates who registered temporary cessation of activity on or after March 15, 2020, i.e. the day of the state of emergency is declared. It was also clarified that associations and other non-profit organizations can benefit from these measures, unless, of course, they are on the list of public funds beneficiaries.
Direct Payments to the Private Sector
Farmers, entrepreneurs, as well as all small, micro and medium-sized companies are entitled to receive a grant in the amount of the full basic minimum net salary for March 2020 for their employees. If an employer has sufficient funds to pay out wages to their employees, the minimum wage grant paid by the state is considered as a salary supplement, however, if that is not the case, the grant is the full amount of compensation that will be paid out to an employee. Therefore for employers who do not have funds to pay out salaries, state grants are de facto paychecks for their employees. This program applies to all taxpayers who are part of the Serbian tax system, i.e. it also applies to businesses from Kosovo and Metohija who are part of the Serbian tax system.
The rules are a little bit different for large companies. A large company is entitled to a grant amounting to 50 percent of the basic minimum net salary for March 2020 for all employees whose employment status was paused (but not terminated) by a decision made after the state of emergency was introduced. Grant payments will also be made in May, June, and July, and they will be equal to 50 percent of the basic minimum net salary for March 2020.
All those applying for grants will have to open a dedicated bank account to receive these funds.
However, large legal entities – banks and other financial institutions – are not eligible for these direct payments.
Tax Delay
The Decree stipulates a deferral of maturity for payments of certain taxes and contributions due for payment between April 1 and June 30, 2020, and in exceptional circumstances until July 31, 2020 for taxes and compulsory social contributions payable on earnings for the month of June 2020, namely: taxes and citizen contributions on salaries and wages, advances on personal income tax for those who opted for personal earnings and flat-rate taxation, and corporate income tax advances.
Most importantly, payments of taxes and contributions on earnings and benefits are delayed. The application to benefit from these measures is made through the PPP-PD form, which is filled in by each employer during the regular salary payment process. If employers fill in “January 4, 2021” as payment date on the form, they will also automatically apply for three minimum wages and for deferral of taxes and contributions. Advance payment of company income tax in the second quarter of 2020 for all companies is also postponed.
Corporate tax payments and advance payments for March, April and May this year are postponed until the submission of the final corporate tax return for 2020.
However, banks and other financial institutions are not eligible to benefit from the provision for deferral of taxes and contributions.
Payment of One-time Financial Assistance to all Citizens Over the Age of 18.
Once the state of emergency is lifted, all citizens of the Republic of Serbia over the age of 18 will receive a one-time financial aid in the amount of EUR 100 in RSD equivalent.
Prohibition of Dividend Payment
Private sector entities who opt for fiscal benefits and grants are not allowed to pay dividends until the end of 2020.
State Aid as Hope and Incentive
Finally, this Decree addresses and clarifies issues that were unclear for many businesses. It provides guidance to businesses on how to act regarding new measures and exercise their rights. However, businesses that violate provisions of this Decree, will be held liable and will be obliged to pay back with interest all the aid they received.
For more information, please contact us via covid19@geciclaw.com
