Last month, a new Decree on the Establishment of the Program of Direct Allowances from the Budget of the Republic of Serbia to Entrepreneurs in the Private Sector in order to mitigate the economic consequences caused by the COVID-19 epidemic caused by SARS-CoV-2 virus (“Decree“) came into force. The Decree was adopted on February 11, 2021 by the Government of the Republic of Serbia (“Government“).
Firstly, this is not the first “injection” of aid to the economy: back in April 2020, the Government established the legal framework for measures to support the economy. One of the measures was 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, which we wrote about in April last year. This decree focused on tax policy measures, including specifying the rules for grants made from the budget of the Republic of Serbia, VAT treatment of the free-of-charge sale of goods and services for healthcare-related purposes, as well as payment of one-off financial aid to all adult citizens of the Republic of Serbia from the budget.
It is important to emphasize that the decrees applied to all business entities in the private sector, regardless of their size. The right to receive direct benefits can be exercised by both domestic legal entities, as well as subsidiaries and representative offices of foreign legal entities. Moreover, if they meet the conditions laid out by the Program, the right to direct benefits may be exercised by entrepreneurs, farmers and flat-rate sole traders who have registered a temporary cessation of activities at the earliest on the day the Program enters into force.
However, the Decree clearly excludes banks, insurance and reinsurance companies, voluntary pension funds and pension management companies, financial leasing providers, as well as payment and electronic money institutions from its application. Moreover, the users of public funds, as well as economic entities whose TIN was temporarily withdrawn on the last day of the month preceding the month in which the direct benefits are paid, do not have the right to receive direct benefits.
Regarding the benefits provided by the Decree, businesses operating in the private sector are entitled to receive direct benefits in the amount calculated as the multiple of the number of full-time employees for whose salaries and allowances an Individual tax return on calculated taxes and contributions for the relevant accounting period was submitted and one half of the net minimum wage for January 2021. This amounts to 15.450,12 dinars per employee.
The use of the prescribed direct benefits is very strictly and clearly determined: they can be used exclusively for the payment of salaries and compensation of employees, until the end of July this year at the latest.
It is important to say a few words about the application procedure for these types of benefits: business entities can apply by giving a statement on the website of the Tax Administration ePorezi (eTaxes) in accordance with the regulations governing the submission of tax returns in electronic form. The statement should be provided for each type of benefit separately. Furthermore, there is an obligation to open a separate bank account with a bank where the business entity already has an account to receive the benefits. If the business entity has accounts in more than one bank, it is obliged to submit information via the ePorezi portal no later than March 25, 2021 about the bank where the new “COVID” account should be opened.
It should be emphasized that the right to dividend payment and the right to direct benefits in accordance with the Decree are mutually exclusive. Note that business entities in the private sector which pay dividends from the day the Program enters into force until the end of 2021, are not entitled to receive the payment of direct benefits, and if direct payments are paid to them, the rules for loss of the right to use of direct benefits shall be applied.
Direct benefits will also not be available to those who reduce the number of employees by more than 10%. In accordance with the Decree, a business entity loses the right to use direct benefits prescribed by the Program if, in the period between the date the Program entered into force until the expiration of three months from the last payment of direct benefits, it reduces the number of employees by more than 10%. This number excludes employees who concluded a fixed-term contract with the entity for a period which ends in the period between the date Program entered into force until the expiration of three months from the last payment of direct benefits, before the Program entered into force. If the entities which lost the right to direct benefits do not return the funds, then this the Tax Administration will issue a decision to claim the benefits back.
The new Decree, on its face, provides short term benefits which are certainly of great importance to companies. However, it could have an indirect impact on employers’ decisions about downsizing their workforce. Therefore, the impact is deeper than the short-term benefit and signifies the Government’s commitment to help businesses navigate through these challenging times.
