This article was published on 11 April, and updated on 16 April 2020.
See our latest update as of 1 May 2020.
Who qualifies for the aid
The measures are available to the following categories of commercial actors:
- private entrepreneurs (sole proprietorship), including those who have registered temporary cessation of business activities on or after 15 March 2020;
- small and medium-sized enterprises (SMEs), as per the accounting criteria measured against the 2018 financial statements;
- large corporates, as per the accounting criteria measured against the 2018 financial statements;
- branches and representative offices of foreign entities.
Conditions for the aid
Maintenance of headcount
Commercial entities qualify for the aid if they have not reduced their employee headcount in the period from 15 March 2020 until 10 April 2020 for more than 10%. Furthermore, the entities which avail themselves of the aid measures but then reduce their employee headcount in the period from 15 March 2020 until the end of October 2020 for more than 10% stop qualifying for the aid and must repay all received aid, with default interest. Fixed-term employees whose contracts expire during the relevant period do not count towards the 10% threshold. On 15 April 2020, the Minister of Finance confirmed that the employees whose employment has been terminated for other reasons (termination by the employee himself, termination by employer for breach, consensual termination, etc.) do count towards the 10% threshold, It remains unclear whether employees on unpaid leave are included into the head-count.
The measures are not available to financial sector (banks, investment funds, financial leasing companies, payment institutions).
Prohibition of dividend payments
The companies that apply to benefit from the measures may not pay dividends (except in the form of shares) until the end of 2020. If they do pay the dividends, they must repay all aid received up until that point, with default interest.
Aid measures
Fiscal aid
Companies may defer their obligation to pay payroll tax and social contributions on salaries and salaries in lieu for March, April and May 2020 or, if the company has already paid March salaries, for April, May and June 2020, in each case until 4 January 2021. From that date onwards, the deferred payroll tax and social contribution obligation that will have accrued for the relevant three-month period will be payable in maximum 24 monthly installments. No interest accrues during the deferral and repayment periods.
Companies may also defer their obligation to make advance 2020 corporate income tax installments normally due in March, April and May 2020 until the final deadline for submission of 2020 CIT returns (end of June 2021). Companies whose fiscal year does not correspond to calendar year may defer their obligation to pay 2020 CIT advances due on 15 April, 15 May and 15 June, respectively, until the deadline for submission of final CIT returns for the relevant fiscal year. Deferred tax obligation is payable from the end date of the deferral period, in not more than 24 installments. No interest on the tax obligation accrues during the deferral and repayment periods.
Further rules on the procedure for implementation of the foregoing tax deferral measures is expected to be issued by the Minister of Finance.
In accordance with the Notice of the Tax Administration regarding the implementation of the financial aid decree, issued on 13 April 2020 (“Notice of the Tax Administration”), the use of direct financial aid (see below) is conditioned by the of fiscal aid.
Direct financial aid
SMEs
SMEs are entitled to receive from the state the following direct aid:
- in May 2020, an amount equal to the product of: (a) the number of full-time employees who received salary or salary in lieu for March 2020 and (b) statutory net minimum wage for March 2020:
- in June 2020, an amount equal to the product of (a) the number of full-time employees who received salary or salary in lieu for April 2020 and (b) statutory net minimum wage for March 2020:
- in July 2020, an amount equal to the product of: (a) the number of full-time employees who received salary or salary in lieu for May 2020 and (b) statutory net minimum wage for March 2020.
In each case, the number of employees from the formula can be increased for each part-time employee proportionally to the participation of the hours of that employee in full-time hours (such participation is determined based on the tax return submitted for the relevant accounting period).
The relevant number of employees is to be decreased for those employees whose salary or salary in lieu in the relevant month is fully-funded by a third party (e.g. health fund).
Large corporates
Large corporates are entitled to direct aid as follow:
- in May 2020, an amount equal to the product of: (a) the number of full-time employees who were put in March 2020 on forced leave for the reason of shutdown or reduced work schedule resulting from employer’s economic difficulty or shutdown ordered by the state authority for health and safety reasons, and (b) 50% of the statutory net minimum wage for March 2020;
- in June 2020, an amount equal to the product of: (a) the number of full-time employees who were put in April 2020 on forced leave for the reason of shutdown or reduced work schedule resulting from employer’s economic difficulty or shutdown ordered by the state authority for health and safety reason, and (b) 50% of the statutory net minimum wage for March 2020;
- in July 2020, an amount equal to the product of: (a) the number of full-time employees who were put in May 2020 on forced leave for the reason of shutdown or reduced work schedule resulting from employer’s economic difficulty or shutdown ordered by the state authority for health and safety reason, and (b) 50% of the statutory net minimum wage for March 2020.
In each case, the number of employees from the equation can be increased for each part-time employee sent on forced leave in the relevant month, proportionally to the participation of the hours of that employee in full-time hours (such participation is determined based on the tax return submitted for the relevant accounting period).
The manner of distribution of direct aid
SMEs and large corporates are entitled to fiscal aid and direct aid for three months if they apply for the aid by filing the first relevant tax return by the end of April 2020. If they apply for the first time by the end of May 2020, they will be entitled only to the aid for two months, and if they apply for the first time by the end of June 2020, they will be entitled only to the aid for one month. Each relevant tax return should designate 4 January 2020 as due date.
According to the Notice of the Tax Administration, large legal entities should file to the tax authority, no later than until the 20th of the month, a hard copy of the list of persons on forced leave for which they claim financial aid, namely:
- by 20 April, the list of persons on forced leave in March, for direct aid payable in May;
- by 20 May, the list of persons on forced leave in April, for direct aid payable in June;
- by 20 June, the list of persons on forced leave in May, for direct aid payable in July.
Direct aid will be paid into the beneficiary’s ear-marked account held with its commercial bank. If the beneficiary of the aid has current accounts with more than one commercial bank, it has to notify the Tax Authority of the bank that will maintain the ear-marked account. The proceeds paid into ear-marked account can be disbursed only directly to the employees. The ear-marked account is ring-fenced from the beneficiary’s creditors.
On April 15, 2020, the Minister of Finance clarified that the proceeds of direct aid paid into the ear-marked account must be used in the same month to pay employees’ salaries and salaries in lieu, whereas the employer decides which monthly salary it wants to finance from the proceeds.
The decree does not specify until when the employer may use the direct aid proceeds paid into the ear-marked account for financing of salaries, except that it states that the funds remaining on the ear-marked account will be repaid to the treasury upon the closure of the account, which takes place when the aid program terminates or when the employer forfeits the right to aid as a result of dismissal of more than 10% of its work force (see above).
Taxation of direct aid
The decree does not exempt direct aid from taxable income or from the obligation to calculate and pay payroll tax and social contributions on the proceeds of the aid to be disbursed to employees as salaries. We understand that the deferral of payroll tax and social contributions on March, April and May, or, as the case may be, April, May and June, salaries (see above ) also applies to the portion of those salaries financed from the proceeds of direct aid provided by the state (if such proceeds are used for those particular salaries).
