This is the update to the article originally published on our website on 11 April 2020. The article is updated from time to time in accordance with the clarifications and changes to the regulations issued by the Serbian authorities.
Who qualifies for the fiscal incentives and direct financial 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;
- micro, small and medium-sized enterprises (MSMEs), 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 (treated as MSMEs for the purpose of the direct aid).
Conditions for the incentives and the aid
Maintenance of headcount
Commercial entities qualify for the fiscal incentives and direct financial 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. Any other terminations, including those on the initiative of the employee himself, consensual terminations, terminations for the employee’s breach and terminations ex lege, do count as reduction of headcount.
The measures are not available to financial sector (banks, insurance companies, pension funds, financial leasing companies and 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.
Measures
Fiscal incentives
Companies may defer their obligation to pay payroll tax and social contributions on salaries and salaries in lieu paid in March, April and May 2020 or, if the company had fully or partially paid March salaries before 10 April, for April, May and June 2020. In each case, the deferral is 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 instalments. No interest accrues during the deferral and repayment periods.
Companies may also defer their obligation to make advance 2020 corporate income tax instalments 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 instalments. No interest on the tax obligation accrues during the deferral and repayment periods.
Direct financial aid
MSMEs
MSMEs 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).
After initial uncertainties, it has been unofficially clarified that the companies which had paid March salaries prior to 10 April 2020 (the date when the Decree came into force) are nevertheless entitled to the May instalment of the aid. March, April and June tax returns serve merely for the calculation of the aid the company is entitled to receive in May, June and July, respectively. The aid instalment received in a particular month must be spent for salaries and salaries in lieu in that particular month. For example, the May instalment of the aid must be spent in May, either on the April salaries (or salaries in lieu) or on the May salaries (or salaries in lieu). This means that if, for example, a particular employee who was on the March tax return no longer works for the company in May, the company may still use the portion of the aid proceeds received on the account of that employee to fund the salary of some other employee who does work for the company in May. It is still not clear when exactly during the relevant month the aid will reach the employers’ accounts. This means that the employers who would normally pay salaries for a particular month on the last day of that month or in the first days of the following month would have to adjust their salary payment dynamics to the timing of the aid instalments.
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).
Large corporates who did not send any of its employees to forced leave in March but have sent their first employees to forced leave only in April, are entitled to aid only for two months (in June and July).
The Decree does not specify whether a company is entitled to 50% of monthly minimum net salary per employee on forced leave in the relevant month irrespective of whether the employee was on forced leave for the entire month or only for a certain period of time within the relevant month. It has been unofficially confirmed that the aid will not be pro rated to the number of days spent on leave within a particular month, but the Ministry of Finance will look “with caution” at those cases where the aid is claimed for employees who spent forced leave less than half of the relevant month. The Ministry wants to prevent abuses which could occur if the companies sent employees to forced leave for a couple of days only to be able to claim benefits. It is not entirely clear how the Ministry will in practice distinguish genuine cases from abusive ones. There are a number of companies who have legitimately decided to rotate their employees between work regime and forced leave regime, in order to give everyone an opportunity to work for a certain time during a month. Such employers should not be punished by the loss of direct aid even if their employees have not been on forced leave for preponderant part of the relevant month.
Even though the language of the Decree may be read to suggest otherwise, it has been unofficially confirmed from the Ministry of Finance that the number of employees on forced leave in a particular month is purely an accounting category and the funds received on the account of those employees may be spent on the employees’ salaries in the month in which the fund are received irrespective of whether the employees on the account of whom the aid was received are still on forced leave or on the company’s payroll.
Applying for fiscal incentives and direct aid
The application for direct aid is inseparable from the application for fiscal incentives. One cannot apply for one without applying for the other. Corporates are entitled to fiscal incentives and direct aid for three months if they apply for the incentives and aid by filing the first relevant tax return (PPP-PD) 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 incentives and 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 fiscal incentives and the financial aid for one month. Each relevant tax return should designate 4 January 2020 as due date. However, once the company applies for both fiscal incentives and direct aid, it may prepay deferred payroll tax and social contributions while using the financial aid. Conversely, it may avail itself of the tax deferral but leave the proceeds of the financial aid on the ear-marked account from where those proceeds will be repaid to the treasury,
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 in the relevant month, 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.
Distribution of direct aid
Direct aid will be paid into the beneficiary’s ear-marked account which will be automatically opened by the beneficiary’s commercial bank. If the beneficiary of the aid has current accounts with more than one commercial bank, it has to notify the Tax Authority by 25 April 2020 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, in the same month in which they are received. The ear-marked account is ring-fenced from the beneficiary’s creditors.
The decree does not specify when the ear-marked accounts will be closed but it has been unofficially communicated that the intention is to close them shortly after the end of July 2020.
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).
Change of corporate status
The Decree does not regulate at all what happens if a company that applies for fiscal incentives and direct aid is liquidated as a result of merger before the end of October 2020 (until when the beneficiaries of the incentives and aid must maintain their 15 March headcounts, subject to permitted reduction of not more than 10%, at the threat of having to repay the aid). Normally, if the aid recipient intends to be liquidated before the end of October, it would have to, prior to the liquidation, to pay the deferred taxes and social contributions and repay the aid received. However, this should not be the case if the liquidation is the result of a merger and the surviving entity takes over the employees. However, it has been communicated from the Ministry of Finance that there are no mechanisms in place to allow the legal successor to inherit the predecessor’s entitlement to fiscal incentives and direct aid. This is contrary to the principles of legal succession enshrined in the provisions of the Companies’ Act regulating mergers. It remains to be seen whether the Ministry of Finance will relax its position in this respect.
