As of the first information in December 2019 about coronavirus in China, Hotel industry and tourism have been faced with negative consequence such as cancellation of the reservations and significant decrease of revenue, on the global scale and in the region, while after the World health organization (WHO) on 11/03/2020 has declared COVID-19 pandemic and individual states have started with rendering of decisions on closing of state borders, prohibition of gatherings, mandatory quarantines, and prohibitions on providing hotel and restaurant services, it all has culminated and caused drastic negative influence on Hotel industry and tourism and inability to perform business and almost complete loss of revenue.
World Travel & Tourism Council (WTTC) estimates that Hotel industry on daily level losses one million of jobs while on global scale seventy five million jobs are in danger, while Organization for Economic Co-operation and Development (OECD), Committee for tourism, in this moment gives estimation of 45% of decrease in international tourism and Hotel industry, which down flow may be expected in 75% of decrease in case that pandemic lasts until September 2020.
Due to pandemic, the Hotel industry in the Republic of Serbia is certainly one of the most affected industries and branches in the economy of the Republic of Serbia because most of the Hotels and tourist facilities are closed, while those that are not closed have occupancy rates below 5,00%.
In view of the current situation and in order to mitigate the effects of the pandemic and prepare for the continuation of business after the epidemic, both in case that the Hotelier has decided for the closure of the Hotel or for the Hotel to continue operating, in further text you may find proposal of actions and measures that we consider are necessary to be undertaken, which actions and measures are presented through the individual essential items of the Hotel business.
Franchise and license, suppliers of goods and provider or services
Due to declaring of state of emergency and pandemic, changed circumstances have occurred, which circumstances also have character of force majeure, due to which Hotelier which has concluded long term Contracts on franchise and/or license, supplying of food and beverages, business-technical cooperation, providing of services and etc. (for exp. Contracts concluded with provider of franchise and/or license, suppliers of food and beverages, marketing agencies, cleaning services, etc.) has the possibility to address to other party with request for amendment or termination of a contract. However, addressing to the other party also requires a specific assessment of each individual contractual relationship, since the aforementioned circumstances differently affects different contracts and services, especially if the parties to the contract have waived the right to refer to changed circumstances and/or have regulated a “force majeure” event. In any case, the Hotelier should firstly address the other party with the intention and request to amend or terminate a contract, and only if the other party does not show intention to keep contract in force under new and changed, fair conditions due to the changed circumstances, the Hotelier shall have right and be entitled to seek amendment or termination of a contract in court proceedings before a court.
The request for amendment or termination of a contract should be explained by the fact that due to the state of emergency and epidemic the Hotel has been closed and the inability to perform business activities has occurred due to the ban on gathering and providing restaurant services, as well as cancellation of reservations and complete loss of revenue, whereby case of court proceeding appropriate evidences must be prepared and presented in respect to aforementioned facts.
Additionally, it is important to emphasize, regardless of the fact whether it is a matter of seasonal Hotels (exp. winter (ski) or summer tourism) or year-round Hotels (exp. city garni Hotel), the state of emergency and pandemic have the character of force majeure and represent changed circumstances but while presenting the request to amendment the contract and regulate the relationship it is necessary to have in mind the fact that although state of emergency and pandemic are limited in time, the consequences of the state of emergency and pandemic for the Hotel industry will in any case for sure last longer than declaring and revoking of the state of emergency resp. duration of pandemic itself.
Real estate expenses (lease and real-state property tax)
The real estate costs in Hotel industry represent one of the most significant and important business expenses.
The circumstances of a state of emergency and pandemic that led to stopping of the business activity and almost complete loss of revenue, for the Hoteliers who are leasing the real estate, represents reasons for the Hotelier to address to the other party (Lessor) with a request for amendment or termination of a contract, in a same way as previously described in the previous section about franchise and license, suppliers of goods and providers of services.
On the other hand, for the Hoteliers who are owners of the real estate, although the Government of the Republic of Serbia (hereinafter: the Government) has been acquainted with the request of the Hoteliers to be exempted from property tax or that paying of property tax is deferred, the Government so far has not adopted any act in that sense, nor have bodies of cities and municipalities. It remains to be seen whether in the forthcoming period the Government will accept the request of the Hoteliers and regulate this issue of great importance for the Hoteliers.
In any case, whether the Hotelier as the employer decides to keep employees or to terminate employments, it is necessary to undertake appropriate measures for the purpose of optimization of this part of business.
In case that employees are retained, the Hotelier has the possibility for exp. to send employees to paid leave (in which case it is obliged to pay at least 60%, and not less than the minimum wage) or to render a decision on introduction of a minimum wage for exp. due to disruptions in business activity and/or economic difficulties, if such possibility is prescribed by a bylaws or employment agreements.
If the Hotelier retains employees in accordance with the Regulation on Fiscal Benefits and Direct Aid to Private Sector Companies and Financial Assistance to Citizens in order to Mitigate the Economic Consequences of Covid-19 as of 10/04/2020 (hereinafter: the Regulation on Fiscal Benefits and Direct Aid) shall be entitled to fiscal benefits and direct aid as follows:
- Fiscal benefits as deferment of maturity date for payment until 04/01/2021 of the personal income tax on salary and compensation of salary and contributions for mandatory social insurance for period as of 01/04/2020 until 30/06/2020, and exceptionally and for period until 31/07/2020. Deferment of payment of taxes and contributions itself is possible up to 24 monthly installments maximum without obligation to pay interest;
- direct aid as payment of nonreturnable grants that can be used only for payments of salaries and salaries compensation to the employees. Hotels classified as micro, small and medium-sized legal entities are entitled to a direct aid in the amount which is product of the number of full-time employees for whom the appropriate tax return application (PPP-PD) is filed and the amount of basic minimum net wage for the relevant month during the period March, April, May and resp. June 2020.
Fiscal benefits and direct aid may by used by the Hoteliers which as of 15/03/2020 until 11/04/2020 have not reduced number of employees for more than 10%.
In the event that the Hotelier as an employer decides for terminate employments, grounds and justify reasons for termination of employment relationship may represent economic changes or decrease in workload due to which necessity of employee’s work has ceased (employee redundancy), in which case it should be borne in mind that the Hotelier cannot hire another person at the same working position within three months as of the date of termination of the employee’s employment.
Some of the measures that the Hoteliers could take to prevent the outflow of previously achieved cash inflow, to get a new cash inflow during a state of emergency and to avoid complete loss of revenue, are that 1) previously sold reservations for accommodation and services are not being canceled and money is not returned to guests and clients, but in return to offer accommodation and services in some future period after the state of emergency and pandemic, 2) to sell reservations, vouchers and/or tickets for accommodation and services after revoking of the state of emergency and pandemic under privileged conditions (for exp. voucher in the amount of 100,00 EUR for the future services of 150,00 EUR), so that they the vouchers represent a gratitude to a guests and clients for their trust during the state of emergency, as well as 3) for exp. in accordance with Government acts to ensure conditions for kitchen to work and counter sale or delivery of food and beverages, even as actions under promotional prices, and this is also in order to employ employees and use goods (food and beverages) which already have been paid.
In respect to the sale of services for the first days after pandemic and in order to overcome the pandemic as soon as possible the Hoteliers should need to focus on more dynamic groups of guests and clients who will be the first to return to regular way of life and who will quickly overcome the consequences of the pandemic and this is like for exp. generation y and z (millennials).
Previously mentioned activities may contribute to keeping cash flow of the Hoteliers but important influence on cash flow of the Hotelier shall have measures and activities of the Government for the purpose of maintaining of the liquidity in difficult economic conditions due to pandemic.
In order to maintain the liquidity of the economy, the Government of the Republic of Serbia shall:
- By the Regulation on determining program of financial support to business entities for maintaining liquidity and working capital as of 10/04/2020 (value of the program 24.000.000.000,00 RSD or app. 200.000.000,00 EUR) enable to the Hoteliers to compete at the Development Fund of the Republic of Serbia for awarding loan as support for obtaining working capital and support for maintaining liquidity under the conditions determined by the Regulation for the purpose of regular payment of the obligations towards business partners, employees and the state. The loans shall be approved under the following conditions: 1) repayment deadline of 36 months which includes grace period of twelve months; 2) interest rate of 1% yearly; 3) loans are being approved and paid back in RSD; 4) minimal loan amount for one user of the loan with connected persons for business entities is 1.000.000,00 RSD and for entrepreneurs is 200.000,00 RSD; 5) maximum loan amount for one user of the loan with connected persons may be: 1) for entrepreneurs and micro legal entities up to 10.000.000,00 RSD, 2) for small legal entities up to 40.000.000,00 RSD and 3) for medium legal entities up to 120.000.000,00 RSD; 6) repayment shall be done in instalments; 7) within grace period interest shall be calculated and added to main debt; 8) security instruments for proper repayment of the loan are: 1) promissory note and authorization of the warrantor and/or 2) mortgage on real estate and/or 3) pledge on movable property and/or 4) promissory note and authorization of the debtor’s founder, whereby the type of security instrument depends from amount of loan.
- By Regulation on determining guarantee schemes as measures of support to economy for mitigation of pandemic Covid-19 consequences caused by Sars-Cov-2 virus as of 16/04/2020 by which the Republic of Serbia undertakes the obligations as guarantor to fulfil receivables of the bank emerged on the basis of approved loans by the banks for financing liquidity and working capital of a business entities in accordance with the Regulation (program value of 2.000.000.000,00 EUR)
In any case, for the purpose of relieving current expenses from loans and leasing’s, a deferment of repayment resp. moratorium has been determined which cannot be shorter than 90 days in accordance with the Decision of National bank of Serbia.
Public revenues, taxes and other monetary obligations towards the state
Up to this moment the state has not rendered any special act in order to help Hotel industry in concrete manner.
However, beside previously stated general measures of help to bust the economy, the state has in accordance with Regulation on Fiscal Benefits and Direct Aid as 10/04/2020 prescribed the possibility of deferment of the maturity date of the corporate income tax for legal entities for March, April and May 2020 and this is until handover of the final tax application for corporate income tax for 2020, as well as deferment of payment up to 24 monthly installments maximum without obligation to pay interest.
Additionally, beside general measures of help to bust the economy, the state in order to help Hotel industry should undertake special measures and actions such as: 1) to exempt from payment and/or to defer payment of the property tax for Hoteliers who owns Hotels and/or other tourism facilities (motels, guest house, apartments, restaurants, camps and others) or exempt from payment and/or to defer payment of the rent for the land at which a Hotel and/or other tourism facility is located in case that the Hotelier is leasing the land; 2) to exempt from payment and/or to defer payment of tourist tax during 2020; 3) to exempt from payment and/or to defer payment of the tax for displaying business names on the business premises and other parafiscal public revenues during 2020; 4) to provide special means of loans to the Hotel industry by issuing subsidized vouchers to citizens for traveling and staying at Hotels and and/or other tourism facilities; 5) to undertake active media campaign for the purpose of supporting and promoting Hotel industry and tourism; 6) to make conditions for favorable procurement of disinfectants for Hoteliers in order to ensure health and safety; as well as to undertake other measures and activities in order for the Hotel industry to recover as quickly and efficiently as possible for exp. a possible reduction of VAT tax rate for accommodation and stay in Hotels and other tourism facilities.