The Regulation on Fiscal Benefits and Direct Giving to Private Sector Companies and Financial Assistance to Citizens in order to Mitigate the Economic Consequences of COVID19 (“Official Gazette of the RS”, No. 54/2020)
The Government of the Republic of Serbia, with the co-signature of the President of the Republic of Serbia, issued a Regulation on Fiscal Benefits and Direct Giving to Private Sector Companies and Financial Assistance to Citizens in order to Mitigate the Economic Consequences of COVID19 (“Official Gazette of the RS”, No. 54/2020, hereinafter referred to as: the Regulation), which Regulation stipulates fiscal benefits and direct giving from the budget of the Republic of Serbia to private sector business entities in order to mitigate the economic consequences of COVID19, VAT treatment of the sale of goods and services free of charge for medical purposes, as well as the payment of flat financial assistance from the budget to all adult citizens of the Republic of Serbia.
Entities which are eligible for using fiscal benefits and direct giving
Business entities that are eligible for fiscal and direct giving prescribed by the Regulation are those business entities in the private sector such as resident legal entities in accordance with the Law on Corporate Income Tax (including associations and other non-profit organizations), resident entrepreneurs and branches of foreign legal entities and representative offices of foreign legal entities.
Business entities may use the fiscal benefits and direct giving with condition that in the period from March 15, 2020 to the date when this Regulation entered into force, they did not reduce the number of employees by more than 10%, without counting those employees with whom the fixed-term employment agreements were concluded before March 15, 2020 for the period that ends on March 15, 2020 until the date when this Regulation entered into force. Entrepreneurs which have registered temporary cessation of performance of activities at the earliest on March 15, 2020 may benefit from the same measures under the same conditions.
Fiscal benefits for business entities – legal entities
Business entities – legal entities may be deferred from paying taxes and contributions on earnings and wages until January 4th 2021 as well as from paying advance corporate income tax for March, April and May for the year 2020. Legal entities shall have the right to defer from payment of the tax and contributions, or advance payment of corporate income tax, whose due is deferred by the Regulation, at a maximum of 24 equal monthly installments without interest and that for:
- taxes and contributions on earnings and wages in the amount of obligation whose maturity is deferred; and
- advance corporate tax payments in the amount of advance corporate tax payments whose maturity is deferred, but mostly in the amount of the final corporate income tax liability for 2020.
The entrepreneur which pays taxes and contributions on self-employment income by self-taxation has the right to defer maturity for payment of advances taxes and contributions to self-employment income, as well as deferment of payment of these obligations, by appropriate application of the rules relating to the legal entities.
Direct giving
Direct giving is different for the two groups of business entities. First group consists of entrepreneurs and micro, small and medium sized legal entities. Second group consists of large legal entities. Classification of legal entities is made on the basis of the financial statements for year 2018. Legal entities which are established during year 2019 and 2020 are considered to be small legal entities.
The business entities from the first group may acquire the right to receive a grant from the budget of the Republic of Serbia in the amount of the minimum net earnings for March 2020 per employee.
Large legal entities may acquire the right to receive a grant in the amount which is obtained as a product of 50% of the basic minimum net earnings for March 2020 and sum of:
- Employees for whom a decision on termination of employment was issued as of March 15, 2020 in accordance with article 116 of the Labor Law and
- Employees for whom a decision on termination of work was issued as of March 15, 2020 in accordance with section 117 of the Labor Law, on the basis of the decisions of the competent state authority in relation to the disease COVID-19.
Loss of right to use fiscal benefits and direct giving
A business entity shall lose the right to use the fiscal benefits and direct giving stipulated by the Regulation if, in the period from March 15, 2020 until the expiration of three month from the last payment of direct giving reduces the number of employees by more than 10%, without counting the employees who concluded a fixed-term employment agreement before March 15, 2020 for the period ending in the period of March 15, 2020 until the expiration of three months from the last payment of direct giving. Fulfilment of conditions for loss of the right to use fiscal benefits and direct giving provided for in the Regulation is being checked every last day in month until October 31, 2020, starting from April 2020. Those business subjects who lose the right to use fiscal and direct giving are obliged to pay all obligations for which they have been granted a deferral payment with interest and to perform the refund of direct giving with interest not later than five days after the date of termination of the use of fiscal benefits.
The payment of direct giving
For the purpose of payment of direct giving referred to in the Resolution, a special purpose account shall be opened to the business entity – payment of direct giving – COVID-19 at the bank which, at the moment of entry into force of the Regulation, it maintains the current account of that economic entity.
VAT treatment of the sale of goods or services for medical purposes without charge
VAT is not calculated and paid for the sale of goods or services performed free of charge by the VAT taxpayer to the Ministry of Health, the Republican Health Insurance Fund or a health institution in the public domain, and the VAT payer is entitled to deduct the previous tax on the basis of that turnover.
Payment of flat financial assistance for all adult citizens of the Republic of Serbia
After the end of the state of emergency, all adult citizens of the Republic of Serbia are paid flat financial assistance in the amount of EUR 100 in RSD equivalent.
Dividend payment prohibition
Private sector entities that choose to use fiscal benefits and direct budget benefits cannot pay dividends until the end of the year 2020.
Penalty provisions
A private sector business entity that obtains the right to direct giving, although not entitled under the Regulation, uses these funds unintentionally or loses the right to direct giving and does not repay the amount of direct giving received in full, together with the associated interest, until the control procedure is initiated, a fine of 30-70% of the direct payments received shall be punished for the misdemeanor, not less than RSD 500,000 for a legal entity, or RSD 100,000 for an entrepreneur.
A private sector business entity that gains the right to defer payment of public revenue even though it is not entitled to do so under the Regulation or loses the right to defer payment of income in accordance with the Regulation and does not pay it in full together with the associated interest until initiation of the control procedure, shall be fined in the amount of 2050% of the amount of deferred public revenues, not less than RSD 250,000 for a legal entity, or RSD 50,000 for an entrepreneur.
Financial support Program
The Serbian Government adopted a Financial support Program for businesses to help them maintain liquidity and Current assets in difficult economic conditions caused by the COVID-19 pandemic.
The Program regulates Government loans for entrepreneurs, cooperatives, and micro, small and medium companies which are in majority privately or cooperatively owned and which do business in the field of production, service, trade or agriculture.
The Terms and Conditions of these Government loans are:
- a total repayment period up to 36 months that includes a 12 Month grace period and 24 months for repayment;
- the Interest rate is 1% annually;
- loans are approved and repaid in RSD;
- the minimum Loan amount for one Loan beneficiary together with Affiliated Persons is 1.000.000,00 RSD for companies and 200.000,00 RSD for entrepreneurs and cooperatives;
- the maximum Loan amount for one Loan beneficiary together with Affiliated Persons is 10.000.000,00 RSD for entrepreneurs and micro-companies, 40.000.000,00 RSD for small companies, and 120.000.000,00 RSD for medium companies;
- repayment of the Loan will be made in monthly annuities;
- Interest will be calculated during the Grace period and added to the Principal;
- the main condition for getting these Loans is the retention of employees. The Program foresees a 10% deviation as acceptable;
- as instruments of securing the repayment the Program lists, promissory notes, mortgage on real property, security upon equipment or personal property.
Requests can be submitted until the funds of the Program have been spent, and no later than December 10th, 2020.
The Fund for development of the Republic of Serbia, in accordance with the Program, will regulate more detailed criteria and conditions under which the Loans will be approved.
In order to get these Government loans the Applicants cannot be in a bankruptcy, reorganization or liquidation procedure or in the procedure of financial restructuring.