On April 10, 2020 and April 24, 2020, the Government of the Republic of Serbia adopted a legal framework to implement economic measures to reduce the adverse effects caused by the Covid-19 virus pandemic.
At the Government sessions, the Regulation on Fiscal Benefits and Direct Benefits to Private Sector Companies and Financial Assistance to Citizens was adopted to mitigate the economic consequences of the contagious COVID-19 disease (the “Regulation”) and amendment to the Regulation. The implementation of the economic measures prescribed by the Regulation began on April 13, 2020.
The Republic of Serbia allocated EUR 5.1 billion for implementation of this package of economic measures.
Fiscal incentives and direct benefits
Regulation provides two types of measures for legal entities:
fiscal incentives – deferral of maturity for payments between April 1 and June 30, 2020, and exceptionally until July 31, 2020 for taxes and compulsory social security contributions payable on earnings for the month of June 2020 paid in accordance with the employment regulations ;
direct benefits – distribution of grants to legal entities, which can be used solely for the payment of the salaries to employees;
For legal entities, including branches of foreign legal entities, maturity for payments can be delayed:
– taxes and contributions on salaries until January 4, 2021,
– corporate tax advance payments for March, April, and May 2020 until the submission of the final corporate income tax return for 2020.
A legal entity that chooses to use the benefits has the right to defer payment of the due taxes and contributions or advance payment of corporate tax, on the maximum of 24 equal monthly installments without interest payment.
Micro, small and medium-sized legal entities may qualify for payment of grants in May, June and July 2020 in the amount obtained by multiplying the number of full-time employees for whom salaries have been filed for March 2020 and the amount of basic minimum net salaries for each individual month i.e. May, June and July 2020.
Large legal entities may exercise the right to the payment of grants in the amount of 50% of the minimum basic net salaries for March 2020, for employees who established a decision to stop working after a state of emergency and for which legal entity has filed a tax return.
The grants are to be paid out in May, June and July 2020.
Certain types of legal entities are not afforded the right to defer payment of tax liabilities, including banks, insurance and reinsurance companies, financial leasing providers, etc.
The qualification requirement for the use of fiscal incentives and direct benefits measures is that, from March 15, 2020, until the date of entry into force of the Regulation, business entities did not reduce the number of employees by more than 10%. Also, a private-sector entity loses the right to use fiscal incentives and direct benefits if, in the period from March 15, 2020 until the expiry of the period of three months from the last payment of direct benefits, it reduces the number of employees by more than 10%.
Legal entities accept the fiscal incentives and direct benefits by filing a tax return with a payment date January 4, 2021.
Ambiguities regarding the economic measures
Adoption of the above Regulation has caused a great deal of doubts in practice, first of all from the point of view of implementation and consequences of the adoption of economic measures by legal entities. More detailed explanations given by the Government of the Republic of Serbia and opinions in practice give more concrete insight into the rights and obligations of legal entities.
Prohibition of dividend payment. Legal entities that choose to use fiscal incentives and direct benefits cannot pay dividends until the end of 2020. Dividends represent all payments made to their owners by a company on the basis of their ownership of the shares. In the event that such legal entity makes the payment of dividends in year 2020, such legal entity must repay full amount aid received in accordance with the provisions of the Regulation and pay deferred taxes and contributions with the associated interest back to the Republic of Serbia.
Treatment of direct benefits. Although the Regulation does not specify its legal treatment, the direct benefits should be regarded as employee benefits interpreted in line with provisions of the Labor Law. This means that if the legal entities opt for economic measures, they will be obliged to pay employees taxes and contributions. That is, “help” to employees also includes the obligation of the employer to pay the costs of the accompanying taxes and contributions to the Republic of Serbia.
Economic measures package. In practice, there was an intention of certain legal entities to partially take advantage of the possibilities provided by the Regulation. The intention of legal entities was to use either the possibility of deferring tax payments until January 4, 2021 or the possibility of direct payments to employees. However, the Regulation does not provide this possibility. That is, by filing a tax return, legal entities are only able to fully accept all economic measures or not to accept any of the economic measures. This cumulative approach to offered measures, makes it difficult for legal entities to make the decision whether to adopt such economic measures with all their advantages and disadvantages.
Payment of direct benefits. Direct benefits received by legal entities (employers) under the Regulation shall be paid into the current accounts of employees no later than August 15, 2020. Any other usage of those funds shall be considered a tax offense to which the penal provisions of the Regulation apply.
Legal entity that files a request for direct benefits even though it is not entitled to it, or uses these funds for other purposes then prescribed, or loses the right to direct benefits and fails to repay the amount of direct benefits received in full, together with the associated interest, will be punished by a monetary fine in range of 30-70% of direct payments received, but not less than 500.000 RSD for a legal entity, or 100,000 RSD for an entrepreneur, as well as for a responsible person in a legal entity in the amount of 50.000 to 100.000 RSD.