The Government of Serbia has answered to questions concerning fiscal benefits and direct payments to business entities

The legal framework for economic support measures was established on 10 April 2020 by adopting a number of regulations of the Government of the Republic of Serbia (“Government“). Within a week of their publication, however, the number of business owners’ concerns is growing.

One of them is the Decree on Fiscal Benefits and Direct Benefits to Private Sector Companies and Financial Assistance to Citizens to Mitigate the Economic Consequences of COVID-19 (“Decree“), which addresses fiscal policy measures, including specifying the rules for grants made from the budget of the Republic of Serbia, VAT treatment of the sale of goods and services without charges for healthcare-related purposes, as well as payment of one-time financial aid to all adult citizens of the Republic of Serbia from the budget.

The Government offered a kind of authentic interpretation of certain provisions of the Decree, which answered the most frequently asked questions it received from citizens. We decided to take that an additional step and pass on the answers, and in some places, if necessary, simplify the answers and point out additional concerns.

Are entities engaged under temporary and occasionally agreements included in the condition for the implementation of measures related to the reduction of the number of employees? Can the employer, without interference, terminate temporary and occasional agreements and exercise the right to use the measures?

No, the condition does not apply to persons hired under temporary and occasional agreements. This means that the employer will qualify for the application of the measures under the Decree even if they terminated their engagement of such persons during the state of emergency. In addition, the condition regarding the reduction of the number of employees does not apply to other persons employed outside the employment relationship. According to the Labor Act of the Republic of Serbia, those are persons employed on the basis of service agreements, temporary and occasional work agreements and supplementary work agreements.

Is it possible to opt only for the direct benefits measure, while continuing to pay taxes and contributions?

In this case, we stick to an authentic interpretation of the Government and the Ministry of Finance. The measures provided for in the Decree are designed as a whole. As soon as the addressees of the Decree decide to accept the measures, all measures will be applied automatically. This means that they will receive direct benefits, but that the payment of taxes and contributions will necessarily be delayed. However, what is automatically implied is merely delaying the due date of the tax and contribution obligations. As explained in the answer, there is no obstacle for the payment before the due date. This means that business entities will be able to fulfill their obligations on a regular basis as if the measure of deferral has not been applied, although the due date will be delayed if they declare that they accept the measures.

Is an employer is obliged to pass paid grants to their employees? There is no doubt that funds can only be used for wage payments, but it is unclear whether the funds must be used?

First of all, the Government also unequivocally emphasizes that the amount of funds received can be used solely for the payment of wages and wage compensations to employees. If the employer does not wish to use such relief measures, he is under no obligation to accept the application of the measures. Also, if the employer does not use the direct benefits received to pay the employees wages, after the implementation of the measures in accordance with the Decree is completed, the unused amount of funds will be returned to the budget. In the Government’s view, however, there is no reason not to use the funds received to pay wages and wage compensations.

If the employer has paid wages to employees (without deduction) for March 2020 in early April, will the employee, who has already received the full amount of wage for March 2020, receive an additional amount of net minimum wage in this case?

The Government first clarifies that in this case, employers will exercise their right to payment of direct benefits in the amount of the minimum wage in May, June and July.

However, while answering some of the following questions, the Government added the following: the aim of the direct benefits provided for in the Decree is to make it easier for the employer to provide funds for the payment of wages to employees, or, if possible, to pay employees wages in excess of the contractual amount. The Decree does not specify the amount of a wage that an employer will pay to an employee. It follows from the aforementioned official reply that the possibility is left for employers, on the basis of direct benefits, to pay wages to employees even in excess of the amount that belongs to them under an employment agreement. Of course, there is no obligation for the employer to increase earnings, but it seems that such a possibility is open. When it comes to March, of course, if wages have already been paid, there will be no basis for any increase, because in that case employers will not qualify for direct benefits for March.

Additional questions are raised regarding the situation when employers have already paid wages for March. According to Article 9 of the Decree, employers who have already paid their wages for March are not entitled to direct benefits for 3, but only for 2 months. The question from citizens is whether this is true.

This is not a correct understanding. As already answered, since the employer, in this case, will be entitled to the payment of direct benefits in May, June and July, it will also be covered for three months.

Article 9 of the Decree only stipulates the method of calculating the amount of direct benefits on which the employers are entitled. The issue of acceptance of measures and the importance of the moment of acceptance of measures for the extent of exercising the right to direct benefits is regulated by Article 11 of the Decree. In any case, if an employer fulfills other conditions stipulated in the Decree, and if they have already paid wages for March 2020 before the Decree entered into force, they may qualify for direct benefits for all three months if they submit the relevant PPP-PD wage application for April by the end of April 2020 with a marked payment date on January 4, 2021.

Is an employer obliged to calculate wage taxes and contributions for compulsory social security on the amount of the grants which will pass to the employees, especially if the employee has already received the full amount of wages from the employer and the direct benefit is paid as an “addition”?

Direct benefits paid under the Decree will be used for the payment of the employee wages and wage compensations. Taxes and contributions in accordance with the relevant provisions of the Citizens’ Income Tax Act and the Compulsory Social Security Contributions Act will be included in payment of wages and wage compensations. Therefore, employers will not be relieved from the obligation to calculate and pay taxes and contributions. However, as already explained, the due date of these obligations will be delayed.

In the case where the employer paid the wage for March 2020 before the Decree entered into force, the right to deferral of payment of taxes and contributions may, under the prescribed conditions, be exercised for the wages paid in April, May and June.

An owner of a limited liability company is the sole employee of that company. A voluntary liquidation process, that was pre-planned, was initiated on March 20. The plan is to continue to pay compulsory contributions for the next four months within the time limit stipulated by law for liquidation of LLCs. In this specific case, since the owner pays their own wage, are they entitled to state aid in the form of a minimum wage for March, May and June?

In the described case, the right to direct benefits may be exercised. However, there is an obligation for the owner to remain employed with the company that they own for 3 months after the last direct benefit has been paid. Also, before registration of liquidation, all obligations of the company regarding payment of taxes and compulsory contributions will have to be settled, regardless of whether those obligations are due for payment.

After the official answer, however, one doubt remains. It is stated that the owner will have to remain in employment relationship with the company for three months after the last direct benefit has been paid. The question is, however, how is this practically possible at all given that the company started the liquidation process and is likely to cease to exist by then.

If the PPP-PD form for March was already sent, does this mean that an employer who has completed obligations on time cannot receive a grant for that month?

If they fulfill other conditions prescribed by the Decree, an employer who already paid wages for March 2020 before the Decree entered into force may qualify for direct benefits for all three months if they submit the appropriate PPP-PD wage registration for April with the marked payment date 04.01.2021.

What kind of assistance are natural persons in the VAT system with a registered agricultural holding entitled to?

Natural persons who have the status of farmer-entrepreneurs within the meaning of the Citizens’ Income Tax Act, regardless of whether they are VAT-payers, are entitled to fiscal reliefs and direct benefits provided by the Decree if they fulfill other prescribed conditions.

Is the company is entitled to the payment of grants in the name of employee salaries if it now pays employee wages from its own working capital, and can the grants intended for payment of wages from a dedicated account be transferred to a current account and used to settle regular business obligations, the settlement of which is now postponed due to the payment of employee wages?

The direct benefits prescribed by Decree are strictly earmarked funds and can only be used for payments of wages and wages compensations to employees.

Wages, as well as taxes and contributions for March were calculated and paid before the Decree entered into force, but the date was incorrectly marked. Is it possible to correct the error? How should tax return be filled from now on?

Given that the date on the PPP-PD regarding the payment of wages for March 2020 was incorrectly defined, and that taxes and contributions on the said wages were paid, all before the Decree entered into force, the right on direct benefits for three months can be exercised by submitting a PPP-PD registration for April 2020 wages by the end of April 2020.

Does an entrepreneur who hypothetically “froze” their business on 20.3.2020 need to activate it in order to obtain funds on the basis of the Decree?

No, but the entrepreneur must meet all the other conditions provided by the Decree in order to be entitled to direct benefits provided by the Decree.

Does the deferred payment also apply to PP OD-O forms of founder registrations and are they subject to a net payment of RSD 30,000?

No, the right to deferred payment and direct benefits can only be exercised for founders for whom the PPP-PD registration is filled.

Can money be raised and paid to an employee through a cash register if the employee does not have a current account?

No. For the payment of these funds, it is necessary that the employee has an open current account.

Must an employer who is able to pay off minimum wages and more than the March minimum (already paid), April, May or June wait for payment 30,000 and then to make a payment of net wages from a separate account, and a difference from a regular account, or there is a way to prove that net wages have been paid from the regular account in full and before payment to special account?

Direct payments paid in accordance with the Decree are used solely for the payment of wages and remuneration to employees. Taxes and contributions shall be paid in accordance with the relevant provisions of the Citizens’ Income Tax Act and the Compulsory Social Security Contributions Act on all employee wages and remunerations, , regardless whether these payments are made from own funds or from separate account to which direct payments are made in accordance with the Decree. The Decree does not prescribe the total amount of salary and remuneration that an employer should pay to an employee.

The employer does not want to delay the payment of taxes and contributions and therefore will not enter in box 1.4 04.01.2021. How are tax returns filed and how are they entitled to compensation under the Article 9 of this decree?

The adoption of measures in accordance with the Decree shall be made solely by entering the date 04.01.2021 in box 1.4.

Is a legal entity which uses a subsidy of 65% tax and contribution refunds for an employee eligible to use tax and contribution deferral measures and not to lose the right to subsidies in the period which follows after 3 months?

Yes, it is.

How to defer payment of tax advance profit, since they are paid monthly on the basis of the final income tax return? Thus, there are no monthly reports to check something. Is delay of payment automatic or there is something more to do?

Deferrals are made automatically based on the acceptance of fiscal benefits by completing the PPP-PD application in the manner prescribed by the Decree.

The Decree states that one needs to enter the date 04.01.2021 in the tax return and to notify the PU to which account to which minimum wages will be paid. Tax return for March wages was filed on 04.01.2020 and then the Decree was not in force. How to act properly so we can use the aid to be paid by the state?

A business entity that has accounts with multiple banks should notify via special applications that can be accessed on the PU portal in which of these banks it wants to open a special account for the payment of grants in accordance with the Decree. If it meets the other requirements of the Decree, an employer who already paid the wages for March 2020 before the Decree entered into force may exercise the right to direct benefits for three months if they submit the relevant PPP-PD application with marked payment date 04.01.2021 by the end of April 2020 for the April 2020 earnings. Also, this employer can exercise the right to defer tax arrears and contributions on wages for April, May and June 2020, as well as other rights under the Decree.

Are employees who have been hired since 04.01.2020 entitled to fiscal benefits and direct benefits and for what period? (if they will receive subsidy for newly employed workers 65% of the contribution according to the Decree with regard to the number of employees per day 31.03.2014) and do these benefits exclude each other?

Exercise of rights under the Decree does not exclude the possibility of exercising others benefits. An employer can exercise the right to direct payments for two months on behalf of employees who were hired 01.04.2020. On the other hand, exercising the right to fiscal benefits depends on whether the business entity exercises the right to defer payment of tax and contributions to earnings paid for March, April and May 2020 or April, May and June 2020, so the employer may exercise the right to defer taxes and contributions for two or three monthly wages regarding the wages of the employees who established employment on 01.04.2020.

Are owners with employees who used the right to income tax exemption as newly established entrepreneurs in accordance with Article 21đ of the Citizens’ Income Tax Act and 45g of the Contributions Act (this right expires in April – specifically April 8) entitled to fiscal benefits and direct benefits and for what period?

Yes. Under the terms of the Decree, all employees for whom a PPP-PD application is submitted are eligible for fiscal and direct benefits, except those employees expressly referred to in Article 9, paragraph 4, of the Decree, for which rights to direct benefits cannot be realized.

Are PPP-PD forms for April required to be submitted by the end of April, and are the same forms for May and June also required to be submitted the end of those months? Is this the requirement which needs to be fulfilled in order to obtain the right to fiscal benefits and direct benefits because employers do not know who will remain employed in May and June and are unable to submit applications for these months by the end of April?

PPP-PD forms are to be submitted within the time limits prescribed by law.

Thereby, in order to exercise the rights under the Decree, it is necessary to submit a PPP-PD application for earnings achieved in March 2020 by the end of April 2020. If the earnings for March 2020 were paid before the Decree enters into force, then PPP-PD must be submitted for April 2020 earnings by the end of April 2020. Furthermore, appropriately filled PPP-PD reports must be submitted by the end of the next two months, and for the months following the month for which the PPP-PD was submitted by the end of April 2020.

If you have any additional questions or concerns you can contact us at covid19@geciclaw.com.