Serbian Government unveils the details of COVID-19-related fiscal and direct financial aid to corporate sector

Who qualifies for the aid

1. private entrepreneurs (sole proprietorship), including those who have registered temporary cessation of business activities on or after 15 March 2020;
2. small and medium-sized enterprises (SMEs), as per the accounting criteria measured against the 2018 financial statements;
3. large corporates, as per the accounting criteria measured against the 2018 financial statements;
4. branches and representative offices of foreign entities.

Conditions ​for the aid

Maintenance of headcount

Commercial entities qualify for the 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. Employees dismissed for breach are not excluded from the 10% threshold, so we conclude that they also count. It is unclear whether the employees whose employment terminated in an agreement with the employer or at their own will count towards the 10% threshold. We think they should not count. The wording of the provision suggests that the relevant reduction in the headcount is the one that results from the employer’s action (“…provided the employer has not reduced the number of employees for more than 10%)”. Hopefully this will be clarified in the coming days.

The measures are not available to financial sector (banks, investment funds, financial leasing companies, 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.

Aid measures

Fiscal aid

Companies may defer their obligation to pay payroll tax and social contributions on salaries and salaries in lieu for March, April and May 2020 or, if the company has already paid March salaries, for April, May and June 2020, in each case 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 installments. No interest accrues during the deferral and repayment periods.

Companies may also defer their obligation to make advance 2020 corporate income tax installments 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 installments. No interest on the tax obligation accrues during the deferral and repayment periods.

Further rules on the procedure for implementation of the foregoing tax deferral measures is expected to be issued by the Minister of Finance.

Direct financial aid

SMEs

SMEs are entitled to receive from the state the following direct aid:

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).

Large corporates

Large corporates are entitled to direct aid as follow:

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).

The manner of distribution of direct aid

SMEs and large corporates are entitled to fiscal aid and direct aid for three months if they apply for the aid by filing an appropriate 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 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 aid for one month.

Direct aid will be paid into the beneficiary’s ear-marked account held with its commercial bank. If the beneficiary of the aid has current accounts with more than one commercial bank, it has to notify the Tax Authority 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. The ear-marked account is ring-fenced from the beneficiary’s creditors.

Whereas the requirement that the aid proceeds may be disbursed from the ear-marked account only to the employees makes sense in the case of large corporates who qualify for aid only to the extent they have sent employees to forced leave (which then means those employees receive less than their regular salaries), it is dubious with respect to SMEs. Namely, SMEs are entitled to the aid even if they have not sent the employees to forced paid leave but continued to pay full salaries. It could not have been the idea of the government to provide extra pay to those employees whose salaries have not been reduced. In those cases, the aid should be for the employers. It is therefore expected that SMEs will reduce their employees’ salaries for a period of three months for an amount equal to the received direct aid per employee (minimum net salary for March 2020).

The decree does not specify until when the employer may use the direct aid proceeds paid into the ear-marked account for financing of salaries, except that it states that the funds remaining on the ear-marked account will be repaid to the treasury upon the closure of the account, which takes place when the aid program terminates or when the employer forfeits the right to aid as a result of dismissal of more than 10% of its work force (see above).

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).