Government Approves Compensation Bonus for Locked-Down Business Sectors, Postpones EET
In response to the growing spread of coronavirus, the Czech government approved a proposal to renew the compensation bonus for self-employed individuals, shareholders of small limited liability companies, and individuals who work under non-employment agreements in business sectors that have been directly affected by the government bans under the emergency measures. Moreover, the government approved that the electronic records of sales (EET) will be postponed until 1 January 2023.
1. Compensation Bonus Renewed
As part of the declared 30-day state of emergency (from 5 October 2020), a number of restrictive measures were implemented which negatively impact businesses. The new compensation bonus for self-employed individuals, shareholders in selected limited liability companies, and individuals working under non-employment agreements (i.e. agreements to complete a job or to carry out work) is intended to mitigate the consequences of the business restrictions or bans introduced as part of the government’s emergency measures adopted in response to the current state of emergency.
Who is eligible for the compensation bonus?
The following parties will be eligible:
A) Self-employed individuals
- Who were self-employed on 5 October; or
- Whose self-employment has been suspended from a date after 12 March 2020.
B) Shareholders in a limited liability company, who, on 5 October 2020 had
- No more than 2 shareholders who are individuals (natural persons); or
- Only shareholders who are the members of one family.
Such shareholders must, on said date, also be a tax resident of the Czech Republic or a tax non-resident who assumes, however, that their income from sources in the Czech Republic will exceed 90% of their 2020 worldwide income.
The company itself is also subject to certain requirements:
- It must not be insolvent, in liquidation or an unreliable payer or unreliable party for VAT purposes during the bonus period (see below);
- It must generate a minimum turnover of CZK 180,000 for the previous tax period or for the first tax period not yet completed; and
- It must be a tax resident of the Czech Republic or another EU/EEA country.
C) Individuals working under non-employment agreements
- If the agreement was entered into on or before 5 October with an employer whose operations were restricted or prohibited by the government’s emergency measures;
- Who performed work under such agreement in the period from 1 June 2020 to 30 September 2020 and, as a result, participated in health insurance as an employee for at least 3 months; and
- Who, at the same time, did not pursue any other activity as a result of which they would have participated in sickness insurance as an employee.
Another condition that the applicants must fulfil in order to be eligible to receive the compensatory bonus is that the predominant portion of their income in the period from 1 June 2020 to 30 September 2020 must originate directly from the banned or directly restricted activities (for the purposes of this comparison, take into account income from a dependent activity, from an independent activity, or from rent, i.e. income under Sections 6, 7 and 9 of the Income Tax Act).
Unlike in the spring wave, a concurrence with employment is no longer an obstacle for receiving the compensation bonus (however, income from potential employment will be compared with “loss of income” in the “predominant income” test).
We believe that the most controversial issues will result from judging which activity has been “directly banned or restricted” by the government’s emergency measures.
According to the Czech Finance Ministry’s opinion outlined in the explanatory memorandum, the bans and restrictions affect, for example, the following business operations and activities:
- restaurants and bars,
- music, dance, game and similar social clubs and discos,
- concerts and other music, theatre and film performances and shows,
- weddings, celebrations of entering a registered partnership, and funerals,
- circuses and variety shows,
- festivals and similar traditional events,
- congresses and educational events,
- trade shows,
- indoor sport facilities, gyms and fitness centres, water parks, wellness facilities,
- museums, galleries, exhibitions, castles and similar historical or cultural premises, astronomical observatories and planetariums.
We believe that the Ministry’s view is limited in outlook. If we use the example of a gym (a fitness centre) as described in the explanatory memorandum, the government’s emergency measure (Resolution No. 1021) prohibits parties from “operating and using gyms and fitness centres”. However, not only do the operators of gyms and fitness centres (free trade) run their businesses in such premises but, for example, personal trainers do as well (the premises are “leased” or “subleased”). We are convinced that the operations of personal trainers are “directly banned or restricted” by the government’s emergency measures the same way as the operations of the facilities’ operators. However, the Ministry currently does not seem to share this opinion.
It can be assumed that, as in the case of the spring compensation bonus, the tax authorities will issue a more detailed methodology in the form of FAQs, in which the issues outlined above may be addressed in greater detail. However, given the approach declared by the Ministry of Finance, we are concerned that this area will result in an extreme degree of uncertainty for potential applicants and also likely a number of disputes in the future.
Parties that are engaged in operations that are directly related to the locked-down sectors may also apply for the compensation bonus for each day on which their businesses could not be run by at least 80% as a result of the direct ban or restriction applicable to their customers of goods, services or other products. At the same time, the operations must be the predominant means of subsistence for the supplier and cannot simply be replaced or provided to other customers without any substantial difficulties.
Applicants must prove that all the requirements for the compensation bonus have been met by issuing an affidavit to that effect.
How high can the compensation bonus be?
The tax authorities will pay the compensation bonus subject to an application. The amount of the compensation bonus is CZK 500 for each calendar day of the so-called “bonus period”, which means the period from 5 October to 4 November 2020. The bonus period could be extended if the state of emergency (currently declared to last until 4 November 2020) is extended.
The right to the compensation bonus does not apply to a calendar day for which the entrepreneur would receive unemployment benefits or other benefits related to mitigating the effects of the coronavirus (even in the case of similar benefits received in another country).
When will it be possible to apply for the compensation bonus?
Applications for the compensation bonus can be submitted after the applicable law becomes enforceable. It is important to submit the application no later than two months after the end of the bonus period, i.e. by 5 January 2021. Entrepreneurs will be able to apply to their local tax authorities, either by personal submission, online via the tax authority’s website, via a data box or also by e-mail containing an electronic copy of the application with a handwritten signature.
2. EET postponed until 1 January 2023
Upon the Ministry of Finance’s proposal, the government also approved that all four EET stages will be postponed until 1 January 2023. Until the end of 2022, entrepreneurs do not have to fulfil their registration or other related obligations.
Both proposals will now be discussed by the Chamber of Deputies in an accelerated legislative process. We will keep you informed of further developments.