Compensation Bonus for Sole Proprietors
Additional support from the Ministry of Finance and Tax Authorities is planned for self-employed persons (sole proprietors) whose business has been adversely affected in connection with the spread of the coronavirus. Who is the support for? What form will it take? What do you need to be eligible? The answers are in the article below.
On 1 April 2020, a government bill was submitted to the Chamber of Deputies for a compensation bonus to be granted to self-employed persons whose business has been adversely affected as a result of coronavirus-related emergency measures. However, it is already obvious that the government bill will be subject to intensive debate. This article provides an indicative summary of what is currently being proposed in the bill. As the eligibility requirements may change substantially after the bill is debated in the Chamber of Deputies, it will be necessary to closely monitor the situation.
Who is the compensation bonus for?
The following self-employed individuals (sole proprietors) may be eligible for the compensation bonus if:
- their business has been adversely affected by the emergency measures in such a way that they could not carry out their operations, whether entirely or in part;
- they were self-employed individuals even in 2019;
- for the period from January to March 2020, they experienced a decrease in revenue (received both in cash and non-cash) of at least 10% compared to the same period in 2019;
- they generated revenue of at least CZK 180,000 in 2019 (please note that this concerns revenue rather than profit);
- they pursue self-employment in 2020 as their principal activity, or as an ancillary activity but only because of their entitlement to disability pension, old-age pension, parental allowance, maternity benefit or care for someone in need.
If the self-employed person started his/her operations in 2019, they would compare their income for January - March 2020 with the income they had in the first 3 months after they launched their business. Thus, if the self-employed person started in December 2019, for example, it would choose the period from December 2019 to February 2020 to compare the revenue.
If the self-employed person did not operate throughout 2019, the minimum limit of the generated revenue is set to be CZK 15,000 for each month of operations (instead of the above CZK 180,000).
The self-employed person shall prove he/she has complied with all the requirements above by submitting an affidavit to that effect.
As concerns compliance with the basic requirement (that the self-employed person is not able to carry out his/her operations fully or substantially enough due to the emergency measures), there may be certain questions as to how such consequences could have been caused. The Act does not contain any detailed definition of these requirements. From the explanatory memorandum, and in particular from the media, we can conclude that the self-employed person did not have to be directly affected, i.e. by the closure of their establishment or a ban on operating, but also indirectly as a result of, for example, loss of customers or suppliers finding themselves in trouble due to the coronavirus pandemic. The adverse impact is tested by comparing the revenues for the decisive period as described above.
The Financial Authority points out that the applicant must be a self-employed person at the time the application is filed. This is because the compensation bonus is intended to help active self-employed persons to bridge the adverse impacts on their business. Thus, for example, if a self-employed person suspended its operations in March and is registered with the Labour Office, he/she cannot apply for the compensation bonus. Assistance goes to those persons through other benefits.
How high is the compensation bonus and who pays it?
The compensation bonus will be paid by the Tax Authority upon receipt of the application. It is paid as a one-time payment of up to CZK 25,000, i.e. CZK 500 for each day in the period from 12 March to 30 April 2020 in which the self-employed person was compliant with all the eligibility requirements.
Self-employed persons therefore receive CZK 500 for each day in the period from 12 March to 30 April 2020 in which they were not able to carry out their business entirely or in part due to the emergency measures. Therefore, if a self-employed person did not carry on operations on any day because, for example, he/she suspended his/her self-employment, he/she will not be eligible for the CZK 500 compensation bonus for that day.
Another condition is that the self-employed person’s entitlement to the CZK 500 bonus arises only for the particular day in the month in which he/she was self-employed for at least one day.
The advantage is that the Tax Authority will pay the compensation bonus even if its records indicate that the self-employed person owes a debt to it (the bonus will not be offset against the payment of the outstanding balance registered with the Tax Authority). The compensation bonus is also not subject to execution. The bonus will be sent to the applicant’s bank account, which is to be included in the application.
The compensation bonus can be received together with the "nursing" allowance paid to the self-employed person under another government measure. However, unemployment benefits cannot be received simultaneously.
When will it be possible to apply for the compensation bonus?
Applicants will be able to apply for the compensation bonus after the Act takes effect, which should be no later than 15 April 2020. Importantly, the application must be submitted no later than 60 days after the end of the bonus period, which should be by 29 June 2020.
Self-employed persons will file the application with their local Tax Authority in the same way as they file their tax returns (the Tax Authority prefers an electronic application, but it can also be filed by mail or in person by delivering the application to the Tax Authority). The application is unlikely to have a special pre-printed form, but the Tax Authority has promised to publish an optional template on its website.
What happens if the self-employed person incorrectly assesses its eligibility for the compensation bonus?
As mentioned above, the compensation bonus will be paid based on the affidavit to be issued by the self-employed applicant. However, the Tax Authority can subsequently verify whether the applicant complies with the statutory requirements or not. If the Tax Authority concludes that the bonus was paid incorrectly, i.e. if the self-employed person was not eligible for the bonus or any portion thereof, the self-employed person will be obliged to return the bonus or any part thereof and pay a penalty (20% of the amount of the bonus to which he/she was not eligible) and late payment interest (16% or 15% p.a. of the unduly received bonus for as long as it was able to dispose of it). It is therefore important for the applicants to thoroughly assess whether they are eligible (compliant with all the requirements) for the bonus before applying.
We will keep you informed on our blog of further details regarding the conditions for receiving the compensation bonus.