Mazars extraordinary tax newsletter - 14th December 2020

The Governing Board of the Croatian Employment Service (“CES”) on their meeting held on 4th December 2020 has issued decision on changes to the conditions and manner of using the aid for the job preservation in activities affect by COVID-19.

The changes mostly relate to modification of certain conditions for the use of aid and the expansion of the business activity categories that have the right to use the aid (with the satisfaction of the condition of the revenue decline of at least 40%)

Also, the changes provide additional possibilities that are available to business activities that have been prohibited from work due to the recently adopted Decision of the Civil Protection Headquarters of the Republic of Croatia.  

• Availability of the aid

CES aid is available to the following employers:

a) Employers who are not restricted or prevented from performing their business activity by the Decisions of the Civil Protection Headquarters and have more than 10 employees, can receive aid only if they operate within the following business activities:

• Agriculture, forestry and fishing - only crop and livestock production, hunting and related service activities and fishing;
• Transport and storage - transport of passengers (land, air, water) and air transport of goods;
• Transport service activities;
• Accommodation, food and beverage service activities;
• Administrative and support service activities - only rental and leasing activities, travel agencies, tour operators, other reservation services and related activities;
• Arts, entertainment and recreation sector - only creative, artistic and entertainment activities, entertainment and recreational activities, production and screening of films and video films, sound recording and music publishing activities and distribution;
• Other service sectors - repair of computers and personal and household goods and other personal service activities;
• Organizers of cultural, business and sports events, organizers of fairs and weddings, and related activities such as companies for equipment rental, audio and video recording, ticket sales, hall rental and other companies that generate most of their income from events and public gatherings;
• Translation activities and interpreter services;
• Publishing - publishing of books and other publishing activities.

b) Employers who are restricted or prevented from performing a business activity due to the Decisions of the Civil Protection Headquarters or if they have less than 10 employees, can receive aid regardless of the activity they perform.

In addition, changes to CES aid introduced possibility of receiveing an aid to employers who are business-related as suppliers with employers who are closed by the Decisions of the Civil Protection Headquarters.

It is important to note that the right to use the aid, regardless of the basis on which they apply, have employers who have registered the activity and registered in the system of insured persons of the Croatian Pension Insurance Institute by September 30, 2020.

• Employees eligible for aid

The aid in November is available for all employees employed by 31 October 2020, while aid in December is available for all employees employed until 30 November 2020.

Further, aid is available for all employees employed by employers that is eligible to receive aid (regardless of whether the worker is a fixed-term employed or indefinite employed, whether they are citizens of the Republic of Croatia, the EU or third countries, full-time or part-time or have some status such as single parent, Croatian war veterans and posted workers) and employers employed in branches / representative offices of foreign companies in the Republic of Croatia.

Moreover, aid cannot be received for the following:

• Co-owners with more than 25% owner's participation, founders. This does not apply to employers who employ up to 10 workers and to self-employed owners and persons who perform independent activities, agriculture and forestry, regardless of the number of employees. The recent changes to the conditions for use of aid abolish restriction by which employers with more than 10 employees could not obtain aid for members of the management board, procurators, directors, etc.
• Pensioners
• Foreign workers from third countries whose residence and work permits have expired.
• Criteria

A changes to the measure has been introduced in the criteria for obtaining aid so that employers have the option of choosing between the previously set criterion (Option 1) and the newly introduced criterion (Option 2).

Option 1:

Cumulative income / receipts for the period from 1 April to 30 September 2020, compared to the cumulative for the period from 1 April to 30 September 2019. For taxpayers of quarterly reports, cumulative of II and III quarter of 2020 is compared with the same period in 2019.

Option 2:

Month for which aid is requested and comparative month in 2019.

Exceptions:

• If the employer has been operating for less than 12 months: the month for which aid is requested is compared to September 2020.
• If the employer was established after April 1, 2019 and has been operating for more than one year:

a) The month for which the aid is requested (e.g. November 2020) and the comparative month 2019.

b) If the payer of quarterly reports: III quarter 2020 compared to III quarter of 2019.

Additionally, if the employer has submitted request, previous to these changes, for which the aid for November will be paid in the same or a larger amount, it is not necessary to submit a new request for November based on the prohibition of work by the Decisions of the Civil Protection Headquarters.

For employers who have submitted an application for the month of November for the aid October-December before the entry into force of these changes, the criteria of the aid October-December, which are more favorable for him, will be applied.

Employers whose request for the month of November was rejected before the entry into force of these changes have the right to submit a new request / supplement the request in accordance with the amended criteria.

More information on the measure itself can be found on the official CES website.

• Submission of application for aid

Applications for aid can still be submitted for November and December.

Requests for payment of monthly salary costs for November and December 2020 can be submitted until December 25, 2020, and payment of monthly salary costs for both November and December 2020 will be approved.

Requests for payment of monthly salary costs for December 2020 can be submitted from December 26, 2020 to January 25, 2021.

• Aid amount

The amount of aid is a maximum of HRK 4,000.00 per month for full-time employee, i.e. a proportional part per employee according to the number of part-time hours according to the percentage of decline in income / receipts:

a) from 40% to 44.99% - HRK 2,000.00

b) from 45% to 49.99% - HRK 2,500.00

c) from 50% to 54.99% - HRK 3,000.00

d) from 55% to 59.99% - HRK 3,500.00

e) from 60% to more – HRK 4,000.00

*increased by the contribution for pension insurance based on individual capitalized savings, i.e. the amount of the obligation of additional contribution for pension insurance based on proportion to the amount of aid.

Employers who cannot perform the activity in accordance with the Decisions of the Civil Protection Headquarters (national, county, local self-government units) or the Decision of the epidemiologist are entitled to the aid in the following amount:

a) HRK 2,000.00 per full-time employee, i.e. a proportional part per employee according to the number of part-time hours if the employer is closed for 1 to 14 days by the Decisions of the Civil Protection Headquarters or the Epidemiologist's Decision

b) HRK 4,000.00 per part-time employee, i.e. a proportional part per employee according to the number of part-time hours if the employer is closed by a decision of the Headquarters or a decision of an epidemiologist for 15 days onwards.

* increased by the contribution for pension insurance based on individual capitalized savings, i.e. the amount of the obligation of additional contribution for pension insurance based on proportion to the amount of aid.

In addition, employers who are unable to perform their activities in accordance with the Decisions of the Civil Protection Headquarters are also entitled to reimbursement of fixed operating costs in the event that in December 2020 they achieve a revenue decline of 60% compared to December 2019.

• Reimbursement of fixed operating costs

The newly introduced changes to the aid for the preservation of jobs introduced a new possibility for employers who have submitted a request for the preservation of jobs because their work has been prevented by a decision of the Civil Protection Headquarters or an epidemiologist. Namely, such employers will be entitled to receive an additional full or partial reimbursement of the fixed costs.

In this regard, the Tax Authority issued an instruction in which it clarified the possibility of full or partial reimbursement of fixed operating costs.

a) Criteria

Entrepreneurs whose work has been prohibited (e.g. gyms, catering facilities, etc.) by the Decision of the Civil Protection Headquarters of the Republic of Croatia of 27 November 2020 will have the right to reimbursement of fixed operating costs.

Further, the right to full or partial reimbursement of paid fixed costs will have entrepreneurs whose decline in income / receipts in the month of December 2020 compared to December 2019 was at least 60%.

Accordingly, entrepreneurs with a decrease in income / receipts from 60% to 90% will be reimbursed in proportion to the decrease in income / receipts, while those who had a decrease in income / receipts above 90% will be fully reimbursed.

b) Fixed operating costs

Fixed operating costs eligible for reimbursement are:

• monthly cost of rent, lease or concession fee of business premises in which the activity is performed,
• reserve requirement cost,
• monthly cost of electricity, water with associated fees, gas, costs related to the use of the heating network and the removal of municipal waste,
• utility fee cost,
• HRT monthly fee, monthly fee for public use of music, monthly subscription to daily, weekly and monthly newspapers,
• monthly cost of internet and fixed telephone line,
• monthly cost of accounting service and
• 1/12 of the annual fee for organizing games in casinos, slot machines and betting games, except for the annual fee for online betting and online casinos.

c) Submission of request for reimbursement

Requests for reimbursement of part or all of the paid fixed costs are submitted by entrepreneurs to the Ministry of Finance via the e-tax system (Eporezna) no later than 15 February 2021 (Request).