Mazars extraordinary tax newsletter - January 21st, 2021.

The Governing Board of the Croatian Employment Service (“CES”) on their meeting held on 7th January 2021 has issued decision on changes to the conditions of using the aid for the job preservation in activities affect by COVID-19 (January and February 2021). Also, The Governing Board of the Croatian Employment Service (“CES”)  announced extension of the aid for the shortening working hours (for period January-December 2021) and the extension of the aid for sheltered workshop and business units for the employment of persons with disabilities (period January-June 2021).

Aid for the job preservation in activities affect by COVID-19 for January and February 2021.

The changes to the aid enabled the use of the aid to employers which felt the consequences of the disaster caused by the earthquake in Sisak-Moslavina, Zagreb and Karlovac counties.

Employers from these areas whose business processes are significantly reduced or disabled by the objective reasons will be entitled to receive an aid in the amount of HRK 4,000 per full-time employee, or a proportional part for part-time employee according to the number of part-time hours, regardless of their activity and turnover.

Namely, the objective reasons for obtaining aid are: significant damages caused by an earthquake at business or production facilities and / or the inability of employees to come to work so that normal business process or production cannot be established.

Additionally, more information on the aid itself can be found in the latest edition of our extraordinary tax newsletter. 

Aids for job preservation during the Coronavirus outbreak (COVID-19) – shortening working hours

• Availability of the aid

Aid is available to all employers conducting business activity and employing 10 or more persons.

It is important to note that the right to use the aid have employers who have registered the activity and registered in the system of insured persons of the Croatian Pension Insurance Institute until the last day of the month preceding the month of aid application.

• Employees eligible for aid

The aid is available for all full-time employees which were employed by the last day of the month preceding the month of aid application. 

Further, aid cannot be received for the following:

• Co-owners with more than 25% owner's participation, founders;
• board members, directors, procurators, etc.;
• Workers who are on a notice period, remote work;
• This does not apply to employee representatives on management and supervisory boards, or other appropriate bodies that control the business activity;

Additionally, employers can receive aid only for the employees who were employed by the 31st December 2020.

In addition, the conditions of the aid stipulate that it may be granted only if employers request the same for a certain minimum percentage of employees (in relation to the total number of employees):

a) Employers with 10 to 50 employees can receive aid if the application has been submitted for at least 20% of the workers,

b) Employers with 51 or more employees can receive aid if the application for support has been submitted for at least 10% of the workers.

• Criteria

The basic criterion when applying for the aid is the expected decline in the total monthly working hours of all employees employed on a full-time basis in the month for which aid is requested (minimum 10%). Also, the decline in the total working hours of employees must be associated with certain temporary disturbances in the production and business process.

In this regard, the connection with business disruptions is proven by the realized drop in revenues / receipts in each month for which aid is requested of at least 20% compared to the same month last year and one of the following reasons:

• drop in orders through termination or amendment of the contract with the customer / customers, written statement of customers on the drop in orders for the month for which aid is requested;
• temporary inability to contract new jobs;
• temporary inability to deliver finished products or contracted and paid raw materials, machinery, tools;
• Impossibility of new orders of raw materials, tools and machines necessary for work.

Exceptions:

• Employers operating in the manufacturing sector (group C according to the NACE classification) can receive aid if the decrease in income / receipts in the observed period is less than 20%, but they must prove one of the stated reasons in each month for which aid is requested.
• If the employer has been operating for less than 12 months: the month for which aid is requested is compared with the month preceding the month of application for aid.
• Submission of application for aid

Applications for aid can be submitted for period January – December 2021 (aid is granted for month following the month in which application for aid was submitted). The exception is aid for January, which will be approved for applications submitted by January 31, 2021.

Employers applying for aid have to:

• Describe the reasons for the expected decline of at least 10% in the total fund of working hours of all employees in the month for which aid is requested, accompanied by supporting documentation proving the expected decline;
• Adopt an Agreement or Decision on the application for the use of the aid;
• Provide information on the expected number of employees for whom support is requested;
• Provide information on the expected decline in income / receipts in the month for which aid is requested compared to the same month of the previous year;
• Submit records of working hours.

It is important to note that the application is automatically extended to the next month so it is not necessary to submit a new application for each month, however, the employer have to submits the following supplemental documents to the application on a monthly basis:

• monthly records of working hours for the month in which the employer uses the aid (the application will not be valid in the month for which no records of working hours have been submitted),
• data on the actual realized decline in income in the month for which support is requested - VAT returns (the request will not be valid in the month for which data on the realized decline in income have not been submitted).

Accordingly, mandatory documentation on the decline in income and monthly records of working hours has to be submitted by the following dates:

a) from 1 February to 28 February: income and working time records for January 2021 (for the application submitted by 31 January)

b) from 1 March to 31 March: income and working time records for February 2021 (for the application submitted by 31 January)

c) from 1 April to 30 April: income and working time records for March 2021 (for the application submitted by 28 February)

d) from 1 May to 31 May: income and working hours for April 2021 (for the application submitted by 31 March)

e) from 1 June to 30 June: income and working time records for May 2021 (for the application submitted by 30 April)

f) from 1 July to 31 July: income and working time records for June 2021 (for the application submitted by 31 May)

g) from 1 August to 31 August: income and working time records for July 2021 (for the  application submitted by 30 June)

h) from 1 September to 30 September: income and working time records for August 2021 (for the application submitted by 31 July)

i) from 1 October to 31 October: income and working time records for September 2021 (for the applications submitted by 31 August)

j) from 1 November to 30 November: income and working time records for October 2021 (for the applications submitted by 30 September)

k) from 1 December to 31 December: income and working time records for November 2021 (for the applications submitted by 31 October)

l) from 1 January 2022 to 31 January 2022: income and working time records for December 2021 (for the application submitted by 30 November)

• Aid amount

The aid is granted for the temporary introduction of shorter working hours of full time employees, up to maximum of 90% of working hours. 

In this regard, the value of the amount of net hourly compensation for shortening working time is calculated according to the following formula: up to HRK 4,000.00 divided by the monthly fund of full-time hours for the month for which aid is requested, multiplied by the number of hours for which aid is provided .A overview of the amount of co-financing by the CES depending on the number of working hours can be found on the CES website.

It is important to emphasize that for employees whose amount of contracted or prescribed net salary is lower than HRK 4,000.00, the amount of contracted or prescribed net salary is taken into account in the calculation of net hourly compensation.

Moreover, the aid may not be used during the annual leave and / or in periods when the employee does not work for justified reasons specified by law, other regulations, rulebook or employment contract, and when these periods are not related to the aid. .

According to the approved aid, the CES will also refund the social security contributions proportional to the amount of the aid (based on the information from the Tax Authority).

• Limitation

The employers that have receive support may not:

• Determine overtime work for employees for whom support has been granted;
• Employ workers in jobs that can be performed by employees for which support has been granted;
• Use the work of posted workers or occasional work of pupils or students;
• Contract or order work at a separate place of work (remoted work) to employees for which support has been granted.

Also, an employer that has requested aid for more than 50 employees will have to return received funds in case it performs any of the following activities from the moment of receiving the aid up until December 31^st 2022:

1. pays a dividend or share of profits or other equivalent receipts that are considered as distribution of profits for any tax period,
2. if it allocates own stock or own business shares to members of the management board and / or executive directors and / or procurators and / or other persons authorized to run all or part of the company,
3. grants the right to optional purchase of stock or any other right based on the value of own stock to the persons referred to in point 2,
4. pays any amount to the persons referred to in item 2 such as: bonus for achieved results, reward for performing results above the non-taxable amount prescribed by the regulations governing personal income taxation and other similar receipts taxed as income from self-employment or other income, in accordance with regulations governing personal income taxation,
5. acquires its own stocks or its own business shares.

More information of the aid itself can be found on the CES website.