The current situation regarding the spread of the COVID-19 coronavirus is having negative consequences not only for what matters most—people’s health—but is also significantly affecting the overall economic situation and the operations of businesses. These consequences affect most business sectors, particularly in manufacturing, services, sports, the arts, and certain segments of the retail sector.
The extraordinary measures adopted to prevent the spread of COVID-19 have had adverse consequences for many business owners, including a loss of orders and customers, supply shortages that threaten the continuity of production and service provision, and, last but not least, a shortage of labor. These consequences lead to a significant decline or loss of revenue, increased debt, and layoffs. For many entrepreneurs, this may pose a serious threat of bankruptcy, leading them to restructuring or, in some cases, even bankruptcy.
European Union Aid Against the Coronavirus Crisis
Both the European Union (EU) and the Slovak Republic are aware of the severity of the economic consequences, and to date, several responses and proposals have been published to address and overcome the current situation. The European Commission (EC) is responding to the situation and on March 13, March 2020, it presented a coordinated European response to combat the economic impact of the spread of the coronavirus, and on that day, several proposals for Regulations of the European Parliament and of the Council were also issued, concerning the method of providing financial assistance to Member States in addressing the consequences of the spread of the coronavirus.
The EC stated that the main fiscal response to the coronavirus should come from the national budgets of Member States, which may propose extensive support measures in accordance with existing EU rules, such as wage subsidies, suspension of corporate income tax and value-added tax payments, or social security contributions. Member States may also provide assistance by offering financial support directly to consumers, for example in the form of compensation for canceled services that the relevant operators do not refund. The EC refers to EU state aid rules, which allow Member States to help companies cope with liquidity shortages if they need urgent rescue aid. Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU) allows Member States to compensate companies for damage directly caused by exceptional events, including measures in sectors such as aviation and tourism.
At the same time, as part of this new initiative, the EC proposes to allocate €37 billion under cohesion policy to combat the coronavirus crisis by utilizing EU structural funds, which should be distributed to assist small and medium-sized enterprises (hereinafter also referred to as “SMEs”), to support the labor market, and to other affected sectors of the economy. To mitigate the impact on employment, the EC announced that it is prepared to support Member States in this regard, particularly by supporting short-time work schemes, upskilling, and reskilling programs that have proven effective in the past.
On April 2, 2020, the EC published another package of support measures designed to help Member States’ economies address the impacts of the coronavirus crisis. Under the new temporary employment support system, Brussels is offering member states up to €100 billion through the SURE instrument to preserve jobs and ensure the continued operation of businesses, which the EC intends to borrow using government guarantees. In this context, the EC has proposed that all EU countries adopt the German kurzarbeit scheme as a measure to prevent layoffs. The EC thus aims to expand the existing crisis investment fund with additional funds earmarked for cohesion policy, planning to introduce more flexible disbursement of EU funds to enable a rapid and effective flow of funds.
On April 3, 2020, the EC adopted an amendment to the Temporary Framework for State Aid Measures to Support the Economy in the Context of the Coronavirus Pandemic. To further support the economies of Member States, the EC subsequently expanded the scope of the Temporary Framework for State Aid as part of a second amendment. Based on horizontal rules and in close cooperation with Member States, the EC has so far approved state aid for the EU economy amounting to approximately €1.9 trillion. The primary objective is, above all, to ensure liquidity for businesses, preserve jobs, support research and development, and guarantee the supply of products to combat the pandemic. The second amendment sets out the criteria under which Member States may provide recapitalization and subordinated debt to businesses in distress, while safeguarding a level playing field across the EU.
Following the adoption of a temporary framework that allows Member States to make full use of the flexibility provided under state aid rules, the EC is approving state aid schemes for countries that request them. Among others, for example, a French plan to provide urgent financial support to the airline Air France and a Danish scheme to support small and medium-sized enterprises affected by the pandemic have been approved. State aid schemes thus enable Member States to ensure that companies have sufficient liquidity and that economic continuity is maintained.
On April 6, 2020, the EC released €1 billion from the European Fund for Strategic Investments, which is intended to serve as a guarantee for the European Investment Fund (hereinafter “EIF”). This should enable the EIF to issue special guarantees to encourage banks and other lenders to provide liquidity to at least 100,000 small and medium-sized enterprises affected by the economic impact of the pandemic, with an estimated €8 billion in available financing.
The European Commission is thus fulfilling its commitment made on March 13, 2020, when it promised to provide immediate assistance to SMEs. Financial intermediaries with existing EIF agreements under the COSME and InnovFin programs thus have access to the new guarantees immediately upon request. Other financial intermediaries have access to the guarantees following rapid processing of their application. Small and medium-sized enterprises can thus apply for assistance directly through their local banks and lenders participating in the program.
On April 28, 2020, the EC adopted a package of banking measures aimed at facilitating lending to households and businesses across the EU. The package is designed to ensure that banks can continue to lend money to support the economy. The package includes an interpretative communication on the EU’s accounting and prudential frameworks, as well as targeted changes to EU banking rules. The rules introduced have ensured that banks in the EU are now more resilient and better prepared to withstand economic shocks. Targeted changes are thus being implemented to maximize credit institutions’ ability to provide loans and absorb pandemic-related losses, and to ensure their long-term resilience.
State Aid Against the Coronavirus Crisis – Companies, Self-Employed Individuals, Employees
Measures to Support the Economy_Slovak Government_COVID-19
Proposing and adopting measures to support the Slovak economy is currently a priority for the new government, and individual measures are gradually passing through the legislative process.
On March 27, an amendment to Act No. 461/2003 Coll. on Social Insurance, as amended, entered into force, which addresses the extension of entitlement to sick leave (so-called OČR) during the declared state of emergency related to COVID-19, as well as temporary incapacity for work (PN) due to quarantine or isolation. The adopted measure was subsequently amended several times. You can read more information here.
To assist companies, self-employed individuals, and employees, the government approved a proposal for the first concrete measures to aid the economy on March 29. These measures are as follows:
1/ The state provides wage subsidies to employers whose operations were mandatorily closed as a result of measures adopted by the Public Health Authority of the Slovak Republic. Effective April 4, 2020, an amendment to the Labor Codewas also enacted, which, for defined cases (including, among others, emergency situations and related measures by the relevant state authorities), a lower amount of minimum wage compensation was established, which the employer is obligated to provide to the employee due to an obstacle on the employer’s part (for which the employer cannot assign work to the employee), specifically in the amount of 80% of the employee’s average earnings.
2/ The state will provide grants to self-employed individuals and companies that have experienced a decline in revenue, based on the extent of their revenue loss.
These measures were approved on March 31, 2020, and are implemented in the form of support to employers through the provision of non-repayable grants pursuant to Section 54(1)(e) of Act No. 5/2004 Coll. on Employment Services, as amended. The grants are provided to employers by the locally competent offices of labor, social affairs, and family in whose territorial jurisdiction the employer maintains jobs or in which it conducts its business. You can read more about non-repayable grants provided to employers and self-employed individuals in the article here. Grants for employers and self-employed individuals to help mitigate the consequences of the spread of COVID-19.
3/ Provision of bank guarantees totaling EUR 500 million per month, which commercial banks will subsequently pass on to businesses under more favorable terms – The Ministry of Finance of the Slovak Republic, in cooperation with Slovak Investment Holding (hereinafter “SIH”), has prepared a scheme of bank guarantees and interest subsidies called the SIH Anti-Corona Guarantee. This means that the state, through SIH, has allocated funds to support entrepreneurs. SIH subsequently published a call for cooperation, in which banks may participate. After joining the program (i.e., after signing a contract between the bank and SIH), the bank may begin providing preferential loans to entrepreneurs. Interest-free and preferential bridge loans are provided by standard commercial banks and the Slovak Guarantee and Development Bank.
In the first round, SIH allocated 38 million euros from European funds to banks, which serve as a guarantee for loans provided to clients by participating banks. The allocated amount was distributed according to the banks’ market share of loans provided to small and medium-sized enterprises in 2019. In the second round, the SIH allocated approximately €57 million from unused EU funds of the Ministry of Economy of the Slovak Republic. The loan funds themselves are provided by banks, which means the total amount of loans granted will be several times higher.
Assistance in the form of loans to bridge a difficult period is intended for sole proprietors and SMEs. These should be loans with a maximum term of 4 years, including a 12-month deferral of principal and interest payments. The interest subsidy will be up to 4%, meaning that the interest will be borne by SIH, and the client may obtain a low-interest or even interest-free loan if employment is maintained. Supported businesses will be able to use the loan funds for their investment and operating costs in order to maintain employment.
4/ Option to defer loan repayments for up to 9 months at no cost – on April 3, 2020, the Slovak government agreed with representatives of the Slovak Banking Association on changes to loan repayment terms in connection with the spread of COVID-19.
A bank client who is a natural person, a sole proprietor, or an SME with up to 250 employees may request a deferral of payments. Any of the loan borrowers may submit a request for a deferral of payments (i.e., not only the person to whom the loan was granted, but also a co-borrower). However, the applicant must not be more than 30 calendar days past due on loan repayments as of the date the application is received. Additionally, the applicant must not be at least 100 euros past due on another loan with the same lender.
The borrower may request a deferral of payments from the bank at any time during the pandemic, with the same rules applying to every borrower regardless of whether one submits a request earlier and another later. The application is available on the websites of individual banks.
Loan and credit repayments can, so to speak, be “scheduled” for the end of the loan/credit term, or it is possible to proportionally increase the repayments to be made after the pandemic ends. However, it is important to note that deferring repayments does not mean they are forgiven. The deferral of payments itself is free of charge, but banks will continue to charge interest during the extended repayment period.
5/ On April 22, 2020, the limit for contactless payments was increased from €20 to €50.
6/ For employees in quarantine and on sick leave, 55% of their gross salary is covered for the entire duration of sick leave or nursing leave.
7/ On May 20, 2020, a Slovak Government regulation was adopted approving the extension of the due date for social insurance contributions for May 2020 to December 31, 2020.
However, the deferral applies only to certain employers and self-employed individuals. The deferral of social insurance premium payments applies to employers and self-employed individuals who report a decrease in net turnover, or a decrease in income from business activities and other self-employment activities for the month of May 2020, of 40% or more. It should be noted that the due date for social insurance contributions for employees for May 2020 remains unchanged, as does the due date for advance payments of health insurance contributions for May 2020.
Pursuant to the aforementioned Slovak Government Regulation, the due date for social insurance contributions for March 2020 is also extended. Social insurance premiums for employers and self-employed persons for March 2020 are thus due by December 31, 2020 (i.e., no longer by July 31, 2020, as was stipulated under the initial measure regarding the deferral of premium payments). The deferral of the due date for social insurance contributions for March 2020 again applies only to employers and self-employed individuals who report a decrease in net turnover, or a decrease in income from business and other self-employment activities for March 2020 of 40% or more.
Regarding the due date for health insurance advance payments for employers and self-employed individuals for March 2020, it should be noted that it remains unchanged and continues to be July 31, 2020. The condition for the deferral is again a decrease in sales, or a decrease in income from business and other self-employment activities for March 2020 by 40% or more.
8/ The deadline for filing the 2019 income tax return is extended until the end of the calendar month following the end of the pandemic period. Income tax will also be due within the same period. In the tax return filed within this extended deadline, the taxpayer may also claim a tax credit after fulfilling all conditions specified in Section 50 of Act No. 595/2003 Coll. on Income Tax, as the deadline for filing a declaration of the allocation of the portion of tax paid is also extended until the end of the second month following the end of the pandemic period.
9/ Deferral of income tax prepayments in the event of a decline in sales of more than 40%, a measure effective as of April 1, 2020, which a taxpayer may apply if and provided that their sales (or income, or turnover) in a specific month by more than 40% compared to the same month of the previous year and reports this fact to the tax authority in the form of a sworn statement. It follows from the above that the taxpayer will not submit (as has been the case until now) a request for payment of tax advances, but will simply report the fact that their sales have decreased by 40% compared to the same month of the previous year to the tax administration (i.e., the relevant tax administrator) in the form of a sworn statement. The taxpayer must make such a notification (affidavit) every month/quarter during the duration of the emergency situation in which they wish to have their advance tax payments deferred (and thus simultaneously meet the above-described condition of a decline in revenue). Unpaid advance payments must be settled in the 2020 tax return, i.e., by March 2021 (or within the extended deadline for filing the tax return). This measure applies to all business owners, regardless of the number of employees or income level, meaning small businesses, self-employed individuals, and large companies alike. Those whose revenue has not declined may still utilize the provision of the Income Tax Act that allows taxpayers to request the tax administrator to adjust the payment of income tax advance payments differently.
10/ The option to carry forward previously unused losses dating back to 2014, applicable to entrepreneurs filing their 2019 tax returns between January 1, 2020, and December 31, 2020. This means that even a taxpayer who filed a tax return for the fiscal year in January or February 2020 may claim this tax loss through the filing of an amended tax return. When carrying forward this loss, the statutory regime for claiming losses from previous years remains in effect, and only the portion of the loss that could not be claimed in accordance with the law due to the tax base in previous years remains available today as a one-time carryforward option.
Support for Maintaining or Restoring Business Operations from European Funds
As mentioned above, it is clear that the extraordinary situation has significantly impacted the areas of industry, manufacturing, and trade, where entrepreneurs can be assisted by funds from the European Structural and Investment Funds (ESIF or so-called European funds). We would like to draw your attention to the current opportunities to access support from European funds in the form of non-repayable financial contributions, which are primarily directed toward the industrial manufacturing sector under the Research and Innovation Operational Program. On December 13, 2019, the European Commission approved the merger of the Research and Innovation and Integrated Infrastructure operational programs so that unspent funds could be allocated where they are most needed. The OPII has a budget of more than 8 billion euros allocated for the years 2014–2020 (including mandatory national and private co-financing). The main priorities also include:
- support for increasing the competitiveness of small and medium-sized enterprises
- support for research and innovation
These are projects supporting innovation in the production process, product innovation, or a combination of both. Applications for non-repayable financial contributions are currently being accepted under the call for proposals to support smart innovation in industry. Additional calls are being prepared.
Our partner, BALTEUS spol. s.r.o., provides professional handling of the necessary processes related to non-repayable financial contributions; you can find more on this topic here.
However, do not forget the obligation of entities that draw funds from public sources exceeding statutory limits to register in the Public Sector Partners Register (RPVS), where our law firm will provide you with professional and high-quality services. You can find more information on this topic on our website www.partnerverejnehosektora.sk
The adoption of these measures will give affected companies and individuals the opportunity to submit their claims and requests for assistance or compensation to state-designated authorities and entities.
Our law firm is prepared, in cooperation with our partners, to provide you with legal and other professional advice and services regarding the measures adopted by the state, their consequences, as well as possible solutions and the utilization of assistance from both state and European funds.
We will continue to monitor the situation regarding compensation and the provision of assistance to affected businesses and individuals, and we will update this article with the latest information as it becomes available.
Sources:
http://www.uvzsr.sk/index.php?option=com_content&view=category&layout=blog&id=250&Itemid=153
https://ec.europa.eu/commission/presscorner/detail/sk/ip_20_459
https://ec.europa.eu/commission/presscorner/detail/en/IP_20_440
https://ec.europa.eu/slovakia/news_sk
https://rokovania.gov.sk/RVL/Material/24596/1
https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2020/63/20200327
