3. 6. 2020
An amendment to Act no. 159/2020 Sb. on The Compensation Bonus in Connection with Crisis Measures Associated with the Occurrence of Coronavirus SARS CoV-2 (the “Act”) entered into effect today. The amendment has added a new category of persons who may ask the state for compensation, to wit, certain members (shareholders) of limited liability companies.
The Act has hitherto only allowed self-employed persons (“SEPs”) to ask the state for assistance; however, it has not applied to small entrepreneurs harmed by the coronavirus who chose to pursue their business activity in the form of a limited liability company (“Company“), even though in practice their activities do not significantly differ from the activities of SEPs, and at the same time such activities are typically the sole source of their income (as is the case with SEPs).
Therefore, the amendment to the Act has added a new category of recipients of the compensation bonus – shareholders of Companies who have lost their economic activity, or whose economic activity has been significantly impaired (above the usual level), as a result of the crisis measures adopted, whether due to complete shutdown of the Company’s business establishment or restriction of its operations, or due to placing the shareholder or an employee in quarantine, the shareholder’s or employee’s need to take care of a child, limited demand for the Company’s products, services or other deliverables, or reduction or termination of supplies or services necessary for the performance of the Company’s business.
It is necessary to point out in this context, however, that for the purposes of eligibility for the compensation bonus, the Act requires fulfilment of a number of cumulative conditions (as described in detail below in this article), applying both to the shareholder and to the Company as a whole.
Specification of shareholders eligible for compensation, and of the applicable conditions
The bonus applies solely to a shareholder of a Company incorporated for profit who is a natural person. This limitation is intended to prevent abuses in the form of unjustified receipt of the compensation bonus by a shareholder – legal entity that is merely an empty shell and/or which could be subsequently wound up.
Another mandatory condition is the status of shareholder of the Company, whereas the compensation bonus can only be granted to a shareholder in a Company that has a sole shareholder or two shareholders at most. The purpose of this limiting criterion is to target only those shareholders of Companies who are in a similar position to SEPs. Therefore, the Act stipulates the maximum number of shareholders of the Company, while the number of the Company’s employees is irrelevant.
Family businesses, however, constitute an exception to this rule. Where all shareholders are members of the same family, the statutory limitation of the number of shareholders does not apply to that Company. For the sake of completeness, members of the same family for the purposes of the Act mean all direct relatives, siblings, spouse, or partner under the relevant registered partnership act. This list is to a certain extent inspired by the definition of “close person” in Section 22 of the Civil Code, but is somewhat narrower and it does not apply to persons who permanently live together.
All of the cases mentioned above are further subject to the condition that the shareholder’s share in the Company is not substituted by a common certificate.
As far as the fulfilment of the conditions of eligibility for the compensation bonus is concerned, this is always assessed in relation to a particular day of the bonus period (i.e. from 12 March to 30 April 2020 for the first bonus period; and from 1 May to 8 June 2020 for the second bonus period) in respect of which the bonus is claimed. While the shareholder of the Company is required to comply with some of the conditions for the entire period (e.g., being a shareholder as of the relevant date of 12 March 2020), other conditions are defined so that in practice they may only be fulfilled on some days of the bonus period, while they need not be fulfilled on other days.
Additional conditions for granting the bonus include the time test and the income test, ensuring that the Company has been in continued existence for a certain period of time, generating relevant income. Apart from that, the shareholder and the Company must prove their tax residence as of the date of declaration of the state of emergency (12 March 2020) as well as in the course of receiving the bonus.
Hence, a shareholder will only be eligible for the bonus subject to the following statutory conditions:
Status of shareholder (natural person) while:
- The Company has a sole shareholder; or
- The Company has two shareholders; or
- The Company is a family business (all shareholders are members of the same family).
- The shareholder fulfils the conditions for granting the bonus as of 12 March 2020, i.e. the first day of the first bonus period.
- The minimum turnover of the Company exceeds CZK 180,000 for the preceding fiscal period, i.e. Companies whose fiscal period in respect of income tax is the calendar year will be required to prove the annual total of net turnover for 2019; or
- The estimated turnover of the Company for the fiscal year 2020 exceeds CZK 180,000 – this applies to newly formed Companies whose initial fiscal period has not been completed yet.
Tax residence of the shareholder and of the Company (as of 12 March 2020):
- Czech tax resident; or
- Tax resident of another EU or EEA Member State, on condition that most (at least 90%) of their incomes for the fiscal year 2020 will originate from sources in the Czech Republic.
Eligibility for the bonus does not apply to shareholders of Companies:
- facing economic or other difficulties (the Company must not be insolvent or in liquidation, and it must not be perceived as an unreliable taxpayer or unreliable person within the meaning of the Value Added Tax Act);
- if the shareholder’s participation in the Company is represented by a common certificate;
- if the Company is a not-for-profit company.
Natural person as a shareholder in multiple Companies?
If a natural person is a shareholder in multiple Companies, such person may only become eligible for the compensation bonus once for a particular calendar day. Hence, the shareholder may only claim the compensation bonus in respect of one Company, while the conditions of eligibility for the compensation bonus will be assessed exclusively in relation to that particular company. Any failure, as the case may be, of those conditions by another company of which the same natural person is a shareholder would thus be irrelevant, and the tax authority should not take it into account in the context of granting the compensation bonus.
If the shareholder claims the compensation bonus for multiple companies (for each of them for different calendar days within the bonus period), he/she is obliged to identify all those companies in relation to the relevant extent of the claim.
Bonus amount, and conditions for payment
Eligible applicants may receive a bonus of CZK 500 per day retroactively for the first bonus period from 12 March to 30 April 2020 and for the second bonus period from 1 May to 8 June 2020. The maximum bonus a shareholder can apply for is CZK 44,500. If emergency measures are further extended, the Act envisages a third bonus period from 9 June to 31 August 2020, with shareholders being entitled to the bonus for days in which their Company’s operations have been restricted in full or in part.
The shareholder’s bonus entitlement arises only if the aforementioned statutory conditions have been met. The shareholder may apply for the bonus using a form on the website of the tax administration, along with a signed affidavit confirming that the bonus entitlement conditions have been fulfilled. A separate application is to be submitted for each bonus period no later than 60 days from the last day of the given bonus period.
Bonus concurring with other aid and with participation in the sickness insurance scheme as an employee
The shareholder may not simultaneously receive the bonus andunemployment benefits, aid provided within the Antivirus scheme due to the shareholder’s employment with the Company or the compensation bonus for SEPs.
On the other hand, it is irrelevant whether the shareholder has an employment (e.g. accountant) or different relationship (e.g. executive director) to their own Company. The shareholder may not, however, claim the bonus and, at the same time, the Antivirus benefit as the Company’s employee for the same days. Nonetheless, a shareholder having claimed the Antivirus benefit only for a part of the bonus period may apply for the bonus for the remaining days.
Shareholders are not entitled to the bonus if they fall within the sickness insurance scheme as employees at a company other than theirs, or if their income based on an agreement for work or an agreement to complete a job exceeds CZK 3,000 or CZK 10,000, respectively.
Sanctions for claiming the bonus without entitlement
If the tax authority discovers in a procedure to remove doubts or during a tax inspection that the conditions for the bonus have not been met and the bonus has not been calculated in the correct amount, the authority will assess an additional tax amounting to the difference between the calculated bonus and the new amount.
If the shareholder finds out ex post to have claimed the bonus without being entitled to it or that the amount the shareholder applied for was not right, the shareholder should notify such fact to the tax authority where the application was submitted.
In both cases mentioned above, the shareholder must further return the bonus that he/she was ineligible to apply for, and, at the same time, pay late payment interest (15% p.a.) for the period starting on the day of the unlawful bonus payment until the date of its return.
In this respect, we recommend that the shareholder keep all documents proving that he/she has been affected by the emergency measures and the Company’s operations have been indeed restricted, in particular if the shareholder applies for the bonus due to a decreased input or a decreased demand for the Company’s products or services, etc. We also recommend that the shareholder should archive all relevant written communication with suppliers or customers, minutes from any possible meetings, and keep accurate records of the reduced revenues.