Support for self-employed persons hit by the COVID-19 outbreak

14. 4. 2020

Authors: David Krch, Josef Žaloudek

Dear Clients and Business Friends,

We write to you with a summary of information on the support approved by the Parliament of the Czech Republic and signed by the President provided to self-employed persons (“Entrepreneurs”) in connection with the emergency measures and the fight against COVID-19. To make it more reader-friendly, we have prepared our summary in the form of a Q&A, although the interpretation or the actual wording may be subject to changes by state authorities. If you have any questions on these topics, we will be happy to help you.

In what form and amount is the Bonus provided?

• The compensation bonus (“Bonus”) amounts to CZK 500 a day.
• The Bonus can be paid out for each day between 12 March and 30 April 2020.
• The maximum amount is CZK 25,000.
• It is paid out as a tax refund.

Who is entitled to the Bonus?

• Entrepreneurs who were performing gainful self-employed activity (“Activity”) as of 12 March 2020.
• Entrepreneurs who interrupted their Activity after 31 August 2019 and the Activity was still interrupted as of 12 March 2020. This measure has been adopted so that persons who have not yet resumed their Activity due to the emergency measures and who perform their Activity on a seasonal basis are also eligible for the Bonus.
• Please note that persons who were simultaneously taking part in the sickness insurance scheme as employees (i.e. not only employed persons but also employees receiving over CZK 3,000 in income under agreements on working activity or over CZK 10,000 under agreements on work performance) are not eligible. Therefore, this rule also excludes employed retired people and students, etc.
• The applicants must be registered personal income tax payers.

What are the criteria?

• The Bonus is designed for Entrepreneurs who could not, beyond usual scope, partly or fully perform their Activity as a result of health risks or emergency measures. That means in particular:
  • Business close-downs or restricted business operation.
  • The Entrepreneurs or their employees are in quarantine.
  • The Entrepreneurs are taking care of their children or their employees are facing obstacles to work due to childcare.
  • Limited demand for the Entrepreneur’s products, services or other outputs.
  • Limited or suspended supplies of inputs necessary for the performance of the Activity.
• The above list is demonstrative, there may also be other reasons.
• The Entrepreneur must be ready to prove that its Activity was truly restricted as these facts may be subject to a subsequent inspection.
• We recommend retaining all possible related documentation proving the circumstances, e.g. communication with customers or business partners evidencing the restriction of input supplies, cancellation of meetings or orders by customers, etc.

Where to file the application and what are its essentials?

• The Bonus is paid out by the tax authority to which the Entrepreneur regularly files its income tax return.
• The application form is already available on the Financial Administration website.
• The application contains:
  • general essentials,
  • a declaration certifying that the conditions for the Bonus (see above) have been met, including the number of days for which the Bonus is to apply,
  • account number denominated in Czech crowns to which the Bonus can be transferred.
• The applications can be filed by 29 June 2020 (within 60 days after the end of the Bonus period), after which the entitlement to the Bonus will lapse.
• Bonuses are expected to be paid without undue delay once the application has been processed.
• The application can be filed
  • via a databox,
  • electronically bearing an advanced electronic signature,
  • electronically (on the Financial Administration’s website) not bearing an advanced electronic signature, the generated confirmation of the filing of the application can then be signed and its electronic copy attached to an email sent to the email address published by the competent tax authority,
  • as an electronic copy (a scan) of the application that will contain the applicant’s genuine signature sent to the email address published by the competent tax authority,
  • in writing, although currently the preferred method of communication is electronic communication.
• If the Entrepreneurs find out that their applications have not been filled in correctly, they can correct them by 29 June 2020.
• If the Entrepreneur’s entitlement to the Bonus has been reduced, the Entrepreneur will return only the ineligibly paid out part but will not have to pay any penalty.

Does the payment of the Bonus affect any other benefits?

• Yes, it is considered a part of income for the calculation of assistance in material need.
• The Bonus and the unemployment benefits are mutually exclusive, i.e. it is either possible to receive an unemployment benefit or a Bonus per calendar day.
• The Bonus is a tax refund so it is a non-taxable income and the Entrepreneur will not enter this amount as income in its tax return for 2020.
• The Bonus is unseizable, i.e. is not subject to enforcement order or order to execute a judgement.

Will the payment of the Bonus be subject to any inspection?

• Given the fact that the payment of the Bonus will actually be a “tax refund”, it can be subject to:
  • A procedure to remove doubts in the course of the application processing.
  • A subsequent tax inspection within the period of three years, most likely from the last day for admission of applications.
• For that reason we recommend Entrepreneurs keep all documents proving that they were affected by the emergency measures and that their actual performance of activities were restricted, especially if they apply for the Bonus on the grounds of restricted inputs or, on the other hand, on the grounds of restricted demand for their products or services, etc.
• As has been mentioned above, we recommend retaining relevant written communication with suppliers or customers, minutes from meetings, if any, precise statements proving the drop in sales even though the electronic reporting of sales duty has been temporarily suspended, etc.
• In the event the tax authority finds out during an inspection that the Entrepreneur was entitled to a lower Bonus, the Entrepreneur is obliged to pay the applicable difference back. No sanction will be imposed but Entrepreneurs are likely to face late interest charges (currently amounting to approximately 15% p.a.).