Following the adoption of the Measures and Actions during the State of Emergency Act, announced by a decision of the National Assembly of March 13, 2020, the following legal consequences for the duration of the state of emergency arise for the companies of the Group XXX OOD in Bulgaria.
1) For the duration of the state of emergency all monetary liabilities of third parties towards XXX OOD remain in force and their payment is due. If the client, however, is in arrears with a payment due to XXX OOD, then for the duration of the state of emergency XXX OOD does not have the right to:
o Charge interest or penalties for the delay;
o Terminate the contract ahead of the term set due to the failure of the client to pay;
o Use security measures, provided for in cases of delay (as for example a seizure of pledged items).
2) In the relations with the employees XXX OOD has the right to take the following steps:
• Depending on the specifics of the work and the possibilities for securing it XXX OOD may assign to its employees remote work (art. 107h of the Labor Code) or home-work (art.107b of the Labor Code – but for XXX OOD it is practically inapplicable) without their consent, except for the cases when it is not possible (the specific conditions can be found in the new art. 120b of the Labor Code). The terms and conditions for assigning, executing and controlling the work shall be determined by an order of the manager;
• XXX OOD pay provide to its employees up to one half of the paid annual leave (that is up to 10 working days) without their consent (regardless of the fact whether there is a downtime or reduced workload, or whether XXX OOD has stopped work at the enterprise or not);
• For the whole duration of declared state of emergency or only for a part of this period XXX OOD can establish in the whole enterprise or only in one of its units reduced working hours for the employees, for a period of up to 3 months in one calendar year (art. 138a of the Labor Code). In this case the employees receive only a part of their basic pay, which is proportional to the time worked. Reduced working hours cannot be less than half of the normal working hours. (NOTE: If in this situation XXX OOD decides to candidate for the state compensation 60/40, then it will have to pay, respectvely to co-pay, the full salary for 8 hours daily although the employees will be working less than 4 hours. This result emerged after the publishing of the Government’s Ordinance 55 and its consequent interpretation by the Ministry of Labor and Social Security).
• XXX OOD may, by order, suspend the work of the enterprise, of part of the enterprise or of individual employees for the whole period of time or part of it until the state of emergency is cancelled (regardless of the fact whether there is a downtime or reduced workload or not – only on the grounds of a declared state of emergency). In this case the employees receive the full amount of their basic pay (without bonuses) also during the period of time when the work is suspended.
o In this case XXX OOD has the right to provide to the employees the whole paid annual leave also without their consent, where employees who have not acquired 8 months of service yet are included.
• In the cases where, as a result of the state of emergency a downtime or suspension of work has arisen for XXX OOD as an objective consequence (which must have actually occurred and must be provable on the part of XXX OOD; this refers to situations such as lack of orders, lack of clients, lack of goods or supplies, as well as other objective factors that have caused inactivity, inoccupation of the employees), then for the duration of downtime XXX OOD may use any of the following opportunities under the Labor Code, which do not refer only to the duration of a state of emergency and do not necessarily apply in the following order, and namely:
o To change unilaterally the place and the nature of the work of the employee according to art. 120 of the Labor Code;
o In case the downtime continues for more than 5 working days, as of the 6th day to provide to the employee its paid annual leave without its consent according to art. 173 (4) of the Labor Code;
o To offer to the employee unpaid leave under art. 160 of the Labor Code (this requires the consent of the employee);
o When the downtime continues for more than 15 subsequent working days, as of the 16th day to terminate the employment contract according to art. 328 (1) 3 or 4 of the Labor Code.
3) When during the state of emergency certain categories of employees require to use paid annual leave, XXX OOD does not have the right to refuse. Said categories are described in the new Art. 173a of the Labor Code (pregnant women, mothers, single fathers, minors, disabled persons etc.).
4) During the validity term of this Act, but for a period of time not longer than three months, the National Social Security Institute shall transfer 60 percent of the amount of the social security income for the month of January 2020 for persons insured under art. 4, par. 1, item 1 of the Social Security Code by insurers who meet the criteria specified by an act of the Council of Ministers. The funds are transferred by bank to the respective insurer within 5 working days on the basis of written information provided by the Employment Agency.
5) Concerning the tax consequences of the Act, please consider the following:
1. Concerning the corporate income tax
1.1. Advance payment of tax
The transitional and final provisions of the Act provide for taxable persons within the meaning of the Corporate Income Tax Act the following measures:
– Taxable persons who have declared a net profit from sales in 2019 of up to BGN 300 000 shall not pay corporate income tax in advance;
– Taxable persons who have declared a net profit of sales in 2019 exceeding BGN 300 000 but below BGN 3 000 000 shall pay in advance quarterly corporate income tax installments;
– Taxable persons who have declared a net profit of sales in 2019 exceeding BGN 3 000 000 shall pay in advance monthly corporate income tax installments.
The assessment above is made on the basis of the envisaged texts in the Act, according to which in 2020 the advance payments under the Corporate Income Tax Act shall be made according to the terms and the procedure of chapter fourteen, taking into account the following:
1. When the annual tax return for 2019 has been filed before the coming into force of this Act, the advance payments shall be made in the amount as declared; if necessary the persons may file a corrective declaration in accordance with art. 88 of the Corporate Income Tax Act;
2. When the annual tax return for 2019 has been filed by April 15, 2020, the advance payments shall be made in the amount as declared;
3. When the annual tax return for 2019 has not been filed by April 15, 2020, the advance payments are declared with the annual tax return form by April 15, 2020, where only the part of the form concerning the declaration of advance payments for the current year has to be filled in.
1.2. Deadlines for filing an annual tax return under art. 92 of the Corporate Income Tax Act
The taxable persons can make the declaration according to the procedure of the Corporate Income Tax Act by June 30, 2020 (instead of March 31, 2020), respectively to pay the corporate income tax and the tax on expenses due under said Act.
1.3. Deadlines for payment of tax under the Corporate Income Tax Act
The corporate income tax which has to be paid after deduction of the advance payments, as well as the tax on expenses have to be paid by June 30, 2020.
2. Concerning the personal income tax
The Act extends the deadline for filing an annual tax return under Art. 50 of the Personal Income Tax Act, concerning the year 2020, respectively the payment of the declared tax. The deadline is June 30, 2020, where taxable persons who have declared their income by May 31, 2020 shall be able to benefit from a 5% early declaration discount (instead of by March 31, 2020).
! No measures in connection with VAT have been provided.
Please note that no other tax exemptions outside the above measures have been provided. The state of emergency does not exempt taxable persons from filing statements under the Value Added Tax Act, as well as from withholding and paying said tax. Deadlines remain unchanged. The same applies to fulfilling the obligation to submit VIES declaration and Intrastat information.
! No measures have been provided in connection with social security and health insurance contributions.
The submission of declarations form No. 1 and No. 6, as well as the payment of health insurance and social security contributions shall not be interrupted – each insurer in Bulgaria has to fulfill its obligations for withholding and paying health insurance and social security contributions and personal income taxes.
3. State aid for employers
The state aid has been debated for a long time. With §6 of the transitional and final provisions of the Act this compensation became a fact.
The National Social Security Institute shall pay to employees 60 percent of their social security income for the month of January 2020 during the validity term of the Act, but for a period of time not exceeding 3 months. The National Social Security Institute has to transfer the funds to the employer, who is then under the obligation to pay them to the employee.
The Council of Ministers should issue a special act defining the employers to whom the National Social Security Institute should pay compensation for the employees who work and are insured with these employers.
The State Social Security (in particular the Unemployment Fund) will cover the costs of the state for the provided compensation for enterprises that have ceased to operate – this applies also to enterprises which, at their discretion, have ceased their trade activity as well as to enterprises which have ceased operations on compulsion in the course of the implementation of the emergency measures.
The deadlines of the Council of Ministers for issuance of said act are unclear. The criteria have not been specified as well.
We presume that employers who ceased their activities on compulsion due to Order No. РД-01-124 / 13.03.2020 of the Minister of Health shall have precedence.
Furthermore the interpretation of §6 highlights the criterion that the employee must have been insured with the same employer in January 2020.
This raises the practical question whether employees hired in February 2020 but before the state of emergency was declared (i.e. before March 13, 2020) shall have right to this compensation. At this point our reply is negative, as at that moment said employees have not been insured for unemployment by this employer. We indirectly derive the criterion that the health insurance and social security contributions for said employees must be paid by the same employer for at least a month – i.e. said employees must have already paid contributions to the Unemployment Fund for at least one month.
4. Suspension and extension of deadlines
As of March 13, 2020 until the state of emergency is cancelled, the following deadlines are suspended:
• Procedural deadlines for court, arbitration and enforcement proceedings;
• Periods of limitation and other time limits foreseen in statutory instruments, with the expiry of which rights are extinguished or terminated or obligations arise for subjects under private law;
• The deadlines for implementation of instructions given by an administrative authority to parties or participants in proceedings.
The following deadlines are extended with one month as of the cancellation of the state of emergency:
• The deadlines set by law, beside the ones listed above, which expire during the state of emergency and are related to the exercise of rights or fulfillment of obligations of subjects under private law;
• The validity term of the administrative acts, which is limited by deadlines and expires during the state of emergency.
4.3. Statute of limitation
The 5 year limitation period stops running during the state of emergency, resp. a referral to the absolute 10 year limitation period shall not be possible.
• The Act foresees that the deadline under art. 193, par. 4 of the Tax and Social Security Code of Procedure for the bailiff to transfer to the official receiver the property of the debtor for the purpose of realizing said property in the insolvency proceedings, stops running;
• No enforcement proceedings according to the Tax and Social Security Code of Procedure shall be initiated, except when it is necessary to protect particularly important state or public interests, or when the execution of the act may be obstructed or seriously impaired, or when the delay in implementation may result in substantial damage or a damage which it is difficult to repair.
• Enforcement proceedings under the Tax and Social Security Code of Procedure cease; the actions carried out prior to the cessation remain in force; after the cessation the bailiff cannot carry out new enforcement actions, but can take steps to secure the receivable, as well as to distribute amounts received in the enforcement proceedings; enforcement proceedings shall be resumed after the expiry of the period of time for which the state of emergency has been declared; prior to the expiry of the state of emergency, the enforcement proceedings shall be resumed with an order of the bailiff at the request of the debtor, for execution on:
a) Receivables and cash from banks;
b) Receivables from third parties;
c) Valuables kept in vaults, incl. the content of safes;
• After the enforcement on receivables and cash from banks, as well as receivables from third parties, the enforcement proceedings cease;
• The time limit under art. 246, par. 10 of the Tax and Social Security Code of Procedure stops running (the 7 days period of time when the bailiff has to let the buyer obtain possession of a property).
5. Annual financial statement and audit report
The deadline for the annual financial statement, resp. for the audit report is extended to September 30, 2020. The deadline for submitting a declaration under art. 38, par. 9, item 2 of the Accountancy Act (provided that no activity was carried out during the reporting period) is June 30, 2020.