Due to the coronavirus pandemic, doing business in Poland is significantly impeded, and sometimes completely impossible. There are two main reasons for this.
The first is related to the behavior of people during a pandemic, who avoid large clusters of people and try to stay at home. As a result, in response to the slowdown in the market, entrepreneurs are forced to introduce changes in their functioning - both in the employee dimension and in relations with clients and contractors.
The second is related to legal acts adopted during the pandemic. The basic legal act in this matter is the act of 2nd March 2020 on special solutions related to the prevention, counteracting and eradication of COVID-19, other infectious diseases and crisis situations caused by them (hereinafter referred to as the "Special Act").
The Special Act allowed the issue of the regulation of the Minister of Health of 13th March 2020 regarding the announcement of the epidemic emergency in the territory of the Republic of Poland (hereinafter referred to as the "Regulation of the Minister of Health").
The Regulation of the Minister of Health introduced a number of restrictions for citizens and entrepreneurs. In particular, the Regulation of the Minister of Health in § 5 introduced a ban on conducting individual types of economic activity.
On 20 March 2020, the Minister of Health issued two regulations:
- regulation regarding the announcement of repealing of the epidemic emergency in the territory of the Republic of Poland;
- regulation regarding the announcement of the epidemic in the territory of the Republic of Poland (hereinafter referred to as the "Regulation of the epidemic").
The Regulation of the epidemic has introduced even broader restrictions than the preceding Regulation of the Minister of Health. For example, the Regulation of the epidemic in § 6 extends the ban on retail trade in shopping malls compared to § 5 of the Regulation of the Minister of Health.
The above means that a significant part of entrepreneurs is exposed to significant financial losses - especially since the conduct of business involves a number of obligations, and first of all costs - arising from both public and private law.
This article will present current and planned legal instruments that can help entrepreneurs with problems related to the crisis.
When is possible and is it beneficial to suspend your business?
Pursuant to the Act of 6th March 2018, Entrepreneurs Law, it is possible to suspend business operations. This possibility exists both for the entrepreneur being a natural person and for the entrepreneur being a commercial company. This also applies to partners in a civil law partnership, with the condition that in order to suspend the operations of a civil law partnership, all its partners shall suspend the operations.
Apart from submitting the application in accordance with the appropriate procedure, there are two basic conditions for suspending business operations:
- As a rule, an entrepreneur cannot employ employees. The exceptions are situations in which employees are on leave strictly defined in the Entrepreneurs Law (including maternity leave). Importantly, this condition applies only to employees employed under a contract of employment. In other words, an entrepreneur concluding only civil law contracts is entitled to suspend operations.
- Suspension of economic activity shall be performed for an appropriate period. For individuals, this period is at least 30 days, while for commercial companies from 30 days to 24 months. An exception to the minimum suspension duration is suspension of operations in February.
In the case of companies, the decision to suspend business activities is made in the form of a resolution of partners of a partnership or a resolution of the management board of a capital company.
It is also worth noting that in the case of natural persons who do not employ employees who conduct business for a period of at least 6 months, it is possible to suspend business for a period of up to 3 years in order to provide personal care for the child, but no longer than until the end of the calendar year, in which the child turns 6 years old. The exercise of this entitlement means that during the suspension the social security contributions will be paid from the country budget.
The submission of an application for suspension of activity is free of court fee and is not announced in the Monitor Sądowy i Gospodarczy (Court and Business Gazette).
The main benefits of suspending operations are:
- no obligation to pay social security contributions;
- no obligation to pay income tax advances;
- no obligation to submit VAT’s declaration.
During the period of suspension of activity, it is forbidden to perform business activities, however, the entrepreneur has the right to perform activities that are necessary to preserve or secure sources of income. The entrepreneur also has the right to receive payments and has the obligation to settle obligations arising before the date of suspension of economic activity.
The disadvantage of suspending business is the loss of right to receive social insurance benefits.
Is it possible to suspend social security contributions?
If an entrepreneur who is a natural person or a commercial law company does not want or cannot suspend his business, the current provisions provide for the possibility of defer the payment deadline or spread the payment into instalments by concluding a contract with the Social Insurance Institution (ZUS) and paying an extension fee.
The extension fee is calculated in accordance with article of 57 § 2 of the Tax Ordinance Act and in principle is equal to the reduced rate of default interest. In accordance with article of 57 § 5 of the Tax Ordinance Act, no extension fee is set when the deferral was caused by a natural disaster or an individual misfortune.
Deferral of payment or spread payment into instalments is possible "for economic reasons or other reasons deserving to be considered".
In connection with the coronavirus pandemic, on 23th March 2020, a statement from the Social Insurance Institution appeared, according to which entrepreneurs will be able to take advantage of a simplified application for deferral the payment deadline for 3 months for the period from February to April 2020. Social Insurance Institution also provides for the possibility of suspending the contract concluded with ZUS for 3 months, in which the payment date of instalments or contributions has been set in the period from March to May 2020, and thus the extension of the contract implementation period by 3 months.
This application should include a description of how coronavirus affected the entrepreneur's inability to pay its liabilities.
The application may also be submitted in electronic form via the ZUS Electronic Platform Portal (PUE).
Due to the coronavirus pandemic, the Social Insurance Institution allows to send a signed agreement on deferred contributions in the form of a scan to the email address of the relevant ZUS branch, provided that within 14 days after the end of the epidemic, a paper version of the signed agreement is sent to the Social Insurance Institution.
The Social Insurance Institution reminds that in the opinion of the Office of Competition and Consumer Protection the above actions do not constitute state aid.
The Act of 13th October 1998 on the social security system also provides for the option of total or partial remit of contributions due in the event of their total non-collectibility.
In accordance with article of 30 of the Act on the social security system, it is not possible to remit contributions of non-remitters. In other words, contributions in part financed by employees cannot be remitted.
The Social Insurance Institution may also remit receivables due to contributions of an entrepreneur who is a natural person in justified cases, despite the fact that they are not completely uncollectible. Importantly, in this mode there is a more far-reaching limitation in the field of remitting of receivables, because only the entrepreneur's contributions can be remitted - his employees cannot be remitted - both those financed by the entrepreneur and those financed by the employees themselves.
What about taxes?
In accordance with article of 67a of the Tax Ordinance Act, taxpayers may apply to tax authorities in cases justified by the important interest of the taxpayer or the public interest for deferment of the payment deadline, spread payment into instalments or total or partial remission of tax liabilities.
The Ministry of Finance in connection with the pandemic reminds of the above solutions, which may suggest that in the opinion of the Ministry of Finance pandemic losses should be an adequate justification for tax authorities when deferring or remitting tax liabilities.
What benefits are entitled to entrepreneurs during a pandemic?
An entrepreneur who is a natural person covered by sickness insurance, who cannot perform business activities in connection with a coronavirus, will receive sickness benefit from the Social Insurance Institution on the general principles set out in the Act of 25th June 1999 on cash benefits from social insurance in the event of sickness and maternity.
The Special Act in article 4 provided for "additional care allowance".
Additional care allowance is granted to the insured who is exempt from work due to the need to personally take care of the child for a maximum period of 14 days in the event of the closing of a crèche, children's club, kindergarten or school attended by a child due to coronavirus.
The amount of additional care allowance is 80% of the salary.
For the period of receiving additional care allowance, there is no "ordinary" care allowance referred to in article of 32 of the Act on cash benefits from social insurance in the event of sickness and maternity.
Importantly, employers, including commercial law companies, "ordinary" care allowance and additional care allowance are received from the Social Insurance Fund. This means that benefits are not charged to the employers' fund. Even if the employer pays the benefit (if required), the amounts paid are settled by ZUS.
The employee or mandatory should declare his desire to receive the benefit to his employer or principal - in the manner adopted at the workplace.
On the other hand, the entrepreneur may submit a relevant statement electronically via the ZUS PUE. In this case, entrepreneur shall complete the ZAS-58 application.
When can you suspend your loan repayment?
In order to counteract the effects of a pandemic, the Association of Polish Banks recommended that banks allow borrowers to suspend payment of loan instalments within 3 months in a informal and free procedure.
The above recommendation is more and more often used by banks which introduce for their clients the option of free deferment of instalment payments, provided that the application is submitted via electronic banking in a timely manner. The conditions and deadlines for deferral are set individually by each bank. The discussed solutions usually apply to all types of loans and credits, and thus also to investment loans for entrepreneurs.
The option of temporarily suspending instalment payments is meant to prevent the 2008 scenario from happening again, when many borrowers were unable to pay their credit obligations on an ongoing basis.
Another solution beneficial for borrowers is the decision of the Monetary Policy Council, which was made on 17th March 2020, to lower interest rates, which should lead to a reduction in interest on loans.
The government is preparing a draft of complex law on assistance for entrepreneurs
The government is intensively working on a special law (so-called “anti-crisis shield”) whose provisions will be aimed at helping entrepreneurs fight the crisis caused by the coronavirus pandemic. The draft has not yet been submitted to parliament, but it says about:
- non-application of public procurement law if there is a high probability of the rapid and uncontrolled spread of the disease or if the protection of public health so requires. The draft, however, requires certain conditions - including transparency and equal treatment of all stakeholders;
- suspension of preventive medical examinations of employees - after the cessation of the epidemic, they will have 60 days to perform the overdue tests;
- protection and support of the labor market, including:
- the possibility for the entrepreneur to apply to the Guaranteed Employee Benefits Fund for the granting of benefits for maintaining jobs by co-financing the remuneration and social security contributions of employees affected by economic downtime or reduced working time due to coronavirus, i.e. when the employee cannot work or does a reduced job without any fault of his own. An employee in this sense is also a person working on a mandate contract,
- the possibility of reducing the salary by no more than 50% by an employee covered by economic downtime - however, the salary cannot be lower than the minimum salary. The Guaranteed Employee Benefits Fund will subsidize reduced remuneration to 50% of the minimum remuneration for work,
- the possibility of reducing the working time of employees by 20% (but no more than ½ full-time) if the entrepreneur had a decline in economic turnover due to coronavirus. The employee's remuneration may not be lower than the minimum remuneration. The decrease in turnover means a decrease of 15% calculated as the ratio of total turnover over the period of any two consecutive calendar months of 2020 compared to the same months of 2019 or a 25% decrease in turnover from any given calendar month of 2020 compared to the turnover of previous month. The Guaranteed Employee Benefits Fund will co-finance such reduced remuneration up to half of the remuneration, however no more than 40% of the average remuneration,
- the obligation to determine the conditions and mode of work during periods of economic downtime or reduced working time by the employer in a collective agreement or in agreement with labour unions, and in the absence of labour unions - with employee representatives selected in the manner adopted by the employer,
- on examining the above applications for co-financing in the order of their receipt, until funds run out,
- on recognition of the above applications as de minimis aid,
- the possibility of the employer, with a decrease in turnover, of reduction of uninterrupted rest, conclusion of an agreement on the introduction of an equivalent working time system or conclusion of an agreement on the application of less favorable employment conditions for employees,
- the possibility of granting by the staroste a one-time loan from the Labor Fund in the amount of 5,000 PLN (with the possibility of remission if the entrepreneur keeps employment),
- granting starostes the right to co-finance employee salaries and social security contributions in the event of a decrease in turnover due to coronavirus,
- granting starostes the right to co-finance entrepreneurs who are natural persons not hiring employees in the event of a decrease in turnover due to coronavirus;
- temporary resignation from the ban on unloading, receiving and displaying goods on Sundays;
- introducing facilities and reliefs for public law obligations of entrepreneurs - in particular taxes and social security contributions. In this regard, it is planned to:
- extend of the deadline for payment of the perpetual usufruct fee to 30th June 2020,
- allow municipalities to release the indicated entrepreneurs from the obligation to pay real estate tax or extend the deadline for payment of this tax,
- exempt from payment of tax on civil law transactions of a loan agreement concluded until 31th August 2020, if the borrower is an entrepreneur who has financial problems related to a pandemic,
- lift the extension fee,
- make the possibility of deducting the loss achieved in 2020 from the income obtained in 2019,
- make the possibility of income deducting for donations to counteract coronavirus,
- postpone the payment deadline for advance personal income tax to 1st June 2020 for March and April, if the payer suffered negative economic consequences due to coronavirus,
- defer the retail sales tax until 1st January 2021,
- postpone the creation of Employee Capital Plans for some entrepreneurs,
- introduce other reliefs for taxpayers who have suffered negative economic consequences due to coronavirus;
- extension of the contract for a tourist event to 180 days;
- financial support of creators and artists;
- permission to amend the contract or temporary non-compensation for non-performance or improper performance of public procurement contracts, if the reason for non-performance is a coronavirus;
- extending the deadlines for submitting an application for a temporary residence permit to 30 days after the epidemic has stopped;
- a 90% reduction in rent, if the tenant has not conducted business in a commercial facility with a sales area above 2000 m2 in connection with a pandemic, unless the contract provides for a more favorable rent reduction for the tenant;
- the abolition of civil law liability for failure to comply with the contract by the tenant, if this was the result of a prohibition or restriction of the tenant's activity in a commercial facility with a sales area of over 2000 m2, and the tenant did not conduct this activity during the period covered by the prohibition or restriction;
- granting the so-called "outage benefit" in the amount, as a rule, 80% of the minimum wage for natural persons who are entrepreneurs and for persons employed under a mandate contract and a specific task contract, provided that their income was not higher than 300% of the average remuneration and occur at least 30 days downtime in the employer's activity in relation to the pandemic. An entrepreneur is entitled to a outage benefit if he did not suspend his business before 1st February 2020 and obtained income at least 15% lower in the previous month. An employee is entitled to a benefit if the contract was concluded no later than 1st February 2020 and the remuneration is at least 50% of the minimum remuneration. In exceptional circumstances, the outage benefit may be paid a second time;
- granting banks the opportunity to conclude with the micro, small or medium-sized borrower beneficial for the borrower changes in loan agreements or changes in loan repayment dates, if the loan was concluded before 8th March 2020 and such change is justified by the bank’s assessment of the borrower's financial and economic situation, which was done not earlier than on 30th September 2019;
- extension of the tenancy agreement until 30th June 2020 on current terms based on the tenant's statement and introduction of the principle of prohibiting the termination of tenancy agreements until 30th June 2020;
- introducing as a rule to the Commercial Companies Code the possibility to participate in the meeting of the management board and supervisory board and vote through means of instantaneous communications;
- postponing the deadline for adopting a resolution on the remuneration of members of the management board and the supervisory board by the general meeting of a public company;
- postponing the deadline for mandatory entry in the Central Register of Beneficial Owners from 13th April to 13th July 2020.
It is worth recalling that the entry regarding beneficial owner in the Central Register of Beneficial Owners shall be made by all registered partnerships, limited partnerships, limited joint-stock partnerships, limited liability companies and joint-stock companies (except public companies).
The Polish President proposes to remit social security contributions for self-employed micro-entrepreneurs whose revenues in March fell by at least 50% compared to February 2020. It is not known whether this postulate will be taken into account.
The Office of Competition and Consumer Protection proposed that the anti-crisis shield should also contain:
- the possibility for ministers to set a maximum price for goods or services, or wholesale and retail margins, by regulation, for goods and services that are significant for health protection during a pandemic;
- introduction of a penalty for violation of the above provisions in the amount of 5 thousand to 5 million of PLN and an additional penalty of up to 10% of the entrepreneur's turnover in the previous year;
- the introduction of maximum loan costs and their limit - so that the total non-interest consumer loan costs cannot be higher than 45% of the loan value;
- the option of suspending loan repayment at the borrower's request for a period of up to 365 days from the date of entry into force of the act - this period would not count towards the repayment period and no interest would be charged during the suspension period. Banks would not be able to refuse to suspend loan repayment.
There is also talk of postponing the deadline for submitting PIT declarations to the end of June.
The Prime Minister also announced cooperation with the National Bank of Poland to ensure the security of funds held on bank accounts.
The Prime Minister announced the allocation of 30 billions of PLN to create a fund that will be intended to increase expenditure on local government roads, digitization, modernization of schools, energy transformation, environmental protection and reconstruction of infrastructure elements (energy, telecommunications, Internet, road, rail).
Under the current legal framework, there are mechanisms that can help entrepreneurs conduct business during a coronavirus pandemic, but many require adequate justification. Contacting a professional and experienced adviser in this matter, who will help to draw up a proper justification for the application, increases the chances of obtaining decisions favorable to the entrepreneur.
Noteworthy is the initiative of banks and the Monetary Policy Council, which try to help entrepreneurs maintain financial liquidity by enabling suspension of repaid loan instalments and lowering interest rates.
The Council of Ministers is planning to introduce a special law in the near future, which is to help entrepreneurs during the crisis caused by the pandemic. At the time of writing this article, the initial draft is known. It is possible that the act adopted by the parliament will differ from the available draft.
In our newsletter, we will keep you updated on further initiatives and solutions that will be aimed at supporting business operations in the current crisis.
*As the legal status in this case is variable, the article will be updated on an ongoing basis.