EY Law Alert, September 2023

Intervention measures to remedy the consequences of the floods and landslides in August 2023

On 16 August 2023, we informed you about the intervention measures to eliminate or mitigate the consequences of the floods that have affected Slovenia in early August. In addition, on 29 August 2023, we also informed you about the key solutions of the Draft Act Determining Intervention Measures for Flood and Landslide Recovery of August 2023, which was subsequently adopted by the National Assembly of the Republic of Slovenia on 31 August 2023 (hereinafter: the "Intervention Act"). The Act entered into force on 2 September 2023, the day after its publication in the Official Gazette of the Republic of Slovenia.

For a clear presentation of the solutions available, we present below an overview of the key measures currently in place to address or mitigate the consequences of the floods and landslides that occurred in August 2023.

1. Solidarity Saturday or obligatory solidarity contribution

• The Act provides for an obligatory solidarity contribution (hereinafter: “OSC”) to the Fund for the Reconstruction of Slovenia (hereinafter: ‘’the Reconstruction Fund’’), to which all social groups will contribute. The basis for the calculation of the contribution for physical persons is the sum of gross income that is included in the annual tax base in accordance with the Personal Income Tax Act ("PITA-2"), also including the payment of a portion of the salary for business performance. The contribution is also calculated on the sum of gross income of physical persons which is not included in the annual tax base under PITA-2, i.e. rents, interest, dividends, capital gains, received or realized in 2023 and 2024 respectively, reduced by tax deductible expenses, except for business income and income exempt from personal income tax or not included in the tax base.
• The basis for the contribution of physical persons carrying out independent economic activities is the taxable amount of the income from the economic activities before deductions for losses and reliefs.
• The basis for the contribution of legal entities is the income tax base according to the Corporate Income Tax Act ("CITA-2") before deductions for losses and reliefs.
• The contribution is calculated on a base of 0.3% for physical persons and 0.8% for sole proprietors and legal persons.
• Physical persons whose total base for the computation of the OSC does not exceed 35% of the average salary of employees in the Republic of Slovenia for 2023 and 2024 respectively are exempt from the OSC.
• The OSC will be levied by the Financial Administration of the Republic of Slovenia (hereinafter: "FURS") in physical persons’ personal income tax assessment procedure for 2023 and 2024. FURS will issue a decision on the OSC assessment by 31 December 2023 and 31 December 2024 respectively for physical persons providing business activities and who determine their tax base on the basis of actual income and normalized expenses. Legal entities, on the other hand, will calculate the contribution themselves in the manner, within the time limits and in accordance with the procedure for calculating the corporate income tax for 2023 and 2024, respectively.
  
• As an alternative to the obligatory contribution, the Act offers the possibility for the employer, upon consultation with the trade union, works council or workers representative, or, in the absence of the latter, with the respective employees, to determine one Saturday in 2023 and one Saturday in 2024 as a Solidarity (working) Saturday. The amount of the salary for the work performed during the solidarity Saturday, after taxes and social security contributions, will be allocated to the Reconstruction Fund (i.e. the employee's net salary).
  
• Work on Solidarity Saturday is only possible with the employee's prior written consent.
  
• In addition to the employee's contribution, the employer contributes to the Reconstruction Fund the same amount as the employee (i.e. the employee's net salary). The so paid contribution by the employer and employee is  deducted from the OSC of 0.3% for physical  persons and 0.8% for legal persons respectively.
  
• The employer will calculate the employee's and the employer's contribution in the special return for the Reconstruction Fund and submit it to FURS in the month following the month in which the Solidarity Saturday took place, using the provided form. The deadline for payment of the contribution to the Reconstruction Fund is 10 days after submission of the return.
  
• The Act also provides for penalties for the legal person for failure to submit an OSC return in the prescribed manner and within the prescribed deadlines, or failing to calculate, withhold or pay the contribution.
  
• The employer's contribution is not considered as tax-deductible expense.
  

2. Establishment of the Fund for the Reconstruction of Slovenia

• The Reconstruction Fund will be set up to co-finance the implementation of measures and projects related to floods and landslides, and will for that purpose collect funds from the national budget, from European and other sources.
  

3. Inability to work due to force majeure

• An employee who is prevented from working due to force majeure resulting from the floods is eligible for a salary compensation in the amount of 80% of the salary received for the last three months of work (not lower than the minimum salary) for as long as the force majeure circumstances justifying the absence last. Salary compensation paid to employees who, as a result of force majeure, are prevented from working due to a natural disaster will be reimbursed in full by the Republic of Slovenia.
  
• If the employer who received a refund for the compensation paid, from 3 August 2023 onwards, has made payments from profit, purchased own shares or own business interests, paid out management bonuses or part of management performance-related bonuses in 2023 or for the year 2023, it will be required to notify FURS within two months of the payment and return the received funds within 30 days after receiving the decision, together with statutory late payment interest.
• The employer exercises the right to salary compensation by submitting an electronic application to the Employment Service of Slovenia (the "ESS") within 15 days of the start of the employee's absence due to force majeure.

4. Employees on furlough (i.e., waiting for work)

• The Act provides for the possibility for implementing furlough for employees whose employers (certain exemptions exist) are unable to provide work because of the consequences of the floods. An employee on furlough is eligible for salary compensation in the amount of 80% of the salary received for the last three months of work (not lower than the minimum salary). The Republic of Slovenia will provide a partial reimbursement of 80% of the salary compensation, limited to the average monthly salary in the Republic of Slovenia for the month of May 2023. The 80% of the salary compensation includes the salary compensation with all taxes and contributions (gross II).
• During the period of receiving and also during the period after receipt of the partial reimbursement of the salary compensation, which is equal to the period of receipt of the reimbursement, the employer may not initiate termination of employment agreement procedures due to business reasons for the employees on furlough or initiate collective employee redundancy procedures, except for in special situations. The employer may not claim partial reimbursement of the employee's salary during the employee’s termination notice period.
• Similarly, an employer who has received a partial reimbursement of salary compensation as a result of the introduction of furlough must notify FURS within two months of the payment if it, as from 3 August 2023, has made payments from profit, purchased own shares or business interest, paid out management bonuses or part of management performance-related bonuses in 2023 or for the year 2023. The funds received must be repaid within 30 days after receiving the decision, together with statutory late interests.
• The employer exercises the right to salary compensation by submitting an electronic application to ESS within 15 days from the employee’s placement on furlough. The employer must also submit: a statement that he/she is unable to provide work to the employees due to the consequences of the floods, evidence of the employees’ placement in furlough, and a statement that he/she has paid the employees their salaries and any salary compensation up to the date of the application. 

5. One-time solidarity aid

• One-time solidarity aid paid in one or more installments by an employer in 2023 for serious damage suffered by an employee as a result of a natural disaster caused by flooding in August 2023 is not taxable as employment income up to a maximum of EUR 10,000.
  
• The Act provides for the possibility of correcting a previously submitted withholding tax return if an overstatement of tax liability has been made on a one-time solidarity aid. The taxpayer may submit a correction of the withholding tax return no later than 30 days after the entry into force of the Act, i.e. by 2 October 2023.
• The Act provides for penalties if the employee provides false information to the employer in respect of serious damage caused by floods and landslides or if the employer pays the one-time solidarity aid in breach of the regulations.

6. Assistance for self-employed

• The Act provides for the possibility of financial aid in the amount of EUR 1,200 per month, exempt from all taxes and contributions, for the self-employed (as well as to shareholders and farmers) who are unable to carry out their activities or whose activities are significantly reduced as a result of the floods, for the period from August to December.
  
• There is a lowered threshold when determining the conditions for the payment of aid to self-employed linked to a drop in net turnover, i.e., anyone whose net turnover has dropped by 25% on an annual basis in 2023 compared to 2022 will be eligible to receive the aid.
• The beneficiary must submit an application via the FURS information system by the last day of the month for the previous month, together with a statement of compliance with the above conditions (a template form is available on the eTax portal) and also that, due to the consequences of the floods in August 2023, he/she is unable to carry out his/her activity or is carrying it out to a significantly reduced extent.
• The Act provides for penalties if a self-employed individual makes a false statement regarding eligibility for assistance.

7. Investment tax relief benefit

• A taxable person under CITA-2 and a taxable person under PITA-2, who performs a business activity and determines its tax base on the basis of actual income and expenses, will not be required to increase the tax base for the use of the tax relief during the period of the destruction for equipment, which was destroyed by floods and landslides and was purchased less than 3 years ago and for which it had already claimed the investment tax relief, which he would otherwise be required to do under the applicable taxation law.
  

8. Tax relief for donations

• The Act provides for the possibility of an additional tax relief for donations or a reduction of the tax base for the entire donated amount for companies and self-employed persons (in addition to the existing donation relief in CITA-2 and PITA-2, respectively) who donate for the purpose of flood damage rehabilitation until 31 December 2023 to a special account opened for this purpose by the State (up to the maximum amount of the tax base).
  
• For the purpose of claiming the donation relief, the provisions of CITA-2 and PITA-2 apply mutatis mutandis.

9. Reimbursement of salaries paid to employees who contribute towards the recovery in the employer's territory

• Employers whose employees are involved in flood and landslide recovery activities are entitled to reimbursement of the salaries paid to those employees for as long as the circumstances justifying the order to perform other work last, however no later than until 3 September 2023. This right may be exercised by any employer in the Republic of Slovenia registered on 2 August 2023 at the latest (certain exceptions exist). The employer is entitled to a full (gross I) salary reimbursement, up to the amount of average monthly salary for the month of May 2023.
  
• The employer exercises the right to reimbursement of salaries by submitting an electronic application to the ESS within 15 days of the order to perform other work as a result of floods and landslides, or within 15 days of the entry into force of the Intervention Act if the employer ordered the work before the entry into force of this Act. The employer shall also submit a statement that he has ordered the employees to carry out other work as a result of the consequences due to floods and landslides at the employer, a written order and supporting documents proving the authenticity of the other work carried out to deal with the consequences of the floods and landslides and a statement that it has paid the employees their salaries and any salary compensation up to the date of submission of the application.

10. Paid leave for volunteers

• Volunteers participating in flood recovery activities are entitled to up to 7 working days of paid absence from work, which is reimbursed in full by the State.
  
• The volunteer will prove eligibility for the absence on the basis of a certificate from the volunteering organization stating that the volunteer has carried out voluntary work.

11. Reduced VAT rate for the purchase of firefighting equipment

• VAT is charged and paid at a special reduced rate of 5% on the supply of standardized firefighting vehicles, special protective and rescue equipment and tools for the performance of firefighting duties, normally intended for use in interventions.
  

12. Charge for the use of building land

• A municipality may provide for a reimbursement of all or part of the 2023 charge for the use of building land for that property to a taxpayer (physical or legal person) who has suffered severe damage to their real-estate due to floods and landslides. The beneficiary may use these funds to repair the damage, which is confirmed by an authorized valuator.
  
• Based on the application of the taxpayer and the certificate of payment of the charge for the use of building land for 2023, the municipality can by way of decision, determine the reimbursement of all or part of the charge for the use of building land for 2023 for the specific real-estate, based on criteria it itself establishes.
• If the municipality establishes that the beneficiary has provided false information, that the damage was not properly assessed or that the beneficiary used the funds to  fix the damage in violation of the Act, it will set a deadline for the beneficiary to repay the aid received. After the expiry of the deadline for repayment and until repayment, the beneficiary will be liable to statutory late payment interest.

13. More favorable tax treatment for physical and legal persons

• Income in the form of free use of accommodation facilities or the provision of accommodation at a reduced rent to persons who had to find new or temporary accommodation due to severe damage to their personal real-estate caused by floods and landslides is not considered income under the PITA-2 until the end of 2024.
  
• For a taxable person under CITA-2 or a taxable person under PITA-2 who carries on a business activity and determines the tax base on the basis of actual income and expenditure, the expenditure incurred or to be incurred until the end of 2024 for the purpose of providing accommodation to the above-mentioned persons will be taken into account as tax deductible for the purpose of determining the tax base under CITA-2 and PITA-2.

14. Tax relief for farmers for land damage

• For the year 2023, on parcels of agricultural land affected by floods and landslides with a degree of damage of 50 % or more, the tax base on the potential market value income for production on the land will be set at 50 % of the cadastral income as established under the rules on the establishment of cadastral income on 30 June 2023.
  

15. Fundraising and distribution within the fire service

• For the period from 4 August 2023 to 31 December 2023, voluntary fire brigades operating in municipalities affected by floods and landslides may collect and distribute financial and other resources to physical persons affected by floods and landslides, without the recipients having to pay income tax on those resources.

16. Temporary measure on bank lending

• The measure obliges banks and savings banks, including branches, established in the Republic of Slovenia to grant to a borrower who has suffered damage as a result of floods or landslides, a loan payment deferment of up to 12 months. Both legal and physical persons are eligible for deferment, subject to certain criteria, depending on the amount of the damage suffered.
  
• The borrower can apply to the bank for a deferral of payments by 31 December 2023 at the latest. The bank and the borrower will conclude an annex to the credit agreement on the deferral of payments.

17. Payment deferral option for consumer loans

• Physical persons who are citizens and have their permanent residence in the Republic of Slovenia may apply for a payment deferral under the loan agreement on the grounds of inability to guarantee payment of the obligations under the loan agreement due to property damage caused by floods and landslides. The deferral is granted for a maximum period of 24 months.
  
• The borrower can apply to the creditor for a payment deferral under the loan agreement by 31 December 2023 at the latest. The creditor will grant the payment deferral under the credit agreement free of charge within 8 days at the latest, which will be concluded in the form of an annex to the loan agreement.

18. Possibility of employers to also use public funds for the restoration of flood and    landslide damage

• Employers with exceeding quota of employed persons with disabilities, social enterprises and employment centers are allowed, until 31 December 2023, to use public funds booked in account 96 also for the restoration of flood and landslide damage that occurred in August 2023.
  
• The beneficiary may use the flood and landslide restoration funds to repair the damage that was verified by an authorized valuator.

19. Speeding up procedures related to the employment and work of foreigners

• Foreign workers in professions that are in short supply on the labor market and are urgently needed to eliminate the consequences of floods and landslides, can start work on the basis of a work permit issued under an international agreement, which counts as consent to the issuance of a single permit. Where the ESS does not issue a work permit on the basis of international agreements with BiH and/or Serbia, it will issue a consent to a single permit for residence and work.
  
• For the first three months, or until the final decision on the application for a single permit, foreign workers will be able to work on the basis of a permit issued under an international agreement with Bosnia and Herzegovina or Serbia, or the consent of ESS and a certificate of the application for a single permit, which allows the foreigner to reside in the Republic of Slovenia until the final decision on the application for a single permit.

20. Waste management

• The costs of managing waste collected by operators of the mandatory municipal public utility service for environmental protection, as a result of floods and landslides, are borne by the Republic of Slovenia.
  
• The public service operator will send to the ministry, responsible for the environment, an invoice for the cost of waste management, accompanied by evidence that waste treatment has been provided, and the municipal act approving the waste management charges. On the basis of the complete documentation, the competent ministry will pay the invoice to the public service operator and inform it accordingly.