Estudio Peebles – Member of ECOVIS International started its business in October 2012. Carlos Eduardo Peebles, managing partner of the firm, leads a team of four professionals. The firm is client oriented and dedicated to the advice on business law in general including corporate matters (mergers and acquisitions, due diligence), commercial law, contracts, antitrust matters, labour, compliance and real estate law.
Government Assistance for Small and Medium Enterprises in the COVID-19 Recovery Period
Ecovis in Shanghai
The Chinese Government has implemented various measures to help small and medium-sized enterprises (SMEs) during the Coronavirus pandemic, including tax, social security, financial, scientific and technological support. The main preferential policies available to SMEs are outlined below.
1. Value-added tax
Enterprises which provide certain services, including the transport key materials for epidemic prevention and control, public transportation services, living services, or express delivery services of daily necessities for residents, shall be exempt from value-added tax (VAT). Items donated to help fight against the pandemic will also be exempt from VAT and consumption tax. By 31 December 2020, VAT regarding taxable sales revenue will be reduced from 3% to 1% for small-scale VAT taxpayers located outside Hubei Province. Those located within the Hubei Province will be exempt from or receive a suspension of prepaid VAT.
2. Enterprise income tax
Regarding tax losses incurred in 2020, the carry-over period has been extended from five to eight years for those enterprises affected by the epidemic. Donations of cash and articles for epidemic response made by public welfare organizations or the people’s governments at or above the county level, and their departments, can be deducted in full before the calculation of enterprise income tax or individual income tax. These donations will be exempt from tax until 31 December 2020. For the small low-profit enterprises, payment of enterprise income tax for the current period can be postponed until the first reporting period of 2021.
1. Periodic reduction or exemption of payment by enterprises for pension, unemployment and work-related injury insurance.
From 1 February 2020 to 31 December 2020, micro, small and medium-sized enterprises (MSMEs) shall be exempt from social insurance payments required by employers. From 1 February to 30 June 2020, large enterprises (excluding government authorities and public institutions) will only be required to pay 50% of their social insurance contributions as employers. Enterprises experiencing severe difficulties in production and operation due to the epidemic may apply for deferred payment of social insurance contributions to 31 December 2020, and not incur late fees during this time.
2. Refund of unemployment insurance
Employers and employees who paid unemployment insurance premiums in the previous year will be refunded 50% of the total amount.
3. Payment of social security contributions delayed
The start and end date of 2020 social insurance payments from municipal employees were adjusted to commence July 1 and end June 30 of the following year. The requirement for 2019 social insurance payments from municipal employees was postponed to June 30 2020.
4. Extension of payment period for social insurance contributions
Enterprises which are adversely affected by the epidemic should report to the social insurance office in Shanghai to receive an extension. Payments will then not be required until three months after the epidemic crisis is deemed to be over. There will be no late fees payable.
5. Periodic reduction of basic medical insurance contributions
From February 2020, contributions to employee basic medical insurance required by enterprises will be halved for a period of up to five months. Enterprises experiencing difficulties may defer these payments for up to six months, during which time no overdue fines will be incurred.
6. Lower Medicare rates
From February to December 2020, the rate of basic medical insurance for employees in Shanghai (including maternity insurance) will be reduced by 0.5 %.
7. Periodic reduction of social insurance premiums in Shanghai
Regarding enterprises located in Shanghai, large enterprises were only required to pay 50% of their usual contributions for endowment insurance, unemployment insurance and work-related injury insurance, from the period of February to April 2020. SMEs were exempt from February to June 2020. Regarding basic medical insurance (including maternity insurance), from February to June 2020, the employer’s contribution was reduced to 5.25% (normally 10.5%). From July to December 2020, the employer’s contribution will become 10% (a reduction of 0.5% of the pre-epidemic rate). Employees will still need be paid.
8. Training subsidy
Enterprises located in Shanghai which are affected by the epidemic may receive a subsidy of up to 95% of out-of-pocket costs for providing online vocational training to their employees (including labour dispatch personnel working in enterprises) during the lockout period.
9. Additional support
Other support available may include rent reduction, prime rate loans for SMEs, financing concessions for technology enterprises and cloud service innovative enterprise support.
Please note: foreign residents of China
Individuals who reside in China for 183 days or more in a calendar year are considered a resident for tax purposes. However, due to the epidemic, any foreigners who normally reside in China but are currently abroad cannot return. This will have a significant impact on the personal income tax declaration of these individuals, with regard to the calculation of their monthly salary and bonuses in 2020. Anyone affected by this situation should seek the advice of their tax professional to discuss their specific circumstances.
India Announces Package for Micro, Small & Medium Enterprises During COVID-19
The Indian Government has announced a package of US$2680 billion—20 lakh crore rupees, which equates to approximately 10% of Gross Domestic Product (GDP)—for the country’s struggling economy due to the Coronavirus epidemic. The relief was announced for various sectors, one of these being the important sector of Micro, Small and Medium Enterprises (MSME). The Finance Minister gave a large economic package to this sector under the Self-Reliant India campaign because six crore manufacturing and service units are registered under this category and they contribute 30% of India’s exports and 120 million jobs.
The following important announcements for MSMEs need to be noted in the package announced by the Ministry of Finance;
1.Change in definition of MSME
Previously, the definition of MSME was based on the amount invested. Now classification is based on turnover as well as investment amount, and there is no distinguishing between the manufacturing and service sector. Please see Figure 1 below.
A: Investment less than US$ 335,000 (Rs2.5 million)
A: Investment less than US$ 670,000 (Rs 5 crores)
A: Investment less than US$ 1.34 million (Rs 10 crores)
B: Investment less than US$ 134,000 (Rs10 lakhs)
B: Investment less than US$ 268,000 (Rs 2 crores)
B: Investment less than US$ 669,000 (Rs5 crores)
Manufacturing & Service merged
Investment less than US$ 134,000(Rs1 crore)
Investment less than US$ 1.34 million (Rs 10 crores)
Investment less than US$ 6.70 million(Rs 50 crores)
Turnover less than US$ 670,000 (Rs 5 crores)
Turnover less than US$ 6.70 million (Rs50 crores)
Turnover less than US$ 33.50 million( Rs 250 crores)
2. Collateral-Free Loan to MSMEs
The government implemented an emergency loan of three lakh crores rupees to help businesses during the COVID-19 pandemic. To be eligible, an MSME will have outstanding loans of up to US$3.35 million (Rs25 crores) and turnover of up to US$13.40 million (Rs 100 crores). In such a situation, these businesses will receive a new loan up to the value of 20% of their outstanding loans, with the scheme running from 25 February 2020 to 31 October 2020. The loan will be for a period of four years, and the moratorium period will be one year. This additional loan will not require a guarantee, processing fee or mortgage.
3. Global tender restrictions
The government will no longer issue global tenders for procurement up to US$ 26.77 million (Rs 200 crores), meaning only Indian businesses can participate in the tender.
4. US$0.5 billion Subordinated Fund
In this category, eligible MSMEs will receive a loan for NPA (Non-Performing Assets) running at a loss. The government will provide four thousand crores to the Credit Guarantee Fund, which will give credit guarantee to the bank. The bank will provide a loan to the MSME, which will be invested as equity. That is, if any part of an NPA receives one rupee in this category, then a bank loan of three rupees can be taken out by leveraging it, thereby increasing the business credit.
5. Fund of Funds for Business Expansion
The government will invest US$ 6.67 billion (Rs 50 thousand crore) to assist with business expansion, with a corpus fund of US$1.34 billion (Rs 10 thousand crore) being formed. To assist with the expansion of a well-performing company, funds will be provided through this scheme. Equity funding will be made available, also helping the company to list on the stock exchange.
6. Other changes
Other important changes include:
a) The government will make all payments due to the MSME within 45 days.
b) The government will provide a provident fund for both employers and employees with a salary of up to Rs 15,000 per month, from March 2020 to August 2020. There should not be more than 100 employees in that organization.
c) The government will now take encouraging steps for local e-commerce and fintech technology. This will free the country from the clutches of foreign digital companies and allow indigenous companies to be self-reliant.
d) A government contractor will be employed for a period of four months and the proportionate bank guarantee will be released on completion of the work.
e) The COVID-19 period will be considered a ‘Force Majeure’ under the Real Estate Regulation and Development Act (RERA), with timelines extended for the completion of housing projects.
f) Anyone with an income tax dispute can avail of the Vivad se Vishwaas trust scheme until 31 December without incurring penalties.
g) The last date for filing income tax returns for the financial year 19-20 has now been extended to 30 November 2020.
h) The current rates of Tax Deducted at Source (TDS) have now been reduced by 25%. It will be applicable for the remaining financial year up to 31 March 2021.
i) MSMEs have been given extensions on the date of insolvency proceedings and COVID-19 related debt is excluded from the definition of “default” under the insolvency and bankruptcy code.
7. Advantages of small scale and medium industries after the COVID-19 pandemic
Understanding the importance of MSMEs, the government increased the threshold limit of medium industry investment. This is so companies would not avoid growth, fearing that they would no longer qualify for MSME benefits. With the manufacturing and service industries merging within the definition of MSME, many new businesses will qualify for this classification. Apart from very large companies, almost all industries and service sectors will be defined as an MSME.
Many special advantages have been given to MSMEs such as:
concessions for trade mark fees;
subsidy for patent fees;
concession for electricity bills;
loan interest deferment;
bank loans for unpaid customer invoices;
a mandatory order that government sectors purchase 25% of their requirements solely from MSME sectors.
One can register their MSME online via the Udyog Aadhaar Memorandum (UAM) portal set up by the Ministry of Micro, Small Medium Enterprises. The process is simple and there is no fee.
MSMEs applying for a small loan may receive fast pre-approval (approximately one hour wait) with the loan money deposited into a nominated account, provided all required documentation is submitted within eight days.
Note: The figures converted to Dollars from INR in this article are rounded off and subject to fluctuation.