1. General Czech legal issues connected to Covid 19 (coronavirus)
a) Release from obligation to pay damages upon occurrence of force majeure
The pandemic of coronavirus could qualify as force majeure event (defined as an unusual, unforeseeable and insurmountable obstacle that is independent of the will of the party in breach) in relation to the contracts concluded prior to the pandemic outbreak. You might not be liable for damages caused by your breach and be released from the obligation to pay compensation under certain conditions if you prove your non-performance was due to force majeure. However, the use of such rule may not always apply as the scope of force majeure can be modified by the contractual parties (i.e. limited to a specific list of circumstances which the parties consider to be force majeure). Therefore, it is necessary to thoroughly review the contractual documentation and assess all aspects and circumstances on a case-by-case basis.
b) Renegotiation of contract due to substantial change in circumstances
The situation caused by the current coronavirus pandemic may give rise to statutory hardship. The disadvantaged party may exercise the right to reopen contract negotiations in the event of a significant change in circumstances resulting in a gross disproportion between the rights and obligations of the contracting parties by disadvantaging of the affected party either in the form of a disproportionate increase in the cost of performance or a disproportionate decrease in value of the subject of performance. The disadvantaged party must however prove that it could not reasonably anticipate or affect the change in circumstances and that the event causing the hardship took place or become known to that party after the conclusion of the contract. Each party may request to change or terminate the mutual obligations if the parties do not reach an agreement on changes to the contract within a reasonable period. However, the hardship clause will not apply if the party assumed the risk of a substantial change in circumstances. To be sure, it is always necessary to carefully review the contractual terms and confirm whether the application of the statutory hardship has not been excluded.
2. Czech Covid 19 (coronavirus) Rent regulations
a) Apartment rent regulation
The government approved relieve for lessees of the rental apartments, so they do not have to pay rent from 12.3.2020 till 31.7.2020 at the latest, and the lease agreement cannot be terminated for such nonpayment until 31.12.2020. Afterwards the lease agreement can be terminated with immediate effect in case the rent owed for the relief period was not paid up. If the lessee however, does not pay rent after the end of the relief period i.e. from 1.8.2020 he can be terminated according to the provision of his agreement or under the provisions of the Czech law.
b)Commercial rent regulation
There was a long discussion concerning the state support of commercial lessees which was finally approved on May 4, 2020. This is an important legislation where the government will assist commercial lessees in payment of their rent for April, May and June 2020. The support is structured in the following way. The lessee must have paid rent for January and February 2020, he cannot have any debts to the state and must pay 50 of the original rent upfront before the application for the state support. The lessor, on the other hand must grant to the lessee 30 percent discount on the rent for the given 3 months. The lessee must additionally pay the outstanding 20 percent to the landlord upon mutual agreement. The maximum amount for which one lessee can receive the refund is CZK 10mil.
Furthermore, no commercial lessee can be terminated for nonpayment of rent from 12.3.2020 till 30.6. 2020. The owed rent must be paid by the end of 2020, unless the lessee closes an amendment with the lessor pursuant to the government rent refund program.
3. Employment regulations under Covid 19 (coronavirus) Czech employment legislation
a)Furloughing employees (kurzarbeit)
The Czech employers whose business was closed from 12.3. 2020 to its official opening days had a possibility to apply for partial recovery of wages from the government. The employer must have paid 100 percent of the wages and was entitled to received from the state 60 or 80 percent refund, depending on the length of closure of the business.
There is currently no formal restriction on the employee termination with the exception when the employee is on official furlough and the employer receives part of his wages from the Czech government.
4.Debt enforcement in Covid 19 (coronavirus) period
Based on the Czech government decision in connection with the COVID-19 pandemic adopted on April 17, 2020, both natural persons and entrepreneurs may suspend instalments of their loans and mortgages for the period of three or six months upon their own choice. Such postponement is voluntary and will not incur any additional charges but requires request of the debtor. The interest is, however, charged for the period of the postponement. Repayments will be postponed for both consumer and business loans, including mortgages, which were negotiated and drawn before March 26. Mortgage instalments may also be postponed in case the contract was concluded before March 26, 2020, but the funds were drawn after. However, instalments cannot be postponed for loans where the debtor has been late in repayment for more than 30 days as of March 26, 2020. It is also necessary to mention that the fact that the debtor has applied for a postponement will be recorded in the bank registers but based on the Act such a fact cannot be taken into account when assessing debtor’s ability to be approved for another loan.
5. Bankruptcy (insolvency) Covid 19 (coronavirus) relief
Most important changes of the bankruptcy legislation due to Covid are following:
a) Within the period starting from April 24, 2020, until 6 months after the termination of the anti-epidemic emergency measures, however, latest until December 31, 2020, the debtor – entrepreneur is not obliged to file an insolvency petition after it realizes or should realize that he is insolvent. This does not apply in case the insolvency occurred before Covid emergency measures or in case the insolvency was not caused by such measures.
b) Insolvency petitions filed by creditors between April 24, 2020 and 31 August 2020 will not be accepted by courts and the insolvency proceeding will not be initiated based on such petitions. However, after August 31, 2020, it will be possible to file new insolvency petition.
c) In the insolvency proceedings that were initiated and where a debtor’s insolvency was declared by May 31, 2019, the insolvency court may not revoke the approved discharge from debts (oddluzeni) due to debtor´s failure of payment of newly incurred obligation which is more than 30 days overdue, provided such default was largely caused by the circumstances of the anti-epidemic Covid 19 emergency measures.
d) From April 24, 2020 there is a rebuttable presumption that the debtor did not cause circumstances that arose as a result of the restriction resulting from the Covid emergency measures and that made it difficult to fulfil obligations according to the approved method of the discharge from debts.
e) Debtor – entrepreneur, who was not insolvent by March 12, 2020, should be allowed to apply (by 31 August 2020 at the latest) for an extraordinary moratorium, both before and after the insolvency proceedings have started based on a insolvency petition of a third party person. However, the application for an extraordinary moratorium must be filed within 15 days from the delivery of the insolvency petition to the debtor.
f) A debt relief, as one of the methods of insolvency solution, will be newly accessible also to natural persons (entrepreneurs) without any other conditions.
g) It is possible to apply for a court waiver for missing a deadline set by the insolvency court for performance of a certain action in an insolvency proceeding, provided the deadline was missed due to and during the extraordinary Covid measures and the motion for the waiver is filed within 7 days after termination of measure.
6. Immigration to Czech Republic in time of Covid 19 (coronavirus)
At present the Czech Ministry of Interior is opened and is accepting applications for new long term visas and visa prolongations. However, outside of the Czech Republic the long term visa application are accepted only by embassies specified on the list of the Czech Ministry of Foreign affairs. www.mzv.org. Many problems are now arising for clients that tried to extend their visa during closure of the Ministry of Interior offices and were not successful as they did not submit their documents by mail.
7. Government subsidies for Covid 19 (coronavirus) victims
a) Selfemployed persons (i.e., freelancers, OSVC)
Selfemployed persons are entitled to get government support of 25.000 CZK for April 2020 and 19 000 CZK for May and June, 2020.
b) Limited liability companies
The support for limited liability companies is in the approval procedure.
c)Covid 19 (coronavirus) company loan programs
The only outstanding government guaranteed loan program is Covid III. program. These are commercial loans from Czech banks to companies guaranteed up to 80 percent by the government.
8. Covid 19 (coronavirus) tax issues
EET reports with tax office were suspended until 31.12.2020. Also the third and fourth wave of EET was postposed until the end of 2020.
b) Tax filings
Annual income tax returns (applicable to both individuals and companies) can be filed on 1st of July 2020 (instead of 1st of April 2020), accordingly the income tax becomes payable on the same date. Advance payment of income tax for 2020 (due in June) is completely waived.
c) Real estate transfer tax.
On May 27, 2020 the Chamber of Deputies adopted a bill that should abolish the unpopular 4% real estate transfer tax completely with the effect as of December 2019. On the other hand the Act will also abolish the possibility to deduct mortgage interests from taxes as non-taxable part of the tax base. It will come into effect in December 2021.
The Act also extends the time test for the application of the income tax on sale of real estate not intended for own living from 5 to 10 years, e.g. in case you sell the real estate before 10th anniversary of its purchase you will have to pay the income tax (on the capital gain).
The bill of the Act is currently in the Senate waiting for approval so its final version may still be changed.
d) Social security
Social security payment 3 months relief for companies was so far not approved, but it is subject to the approval procedure. Intended conditions for the social security payments relief are: the applicant company does not employ more than 50 employees, it has not dismissed more than 10% of employees due to coronavirus pandemic and wages have not fallen under 90% of wages paid in March 2020.