The Ministry of Finance – Tax Department, issued two circulars (no. 48 and no. 49) on 20 July 2021 with regard to the tax treatment of government grants and allowances that are given to companies, self-employed and employees by reason of Covid-19.
Specifically, the two circulars provide the following:
Tax circular no. 48
Government grants provided by the Ministry of Finance to companies and self-employed individuals by reason of Covid-19, to cover for their rent and other operational expenses are not be subject to income tax.
In addition, it is noted that such government grants should form part of the profits subject to deemed / actual dividend distribution and consequently subject to withholding of Special Defence Contribution ("SDC") and General Healthcare System ("GHS") contributions, without any exception.
Tax circular no. 49
Tax circular no. 49 confirms that the provisions of circular no. 44 issued on 22 June 2020 are still applicable. The said provisions provide that, allowances which are granted to individuals, by the Ministry of Labour, Welfare and Social Insurance by reason of Covid-19 (e.g. the operations of the company employing them have been partially or fully suspended, or in the case of self-employed their operations have been partially of full suspended, etc), do not fall under the provisions of article 5 of the income tax law and hence should not be treated as taxable in the hands of the recipient.
In addition, circular no. 49 clarifies that the above tax treatment is also applicable even if the Ministry of Labour, Welfare and Social Insurance has changed the procedure for the payment of these allowances and instead of remitting the allowances directly to the beneficiaries, these are paid to them through their employer.
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