Man and woman with face mask. Man and woman with face mask. | © GettyImages/martin-dm

Corona Crisis and Germany

The global coronavirus (Covid-19) pandemic has far-reaching implications for business and the economy. Germany Trade & Invest is working for you during this difficult time - with regular information updates and answers to your questions about the potential effects for your project in Germany.

With major restrictions placed on movement and travel in place across the world, many planned events and trade fair visits have been cancelled or postponed. Although we are not able to meet you in person for the time being, Germany Trade & Invest will continue to provide its full portfolio of “virtual” services during the current crisis. All of our industry teams remain available to provide ongoing support – in Germany and around the world.

The Economic Stimulus and Crisis Management Package

The federal government's Future Package, a subset of an overall stimulus package to cope with economic restraints caused by the coronavirus pandemic, comprises measures in several areas to support investment in Germany.

The German federal government has agreed on an economic stimulus package worth EUR 130 billion. The program (Future Package) includes a number of measures to foster economic growth and investment in Germany.

Foreign investors wishing to invest in Germany can benefit in particular from funding in the areas of mobility, medical devices, CO2 reduction, digitalization and artificial intelligence. 

All measures will improve the general environment for companies, ensuring Germany remains highly attractive to foreign investors.

Overall measures

The government intends to stimulate consumption by introducing various measures.

Most important is the reduction of VAT rates from 19 percent to 16 percent and from 7 percent to 5 percent from 1 July 2020 to 31 December 2020. This means that the rate for restaurant meals will be reduced to 5 percent until the end of the year.

Social security contributions will be capped for both employers and employees until the end of 2021. The contributions will not exceed 40 percent in total for employers and employees.

Incentives for companies

The federal government intends to increase the investment grants from the Joint Task Economic Development Program (GRW) by EUR 500 million.

To further strengthen Germany as a location for innovation, the assessment base of the recently enacted Research Tax Credit Act will be increased, retroactively from January 1 2020 to December 31 2025, to EUR 4 million annually per company, leading to an increased annual credit value of EUR 1 million.

In addition, Germany will provide an additional EUR 1 billion for R&D activities to generate innovations (new technologies, processes and equipment) and for new innovation clusters, particularly within the automotive supply industry, for the current and coming year.

Tax-related measures

Companies will have better opportunities to depreciate assets. At present, assets can only be written off by straight-line depreciation, with the purchase price of the asset being distributed evenly over the coming years. The use of the declining balance method of depreciation will be introduced temporarily. This means that companies will enjoy a higher rate of depreciation in the first years of use of the assets, which will lead to higher deductible expenses. In addition, there will be exemptions for the depreciation of digital assets in order to promote the digitalization of the economy. This will also be beneficial for start-ups.

The possibilities for tax loss carry-back will be extended. The maximum amount of a tax loss carry-back will increase from EUR 1 million to EUR 5 million in 2020 and 2021. It will be possible to make use of this provision in the 2019 tax return, for example by establishing a "corona reserve." 

The law on corporate income tax will be modernized. This includes the possibility of taxing partnerships under the rules applicable to corporations. 

Importers will benefit from a deferral of import turnover tax until the 26th of the following month, resulting in more liquidity in the hands of companies. 

E-mobility bonus

The German government will double the amount of existing purchase incentives for electric vehicles (BEVs) to support the economy after the coronavirus. This corresponds to a cash grant of EUR 6,000 for a BEV. In addition, the car manufacturers will grant a subsidy of EUR 3,000 - adding up to a bonus of EUR 9,000. The measure applies to vehicles worth up to EUR 40,000 excluding VAT. 

In order to further promote e-mobility, an additional EUR 2.5 billion will be made available for existing infrastructure programs to provide additional charging stations and to support further battery cell production.

Healthcare

The federal government is starting a ‘Public Health Services Pact’ to strengthen support for

  • building and upgrading the technological and digital capacities of local health authorities,
  • funding for hospital investments,
  • funding for German efforts to develop a Covid-19 vaccine through contributions to the CEPI (Coalition for Epidemic Preparedness Innovations) alliance.

The objective is to ensure that a safe vaccine is available as soon as possible, is producible in Germany, and that hospitals are ‘future-proofed’.​

It is the goal of the German government to establish greater production capacities and achieve greater independence in the areas of medical protective equipment, active ingredients and their precursors, and vaccine production. As a result, EUR 1 billion will therefore be made available to enable the flexible and scalable production of drugs and medical products.

CO2 reduction and national hydrogen strategy

The CO2 building refurbishment program will be increased by EUR 1 billion for the period 2020 through 2021.

Hydrogen technology is seen as an important approach to decarbonizing the energy system. Germany is to be a leader in the field of hydrogen technology.  The federal government published its "National Hydrogen Strategy" on June 9, 2020. Suitable funding programs will be derived from this strategy, which should support the establishment of a total capacity of up to 15 GW by 2040. Funding of EUR 7 billion will be made available for projects in Germany.

Artificial intelligence and digitalization

Further development of artificial intelligence (AI) is gaining momentum in terms of both content and funding: the federal funds for the development and application of the technology are being increased by EUR 2 billion

In conjunction with the update of the federal government's AI strategy, which is to be published in the middle of the year, more investments in data platforms and computing capacities for AI real-time applications will be possible. The competence centers are also to be strengthened and networked; an improvement in the transfer structures from research to application is planned, as is better integration into European research networks. 

The 5G roll-out is to be accelerated, with EUR 5 billion earmarked for the promotion of future communication technologies and for a federal mobile infrastructure company. In addition, the government intends to promote the development and production of quantum technology.

For more information please refer to the Federal Ministry of Finance.

Financial Support for Business

Germany’s government has moved swiftly and decisively to confront the potentially devastating effects of the coronavirus pandemic on the economy.

The country’s economy is in a strong position to introduce measures supporting the economy over a prolonged period. By providing businesses with sufficient liquidity, the government measures will help ensure that enterprises emerge from the crisis intact.

The Ministry of Finance and Federal Ministry for Economic Affairs and Energy have unveiled a joint assistance program and tax policy measures totaling billions of euros. The package of measures and instruments has been put in place to protect the employment market and enterprises of all sizes in all sectors.

Liquidity Aid Loan Programs

The federal development bank KfW has expanded and eased access and terms on two existing loan programs:

  • the ERP-Universal Start-up Loan
  • the KfW-Entrepreneur Loan

KfW has introduced a variety of special programmes to suit companies of different sizes and ages. These programmes include generous terms and conditions on consortial financing for larger projects, as well as emergency liquidity aid for SMEs, micro-enterprises and freelancers/self-employed persons experiencing financial difficulties as a result of the corona crisis.

Please refer to the KfW website for details on loan program conditions. Applications for all these can be made through high-street banks.

At the same time, both federal and state governments are setting up a variety of aid programs to support companies in Germany. The range of services is continuously being updated and expanded. The Federal Ministry for Economic Affairs and Energy provides an overview of all state programs (so far in German only). If you have any questions, please do not hesitate to contact us.

More Flexible Rules for Short-Time Allowance Schemes

The Federal Employment Agency pays the short-time allowance as partial compensation for a loss of earnings caused by a temporary cut in working hours. This reduces the costs faced by employers in the context of employing workers, and enables companies to continue to employ their workforce even in the event of a loss of orders. In other words, short-time allowances help to prevent dismissals.

Currently short-time allowances schemes can be granted on a more flexible basis for a limited period until December 31, 2020. For instance, companies are eligible to apply, if 10 percent of the employees are effected by shorter working hours. Moreover, social security contributions which have to be paid solely by employers for employees working short-time are reimbursed in full.

Tax Policy Measures

Tax measures improving companies’ liquidity situations have been decided. For instance, options for deferring tax payments and reducing prepayments will be enhanced. Enforcement rules will also be adapted - there will be no foreclosures or late payment fines, if the debtor of a pending tax payment is directly affected by the coronavirus.

Current Economic Developments

The coronavirus outbreak in Germany has brought an abrupt end to the positive economic start to the year. The country’s economy must address unexpected challenges.​

Economic Forecast Germany 2020-2021

Due to disrupted supply chains and weak global trade, the impact of COVID-19 and its restrictions will affect domestic and foreign investments. According to the European Commission, Germany’s GDP is expected to fall by 6.5 percent in 2020. Other large European countries such as France, the UK, Italy, and Spain will see an even bigger decline in 2020.

In 2021, large catch-up and carry-over effects should buoy the German economy, with a projected GDP increase of around 6 percent allowing Germany to reach its pre-crisis level by the end of the year. 

Countering the Crisis - Record Package of Financial Support Measures

Germany’s government has moved swiftly to counteract the worst effects of the crisis, introducing a far-reaching package of financial measures to safeguard health, jobs and the economy. The record aid package includes a supplementary government budget of EUR 156 billion to absorb the immediate consequences of the crisis. The complete program of help measures – including guarantees and subsidized KfW bank loans – planned represents EUR 1.2 trillion in total. By moving quickly and decisively to mitigate the worst outcomes of the crisis, Germany’s government is creating the conditions to ensure that businesses – of all sizes – emerge from the crisis intact. 

Germany was one of the safest investment locations worldwide before the global coronavirus pandemic. The country’s strong and stable economy now puts it on a strong footing to deal with the current crisis. The record financial aid package announced – with further measures foreseen as and when required – is a sign of the German government’s commitment to ensuring that the country maintains its proud position.

Global FDI Perspectives

A global recession now seems certain, with economic recovery only possible when the virus can be effectively contained. According to the OECD, a sharp slowdown in world growth is expected in the first half of the year as supply chains and commodities are affected, tourism falls away and business confidence falters.

UNCTAD reports that the outbreak and spread of Covid-19 will negatively affect global foreign direct investment (FDI) flows in the period 2020-2021. Downward pressure on FDI will be in the range of -30 to -40 percent according to new forecasts. Developed countries in particular will feel the effect of this downturn as a result of their dependence on global supply chains.

Sectors expected to experience the greatest decline in FDI levels include aviation, tourism, entertainment, retail trade, and luxury goods. The automotive, consumer goods and IT sectors should experience minimal decline, with biotechnology, e-commerce, digital technologies, and healthcare potentially recording FDI increases according to some forecasts.

Entry Regulations, Travel Restrictions, National Guidelines

Germany has lifted border controls to and from all EU countries. Entry restrictions from third countries are still in place, but these will be gradually lifted from the beginning of July 2020. 

Entry Regulations, Border Controls, Travel Restrictions

Germany’s Federal Foreign Office has prepared important information relating to entry and travel restrictions, behavior when in Germany, and transit through other countries.

In order to prevent the further spread of the coronavirus, Germany implemented travel restrictions for entries from outside the Schengen area in mid-March. The European Commission has recommended that the travel restrictions already in place for all non-essential travel to the EU from third countries be extended until June 30, 2020. Exemptions apply for the following cases:

  • nationals from EU countries and associated Schengen countries and the UK and their respective family members returning to their place of residence
  • third country nationals with a long-term right of residence in an EU member state and/or the countries mentioned above provided that they are returning to their place of habitual residence
  • third country nationals with specific essential functions or needs

From July 1, 2020, these exemptions will be extended to other groups as well. For detailed information, please refer to the website of the German Federal Foreign Office on temporary entry restrictions.

As of June 21, 2020, Germany has lifted all border controls to and from all EU countries. To support a safe relaunch of travelling across the 27 EU member states the EU has launched the  ‘Re-open EU' web platform. It provides up-to date information on borders, practical information on travel restrictions, public health and safety measures, as well as other useful information.

National Guidelines to Slow the Spread of Coronavirus 

To protect individuals from infection, a minimum distance requirement of 1.5 meters and the use of masks in public spaces – especially in shops and on public transport - will remain in place until further notice. Big events have been banned until at least the end of October 2020.

Details of the reopening phase will be set at the federal state level. However, the federal states and the federal government have agreed upon an emergency mechanism. Should new infections rise to above 50 people cumulatively per 100,000 in a district within seven days, the responsible federal state has to reimpose restrictions. For detailed information, please refer to the FAQs provided by the Federal Ministry of Interior.

The official Corona “Warning” App of the federal government has been made available as of June 16. The free app has been designed to enable contact tracing of infected persons in order to shorten the potential chain of infection. Use of the app is entirely voluntary, with the government promoting its broad use and promising a high level of data protection.

Maintaining Supply Chains in the EU

European supply chains are maintained through an extensive network of freight transport services, including all modes of transport.

In order to ensure the proper functioning of the EU’s internal market, the EU has requested member states to immediately designate all of the relevant internal border-crossing points of the trans-European transport network and additional ones – to the extent deemed necessary – as “green lane” border crossings.

Green Lane Border Crossings

These green lane border crossings should be open to all freight vehicles – whatever goods they are carrying. Crossing the border, including any checks and health screening, should not take more than 15 minutes.

The European Commission has presented a practical guide to ensure continuous flow of goods across EU via green lanes. Moreover, the Commission has also set up a network of national contact points and a platform to provide information on national transport measures taken by member states in response to the coronavirus. 

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