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 economic stimulus and crisis management package
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.
Support for small and medium-sized companies
Since September 1, 2020, small and medium-sized companies and freelance workers from all areas of business are entitled to non-repayable liquidity aid grants - called a "bridging allowance" - from the German government. The bridging allowance has been extended until September 30, 2021.
Companies must apply using a registered accountant or tax advisor. The aid is designed to cover fixed costs of businesses which remain locked down or remain significantly affected despite the partial reopening of some economic sectors.
The bridging allowance reimburses a share of:
- 90 percent of fixed costs for companies with more than 70 percent drop in revenue;
- 60 percent of fixed costs for companies with a drop in sales between 50 percent and 70 percent;
- 40 percent of fixed costs for companies with a drop in sales between 30 percent and less than 50 percent;
in the month of aid distribution compared to the revenues of the corresponding month of the previous year up to a maximum of EUR 50,000.
Companies directly affected by the second lockdown in November and December who were forced to stop operating, or whose suppliers lost more than 80 percent of revenue from the stop in operations, may claim up to 75 percent of year-on-year revenue.
The bridging allowance has been revised (Bridging Allowance III): Applications can be made by all companies with up to EUR 750 million turnover in Germany. The company must have had a fall in sales of at least 30 percent in one month compared to the same month of 2019.
In cases of a fall in turnover of between 30 and 50 percent, the company will receive a subsidy of 40 percent of its eligible fixed costs of the respective month. A loss in turnover of 50 to 70 percent will lead to a subsidy of 60 percent of the eligible fixed costs, and a loss in turnover of more then 70 percent will be aided with 90 percent of the fixed costs.
Special rules apply to certain industries that are severely impacted such as the clothing retail sector.
In April 2021, a new equity grant has been introduced. Application can be made together with the application for the bridging allowance. Companies with a drop in sales of at least 50 percent in at least three months in the period from November 2020 to June 2021 are eligible.
The grant is based on the amount that a company receives for fixed costs from the bridging allowance. These include rents and leases, interest expenses for loans, expenses for electricity and insurance. The grant is up to 40 percent of the amount that a company receives for the eligible fixed costs.
Further information, including exclusion criteria, is provided here (in German only).
Liquidity aid loan programs
The federal development bank KfW has expanded and eased access and terms on two existing loan programs:
- ERP-Universal Start-up Loan
- KfW-Entrepreneur Loan
KfW has introduced a variety of special programs 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 coronavirus 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.
Short-time allowances schemes can currently be granted on a more flexible basis for a limited period until December 31, 2021. 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 until the end of September 2021.
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.