Germany business support guidance (COVID-19)

The Federal Government, the German Bundestag and the Federal Council adopted a package of measures within just one week to fight the negative effects of COVID-19 in order to protect the health of citizens, support jobs and businesses and promote Germany’s social cohesion.

The so-called “Corona-Schutzschild” (which means Corona-shield) is the largest aid package in German history.

This includes a package of measures to support businesses and individuals including:

Workforce measures

The German government has implemented various measures to protect and aid the redistribution and repurposing of the available workforce of companies.

Short-time allowance

On 13 March 2020, the law to facilitate short-time work was passed. The following eased conditions for short-time allowance came into force retroactively as of 1 March 2020:

• Short-time allowance is possible for every company, even for employees in temporary employment.
• If at least 10% of the employees are affected by loss of working hours, a company can apply for short-time working at the Federal Employment Agency. Previously, at least one third of the employees had to be affected.
• The short-time allowance amounts to 60% of the missing net remuneration - for parents 67%.
• Social security contributions are fully reimbursed by the Federal Employment Agency in the event of short-time work.
• Employees do not have to build up “minus hours” before short-time work compensation can be paid.

Until 31 October 2020, salaries earned while drawing short-time allowance from a side job in systemically relevant industries and professions (e.g. healthcare; agriculture) will not be offset with the short-time allowance. The only condition is that the salary, together with the short-time working allowance paid, does not exceed the monthly target salary of the main job.

On 23 April 2020, the German government decided to increase the short-time allowance: In detail, the new regulation provides that the previous short-time allowance rates will still apply for the first three months of work reduction and if the reduction is not severe. But if the reduction amounts to at least 50% of the usual working hours, as of the 4th month, 70% (or 77% for households with children) of the loss of earnings will be paid, and as of the 7th month, 80% (or 87% for households with children).

Working Hours Act provisions suspended

The Working Hours Act now includes an authorisation for the Federal Ministry of Labour and Social Affairs to issue regulations in order to allow special provisions or exceptions to the applicable working hours in exceptional emergencies with nationwide implications such as the present COVID-19 pandemic situation.

Increase of the supplementary income limit for pensioners

Limits on deduction free additional earnings for pensioners and short-time workers are substantially raised to incentivise supporting the workforce and to compensate shortages in system-relevant sectors. For a limited period until 31 December 2020, the yearly supplementary income limit for pensioners will be increased from EUR 6,300 to EUR 44,590.

Financing / Debt

Liquidity Assistance - Special Programme of KfW (Kreditanstalt für Wiederaufbau – “Credit Institute for Reconstruction”)

The funds for the KfW Special Programme are not limited. It is available to both medium-sized enterprises and large enterprises. The KfW loans come with improved credit conditions. The lower interest rates and a simplified risk assessment by KfW for loans of up to EUR 10 million create further relief for the economy.

The KfW Special Programme 2020 is implemented through the programmes KfW Entrepreneur Loan, ERP Start-up Loan - Universal and the KfW Special Programme 2020 - Direct Participation for Consortium Finance, whose promotional conditions have been modified and extended.

To cover short-term liquidity needs, the Special Programme for Enterprises in Trade and Industry and the Liberal Professions is available to facilitate the access of enterprises to favourable loans. In this way it is possible to mobilise a considerable amount of liquidity strengthening loans from the house banks.

Loans to medium and large enterprises

In addition to a special programme for young companies that have been active on the market for less than 5 years, there is a programme for loans to medium-sized and large companies that have been active on the market for more than 5 years. This will be the focus of attention.

KfW offers these companies both investment as well as working capital loans. Under this programme KfW assumes a large part of the risk of the lending relationship banks. The KfW Entrepreneur Loan is available to enterprises of all sizes that are experiencing temporary financing difficulties due to the COVID-19 crisis.

In terms of content, the programme involves assuming the default risks of up to 80% for large enterprises and 90% for small and medium-sized enterprises. In line with the common European framework, large companies are those that employ more than 250 people, have annual sales of more than EUR 50 million or have a balance sheet total of more than EUR 43 million. The chances of obtaining a loan commitment are thus increasing immensely. In addition, interest rates have been reduced, ranging from 1% to 1.46% for small and medium-sized companies and from 2% to 2.12% for large companies.

It is possible to apply for a loan of up to EUR 1 billion per group of companies. The maximum loan amount is limited to either:

• 25% of the annual turnover in 2019,
• twice the wage costs of 2019,
• the current financing requirements for the next 18 months for small and medium-sized enterprises or 12 months for large enterprises, or
• 50% of the total debt of a company for loans over EUR 25 million.

Direct participation for syndicated financing

KfW participates in syndicated financing for investments and working capital of medium-sized and large enterprises. The KfW assumes up to 80% of the risk, but no more than 50% of the total debt. This increases the chances of obtaining individually structured and tailor-made syndicated financing.

The KfW risk share amounts to at least EUR 25 million and is again either limited to 25% of the annual turnover in 2019, twice the wage costs of 2019 or the current financing requirements for the next 12 months. Optionally, all banks participating in the consortium can be refinanced by KfW. KfW's participation shall be pari passu at market conditions. This means that the economic conditions will be provided by the financing partner and assumed by KfW.

The KfW fast loans for SMEs

The KfW fast loan programme, another important component of the Federal Government's comprehensive protective shield for small and medium-sized enterprises, started on 15 April 2020.

After the programme was proposed on 6 April and the European Commission's approval of 11 April under the state aid rules, the necessary steps to implement the KfW fast loan were taken in a very short time by KfW and the private banks.

The KfW fast loans for SMEs essentially comprise the following measures:

Provided that a company has in total made a profit either during the years 2017-2019 or in 2019, if it has only been on the market for a shorter period so far, a "fast loan" may be granted with the following conditions:

• The loan is available to medium-sized enterprises with more than 10 employees that have been active on the market at least since 1 January 2019;
• The loan volume per company is up to 25% of total turnover in 2019, up to a maximum of EUR 500,000 for companies with up to 50 employees and up to a maximum of EUR 800,000 for companies with more than 50 employees;
• The company must not have been in economic difficulties on 31 December 2019 and must have been in an orderly financial situation at that date;
• On request, a grace period for interest payments up to two years can be granted at the beginning to reduce the short-term burden;
• The bank receives a 100% indemnity from KfW, secured by a guarantee from the federal government;
• The loan is approved without further credit risk assessment by the bank or KfW. Collateral securities are not required. This allows the loan to be approved quickly.

Securing the movement of goods

Together with the credit insurers, the federal government set up a protective shield of EUR 30 billion to secure supplier credits for German companies for the year 2020 and support the economy in difficult times.

The associated leverage effect will secure a business volume of about EUR 400 billion. The credit insurers participate substantially and leave 65% of the premium income in 2020 to the federal government. In addition, they bear losses up to an amount of EUR 500 million themselves and assume the default risks exceeding the guarantee of the federal government.

Economic Stabilisation Fund

In addition, the Federal Government has launched a large-volume economic stabilisation fund: With a volume of up to EUR 600 billion, it cushions the economic impact of the pandemic on companies whose existence is of considerable importance for Germany as a business location or for the labour market. It is also intended to eliminate liquidity bottlenecks, support refinancing on the capital market and above all strengthen the capital base of companies.

The "Economic Stabilisation Fund" consists of:

• EUR 400 billion in government guarantees for liabilities,
• EUR 100 billion for direct state participation, and
• EUR 100 billion for refinancing by KfW.

The Fund's support options also apply to systemically relevant smaller companies and companies in the critical infrastructure sector as well as start-ups that have been valued by private investors in at least one completed financing round since 1 January 2017 with an enterprise value of at least EUR 50 million, including the capital raised through this round. The fund may also invest directly in companies for a limited period of time. The aim is also to prevent a sell-off of German economic and industrial interests. The Federal Government is thus drawing on SoFFin - the Special Fund for Financial Market Stabilization - which has already functioned during the financial crisis.

Grants for micro-enterprises and self-employed persons

Enterprises with up to five employees can apply for a one-off grant of up to EUR 9,000 for three months, and if necessary for two further months.

Enterprises with up to ten employees may even apply for a one-off grant of up to EUR 15,000 for three months, or two additional months if necessary. This is intended in particular to secure the economic existence of the applicants and to bridge acute liquidity bottlenecks due to ongoing operating costs, e.g. rents and leases, loans for business premises or leasing instalments.

The aid is subject to three conditions:

• Economic difficulties caused by the COVID-19 crisis;
• The company must not have been in economic difficulties before March 2020;
• The damage occurred after 11 March 2020.

Measures by the federal states

In addition to the support programmes just described, the federal states also grant individual aid to companies. The measures mainly support small and medium-sized enterprises. The following federal states and their measures are listed here as examples:

(A) North Rhine-Westphalia

State guarantees will be increased from EUR 900 million to EUR 5 billion. The guarantee and counter-guarantee framework for the “Bürgschaftsbank NRW” (Guarantees Bank of North Rhine-Westphalia) is increased from EUR 100 million to EUR 1 billion. The guarantee ceiling is doubled to EUR 2.5 million. Express guarantees of the “Bürgschaftsbank” up to an amount of EUR 250,000 are paid out within three days.

(B) Baden-Wuerttemberg

Liquidity loans are available to companies with up to 500 employees. There are also additional State bank guarantees: If a house bank is not able to provide a liquidity loan / working capital loan for bridging a period of time, the State bank can, in individual cases, step in and via default guarantees reduce the risk by up to 80%. The State bank will assume guarantees between EUR 2.5 and EUR 5 million.

(C) Bavaria

On 16 March 2020, Bavaria declared a state of emergency. In order to contain the virus and to cushion the consequences caused by COVID-19, the state has set up a EUR 10-billion- protective shield which is to be financed by loans. The state government increases the guarantee framework for the State bank to EUR 500 million. The Bavarian state government is providing emergency aid to small businesses in particular. Companies in need receive between EUR
5,000 and EUR 30,000 at very short notice and without unnecessary red tape.

Fiscal support measures

Companies of all sizes receive tax aid to improve their liquidity. For companies directly affected by the coronavirus, there are the following possibilities which apply until the end of 2020:

Tax prepayments can be adjusted

Companies can have the amount of their advance payments adjusted for income and corporate tax. The same applies to the measurement amount of trade tax advance payments. For this purpose, companies can submit an application to their tax office. If a taxpayers’ income this year is likely to be lower than expected before the COVID-19 pandemic, the advance payments will be reduced quickly and easily.

Tax authorities grant deferrals of tax liabilities

If companies are unable to make tax payments this year due to the economic consequences of the COVID-19 pandemic, these payments should be deferred on request for a limited period of time and in principle without interest. Companies can apply to their tax office until 31 December 2020.

There are no strict requirements for the approval of the deferral. Companies have to demonstrate that they are directly affected. However, they do not have to provide detailed evidence of the value of the losses incurred. This supports the liquidity of taxpayers by deferring the date of tax payment. This measure concerns both income and corporate tax as well as the VAT.

Enforcement measures suspended

The enforcement of overdue tax debts in general is to be waived until the end of the year 2020. Late payment surcharges, which are legally due during this period, are to be waived. This applies to income and corporate tax as well as VAT.

Reduced VAT rate for gastronomy

The gastronomy sector is severely affected by the COVID-19 crisis. For this reason, restaurants are to be given a tax relief once the normal business resumes. According to the decision of 23 April 2020, instead of the regular VAT rate of 19% which applies to meals consumed in restaurants, cafés or bars, the VAT for meals in the gastronomy sector will be reduced to the reduced tax rate of 7% from 01 July until 30 June 2021.

Tax relief for SMEs

SMEs will be able to offset foreseeable losses this year 2020 against tax prepayments from 2019. The companies will thus receive refunds from the tax offices which will provide them with liquidity. Before, SMEs would not have been able to claim such losses until next year.

Relaxations in insolvency law

The German legislator has recognised that the COVID-19 pandemic forces the insolvency law to be adapted. The German Bundestag therefore passed the COVID-19 Insolvency Suspension Act (COVID-19-Insolvenzaussetzungsgesetz; COVInsAG) as of 1 March 2020.

The law initially suspends the obligation to file for insolvency until 30 September 2020 if the insolvency maturity is based on the consequences of the COVID-19 pandemic. If the company was not insolvent on 31 December 2019, it is assumed that the insolvency maturity is due to the COVID-19 pandemic. Moreover, the exemption from the obligation to file for insolvency will only be granted if the company has prospects of being able to remedy its insolvency. The law also provides for various liability reliefs for managing directors by exempting them from liability for payments which serve to maintain or resume business operations or to implement a restructuring concept.

Measures to simplify passing corporate resolutions

The COVID-19 Insolvency Suspension Act also contains changes to corporate law.

Stock corporations, including partnerships limited by shares and SE, are granted facilitation in conducting their annual general meetings. According to the new regulation, the management board may, with the approval of the supervisory board, make decisions on the participation of shareholders in the annual general meeting by means of electronic communication, adopt a casting of votes by means of electronic communication and approve image and sound transmissions, even without specific authorization by the respective articles of association or rules of procedure (amendment of Section 118 Stock Corporation Act).

The management board may also decide, with the approval of the supervisory board, that a virtual general meeting is to be held. Furthermore, the management board may, with the consent of the supervisory board, decide, in deviation from Section 123 Stock Corporation Act, to convene the general meeting no later than the 21st day before the day of the meeting. Further formal requirements are also loosened up.

The management board may also decide, with the approval of the supervisory board and in deviation from Section 59 Stock Corporation Act, to amend advance payments to the shareholders on the balance sheet profit in contrast to the provisions in the articles of association, or to postpone the annual general meeting within the fiscal year. Liabilities for the above-mentioned resolutions are largely excluded, except in cases of intent or gross negligence.

With respect to limited liability companies the law provides that shareholder resolutions can be passed by simple text form (which would include e.g. email) or in writing even if not all shareholders have given their consent.

The above-mentioned amendments to the Company Law entered into force on 28 March 2020 and shall expire at the end of 31 December 2021.

Restoration of supply chains

Both the federal government and the governments of the federal states pledged support for the economy to restore disrupted international supply chains. To this end, the Federal and State Ministries of Economics establish contact points for affected companies to provide assistance to ensure that the production and supply of necessary supplier products, where possible, is again carried out smoothly.

Protection of tenants

The right of landlords to terminate rental and lease agreements due to payment arrears is restricted for a limited period of time. This restriction applies to cases where the arrears are due to the effects of the COVID-19 pandemic. The regulation is limited to the period from 01 April to 30 June 2020.

However, the obligation of the tenant or leaseholder to pay on time will continue to apply during this period. Arrears of payment from the period 1 April to 30 June 2020 do not entitle the landlord - for a period of 24 months - to terminate the lease. Only if the tenant or lessee has not paid the arrears even after 30 June 2022, a termination of contract will be possible again.

The regulations are designed to prevent residential tenants from losing their homes and tenants or leaseholders of commercial premises and land from losing the basis of their commercial activities as a result of temporary loss of income due to the COVID-19 pandemic.

Social benefits

Extension of unemployment benefits

For people receiving unemployment benefits, the reference period shall be extended by three months for those whose entitlement would expire between 1 May and 31 December 2020.

Simplified access to basic income

The basic income as per the Second Book of the Social Security Code (SGB II) secures livelihood if no priority assistance is available. The benefits will be made available more quickly and unbureaucratically as nobody should be put in existential need due to the economic effects of this crisis.

In particular, the following simplifications apply for the authorisation period from 1 March 2020 to 30 June 2020:

• a temporary suspension of the evaluation of available assets of the applicants,
• a temporary recognition of the actual expenses for accommodation and heating as reasonable and
• facilitation of the evaluation of income for provisional decisions.

The federal government may extend the period for the facilitated conditions until 31 December 2020 by statutory order.