State support for businesses

In recent weeks, the corona-related effects on the economy have led to hectic activities by the EU Commission, the federal government, and the German states to make State support services available at short notice and in a manner that is as unbureaucratic as possible. This article provides an overview of the measures taken at federal and state level and their legal framework.

Measures taken by the federal government and the German states

The federal government promised extensive support to companies and the self-employed. “A protective shield for employees and companies” is designed to provide businesses with sufficient financial resources to enable them to cope with the economic impact of the COVID-19 pandemic (“coronavirus”). Existing funding programs will be provided with additional financial resources, while the requirements for obtaining funding have been reduced. In addition, the German states also expanded existing funding schemes. The funding agencies are currently in the process of quickly implementing various funding programs. In some cases, however, application forms are still lacking, among other things, while in other states it is not yet possible to file applications due to the current rush.

Measures at federal level

The support measures adopted in Germany relate in particular to liquidity aid (facilitated access to loans and guarantees, lending, and tax relief), grants for micro-enterprises, and access to reduced working hours allowance.

• Facilitated access to credit

State-owned KfW Bank has expanded its existing subsidy programs for concessionary loans and intends to establish new programs for companies in distress. For details, refer to our article “Liquidity support through "unlimited" loan guarantees.” SMEs are benefitting from greater State risk assumption than large companies.

• Tax liquidity support

In a letter by the Federal Ministry of Finance to the supreme tax authorities of the German states dated March 19, 2020, the federal government facilitated the deferral of tax payments and the adaptation of advance payments for liquidity assistance in the area of taxes while also providing for a waiver of enforcement measures.

• Subsidies for micro-enterprises

Micro-enterprises with up to ten employees may receive subsidies of up to EUR 15,000 for three months. These subsidies are paid out by the German states and municipalities.

• Extension of reduced working hours allowance

The federal government introduced easier access requirements for reduced working hours allowance. For the legal situation, refer to our article “Coronavirus: FAQ Employment Law Part 2.”

Measures taken at state level

The German states also set up liquidity support in the form of loans and/or grants. An overview of the liquidity support provided by Bavaria, Hamburg, and NRW can be found here. An overview of the other federal states follows. An overview of the responsible funding agencies at state level can be found here.

Measures taken by the EU Commission

On March 19, 2020, the European Commission adopted the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. It thus extended the framework for the assessment and approval of Member States’ assistance programs. The Temporary Framework will initially apply until the end of 2020 and allows the Commission and Member States to provide short-term support to affected companies. The Temporary Framework allows for:

• Direct (non-repayable) grants, repayable advances, and selective tax advantages
• State aid in the form of guarantees on (subsidized) loans to companies
• Aid in the form of guarantees and loans channeled through credit institutions or other financial institutions
• Public export credit insurance also for countries with marketable risks

Such aid may be granted only to companies that are not already in financial difficulties prior to January 1, 2020.

Classification under State aid law

Funding for individual companies or sectors may constitute state aid which is permissible only by way of exception under Article 107 TFEU. The adoption of the Temporary Framework increases the possibilities for Member States to grant aid.

Member States may compensate companies for losses directly caused by the coronavirus. This will help in particular the retail and hospitality sectors, as well as companies operating in the transportation and tourism sectors. This is because Article 107(2)(b) TFEU allows aid to make good the damage caused by exceptional occurrences. In initial decisions, the European Commission recognized damage caused by the coronavirus as an exceptional occurrence in this sense.

Additional, daily updated information on the corona crisis is also available on our focus page.