German government introduces a series of measures to mitigate fallout for companies and their employees.
by Rainer Wilke, Dr. Natalie Daghles, Dr. Tobias Leder, Joachim Grittmann, Dr. Ulrich Klockenbrink, Dr. Thomas Fox
The German Federal Ministry of Finance and the German Federal Ministry for Economic Affairs and Energy have announced a protective shield for employees and companies in Germany in light of COVID-19 implications. The protective shield is based on four pillars, each of which target a:
First Pillar – Flexibility in Reducing Employees’ Working Hours
Government grants (so-called short-time work allowances (Kurzarbeitergeld)) are now available for companies, to enable substantial salary savings by sending their employees home on a temporary basis. As decided today, retroactively, to the beginning of March 2020, the respective rules will be relaxed and the rules on reduced hours compensation benefit will be adapted. Eligibility requirements will also be loosened as follows:
- Reduction of the minimum ratio of employees in a company affected by shorter working hours to up to 10%
- Partial or complete waiver of the need to build up a negative balance in working hours
- Reduced hours compensation benefit will be available to temporary/agency workers
- Complete reimbursement of social security contributions by the Federal Labour Office
Second Pillar – Tax-related Liquidity Assistance for Businesses
To improve companies’ liquidity, options for deferring tax payments and reducing pre-payments will be implemented:
- Revenue authorities will be able to defer taxes if the collection of taxes would lead to significant hardship. The revenue authorities will be instructed not to impose strict conditions in this respect.
- As soon as it becomes clear that a taxpayer’s income in the current year is expected to be lower than in the previous year, tax pre-payments will be swiftly reduced.
- Enforcement measures (g.garnishment of bank accounts) and late-payment penalties will be waived until 31 December 2020, if a debtor of pending tax payments is directly affected by COVID-19.
Third Pillar – A Protective Shield for Businesses’ Liquidity
The German Federal Ministry of Justice and Consumer Protection announced that it is preparing a legal regulation to suspend the obligation to file for insolvency (relevant period is currently three weeks) until 30 September 2020 for companies hit by COVID-19 implications (see also Remedy for Managing Directors in Times of COVID-19: Suspension of insolvency filing obligations and limitation of liability risks in Germany). The suspension will enable companies to organise additional state-aided financing, together with their respective banks, if institutions operationally impaired by COVID-19 face a substantial demand for additional financing.
In order to provide additional financing, existing liquidity assistance programmes will be expanded to make it easier for companies to access cheap loans:
- Conditions for KfW-Unternehmerkredit(business loan for longer existing companies) and ERP-Gründerkredit-Universell (start-up loan for companies that are less than five years old) will be loosened by raising the level of risk assumptions (indemnity) for operating loans and extending these instruments to large enterprises with a turnover of up to €2 billion (previously, the limit was €500 million). Higher risk assumptions of up to 80% for operating loans of up to €200 million are expected to increase banks’ willingness to extend credit.
- In the case of the “KfW Loan for Growth”, the programme aimed at larger companies, the current turnover threshold of €2 billion will be raised to €5 billion. In future, these loans will take the form of syndicated loans and will not be restricted to projects in one particular field (in the past, only innovation and digitalisation projects were eligible). Risk assumption will be increased to up to 70% (from 50%).
- For companies with a turnover of more than €5 billion, support will continue on a case-by-case basis.
For guarantee banks (Bürgschaftsbanken), the guarantee limit will be doubled to €2.5 million. The Federation will increase its risk share in guarantee banks by 10%. The upper limit of 35% of operating resources in guarantee banks’ total exposure will be increased to 50%. To accelerate liquidity provision, the Federal State is giving guarantee banks authority to make guarantee decisions up to €250,000 independently and within a period of three days.
The large guarantee programme (parallel guarantees from the Federation and the Federal States), which was previously limited to companies in structurally weak regions, will now be opened up to companies in other regions. In this programme, the Federation covers operating loans and investments with a surety requirement of more than €50 million and a guarantee rate of up to 80%.
In the governmental announcement it is explicitly stated that the above mentioned measures are already covered by existing state aid rules.
For companies that are temporarily in serious financial difficulties because of the crisis and therefore do not have easy access to existing support programmes, additional special KfW programmes will be launched. These programme launches will be achieved by increasing the KfW’s risk tolerance. Risk assumptions for investment funds (indemnity) will be improved and will total up to 80% in the case of operating resources and up to 90% in the case of investments. In addition, consortium structures will be offered for these companies. These special programmes are being submitted to the European Commission for approval.
Fourth Pillar – Strengthening European Cohesion
- The German government welcomes the European Commission’s idea of a COVID-19 Response Investment Initiative totalling €25 billion.
- The government also welcomes the European Central Bank’s (ECB’s) banking supervision announcement that it will use existing leeway to ensure that banks can continue to fulfil their role in funding the real economy, as well as the measures for providing liquidity to banks that ECB announced on Wednesday.
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