State aid in Germany during coronavirus crisis

Introduction

Germany has already applied for several programmes by the EU Commission and has been granted approval for these.

In the following we will provide a brief overview of the most important possibilities. These include newly created programmes as well as existing possibilities.

EU State aid law context

National State aid schemes (programs) introduced by EU Member States and individual aid granted by national instances must comply with the applicable EU State aid law. Member States may notify new schemes or grant aid in individual cases. These may be based, for example, on the European Commission's Temporary Framework, on the provisions of the Treaty (Art. 107(2) b) TFEU) on aid to rectify damages caused by exceptional occurrences or on the guidelines on rescue and restructuring aid for companies in difficulty. Further details can be found in the EU chapter.

National Public Support

Economy stabilisation fund (ESF)

Who is eligible for the aid?

Undertakings in the real economy which

  • have at least two of the following three characteristics: (i) balance sheet total of EUR 43 million, (ii) turnover of EUR 50 million and (iii) more than 249 employees on the basis of an annual average. Exceptions are possible in sectors important for the German security (e.g. critical infrastructure and the software required for it, cloud computing services, producers of pharmaceuticals and medical devices)
  • must not have been an undertaking in difficulty* (no UID) on 31 December 2019.
  • are important in the way that a threat to their existence would have a considerable impact on Germany as a business location, its technological sovereignty, supply security, critical infrastructures or the labour market.
  • have no other support programmes and financing possibilities as a viable solution (subsidiarity).

What does the aid consist of?

The ESF offers two combinable stabilisation instruments:

  • Federal Government guarantees to secure loans including credit lines and capital market products in the debt capital sector.
  • Recapitalisations to strengthen equity capital.

Standardised conditions and products apply to guarantees and recapitalisations of up to EUR 100 million.

The first product is "Guarantee for bank loans”:

  • Guarantees for loans and operating funds are available.
  • The amount is limited to twice the amount of the wage and salary payments (including social security contributions) or 25% of sales revenues in 2019 or, alternatively, the amount of the financial requirements for the next 12 months.
  • The maximum duration is 6 years.
  • A maximum of 90% of the risks are covered.
  • Reasonable securities are required.
  • Guarantee premiums of at least 0.5 % in the first year, 1.0 % in the second and third year and 2.0 % thereafter of the (remaining) guarantee amount are due. Risk-related premiums are added.
  • A perspective for repayment is necessary.

The second product is "Silent partnership up to EUR 100 million":

  • Financing of investments and working capital is possible.
  • It must appear plausible that the company will be able to finance itself independently again in the future.
  • The amount is limited to what is necessary to compensate for the loss of equity as a result of the COVID-19 crisis and to restore equity in absolute terms or in relation to the balance sheet total (the lower amount is decisive) to the level which existed on 31 December 2019 – adjustments in the case of seasonal business development.
  • Loss sharing is possible.
  • The claim for repayment is subordinated to all creditors in the event of insolvency or liquidation, but with priority over other equity components.
  • Repayment must be made in principle after 7 years (6 years for listed companies), at the latest in principle after 10 years. A submission of a restructuring plan is required if, after the first deadline, capital from recapitalisation measures amounts to not less than 15% of the undertaking's equity capital.
  • A repayment plan is required.
  • Profit participation is necessary in the form of a fixed coupon increasing from 4.0% in the first year, 4.5% in the second and third years, 5.0% in the fourth and fifth years, 7.0% in the sixth and seventh years and 9.5% in the years thereafter. Remuneration is only due if the annual result is positive, otherwise a payment will be made in a later year.
  • The silent partnership is granted until 30 June 2021 at the latest.

For volumes above EUR 100 million, individual solutions are developed within the framework of the ESF regulations. The following rules apply to all measures under the ESF (including standardised products):

  • There is a ban on dividends and repurchase of own shares (for guarantees only for amounts of EUR 100 million or more).
  • There is a ban on bonuses and other comparable variable remuneration components for members of executive bodies and managers. Additionally, there is a ban on special payments (e.g. share packages) and severance payments which are legally not required (for guarantees only for amounts of EUR 100 million or more).
  • Until at least 75% of the amount guaranteed has been repaid, the total remuneration of members of the Executive Board is limited to the basic remuneration of the respective member as of 31 December 2019.
  • The undertaking is obliged not to pursue an aggressive expansion strategy during the term.
  • Investments of more than 10% in undertakings in upstream and downstream sectors are only possible if this is necessary to maintain the profitability of the undertaking or the target undertaking, if no other buyer is available and the EU Commission approves the acquisition of the investment before it is implemented.
  • A contribution of the shareholders is in principle required (in the case of recapitalisations at least in the amount of the distribution to the shareholders in 2020).
  • In the case of group companies, for example a guarantee from the parent company is generally required.
  • Debt rescheduling is excluded. Regular repayments on bank loans must be suspended until the end of 2021. Existing lines of credit must be fixed until at least the end of 2022.

More detailed information on the concrete implementation of the ESF is expected to be provided by the implementing order for the ESF.

The Commission has approved the following measures under the relevant conditions of the ESF:

  • Guarantees. The loan amount is limited to what is necessary to cover liquidity needs in the near future. The duration may not exceed 6 years and the risk coverage may not exceed 90%. In addition, a minimum level of guarantee premiums is required and the guarantees must be provided by the end of 2020.
  • Subordinated loans to cover operating and investment capital needs with a limited term and amount. A minimum remuneration for the state is required. If the loan amount exceeds both of the following thresholds, the rules for recapitalisation measures apply (i) two thirds of the annual wage bill of the beneficiary in the case of large enterprises or the total annual wage bill in the case of SMEs and (ii) 8.4% of the total turnover of the beneficiary in 2019 in the case of large enterprises and 12.5% of the total turnover of the beneficiary in 2019 in the case of SMEs.
  • Recapitalisation instruments, in particular equity instruments and hybrid capital instruments (e.g. silent partnerships). These are possible if (i) there is no other perspective for continuation and (ii) no other suitable solution exists and (iii) the support is in the European interest. The amount is limited to what is necessary to ensure the profitability of the undertaking and to restore its equity base to pre-crisis levels. The State must be adequately remunerated. In addition, the measure must provide an incentive to repay the support as soon as possible. Safeguards must be taken against distortion of competition.

Where to apply for the aid?

Applications must be submitted to the Federal Ministry of Economics and Energy (BMWi).

  • The Kreditanstalt für Wiederaufbau (KfW) decides on guarantees of up to EUR 100 million.
  • The BMWi and the Federal Ministry of Finance (BMF) decide on guarantees in the amount of EUR 100 to 500 million as well as on recapitalisations of up to EUR 200 million by mutual agreement.
  • The interministerial ESF committee decides on guarantees of EUR 500 million and recapitalisations of EUR 200 million and above.

Is a notification to the EU Commission necessary?

No. There is an exception  for recapitalisation measures exceeding the threshold of EUR 250 billion = these must be notified individually.

Further remarks

None


Federal scheme loans 2020 (1)

Who is eligible for the aid?

Undertakings which were not in difficulty* (not UID) on 31 December 2019.

What does the aid consist of?         

New loan programme with a low interest rate. The state will take over up to 90 % of a loan provided by a bank to a beneficiary, provided that:

  • The loan amount is less than EUR 1 billion per beneficiary and limited to either twice the annual wage bill for 2019 or alternatively to the last year available, 25% of the annual turnover 2019, or the specific liquidity needs of a beneficiary for the next 12 months (18 months for SMEs). In addition, for loans above EUR 25 million, the loan amount may not exceed 50% of the total debt volume on the beneficiary’s balance sheet;
  • the term of the loan is limited to a maximum of  6 years; for loans up to EUR 800.000 the term is limited to a maximum of 10 years.

Where to apply for the aid?

The loans can be granted by the federal level, on the level of the Bundesländer, on communal level, and by the promotional banks (for example “KfW”) of the federation and the Bundesländer. They are granted through credit institutions and other financial institutions as financial intermediaries as "pass-through" loans. Further information on the services offered by KfW is available here.

Is a notification to the EU Commission necessary?          

No. The scheme has been approved by the EU Commission.

Further remarks

None


Federal scheme loans 2020 (2)

Who is eligible for the aid?

Undertakings which were not in difficulty* (not UID) on 31 December 2019.What does the aid consist of?           

New loan programme with subsidised interest rates provided either directly by a granting authority together with private banks in a consortium to beneficiaries, or indirectly in the form of risk-sub-participations for investment and working capital needs of the beneficiaries, provided that:

  • The granting authority does not assume more than 80% of the risk of any given loan and not more than 50% of the total debt volume on the beneficiary’s balance sheet or 30% of the balance sheet size;
  • the loan amount is less than twice the annual wage bill for 2019 or alternatively to the last year available, 25% of the annual turnover 2019, or the specific liquidity needs of a beneficiary for the next 12 months (18 months for SMEs) based on appropriate justification and self-certification of the beneficiary;
  • the term of the loan is limited to a maximum of 6 years;
  • interest rates provided to the granting authority are the same as for the other participating banks in the consortium and reach a certain minimum rate.

Where to apply for the aid?

The aid may be granted by public bodies, such as federal authorities and regional authorities. For instance, the German Promotional Bank (“KfW”) offers these loans. They need to be applied for through the main bank. Further information on the services offered by KfW is available here.

Is a notification to the EU Commission necessary?

No. The scheme has been approved by the EU Commission.

Further remarks

None


KfW rapid loan 2020

Who is eligible for the aid?

Small and medium-sized undertakings which

  • had a profit in 2019 or on average over the last three years (or since they have been active on the market, if the period is shorter), and
  • were not in difficulty* (no UID) on 31 December 2019, and
  • have more than 10 employees, and
  • have been active on the market at least since 1 January 2019, and
  • have an orderly financial situation.

What does the aid consist of?         

New loan programme. The bank receives a 100% indemnity from the KfW, secured by a guarantee from the federal government.

  • The loan volume per enterprise amounts to up to 3 months' turnover in 2019, maximum EUR 800,000 for undertakings with more than 50 employees, maximum EUR 500,000 for undertakings with up to 50 employees.
  • The interest rate is currently 3% with a term of 10 years.
  • The loan is approved without further credit risk assessment by the bank or KfW. This allows the loan to be approved quickly.

Where to apply for the aid?

The KfW loans must be applied for through the main bank. You can find further information on KfW services here.

Is a notification to the EU Commission necessary?

No. The scheme has been approved by the EU Commission.

Further remarks

None


Federal scheme State Guarantees 2020

Who is eligible for the aid?

Undertakings which are not in difficulty* (not UID) or which only got into difficulty after 31 December 2019 owing to the coronavirus crisis can apply.

What does the aid consist of?         

New loan guarantee scheme:

  • The annual guarantee premiums are set at 25 basis points ("bps") for SMEs and 50 bps for large undertakings for the first year. For years two and three, they are set at 50 bps for SMEs and 100 bps for large undertakings. For the years four to six, they are set at 100 bps for SMEs and 200 bps for larger undertakings.
  • The maximum term of the guarantees is 6 years. 
  • For guaranteed loans with a maturity beyond 31 December 2020 the loan amount is limited to either twice the annual wage bill for 2019, 25% of the annual turnover 2019 or the specific liquidity needs of the beneficiary for the next 12 months (18 months for SMEs) based on appropriate justification and self-certification by the beneficiary of its liquidity needs.
  • For guaranteed loans with a maturity until 31 December 2020, the amount of the loan principal may be higher with appropriate justification and proportionality of the aid. 
  • The public guarantee may not exceed: (i) 90% of the loan principal where losses are sustained proportionally by the credit institutions and the State or (ii) 35% of the loan principal where losses are first attributed to the State and only then to credit institutions and (iii) for both cases where the loan decreases over time, the guaranteed amount has to decrease proportionally 

Where to apply for the aid?

The aid may be granted by public bodies, such as federal authorities and regional authorities or the guarantee banks.

Is a notification to the EU Commission necessary?          

No. The scheme has been approved by the EU Commission.

Further remarks

None.


Stop-gap Aid

Who is eligible for the aid?

Eligible to apply are solo self-employed persons and companies and organisations, if they do not qualify for the WSF, whose turnover in the months of April and May 2020 taken together is reduced by at least 60% compared to April and May 2019. For companies founded after April 2019, the months of November and December 2019 should be used for comparison.

Applicants must not have been in difficulty* (no UiS) on 31 December 2019.

Applications may also be submitted by non-profit companies and organisations that are permanently economically active on the market (e.g. youth education centres, inter-company vocational training centres, family holiday centres). For these companies and organisations, the application is based on income (including donations and membership fees) rather than on turnover. Public enterprises are excluded from funding with a very limited number of exceptions.

What does the aid consist of?

The stop-gap aid is granted for the months June to August 2020. Eligible are ongoing fixed costs that are either contractually based or officially determined and cannot be changed unilaterally. A share of the fixed costs is reimbursed depending on the drop in sales compared to the same month last year:

  • 80% of the fixed costs in the event of a decline in sales of more than 70%,
  • 50% of the fixed costs in the event of a decline in sales of between 50% and 70% and
  • 40% of the fixed costs in the event of a decline in sales of between 40% and less than 50%.

There are special rules for undertakings from particularly affected sectors.

For undertakings founded after June 2019, the months from December 2019 to February 2020 should be used for comparison.

If the drop in sales in a funding month is less than 40%, the stop gap aid for the respective funding month is not applicable. Any overcompensation must be repaid.

The maximum aid amount per month is EUR 50,000. For undertakings with up to five employees, the maximum amount to be reimbursed is EUR 3,000 per month, for undertakings with up to ten employees EUR 5,000 per month. The maximum reimbursement amounts for small enterprises may be exceeded in justified exceptional cases. A justified exceptional case occurs if the stop-gap aid based on the eligible fixed costs is at least twice as high as the maximum reimbursement amount.

Where to apply for the aid?

Applications must be submitted to the competent authority in the respective federal state by 31 August 2020 at the latest.

The digital application procedure is carried out exclusively by a tax consultant, auditor or sworn auditor appointed by the applicant. In the course of the application process, these auditors check the claimed sales drops and fixed costs and transmit the necessary data and evidence directly to the respective state authority via an interface.

Is a notification to the EU Commission necessary?

No. The programme is based on a scheme already approved by the EU Commission.

Further remarks

No.


Federal scheme aid for research, development and investment 

Who is eligible for the aid?

The scheme is open to all undertakings able to engage in COVID-19 relevant research, make available relevant testing and upscaling infrastructures, or produce COVID-19 relevant products, irrespective of their sector of activity.

Aid may only be granted to undertakings that were not in difficulty* (UID) before 1 January 2020.

What does the aid consist of?

The following aid may be granted in the form of direct grants, repayable advances and tax advantages:

  • R&D aid for COVID-19 relevant research and development projects. Support is possible for fundamental research, industrial research and experimental development and a wide scope of activities including clinical trials and validating and defending patents.     

The maximum allowable aid intensity is 100% for fundamental research and 80% for industrial research and experimental development. A bonus of up to 15% is granted for industrial research and experimental development activities that are supported by more than one Member State, or that are carried out in cross-border collaboration with research organisations or other undertakings. 

Aid is available for projects that have started as of 1 February 2020 or where the aid is necessary to accelerate works or to widen the scope of a project which started before 1 February 2020. The supported undertaking has to commit to grant non-exclusive licences under non-discriminatory market conditions to third parties in the European Economic Area. 

The aid may be cumulated with other aid for the same eligible costs provided the combined aid does not exceed the allowable aid intensity mentioned before.

  • Investment aid for the construction and upgrade of testing and upscaling infrastructures required to develop, test and upscale COVID-19 relevant products.    

The maximum allowable aid intensity is 75% of the eligible costs. A bonus of up to 15% may be granted if the project is completed within 2 months of the decision. 

Aid is available for investment projects that have started as of1 February 2020, as well as investment projects on which works had started before that date, provided the aid serves to accelerate their implementation or to extend their scope

The investment project must be completed within 6 months. If that deadline is not met, for reasons attributable to the undertaking, 25% of the support granted in the form of direct grants or tax advantages shall be reimbursed. Where the deadline is respected, aid in the form of repayable advances is transformed into direct grants. The repayable advance is reimbursed within 5 years. 

The undertaking must commit to grant open access to the infrastructure to several users based on non-discriminatory market terms and transparent conditions. 

Such aid cannot be cumulated with other investment aid for the same eligible costs. 

  • Investment aid to manufacture COVID-19 relevant products and services. 

The maximum allowable aid intensity is 80% of the eligible costs. A bonus of up to 15% may be granted if the investment is concluded within 2 months after the aid granting or date of application of the tax advantage or if the support comes from more than one Member State. 

The aid is available for investment projects that have started as of 1 February 2020, as well as investment projects on which works had started before that date, provided the aid serves to accelerate their implementation or to extend their scope. 

The investment projects have to be completed within 6 months. If that deadline is not met, 25% of the support granted in the form of direct grants or tax advantages shall be reimbursed. Where the deadline is respected, aid in the form of repayable advances is transformed into direct grants. 

The repayable advance has to be reimbursed within 5 years. The aid cannot be cumulated with other investment aid for the same eligible costs.

Regarding the two investment measures, also a loss cover guarantee may be granted in addition to a direct grant, tax advantage or repayable advance, or as an independent aid measure. The amount of loss to be compensated is established five years after completion of the investment. The compensation amount is calculated as the difference between the sum of investment costs, reasonable profit and operating cost, on the one hand, and the sum of the direct grant received, revenues, and the terminal value of the project, on the other hand.

Where to apply for the aid?

The aid may be granted by all public bodies at federal, regional and local level.

Is a notification to the EU Commission necessary?

No. The scheme has been approved by the EU Commission.

Further remarks

None


State guarantee scheme for trade credit insurance

Who is eligible for the aid?

All undertakings active in the trade credit insurance sector in Germany that were not in difficulty* (not UID) on 31 December 2019.

What does the aid consist of?

The state assumes a guarantee of up to EUR 30 billion for indemnification payments by credit insurers for the year 2020. The credit insurers bear the losses up to an amount of EUR 500 million themselves and assume the default risks that exceed the guarantee of the Federal Government.

The participating trade credit insurers will pay 65% of annual gross premiums for the year 2020 to Germany.

The measure covers purchasers inside and outside of Germany and claims related to the delivery of goods or services that take place between 1 January 2020 and 31 December 2020, provided that the trade credit insurer participates in the measure. Claims that have been notified before 1 March 2020 are excluded.

Germany received a binding commitment from the trade credit insurers active in Germany participating in this measure to retain their existing credit limits at least up to the levels at the time of the agreement.

Where to apply for the aid?

The Federal Ministry of Finance is responsible for the measure and the conclusion of individual agreements with the credit insurers.

Is a notification to the EU Commission necessary?

No. The scheme has been approved by the EU Commission.

Further remarks

None


Further programmes

Who is eligible for the aid?

The federal government and many federal states (Länder) have introduced further subsidy programmes which are mostly aimed at solopreneurs and small businesses.

What does the aid consist of?         

Usually these programmes offer subsidies between EUR 15,000 and EUR 50,000 per undertaking.

Where to apply for the aid?

An overview of the subsidisation programmes of the federal government, the federal states and the European Union can be found at www.foerderdatenbank.de.

Is a notification to the EU Commission necessary?

This may depend on the program.

Further remarks

None

 

*For example, a private limited company is, inter alia, a company in difficulty (UID) if more than half of its subscribed share capital has been lost as a result of losses. If the Ltd is a SME, special rules apply.

State aid in Germany during coronavirus crisis

Michael Bauer
Dr. Michael Bauer
Global Head of Competition & EU Group, CMS
Helmer Krane
Rechtsanwalt