COVID-19 response and implications for business in Germany

23 March 2020

The current situation in German as a response to COVID-19 is to avoid physical contact. Social distancing is the norm and a minimum of 2 meters distance is recommended when individuals need to be in public areas. Non-essential public places such as shops and restaurants are closed. Germany follows the measures of the EU in terms of travel limitations and is trying to bring home national from abroad. The coronavirus pandemic has a big impact on German businesses, and the government is putting support in place where possible. In this article, we share the current information available for those doing business in Germany.

Support from German government for business

Germany has taken the following measures to support German businesses and says it will do whatever it takes to help businesses to survive the pandemic. So far, government has made available a program worth 460 billion euros. Main areas of support are:

  • Germany will take over the wages for employees, if there’s not enough work in the companies: so called ‘’short-time work compensation’’. This covers 60% of the normal net wage amount and can be applied for, if the work for at least 10% of the workers is reduced by more of 10%. Employees with at least one child get 67% of the normal net wage amount.
  • Social security contributions will be taken over 100% for lost working hours.
  • Loans from the Federals state – there’s no limitation regarding the amount; each application meeting the requirements can ask for a loan. Requirements:
    • Assumption of risk (indemnity against liability) for the on-lending financing partners (usually the principal banks) of up to 80% for working capital loans of up to EUR 200 million credit volume.
    • Opening of the guarantee release also for large enterprises with an annual turnover of up to EUR 2 billion (previously: EUR 500 million).
    • Low interest rates for such loans.
    • Entrepreneurs who suffer not inconsiderable economic damage directly as a result of the coronavirus can apply for a deferral of taxes (income tax, corporation tax, solidarity surcharge) that are already due or become due by 31 December 2020. An interest-free deferral is also possible.
    • It is also possible to submit applications for the adjustment of advance payments of income and corporation tax (including solidarity surcharge) and the determination of the trade tax base for the purposes of the advance payments. The reduction of advance payments may result in refunds of overpaid amounts.
    • Entrepreneurs who suffer not inconsiderable economic damage directly as a result of the coronavirus will be exempted from the enforcement of taxes (income tax, corporate income tax, solidarity surcharge) that are in arrears or due by 31 December 2020. In such cases, the late payment surcharges forfeited between 19 March 2020 and 31 December 2020 will be waived.
    • For the time being, external audits are generally not carried out on the business premises of companies. However, the employees at the tax audit offices can still be reached by telephone, fax, e-mail or letter.
    • Companies that get into financial difficulties due to the corona pandemic should be given more time before they must file for insolvency. The Ministry of Justice is preparing a corresponding regulation.
    • The federal government is apparently planning a rescue package for self-employed and micro-entrepreneurs with up to ten employees who are affected by the consequences of the corona crisis. It intends to make a total of 40 billion euros available for this purpose. Ten billion euros of this is to be given as direct subsidies to distressed one-person businesses and micro-enterprises, the rest of 30 billion euros as loans.
    • The government of Lower Saxony (federal state we’re situated) is setting up a Corona aid programme for micro-enterprises with fewer than 10 employees and less than 2 million euros annual turnover is in progress: for 6 months, a grant of up to 100 million euros is to be made available. This liquidity subsidy should also benefit family businesses. The subsidies for individual companies will amount to up to 20,000 euros. The subsidy rate of 50 percent will remain. This means that the maximum subsidy amount of 20,000 euros can be called upon if the economic damage to the individual company is at least 40,000 euros. The total package is about 4.4 billion euros.
    • Hamburg is also putting together an aid package for companies and institutions. According to this package, small and medium-sized companies, freelancers and private operators of cultural facilities in particular are to receive support. Self-employed persons and small entrepreneurs are to receive subsidies of 2,500 euros for one-man businesses up to 25,000 euros for companies with 51 to 250 employees.
    • Other federal states to follow. Please contact us for specific requests by state.

VAT reduction

The German government decided on Wednesday evening, 3 June to reduce the VAT rates applicable from 1 January 2007 for goods and services supplied after 30 June 2020 and before the end of 31 December 2020 (hereinafter: change period). The standard tax rate is to be reduced from 19% to 16% and the reduced tax rate from 7% to 5%. The corresponding implementation is pending and can be expected. Read more here


Accounting implications

It is clear that German businesses will be affected by coronavirus, some in more severe ways that others. This will have accounting implications for the business. We’ve listed some of the implication we currently foresee:

  • Effects on risk and forecast reporting in the management report
  • Effects on the audit report and audit opinion
  • Effects on personnel (in Germany, payments to employees and subsidies from the Federal Employment Agency are not netted out (in contrast to international practice)
  • High recognition of tax liabilities due to deferral measures
  • Credit lines fully utilized (liquidity protection or loss financing)
  • Violation of all financial covenants (if necessary, short-term cancellation of loans by the banks)
  • Balance sheet over-indebtedness / imminent insolvency nevertheless no obligation to apply for insolvent status
  • High bad debt losses, high individual value adjustments
  • High provisions for severance payments in case of dismissals.
  • Impending loss provisions in the event of closure of branches without the possibility of terminating leasing, rental agreements etc.
  • Unscheduled impairments in inventories (unsalability of products, loss-free valuation, etc.)
  • Disclosure of advance payments received/made (in case of deliveries only against advance payment)
  • Impairment of financial assets in the event of permanent impairment (e.g. losses in subsidiaries)
  • Write-down of property, plant and equipment e.g. when production is discontinued (impairment of machinery, technical equipment, ships etc.)
  • Devaluation of assets under construction (if planned/started projects are not completed)

As the situation around the coronavirus pandemic evolves rapidly, we recognise the need for business to respond as promptly as possible and have the latest information at hand. To discuss any of the topics raised in this article or to find out the latest updates for German business owners or those doing business with Germany in more detail, please contact us.

By Lutz Meyer, HLB Germany

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