Alongside the dramatic effects of infections, deaths and the overload of public health systems on society, the coronavirus outbreak is already having a severe impact on the economy. This prompted the governments of the most affected countries to announce extraordinary measures to sustain businesses in overcoming the emergency.

Financial aid to businesses in Germany (and abroad)

One of the first emergency measures to be adopted by the German government is a set of business loans granted by the Kreditanstalt für den Wiederaufbau (KfW), Germany’s state-owned development bank, through cooperating banks. Technically, the conditions of some of the pre-existing loan schemes of KfW have been considerably eased up in order to be available to a greater audience. These programs are run through standard banks, which means that the respective application must be filed through them, which then cooperate with KfW in granting the loan. And here’s where one of the most decisive measures has been taken in light of the coronavirus emergency: KfW increased the indemnification of financing banks up to 80%. That is: in case of the borrower’s default KfW covers up to 80% of the bank’s loss, thereby making it decidedly less risky for banks to approve the loan.

The loan schemes

KfW has three loan schemes intended for established businesses (“business loan”), for startups (“startup loan”) and for growth (“loan for growth”). Note that both the business and the startup loans are available to companies and individuals, such as free-lance professionals or sole traders.

KfW-Unternehmerkredit (KfW business loan)

If you’ve already been on the market for more than 5 years, this is what you should look for. KfW lends up to 25 million EUR (and 100% of the total investment, i.e. borrowers are not expected to invest any own resources) at extremely favourable interest rates starting from 1% p.a. over a minimum term of 2 years. Costs covered by the loan include: investments in material and immaterial assets (machines, software, infrastructure, means of work, patents, licenses), office spaces, vehicles, operating resources (e.g. personnel costs, marketing measures, liquidity, consultancy etc.).

This programm is available to:

in Germany: national or foreign companies or self-employed individuals active on the German market since more than 5 years
abroad: foreign subsidiaries of German companies (or joint-ventures with a considerable German participation) for their activity in a foreign market

KfW-Gründerkredit (KfW startup loan)

The startup-version of the loan is basically equivalent to the above-mentioned business loan, with some peculiarities. First and foremost, it’s available to:

in Germany:
- founders (“Existenzgründer”), also in case of takeover of a pre-existing business (“Unternehmensnachfolger”)
- self-employed
- SMEs active on the German market since less than 5 years
abroad: foreign subsidiaries of German companies (or joint-ventures with a considerable German participation) for their activity in a foreign market

Interest rates for loans in this category depend on various criteria and are finally agreed upon with the relevant bank.

KfW-Kredit für Wachstum (KfW loan for growth)

This is a different kind of loan that, unlike the other two, is thematically focussed on innovation and digitalisation. Several development projects, measures, investments and costs in these areas are covered by the loan, but it cannot be used to cover general and non innovation- or digitalisation-related expenditure (although: even this requirement has been somewhat softened-up given the current emergency).

This program is available to:

national and foreign companies with a yearly turnover up to 2 billion EUR

How to get it

All loand must be applied for through one of the participating regular banks (commercial banks, cooperatives, savings banks), which include all most common German banks, such as Deutsche Bank, Sparkasse, Volksbank, Commerzbank etc.
Three days ago Germany’s Finance Minister Olaf Scholz declared that the government is willing to grant unlimited loans to companies and that applications for financial aid will be “approved a priori” - one more reason to give it a try!

This question is an all-time favourite of many foreign entrepreneurs planning to hire personnel in Germany. And you’ll be surprised to learn that the answer is: no!

There are a couple of options if you plan to expand your business to Germany and need to hire employees there. Each of them has its implications, therefore you should consider carefully which one is most suitable for your purposes.

Incorporating a company

Incorporating a company – and by that we mean limited liability or stock companies (i.e. GmbH & UG, AG, KGA) – means creating a completely new and completely German entity. No matter where the shareholders come from (they might be foreign or German natural or legal persons), the company is going to be just as any other German company: this means it can, inter alia, hire employees freely.

Of course, a company is much more than just a way to hire employees: it can close any kind of contract, may create revenue and get taxed independently, must be provided with an own capital, is subject to standard bookkeeping duties etc. etc.

Therefore, if you actually plan to extend your activity in Germany and/or Europe at least in a mid-term perspective, incorporating a company would mostly be the best choice. In particular, thanks to the limitation of liability, business done by the German entity in principle does not reflect on the shareholders. This means: if your expansion on the German market eventually fails and the German entity is indebted, those debts do not transfer to the foreign entity that might be the German company’s controlling shareholder.

On the other hand, incorporating a company has some fixed costs and requires an investment in terms of share capital. Also, once you should decide to abandon the German market, you will need to go through a formal liquidation process to shut down the company.

Setting up an independent branch

This expression is kind of misleading: in fact, “independent” branches are not really independent. Instead, they serve as a German office of a foreign company. As such, they are listed in the German commercial registry and can hire employees or close any other type of contract.

Independent branches can be set up pretty easily and do not need a major investment, since they don’t have to be provided with a share capital. Similarly, they can be closed easily simply by applying for erasure from the commercial registry. In terms of bookkeeping and taxation, there is no huge difference between a branch and a company.

However, unlike a proper “company”, branches are no legal entity of their own: they are just an appendix of a foreign company. This means any kind of liabilities incurred by the branch directly reflects on the foreign company’s assets. Imagine your expansion in the German market proves harder than expected: any losses or damages resulting thereof will affect your foreign company directly.

Also: consider that setting up and maintaining an independent branch involves a considerable effort in terms of bureaucracy, especially regarding sworn translations of records and documents referring to the foreign “mother” entity.

Do “nothing”

Sometimes the effort of setting up a company or an independent branch seems simply exaggerated for your purposes. Imagine you only need to hire an employee working from remote, for instance a developer, who by coincidence is based in Germany. You certainly wouldn’t want to set up a company in Germany just to hire him – unless you plan to enter the German market in general.

In such cases, you could hire the employee as a foreign entity directly. To do this, you will basically register with the German Employment Agency. This scenario has some implications in terms of taxation since taxes and welfare contributions that usually get deducted directly from an employee’s salary by their German employers need to be charged on the employee. For this reason, you’ll have to pay the employee also those contribution and taxes.

Also, as soon as you hire an office or desk for this employee to work for you or a warehouse to store stock, you will be subjected to German taxation as a company (or as an employer, more in general), for the part of revenue created in Germany. This because German authorities will consider you to have a permanent establishment in Germany. If, instead, the employee would work from home or from any other place of his/her choice, things might look differently.

Need to learn more? Feel free to contact us!

Financial aid against Corona