BAFA - Support for entrepreneurial know-how

A funding programme of the Federal Office of Economics and Export Control (BAFA) subsidises consultations of small and medium-sized enterprises in economic, but also financial, personnel and organisational subject areas. The programme called “Promotion of Entrepreneurial Know-How” is aimed in particular at companies in economic difficulties and provides them with a consulting grant for all questions concerning the restoration of performance and competitiveness.

The funding programme is initially aimed at companies based in the Federal Republic of Germany. Included are start-ups that are not older than two years, existing enterprises from the third year after foundation and enterprises that are in economic trouble – regardless of their enterprise age. The last mentioned must in addition to having their registered office in Germany fulfil the conditions of the guidelines on state aid for rescuing and restructuring non-financial undertakings in difficulty (2014/249/01), point 20(a) or point 20(b).

However, entrepreneurs or freelancers who carry out advisory or training economic activities and those for whom insolvency proceedings have been opened or who fulfil the requirements for this are not eligible to apply. Furthermore, such enterprises are excluded that are in a participation relationship with religious communities, legal persons under public law or their own enterprises and also non-profit enterprises. In addition, agricultural enterprises and those active in fishing and aquaculture are not eligible to apply.

The funding programme “Promotion of Entrepreneurial Know-How” covers various advisory areas, which are divided into general advisory services on all economic, financial, personnel and organisational issues of business management and many special advisory services.

This also includes advice on the subject of digitalisation and procedural documentation.

The special consultations include, among others, those enterprises that are run by women, migrants or migrant women, or by entrepreneurs with a recognised disability or enterprises that provide special support to people with disabilities or migrants. In addition, for example, special consultations are also possible for companies that contribute to gender equality and better compatibility of family and work or especially to sustainability and environmental protection.

Enterprises in difficulty receive subsidies for counselling for business security counselling to restore economic performance and competitiveness and can also take advantage of further general follow-up counselling.

While young enterprises and enterprises in difficulty can claim the subsidies over the entire subsidy period of 6 months, the subsidy for existing enterprises is limited to a maximum of five consulting days.

The amount of funding depends on the type of company and the respective region. Start-ups receive a subsidy rate of 50%-80% depending on the region, with an assessment basis of 4,000 euros. The same applies to existing companies, whereby the assessment basis here is 3,000 euros. Unternehmen in Schwierigkeiten erhalten unabhängig vom Standort einen Fördersatz von 90% bei einer Bemessungsgrundlage von 3.000 Euro.

Advisory services under the funding programme are provided by self-employed advisors or by advisory firms that generate their predominant turnover through advisory services. In addition to the approval in the funding procedure, they have to provide a certain proof of quality in order to ensure that the counselling is carried out in accordance with the guidelines.

Before submitting an application, start-ups and companies in difficulty must have had an informational interview with a regional person of contact, which is free of charge for them. This requirement does not exist for existing companies. The application must be submitted via BAFA’s online application platform no later than three months after this interview. After receiving an information letter, certain documents must be submitted until finally the registration and, after approval, the payment of the grant can take place.
Please do not hesitate to contact us if you have any questions. We will keep you informed on this topic!

Funding innovative projects - the Research Allowance Act

In order to support innovative companies in research and development projects, the Federal Government passed the Research Grants Act (FZulG) on 14 December 2019. Since 01.01.2020, small and medium-sized enterprises in particular can be supported in this way.
After the application for funding has been submitted to the Bescheinigungsstelle Forschungszulage (BSFZ), the content of the project is reviewed; in particular with regard to the funding criteria. As soon as a positive assessment has been made, the allowance can then be applied for at the competent tax office. However, this application can only be made after the end of a business year from the time the eligible expenses are incurred.

What criteria must a project fulfil in order to be funded?

The Research Grants Act applies to every taxable company – regardless of size, industry or age. This means that both companies that are already established on the market and start-ups that have just been founded can be supported.
In terms of content, the project must contribute to basic research, industrial research or experimental development. Furthermore, the research project must aim to gain new knowledge. To this end, it should not make use of already established hypotheses and concepts, but be based on new, original hypotheses. In this respect, the final result should not be obvious from the first glance at the working papers, but should be deliberately uncertain. In order for the research to show eligible added value, it must also be possible to repeat the result of the project or transfer it to other experiments or findings.
Finally, the federal government expects a certain systematic approach and planning of the project. Thus, the economic, scientific and technical tasks should be clearly defined and lead to defined goals. The analysis of results must also be evaluated on the basis of methodological principles.

What does the funding look like in concrete terms?

Currently and until 30.06.2026, the maximum amount of the tax base is 4 million euros. Of the individually determined assessment basis, 25% is then reimbursed as an allowance. Thus, up to one million euros can currently be paid out. Since there are no deadlines and the programme budget is not limited, even projects that have already started can be funded retroactively. Similarly, projects that are just starting can apply for a grant now.


Access to funding under the Research Grants Act is comparatively simple. The application to the BSFZ is fully electronic and requires only moderate effort in terms of the information to be provided. In the absence of a competitive process or programme budget cap, a relatively large number of companies can be subsidised. Furthermore, the funding programme of the Research Grants Act offers a great advantage over other funding programmes: There is no obligation on the part of the funded company to publish the results or to allow advantages in the use of the results.
If you still have unanswered questions about the programme or possible eligibility to apply, we will be happy to advise you.

Supply Chain Act

Supply Chain Act

With the aim of reducing child labour and starvation wages abroad, the responsible ministries (Federal Ministry of Labour, Federal Ministry of Development and Federal Ministry of Economics) have recently agreed on a joint draft bill. Accordingly, a new supply chain law is to be passed before the end of this legislative period, which will oblige German companies to comply with minimum ecological and social standards vis-à-vis foreign suppliers. In this way, human rights are to be enforced with the respective suppliers abroad. Although the companies are not supposed to be civilly liable for this – this would result in lawsuits worth billions – violations of the Supply Chain Act could result in a fine and exclusion from tenders for up to three years.
A mandatory regulation in the form of a law seemed necessary, as the companies concerned have so far at best committed themselves to complying with certain standards, but a large proportion of the companies have not adhered to these obligations.
The draft provides for a step-by-step plan for responsibility on the path from end product to raw product, which is to become mandatory for large companies first. In the case of merely indirect suppliers, the company only has to take action if it becomes positively aware of human rights violations. Those affected by the human rights violations are then to receive legal protection in German courts through trade unions and non-governmental organisations (NGOs). According to the draft bill, this requires the violation of “paramount legal positions”. The new regulations are to apply from 01.01.2023 to those companies that have more than 3,000 employees, and from 2024 the regulations are also to apply to companies with more than 1,000 employees.
The introduction of such a supply chain law remains highly controversial. The Ministry of Economics, for example, called for a softening of the regulations for small entrepreneurs, who should not be overburdened. Criticism also comes from entrepreneurs who fear that Germany will be jeopardised as a business location. Some call for regulation at European level or within the framework of the G20. Volkswagen alone, with 40,000 suppliers worldwide, is very strongly affected by the new regulations.
Likewise, despite the already existing draft bill, there is still dispute within the federal government. In a letter from Ulrich Nußbaum, State Secretary at the Federal Ministry of Economics, to Björn Böhning, Federal Ministry of Labour, Nußbaum objected to the procedure regarding departmental coordination and refused to give his consent regarding the publication of the draft on the Ministry’s homepage. The draft does not correspond to the agreements, so that an adjustment is imperative.
It therefore remains to be seen how the situation in dispute will develop. We will keep you up to date on this.

ESOP - Reform / Fund Status Act

Improving of staff shareholding?

ESOP Reform / Fund Status Act: Improving Staff Ownership?

Compared to the international competition, Germany is far behind in terms of Staff Ownership opportunities. This is mainly due to the restrictive tax treatment. Those who nevertheless decide to involve their employees must resort to complex constructs such as “virtual employee options” (VSOPs), phantom shares or stock appreciation rights. After years of experts and start-ups drawing attention to this problem, the federal government has now decided to simplify the employee status with the draft of the so-called “Fund Location Act”.

Wie funktionieren Mitarbeiterbeteiligungen überhaupt?

Staff Ownership is essentially profit-sharing and serves as an incentive to recruit skilled workers. In the event of an IPO or exit of the start-up, the employees are then paid their shareholdings in the company.

What are the current complaints?

The main problem is the so-called dry-income problem. This concerns the taxation point at the time of allocation of concessionary shares or options. In principle, tax is already due at the time of allocation, i.e. before the (virtual) business share could bring in any money at all. This is problematic because before an exit, often neither the company nor the employee has sufficient funds to offset the short-term tax burden.

What should change now?

In particular, with regard to the dry income problem, the tax on the allocation of (virtual) shares should be able to be postponed into the future for the first time. According to the draft bill, the prerequisite for this is that the shares are genuine business shares, i.e. they are not merely options, and that the company is an SME, i.e. it employs fewer than 250 people, for example, and is not older than ten years.

Criticism of the draft

Although the planned reform leads to an improvement in some areas, it does not solve all the problems of Staff Ownership in Germany. On the one hand, the requirement that it must be an SME already excludes many “grow-ups” – an area in which Germany is already behind the international competition. On the other hand, the allocation of real shares is not unproblematic, so that many start-ups are likely to fail because of this requirement. In addition, the planned draft bill provides that the tax burden can be deferred for a maximum of 10 years from the time the shares are awarded. Statistically, however, many start-ups take longer than 10 years to exit; consequently, they also benefit only to a limited extent from the new regulation. In the worst case, this time limit of 10 years can even lead to successful start-ups being pushed into the exit phase too early.

Finally, the draft bill ties the possibility of deferring the tax burden into the future to remaining in the company. However, this practically leads to employees being forced to stay in a company because of taxes that would otherwise be incurred. This is precisely not the case with the VSOP solutions currently used under the law of obligations. Despite the planned draft bill, a departure from this seems unlikely in practice for this very reason.

Finance Minister Scholz plans to bring the new rules into force on 1 July 2021. Representatives of start-ups, however, are first demanding an amendment to the draft. Wir verfolgen die Entwicklungen und halten Sie auf dem Laufenden!

Corona-related reduction in commercial space rent

On 01.01.2021, a new law came into force in which the widely discussed and controversial issue of rent adjustments for commercial premises that could not be used due to an official order is now regulated. The new provision in Art. 240, § 7 of the Introductory Act to the German Civil Code (EGBGB) contains a statutory presumption on the disturbance of the basis of the contract pursuant to § 313 BGB. If the conditions are met, this can justify an adjustment of the contract or, if the latter is not possible, even grounds for termination.

The consequences of the officially ordered closures in the context of the Covid 19 pandemic were previously very contentious and handled differently. Often, the respective tenants were able to agree on amicable solutions. However, where this was not possible, the courts ruled and came to different conclusions. While the Regional Court of Heidelberg in a judgment of 30 July 2020 (Case No. 5 O 66/20) argued against an adjustment because the risk of the use of the leased property lay with the tenant, the Regional Court of Munich I in a judgment of 22 September 2020 (Case No. 3 O 4495/20) held that an adjustment of the rent was necessary and required. Some courts considered the regulations in the Covid 19 Pandemic Effects Act as final special regulations, so that the general statutory regulations would not apply. With regard to terminations of rented premises, this law provides for a twofold exclusion of the possibility of termination.

The new provision of Art. 240, § 7 EGBGB is now intended to create a basically uniform solution to this problem. Accordingly, it is statutorily presumed that in the case of officially ordered closures due to the Corona pandemic, which significantly restrict the use of the commercial leased premises, a circumstance within the meaning of section 313 para. 1 BGB exists, which has become the basis of the contract and has later changed seriously and unforeseeably. This allows for a legal claim to adjust the contract and thus, for example, to reduce the rent. For this purpose, it must be shown in each case that the parties would not have concluded a contract with the same content if they had been aware of these circumstances and that it would be unreasonable for them to adhere to the contract. The unreasonableness can be demonstrated, for example, by the existence of considerable turnover losses and the lack of compensation through state aid.

As a result, the contract may be adjusted and otherwise, should an adjustment not be possible, on the basis of section 313 para. 3 BGB may even be terminated. An adjustment can be made in various ways, for example, in addition to a reduction of the rent, a deferment or other arrangements left to the parties themselves. The regulation also applies accordingly to lease agreements.
Normalerweise liegen die Voraussetzungen des § 313 Abs. 1 BGB only exists in special exceptional cases – accordingly, the existence of a circumstance within the meaning of § 313 para. 1 BGB has been very controversial so far. Although the new regulation does not mean security of tenure for either tenant, the uncertainties that existed in case law have been eliminated and the negotiating positions of commercial tenants have been strengthened. In essence, however, the generally applicable principles were affected neither with regard to the disturbance of the basis of the contract nor with regard to tenancy law. Ultimately, the factual and thus the legal situation can therefore still vary in individual cases and requires a weighing of the respective interests.

For example, in a judgement of 12 February 2021 (Case No. 31 O 11516/20), the LG München I ruled that in the case of the department stores’ chain C&A there was no unreasonableness within the meaning of Section 313 of the German Civil Code (BGB), with the consequence that the full rent was to be paid despite the closure measures due to the pandemic.
According to the court, it was reasonable for the tenant “in general and also on the basis of the results from the previous three business years” to form reserves. The court came to this conclusion despite a decline in turnover at C&A of about 80 per cent. When examining the reasonableness, the court used the turnover of the specific branch as a basis for the distribution of risk, without including other branches. In addition, state aid (e.g. short-time allowance) as well as the turnover generated by the online shop should also be taken into account in the assessment. Although the prerequisites for a disturbance of the basis of the contract according to § 313 of the German Civil Code (Bürgerliches Gesetzbuch – BGB) were in principle met, the court was of the opinion that the circumstances of the individual case could not lead to an adjustment of the obligation to pay rent. Rather, “only that legal consequence may be sought which gives appropriate weight to the interests of both contracting parties worthy of protection”. Moreover, in this case there was no right to reduce the rent according to the general tenancy law, as there was no defect that nullified the use according to the contract within the meaning of § 536 (1). 1 of the German Civil Code (BGB). Furthermore, there was no impossibility and the suitability of the rental object had also not ceased to exist during the period in question.

The tenant is even obliged to form reserves to an appropriate and reasonable extent, according to the LG München I in its judgement of 25 January 2021 (Case No. 31 O 7743/20). This obligation resulted from the tenant’s liability for his own solvency irrespective of fault. The circumstance of the pandemic does not change this, as it quickly depletes reserves. It is true that state aid can be lower precisely because of reserves, but this is also irrelevant, since there is no need for financial aid if there are sufficient reserves.

In view of the fact that both parties were equally exposed to the economic risk of usability, the court stated that a ratio of 50:50 was appropriate with regard to the distribution of risk. Nevertheless, the circumstances of the individual case had to be taken into account appropriately within the framework of a balancing of interests.

In this context, the newly introduced Article 240 § 7 EGBGB only had a clarification function. The claim for adjustment of the contract under section 313 BGB did not necessarily require a threat to existence. Rather, the conflicting interests must be weighed against each other, so that certain circumstances of the individual case can justify exceptions. That was the case here.

In addition, the Introductory Act to the Code of Civil Procedure (EGZPO) also contains a new regulation. Pursuant to section 44 EGZPO, there is a prohibition of priority and acceleration in proceedings concerning an adjustment of the rent for commercial rented premises based on the above-mentioned regulations. On the basis of this, the early first date should take place at the latest after the expiry of one month after service of the statement of claim.

In particular, the new regulations are also retroactively applicable to all periods from April 2020 onwards, even if there were already restrictions on the use of the tenancy at that time due to orders issued by the authorities.

The applicability to new contracts, however, is likely to be more difficult, as the parties are regularly already aware of the risk of the pandemic when concluding the contract. It is therefore advisable for landlords to include a standard “corona clause” in the contracts. This can ensure the necessary flexibility in the event of a dispute.
We will be happy to advise you further on this topic. Contact us!

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