Proper use of COVID19 emergency grant-in-aid in Germany

A. Tax classification of COVID19 grants
The COVID19 emergency grants-in-aid from the German federal and state governments are taxable grants and must, therefore, be treated as operating income. Accordingly, they must be recognized in the determination of income as other operating income; as real subsidies, they are not subject to VAT.
B. Correct use of the COVID19 grants:
I. Check for eligibility:
1) Requirements for ALL grants (from the federal and state governments in Germany):

• the professional activity is the main source of income AND
• the applicant is actually in an existence-threatening economic situationdue to the effects of the COVID19 epidemic.
  Partially self-employed persons such as employees, civil servants, pensioners, students, etc. cannot apply for the grants. Similarly, companies that were already in economic difficulties before the outbreak of the COVID19 epidemic are not eligible to apply.

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2) Correct use of the grants:

• Federal state grants in Berlin (EUR 5,000.00) can be used for operational material costs and financial expenses, personnel costs and health insurance costs. This includes the salary and the health insurance costs of the owner(s) of the company. Operational material costs are operating expenses such as rent, leasing, telephone costs. Financial expenses are interest and repayment of current loans.
• Federal grants in Germany
  for companies with up to 5 employees up to EUR 9,000.00 for 3 months or for companies with up to 10 employees up to EUR 15,000.00 for 3 months
  (VZÄ = FTE, full-time equivalent: all staff - including trainees and part-time employees - must be calculated into full-time positions)
  can only be used for current business expenses such as rents, loans for business premises, leasing rates, but not for personnel costs. Short-time working allowance is provided for the personnel cost support of these companies. Salaries and health insurance costs for managing directors are not to be paid out of these grants.

II. Verification management of the use of the grants (proof of use of funds)
Although it is not yet clear when and how the use of the grants will be examined, future control has already been announced, most likely to be performed by the tax authorities. For this period, proficient accounting will be particularly important and valuable to avoid the need for additional documentation. Proficient bookkeeping allows a third party to recognize the validity of the supporting documents by means of precise booking text details.
III. Correction options in cases of misuse of grants
Excessively requested grants constitute the criminal offence of subsidy fraud. Entrepreneurs should NOW check whether subsidies have been properly applied for and received in the correct amount; otherwise, they have the opportunity NOW to return excessively requested funds to the grant providers (IBB, etc.). It is sufficient to enter the assessment number and the word “Ueberzahlung” (overpayment) in the purpose line of the bank transfer. The assessment number is to be found in the approval email of the grant donor.

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