Luxembourg law set to establish an aid scheme for enterprises due to the COVID-19 emergency

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Luxembourg law set to establish an aid scheme for enterprises in temporary financial difficulty due to the COVID-19 emergency

2 April 2020

Luxembourg Tax Alert

On 13 March 2020, in response to the current COVID-19 emergency, the Luxembourg government introduced a draft law (Draft Law n. 7532) seeking to provide an aid scheme for companies in temporary financial difficulty.

The scheme was authorized by the EU Commission on 24 March 2020 to support the economy in the wake of the COVID-19 outbreak and was put to a vote on 31 March 2020.

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Scope of the new aid scheme

In consideration of the magnitude of the COVID-19 pandemic, the Luxembourg government has decided to extend to all undertakings in temporary financial difficulty an aid scheme initially provided only for small and medium-sized enterprises (SMEs1). The latest amendments take account of exchanges with the European Commission which aimed at increasing the available amount for the scheme.

However, certain sectors of activity are excluded from the scope of the aid, such as fisheries and the primary production of agricultural products. Moreover, only enterprises that were carrying out an economic activity before the outbreak can benefit from the aid.

In addition, the law extends the measures to individuals exercising an independent activity as well as independent professional artists and performers.
 

Aid for enterprises in temporary financial difficulty

The law lays down four conditions to be met in order to benefit from the new aid scheme:

  • An unforeseeable event (any exceptional circumstances, or any set of circumstances, national or international in scope) must be officially recognized by Grand Ducal decree as having a detrimental impact on the economic activity of certain enterprises during a given period of time. For example, acts of terrorism, epidemics, or volcanic eruptions may fall under the definition of an unforeseeable event
  • The enterprise is facing temporary financial difficulties, such as liquidity problems which jeopardize the continuity of their business
  • The enterprise was already carrying out its economic activity before the unforeseeable event
  • The enterprise must demonstrate a direct causal link between the consequences of the unforeseeable event and temporary financial difficulties.

A company that meets the above conditions will be eligible for aid to cover its staff costs and rent charges for the months falling within the period determined by the Grand Ducal decree. Income from the exercise of a professional activity carried out as a self-employed person is assimilated to personnel costs provided that the person concerned is affiliated in accordance with the provisions of the Social Security Code. These costs are capped at an amount equivalent to 2.5 times the minimum social wage, per person concerned.

The rent charges are capped at EUR10,000 per month and per single company as defined by the law.

The maximum amount of aid may be up to 50 percent of the eligible costs and the total amount of aid cannot exceed the maximum aid amount of EUR500,000 per single enterprise.

The request for this aid must be submitted to the Minister in writing no later than 15 August 2020 and must include:

  • The name of the applicant company
  • Evidence that the company is experiencing temporary financial difficulties, that it was operating before the unforeseeable event, and that there is a causal link between the unforeseeable event and the temporary financial difficulties encountered
  • The size of the company
  • The annual accounts for the last closed fiscal year, together with supporting documents of staff costs and rental charges. Otherwise, any other financial data available, such as double-entry accounting or tax returns
  • A recovery plan, including documentation demonstrating a direct causal link between the unforeseeable event and the temporary financial difficulty
  • A statement that there are no convictions for illegal employment
  • Any other relevant material that will enable the Minister to assess the request for aid.

The aid can only take the form of a repayable advance. Repayment of the aid shall not begin until 12 months after the first payment of the advance received, unless otherwise requested by the enterprise. Repayment of the advance is made on the basis of a negotiated repayment plan which takes account of the result achieved by the enterprise during the tax year in which the aid was granted and in subsequent tax years. The repayment will bear a discount rate applicable at the time the aid was granted.

This aid may not be cumulated for the same eligible costs with other aids, to the extent that such accumulation results in exceeding the most favorable maximum amount of aid provided for under the applicable schemes.

In term of legislative process, the State Council should grant the exemption of the second vote (expected on Friday 3 April). The text should then be published in the Official Gazette.

Deloitte Luxembourg remains available to review and/or prepare any request falling within the above scope. Please feel free to contact us.

1 The category of micro, small and medium-sized enterprises (‘SMEs’) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR50 million, and/or an annual balance sheet total not exceeding EUR43 million.

Contacts

Bernard David
Partner – International Tax Leader
Tel : +352 45145 2799
bdavid@deloitte.lu

Raymond Krawczykowski
Partner – Tax Business Leader
Tel : +352 45145 2500
rkrawczykowski@deloitte.lu

Christophe De Sutter
Partner – Consumer / ER&I Leader
Tel : +352 45145 3503
cdesutter@deloitte.lu

Thierry Bovier
Partner – International Tax
Tel: +352 45145 4079
tbovier@deloitte.lu

Ilaria Palieri
Director – Tax
Tel : +352 45145 2886
ipalieri@deloitte.lu

 

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