Companies in Difficulty & Forschungszulage: Rules

Decision Diagram

A clear diagram to help determine whether a company qualifies as a company in difficulty and what impact this has on eligibility.

graph LR
    A[Assessment: Company in Difficulty for Year X] --> B{Insolvency proceedings?}
    B -- Yes --> C[UiS: not eligible]
    B -- No --> D{Rescue/restructuring aid?}
    D -- Yes --> C
    D -- No --> E{Capital loss > 50%?}
    E -- Yes --> F{KMU < 3 years?}
    F -- Yes --> G{High debt & low interest coverage?}
    F -- No --> H[Potentially UiS]
    E -- No --> G
    G -- Yes --> I{Is KMU?}
    I -- Yes --> J[Not UiS: eligible]
    I -- No --> H
    G -- No --> J
    H --> K{COVID exception applicable?}
    K -- Yes --> L[UiS: eligible nonetheless]
    K -- No --> C

Exclusion Criteria

A company is considered a company in difficulty under the following circumstances and is therefore (subject to the exceptions below) excluded from the Forschungszulage:

1. Insolvency proceedings:

• Insolvency proceedings have been opened against the company
• The company already meets the requirements under national law for the opening of insolvency proceedings at the request of its creditors

2. Corporations (e.g. GmbH, AG, KGaA) with capital loss:

• More than half of the subscribed share capital has been lost as a result of accumulated losses
• The decisive factor is the ratio of reserves/equity to cumulative losses

3. Partnerships (e.g. KG, OHG) with capital loss:

• More than half of the equity shown in the company's books has been lost as a result of accumulated losses

4. Ongoing rescue or restructuring aid:

• The company has received rescue or restructuring aid that has not yet been repaid
• A restructuring plan connected to such aid is still ongoing

5. High debt and poor profitability (does NOT apply to KMU):

• These criteria apply only to companies that are not Small and Medium-sized Enterprises (KMU)
• Both of the following conditions must be met in the last two completed financial years:
  • The book-value-based debt-to-equity ratio exceeds 7.5
  • The interest coverage ratio calculated on the basis of EBITDA is below 1.0

Exceptions

Despite these strict criteria, there are important exceptions and circumstances that can still allow funding:

• Young KMU (start-ups): Small and Medium-sized Enterprises that are less than three years old are exempt from the rules regarding the loss of share capital or equity
• KMU in general: KMU are generally exempt from the rule regarding high debt and poor interest coverage
• COVID-19 special provision: Companies that were not a company in difficulty on 31 December 2019, but became one between 1 January 2020 and 30 June 2021, may still receive aid

Recommendation

First point of contact: Tax adviser

• Discuss the situation with your tax adviser
• They can provide a well-founded assessment based on the official criteria
• This is the most important step to minimise the risk of a later rejection

Final authority: Tax office

• Note that the tax office makes the final decision
• Prior clarification with a tax adviser helps to assess the application process realistically
• Relying solely on the review by the tax office carries the risk of wasted time and resources

If it is unclear whether your company falls under the definition, settle that before applying. Forschungszulage consulting gives you an initial assessment based on the figures, subject to review. Your tax advisor carries out the final check.