Companies in Difficulty & Forschungszulage: Rules

Being classified as a "company in difficulty" under EU state aid law has a direct impact on eligibility for the Forschungszulage. Under Article 1(4)(c) of the General Block Exemption Regulation (AGVO), state aid to companies in difficulty is generally not permitted.

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