1. The European Commission response to the COVID-19 2020 crisis
Since COVID-19 was classified as a global threat back in December 2019, the European Commission developed a common European response to reinforce the Member States’ public health sector and to mitigate the social-economic impact due the outbreak.
At the beginning of 2020, the EU provided an effective support to the national healthcare systems, covering expenses for essential medical equipment or maintaining affordable healthcare costs. Thereafter, in March of this year, the EU put together a funding package of almost 350 million Euros at disposal of the European Member States funds needed to repatriate EU national citizens, with the Eastern countries being specifically assisted.
On 27th March 2020 the European Commission launched an additional funding scheme of 300 million Euros in favor of the State of Luxembourg, based on the “State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak”. The main objective of the scheme was to support companies economically affected by the coronavirus outbreak. The most relevant measure implemented by Luxembourg were:
· Direct grants, selective tax advantages and advance payments to support urgent liquidity needs for EU companies
· State guarantees for loans taken by companies from banks, to ensure banks provide loans to businesses
· Subsidized public loans to companies granted at a favorable interest rate
· Safeguards for banks that channel State aid to the real economy
· Short-term export credit insurance
In April 2020 and the following months, other measures to reduce the COVID-19 economic impact were released, for example the Commission reduced taxation burdens related to medical equipment. More specifically, the European Commission decided to give relief from import duties and to grant VAT exemption on import related to goods needed to combat the effects of the COVID-19 outbreak. Thereafter the Commission approved all requests from the Member States and the UK, to temporarily waive customs duties and VAT on the import of medical devices and protective equipment shipped from third countries.
Finally, on, 27th of May the European Commission published the “Financing the Recovery plan for Europe”, which basically stated that the Commission will raise funds in order to borrow from market investors of up to 750 billion Euros from 2020 up to 2024. The plan aims to repair the economic and social damages caused by the virus, boosting Member States investments and reforms (i.e. green and digital national economies, unemployment of EU residents) and stimulating the Member States’ economies, providing solvency support for companies and incentivizing private investments.
The European Commission allowed each Member State to activate internally additional measures to support their local economy and sectors particularly impacted by the outbreak, allowing for example temporary tax reductions, deferred cross-border arrangements and making financial resources available especially to small-medium businesses. In the communication of 20th of March 2020 on the activation of the general escape clause of the “Stability and Growth Pact”, the European Commission formally declared that in response to the current situation, the Member States were granted “the full flexibility available in the Stability and Growth Pact […] for the measures linked to the outbreak of COVID-19” therefore to accept “coordinated and orderly temporary deviation from the normal requirements […] in a situation of generalized crisis caused by a severe economic downturn of the euro area or the EU as a whole”
Consequently each Member States developed temporary facilitations to resident businesses as:
· Deferrals of income tax payable, corporate tax and trade taxes
· A possibility to reduce or postpone advance tax payments (both indirect and direct tax)
· Enforcement measures and late-payment penalties waived till the end of 2020
· Reduction of the trade tax base for purposes of advance payments
· VAT rate reductions
Considering therefore both the support given by the European Commission and the concrete opportunity for each Member State to take further actions to face the current crisis, an analysis is carried out in the following chapter on the Luxembourg government response to the Coronavirus crisis, particularly from the perspective of small-medium enterprises (hereafter SME).
2. The support of the State of Luxembourg to SME in response to the Covid-19 crisis
In 2019, the Ministry of Finance published the Budget 2020 which basically had as the primary objective for the following year that of engaging investments for an overall amount of 500 million Euros on climate and citizen protection. These investments allowed the development of new infrastructure with a consequent improvement of the daily lives of the residents of the Grand Duchy. The two main financial sources that made these investments possible represent collections from direct and indirect taxes, therefore resident and foreign businesses.
In April, on the occasion of the “2020 Stability and Growth Program (SGP)” the Ministry of Finance and the Ministry of the Interior confirmed that the objectives of the Budget 2020 will remain the same. The Minister of the Interior, Taina Bofferding declared on 20th of July 2020 "Investments by the public sector, State and municipalities, must continue in order to stimulate economic recovery and contribute to the development of our society. Through subsidies linked to concrete projects […], we encourage the municipalities to maintain and pursue their planned projects”.
Nevertheless, the State of Luxembourg published additional measures aimed to assist Small - Medium Enterprises (hereafter “SME”). These measures will be analyzed in the following paragraphs.
2.1 Re-launch of SMEs activities Post-Covid crisis
The Ministry of the Economy has set up a program called "Fit 4 Resilience" which consists in consulting services made available by expert to SME residents in Luxembourg, in order to analyze the overall economic impact that the COVID-19 crisis had on their businesses and to implement new solutions, as the digitalization of current processes (i.e. internal communications) and business structure lines (i.e. supply chains solutions), provided that they meet the requirements needed to benefit from this program.
It has to be noted that the undertaker will still need to pay 50 % of the cost related to those consulting services.
2.2 Supporting SMEs in immediate cash flows need
The State of Luxembourg grants financial assistance mainly through three proceedings:
1. Repayable advances in support to businesses that are in temporary financial difficulty, as result of the COVID-19 crisis (after 1st January 2020). The aid consists in a repayable advance amount that will be paid in a single instalment. This aid is available for commercial, craft or industrial businesses and to natural/legal persons established in Luxembourg conducting a professional eligible activity (i.e. inventors, consultant experts), however this will not benefit businesses operating in the primary sector and in agriculture.
2. Recovery fund (fonds de relance et de solidarité) in support of specific sectors (i.e. tourism) to discourage the dismissal of company employees. Only businesses that carry out one of the eligible activities as published by the Luxembourg Government and that had a considerable decrease in their annual turnover, can apply. Generally, the aid will be calculated based on the number of workers and will be usually around 1,250 Euros for each employee.
3. Aid for small-medium in-store retail businesses that have been seriously damaged by the crisis (i.e. have suffered a loss in turnover of at least 50 % between 15 March 2020 and 15 May 2020). The aid consists in a direct non-repayable financial payment which amounts to between 500-1,000 Euros per employee. Even in this case, the main purposes of this measure is to avoid the dismissal of retail staff .
The State of Luxembourg will guarantee up to 85 % of new bank loans granted to businesses that will request an amount not exceeding 25 % of their annual turnover and for a maximum period of 6 years. The eligibility to apply for a loan under this scheme will be analyzed on a case by case basis and banks granting these loans will be any of the following - BCEE, BIL, Banque de Luxembourg, Banque Raiffeisen, BGL BNP Paribas, ING, Bank of China, BCP.
Moreover businesses which have a business permit in Luxembourg can obtain a loan from the SNCI (Société Nationale de Crédit et d’Investissement) that has put in place the “Special Anti-Crisis Financing – SACF” aid. The amount of SACF loans (financed by the SNCI) can vary between 12,500 Euros and 10 million Euros and depending on the size and financial situation of the underwriter.
2.4 Employment assistance
The State of Luxembourg is engaged in several measures in support of employees which are currently working and residing in Luxembourg.
For example, the state will continue to pay the compensatory allowance of 80 % of the current salary for part time workers. The companies that can benefit from this scheme are typically vulnerable businesses that cannot any longer ensure their normal operations, and that are involved in the industrial, HORECA, tourism, events and others sectors, providing there are no redundancies.
Specific measures for third-country nationals currently residing in Luxembourg are available as well, as they can apply for a residence permit after six months instead of three. Other measures are applicable for job seekers and for residents that benefit from unemployment assistance, which will have extended the duration of their unemployment benefits.
2.5 Tax deadlines postponement
The State of Luxembourg will grant the following cancellations/extensions for tax deadlines concerning both local and foreign taxpayers:
1. Cancellation of quarterly advances and acceptance of delay with payments of income tax (corporate tax) and of communal business tax for the 1st and 2nd quarter of 2020 for companies experiencing liquidity problems as a result of the Covid-19 pandemic. The deadline for submitting tax returns was extended to 30 June 2020. This decision applies to legal and natural persons. Nevertheless after this the tax office is entitled to determine the tax liability using the estimated assessment procedure.
2. For VAT returns due before the 30 June 2020 the same extension applies, therefore their late VAT submissions and payments will not have consequences in terms of penalty. Furthermore, the VAT administration is engaged in performing prompt repayments for taxable persons in a VAT credit positions below 10,000 Euros.
2.6 Social contributions
Both companies and the self-employed resident in Luxembourg obtained more flexibility in the payment of social contribution and the general suspension of procedure for the enforced collection of contributions, of the enforcement of constraints by judicial officers and of fines to be pronounced against employers who are late with the submission of their declarations to the CCSS.
2.7 Management of SME businesses
Some measure like granting meetings of shareholders or directors, without requiring the physical presence of their members has been accepted by the government.
However, the most significant of these initiatives is probably the opportunity for SMEs to file and publish the annual financial statements, consolidated accounts and related reports with a 3 months deadline extension if these reports related to a financial year closed at the latest on the day on which the state of crisis started and whose filing and publication deadlines had not expired by 18 March 2020.
2.8 Reinforcement of export and international development aid measures (ODL)
Companies carrying out an exporting activity, even to markets seriously affected by the COVID-19 crisis, will have more guarantees that will mitigate the risk of non-repayment and will be able to obtain insurance more flexible products that will be available (i.e. banks will partially reduce the risk of non-repayment of loans granted to Luxembourg exporters in order to develop their international activities).
Both the EU and State of Luxembourg have taken actions to support large and small-medium businesses to face the current crisis due the COVID-19 pandemic. Nevertheless, the Luxembourg State offered assistance to businesses based on their turnover, number of employees and specific sector, favoring companies that operate in vulnerable sectors and that cannot maintain the same number of employees, and have proven that the reason of their financial difficulty was caused by the CODIV-19 pandemic, happening after 1st of January 2020.
Nevertheless, these measures cover only the present year and the Ministry of Finance hasn’t published regarding the possibility that the crisis measures will be extended to the next year. Finally, companies operating in non-vulnerable areas such as in tourism are facing severe difficulties due to the general economic crisis which affects both the value and volumes of their transactions. It would be therefore appropriate for an extension of these measures to businesses operating in all sectors until the COVID-19 pandemic is over and a normal functioning of both mobility and company training is restored.
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