The coronavirus pandemic has presented the global economy with unprecedented challenges. Small and medium-sized enterprises (SMEs) and freelancers, in particular, have faced significant revenue losses and liquidity shortages since the beginning of the crisis. To provide these businesses with financial respite and safeguard their economic survival, governments have launched various aid programs. One of the key support instruments is the so-called bridging aid, which is specifically designed to alleviate the acute financial burdens during the pandemic. In this article, we explain how bridging aid works, who is eligible, which costs are covered, and what to consider when applying and regarding tax treatment.
The bridging aid is primarily aimed at small and medium-sized enterprises (SMEs) that have suffered significant revenue losses as a result of the COVID-19 pandemic. Specifically, companies whose revenues plummeted in April and May 2020 are eligible for support. This funding covers not only traditional businesses but also the self-employed and freelancers, provided they are primarily engaged in this activity. A prerequisite for application is that revenue during the funding period has declined by a certain percentage compared to the same months of the previous year. This regulation ensures that the bridging aid specifically reaches those who are most severely affected by the economic consequences of the pandemic and urgently require liquidity.
The bridging aid differs significantly from the previously disbursed emergency aid. While emergency aid was often paid out as a lump sum and a one-time payment, the bridging aid focuses on the partial reimbursement of certain fixed operating costs. This means that not all of your company’s expenses are eligible for funding, but only those that are incurred regularly and are recognized as necessary. Eligible costs include, in particular, rent for business premises, interest payments on business loans, as well as maintenance costs and other ongoing operating expenses. It is important that only predefined types of costs are reimbursed, ensuring that the funding remains targeted and transparent. This helps companies stabilize their liquidity without resulting in unlimited subsidies for all expenses.
The amount of funding depends primarily on the extent of the revenue decline during the funding period, which was initially limited to the months of June to August 2020 and later extended to other periods. The principle is: the greater the revenue decline, the higher the reimbursement rate for fixed costs. However, there is a cap on the maximum reimbursable amounts to ensure the fair and targeted distribution of funds. Specific examples illustrate how the reimbursement rates are tiered and how this can affect the amount of support granted. This ensures that small businesses as well as medium-sized enterprises receive assistance tailored to their needs.
The application process for bridging aid is a two-stage procedure that includes both forecasts and supporting documentation. The first stage involves submitting an application based on estimated revenues and costs. The involvement of a tax advisor, auditor, or certified public accountant is mandatory to review the information and ensure its plausibility. This professional support guarantees that the information is accurate and verifiable, enabling swift processing. Subsequently, the actual revenues and costs must be documented so that the funding amount can be verified against the real figures. This procedure ensures transparency and minimizes the risk of incorrect payments.
Another important aspect concerns the tax treatment of bridging aid. The subsidies received constitute taxable income and must therefore be taken into account for income tax and/or trade tax purposes. This means that bridging aid generally increases taxable income. At the same time, it is possible to deduct repayments as business expenses, which reduces the tax burden accordingly. This complex tax classification requires careful consultation to avoid unexpected tax arrears and to make optimal use of the funding.
Bridging aid is therefore a key instrument for providing financial stability to small and medium-sized enterprises (SMEs) and freelancers during the coronavirus crisis. It offers targeted support in covering fixed operating costs and takes into account the individual revenue losses of the companies. However, the application and processing process involves several requirements, particularly regarding the necessary documentation and tax classification. To navigate these processes smoothly and efficiently, it is advisable to seek professional support from an experienced tax advisor early on.
If you are an entrepreneur or freelancer affected by the impact of the coronavirus pandemic and would like to check whether you are eligible for bridging aid or how to correctly submit your application, we are happy to assist you at any time. Contact us for a personalized consultation so that we can work together to identify and optimally utilize the funding opportunities that best suit your needs. This will help you secure your company’s liquidity and lay the foundation for a successful future – even in challenging times.
