Recently the Austria Wirtschaftsservice (aws) announced the conditions for eligibility for funding under the Covid-Start-up Aid Fund. If a start-up receives fresh equity or equity-like contributions from investors, these funds are doubled by a grant under this support programme (up to a maximum amount of TEUR 800). However this subsidy must be repaid in the event of success within an observation period of 10 years.
The aws-funds can be used to finance running costs (e.g. personnel costs including incidental wage costs, material costs, R&D expenses) and investments. Appropriate applications can be submitted electronically until 15.12.2020.
1. Eligible companies
Start-ups that fully meet the following conditions are eligible:
- Any appropriate Austrian legal form is possible (OG, KG, GmbH, AG), although annual financial statements must be prepared in accordance with the Austrian Commercial Code from the year in which the first subsidy is paid out.
- Management or permanent establishment is located in Austria.
- Founded no more than 5 years ago (company register, trade licence).
- Qualification as small and micro enterprise (up to 49 employees and less than EUR 10 million turnover or less than EUR 10 million balance sheet total) and not listed on the stock exchange
- It has not taken over the activities of another company, no profits have been distributed and the company has not been created by a merger.
- Fresh equity or equity-like contributions of at least TEUR 10 were invested by independent private investors (at least 75% of the subsidy since 15.3.2020; max. 25% of the subsidy between 15.9.2019 and 14.3.2020).
- Negative effects due to the current COVID 19 pandemic (e.g. decline in sales; higher financing requirements due to higher customer receivables as a result of delayed payments; loss of payments; loss of suppliers; etc…). Proof e.g. through e-mails (cancellations, delays, etc…).
- Presence of an innovative company (ie funding approval for defined programmes of aws/FFG within the last 2 years before application is available or qualification as an innovative company according to the specifications of the aws).
These criteria must be confirmed by a tax advisor/auditor with a signature when the application is submitted.
2. Questions of doubt regarding the new start-up support
a.) What are the requirements for an equity-like contribution?
Deposits similar to equity
- are made available to the start-up for a period of at least five years,
- have an exclusively profit-related interest rate,
- are subordinated to other liabilities of the company in the event of insolvency
In this context e.g. silent partnerships, profit participation rights, convertible loans or profit share loans in connection with crowdfunding may be considered as equity-like contributions.
b.) Do convertible loans fall under funds similar to equity?
In the case of convertible loans, all 3 criteria must be met cumulatively (i.e. 5-year term, profit-related interest rate and subordination). In this context the following aspects have to be kept in mind:
- Subsequent contractual changes to adjust these criteria are permissible (e.g. adjustment of the term from 3 years to 5 years).
- If the convertible loan provides for a contractually agreed mandatory conversion, it would be classified as an equity-like instrument even if the term is less than 5 years.
- If no profit-related interest is provided for, it should not be harmful if the agreed interest are not paid out but instead are added to the loan amount and finally converted into equity.
c.) Who is considered as independent private investor?
Independent private investors are all investors with the exception of:
- majority shareholders (> 50% of the shares) and managing directors of the start-up
- their close relatives (spouses and life partners, siblings, parents, children)
- local authorities and legal persons under public law.
If the fresh equity is provided by investors who do not have direct participation in the start-up, but whose shareholdings are bundled through a joint holding company, this is not harmful for the exclusion criterion “majority shareholder”, provided the 50% limit is not exceeded for the respective investor.
However, where an investor cannot be classified directly/directly as a majority shareholder, the qualification as managing director is an additional reason for exclusion (i.e. the “managing director” criterion must be considered independently).
d.) Can the grant also be paid out to a foreign bank account?
The subsidy is only paid out to a domestic bank account.
e.) When must the investors’ payment actually be received?
If only part of the fresh equity capital has been invested since 15.3.2020, it should be noted that a maximum of 25% of the subsidy can be based on equity capital contributed in the period 15.9.2019 – 14.3.2020 (but only if an investment was also made after 15.03.2020). I.e. each Euro investment as of 15.3.2020 opens the possibility to include a maximum of 25% of earlier investments in the basis of assessment of the subsidy.
f.) How is the grant to be accounted for in the financial statements?
The presentation of the grant with a condition precedent of repayment in the financial statements is generally dependent on the type of use:
- subsidy to cover current expenses
- Grants to cover expenses are to be recognised in the income statement in accordance with the expenses incurred, whereby either recognition as “other operating income” or an open deduction from the respective expense (in a preliminary column) is permissible.
- If a subsidy is granted to cover correspondingly specified expenses for future periods, the amount already received for this purpose must be shown as deferred income.
- If a grant is used for investments, a more detailed analysis is required.
Apart from this, the subsidy and the possible repayment obligation should be explained in the notes.
3. Outlook
As not all questions of doubt have yet been resolved, further developments regarding start-up support should be kept under review. In this context, it should be noted that the aws publishes updates to the FAQs from time to time. For further details to the new Corona start-up support please see https://www.aws.at/aws-eigenkapital/covid-start-up-hilfsfonds/.
Authors:
Christoph Puchner, Managing Director and Tax Advisor & David Gloser, Partner, Chartered Accountant and Tax Advisor from ECOVIS Austria