The Luxembourg Government’s economic measures: what does it mean for your business?
Arendt's comments on the Government's economic measures
The Luxembourg government has taken an ambitious set of measures to help self-employed and companies including SMEs and entrepreneurs manage the economic consequences of the COVID-19 pandemic. These measures involve in particular tax aspects, bank financing, direct grants as well as employment aspects with the concrete objectives to meet short-term cash needs, to facilitate bank financing and to retain job.
Discover Arendt’s comments on:
- Tax payment deadlines extended
- Advance refund of VAT and deadline extension
- State-backed guarantee facility for new bank loans to SMEs and large corporates up to a maximum of 6 years
- Financial relief
Financial relief summary
Whilst the legislation necessary for the Covid-19 economic package is emerging ( for example, the Luxembourg Parliament has today passed Bill No. 7532 establishing the scheme of aid to companies in temporary financial difficulties) there are certain unknowns on the wider economic measures and the devil will be in the detail. It is key to follow evolutions as details become available and practice/experience develops for these welcomed measures.
Anticipation is key, especially for cash flow management. This also applies to relief measures. While some measures may have an immediate benefit (e.g. tax moratorium), some others may need time to implement: State backed guarantees will have elements of negotiation between the bank and the borrower, the terms of a FSAC (financement special anti-crise), will likely require some SNCI due diligence. There may be a large number of requests for relief, which may slow down awards.
A mix of different relief measures is possible, but in some instances one may expect mutual exclusiveness. So a holistic approach to the measures is, where possible, recommended.
An analysis of the interaction between the use of such measures and existing contractual arrangements is required (f.i. avoid that the recourse to such special measure creates a default/breach under a loan or supplier agreement or other past aids/investments).
Postponement of payments does not mean cancellation of obligation to pay and hence the burden of the borrower’s financial debt will not decrease. It may be wise to not use all relief measures to the fullest extent, as this could strain the cash situation at the end of the standstill period, which coincides with a possible economic pick-up. When negotiating with the banks a “hard stop” of a standstill vs. a more staggered transition is a key element of negotiation.
Eligibility for a type of relief depends on the company’s size, notably turnover. To assess such 2019 accounts may be the reference. So it is key to have your annual accounts/other accounting records in good shape to assess eligibility. An update ‘crisis factoring’ business plan (where feasible) may also be useful to assess need (hence eligibility) for relief where ‘crisis’ type pre-conditions apply. Some measures will have a certain level of transparency, which companies may wish to manage.