COVID-19: Additional aid to entrepreneurs and growth businesses

The new political agreement covers the following initiatives of particular relevance to entrepreneurs and growth businesses:

• Special match-funding from the Danish Growth Fund
• Enlarged pool for the Innovation Fund Denmark
• Advanced payment of tax credits
• Repayment of paid VAT as interest-free loans
• New compensation scheme for freelance workers

Special match-funding from the Danish Growth Fund

Many entrepreneurs and growth businesses have seen private investors pull out of the market or postpone agreed loans or equity financing, and most startups struggle for bank loan approvals. To address those needs, a Growth Fund relief package has been set up, containing the below four initiatives targeting startups and growth businesses. All of the loans are open for application now and must have been agreed by the end of 2020. 

• COVID-19 Startup loan
  - Loan for DKK 0.4m to 2m 
  - Aimed at startups who have a fully-developed product ready for commercial use, have successfully closed their first sales to customers, or have promising indications of sales possibilities. 
  - Requirement of co-financing in the form of grants, loans or investments in a 1:3 ratio. It will be advantageous if the startup has previously been part of an accelerator programme or received funding from e.g. Innovation Fund Denmark.
  - As security on the loan, the Danish Growth Fund requires a company charge of 100 %, a statement on limitation of dividends, a letter of subordination for interest-bearing debt, charge over the shares in the company, and a personal guarantee of DKK 50,000 per founder. 
• COVID-19 Investor loans 
  - Loans of DKK 1 million to DKK 5.95 million 
  - Aimed at startups who already have investors on board. The loan facility allows businesses to supplement investments from investors with a loan from the Danish Growth Fund. 
  - Requires documented contribution from investors made after 1 March 2019 or new contribution concurrently with payment. In extraordinary circumstances, an exemption may be granted from this requirement. 
  - The business must render probable either a) loss of revenue (from 1 March 2020); b) a withdrawal of commitment by investor(s) or changes to the original fundraising strategy; or c) delayed new sales. Moreover, the business must prove that the financing will secure operations for a period of 12 months (from payment of the loan).
  - As security on the loan, the Danish Growth Fund requires a company charge of 100 %, a statement on limitation of dividends, and a letter of subordination for interest-bearing debt. 
• COVID-19 Business Angel loans
  - Loans of DKK 0.25 million to DKK 12 million 
  - Aimed at startups receiving an investment from a Business Angel approved by the Danish Growth Fund, typically at pre-seed or seed stage. 
  - Requirement of simultaneous capital injection (including investments made since 1 March 2020) from approved Business Angel. 
  - Business Angels may match their investments by a 1:3 ratio loan to the business on loans up to DKK 7.5 million and with a 1:1 ratio loan on loans in excess of that amount.
• COVID-19 Syndicated loans
  - Loans of DKK 0.25 million to DKK 20 million 
  - Aimed at startups receiving an investment from a Business Angel approved by the Danish Growth Fund (venture fund, family office or EAF angel), typically a more mature startup (rounds A onwards). 
  - Same terms as for the Business Angel loan apply.
   

All loans come with a term of six years and interest at Cibor 3 months + 5 per cent. Interest will also be supplemented by an exit arrangement. The borrower must not have been in difficulty as at 31 December 2019. The Danish Growth Fund processes applications for approval of business angels and other investors continuously. More information is available at the Danish Growth Fund’s website, which is already open for loan applications.

Enlarged pool to support innovation projects via Innovation Fund Denmark

Innovation Fund Denmark has received an additional DKK 350 million to be granted to innovative and knowledge-based projects through the Fund’s Innobooster programme. The programme targets SMEs and startups. 

With the added funds, the Innobooster’s aggregate pool this year has more than doubled, now holding DKK 650 million, and the programme will show increased risk appetite, and financing will be more easily obtained. 

Innovation Fund Denmark has announced a number of specific initiatives to benefit from the Innobooster pool of funds. They are, among other things:

• Greater risk appetite and enhanced financing for more market preparation activities under the Fund’s Innobooster programme.
• Financing of new hires and retention of R&D/knowledge personnel among knowledge-based startups.
• Enhanced interaction between Innovation Fund Denmark and the Danish Growth Fund in respect of startups and SMEs.

Also, businesses or entrepreneurs who have received an investment through Innovation Fund Denmark’s startup programmes in 2020 will be able to apply for additional grants. 

Eligible businesses must apply for grants to innovative and knowledge-based projects at the Innovation Fund Den-mark website: www.innovationsfonden.dk.

Advanced payment of tax credits on R&D activities

Until now, businesses have received the tax value of that part of their loss which concerns R&D activities (tax credit) in connection with the assessment of final tax, in the month of November of the year immediately following the relevant accounting period. As a result of the new political agreement, the payment of tax credits concerning 2019 will be advanced from November 2020 to June 2020. 

It is a condition for payment of tax credits in June 2020 that:

• the enterprise must have suffered a loss in the 2019 accounting period;
• the loss must relate to R&D activities;
• the enterprise must apply for advanced payment of tax credits;
• the application must be accompanied by an audit opinion.
   

The initiative is of particular relevance to small and medium-sized growth entrepreneurs with development activities. The maximum annual payment is the tax value of DKK 25 million. If, for example, the corporate income tax rate is 22%, the enterprise may receive payment of DKK 5.5 million a year. 

Repayment of VAT as interest-free loans, and extension of time limits for VAT payments

To strengthen the liquidity of small and medium-sized enterprises, the latest relief package allows small and medium-sized enterprises which as at 20 March 2020 had paid VAT for the second half and fourth quarter of 2019, respectively, to apply for repayment of the VAT amounts as interest-free loans. 

Enterprises must apply for such loans no later than 15 June 2020, and the loans must be repaid no later than 1 April 2021. 

A number of enterprises do not qualify for the interest-free VAT and payroll tax loans, including enterprises that:

• are subject to bankruptcy, formal restructuring, liquidation or compulsory dissolution proceedings;
• have been ordered to provide security for payment of taxes, etc.;
• employ highly influential people who have been convicted of tax or duty fraud within the last 10 years;
• have recently replaced 50% or more of the owners, unless an independent auditor has issued a statement in this regard;
• are public institutions.

In addition to the chance of receiving the paid VAT as interest-free loans, enterprises may also postpone payment of VAT for the current VAT periods. 

For small enterprises, i.e. enterprises in which the revenue subject to VAT is less than DKK 5 million annually, the time limit for payment of VAT relating to the first half of 2020 has been extended to 1 March 2021 and will be merged with the time limit for payments relating to the second half of 2020. For medium-sized enterprises, i.e. enterprises in which the revenue subject to VAT is between DKK 5 and 50 million annually, the time limit for payment of VAT relating to the first quarter of 2020 has been extended to 1 September 2020 and will be merged with the time limit for payments relating to the second quarter of 2020. 

Enterprises may opt out of the extended time limits described above. This is of particular importance to enterprises with negative VAT liability in the VAT period, because such enterprises may receive payment of negative VAT under the current rules if they opt out of the deferred payment time limits.

New compensation scheme for freelance workers

The new political agreement introduces a compensation scheme for freelance workers, etc. earning both A income (income taxed at source) and B income (not taxed at source) who expect to experience an income loss of at least 30 % as a consequence of the COVID-19 crisis. The scheme allows the target group to receive compensation for up to 90% of their expected A or B income loss during the period compared to the same period last year, but maximum DKK 20,000 per month. 

The target group of the scheme is people:

• whose total A and B income and taxable profit from self-employment totalled or exceeded a monthly average of DKK 10,000 during the past year; 
• whose monthly B income has been minimum DKK 5,000;
• whose monthly A income has been maximum DKK 20,000;
• who expect to suffer an A and B income loss of at least 30% as a consequence of the COVID-19 crisis;
• who earn A income at an employment rate of maximum 55%;
• whose annual income in 2020 does not exceed DKK 800,000; 
• who are not entitled to daily benefits, supplementary daily benefits, or public welfare payments such as social assistance. 

Both A and B income must originate from activities relating to work performance.

The compensation scheme applies to the period from 9 March until and including 8 July 2020. 

Enterprises and freelance workers, etc. must apply for compensation on virk.dk. Additional information will be published on the business portal of the Danish Business Authority: virksomhedsguiden.dk.