Start-up Grant

The term Start-Up Grant refers to a financial support measure, primarily anchored in German social law, that provides assistance to individuals starting a business out of unemployment as they take the step into self-employment. The legal structure of this instrument is governed by the Third Book of the Social Code (SGB III). The Start-Up Grant aims to ensure social security for unemployed individuals wishing to start a business during the initial phase of their entrepreneurial activity and thus to promote the commencement of sustainable self-employment.

Legal Basis of the Start-Up Grant

Statutory Basis

The relevant provisions for the Start-Up Grant are found in SGB III, particularly § 93 SGB III. The grant is a discretionary benefit provided by the Federal Employment Agency and is subject to specific requirements and application conditions. The Start-Up Grant is paid exclusively to recipients of Unemployment Benefit I who wish to begin full-time self-employment.

Historical Development

With the entry into force of the Hartz reforms, several instruments for promoting self-employment were initially created—in addition to the Start-Up Grant, which from 2006 replaced the prior bridging allowance and the ‘Ich-AG’ grant, there was a streamlining and restructuring of statutory support. Since 2011, approval of the grant has been at the discretion of the authorities (previously, a legal entitlement existed if requirements were met).

Requirements and Eligibility

Personal Requirements

To claim a Start-Up Grant, the following conditions must be met:

Unemployment: At the time of application, the applicant must be registered as unemployed and have a remaining entitlement to Unemployment Benefit I of at least 150 days (§ 93 para. 2 SGB III).
Commencement of full-time self-employment: Self-employment must constitute a full-time occupation.
Viability of the business start-up: The business concept must be economically viable. This must be confirmed by an expert opinion (e.g., from chambers or professional associations).
No prior support: The business start-up must not have previously received funding through the Start-Up Grant or the Integration Allowance (‘Einstiegsgeld’).

Application Process

The application for the Start-Up Grant must be submitted to the Employment Agency before the commencement of self-employment. Along with the completed application form, a detailed business plan and an expert opinion on the viability must be presented.

Scope and Duration of Funding

Funding Benefits

The Start-Up Grant consists of two funding phases:

First Phase: For a period of six months, the grant is paid in an amount equal to the last received Unemployment Benefit I plus 300 euros per month for social security.
Second Phase: Afterward, a further grant of 300 euros per month for social security can be applied for up to an additional nine months, provided it can be demonstrated that the self-employment is being carried out on a full-time basis.

Tax Treatment

The Start-Up Grant is tax-free and not subject to social security contributions. However, the progression clause of § 32b Income Tax Act (EStG) applies, i.e., the grant increases the tax rate applied to the remaining taxable income.

Legal Nature and Character

Discretion and Legal Entitlement

Since 2011, the Start-Up Grant has been considered a so-called discretionary benefit (§ 93 SGB III). This means that, even if all requirements are met, there is no immediate legal right to funding. The Employment Agency decides at its own discretion and may refuse funding if, for example, the viability is not sufficiently proven, or there are doubts as to the applicant’s personal suitability.

Revocation and Recovery

A Start-Up Grant may be revoked and recovered in accordance with § 48 SGB X if the requirements cease to exist, for example, if the self-employment is not started or an employment relationship is taken up contrary to the stated information. Incorrect or incomplete information during the application process may also lead to claims for repayment.

Distinction from Other Support Instruments

The Start-Up Grant must be distinguished from other start-up supports, such as the ‘Einstiegsgeld’ under § 16b SGB II for recipients of Unemployment Benefit II. The Integration Allowance pursues a similar purpose but has different eligibility criteria and funding amounts, and is embedded within the system of basic security for job seekers.

Legal Protection and Appeal

A written objection may be filed with the responsible Employment Agency within one month of receipt of a negative decision. If the objection is not upheld, a claim may be brought before the Social Court. The procedure follows the provisions of the Social Court Act (SGG).

Practical Significance

The Start-Up Grant is a key instrument of active labor market policy in Germany and encourages individual initiative and the reintegration of unemployed individuals into working life through sustainable entrepreneurial activity. The legal structure emphasizes personal responsibility and motivation of the applicants but also requires careful examination of the business idea and entrepreneurial aptitude.

Frequently Asked Questions

What legal requirements must be met to apply for the Start-Up Grant?

To apply for the Start-Up Grant under § 93 SGB III, various statutory conditions must be fulfilled. First, the applicant must be registered as unemployed and at the time self-employment is taken up must have at least 150 days’ entitlement to Unemployment Benefit I remaining. The self-employment must be full-time and intended to be long-term; part-time activity is not supported. The viability of the business start-up must be demonstrated by submitting a business plan and an expert opinion (for example, from a Chamber of Commerce and Industry, Chamber of Crafts, professional association, or a tax adviser). In addition, no Start-Up Grant or Integration Allowance may have been received in the 24 months before the application. The application must be submitted in full before the start of self-employment; retroactive approval is legally excluded. Furthermore, the applicant must submit all relevant documents, such as a CV, pension insurance history, and, if applicable, proof of existing qualifications.

What is the legal status of the founder during the period in which the Start-Up Grant is received?

Upon commencement of the supported self-employment, the status as unemployed ceases; legally, the founder is no longer considered seeking work or unemployed. During the grant period, the founder is no longer subject to job placement efforts by the Employment Agency. The founder is obliged to notify the Employment Agency immediately of all substantial changes that could affect the support, such as business changes or termination of self-employment. During the grant period, there is also no compulsory statutory health insurance via the Employment Agency; the founder must be privately or voluntarily insured. Pension insurance obligations depend on the respective activities; certain self-employed activities can be subject to compulsory pension insurance (§ 2 SGB VI).

Under what legal conditions may the Start-Up Grant be denied or reclaimed?

The Federal Employment Agency may deny the Start-Up Grant if the legal requirements are not or are no longer fulfilled, especially if the activity is not carried out on a full-time basis or if the applicant does not provide all required documentation. Repayment is particularly possible where the grant was approved based on false information or concealment of essential facts (see § 330 SGB III in conjunction with § 45 SGB X). If the funding requirements lapse after approval—such as if the self-employment is discontinued or interrupted within the funding phase—the Employment Agency may discontinue funding and reclaim any unduly paid amounts. The founder is legally obliged to promptly notify all changes affecting the grant.

What legal obligations does the founder have during the funding period?

During the funding period, the founder is required to continue the self-employment on a full-time basis and provide evidence thereof upon request to the Employment Agency, for example, through company documents or records of business activity and income. It is also stipulated by law that any changes relevant to the approval or amount of the grant, such as changes in activity, relevant income, or termination of activity, must be reported immediately. Failure to fulfill these cooperation duties can result in suspension of payments or repayment of the grant.

What is the legal relationship between the Start-Up Grant and other social benefits?

Legally, the Start-Up Grant is classified as purpose-specific income and, according to § 11a paragraph 3 SGB II, is not counted as income when receiving basic security benefits under SGB II (Unemployment Benefit II). During the grant period, simultaneous receipt of Unemployment Benefit I is excluded, as taking up self-employment ends unemployment. Housing benefits or child allowances may still be possible depending on the founder’s income situation, whereby income from supported self-employment is taken into account in such calculations. Simultaneous funding from other programs, especially Integration Allowance, is legally excluded.

What legal options exist in the event of a rejection of the Start-Up Grant application?

If an application for a Start-Up Grant is rejected, this constitutes an administrative act against which the applicant can file an objection within one month of notification, pursuant to § 84 SGG (Social Court Act). If the objection is not granted, the applicant has the legal option within one month after receiving the objection notice to file a lawsuit with the competent Social Court. Legal recourse is thus open, although entitlement to the Start-Up Grant remains a discretionary benefit, and judicial review is primarily limited to errors of discretion.

How is the Start-Up Grant classified under tax and social security law?

Legally, the Start-Up Grant is regarded as tax-free income under § 3 No. 2 EStG, meaning it is not subject to income tax. In terms of social security law, receipt of the grant does not trigger contribution obligations for health, nursing care, or pension insurance; there is also no obligation to report to the social security bodies. However, income from self-employment achieved under the scheme must be taxed in accordance with statutory regulations (including income tax and, where applicable, value-added tax), and may affect the obligation to contribute to, or the amount of contributions for, health and nursing care insurance, as such income is included in the assessment.