INVESTMENT GUIDE TO GERMANY
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INVESTMENT GUIDE
TO GERMANY
Issue 2014/2015
Foreword
Dear Reader,
I am delighted to present this year’s new and revised It’s a place where international companies are
Investment Guide. The publication you now hold in helping shape the sustainable energy and mobil-
your hands is the result of the hard work and endeavor ity future, where factories are smart and new and
of our dedicated Investor Support Services team. profitable value propositions are being created. It’s
a Germany whose innovative strength and research
Practical and easy to use, the updated guide walks capacities are making the difference when it comes
you step-by-step through the process of setting up to choosing a European business location.
your own company in Germany. The time to do so has
possibly never been more opportune. And, as this At Germany Trade & Invest we pride ourselves on be-
guide shows, setting up your business operations in ing a global agency that acts locally, providing ser-
Germany could hardly be more straightforward. vices tailored to meet potential investors’ individual
project requirements. Our comprehensive range of
Germany regularly tops the lists of most attractive in- free business advisory and project support services
vestment locations in Europe and continues to num- help smooth the path for easier investment. Talk to
ber among the world’s favorite investment locations. us to find out how we can help your business.
We boast the world’s fourth largest and Europe’s
best-performing and most stable economy.
State-of-the art infrastructure, a solid industrial
base, and a highly skilled labor force also go some Dr. Benno Bunse
considerable way to enhancing our attractiveness Chairman / CEO, Germany Trade & Invest
for international investors. These are the most com-
monly cited reasons for doing business in Germany.
But there is also another Germany. It’s the Germany
of innovative industry clusters, world-class research
providers and forward-looking markets.
4 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 5
Contents
01 COMING TO GERMANY 05 COMPANY TAXATION
10-11 Residence Titles 54 Company Taxation Basics
12-14 Residence Titles for Differing Business Activities 54-56 Taxation of Corporations
14-17 Residence Titles for Employed Persons 56-57 Taxation of Partnerships
58-59 Taxation of Dividends
02 BUSINESS REGISTRATION 59-61 Value-added Tax (VAT)
20-21 Commercial Register 61 Tax Declaration
22-23 Trade Office
23-24 Chambers of Industry and 06 LABOR MARKET
Commerce and Chambers of Crafts 64 Finding Suitable Staff
65-67 Flexible Employment Models
03 COMPANY ESTABLISHMENT 68-69 Terms of Employment
28-33 Corporations 70-71 Termination of Employment
33-34 Partnerships 72-73 The German Social Security System
34-37 Branch Offices 74-75 Payroll Accounting
04 INCENTIVES 07 LEGAL FRAMEWORK
42-44 Incentives Overview 78-79 Business Law
44-45 Grants for Investments 79-80 Basic Information on Litigation
46-47 Grants for Research and Development Projects 80-84 Intellectual Property
48-49 Grants for Hiring Personnel 85-86 Real Estate
49-50 Public Loans for Different Funding Purposes
51 Public Guarantees 88-92 ADDRESSES
93 IMPRINT
6 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 7
COMING TO GERMANY
1
Germany distinguishes between different kinds
of residence titles for specific purposes subject
to the length of stay and intended (business)
activity in Germany. These include Schengen and
national visas, residence and settlement per-
Source: ©Robert Wilson – www.fotolia.de
mits. A Schengen visa (business-visa) is suffi-
cient for conducting most business and admin-
istrative activities which need to be organized
prior to locating to Germany.
COMING TO GERMANY
RESIDENCE TITLES APPLICATION PROCEDURE
Germany distinguishes between three different kinds
The residence title generally has to be applied for at
the competent German embassy or consulate gen-
The Federal Foreign
Office is able to pro-
1
of residence titles:
eral prior to entering Germany. The respective visa is vide detailed infor-
Visas (Schengen visa and national visa) then issued in the applicant’s home country within a mation on German
period of a few weeks. The application fee is typically visa requirements
Residence permit
around EUR 60. Additional fees up to EUR 110 must for foreign nationals.
Settlement permit be paid for a residence permit.
auswaertiges-amt.de
A visa authorizes the holder to enter and stay in Ger- Visa application forms can be downloaded from
many for a temporary period (up to 90 days in any the website of the German Federal Foreign Office
180-day period from initial date of arrival). A resi- (Auswärtiges Amt). It is also possible to bring the
dence or settlement permit authorizes the holder to completed printed form to the interview at the visa
stay for the long term (more than 90 days in any 180- section where it can be scanned electronically. The
day period) or to work on a self-employed basis or as respective local German mission initially issues a
an employee in Germany. national visa for entry into Germany. The national
visa is subsequently converted into a residence
WHO REQUIRES A RESIDENCE TITLE? permit by the competent local immigration office
Croatian citizens EU citizens and citizens of the states of Iceland, Nor- (Ausländerbehörde).
may require a work way, Liechtenstein, and Switzerland do not require
permit for taking any form of visa, residence or settlement permit to Non-EU citizens from those countries exempt from
up employment in be able to settle or work in Germany. the short-term stay visa requirements also require
Germany. Please a national visa when entering Germany for long-
refer to our website. Non-EU citizens generally require a Schengen visa term stay purposes. Exceptions apply for nationals
for entry and short-term stays in Germany. However, from Australia, Canada, Israel, Japan, New Zea-
gtai.com/visa
individual rules apply for certain countries. Nation- land, South Korea, and the United States who may
als from Argentina, Australia, Brazil, Canada, Is- enter Germany for long-term stay pur poses without
rael, Japan, Mexico, New Zealand, South Korea, the a national visa. These foreign nationals can directly
United States, and Hong Kong, for example, can stay apply for the necessary residence or settlement
in Germany for up to 90 days (in any 180-day period permit at the immigration office in Germany.
from the date of first entry) without a visa. Non-EU
citizens require a residence or settlement permit
for long-term stays.
10 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 11
COMING TO GERMANY
RESIDENCE TITLES FOR DIFFERING Setting up a company in Germany using a Schengen
BUSINESS ACTIVITIES visa does not alone warrant residence permit issue
at a later date. If necessary, a residence permit for
1
The relevant residence title depends on the entrepre- self-employment or employment should be applied
neur’s nationality and particularly on the specific area for in due time. A residence permit must generally
of business activity intended in Germany. A residence also be applied for if the stay in Germany for setting
permit is not generally required for the setting up of a up a company exceeds 90 days.
business in Germany - provided that the business has
a local representative on-site in Germany. However, a COMPANY MANAGEMENT ON-SITE
residence permit is required in those cases where the Entrepreneurs from non-EU countries managing a An overview of the
foreign national intends to run the business on-site in company on-site in Germany in a self-employed capac- residence permits
Germany. ity require a residence permit for the purpose of self- required for different
employment. It may be granted if the planned business types of business
ESTABLISHING A COMPANY is expected to have a positive economic effect and has activity in Germany
A Schengen business visa is sufficient for most of secure financing in place. An individual assessment of is provided at the
the activities in the formation phase of a company. the intended business project is made by the local im- Germany Trade &
It enables its holder to stay in Germany for up to 90 migration office (Ausländerbehörde) taking a number of Invest website.
days, during which time all fundamental establish- considerations into account. These include (e.g.):
gtai.com/coming-
ment activities can be performed. These include,
Viability of the underlying business idea to-germany
amongst other things:
Foreign national’s entrepreneurial experience
Signing and notarization of the articles of
association
Level of capital investment and availability
of capital
Application for registration with the commercial
register (submitted by a German notary)
Effects on the employment and training situation
Trade office registration (provided at least one
Contribution towards innovation and research
representative on-site in Germany is available) in Germany
Other preparatory activities during the business
The local immigration office involves the local trade
establishment phase (such as opening a bank
office as well as the local Chamber of Industry and
account or the conclusion of lease contracts)
Commerce (Industrie- und Handelskammer – IHK), the
Negotiations and the conclusion of contracts Chamber of Crafts (Handwerkskammer) and/or other
with business partners competent authorities regulating admission to the
profession concerned.
12 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 13
COMING TO GERMANY
A residence title for the purpose of self-employment FEDERAL EMPLOYMENT AGENCY APPROVAL
is limited in time for up to three years. A settlement
permit (permanent) can be granted after three years
As a rule, a residence permit for the purpose of tak-
ing up employment is only issued if, among other
1
if the investment project has been successfully real- things, it is possible to demonstrate a specific offer
ized and has stable income prospects. of employment.
Approval from the Federal Employment Agency FEA
WHO IS CONSIDERED SELF-EMPLOYED?
(Bundesagentur für Arbeit) may be required subject
Foreign business operators are considered to
to the foreign national’s level of qualification and the
be self-employed e.g. if they are:
characteristics of the job to be performed in Germany.
Entrepreneurs (including freelance professions)
Certain professional groups can be granted a resi-
Partners in a partnership
dence permit for employment without FEA approval.
Majority shareholders of a GmbH who are also These include, among others:
managing directors of the GmbH
Executives (e.g. employed managing
directors, managerial employees)
Specialists holding a German university degree
RESIDENCE TITLES FOR
Scientific research personnel
EMPLOYED PERSONS
EU Blue Card applicants (see page 16)
Croatian citizens Employees from non-EU countries who are em-
may require a work ployed in a new subsidiary company in Germany re-
permit for taking quire a residence permit for the purpose of taking up
up employment in employment in Germany. As with a residence permit
Germany. Please for the purpose of self-employment, a residence per-
refer to our website. mit is issued to employees for up to three years. In
general, the residence permit can be extended with-
gtai.com/visa
out any problems. A permanent settlement permit is
issued after five years in most cases.
14 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 15
COMING TO GERMANY
FEA APPROVAL PROCEDURE The annual gross salary level is lowered to EUR 37,128
In cases where professional groups are not exempt-
ed from FEA approval, approval is granted where:
(2014) for professions with a particular skill short-
age (e.g. medical doctors, science and engineering
1
professionals as well as information and communi-
no suitable German or EU employees are available
cations technology professionals). FEA approval is
(so-called “priority check”); and
required for this type of EU Blue Card. However, the
the foreign employee is hired at the same terms FEA does not carry out a priority check in such cases,
and conditions of employment as comparable but instead establishes whether the non-EU citizen is
German or EU employees. employed on terms less favorable than otherwise ap-
ply to comparable German employees.
Depending on the specific professional group, FEA
approval without priority check is possible, for ex-
Once a German EU Blue Card is obtained, holders
ample, in the following instances:
can receive a permanent settlement permit within
Internal company specialists 33 months. This period may even be reduced to 21
months in instances where a specified German lan-
EU Blue Card applicants in certain professions
guage aptitude level can be established.
(see below)
Foreigners having successfully finished qualified
vocational training in Germany (or abroad subject
to recognition in Germany and certain other
criteria being met).
EU BLUE CARD FOR HIGHLY
QUALIFIED EMPLOYEES
The so called “EU Blue Card” (Blaue Karte EU) allows
highly qualified non-EU citizens to be fast-tracked to
employment in Germany. Foreigners may apply for
this special kind of residence permit if they hold a
German university degree (or a proven comparable
qualification) and provide documentary evidence of
an employment contract with an annual gross salary
of at least EUR 47,600 (2014). FEA involvement prior
to issuing the EU Blue Card is not necessary.
16 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 17
BUSINESS REGISTRATION
21
Germany has a unique system of public regis-
ters. The commercial register, which ensures
legal certainty in the commercial law field, is
of particular importance for entrepreneurs. The
commercial register is court-based and provides
Source: ©Dominik Pabis – www.istockphoto.de
information on merchants and commercial com-
panies registered in Germany. This information
creates transparency and also offers companies
the highest level of security in their day-to-day
business activities.
BUSINESS REGISTRATION
COMMERCIAL REGISTER COMPANIES REQUIRED TO REGISTER
Companies required to register are those that carry
The public commercial register (Handelsregister)
out a commercial business operation. This is indi-
provides legally relevant information about mer-
vidually determined by criteria such as the use of
chants and commercial companies. The commercial
commercial accounting, annual turnover, capital re-
register contains, for example, information about:
sources and total number of employees. As a rule,
Company form and name all status-relevant actions of companies are subject
2
to registration.*
Name of the shareholders/partners and/or
the personally liable partner
REGISTRATION PROCEDURE
Managing director or the executive of corporations The application for registration in the commercial German notaries can
register is electronically filed in publicly certified be found online in the
Capital stock of companies
form by a German notary to the responsible com- directory of the Federal
Liability limitations of shareholders/partners mercial register. Chamber of Notaries.
Issuing and revoking of the power of attorney deutsche-
REGISTRATION COSTS
notarauskunft.de
Opening of insolvency proceedings The total registration costs for inclusion in the com-
mercial register consist of the fees for the notary’s
Dissolving and ending of a company
services (i.e. notarization and electronic filing), the
fees charged by the district court for entry in the
COMMERCIAL REGISTER DISPLAY
commercial register and a fee for “electronic publi-
The commercial register is managed by the district
cation.” The fees for the notary and the commercial
court where it can freely be viewed by the public at no The Federal Chamber
register are not fixed on an arbitrary basis but are
cost. The commercial register can also be consulted of Notaries provides
regulated by law. They largely depend on the num-
online through the common register portal of the Ger- information about the
ber of shareholders, share capital, company form,
man federal states (Gemeinsames Registerportal der exact composition and
and the specific activity to be registered. The elec-
Länder: www.handelsregister.de). Commercial register level of notary costs on
tronic publication of registration has a symbolic cost
announcements can also be found at this portal. Some its website.
of one euro. Please note that further costs can
of the company data which is stored in the commercial
be incurred by the provision of additional legal advice. bundesnotarkammer.de
register is also available electronically through the
commercial register of the Federal Gazette (Bundes- *
Exceptions apply to small businesses, civil law partnerships (GbRs),
anzeiger: www.unternehmensregister.de). freelancers, and dependent branch offices.
20 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 21BUSINESS REGISTRATION
TRADE OFFICE AUTOMATIC FORWARDING
The trade office automatically sends a copy of the
Before starting business operations, all business business registration to the responsible tax office
operators must notify the trade office (Gewerbe-/Ord- (Finanzamt). The responsible tax office then sends a
nungsamt) of the town or local district in which the registration form to the company for tax registration
business operation is located. Business licenses are purposes. It also sends the registration to other rel-
necessary in some additional sectors (e.g. pharma-
cies, property developers, estate agents, brokers,
evant institutions such as the respective Employer’s
Liability Insurance Association (Berufsgenossen-
2
security firms, public houses and hotels, and banks). schaft), the corresponding Chamber of Industry and
Commerce (Industrie- und Handelskammer – IHK), and
The liberal professions are not viewed as perform- the Chamber of Crafts (Handwerkskammer).
ing business activities and generally do not need
to register with the trade office. These include, for
example, lawyers, doctors, accountants, and archi-
CHAMBERS OF INDUSTRY AND
tects. Some liberal professions have institutes for COMMERCE AND CHAMBERS OF
professional authorization and regulation as well as
for handling complaints which can be contacted ac-
CRAFTS
cordingly.
In Germany, the Chambers of Industry and Commerce
(Industrie- und Handelskammer – IHK) and the Cham-
REGISTRATION PROCEDURE
bers of Crafts (Handwerkskammer) function as the
The registration of a business activity that does not
local interest groups of business operators in a spe-
require a license generally costs between EUR 20
cific region. The chambers realize more than just the
and EUR 50. Additional costs apply for companies
general functions of professional associations for
that require a business license. For the independent,
their members. They also:
non-industrial operation of certain trades (e.g. baker,
carpenter and precision mechanic) entry in the Reg-
carry out active lobbying work by representing
ister of Craftsmen (Handwerksrolle) is also required. the interests of the company towards munici-
Affected trades are listed in the Crafts and Trades palities, state, and federal government;
Regulation Code (Handwerksordnung) where they can
organize vocational training by defining the
be directly consulted.
framework requirements and approving
interim and final examinations;
draw up certificates concerning, for example,
admissible company names.
22 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 23BUSINESS REGISTRATION
The umbrella associa- In addition to this, the IHKs also provide information
tion of the Chambers about the local economic framework conditions in a
of Indutry and Com- specific region and provide foreign companies with
merce, the DIHK, and business contacts to possible regional partners.
the umbrella associa- All IHK members are also able to draw on the com-
tion of the Chambers prehensive advice and services of the responsible
of Crafts, the ZDH, chamber.
offer an overview of
all of the regionally The chambers are generally the first point of contact
responsible chambers. in the event of day-to-day business problems. Mem-
bership of the IHK occurs automatically upon regis-
dihk.de
tration in the trade office without requiring special
zdh.de
registration. The costs of membership of the cham-
ber depend on the turnover of the applicant company.
Crafts professions have to register with the Chamber
of Crafts prior to the trade office notification. Mem-
bership costs depend on turnover, too.
24 Investment Guide to Germany 2014/15COMPANY ESTABLISHMENT
3
International companies seeking to set up a busi-
ness in Germany can choose between different
establishment forms. A separate company held
by the foreign company - a subsidiary - in the
form of a corporation is in practice often estab-
lished for this purpose. However, it is also possi-
ble to establish a subsidiary in the form of a part-
Source: ©webphotographeer – www.istockphoto.de
nership or to set up a company held by private
individuals. Existing companies can also conduct
business via a German branch office. Decisive
criteria for the choice of legal form are generally
the intended function of the shareholders, liabil-
ity, and terms of taxation. The basic structure
of all company forms is stipulated by law which
provides for predictability and legal certainty.
The same legal conditions apply for foreign and
local entrepreneurs.COMPANY ESTABLISHMENT
CORPORATIONS The GmbH requires a minimum share capital of EUR
25,000. It can be contributed in cash or in kind (e.g.
The main feature of a corporation is the contribu- real estate or patents). Liability is limited to the corpo-
tion of capital by shareholders. A corporation is a ration‘s business assets including share capital.
legal entity, meaning that the holder of rights and
obligations is not the individual shareholder, but the The formation procedure can be divided into the fol-
company itself. The corporation itself concludes con- lowing steps:
For further information tracts, holds assets and is liable for taxation. Cor-
Drafting of Articles of Association
on the taxation of porations are liable to corporate income tax, trade
The articles of association shape the identity and con-
corporations please tax and a solidarity surcharge. Shareholders have
stitution of the company. Thanks to the large scope
see chapter 5, limited personal liability. As such, a minimum share
for contractual design, the GmbH is a very flexible
Company Taxation. capital is required.
corporation. Mandatory content includes share capi- 3
tal, shareholders and respective shares held, busi-
ESTABLISHMENT OF A GMBH
ness name, registered office, and company object.
Germany Trade & The German limited liability company (Gesellschaft
Invest is happy to mit beschränkter Haftung - GmbH) is the most widely
Notarization of Articles of Association German notaries can
answer individual used legal form for corporations in Germany. The
The drafting and notarization of the articles of asso- be found online in the
questions specific main reason for its popularity is the combination of
ciation are normally performed in one session by a directory of the Federal
to the establish- high flexibility and relatively few obligations.
German notary. The founding shareholder(s) adopt(s) Chamber of Notaries.
ment of a company
the articles of association and appoint(s) one or more
in Germany. At least one shareholder (private individual or legal deutsche-
managing directors in a notarial deed.
entity) is required in order to establish a GmbH. The notarauskunft.de
Contact
GmbH has two mandatory corporate bodies. The main
invest@gtai.com
Payment of Share Capital (cash contribution)
body is comprised of the shareholder(s) collectively
Once the articles of association have been notarized,
in the shareholder meeting and the executive body
a company account should be opened and the share
of the managing director(s). The nationality and
capital deposited. A payment of EUR 12,500 in total is
residence of the shareholder(s) and the managing
sufficient for standard EUR 25,000 GmbH registra-
director(s) of a GmbH are irrelevant. However, the
tion in the commercial register.
company must have a physical German business ad-
dress and at least a local representative.
28 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 29COMPANY ESTABLISHMENT
Registration in the Commercial Register In order to compensate the initial absence of capital,
When the required share capital has been verifiable the UG has to retain a quarter of its annual profit until
contributed to the GmbH, the managing director(s) it has accumulated the minimum share capital of an
apply for the registration of the GmbH in the com- ordinary GmbH (i.e. EUR 25,000). The accumulated
mercial register (Handelsregister). The application is capital can then be converted into share capital and
electronically filed by a notary. The GmbH comes into the UG altered into a standard GmbH. The UG - by
existence as a legal entity and its limitation of liability terms of law - is generally subject to the same duties
becomes effective upon registration in the commer- and rights as the standard GmbH (except notwith-
cial register. standing the specific provisions mentioned above).
Trade Office Registration ESTABLISHMENT OF AN AG
Before business operations are started, the trade of-
fice (Gewerbe-/Ordnungsamt) must be notified about
The German stock corporation – (Aktiengesellschaft –
AG) - is a company form intended for larger compa-
3
the business activity in question. Required permits nies with a large number of shareholders. Eligibility
and verification of representatives must also be sub- for a stock exchange listing and the easy assignabil-
mitted. ity of the shares make the AG ideal for attracting cap-
ital. Compared to the GmbH, the founding and orga-
ESTABLISHMENT OF AN UG nizational formalities of an AG are relatively high und
The limited liability entrepreneurial company - inflexible due to mandatory rules. Conversely, the AG
(Unternehmergesellschaft UG, haftungsbeschränkt) is per se enjoys a high market reputation.
not a separate legal form of company, but a GmbH
which has a minimum capital of less than EUR 25,000 The AG has three mandatory bodies: the general
and where cash subscription is required. This means meeting, the management board and the supervi-
that it is possible to set up a company with limited lia- sory board. One special feature of the AG is the in-
bility in Germany with a share capital of just one euro. dependence of the management board in not being
bound by instructions in managing the company from
the other two bodies. The supervisory board’s main
Steps for the Establishment of a GmbH or a UG task is to supervise the management board, but it
also appoints the management board, participates in
Drafting of Notarization Registration in
Payment of Trade office certain decisions requiring its consent and reports
articles of of articles of the commercial
share capital registration
association association register to the general meeting. Fundamental corporate deci-
The application for the entry in the commercial register is usually prepared by the authorized notary
sions are taken in the general meeting.
when articles of association are notarized.
30 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 31COMPANY ESTABLISHMENT
An AG can be established by one or more sharehold-
Registration of the company with the commercial
ers (private individual or legal entity). As is the case register (Handelsregister). The application must
with the GmbH, nationality and residence of the AG’s be filed by a German notary.
shareholder(s), management and supervisory board
The trade office (Gewerbe-/Ordnungsamt) must
members are of no relevance. However, the AG re-
be notified about the business activity in question
quires a German physical business address and a lo-
before business operations can begin. Required
cal representative.
permits and verification of representatives must
also be submitted.
The AG must have a minimum share capital of EUR
50,000. It can be contributed in cash or in kind (e.g.
real estate or patents). Liability is limited to the cor-
PARTNERSHIPS
poration‘s business assets including share capital.
The AG establishment procedure is in principle simi-
3
Characteristic for a partnership is the personal com-
lar to that for setting up a GmbH, albeit more complex.
mitment of the partners to their working efforts in the
partnership. In partnerships, the individual partners
The main steps for the formation of an AG by cash
responsible for the liabilities of the company (includ-
contribution are as follows:*
ing private assets) act for the company. Limitations
Establishment of articles of association and of liability for individual partners are only possible to
subscription of shares in the form of a notarial a limited extent.
deed of formation.
Accordingly, it is not the partnership itself which is For further information
Appointment of the boards. The founders appoint
taxed (as with corporations), but the individual part- on the taxation of part-
the first supervisory board and the first auditors
ners. The taxable profit is determined at the level of nerships please see
(notarization required); the supervisory board then
the company and allocated to the partners according chapter 5, Company
appoints the first management board.
to their shares. The partnership itself is only subject Taxation.
Drawing up of a formation report concerning the to trade tax.
procedure of the formation of the company,
followed by a (formal) formation audit. The different kinds of partnerships differ primarily in
terms of the contingent liabilities of the partners and
Payment of share capital. At least 25 percent of the
the necessary registration obligations.
par value of each share and the full amount of any
premium has to be paid into a bank account.
* Further procedures may be necessary, e.g. if specific financial risks including
contributions in kind (Sacheinlagen) are contained in the articles of association or
an initial public offering (IPO) is desired.
32 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 33COMPANY ESTABLISHMENT
ESTABLISHMENT OF A PARTNERSHIP AUTONOMOUS BRANCH OFFICE
Establishing a partnership is easy and can be com- Foreign (commercial) companies can set up an au- Germany Trade &
pleted in just a few steps. At least two partners are tonomous branch office (selbständige Zweignieder- Invest’s legal experts
required to establish a company. A minimum share lassung) in Germany if they are entered in a foreign are pleased to answer
capital does not have to be raised. The management commercial register (or a comparable directory). any project-specific
of the company can only be carried out by partners. The autonomous branch office is dependent upon the questions on the
Depending on the type of partnership, entry in the head office company at the internal level but engages establishment of a
commercial register (Handelsregister) is required. in business activities independently. However, the branch office in
The application is signed by all partners and must be foreign head office company is liable for the business Germany.
filed by a German notary in certified and electronic transactions concluded by the branch office.
Contact
form with the commercial register. If a business acti-
invest@gtai.com
vity is carried out by the partnership, the trade office
(Gewerbe-/Ordnungsamt) must be notified accordin-
At the organizational level, autonomous branch of-
fices are to a certain extent independent from the
3
gly. Required permits and verifications of represen- head office company and usually have the following
tatives must also be submitted. attributes:
Management with the freedom to act according
to their own judgment (i.e. with full power of
BRANCH OFFICES attorney and the power to contract)
Foreign companies can also be active in the German
Own capital resources and bank account
market by setting up a branch office. In legal and
Separate accounting (on its own or via the
administrative terms, a branch office is part of the
head office company)
head office company and not a separate legal entity
(i.e. subsidiary). The branch office carries out simi-
The branch office must be entered in the commercial
lar business activities to the head office company.
register (Handelsregister) and provide notification of
In this context, the head office company is liable for
any business activity it is practicing at the respon-
the debts of the branch office under the conditions of
sible trade office (Gewerbe-/Ordnungsamt). Required
its constitution. In Germany, there are two kinds of
permits and verifications of representatives must
branch offices which primarily differ due to the de-
also be submitted. The branch office can use its own
gree of independence from the head office company.
name affix but the company name of the head office
However, common to both branch office forms is the
must also appear including its legal designation (for
fact that one representative on-site in Germany is
example: XY Ltd., Zweigniederlassung, Berlin).
required.
34 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 35COMPANY ESTABLISHMENT
DEPENDENT BRANCH OFFICE An office managed by a self-employed third party
A dependent branch office (unselbständige Zweignie- (e.g. a commercial agent authorized by the company)
derlassung) is a subordinate department of the head may be considered a case where no business activity
office company and does not have any autonomy is conducted on behalf of the foreign company. Where
from it. It is not able to independently participate in this is the case, registration of the foreign company
the general business transactions of the head office. with the local trade office is generally not required.
Invoices have to be made out in the name of the head In this instance, the actual level of independence of
office company. An individual company name cannot the agent and their freedom to act without instruc-
be used. Accordingly, the dependent branch esta- tion from the company is decisive.
blishment does not have to be entered in the com-
mercial register. It is only necessary for the business
activity that is being practiced to be notified at the
responsible trade office (Gewerbe-/Ordnungsamt).
3
OTHER FORMS
Offices that purely serve to observe the market and
pave the way for initial customer contacts are often
described as “representative offices.” However, this
is a term which does not exist in German commercial
law. A representative office must usually be registe-
red as a branch office in Germany.
Once an office is used by a foreign company for com-
mercial activities (thus forming part of the foreign
company organization), it generally must be registe-
red at least as a dependent branch office in Germa-
ny. This is typically the case if the foreign company
has a permanent representative who conducts the
commercial activities of the company in a sustained
manner and, in doing so, is subject to its instruction.
36 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 37COMPANY ESTABLISHMENT
Different Forms of Corporations Different Forms of Partnerships
Legal Form Minimum Number Minimum Legal Liability Legal Form Minimum Number Minimum Legal Liability
of Shareholders Share Capital of Partners Share Capital
GbR – Civil Partnership Two partners Not required Personal unlimited
GmbH – Limited One shareholder EUR 25,000 Liability limited liability
Liability Company to share capital
oHG – General Com- Two partners Not required Personal unlimited
UG – Limited Liability One shareholder EUR 1.00 Liability limited mercial Partnership liability
Entrepreneurial to share capital
Company
KG – Limited Two partners: Not required General partner:
Partnership general partner personal unlimited
AG – Stock Corporation One shareholder EUR 50,000 Liability limited and limited partner liability
to stock capital
Limited partner:
limited share liability
GmbH & Co. KG Two partners: general Not required General partner (GmbH):
partner (GmbH) and for the GmbH personal unlimited
limited partner (the & Co. KG, liability
shareholders of the however the
Limited partner:
GmbH are typically GmbH does
limited share liability
the limited partners require EUR
of the KG) 25,000.
38 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 39INCENTIVES
4
Germany offers different financial support mea-
sures for investment projects tailored to the
different requirements of the individual project
Source: ©Brandon Rose – www.istockphoto.de
development steps. Measures include support-
ing direct investment costs, labor-related ex-
penses, and direct research and development
project costs.INCENTIVES
INCENTIVES OVERVIEW FINANCIAL SUPPORT ELIGIBILITY CRITERIA
Set criteria determine the conditions under which a Germany Trade &
Incentives programs in Germany are available project is eligible for support. In this context, inter- Invest’s incentives
through different public funding instruments and for national investors are subject to the same criteria as experts analyze the
different funding purposes. The individual funding German investors. possible levels of
requirements may, for example, result from invest- support available
ment projects, research and development activi- All incentives programs define eligible economic ac- for specific invest-
ties, personnel recruitment, working capital needs tivities as well as the kind of support. The available ment projects.
or other specific purposes. The different incentives public funding depends on project-specific factors
Contact
instruments including grants, loans and guaran- such as the planned investment, investment location,
invest@gtai.com
tees are generally available for all funding purposes investment sum, size of the investing company, and
and can ordinarily be combined; thus matching the the planned financing structure.
different business activity needs at different devel-
opment stages of the company. DETERMINING COMPANY SIZE
Across Europe, company size is defined according to
EU-set criteria. These divide companies into small,
Overview: Incentives in Germany
Funding purposes
medium-sized and large company classifications ac-
cording to:
4
Investments Working Research & Specific Personnel
Number of employees in the company/group
Capital Development Purposes (mandatory)
plus
Financing supported by any of the following public funding instruments
Turnover of the company/group
(combinations of instruments usually possible)
or
Public funding instruments
Balance sheet total of the company/group
Grants Loans Guarantees Equity Mezzanine
Capital Capital
42 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 43INCENTIVES
Criteria Determining Company Size The GRW is a national incentives program which Detailed information
steers the distribution of direct subsidies for invest- about the available
Company Staff Annual Annual Balance
ment projects across Germany in specified areas. level of support in
Category Headcount Turnover Sheet Total
the different regions
The maximum level of support that is permitted var- of Germany can be
Small Enterprise < 50 ≤ EUR 10 million ≤ EUR 10 million
ies within the country. At its simplest, this is largely found at the Germany
dependent upon a region’s level of economic devel- Trade & Invest
Medium-Sized Enterprise < 250 ≤ EUR 50 million ≤ EUR 43 million opment. In the maximum support-areas in Germa- website.
ny, large companies can receive up to 20 percent of
gtai.com/cash-
their eligible investment costs reimbursed; medium-
Large Enterprise ≥ 250 > EUR 50 million > EUR 43 million incentives
sized companies up to 30 percent eligible costs re-
imbursed, and small companies up to 40 percent of
The criterion concerning the headcount is compulsory.
In addition, either of the annual turnover or the balance sheet criteria must also apply.
eligible costs reimbursed. The maximum support
areas are located in eastern Germany.
Source: European Commission
In certain regions of western Germany as well as in
Based on the “Incentives in Germany” overview (page
42), the following section briefly outlines the most
Berlin and the Leipzig region, support is also avail-
able through the GRW, albeit at a lower level. Here,
4
common as well as attractive incentives programs large companies can receive up to 10 percent of their
and their application fields in Germany. eligible investment costs reimbursed; medium-
sized companies up to 20 percent eligible costs re-
imbursed; and small companies up to 30 percent of
GRANTS FOR INVESTMENTS eligible costs reimbursed.
Production site set-up or service location develop- Eligible costs in the context of production site set-
ment is supported by investment incentives programs up or service location development refers to either
providing support in the form of cash grants. the investment-related capital expenditure for new
buildings, equipment and machinery or personnel
GRW CASH GRANTS costs during the establishment phase of a new busi-
The most important grant program for investments ness. Funding regulations determining, for example,
is the “Joint Task Improving Regional Economic eligible activities or level of support are set at the
Structures” (Gemeinschaftsaufgabe “Verbesserung der federal state level.
regionalen Wirtschaftsstruktur” GRW ).
44 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 45INCENTIVES
GRANTS FOR RESEARCH AND TECHNOLOGY-OPEN SUPPORT
A number of national programs which do not have There are a number
DEVELOPMENT PROJECTS a specific technological focus also exist. Applica- of different models
tion for incentives available under these programs is for financing R&D in-
R&D incentives programs in Germany focus on non-
possible at all times (i.e. no prior calls for propos- vestments in Germany.
repayable grants. These generally provide money
als or application deadlines). The Central Innovation Germany Trade &
for R&D project personnel expenditure. Other costs
Program for SMEs (Zentrales Innovationsprogramm Invest’s experts will
for instruments and equipment may also be eligible
Mittelstand ZIM) is the most prominent of these pro- be happy to provide
if they can be clearly assigned to the relevant R&D
grams. you with more
project.
information.
R&D SUPPORT AT THE FEDERAL STATE LEVEL
GERMANY’S HIGH-TECH STRATEGY 2020 Contact
As well as the programs provided by the federal gov-
Germany Trade & All research programs financed by the German fed- invest@gtai.com
ernment, the individual federal states also have their
Invest’s incentives ex- eral government have been concentrated within the
own R&D support programs. These are primarily
perts regularly update federal High-Tech Strategy. The High-Tech Strategy
targeted at SMEs and are normally technology-open.
and define the specific defines lead markets and priorities, as well as key
However, some federal states do focus on specific
support possibilities technologies with a high dependency on ongoing
for R&D projects within high-tech research and development. Each area con-
technological fields. The level of support varies from
program to program and mostly depends on the na-
4
the framework of the sists of a number of different R&D programs.
ture of the R&D project. Cooperation projects with
High-Tech Strategy.
other R&D partners are not always compulsory.
The level of support can amount to 50 percent of eli-
Contact
gible project costs. In certain instances, small and
invest@gtai.com
medium-sized enterprises (SMEs) can benefit from
higher levels of support.
The federal government periodically calls for R&D
project proposals followed by a competition of best
project ideas. Cooperation between project part-
ners, especially between enterprises and research
institutions, is usually required.
46 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 47INCENTIVES
GRANTS FOR HIRING PERSONNEL The hiring of university graduates can also be sup-
ported through grants, with so-called “Innovation
Labor-related incentives play a significant role in re- Assistant” programs available at the federal state
ducing the operational costs incurred by new busi- level. Up to 50 percent of the respective labor costs
nesses. Germany’s Federal Employment Agency can typically be financed for a period of one to two
(Bundesagentur für Arbeit) and the German federal years subject to the program.
states offer a range of labor-related incentives pro-
grams designed to fit the different company needs
when building a workforce. They can be divided into
four categories:
PUBLIC LOANS FOR DIFFERENT
Recruitment support
FUNDING PURPOSES
Pre-hiring training Public loans occupy an important position in the
German funding system - at federal (KfW Banken-
Wage subsidies
gruppe), federal state (state development banks) and
On-the-job-training EU (European Investment Bank) levels. Long credit
The regional job cen- The most attractive of these options are wage subsi-
periods, attractive interest rates and repayment-
free periods are the most important features of this
4
ters can be contacted dies in the form of grants when hiring from the pool funding instrument. Small and medium-sized enter-
via the central website of the unemployed. In this case, up to 50 percent of prises in particular are often entitled to preferential
of the Federal Employ- the respective labor costs can typically be co-financed conditions.
ment Agency. from the local job center for a period of up to one year.
A further advantage exists for investors through
arbeitsagentur.de
Labor-related incentives are available across Ger- the possibility of combining public loans with other
many independent of factors such as company size, forms of incentives such as grants for investments,
industry sector, and investment project location. R&D projects or personnel (see “Incentives in Ger-
Programs can be carried out and adjusted by the lo- many” overview on page 42).
cal job center according to investor needs.
Public loans are available for the full range of fund-
ing purposes. The basis for integration of public
loans into the project-financing structure are the
term sheets for the respective loan program.
48 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 49INCENTIVES
KfW Entrepreneur Loan (KfW-Unternehmerkredit) PUBLIC GUARANTEES
Available for Privately owned companies with group
New companies often experience difficulties secur- Germany Trade &
turnover of max. EUR 500 million
ing financing as the required loans often cannot be Invest’s experts can
Use for Investments and/or working capital collateralized to a sufficient degree. In these cases help you contact financial
(with economically appropriate projects), so-called partners in Germany.
Financing share 100% of the eligible expenses,
“public guarantees“ can replace or supplement any
max. EUR 25 million Contact
shortfall in loan securities. This instrument delivers
invest@gtai.com
Term 2, 5, 10 or 20 years additional confidence in favor of the main bank con-
cerning the financed investment project in Germany.
Period of fixed interest rates 2, 5, 10 or 20 years
Grace period 1, 2 or 3 years Different types of public guarantee programs exist
subject to the financed amount to be secured by a
Loan securities Banking practice
public guarantee. The selection of the most adequate
Loan securities support Partly exemption from liability guarantee program depends also on the size of the
for investor´s main bank enterprise and the investment region. In general, up
to 80 percent of the total value of the concerning loan
amount is insured.
4
Information about One example of a flexible public loan program for the Loan programs - with different levels of exemption
additional products financing of investment projects including working from liability of the investor’s main bank against the
for foreign investors capital is the KfW Entrepreneur Loan (KfW Unter- loan program-providing development bank – provide
is available at the nehmerkredit). Some industry-specific loan pro- a special solution for investors with an insufficient
KfW website. grams offer very attractive loan conditions for inves- degree of loan securities. Such loan programs sup-
tors to promote investment in industries which are port investors to receive funding because the risk for
kfw.de
part of German economic policy focus. The fields of the main bank is reduced.
renewable energies and research and development,
to cite just two examples, are singled out for specific
investment focus.
50 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 51COMPANY TAXATION
5
Germany offers a competitive system of com-
pany taxation. The average tax burden on cor-
porate companies is less than 30 percent. In
some regions of Germany, due to a locally vari-
able rate of trade tax, it is under 23 percent.
This means that company taxation in Germany
Source: ©Sascha Burkard – www.fotolia.de
is highly competitive in comparison with other
leading industrial nations. Internationally
operating companies are able to avoid double
taxation of profits made in Germany on the
basis of differing international double taxation
agreements.COMPANY TAXATION
COMPANY TAXATION BASICS Taxation of corporations is made up of the following
components.
Income taxation of companies in Germany consists of
three components.
Corporate Income Tax
All corporations are liable to pay corporate income
1. In the first instance, corporations – such as the tax. The rate of tax is 15 percent on the taxable prof-
limited liability company (GmbH) and stock cor- its of the company. Corporate income tax is payable
poration (AG) – are subject to corporate income on undistributed as well as distributed profits.
tax (Körperschaftssteuer), whereas the partners of
partnerships are subject to personal income tax
Solidarity Surcharge
(Einkommenssteuer). Both taxes are defined by fed- The solidarity surcharge is added to the corporate
eral law. income tax. This totals 5.5 percent of the 15 percent
rate of corporate income tax or 0.825 percent. Taken
2. The so-called solidarity surcharge (Solidaritäts- together, the corporate income tax and solidarity
zuschlag) is added to the corporate or personal in- surcharge amount to a total taxable rate of 15.825
come tax. This is set at a rate of 5.5 percent of the percent.
income tax rate (and not 5.5 percent of income as
such).
Trade Tax
All commercial business operations in Germany are Germany Trade &
3. All business operations – corporations and part- liable to pay trade tax irrespective of their legal form. Invest is happy to
nerships alike – are also subject to the trade tax The tax rate is set by local authorities – which means inform you about the
(Gewerbesteuer), which is imposed by local munici-
palities (i.e. the town or city where the company is
that it can vary from one municipality to the next.
However, the trade tax rate is generally the same for
current levels of trade
tax at different loca-
5
based). all businesses within one municipality. The trade tax tions within Germany.
rate starts at 7 percent. The German average trade
Contact
tax rate is around 14 percent.
invest@gtai.com
TAXATION OF CORPORATIONS
The corresponding rate of trade tax depends on two
Germany does not have a nationally consistent to- components:
tal corporate income tax burden level, depending
The tax base rate (3.5 percent throughout Germany)
instead on locally set varying trade tax levels. For
that reason, the total corporate income tax burden in
The multiplier (Hebesatz) stipulated individually
some areas can be as low as 22.83 percent. The Ger- by every municipality
man corporate tax average is 29.83 percent.
54 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 55COMPANY TAXATION
The taxable income of the company is multiplied with Income tax starts at:
the tax base rate (3.5 percent) which results in the
14 percent for income that exceeds the annual
so-called ”tax base amount.“ This tax base amount
exemption of EUR 8,354, and
is then multiplied with the corresponding municipal
multiplier, which results in the sum total of trade tax
progressively increases to a top rate of 42 percent
due. The multiplier is set by each municipality. On av- (applying for an annual income of EUR 52,882).
erage, it is between 350 percent and 400 percent but
A higher rate of tax of 45 percent is levied on every
may not total less than 200 percent. There is no upper
euro earned over EUR 250,730 per year.
limit for the municipal multiplier. The municipal mul-
tiplier is often higher in urban than in rural areas. The
Solidarity Surcharge
solidarity surcharge is not levied on trade tax.
As with corporate income tax, the solidarity sur-
charge of 5.5 percent is also added to the partner’s
corresponding rate of personal income tax.
TAXATION OF PARTNERSHIPS
Trade Tax
Within partnerships, the partners generally take the Partnerships, like corporations, are subject to trade
sole entrepreneurial initiative and bear the related tax. However, partnerships have an annual tax free
business risk. Accordingly, while the partnership it- allowance for the trade tax of EUR 24,500. The soli-
self is not subject to income taxation (as is the case darity surcharge is not levied on trade tax.
with corporations), the individual partners are. The
personal income tax rate for the corresponding part- Unlike corporations, partnerships can offset some of Examples of offsetting
The tax rate to which
ner applies in this case. the trade tax they pay against personal income tax – the trade tax against 5
to the total of 3.8 times the trade tax base amount. income tax are
the partner of a part-
Taxation of partnerships is made up of the following This means that there is in effect no trade tax burden available at the
nership is subject can
components. for partnerships in municipalities with a multiplier Germany Trade &
be optionally adjusted
of under 380 percent. Trade tax still has to be paid Invest website.
to the tax rate of cor-
Personal Income Tax to the municipality. However, it can be offset against
porations. Detailed gtai.com/trade-tax
In order to calculate the personal income tax bur- personal income tax.
information is pro-
den of each partner, the taxable profit is determined
vided on the Germany
at the company level and allocated to the individual
Trade & Invest website.
partners according to their shares. As a rule, both
gtai.com/personal- the undistributed and distributed profits of a part-
income-tax nership are liable to personal income tax.
56 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 57COMPANY TAXATION
TAXATION OF DIVIDENDS FINAL WITHHOLDING TAX
Profits which are distributed to private shareholders
WITHHOLDING TAX are liable to a final withholding tax (Abgeltungssteuer)
If a German subsidiary company distributes profits of 25 percent plus the solidarity surcharge. The final
to its corporate foreign parent company (dividend withholding tax is retained by the debtor of the divi-
payment) then a 25 percent rate of withholding tax dend or the institution managing the deposit (e.g. a
(Kapitalertragssteuer) plus solidarity surcharge is bank) and then paid to the tax office. However, the ap-
payable. Where a double taxation agreement (DTA) plication of a DTA may lead to a lower withholding tax
between the Federal Republic of Germany and an- if the private stockholder resides in another country.
other country exists, the rate of withholding tax paid
can be reimbursed according to the agreement stip-
ulated in the corresponding DTA. VALUE-ADDED TAX (VAT)
As a rule, dividend payments on the basis of a DTA Value-added tax (VAT) is a tax on the exchange of goods
are taxed at a reduced rate of taxation of just 5 per- and services. Companies are obliged to add value-
cent, 10 percent, or 15 percent. The withholding tax added tax to the prices of their goods or services and
paid in Germany can also be credited against the tax to invoice their customers accordingly.
liability of the parent company which exists abroad or
the parent company is made exempt from the taxa- In specific B2B-transactions, the business client
tion in regard to the received dividends. This means himself has to transfer the VAT to the tax authority –
in effect that no double taxation takes place. Where the so-called “reverse charge” procedure (this is ap-
the creditor of the dividend-paying German corpora-
tion is a foreign corporation and no DTA between Ger-
plicable, for example, to certain types of construc-
tion work carried out by subcontractors).
5
many and the foreign nation exists, two fifths of the
withholding tax paid can, as a rule, be reimbursed. The reverse charge procedure is also generally ap-
plicable for “intra-community supplies” (i.e. the sale
Within the EU, dividend payments between a corpo- of goods or services from an entrepreneur in one EU
rate domestic subsidiary company and a corporate member state to a commercial customer in another
foreign parent company are tax-free over and above EU member state). Generally speaking, the commer-
a 10 percent stake which has been held for more than cial customer has to pay VAT in his EU member state
one year. in such cases (“intra-community acquisition”).
Different rules may apply for dividend payments by
partnerships.
58 Investment Guide to Germany 2014/15 Germany Trade & Invest www.gtai.com 59You can also read
