In this article, we will cover the advantages and challenges of investing in Germany, as well as mentioning the forms of companies and how to start doing business in Germany with potential sectors.
WHY INVEST IN GERMANY?
Germany has one of the most stable economies in the world, offering a developed and secure framework to foreign investors. It is the fourth-largest economy in terms of nominal GDP, on the global scale( IMF World Economic Outlook, 2020).
With well-regulated legal frameworks, Germany has very effective protection for the investors regarding their industrial and intellectual property.
Germany indicated during The Group of 20(G20) forum in 2017, that it is willing to adopt a non-binding investment facilitation package to ensure a transparent business climate and willing to take actions to support inclusive economic development( Axel, B., Gsell S., Olekseyuk Z., 2019, Investment Facilitation for Development: A New Route to Global Investment Governance).
Even in the most unstable environment for global economies, Germany still protects its secure and stable economic structure. For instance, even though the OECD has projected a %40 drop in global FDI flow, due to the COVID-19 pandemic, Germany managed to be one of the OECD countries in which the FDI flows have increased in the first half of 2019, according to the FDI in Figures report of OECD(FDI in Figures, 2020, OECD).
In conclusion, Germany has a lot to offer for foreign investors and people willing to do business in Germany.
INVESTMENT SECTORS WITH HIGH POTENTIAL IN GERMANY
Germany is attracting many investors from the world, for its stable and secure economic environment. Many investment sectors have gotten increased attraction from investors over the years and some of these sectors can be listed as follows:
- Services to consumers
Germany has the largest population in Europe and consumer services are highly profitable and appealing for investors.
Germany is an appealing destination for tourists with its great history and natural wonders. Therefore, investors mostly find it appealing to invest in accommodation and tourism facilities.
- Healthcare Industry and Biotechnologies
The Healthcare industry is a great contributing factor to the German economy and it is one of the most developed industries in Germany. Due to its great pharmaceutical and biotechnology companies, the healthcare industry in Germany is very appealing for investors.
- Information Technology and Communication
IT&C industry is constantly developing in Germany, and the German IT&C industry is one of the most innovative ones in the world. Germany is also the largest software market in Europe. It constitutes almost a quarter of the European software market by value.
COMPANY FORMS IN GERMANY
- Limited Liability Company (GmbH)
The most widely used corporation form is GmbH(Gesellschaft mit beschränkter Haftung) in Germany. It is a flexible business type with relatively fewer obligations. A GmbH income is subject to trade tax, corporate income tax, and solidarity surcharge. GmbH companies may be established with only one shareholder and the minimum share capital is EUR 25,000 to establish a GmbH. At the time of registration, at least half of the minimum capital must be verifiably deposited. Other forms of corporations:
• Stock Corporation (AG)
• Partnership Limited by Shares (KGaA)
A German-resident corporation is liable for the taxes on its worldwide incomes. However, it is possible to exempt incomes of foreign permanent establishments(PE), via double tax treaties(DTT). Nonresidents with property incomes or permanent establishments are only liable for their German-source incomes. Foreign paid interests are mostly free of German tax and business profits are subject to trade tax and corporate tax.
Partnerships in Germany require at least two partners and there are four major types of partnerships.
- Civil Law Partnership (GbR)
- General Commercial Partnership (OHG)
- Limited Partnership (KG)
- GmbH & Co. KG(Limited partnership with a limited liability company as general partner)
Partnership taxations take place as per the personal taxation regime, and partners are subject to tax for their individual incomes. General and limited partnerships are not considered separate from their founders as a legal entity, therefore they are not subject to corporate tax. German partnerships can consist of two or more partners regarding taxation purposes.
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In Germany, there are two types of branch establishments. These establishments essentially differ depending on their independence status from the head company.
- Autonomous Branch Office
- Dependent Branch Office
In order for a branch establishment to be subject to taxation, it has to be regarded as a permanent establishment. Autonomous branch offices are mostly considered permanent establishments and thus they are subject to taxation. However, a dependant branch office can only be considered as a permanent establishment and subject to taxation, under certain conditions.
CHALLENGES OF DOING BUSINESS IN GERMANY
To begin with, establishing a business in Germany can be challenging due to the complex bureaucratic procedures and requirements. It ranks 125 out of 190 economies for starting a business, according to the World Bank Doing Business Report 2020, mostly because of the aforementioned complicated procedures. Taxpaying procedures can also be as complicated.
Registering property for business is also challenging in terms of the procedures which may take approximately 52 days to be completed.
ADVANTAGES OF DOING BUSINESS IN GERMANY
Germany offers a variety of incentive programs and public fundings for foreign investors. Germany also encourages foreign investment through appealing tax deductions and financial loans. The government signed Double Taxation Treaties with almost 90 countries to avoid double taxation. Also, there is no discrimination against foreigners regarding taxation. Foreign investors are able to have majority shareholding in a German company which indicates an example of their policies against discrimination.
Furthermore, there are some social and cultural advantages for foreign investors and business people. For instance, German business etiquette highly values professionalism, integrity, and punctuality. These qualities may appear challenging at first; they are actually very beneficial to obtain for a successful business. Also, the majority of the German people are English speakers which is very beneficial in terms of communicating with foreigners.
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PROCEDURE TO START A COMPANY IN GERMANY
According to the Doing Business 2020 study of World Bank, it is possible to establish a business in Germany, by following few procedural steps. These steps are listed down below:
- Checking company name at the local chamber of industry and commerce,
- Notarizing the Articles of Association and Memorandum of Association,
- Depositing minimum amount of capital,
- Filing the Articles of Association through the notary and registering the company
- Notifying the local Office of Business and Standards,
- Registering with the Professional Association of the relevant trade
- Notifying the local Labor Office,
- Registering employees for health and social insurance,
- Register with the local Tax Office and obtain the VAT number.
Invest in Germany
Att. Bedrettin Gürcan I Partner
Vildan Özen LLB
All rights reserved. All rights of the Invest in Germany article belong to Gurcan Partners International Law Firm. The author has no responsibility for the information in this article. This article is prepared just to inform.
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- World Economic Outlook: A Long and Difficult Ascent, October 2020, International Monetary Fund,
- Berger, Axel / Sebastian Gsell / Zoryana Olekseyuk 2019, Investment Facilitation for Development: A New Route to Global Investment Governance Briefing Paper, German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE),
- FDI in Figures, October 2020, OECD,
- World Development Report 2020, World Bank Group
- Doing Business Report, 2020, World Bank Group
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