Doing business in Germany

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1 Doing business in Germany Germany is the ideal location from which to access the European market. The benefits are manifold. Germany is not only a highly developed industrial nation with the dynamic environment of a powerful economy but has also got an excellent infrastructure and a stable political and legal system. Your company should be the next in line to profit from this. This overview provides you with information for your settlement project in Germany, enabling you to fully exploit the location s advantages. Please do not hesitate to contact us for further information. Luther is the perfect partner to attend you on your way to Germany. As one of the leading law firms in Germany, we are available every step of the way, as an expert for questions concerning your relocation project. Even during the planning stages, our professionals knowledge and our well-established network of economic, administrative and political contacts will be available. Further subsequent to relocation, we will be ready to help and advise you. As a full service law firm we accompany your project from start to finish. We are able to advise and represent you in your on-going business in every relevant field of law. We would like to be a part of your project, and share your risks and successes. And while our goal is to avoid legal proceedings whenever possible, should this be necessary, we will be there to represent your best interests before the courts. Legal and Tax Advice

2 Luther Rechtsanwaltsgesellschaft mbh Finding the right location in Germany We at Luther know that finding a location for a business is more than just choosing a building. Before deciding where to go we will help you considering the big picture to make sure that you find a location with the suitable characteristics. We have years of experience in the most important economic centers in Germany. We know every inch of them and would like to share this knowledge for your success. With our excellent contacts to the Economic Development Agencies we will find the right place for your company: the right premises in the right part of town in the right city in the right federal state. North Rhine-Westphalia (NRW), for instance, is a dynamic business location with convincing location factors and might be just the right place for you. It has been one of the most popular investment locations for foreign companies in Europe for a very long time. Corporate Requirements There are various aspects to take into consideration when setting up a business in Germany. You can either purchase shares or assets of an existing German company. Or you can found a subsidiary or a complete new branch. Opening a subsidiary or a branch it is necessary to choose the correct legal form of the company. A corporation is usually the best option for larger, established companies. Decisive factors for the choice of legal form are generally the intended function of the shareholders, liability and terms of taxation. The basic structure of all company forms is stipulated by law which provides for predictability and legal certainty. Tax The tax law depends, amongst other things, on the legal form of the company. Corporations fall under German taxation if they have a registered office or their effective place of management in Germany. A general recommendation regarding tax aspects cannot be made. The decision whether to use a branch or a subsidiary depends on various factors such as the country of origin, the applicable DTT, the type of business, the type of financing etc. In general, since most of the German DTTs should have a non-discrimination clause (cf. Art. 24 III OECD Model Convention), there should be no significant difference when using a subsidiary or a branch. Germany does not have a nationally consistent total income tax burden level, depending instead on locally set varying trade tax levels. Corporate income tax (CIT) 15% The German Solidarity surcharge on CIT income tax rate 1 5.5% for corporations Municipal trade tax rate 7% - 17% is %. Standard value-added tax (VAT) 19% Reduced VAT rate 7% Data protection Legislation is based on EU Directives, but national German Data Protection Law applies accordingly. Exchange of data to countries outside the European Economic Area requires specific guarantees. EU General Data Protection Regulation will apply from 25 May Employment law Regarding staff there are also determining factors to be considered. German employees are in general highly qualified but there are parts of Germany that have higher rates of unemployment and consequently a lower average of salaries. We would like to consider these determining factors with you. Furthermore, it is important to have a closer look at the German employment law and its specific characteristics to see whether it is appropriate for your company s needs. The following gives you a short overview of German employment law: Statutes and general information: In Germany a great number of fragmented statutes exist, which set minimum standards. The level of protection provided by the German labor statutes is relatively high, e.g. a high degree of protection against dismissal, high health and safety standards and various participation rights. 1 effective tax rate: 0.825% 2

3 Social insurance: The main components of German s social security system are retirement insurance, unemployment insurance, employee accident insurance and health insurance. The employees and the employer each pay half of the contributions to social insurance, except for accident insurance, which is financed by the employer alone. The amount of these joint contributions depends upon the gross income of the individual employee. It amounts to around 40% of the gross salary, about 20 % for the employee and the employer. Minimum wage: Since 2017 onwards the minimum wage is EUR 8,84 per hour. The minimum wage commission is going to revise the minimum wage every 2 years. Share capital: A minimum share capital of EUR is required, of which EUR must be paid upon registration. This provides a good level of working capital. There is no maximum in terms of share capital or number of shareholders. Taxation: The GmbH is subject to corporate income tax, trade tax and solidarity surcharge. Representation: The managing director represents the GmbH. There are no requirements regarding nationality or domicile of the managing director. Works council: Each business regularly employing five or more persons has to allow its employees to establish a works council, but the formation is not mandatory. A works council is an organization representing workers in discussions with the employer. It has its own rights, e.g. codetermination rights, participation rights, including information and consultation rights. Corporate codetermination: Corporate Codetermination is codetermination through the supervisory board (Aufsichtsrat). It oversees officers and is e.g. responsible for appointing and dismissing the managing directors. Formation of a German legal entity The most commonly used establishment form in long term investments and undertakings in Germany is the GmbH (limited liability company), as its formation is quite simple. It holds an excellent reputation in Germany, is considered extremely trustworthy and thus a popular contracting party. The GmbH can be set up by any private or legal person, domestic or foreign as a private company only. Internal organization: It is represented and managed by managing director(s). The shareholders general meeting (Gesellschafterversammlung) is sovereign and can issue directions, that are binding for the management. Liability: The GmbH has to be registered in the Commercial Register and henceforth is itself, as separate legal entity, liable for its debts with its assets. The liability of the shareholders is limited to their share capital contribution. 3

4 Luther Rechtsanwaltsgesellschaft mbh Our offices in Germany: 10 offices in major German cities Hamburg Berlin Essen Dusseldorf Cologne Hanover Leipzig Frankfurt a. M. Stuttgart Munich 4

5 Key contacts London Tax Dr. Thomas Kuhnle London/Stuttgart Phone Ulrich Siegemund Frankfurt a.m. Phone York-Alexander von Massenbach London Phone luther-lawfirm.com Data protection Silvia C. Bauer Cologne Phone Corporate Dr. Klaus Schaffner Leipzig Phone Employment law Prof. Dr. Robert von Steinau- Steinrück Berlin Phone Legal and Tax Advice