Germany
Company Formation Services

Germany
General Information and

Economy Overview

Reasons to Register a Company in Germany

Germany is one of Europe’s most important markets. 35 % of the European Union’s GNP is generated in this country. Germany’s population of more than 82 million people is the largest in the European Community. Germany is the fifth largest national economy in the world, quality “Made in Germany” is still well known worldwide. Germany’s location in the middle of Europe offers great business opportunities. Every European country can be reached within a few hours either by car, train, or plane. Equally interesting is Germany’s neighbouring position to Austria and Switzerland, not to mention the Eastern European countries, another giant market. There are many options available for a German company formation.

General Information

Germany has the largest population of any EU country. Its territory stretches from the North Sea and the Baltic in the north to the Alps in the south and is traversed by some of Europe’s major rivers such as the Rhine, Danube and Elbe.

Germany is a federal republic. The lawmakers at the national level are the Bundestag , whose members are elected every four years by popular vote and the Bundesrat , which consists of 69 representatives of the 16 states (Bundesländer).

After the Second World War, Germany was divided into the democratic West and the Communist East (German Democratic Republic). The Berlin Wall became the symbol of this division. It fell in 1989 and Germany was reunited a year later.

German is the most widely spoken first language in the European Union. Germany is the world’s third largest economy, producing automobiles, precision engineering products, electronic and communications equipment, chemicals and pharmaceuticals, and much more besides. Its companies have invested heavily in the central and east European countries which joined the EU in 2004.

As birthplace of Johann Sebastian Bach, Ludwig van Beethoven, Johannes Brahms and Richard Wagner, among others, Germany’s gift to European classical music is important. In thought and word, Germany’s huge heritage includes the works of Luther, Goethe, Schiller, Nietzsche, Kant, Brecht and Thomas Mann.

Germany is the second largest producer of hops in the world and the country is known for its quality beers. Wine is produced in the Moselle and Rhine valleys.

Economy Overview

The German economy – the fifth largest economy in the world in PPP terms and Europe’s largest – is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labour force. Like its Western European neighbours, Germany faces significant demographic challenges to sustained long-term growth. Low fertility rates and declining net immigration are increasing pressure on the country’s social welfare system and necessitate structural reforms. Reforms launched by the government of Chancellor Gerhard SCHROEDER (1998-2005), deemed necessary to address chronically high unemployment and low average growth, has contributed to strong growth and falling unemployment. These advances, as well as a government subsidized, reduced working hour scheme, help explain the relatively modest increase in unemployment during the 2008-09 recession – the deepest since World War II – and its decrease to 5.3% in 2013. The new German government introduced a minimum wage of $11 per hour to take effect in 2015. Stimulus and stabilization efforts initiated in 2008 and 2009 and tax cuts introduced in Chancellor Angela MERKEL’s second term increased Germany’s total budget deficit – including federal, state, and municipal – to 4.1% in 2010, but slower spending and higher tax revenues reduced the deficit to 0.8% in 2011 and in 2012 Germany reached a budget surplus of 0.1%. A constitutional amendment approved in 2009 limits the federal government to structural deficits of no more than 0.35% of GDP per annum as of 2016 though the target was already reached in 2012. Following the March 2011 Fukushima nuclear disaster, Chancellor Angela MERKEL announced in May 2011 that eight of the country’s 17 nuclear reactors would be shut down immediately and the remaining plants would close by 2022. Germany hopes to replace nuclear power with renewable energy. Before the shut-down of the eight reactors, Germany relied on nuclear power for 23% of its electricity generating capacity and 46% of its base-load electricity production.

Germany
Foreign Investments Incentives

Germany tries to encourage overseas investors.

Among the reasons overseas investors find Germany attractive are the following:

        – A developed infrastructure including speedy and efficient access to all Europe.

        – A skilled labor force, with a good command of English and other languages.

        – A developed scientific and technological infrastructure.

As a general rule, 100% overseas ownership is recognized in most sectors and there is no discrimination against foreign companies compared to local companies.

This is true as well in the privatization of national bodies in the telecommunications, mail and other sectors.

Overseas investors that are interested in penetrating the German market should remember that the German consumer has very high demands as to the quality of the brand purchased.

To this end, it is recommended, although there is no legal obligation to do so, that the prior approval of the German Standards Institute be obtained.

Germany Benefits for Investors

In general there is no difference between the benefits granted to overseas investors and those granted to local investors.

The benefits are granted in the form of investment grants, tax benefits, low interest loans or loans with a state guarantee for exporters. Occasionally, the benefit is granted as a combination of an investment grant and low interest loans, depending on the geographical area of the investment and the size of the investing company.

The Benefits are divided according to 2 types of investments:

An investment in new areas (East Germany, East Berlin).

An investment anywhere in Germany.

Germany Investment Grants
An Investment Subsidy

The tax subsidy is granted at the rate of 25%-27.5% of the investment in new movable property and buildings in industry having more than 250 employees, or less than 250 employees in case of SME, small and medium sized companies.

The tax subsidy relates to investments in the period 1.1.2006 to 31.12.2010.

Germany Research and Development Grants (R&D):

The benefits are granted in the form of grants and low interest loans to mainly to SME companies.

he grant may be up to 50% of the eligible costs.

Germany Investment Grants

The current investment grants refer to investments in the years 2006 to 2009.

The investor has to provide at least 25% of the equity, the project has to be completed within 3 years and the new created jobs has to be kept for at least 5 years.

The grats are also provided for creating new jobs.

The maximum rates for the grants are 28%-50% for SME, small and medium sized companies, and 18%-35% for big companies, depending on the area.

Double Taxation Treaties

Germany is a signatory to a Treaty for the Prevention of Double Taxation with many countries all over the world.

Draft agreements with additional countries are at the discussion stages.

A Double Taxation Prevention Treaty, in principle, enables offsetting tax paid in one of 2 countries against the tax payable in the other, in this way preventing double taxation.

Another important factor is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the Double Taxation Prevention Treaty.

When certain income is taxable under the Germany Income Tax Ordinance but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed, if at all, but only according to the provisions of the Taxation Treaty.