INVESTMENT GUIDE TO GERMANY

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INVESTMENT GUIDE TO GERMANY
INVESTMENT GUIDE
                  TO GERMANY
Issue 2014/2015
INVESTMENT GUIDE TO GERMANY
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
INVESTMENT GUIDE TO GERMANY
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

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INVESTMENT GUIDE TO GERMANY
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.
INVESTMENT GUIDE 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
INVESTMENT GUIDE TO GERMANY
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
INVESTMENT GUIDE TO GERMANY
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
INVESTMENT GUIDE TO GERMANY
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
INVESTMENT GUIDE TO GERMANY
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.
INVESTMENT GUIDE TO GERMANY
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 21
BUSINESS 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 23
BUSINESS 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 2014/15
COMPANY 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 29
COMPANY 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 31
COMPANY 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 33
COMPANY 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 35
COMPANY 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 37
COMPANY 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 39
INCENTIVES

                                                                                                  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 43
INCENTIVES

 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 45
INCENTIVES

                                  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 47
INCENTIVES

                                  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 49
INCENTIVES

 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 51
COMPANY 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 55
COMPANY 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 57
COMPANY 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 59
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