Doing Business in Germany

Doing Business
in Germany and Europe
Doing Business in Germany

Agenda
1. General facts and figures
2. German Economy
3. German Business Environment
4. German Business Culture

General facts and
figures

Geography
 Located in Central Europe
 Size: 357,021 sq km
 Neighbouring States: Austria, Belgium, the Czech Republic, Denmark,

France, Luxembourg, the Netherlands, Poland and Switzerland
 Largest Cities (in million inhabitants): Berlin (3.5), Hamburg (1.8), Munich
(1.4), Cologne (1.0), Frankfurt/Main (0.69)

Geography
Germany consists of 16 states:
Baden-Wuerttemberg
Bayern (Bavaria)
Berlin
Brandenburg
Bremen
Hamburg
Hessen
Mecklenburg-Vorpommern (Mecklenburg-
Western Pomerania)
Niedersachsen (Lower Saxony)
Nordrhein-Westfalen (North Rhine-Westphalia)
Rheinland-Pfalz (Rhineland-Palatinate)
Saarland
Sachsen (Saxony)
Sachsen-Anhalt (Saxony-Anhalt)
Schleswig-Holstein
Thueringen (Thuringia)
Source: The World Factbook 2006 Doing Business in Germany

People
 Population: 81.7 million
 Population Growth Rate: -0.06% (2011 est.)
 Language: German
- Age Structure:
- 0-14 years: 11.0%
- 15-64 years: 72.1%
- 65 years and over: 16.9% (2010)
 Ethnic groups:
- 91.9% German
- 2.0 % Turkish
- 6.1% others (esp. Greek, Italian, Polish, Russian, Serbo-Croatian, Spanish)
 Religion:
- Protestant 29.2%,
- Roman Catholic 29.9%,
- Muslim 5.0%,
- unaffiliated or other 35.9%

Government
 Federal Republic of Germany
 Government type: federal republic
 Consisting of 16 federal states
 Capital: Berlin
 Legal System: civil law system
 Member of international organizations: e.g. EU, UN, NATO, OECD, WTO

Government
 Executive Branch:
 chief of state: President Joachim Gauck (elected for a 5-year term)
 head of Government: Chancellor Dr. Angela Merkel (elected for a 4-year term)
 cabinet: Bundesminister
 Legislative Branch: bicameral Parliament, consists of

 Bundestag
 Bundesrat
 Judicial Branch: Bundesverfassungsgericht (judges are elected by the Bundestag and the
Bundesrat)
 Main political parties: CDU, CSU, SPD, FDP, Alliance ‘90/Greens, Linkspartei, Alternative für
Deutschland

German
Economy

Economic Facts
 Largest economy in Europe, fourth largest in the world
 GDP: $2.5 trillion (2014)
 GDP real growth rate: 2.0% (2014)
 GDP per capita: $45.000 (2014)
 Currency: € (Euro)
 Exchange rate: 1 Euro equals 1,05 US-Dollar (March 2015)
 Public dept: 75 % of GPD (2015)

Development of GDP
in Billion €
Source: destatis.de

Development of GDP
Source: www.destatis.de

Economic Facts
 „Soziale Marktwirtschaft“ (Ludwig Erhard) as a brand name
 Labor force: 41.6 million (2012)
 Unemployment rate: 5,4% (08/2012) extremly positive!
 Inflation rate: 0.9% (2014) (Deflation???)
 Industrial production growth rate: 3,7% (2010), 3,0% (2011)
 Economy characterized by small and medium-sized-enterprises (>85%)
 Very attractive for foreign investors (>10,000 foreign companies, with >2 million
employees and sales of >750 billion/year)

* Source: http://www.destatis.de

Unemployment rate in Germany
Source: www.destatis.de

Development of Inflation
Germany Economic Forecast October 2010
Source: destatis.de

Economic Sectors
GDP - Composition by sectors Labor force by occupation
agriculture agriculture
0,9% 2,8%
industry
29,1%
industry
33,4%
services
63,8%
service
70,0%
Data from CIA World Factbook 2008

Made in Germany…
Agriculture Products Industrial Products
Potatoes Iron
Wheat Steel
Barley Coal
Sugar beets Cement
Fruit Chemicals
Cabbages Machinery
Cattle Vehicles
Data from CIA World Factbook 2009
Pigs Machine tools

Poultry Electronics
Food and beverages
Shipbuilding
Textiles
Germany – one of the leading holders of patents
Source: http://www.invest-in-germany.de/en/ Doing Business in Germany

International Trade
Current Account Balance: € 158 billion (2011) (Germany)
Exports Imports
€ 1.060 trillion € 902 billion
Export Commodities: Import Commodities:

• Machinery • Machinery
• Vehicles • Vehicles
• Chemicals • Chemicals
• Metals & Manufactures • Foodstuffs
• Foodstuffs • Textiles
• Textiles • Metals
Source: destatis.de

Foreign Trade
Source: destatis.de
Foreign Trade
Source: destatis.de
Importing and exporting countries
Source: docstoc.com

Trade of goods and services – a comparison
Source: http://www.invest-in-germany.de/en/ Doing Business in Germany

German Business
Environment

Business Environment
EASE OF… 2009 RANK 2012 RANK
Doing Business 25 19
Starting a Business 84 98
Registering Property 57 77
Getting Credit 15 24
Protecting Investors 93 97
Paying Taxes 71 89
Trading Across Borders 14 12
Enforcing Contracts 7 8
Closing a Business 35 36
Source: World Bank – Doing Business.org

*The rankings are from the Doing Business 2010 report, covering the period June 2008 through May 2009
Infrastructure in Germany
 Highly developed infrastructure in Germany
 One of the densest railway network worldwide
 >12,800km motorways
 Many international airports (e.g. Frankfurt, Munich,

Düsseldorf, Cologne/Bonn)
 Many seaports (e.g. Hamburg, Bremen, Bremerhaven,

Rostock)

Infrastructure in Germany
Quality of Infrastructure in
2011
1. Hongkong, SVR ...
2. Deutschland 15. Japan
3. Singapur 16. USA
4. Frankreich ...
5. Schweiz 36. Tschechische Republik.
6. Vereinigtes Königreich ...
7. Niederlande 46. Ungarn
8. Vereinigte Arabische
...
Emirate (VAE)
9. Korea (Rep.) 57. Slowakische Republik
10. Dänemark ...
... 74. Polen
12. Spanien ...
Source: Invest in Germany (2012)

The German Banking System
 Universal banking system (one shop policy)

 Universal banks
– Commercial banks
– Saving banks (Sparkassen)
– Cooperative banks (Genossenschaftsbanken)
 Specialized banks
– Mortgage banks
– Credit institutions with specialist functions

Legal system - different types of courts
1. Administrative Courts
Companies and Citizens are protected from arbitrary or incorrect decisions by the
authorities
2. Ordinary Courts
Hearing criminal and civil disputes
3. Labour Courts
Dealing with disputes arising from industrial relations
4. Fiscal Courts
Responsible for disputes relating to charges and taxes, subject to federal legislation
5. Social Courts
Dealing with disputes arising from social institutions (health care, pension and others)
6. European Court of Justice

Standarized application of European law to be ensured

Starting a Business in Germany
Nature of Procedure (2006) Proc Duration (days) US$ Cost

#
Clear the name of company at the local Chamber of Industry and Commerce 1 1 0.00
A notary notarizes the articles of association and foundation agreement 2 1 1,183.23
Open a bank account and deposit paid-in capital 3 1 0.00
Notary public files the articles of association with the local Commercial Register, 4 14 553.58
kept at local courts
Notify the local Office of Business and Standards of the establishment of the 5 3 38.38
business
Register with the professional association of the relevant trade 6 1 0.00
Notify the local labor office of the establishment of the company 7 1 0.00
Register employees for health and social insurance 8 1 0.00
Mail out the documentation to the Tax Office 9 1 0.00
Totals: 9 24 $1,775.19
Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*).

Financial assistance and development grants
 KfW bank group (Kreditanstalt für Wiederaufbau)
– KfW assistance through ERP capital (funds from the European Recovery
Program
– KfW start-up funds (Startgeld)
– KfW capital for start-ups
– KfW capital for growth
– KfW entrepreneur loans
– KfW micro loans
– ERP environmental and energy-saving programs
– ERP regional promotion program
 Regional business development agencies

 Federal development database (Förderdatenbank) www.bmwi.de
For further information see http://www.invest-in-germany.de/en/

Legal forms for starting a business
1. Representative Office
2. Sole Proprietorship
3. Partnerships
- GbR
- OHG
- KG
4. Corporations
- GmbH
- AG
5. Trusts

Representative Office
• Suitable for initiating business and maintaining contacts
• Very low costs
• One person required the minimum
• No minimum capital required
• No formal costs required
• Managed by representatives
• No business activity, therefore no liability
• No partners, representatives only

Sole Proprietorships
• Suitable for start ups and small businesses
• Just one person needed to open the business
• Low formal costs
• ! managed by the founder / owner of the business only
• Personal unrestricted liability of the owner
• Only natural persons as partners possible

Partnerships - GbR
• Suitable for small and new companies
• At least two partners required
• Low formal costs, articles of association not required but advisable
to clarify obligations and rights
• Managed by all partners or just by one/several appointed ones, also
possible by non-partners
• Personal unrestricted liability of all partners
• Partners can be natural person and/or legal entity

Partnerships - OHG
• Suitable for large and medium-sized companies
• Formal costs for written articles of associations and accounting
obligations, that are more strict than for GbR
• Application for entry in commercial register required
• Managed by all partners or just by one/several appointed ones
• Company management by non-partners possible
• Personal unrestricted liability of all partners
• Partners can be natural person and/or legal entity and partnership

Partnerships - KG
• Formal costs for written articles of association and stating level of
capital contributions
• Managed by all general (personally liable) partners or just by
one/several appointed general partners
• General partners unrestricted liable, limited partners just liable up to
the level of their contribution
• Partners can be natural person, legal entity and partnership

Corporations - GmbH
• One partner required the minimum
• Minimum capital of 25,000 Euros
• Formal costs for articles of association that need to be certified by
notary
• Managed by managers, that are appointed by the partners
• Liable with the company assets, partners liable only to the level of
their obligation of investment
• Partners can be natural persons and/or legal entity

NEW Limited One Euro GMBH
Law of modernisation for the GMBH / Ltd ,Nov. 1st, 2008
Das neue GMBH – Recht

• Im neuen GMBH –Recht gibt es hinsichtlich Stammkapital und Haftung zwei Varianten der GMBH. Neben der bewährten GMBH
(Mindeststammkapital 25.000 Euro) gibt es nun die haftungsbeschränkte Unternehmensgesellschaft (§ 5a GMBH Gesetz) - „ein Euro –GMBH“ -.
Diese kann ohne bestimmtes Mindestkapital gegründet werden, darf dann aber ihre Gewinne nicht voll ausschütten, sondern soll diese durch
entsprechende Rücklagenbildung das Mindeststammkapital der normalen GMBH nach und nach ansparen.
• Die Verteilung, Zusammenlegung und Übertragung von Geschäftsanteilen wurde deutlich flexibilisiert. Jeder Geschäftsanteil muss nun nur noch auf
einen Betrag von mindestens einem Euro lauten.
• Zur Vereinfachung der GMBH – Gründung und ersten Handelsregistereintragung gibt es Standardprotokolle. Diese sind zwar weiterhin
beurkundungspflichtig, führen aber bei Verwendung zu einer Kostenprivilegierung.
• Genehmigungen (z.B. Handwerkskammer) als Eintragungsvoraussetzung im Handelsregister entfallen.
• Der Nachweis der Kapitalerbringung kann das Gericht nur bei erheblichen Zweifeln verlangen. In diesem Zusammenhang gibt es jetzt konkrete
Regelungen zur „verdeckten Sacheinlage“.
• Der Verwaltungssitz (z.B. im Ausland) kann von der Satzung abweichen.
• Dadurch, dass die Gesellschafterliste (beim Handelsregister) dem öffentlichen Glauben unterliegt, wird der gutgläubige Erwerb von Geschäftsanteilen
von in der Liste bezeichneten Gesellschaftern möglich. Dies erhöht den Anreiz, die Liste permanent aktuell zu halten.
• Das Gesellschaftsrecht wurde auch an geltende Insolvenzrichtlinien angepasst. Es gibt Verfahrenserleichterungen für Gläubiger, mehr Sicherheit
hinsichtlich der Haftungsrangfolge und der Pflichten der Gesellschafter bei fehlenden Geschäftsführern.
• In the new GMBH Law regulations there are two varieties regarding the capital structure and liability. Besides the reliable GMBH (minimum
capital 25.000 Euro) there now is the option for a New Limited (§ 5 a GMBH Law)- “one Euro Limited”-This kind of company can be
founded without any minimum of capital but after then it is forbidden to take out the total profit of the company. Part of the profit has to fill
up the capital stock until it has reached step by step the minimum capital of a traditional Limited.
• The distribution, fusion and transfer of shares now can be done much more flexible. Each share now has to have the amount of a minimum of
one Euro.
• To simplify the foundation of this Limited and its first registration there are set up standard protocols. They still have to be signed by a
notary but if it is made use off these there will be a privilege of costs.
• There is no longer any necessity for approval in order to get registered in the commercial register. By that there is an incentive to keep this
list permanently actual.
• This Law also was adjusted to the actual regulations regarding insolvency. There now are facilitation in procedures for the creditors, more
security regarding the ranking of liability and the obligation of the shareholders in case of missing managers.

Corporations - AG
• Suitable for large companies
• One shareholder required the minimum
• Minimum capital of 50,000 Euros
• Formal costs for recording the statutes by a notary, the appointment of the
first supervisory board and statutory auditor
• Application for entry in commercial register required, that has to be certified
by notary
• Managed by the board of management, that is appointed by the supervisory
board
• Liable with company assets (basic capital)
• Shareholders can be natural persons and/or legal entities

Trusts
• Suitable for pursuing of certain aims (incl. commercial ones) using assets
• One founder needed
• No minimum capital required, however fulfillment of the purpose of the trust
has to be ensured
• Formal costs for trust business and written trust statutes
• No entry into register required but state recognition by the supervisory
authority for trusts
• Managed by the trust board of management (defined by the founder in the
trust statutes
• Liable with trust assets
• No partners, instead beneficiaries of the trust assets

Labour in Germany

What to know about the german labour market
 Wages are among the highest when comparing internationally
(2012: € 30,10 p.H.)
 Labour is known to be productive and skilled
 Powerful and large Unions
 Strong protection of workers by law
 Costs for social security and health care are split equally between
employer and employee
 Average working hours: 37.5 hours/week

The Contract of Employment
 Written contracts between employer and employee are customary
 The following aspects should be included in the contract:
- task description
- Area of activity
- remuneration
- Effective day of the contract
- Daily/weekly working hours
- probationary period and its duration
- Duration of the contract if short-term contracts
- Declaration of confidentiality
- Possible secondary occupations
- Notice period
- Leave allowance

Labor conditions that have to be met
 Minimum wages
 Daily working hours of 8 hours (if >10 hours, a period of free time
must be granted for compensation)* details to be read in AZG (Arbeitszeitgesetz)
 In case of working hours between 6-9 hours, employees can claim a
break of 30 min.
 Generally no work on sundays and holidays (some exceptions in
specific branches)
 At least 24 days of holidays per year
 The employer has to continue paying if the employee is sick
(up to 6 weeks with a doctor‘s certificate after then health insurance will pay up to 78 weeks)

Notice of Termination
Reasons for terminations:

 Business reasons
 Personal reasons
 Conduct-related reasons
 Extraordinary termination
Only written terminations are legal!

Notice of Termination
 In case of short-term contracts, no note of termination needed, as
already set in the contract
 Within the probationary period (maximum 6 months) notice period of
2 weeks
 In case of permanent contracts the notice period has to be met (4
weeks up to 7 months, depending on the time, the employee stayed
in the company)
 Kündigungsschutzgesetz in companies with >10 employees
 Consider special rulings for protecting disabled people, young
mothers and mothers to be

Mini jobs and midi jobs
1. Mini jobs = part time jobs
• Up to € 400 per month
• Or not working more than 50 days per year
• Flat rate charge (25-30%) paid by the employer
• No taxes or charges paid by the employee
2. Midi jobs = low paid jobs

• Between € 400-800 per month
• Goverment subsidizes social security contributions of the
employee

Social security system
Forms of insurances:*
1. Health insurance (14.9-15.5%)
2. Nursing care insurance (1.95%)
3. Unemployment insurance (3.0%)
4. Pension Insurance (19.6%)
5. Accident Insurance ( average 1,53%) **

* notice: insurance 1.-5. split 50 % and to be covered by the entrepreneur , 50 % to be covered by the employee
* * 100% to be covered by the entrepreneur, the amount is depending on the risk class; different for each branch

Taxes in Germany

Most important taxes for investors
 Value added tax (VAT)
 Income tax
 Company taxation
 Corporation tax
 Trade tax
 Real estate tax
 Real estate transfer tax
 VAT in the European single market
 Import turnover tax
Source: invest in Germany

Taxes to be paid in Germany
Tax Payments Statutory tax Tax base Total
(number) rate tax
rate
(%
profit)
Value added tax (VAT) 1 19% value added 48.5

Corporate income tax 5 25% taxable income 14,4
Social security contributions 1 9.75% gross salaries 11,3
Trade tax 5 14%-20% taxable income 9,8
Health insurance 1 6.25% gross salaries 7,2
contributions
Highway tax 1 € 485/100 l fuel consumption 4,5
Unemployment 1 3.25% gross salaries 3,8
contributions
Insurance contracts tax 1 16% insurance premium 2,9
Fuel tax 1 € 484/1,000 l fuel consumption 1,7
Interest tax 1 20% interest income 0.8
Solidarity tax 5 5.5% corporate income 0.5
tax
Vehicle tax 1 € 5-30/100m³ engine capacity 0.1
Property tax 8 > 0.1% property value 0.1

Totals: 32 57.1

The biggest enterprises
in Germany

The ten biggest industrial companies in 2011
Company Sales in Million Euro Employees in 1,000
Volkswagen AG 126.875 399,4
Daimler AG 97.761 260,1
E.ON AG 92.863 85,1
Siemens 75.978 405,0
BASF SE 63.873 109,1
Deutsche Telekom 62.421 246,8
BMW AG 60.477 95.453
Deutsche BP AG 54.281 9,7
RWE 50.722 70.9
Robert Bosch 47.259 303.0

The ten biggest trade companies in 2010
Company Sales in Million Euro Employees in 1,000
Metro AG 67.258 252,2
Schwarz-Gruppe 60.000 310,0
Rewe-Gruppe 53.040 336,0
Aldi Gruppe 50.800 200,0
Edeka Gruppe 42.500 302,0
Franz Haniel & Cie 27.432 58,1
Phoenix Pharmahandel 21.738 23,2
Lekkerland 12.200 6,2
Otto Gruppe 11.404 49,7
Tengelmann 11.340 80,3

The five biggest credit institutes in 2011
Company Balance sheet total in Employees in 1,000

billion Euro
Deutsche Bank AG 1850 101,69
Commerzbank AG 661 58,16
LB BW 411 13,63
DZ Bank AG 405 27,83
HVB Group 400 21,47

German
Business Culture

Cultural Dimension by Geert Hofstede
Source: http://www.geert-hofstede.com/hofstede_germany.shtml

Cultural Dimension by Geert Hofstede
 PDI: Power Distance Index
 IDV: Individualism
 MAS: Masculinity
 UAI: Uncertainty Avoidance Index
 LTO: Long Term Orientation

What to know about the German culture…
 German living and working is defined by structure (laws, rules,

procedures)
 For decision-making and problem-solving Germans focus on

objective facts
 Interpersonal relationships do not play an important role in business

dealings. Instead focus on archieving your tasks
 Focus on direct communication style
 Germans are individualistic

 The business culture has a well-defined hierarchy which includes
clear responsibilities and distinctions between roles
 Status and academic titles are quite important to Germans –
address people by their full and correct titles
 In formal business meetings, the highest-ranking person usually
enters the room first
 A seperation between private life and work is quite common in
Germany
 First names are used in more private situations. Use the formal
version of „Sie“ unless you are invited to the informal „Du“

 Germans dress quite conservative in business (dark suits, blouses,
ties etc.)
 Punctuality is essential (in business and social situations)
 Appointments are made for almost every situation
 Germans plan ahead (book meetings some weeks in advance)
 In business situations, hands are shaken at the beginning and at the
end
 Germans keep a larger personal space around them
 Decisions are made slowly and methodically

Sources
Internet Sources:
• http://www.tatsachen-ueber-deutschland.de
• http://www.destatis.de/
• http://www.invest-in-germany.de/en/ (Business Guide to Germany)
• http://www.auswaertiges-amt.de/
• https://www.cia.gov/cia/publications/factbook/geos/gm.html
• http://www.doingbusiness.org/ExploreTopics/StartingBusiness/Details.aspx?economyid=75
• http://www.buyusa.gov
• http://www.buyusa.gov/germany/en/practices.html
• http://www.cyborlink.com/besite/germany.htm
• http://www.kwintessential.co.uk/etiquette/doing-business-germany.html
• http://www.communicaid.com/germany-business-culture.asp
• http://www.worldbank.org/
• http://www.german-business-portal.info/
Other Sources:
• Deutschland in Zahlen 2009, Institut der deutschen Wirtschaft in Köln

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