Investment Guide to Germany 2013

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Investment Guideto GermanyIssue 2013

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4 Investment Guide to Germany 2013 Germany Trade & Invest www.gtai.com 5

Foreword

Dear Reader,

Germany is one of the worlds favorite foreign directinvestment destinations reputable internationalstudies consistently confirm Germanys status asone of the worlds most attractive investment lo-cations. Its not hard to see why.

Germany remains the fourth largest economy inthe world. Home to Europes best-performing andlargest economy, Germany generates around onefifth of total European GDP. Global technology lea-dership and a highly diversified industry sector aregiving rise to all number of market opportunities innumerous industry sectors.

We believe that the countrys business and industryinfrastructure and technology and innovation leader-ship provide the complete smart business answerfor international investors looking to do business inEurope.

Thats why it gives me particular pleasure to pre-sent you with the new edition of the Investment Guide

to Germany. This practical and easy-to-use hand-book guides you step-by-step through the businessand company formation process in Germany.

As a global agency that acts locally, Germany Trade &Invest has considerable experience in helping inter-national companies set up business in Germany.

Our comprehensive range of advisory, business in-

formation, and project support services help smooththe path for easier international investment. Our newInvestment Guide provides an easy orientation pointfor your future business activities in Europes mostdynamic economy.

The German market was never closer. And setting upbusiness in Germany never easier.

Talk to us today to find out how we can helpyour business.

Dr. Jrgen Friedrich

Photo:AnnoDittmer

Dr. Jrgen Friedrich


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Company Taxation

Corporate Income Tax and Personal Income Tax

Trade Tax

Value-added Tax

Tax Declaration

Labor Market

Finding Suitable Staff

Flexible Employment Models

Terms of Employment

Termination of Employment

The German Social Security System

Legal Framework

Business Law

Basic Information on Litigation

Intellectual Property

Addresses

ShareholdersGerman Economy Partner

Federal States Partner

Imprint

Coming to Germany

Residence Titles

Residence Titles for Differing Business Activities

Residence Titles for Employed Persons

Types of Company

CorporationsPartnerships

Branch Offices

Types of Company Overview

Company Registration

Commercial Register

Trade Office

Chambers of Industry and Commerce

and Chambers of Crafts

Incentives

Incentives Overview

Investment Incentives: Cash Grants

Interest-reduced Loans

Public GuaranteesLabor-related Incentives

Research and Development Project Incentives

Contents

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10-11

11-14

14-17

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20-2121-22

22-25

26-27

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30-32

32-33

34

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38-40

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1

Coming to Germany

Germany distinguishes between differentkinds of residence titles for specific purposessubject to the length of stay and intended(business) activity in Germany. These includeSchengen and national visas, residence andsettlement permits. An easy-to-acquireSchengen visa (business-visa) is sufficientfor conducting most business and adminis-trative activities which need to be organized

prior to locating to Germany.

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Coming to Germany

Nationals of certaincountries do notrequire a Schengenvisa for short-termstays in Germany.The Federal ForeignOffice is able to

provide detailedinformation.

auswaertiges-amt.de

Application and IssueIf a visa is required for entering Germany, an ap-propriate application must generally be made pri-or to entering Germany at the responsible Germanembassy or German consulate. The correspondingembassy or consulate will issue the required visain the applicants home country within a few weeks.

Application costs EUR 60 regardless of internationallocation.

It is possible to download visa application forms forfree from the website of the German Federal ForeignOffice (Auswrtiges Amt). Applications for a Schengenvisa can be sent directly to the Federal Foreign Officeonline via an electronic application acquisition sys-tem.

Residence Titles for Differing

Business Activities

Along with the investors country of origin, the re-quired residence title depends on the intended busi-ness activity in Germany. It is not always necessaryto apply for a residence permit if a company is to be

established in Germany. However, to manage a com-pany on location, a residence permit is generally re-quired in order to carry out a self-employed or depen-dent activity.

Certain exceptionsexist for citizens ofthe new EU states ofBulgaria and Romaniawho may require awork permit until theend of 2013. Please

refer to our website.gtai.com/visa

Residence Titles

Germany distinguishes between three differentkinds of residence titles:

J Visas (Schengen and national)

J Residence permit

J Settlement permit

A visa authorizes the holder to enter and stay inGermany for a temporary period (up to 90 days persix-month period from initial date of arrival). A re-sidence or settlement permit authorizes the holderto stay for the long term (more than 90 days per six-month period) or to work on a self-employed basisor as an employee in Germany.

Who Requires a Residence Title?EU citizens and citizens of the states of Iceland, Nor-way, Liechtenstein, and Switzerland do not requireany form of visa, residence or settlement permit tobe able to settle or work in Germany.

Citizens of non-EU countries require a Schengen visa

for short-term stays in Germany (up to 90 days persix-month period starting from the initial date of ar-rival). All non-EU citizens require either a residenceor settlement permit if the duration of the stay ex-ceeds 90 days. For this purpose, a national visa isissued for the trip to Germany by the responsibleGerman embassy in the applicants home countryor country of residence. This is then converted into aresidence permit in Germany by the responsiblelocal immigration authority.


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An overview of the

residence permitsrequired for differenttypes of businessactivity in Germanyis provided at theGermany Trade &Invest website.

gtai.com/coming-

to-germany

Coming to Germany

On-Site Company ManagementBusiness operators from non-EU countries and whomanage their company on location in Germany as aself-employed person require a residence permit forthe purpose of self-employment.

This is generally issued where:

J an economic interest or a regional need existsregarding business investments of theintended nature;

J positive economic consequences are to beexpected from the investment project and

J the financing is secure.

The local immigration office (Auslnderbehrde) in-dividually assesses to what extent these criteria aremet. It takes into account the following aspects:

J Viability of the underlying business idea

J Foreign nationals entrepreneurial experience

J Level of capital investment and availability of capital

J Effects on the employment and training situation

J Contribution towards innovation and researchin Germany

The local immigration office involves the local tradeoffice as well as the local Chamber of Industry &Commerce (Industrie- und Handelskammer), theChamber of Skilled Crafts (Handwerkskammer) orother competent authorities regulating admissionto the profession concerned.

Establishing a BusinessA Schengen visa is generally sufficient (usuallycalled a business visa in this context) for most stepsrequired to establish a business in Germany.

This permits a 90-day stay in Germany, during whichtime all of the key business formation steps can be

carried out. These include:

J The conclusion and notarization of thearticles of association

JApplication for entry in the commercialregister (through a German notary)

J Trade registration

J Other preparatory activities during the businessestablishment phase (such as opening a bankaccount or the conclusion of rental agreements)

J Negotiations and the conclusion of contractswith business partners

Please note: Establishing a business in Germanywith a Schengen visa (business visa) is no guaranteefor the subsequent issuing of a residence permit. For

this reason it is necessary appropriate to the inten-ded business activities in Germany to apply for aresidence permit for the purpose of self-employmentor regular employee purposes in advance.

If the establishment of the company and the stay inGermany exceeds 90 days it is also necessary to applyfor a residence permit in advance.


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Coming to Germany

Federal Employment Agency ApprovalAs a rule, a residence permit for the purpose of ta-king up employment is only issued for certain pro-fessional groups (e.g. academics, IT professionals,managerial employees, and employees with specia-list knowledge), and additionally, only if:

J

it is possible to demonstrate a specific offerof employment, and

J the Federal Employment Agency (Bundesagenturfr Arbeit) has issued its formal approval.

The Federal Employment Agency issues its approvalif no suitable German employee or employees fromother EU member states are available (so-calledpriority check) and the foreign employees are hiredat the same terms and conditions of employment ascomparable German employees.

Special RulesHowever, there are important exceptions to these ba-sic rules. Certain professional groups have the rightto a residence permit without requiring the approvalof the Federal Employment Agency. These include,

among others:J Employed managing directors

J Managerial employees

J Scientific research personnel

A residence title for the purpose of self-employmentis limited to a maximum of three years. If theinvestment project is successful (and success andsustainability appear to be secure over the longterm), after three years it is possible to issue a (per-manent) settlement permit.

Who is considered self-employed?Foreign business operators are considered tobe self-employed if they are:

J Sole traders (including freelance professions)

J Partners in a partnership

J Managing partners who are not employeesof the company

J Managing directors or managerial employeeswith proxy or full power of attorney whopersonally carry a business risk

Residence Titles for

Employed Persons

Employees from non-EU countries and who are

employed in a new subsidiary company in Ger-many require a residence permit for the purposeof taking up employment in Germany. As with aresidence permit for the purpose of self-employ-ment, a residence permit is issued to employeesfor up to three years. As a rule, the residence per-mit can be extended without any problems. Apermanent settlement permit is issued in mostcases after a period of five years.

Specific requirements

exist for citizens ofthe new EU states ofBulgaria and Romaniawho may require awork permit until theend of 2013. Pleaserefer to our website.

gtai.com/visa


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16 Investment Guide to Germany 2013

Germany Trade &Invests experts willbe pleased to provideassistance concerningquestions on specificindividual cases.

[email protected]

Coming to Germany

Exceptions also apply to citizens from the followingcountries: Australia, Israel, Canada, Japan, NewZealand, USA, and South Korea. Citizens of thesecountries do not have to belong to a specific profes-sional group in order to obtain a corresponding resi-dence permit. However, it is still necessary to obtainan authorization and priority check from the Federal

Employment Agency.

EU Blue Card for Highly Qualified EmployeesSince August 2012, the so called EU Blue Card(Blaue Karte EU) allows highly qualified non-EU citi-zens to be fast-tracked to employment in Germany.Foreigners may apply for this special kind of resi-dence permit if they hold a German university degree(or a proven comparable qualification) and demons-trate a job contract with an annual gross salary of atleast EUR 46,400 (2013). The local immigration officedoes not need to involve the Federal EmploymentAgency prior to issuing the EU Blue Card.

The annual gross salary level is lowered to EUR36,192 (2013) in professions where there is a particu-lar skill shortage (medical doctors, science and en-gineering professionals as well as information andcommunications technology professionals). FederalEmployment Agency approval is required for thistype of EU Blue Card. However, the Federal Employ-

ment Agency does not carry out a priority check inthese cases, but only establishes whether the non-EU citizen is employed on terms less favorable thanotherwise apply to comparable German employees.

Once a German EU Blue Card is obtained, holderscan receive a permanent settlement permit within33 months. This period may even be reduced to 21months where a specified German language aptitudelevel can be es tablished.

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Types of Company

Foreign investors can choose between avariety of legal forms for conducting busi-ness in Germany. Existing companies canalso conduct business via a German branchoffice. Decisive criteria for the choice oflegal form are generally the intendedfunction of the shareholders, liability, andterms of taxation. The basic structure ofall company forms is stipulated by lawwhich provides for predictability and legal

certainty. The same legal conditions applyfor foreign and local entrepreneurs.

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Germany Trade &Invest is pleased toanswer individualquestions specificto the establishmentof a company in Ger-many (e.g. questions

pertaining to thespecific documentationrequired for estab-lishing a company).

Contact

[email protected]

For further information

on the taxation of part-nerships please readchapter 5, CompanyTaxation.

2For further informationon the taxation ofcorporations pleaseread chapter 5,Company Taxation.

An overview of thedifferent kinds ofcorporations is pro-vided at the end of thissection as well as atthe Germany Trade &Invest website.

gtai.com/corporations

The establishment procedure ends with registrationin the commercial register (Handelsregister). Only atthis point in time does the corporations limitationof liability become effective. The application for theregistration of the company in the commercial re-gister has to be personally signed by the managingdirector(s) in the presence of a notary, who certifies

and files it with the responsible commercial registerin electronic form. Prior to the corporation star-ting business, the trade office (Gewerbe-/Ordnungs-amt) must be notified of the business activity inquestion.

Partnerships

In contrast to corporations, partnerships are not in-dependent legal entities but associations of people.In partnerships, the individual partners responsiblefor the liabilities of the company (including privateassets) act for the company. Limitations of liabilityfor individual partners are only possible to a limitedextent.

Accordingly it is not the partnership itself which is

taxed (as is the case with corporations), but the indi-vidual partners. The taxable profit is determined atthe level of the company and allocated to the part-ners according to their shares. The partnership itselfis only subject to trade tax.

Corporations

The main feature of a corporation is the contribu-tion of capital by shareholders. A corporation is alegal entity, meaning that the holder of rights andobligations is not the individual shareholder, but thecompany itself. The corporation itself concludes con-

tracts, holds assets and is liable for taxation.

Corporations are liable to corporate income tax,trade tax and the solidarity surcharge. Shareholdershave limited personal liability. As such, a minimumshare capital is required.

Establishment of a CorporationA corporation can be established by any number ofdifferent partners. Compensating the limited perso-nal liability of the shareholder(s), a corporation re-quires a minimum share capital, e.g. a GmbH EUR25,000. It can be contributed in cash or in kind (e.g.real estate or patents).

The establishment must be specified in the articlesof association and certified by a notary. Additionalestablishment steps are necessary for certain formsof corporations.

Types of Company

Trade officeregistration

Registrationin the commer-cial register

Payment ofshare capital

Notarizationof articles ofassociation

Drafting ofarticles ofassociation

The application for the entry in the commercial register is usually prepared by the authorized notary when articles of association are notarized.

Steps for the Establishment of a Corporation (GmbH)



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An overview of thedifferent kinds ofpartnerships is provi-ded at the end of thissection as well as atthe Germany Trade &Invest website.

gtai.com/partnershi ps

Types of Company

Autonomous Branch OfficeForeign (commercial) companies can set up an auto-nomous branch office (selbstndige Zweignieder-lassung) in Germany if they are entered in a foreigncommercial register (or a comparable directory).

The autonomous branch office is dependent upon the

head office company at the internal level but enga-ges in business activities independently. The rela-tionships with the customers are generally subjectto German law. However, the foreign head officecompany is liable for the business transactions con-cluded by the branch.

At the organizational level, autonomous branchoffices are to a certain extent independent from theparent company and usually have the following at-tributes:

J Management with the freedom to act accordingto their own judgment (i.e. with full power ofattorney and power to contract)

J Own capital resources and bank account

J Separate accounting

The different kinds of partnerships differ primarily interms of the contingent liabilities of the partners andthe necessary registration obligations.

Establishment of a PartnershipEstablishing a partnership is easy and can be com-pleted in just a few steps. At least two partners

are required to establish a company. A minimumshare capital does not have to be raised. The ma-nagement of the company can only be carried outby partners. Depending on the type of partnership,entry in the commercial register (Handelsregister) isrequired. The application is signed by all partnersand must be filed by a German notary in certifiedand electronic form with the commercial register.If a business activity is carried out by the partner-ship, the trade office (Gewerbe-/Ordnungsamt) mustaccordingly be notified.

Branch Offices

In contrast to a subsidiar y, a branch office is in legaland administrative terms part of the head officecompany and not a separate legal entity in its own

right. The branch office carries out similar businessactivities to the head office company. In this context,the head office company is liable for the assets of thebranch and all of its assets.

In Germany, there are two kinds of branch officeswhich primarily differ due to the degree of indepen-dence from the head office company.

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Germany Trade &Invests legal expertswill be pleased toanswer any project-specific questions onthe establishment ofa branch office in

Germany.

Contact

[email protected]

Types of Company

Other FormsOffices that purely serve to observe the market andpave the way for initial customer contacts are oftendescribed as representative offices. However, thisis a term which does not exist in German commerciallaw. A representative office must usually be registeredas a branch office in Germany.

Once an office is used by a foreign company for com-mercial activities (thus forming part of the foreigncompany organization), it generally must be registe-red at least as a dependent branch office in Germany.This is typically the case if the foreign company hasa permanent representative who conducts the com-mercial activities of the company in a sustained man-ner and, in doing so, is subject to its instruction.

An office managed by a self-employed third party(e.g. a commercial agent authorized by the company)may be considered a case where no independentbusiness activity is conducted on behalf of the for-eign company. Where this is the case, registration ofthe foreign company with the local trade office is ge-nerally not required. Decisive here is the actual level

of independence of the agent and their freedom to actwithout instruction from the company.

The branch office must be entered in the commercialregister (Handelsregister) and provide notification ofany business activity it is practicing at the respon-sible trade office (Gewerbe-/Ordnungsamt). The bran-ch office can use its own name affix but the companyname of the head office must also appear includingits legal designation (for example: XY Ltd., branch

office, Berlin).

Dependent Branch OfficeA dependent branch office (unselbstndige Zweignie-derlassung) is a subordinate department of the headoffice company and does not have any autonomyfrom it. It is not able to independently participate inthe general business transactions of the head office.Invoices have to be made out in the name of the headoffice company. An individual company name cannotbe used. Accordingly, the dependent branch esta-blishment does not have to be entered in the com-mercial register. It is only necessary for the businessactivity that is being practiced to be notified at theresponsible trade office (Gewerbe-/Ordnungsamt).

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Types of Company

Legal Form Minimum Number

of Partners

Minimum

Share Capital

Legal Liability

GmbH Limited

Liability Company

One partner EUR 25,000 Liability limited

to share capital

Mini GmbH Limited

Liability Entrepre-

neurial Company

One partner EUR 1.00 Liability limited to

share capital

AG Stock Corporation One partner EUR 50,000 Liability limited to

stock capital

KGaA Partnership

Limited by Share

Two partners: general

partner and limited

shareholder

EUR 50,000 General partner:

personal unlimited

liability

Limited shareholder:

limited share liability

Four Different Forms of Corporations

Legal Form Minimum Number

of Partners

Minimum

Share Capital

Legal Liability

GbR Civil Partnership Two partners Not required Personal unlimited

liability

oHG General Com-

mercial Partnership

Two partners Not required Personal unlimited

liability

KG Limited

Partnership

Two partners:

general partner

and limited partner

Not required General partner:

personal unlimited

liability

Limited partner:


GmbH & Co. KG Two partners:

general partner (GmbH)

and limited partner

(the general partner is

typically the limited

partner of the KG)

Not required General partner (GmbH):

personal unlimited

liability

Limited partner:


Four Different Forms of Partnerships



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Establishing a company in Germany isstraightforward and uncomplicated. Inthe establishment phase of a company and prior to assumption of commercialactivities it only has to be registered inthe public commercial register and thelocal trade office. The registration createstransparency and also offers companiesthe highest level of security in their day-

to-day business activities.

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German notaries canbe found online inthe directory of theFederal Chamber ofNotaries.

deutsche-

notarauskunft.de


Companies Required to RegisterCompanies required to register are those which carryout a commercial business operation. This is indi-vidually determined by criteria such as the use ofcommercial accounting, annual turnover, capital re-sources and total number of employees. As a rule,all status-relevant actions of companies are subject

to registration.*

Registration ProcedureThe application for registration in the commercial r e-gister is electronically filed in publicly certified formby a notary to the responsible commercial register.

As a rule, the possible limitation of liability of thepartner(s) is only effective subsequent to the time ofthe entry in the commercial register for those com-pany types where entry in the commercial registeris part of the act of establishment. Partners can beliable for any losses of the company with their privateassets if business is carried out prior to this pointin time.

*Exceptions apply to small businesses, civil law partnerships (GbRs),freelancers, and dependent branch offices.

Commercial Register

The commercial register (Handelsregister) providesinformation about all legally relevant relationshipsbetween merchants and commercial companies.The information is public and can be viewed by othercompanies.

The commercial register contains information about:

J The company of the business

J The name of the partner and/or thepersonally liable partner

J The managing director or the executiveof corporations

J The capital stock of companies

J Liability limitations of partners

J The issuing and revoking of the power of attorney

J The opening of insolvency proceedings

J The dissolving and ending of a company

Commercial Register Display

The commercial register is managed by the districtcourt where it is open to public view at no cost. Thecompanies register can also be consulted onlinethrough the common register portal of the Germanfederal states (Gemeinsames Registerportal derLnder, www.handelsregister.de). Some of the companydata which is stored in the commercial register isalso available electronically through the commercialregister of the Federal Gazette (Bundesanzeiger,www.unternehmensregister.de).


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The Federal Chamberof Notaries providesinformation about theexact composition andlevel of notary costson its website.

bundesnotarkammer.de

For further informa-tion on the liberal

professions pleasecontact the FederalAssociation of Liber alProfessions (Bundes-verband der FreienBerufe).

freie-berufe.de


Registration ProcedureThe registration of a business activity that does notrequire a license generally costs between EUR 20and EUR 50. Additional costs apply for companiesthat require a business license. For the indepen-dent, non-industrial operation of certain trades(e.g. bakers, carpenters and precision mechanics)

entry in the Register of Craftsmen (Handwerks-rolle) is also required. The trades that are affec-ted are listed in the Crafts and Trades Regula-tion Code (Handwerksordnung) where they can bedirectly consulted.

Automatic ForwardingThe trade office automatically sends a copy of thebusiness registration to the responsible tax office(Finanzamt). The responsible tax office then sends aregistration form to the company for tax registrationpurposes. It also sends the registration to other re-levant institutions such as the respective EmployersLiability Insurance Association (Berufsgenossen-schaft), the corresponding Chamber of Industry andCommerce (Industrie- und Handelskammer), and theChamber of Crafts (Handwerkskammer).

Registration CostsThe total cost of entry in the commercial registervaries depending on the type of company. Costs in-curred are made up of the costs of the notarial certi-fication and the fees charged by the district court forentry and publication in the Federal Gazette.

The costs and fees are not levied on an arbitrary ba-sis but are regulated by law. They largely dependon the number of partners and the share capital.Further costs can be incurred by the provision of ad-ditional legal advice.

Trade Office

Before starting their business operations, all busi-ness operators must inform the trades office (Ge-werbe-/Ordnungsamt) of the town or local district inwhich the business operation is located.

In some additional sectors, business licenses arenecessary (e.g. pharmacies, property developers,estate agents, brokers, security firms, pubs andhotels, and banks).

The liberal professions are not viewed as performingbusiness activities. These include, for instance, law-yers, doctors, accountants, and architects. The libe-ral professions (i.e. those with binding professionalrules) have professional institutes for professionalauthorization and regulation, as well as for comp-laints which can be contacted accordingly.

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The umbrella associ-ations of the GermanChamber of Industryand Commerce

(Deutscher Industrie-und Handelskammer-tag) and the Confede-ration of Skilled Crafts(Zentralverband desDeutschen Handwerks)offer an overview ofall of the regionallyresponsible chambers.

dihk.de

zdh.de


Chambers of Industry and Commerce

and Chambers of Crafts

In Germany, the Chambers of Industr y and Commerce(Industrie- und Handelskammern, IHKs) and the Cham-bers of Crafts function as the local interest groups ofbusiness operators in a spe-cific region. The cham-

bers simultaneously realize more than just the ge-neral functions of professional associations for theirmembers. They also:

J carry out active lobbying work by representingthe interests of the company towards municipa-lities, state, and federal government;

J organize vocational training by defining theframework requirements and approving interimand final examinations;

J draw up certificates concerning, for example,admissible company names.

In addition to this, the IHKs also provide informationabout the local economic framework conditions in aspecific region and provide foreign companies withbusiness contacts to possible regional partners. All IHKmembers are also able to draw on the comprehensiveadvice and services of the responsible chamber. Thechambers are generally the first point of contact in theevent of day-to-day business problems. Membershipof the IHK or Chamber of Crafts occurs automaticallyon registration in the trade office without requiringspecial registration. Crafts professions have to regis-ter with the Chamber of Crafts prior to the trade officenotification. The costs of membership of the chamberdepend on the turnover of the applicant company.


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Incentives

Germany offers different financial supportmeasures for investment projects tailoredto the different requirements of the indivi-dual project development steps. Measu-res include supporting direct investmentcosts, labor-related expenses, and directresearch and development project costs.

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Germany Trade &Invests incentivesexperts analyze thepossible levels ofsupport availablefor specific invest-ment projects.

Contact

[email protected]

Incentives

4

Financial Support Eligibility CriteriaSet criteria determine the conditions under which aproject is eligible for support. In this context, inter-national investors are subject to the same criteria asGerman investors.

All incentives programs define industries as well as

forms of investment eligible for support. The possi-ble level of support depends on project-specific fac-tors such as the planned investment location, the in-vestment sum, and the size of the investing company.

Determining Company SizeAcross Europe, company size is defined according toEU-set criteria. These divide companies into small,medium-sized, and large company classificationsaccording to:

J Number of employees in the company/group(mandatory)

plus

J Turnover of the company/group

or

J Balance sheet total of the company/group

Incentives Overview

In simple terms, the various financial supportmeasures available in Germany can be classified interms of two overall packages: (i) the investmentincentives package which includes different mea-sures to reimburse investment costs, and (ii) the ope-

rational incentives package to subsidize costs oncethe location-based investment has been realized.

1) Eastern Germany only

Investment Incentives Package Operational Incentives Package


R&D IncentivesLabor-related

Incentives

KfW Loans(National Level)

StateDevelopment

Bank Loans

GrantsRecruitment

Support

LoansTrainingSupport

Silent/DirectPartnerships

WageSubsidies

CashIncentives

GRW(Investment

Grants)

IZ(Investment

Allowance)1

PublicGuarantees

StateGuarantees

Combined State/Federal

Guarantees

+

Germanys Different Incentives Packages and Respective Programs


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Detailed informationabout the availablelevel of support inthe different regionsof Germany can befound at the GermanyTrade & Invest

website.

gtai.com/cash-

incentives

Incentives

The maximum level of support that is permittedvaries within Germany. Generally speaking, this isdependent upon a regions level of economic deve-lopment. In the so-called maximum support-areas,large companies receive up to 30% of their invest-ment costs (that are eligible for support) reimbursed,medium-sized companies up to 40%, and small com-

panies up to 50%. These maximum support areas arepredominantly located in Eastern Germany.

In certain regions of western Germany as well as inBerlin, support is also available through the GRW,albeit at a lower level. Here, large companies can re-ceive up to 15% of their investment costs (eligible forsupport) reimbursed, medium-sized companies upto 25%, and small companies up to 35%.

Eastern Germanys IZThe IZ is a special incentives program created topromote investment activities in Eastern Germany.The IZ scheme supports investment projects in thefederal states of Berlin, Brandenburg, Mecklenburg-Vorpommern, Saxony, Saxony-Anhalt, and Thuringia.

The IZ is granted tax-free. The program is based onthe Investment Allowance Act 2010. Investors auto-matically receive IZ funding (subject to all eligibilitycriteria being satisfied) when investing in EasternGermany.

Investment Incentives: Cash Grants

Production site set-up or service location develop-ment is supported by investment incentives programsproviding support in the form of cash grants. The dis-tribution of these grants is steered by two importantprograms:

J Gemeinschaftsaufgabe Verbesserung der

regionalen Wirtschaftsstruktur (GRW)

J Investitionszulage (IZ)

GRW Cash GrantsThe GRW is a national incentives program whichsteers the distribution of direct subsidies for in-vestment projects throughout Germany in specifiedareas.

4

Criteria Determining Company Size

Company

Category

Staff

Headcount

Annual

Turnover

Annual Balance

Sheet Total

Small Enterprise < 50 ) EUR 10 million ) EUR 10 million

Medium-Sized Enterprise < 250 ) EUR 50 million ) EUR 43 million

Large Enterprise * 250 > EUR 50 million > EUR 43 million

The criterion concerning the headcount is compulsory.

In addition, either of the annual turnover or the balance sheet criteria must also apply.

Source: European Commission

or

or

or

or


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Incentives

Interest-reduced loans may constitute a subsidy andcan usually be combined with other public fundingsuch as, for instance, subsidies from GRW support.However, the equivalent value of the subsidy of the lo-ans from development banks must also be taken intoconsideration, when calculating the maximum le-vel of public financial support for investment projects.

Public Guarantees

New companies often experience difficulties secu-ring financing through the capital markets as therequired loans often cannot be collateralized to asufficient degree. In these cases (with economicallyappropriate projects), so-called public guaranteescan replace or supplement any shortfall in securities.

Different types of public guarantee programs exist tosupport different types of investment projects withinGermany. The guarantee program depends on therequired amount, the size of the enterprise, and theinvestment region.

Public guarantees are granted by the individual fe-

deral states (so-called state guarantees with amaximum bank guarantee volume of EUR 10 million).For projects in Eastern Germany, guarantees can beawarded by the federal state - together with the fe-deral government with a guarantee volume star-ting from EUR 10 million. In general, up to 80% ofthe total value of the loan is guaranteed.

An upstream application process is omitted. The ap-plication has to be submitted to the competent taxauthority (at the end of the year).

Investment projects in Eastern Germany can com-bine the IZ with support from the GRW. However, thelevel of support from both programs may not exceed

the maximum level of support permitted in the res-pective region.


The KfW Bankengruppe is the development bank ofthe Federal Republic of Germany. The KfW offers awide range of financing instruments including loans,mezzanine financing products, and equity capital all prepared for investors in the form of differingprograms. The most important KfW product for thefinancing of investment projects is the KfW Entre-preneur Loan (Unternehmerkredit). KfW programsare applied for via a companys bank.

State Development Bank Loan ProgramsIn addition to the KfW, each federal state also has its

own development bank for the financing of invest-ment projects in the respective state. These deve-lopment banks also offer loan programs with attrac-tive grace periods.

4

Information aboutadditional productsfor foreign investorsis available at theKfW website.

kfw.de

Germany Trade &Invests experts willbe able to assist withcontacting financialpartners in Germa-ny. Please visit ourwebsite for further

information.

gtai.com/financing


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The regional job cen-ters can be contactedvia the central websiteof the Federal Employ-ment Agency.

arbeitsagentur.de

Incentives

Labor-related Incentives

Labor-related incentives play a significant role inreducing the operational costs incurred by newbusinesses. Germanys Federal Employment Agency(Bundesagentur fr Arbeit) and the German statesoffer a range of labor-related incentives programs

designed to fit the different company needs whenbuilding a workforce. They can be divided into fourcategories:

J Recruitment support

J Pre-hiring training

J Wage subsidies

J On-the-job-training

Labor-related incentives are available throughoutGermany independent of factors such as companysize, industry sector, and investment project loca-tion. Programs can be carr ied out and adjusted by thelocal job center according to investor needs.

Recruitment

Support

Pre-Hiring

Training

Wage S ubsidie s On -the-Job

Training

Program Offerings

Organization andsupport of recruit-ment process

Organization oftraining coursesfor unemployedcandidates

Provided for em-ployment of (long-term) unemployedcandidates

Subsidies for furthertraining measureswithin a company

Eligible Costs

- Job vacancyadvertisements

- Pre-selection ofcandidates

- Assessmentcenters

- Trainee labor costs- Training course

costs

- Wage costs- Social security

contributions

- Complete trainingcosts

Possible Promotion Rates

- Up to 100% ofeligible costssubject to local

job center budget

- Up to 100% ofeligible costs for atraining period ofup to three months

- Employmentcontracts areNOT required!

- Up to 50% of eligiblecosts for up to 12months

- The employer mustguarantee long-term employmentcontracts, issued

after the applicationfor wage subsidies

- Up to 50% ofeligible costs

- EU notificationrequired for costsexceeding EUR 2million

Managing Authority

Local job centers ofthe Federal Employ-ment Agency



Appropriate FederalState Labor Ministry

Labor-related Incentives Programs Offers


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Incentives

Cooperation between project partners, especially bet-ween enterprises and research institutions, is usuallyrequired. The federal government periodically callsfor R&D project proposals followed by a competitionof best project ideas.

Technology-open Support

In addition, a number of national programs with nospecific technological focus also exist. Applicationfor incentives available under these programs ispossible at all times, without any prior calls for pro-posals or application deadlines, with the CentralInnovation Program for SMEs (ZIM) being the mostprominent one.

R&D Support at the Federal State LevelIn addition to the programs provided by the federalgovernment, the individual federal states also havetheir own R&D support programs. These are prima-rily targeted at SMEs and are normally technology-open. However, some federal states do focus on spe-cific technological fields. The level of support variesfrom program to program and mostly depends on thenature of the R&D project. Cooperation projects with

other R&D partners are not always compulsory.

Research and Development

Project Incentives

Research and development (R&D) projects in Germa-ny can count on numerous forms of financial support.There are many programs allocating R&D grants,interest-reduced loans, and special partnership pro-

grams. Many of the programs are made available bythe federal government but the federal states alsooffer special R&D programs.

R&D incentives programs generally provide moneyfor R&D project personnel expenditure. Other costsfor instruments and equipment may also be eligibleif they can be clearly assigned to the relevant R&Dproject.

Germanys High-Tech StrategyAll research programs financed by the German fe-deral government have been concentrated within thefederal High-Tech Strategy. The High-Tech Strategydefines lead markets and priorities, as well as keytechnologies with a high dependency on ongoinghigh-tech research and development. Each area con-

sists of a number of different R&D programs.

Project suppor t is provided in the form of cash grants.The level of support can amount to 50% of eligibleproject costs. In certain instances, small and me-dium-sized enterprises (SMEs) benefit from higherlevels of support.

4

Germany Trade &Invests incentivesexperts regularlyupdate and define

the specific supportpossibilities forR&D projects in thescope of the High-Tech Strategy.

Contact

[email protected]

There are differentmodels to financeR&D investments inGermany. GermanyTrade & Invests ex-perts will be pleasedto provide you with

more information.

Contact

[email protected]


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1

Company Taxation

Germany offers a competitive system ofcompany taxation. The average tax burdenon corporate companies is less than 30percent. In some regions of Germany, dueto a locally variable rate of trade tax, it isunder 23 percent. This means that companytaxation in Germany is clearly competitivein comparison with other leading industrialnations. On the basis of differing interna-tional double taxation agreements, it ispossible to avoid a double taxation of pro-

fits made in Germany by internationallyoperating companies.

5

Source:SaschaBurkardwww.fotolia.de


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For information onthe establishmentof corporations andpartnerships, please

read chapter 2, Typesof Company.

Company Taxation

Corporate Income Tax and

Personal Income Tax

Companies in Germany are usually taxed on two le-vels. On the first level, corporations such as the stockcorporation (AG) and limited liability company (GmbH) are subject to corporate income tax (Krperschafts-

steuer), whereas partnerships are subject to personalincome tax (Einkommenssteuer). Both taxes are leviedby the federal government. On the second level, allbusiness operations corporations and partnershipsalike are subject to the trade tax (Gewerbesteuer),which is imposed by local municipalities (i.e. the townor city where the company is based).

Corporate Income Tax for CorporationsAll corporations are liable to pay corporate incometax. The rate of tax is 15% on the taxable profits of thecompany. Corporate income tax is payable on undis-tributed as well as distributed profits.

The so-called solidarity surcharge (Solidarittszu-schlag) is added to the corporate income tax. This to-tals 5.5% of the 15% rate of corporate income tax, or

0.825%. Taken together, the corporate income tax andsolidarity surcharge amount to a total of 15.825%.

Taxation of Dividends

Withholding Tax

If a German subsidiary company distributes profitsto its corporate foreign parent company (a dividendpayment) then a 25% rate of withholding tax (Kapital-ertragssteuer) plus solidarity surcharge is payable.In the event of the existence of a double taxationagreement (DTA) between the Federal Republic ofGermany and another country, the rate of withholdingtax that is paid can be reimbursed according to theagreement stipulated in the corresponding DTA.

As a rule, dividend payments on the basis of a DTA are

taxed at a reduced rate of taxation of just 5%, 10%, and15%. At a partial level there is also the possibility ofan initial exemption from withholding tax. The withhol-ding tax paid in Germany can also be credited againstthe tax liability of the parent company which exists ab-road or the parent company is made exempt from thetaxation in regard to the received dividends. In effect,this means that no double taxation takes place.

As a r ule, two fifths of the withholding tax paid canbe reimbursed if the creditor of the dividend-payingGerman corporation is a foreign corporation and ifthere is no DTA between Germany and the foreignnation.

Within the EU, dividend payments between a corpo-rate domestic subsidiary company and a corporateforeign parent company are tax-free over and abovea 10% stake.

Final Withholding Tax

Profits which are distributed to private stock-holders are liable to a final withholding tax (Abgel-tungssteuer) of 25% plus the solidarity surcharge.The final withholding tax is retained by the debtor ofthe dividend or the institution managing the deposit(for instance a bank) and then paid to the tax office.However, the application of a DTA may lead to a lowerwithholding tax if the private stockholder resides inanother country.

5


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The employees ofGermany Trade &Invest will be pleasedto inform you aboutthe current levels of

trade tax at differentlocations withinGermany.

Contact

[email protected]

Company Taxation

The tax rate to whichthe partner of apartnership is sub-ject can be optionallyadjusted to the taxrate of corporations.Detailed informati on

is provided on theGermany Trade &Invest website.

gtai.com/

personal-income-tax

Trade Tax

All commercial business operations in Germany areliable to pay trade tax irrespective of their legal form.The tax rate is set by local authorities - which meansit can vary from one municipality to the next. Howe-ver, trade tax is generally the same rate for all busi-

nesses within one municipality. Trade tax in Germanyis currently set at between 7% and 17%.

Calculation of the Trade TaxThe corresponding rate of trade tax depends on twocomponents:

J The tax base rate (3.5% throughout Germany)

J The multiplier (Hebesatz) stipulated individuallyby every municipality

The taxable income of the company is multipliedwith the tax base rate (3.5%) which results in theso-called tax base amount. This tax base amountis then multiplied with the corresponding municipalmultiplier, which results in the sum total of trade taxwhich is due. The multiplier is set by each munici-pality. On average, it is between 350% and 400% but

may not total less than 200%. There is no upper limitfor the municipal multiplier. The municipal multiplieris generally higher in urban areas than it is in ruralareas, although it does currently not total more than490% in any of the large cities.

Personal Income Tax for PartnershipsPartnerships are not managed as independent legalentities in the same way as corporations. The individu-al partners carry all of the rights and obligations. Ac-cordingly, it is not the partnership itself which is taxed(as is the case with corporations), but the individualpartners - with the personal income tax rate for the

corresponding partner being the deciding factor.

The taxable profit is determined at the company leveland allocated to the individual partners according totheir shares. As a rule, both the undistributed anddistributed profits of a partnership are liable to per-sonal income tax. Income tax starts at:

J 14% for income that exceeds the annualexemption of EUR 8,130, and

J progressively increases to a top rate of 42%(starting at an annual income of EUR 52,882).

J A higher rate of tax of 45% is levied on everyeuro earned over EUR 250,731 per year.

As with corporate income tax, the solidarity sur-charge of 5.5% is also added to the partners corres-

ponding rate of personal income tax. Amendments tothe annual exemption from income tax are currentlybeing considered.

5


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Examples of offsetting

the trade tax againstincome tax are avail-able at the GermanyTrade & Investwebsite.

gtai.com/trade-tax

Company Taxation

Partnerships have an annual tax free allowance forthe trade tax of EUR 24,500. The solidarity surchargeis not levied on trade tax.

Offsetting Trade Tax against Personal Income TaxUnlike corporations (e.g. a GmbH), partnerships canoffset some of the trade tax they pay against perso-

nal income tax to the total of 3.8 times the trade taxbase amount. This means that there is in effect notrade tax burden for partnerships in municipalitieswith a multiplier of under 380%. Trade tax still has tobe paid to the municipality. However, it can be offsetagainst the personal income tax.

Value-added Tax (VAT)

Value-added tax (VAT) is a tax on the exchange ofgoods and services. Companies are obliged to addvalue-added tax to the prices of their goods or servi-ces and to invoice their customers accordingly.

VAT RateThe 19% VAT rate in Germany is below the Euro-pean average. A reduced rate of 7% applies to cer-

tain consumer goods and everyday services (such asfood, newspapers, local public transport, and hotelstays). Some services (such as bank and health servi-ces and community work) are completely VAT exempt.Value-added tax which is collected has to be paidto the responsible tax office on a monthly, quarterlyor annual basis. The exact time frame depends onthe companys level of turnover.

Input VAT DeductionOn purchasing goods or making use of services, com-panies regularly have to pay value-added tax themsel-ves. The taxes collected and paid can be balanced outin the VAT return as input VAT deduction (Vorsteuer-abzug). For companies, value-added tax represents atransitory item only.

Source: European Commission, Germany Trade & Invest 2012

Value-added Tax in Selected EU C ountries

Hungary

Sweden

Poland

Belgium

Italy

Netherlands

Spain

UK

France

Germany

27%

25%

23%

21%

21%

21%

21%

20%

19.6%

19%


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Information on thesubject of tax decla-rations is provided indetail at the websiteof the Tax InformationCentre of the CentralOffice of Taxes.

germantaxes.info

Information, forms,and software productsfor submission of anelectronic tax decla-ration are availableat these websites.

elster.de

esteuer.de

Company Taxation

Payment of Wage TaxEmployees pay wage tax (Lohnsteuer) a specialterm for the income tax paid by employees. The em-ployer is obliged to deduct the wage tax due directlyfrom the salary of the employee and to pay it to thetax office on a monthly basis. For this reason, em-ployees who do not get earnings from non-wage

incomes may not be obliged to submit an annual taxdeclaration.

Electronic Tax DeclarationTax declarations on income tax, wage tax, and value-added tax can easily be submitted to the tax officeelectronically. The electronically submitted tax de-claration is mandatory for business operators.

Tax Declaration

Every taxpayer has to submit an annual tax decla-ration at the responsible tax office (Finanzamt). Thetax office at the location in which the correspondingcompany has its (German) head office is responsible.

Registration at the Tax OfficeWith the establishment of companies, the registra-tion takes place at the responsible tax office with thesubmission of the so-called tax assessment ques-tionnaire. This questionnaire is sent to newly esta-blished companies by the tax office once they havebeen established (or once they have registered theirbusiness).

Tax Collection and DeadlinesWith the most important types of tax (corporate in-come, personal income, trade, and value-added tax)collection is made via advance payments (normallymonthly or quarterly) which are offset against theactual tax liability in the annual tax declaration. Thetax declaration has to be submitted by 31 May of thefollowing year. However, this deadline can be exten-ded on request.

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16

Labor Market

The fundamental reforms made to thelabor market in recent years have createdflexible working models which correspondwith the requirements of the modernmarketplace. Qualified personnel can beappointed quickly and without problem inGermany. Only a few regulations have tobe taken into account before concludinga contract of employment.

6

Source:AdamGrego

rwww.istockphoto.de


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The regional job cen-ters can be contactedvia the central internetsite of the FederalEmployment Agency.

arbeitsagentur.de

For information

on wage subsidiesplease see chapter 4,Incentives. 6

Labor Market

Flexible Employment Models

Germany has different models of employment, pro-viding investors with flexible employment solutions especially in the business start-up phase. Temporaryemployment agencies provide appropriate personnelat short notice.

Fixed-term ContractsAs a rule, contracts of employment in Germany arenot limited by time but include a six-month probatio-nary period in most cases. The contract of employ-ment may be terminated at any time during the pro-bationary period.

However, it is also possible to conclude employmentcontracts which have an agreed set duration (fixed-term contract). Fixed-term contracts expire automa-tically on a specified date without a formal dismissalrequirement. It is for the employer to decide whetherto renew the contract or not.

Fixed-term contracts are generally limited to amaximum of two years and may be extended up tothree times provided the total duration of contract

does not exceed the maximum of two years. Du-ring the first four years of a companys existencein Germany, employment contracts may be limitedor extended several times up to a total duration offour years.

Finding Suitable Staff

Employers are basically free to define the recruitingprocess for potential employees. There are only afew guidelines that require consideration such as,for instance, the obligation to advertise and fill va-cancies in a non-discriminatory way (particularly in

terms of ethnic origin, gender, religion, world view,disability, age, and sexuality).

Recruitment ServicesCompanies are supported in various ways duringtheir search for suitable employees. The FederalEmployment Agency (Bundesagentur fr Arbeit) offersprofessional recruitment services free of charge. Itis represented with job centers in the municipalitiesthroughout Germany.

There are also numerous private recruitment ser-vices providers. These companies normally chargethe hiring company a fee of no more than two grossmonthly salaries of the successfully procured em-ployee.

Public Support

A wide range of public programs supports the deve-lopment of a companys pool of employees offeringqualification and training measures for new emplo-yees. In addition to this, under certain conditions,companies can also be supported by wage subsidies.


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Germany Trade &

Invests legal experts

will be pleased to pro-

vide information about

suitable employment

models for companies

newly established in

Germany.

Contact

[email protected]

Labor Market

In addition, the employee is generally liable or pen-sion insurance contributions o 3.9%. However, theemployee is ree to apply or an exemption rom pen-sion insurance (opt-out option).

With short-term employment, no social insurancecontributions are due or health and pension insu-

rance. It is only necessary to tax the income and topay statutory accident insurance and some other mi-nor allocations.

Midi jobs (also known as low-salary jobs) areemployee-employer relationships with an averagemonthly salary in the EUR 450.01 to EUR 850 range.Employees pay a reduced rate o social insurance ormidi jobs. The employer pays the ull contribution rate.However, this is below the contribution rate or mini

jobs. The wage is normally subjec t to income tax.

Temporary Employment

Temporary employment means that a company leasesemployees rom a temporary employment agency.The employee is legally employed by the temporaryemployment agency and receives the wage rom theagency as no ormal contractual relationship existsbetween the leasing company and the employee.

The employment conditions are usually regulatedby collective agreements. Since 2012 the temporaryemployment sector is subject to statutory hourly mi-nimum wages.

The duration and terms o termination o the serviceo the employee in the hiring company are subjectsolely to the service contract between the hiringcompany and temporary employment agency (andnot to labor regulations).

In recent years there has been a signifcant increasein the number o temporary employment agenciesproviding appropriate personnel at short notice.

Mini and Midi Jobs

Mini jobs (also known as 450 Euro jobs) reer to

employment contracts where salary paid does nottypically exceed a total monthly sum o EUR 450.00(i.e. marginally remunerated employment) or thosein which the employee only works a maximum o 50days per year (i.e. short-term employment).

In the case o marginally remunerated employment,the employer pays fxed rates o tax and social insu-rance contributions that total 30.99% (plus statutoryaccident insurance).

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The sectors to whicha minimum wage ap-plies are highlightedat the Germany Trade &Invest website.

gtai.com/

employment-terms

Labor Market

Salaries and WagesThe level of the salary or wage in Germany can benegotiated freely between the employer and emplo-yee. There is no general or uniform minimum wage.Binding minimum wages have been specified for afew sectors only.

Bonuses only have to be granted if they have beenagreed in the individual employment contracts or incollective agreements.

Working TimesThe legally permitted working time totals eight hoursper day and 48 hours per week. Saturday is consid-ered to be a normal working day. With a five-dayweek, the permitted weekly working time totals 40hours. Sundays, in contrast, are generally conside-red to be days off. An extension of the working timeto a maximum of 60 hours per week (or ten hours perday) is possible under certain conditions.

Overtime has to be compensated for with additionaltime off. An overtime bonus is possible but it is notlegally specified.

Employees have the legal right to claim at least fourweeks of paid vacation in a calendar year. The num-ber of public holidays in Germany varies from onefederal state to another.

Terms of Employment

In Germany, employment contracts are generallyconcluded in written form (although not obligatory).However, a binding German version is advisable asGerman courts require a German translation of anycontract drawn up in another language in the event of

any legal proceedings being instigated.

There is no legally fixed form for a contract of em-ployment. Nonetheless, it is highly advisable to defi-ne certain points, such as:

J The description of the location and activity;

J The date of appointment and notice periods(in the case of fixed-term employmentcontracts the duration of the contract);

J The daily or weekly working time;

J Arranging of a probationary period;

J The level of the wage (gross) and possible bonuses;

J Vacation entitlement;

J Non-disclosure agreements or

non-compete obligations;J Contractual penalties

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Labor Market

The business decision to cut back jobs under thesecircumstances is only limited reviewable by laborcourts.

Exceptions exist for small companies with not morethan 10 employees and for employment contractswhich have existed less than six months. Here, ter-

minations of employment contracts can be issuedwithout a reason. The company is only bound to theagreed or legally specfied periods of notice.

Extraordinary (Immediate) TerminationImmediate termination of employment may be con-sidered in cases of serious misconduct renderingit unacceptable for either party to continue the em-ployment relationship.

J Exemplary reasons for the employer:Continued non-performance of agreed work,disturbance of the general working environ-ment, theft, disclosure of sensitive information,non-authorized competitive engagement

J Exemplary reasons for the employee:Non-payment of wages, unlawful working

Immediate termination is only effective if the termi-nating party dissolves the employment within twoweeks after the reasons for termination becameknown.

Termination of Employment

A contract of employment can be terminated by theemployer or the employee. Dismissals require writ-ten form and both parties have to observe the statu-tory notification periods.

Possible Reasons for TerminationAn employment contract has to be terminated inwritten form (paper form). Electronic termination(e.g. via email) is not possible. Termination can onlybe effective if a specific reason for terminationexists. This may be for personal, conduct-related orbusiness reasons.

J Dismissal for personal reasons:Sustained illnesses or frequent bouts of shortillnesses with a negative future prognosis, alcoholor drug addiction without a positive outlookfor successful treatment

J Dismissal for conduct-related reasons:Arriving at work late on a frequent basis, refusalto work, unapproved use of the internet forprivate purposes, absence without a reason,

criminal acts or violence at workJ Dismissal for business reasons:

Closure of operations, company restructuringor a lack of orders

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Labor Market

The German Social Security System

In contrast to some other industrialized countries,the core social security in Germany is collectively fi-nanced by means of a process of redistribution. Thecurrent costs for pensioners, sick people, those inneed of nursing care, and unemployed people are

paid directly from contributions by employees andemployers alike.

Components of Social Security InsuranceThe German social security insurance systemconsists of:

J Health insurance

J Pension insurance

J Unemployment insurance

J Nursing care insurance

J Accident insurance

Generally speaking, social security contributions areroughly shared equally by employer and employeewith the exception of accident insurance costs which

are solely borne by the employer. From a certainlevel of monthly gross wage salary upwards, em-ployees have the possibility to join a private healthinsurance company instead of the statutory healthinsurance obligatory for all employed people.

Allocation of Social Security Contributions

Social security contributions are more or less shared equally by

employer and employee. They correspond to approximately 21% of

the employees gross wage. Only the costs for accident insurance

are exclusively borne by t he employer.

Components of social security insurance in Germany:

Pension insurance

Health insurance

Unemployment insurance

Nursing care insurance

Accident insurance

Gross wage Employee gross wagebefore personal income

tax deduction

Employeenet wage

Corresponds

to approx. 21%of gross wage

Wage tax to be paid

by the employee

Employers share of social

security contributions

} Employees shareof social securitycontributions

Corresponds

to approx. 21%of gross wage }

For more informationon social security con-tributions plase visit

the Germany Trade &Invest website.

gtai.com/social-

security


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Labor Market

Payroll AccountingEmployees in Germany receive a net wage or salaryfrom which tax and social security contributions havealready been deducted.

The employer withholds the tax that the employee isrequired to pay and transfers the money directly to

the tax office (Finanzamt). All employees must be re-gistered with the local tax office.

Social security contributions are also withheld bythe employer after calculation of the gross wage andtransferred to the employees health insurance com-pany (which then distributes all of the contributionsexcluding accident insurance to all relevant parties).

The employer separately has to pay the contributionsfor the accident insurance to the Employers LiabilityInsurance Association (Berufsgenossenschaft) . Com-panies therefore have to register with the EmployersLiability Insurance A ssociation.

The DGUV - theumbrella associationof the German SocialAccident Insurance -will assist you in iden-tifying the appropriate

Employers LiabilityInsurance Association.

dguv.de


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1

Legal Framework

Legal security is always an importantlocation factor for internationally opera-ting companies. In Germany, clear legalstructures and an independent judiciaryguarantee the rapid processing of claims.The consistent protection of intellectualproperty ser ves to strengthen the trustin Germany as an investment location.

7

Source:gator1time

www.fotolia.de


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7

Legal Framework

Commercial LawGerman commercial law corresponds with interna-tional standards and keeps up with the fast-pacednature of commerce. Global trading practices andstandard trading contractual clauses such as in-coterms (International Commercial Terms) arerecognized. Global financing mechanisms for inter-

national trade such as letters of credit and paymentguarantees also apply in Germany.

Basic Information on Litigation

There is no case law in Germany. This means that de-cisions made by courts are only binding for the par-ticipating parties and not other courts of law. None-theless, the decisions made by the superior courtsare used as guidelines.

German courts undertake the organization and ma-nagement of proceedings. The sequence of the pro-ceedings in the civil process is primarily determinedby the plaintiff. The plaintiffs application for reliefdetermines the courts area of decision-making res-ponsibility.

There are no so-called pre-trials, such as those re-cognized by American law, in Germany. If the courtorders a hearing of ev idence, then as a rule, it is up toeach party to prove the facts of their specific case.

Business Law

Law of ContractGerman law of contract offers investors a reliableframework for action. The principle of contractualfreedom enables the conclusion of contracts withfreely selectable contractual partners and the free

determination of the subject matter of the contractas long as the current law is not infringed. The basicstructures of the key types of contract are governedin the German Civil Code (BGB). Contractual condi-tions are standardized to a high degree.

Contracts concluded according to German law arenormally short and simple in structure. Existing le-gal regulations apply unless agreed otherwise in thecontract: this not only saves time with the drafting ofthe contract, but it also reduces legal consultationcosts.

Purchase LawThe purchase contract is the type of contract con-cluded most frequently. The concise legal regulationof purchase law considerably simplifies the conclu-sion of contracts on a day-to-day basis. The United

Nations Convention on Contracts for the Internatio-nal Sale of Goods applies to international delivery ofgoods contracts in Germany.


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Germany Trade &Invests legal expertshold detailed infor-mation on businesssecurity in Germany.

Contact

[email protected]

Legal Framework

Utility ModelsTechnical inventions (which do not describe a pro-cedure) can be protected as utility models at theDPMA. The registration of a utility model generallytakes place considerably faster than that of a pa-tent. A utility model grants full protection but ex-pires after 10 years.

TrademarksA mark can be protected as a trademark by recordingit in the register kept at the DPMA. With the regis-tration of the mark, the owner acquires an exclusive,freely tradable right of use. They can include thirdparties in the use of the trademark through issuinga license. They are able to assert claims for compli-ance and damages in the case of infringement. Of-ficial registration can be made clear by positioningof the (registered trademark) sign after the mark.

Design PatentsNew product designs can be registered by the DPMA.The owner acquires the exclusive right of use for thecorresponding design. EU-wide and internationalprotection can be attained by registering a European

or international design patent.

Costs of proceedings in Germany are low as theyare calculated on the basis of the court costs andlawyers fees. As a rule, the costs are to be paid bythe party who loses the legal case. The costs areshared in the event of partial successes.

Intellectual PropertyIn Germany, intellectual property enjoys a high levelof protection under the law. This is guaranteed bythe registration of intellectual property rights. Theseproperty rights can be registered at the German Pa-tent and Trademark Office (DPMA) for technical andcommercial innovations in the form of patents, utilitymodels, trademarks, and design patents.

On registering property rights, the same conditionsapply for both foreigners and Germans. Applicantswho have neither a place of residence nor a branchin Germany have to nominate a patent attorney asthe representative for the signing of the patent re-gistration.

Patents

To acquire a patent, a patent registration has to besubmitted at the DPMA. Patent protection generallyapplies for 20 years subsequent to the day of regist-ration and can - under certain conditions - be exten-ded to a maximum of 25 years. Patents can be soldor made accessible to others through the issuing ofuse licenses.

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Legal Framework

LicensesIndustrial rights of use can be granted to third partiesby either an exclusive or a general license. Throughthe issuing of the license the license holder gainscorresponding rights. In return, the license holdermakes a payment to the licensor.

It is possible to distinguish between exclusive andgeneral licenses. An exclusive license authorizes

just one licensee for use within a certain area. Ageneral license authorizes several licensees in thesame place at the same time (depending on the con-figuration of the contract).


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Addresses

Latin America Association (LAV)Raboisen 32, 20095 HamburgTel.: +49 (0)40 413 43 13www.lateinamerikaverein.de

German Near and Middle East Association (NUMOV)Jgerstrae 63 D, 10117 BerlinTel.: +49 (0)30 20 64 10 0www.numov.de

OAV German Asia-Pacific Business AssociationBleichenbrcke 9, 20354 HamburgTel.: +49 (0)40 357 559 0www.oav.de

East and Central Europe A ssociation (OMV)Ferdinandstrae 36, 20095 HamburgTel.: +49 (0)40 33 89 45www.o-m-v.org

German Confederation of Skilled Crafts (ZDH)Mohrenstrae 20/21, 10117 BerlinTel.: +49 (0)30 20 619 0www.zdh.de

ShareholdersFederal Ministry of Economics and Technology (BMWi)Scharnhorststrae 34-37, 10115 BerlinTel.: +49 (0)30 18 615 0www.bmwi.de

Federal Ministry of the Interior (BMI)Alt-Moabit 101 D, 10559 BerlinTel.: +49 (0)30 18 681 0

www.bmi.bund.de

German Economy PartnerWorldwide Network of German Chambersof Commerce (AHKs)Breite Strae 29, 10178 BerlinTel.: +49 (0)30 20 308 0www.ahk.de

Association of German Chambersof Commerce and Industry (DIHK)Breite Strae 29, 10178 BerlinTel.: +49 (0)30 20 308 0www.dihk.de

Federation of German Industry (BDI)Breite Strae 29, 10178 BerlinTel.: +49 (0)30 20 28 0www.bdi.eu

Federation of German Wholesale,Foreign Trade, and Services (BGA)Am Weidendamm 1 A , 10117 BerlinTel.: +49 (0)30 59 00 995 0www.bga.de

German-African Business Association (AV)Neuer Jungfernstieg 21, 20354 HamburgTel.: +49 (0)40 419 133 0www.afrikaverein.de


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Addresses

Invest in Mecklenburg-VorpommernSchlossgartenallee 15, 19061 SchwerinTel.: +49 (0)385 59 2 25 0www.gfw-mv.de

NGlobal Niedersachsen GlobalOsterstrae 60, 30159 HannoverTel.: +49 (0)511 89 70 39 0www.nglobal.de

NRW.INVESTEconomic Development Agency of theGerman State of North Rhine-WestphaliaVlklinger Strae 4, 40219 DsseldorfTel.: +49 (0)211 130 00 0www.nrwinvest.com

Investment and Economic Development (ISB)Bank of Rheinland-PfalzHolzhofstrae 4, 55116 MainzTel.: +49 (0)6131 61 72 0www.isb.rlp.de

gwSaar Saarland Economic Promotion CorporationATRIUM Haus der WirtschaftsfrderungFranz-Josef-Rder-Strae 17,66119 SaarbrckenTel.: +49 (0)681 99 65 400www.invest-in-saarland.com

Invest in SaxonyBertolt-Brecht-Allee 22, 01309 DresdenTel.: +49 (0)351 21 38 0www.wfs.sachsen.de

Federal States Partnerbw-i Baden-Wrttemberg InternationalWilli-Bleicher-Strae 19, 70174 StuttgartTel.: +49 (0)711 22 787 0www.bw-i.de

Invest in BavariaPrinzregentenstrae 28, 80538 MnchenTel.: +49 (0)89 21 62 26 42

www.invest-in-bavaria.de

Berlin Partner GmbHFasanenstrae 85, 10623 BerlinTel.: +49 (0)30 39 980 0www.berlin-partner.de

Brandenburg Economic Development Board (ZAB)Steinstrae 104106, 14480 PotsdamTel.: +49 (0)331 660 38 33www.zab-brandenburg.de

WFB Bremen Economic DevelopmentKontorhaus am MarktLangenstrae 2-4, 28195 BremenTel.: +49 (0)421 96 00 10www.wfb-bremen.de

Hamburg Business Development Corporation (HWF)Habichtstrae 41, 22305 HamburgTel.: +49 (0)40 22 70 19 0www.hwf-hamburg.de

HA Hessen AgenturKonradinerallee 9, 65189 WiesbadenTel.: +49 (0)611 950 17 80www.invest-in-hessen.de


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PublisherGermany Trade and InvestGesellschaft fr Auenwirtschaft undStandortmarketing mbH

Friedrichstrae 6010117 Berlin

GermanyT. +49 (0)30 200 099-555F. +49 (0)30 200 [email protected]

Executive BoardDr. Benno Bunse, Chairman/CEODr. Jrgen Friedrich, CEO

AuthorsIris Kirsch, Friedrich Henle, Christina Schn,Udo Sellhast, Investor Support Services,Germany Trade & Invest

LayoutGermany Trade & Invest

PrintingDas Druckhaus Bernd Brmmer, Bonn

Order Number15500

Promoted by the Federal Ministry of Economics and Technology and

the Federal Government Commissioner for the New Federal States in

accordance with a German Parliament resolution.

Germany Trade & Invest, December 2012

All information provided is based on the most current information

available at the time of publication. Germany Trade & Invest accepts

no liability for the actuality, accuracy, or completeness of the

information provided.

Addresses

Investment and Marketing Corporation Saxony-Anhalt (IMG)Am Alten Theater 6, 39104 MagdeburgTel.: +49 (0)391 568 99 0www.investieren-in-sachsen-anhalt.de

WTSH Business Development and Technology TransferCorporation of Schleswig-Holstein GmbHLorentzendamm 24, 24103 KielTel.: +49 (0)431 66 66 6 0

www.wtsh.de

LEG ThringenThe State Development Corporation of ThuringiaMainzerhofstrae 12, 99084 Er furtTel.: +49 (0)361 56 03 0www.leg-thueringen.de

Imprint



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Germany Trade & Invest

Friedrichstrae 60

About Us

Germany Trade & Invest is the foreign trade and

inward investment agency of the Federal Republic

of Germany. The organization advises and supportsforeign companies seeking to expand into the

German market, and assists companies established

in Germany looking to enter foreign markets.

Promoted by the Federal Ministry of Economics

and Technology and the Federal Government

Commissioner for the New Federal States in

accordance with a German Parliament resolution.

Photo:MichaelFuery,

www.istockphoto.com

Investment Guide to Germany 2013

Documents