DOING
BUSINESS
IN
GERMANY
HL
B
Deutschland
GmbH
Wirtschaftsprüfungsgesellschaft
.
doing
business
in Germany
1
Doing Business in Germany
for
ewor
d
This booklet has been prepared for the
use
of clients, partners and staff of
HLB
International member firms. It is
designed
to give some general information to those
contemplating doing business in
Germany
and is not intended to
be a
comprehensive
document. You should consult us, therefore,
before taking further action. HLB
Germany
and HLB International cannot
be
held liable
for any action
or
business decision taken
o
n
the basis of information in this
booklet.
HLB Germany
May 2011
Doing Business in Germany
2
about HLB International
Formed in 1969, HLB International is a
world-wide network of independent
professional accounting firms and
business advisers. The
network
comprises member firms in over 100
countries who, collectively, have over
1,700 partners with 14,000 staff in
450 offices. Member firms provide
clients with
a
comprehensive and
personal service relating to
auditing,
taxation, accounting and general and
financial management advice.
Up-to-date information and general
assistance on international matters can
be
obtained from any of the partners of
HLB Germany listed in this booklet or
from the Executive Office in London:
HLB International
Executive Office
21 Ebury S treet
London SW1W 0LD
UK
Telephone
+44 (0)20 7881 1100
Fax
+44 (0)20 7881 1109
Email:
mailbo
x@hlbi.com
Website:
www
.hlbi.com
HLB International is
a
world-wide network
of
independent professional accounting firms and
business advisers, each of which is
a
separate
and
independent legal entity and
as
such has no
liability
for the acts and omissions of any other member.
HLB
International Limited is
an
English company
limited
by guarantee which co-ordinates the international
activities of the HLB International network but
does
not provide, supervise
or
manage professional
services to clients. Accordingly, HLB International
Limited has no liability for the acts and omissions of
any member of the HLB International network, and
vice versa.
3
Doing Business in Germany
contents
FOREWORD
1
ABOUT HLB INTERNATIONAL
2
GENERAL
INFORMATION
4
I
ntroduction
Location, Climate and Infrastructure
P
opulation
Government and Legal System
Economy and Currency
INVESTMENT
F
A
CTORS
Special Features
Government Incentives
Banking System and Sources of Finance
Foreign Exchange Controls
Employment
R
egulations
TYPES
OF
BUSINESS
ORGANISA
TIONS
Principal Forms of Business
Legal, Accounting and Audit
R
equirements
T
AXA
TION
General
Structure
Corporate T
axation
Personal T
axation
Other
T
ax
es
- Withholding
T
ax
es
- Double Tax Relief and
Treaties
- Indirect
T
ax
es
- Capital
T
ax
es
- Transfer Taxes & Stamp Duty
Doing Business in Germany
4
general
information
Introduction
Germany is Europe’s economic
engine. The world’s third largest
economy offers
a
large domestic
market and easy access
to growth
markets in the enlarged European
Union.
As
world champion in
exports, Germany accounts for
around
10%
of world trade. High
performance combined
with
declining unit labour costs
are
the
decisive factors for competitiveness.
The professional standards of
clerical, technical, and managerial
staff
are
high. Labour relations are
stable and industrial disputes rare.
The geographical location and
excellent
infrastructure contribute to
the importance of Germany
as
a
strategically outstanding investment
location.
Investments require
security.
Germany actively maintains
a
legal
environment known for its
integrity
,
safety, reliability and transparency
.
Contractual agreements
are
secure
and intellectual property is
strictly
protected. Social, economic and
political stability provides
a
solid
bases for corporate projects.
Germany has incentives ready
up to
50%
of capital expenditure. There are
a
great many ways to use public
funds for investment projects.
Germany is one of the world’s leader
in innovation. Creativity and courage
have generated countless innovative
solutions.
R
&
D
is one of
Germany
’s
favoured causes, promoted
with
funds from the federal government of
some
€
6 billion annually.
Globalisation presents new challenges
and competitiveness demands fle
xibility
.
Germany is taking advantage of
its
economic upswing to reform
its
economic structures, consolidate public
financing, and invest for the future in
order to remain the leading business
location in Europe
and one of the most
competitive investment locations in the
world.
Location, Climate and Infrastructure
Germany lies at the heart of Europe and
covers
an
area of approximately 357,104
square kilometres (137,878 square
miles). Neighbouring countries are
Austria, Belgium, the Czech Republic,
Denmark, France,
Luxembourg, the
Netherlands, Poland and Switzerland.
The climate is maritime in the northern
parts, continental in the south and
eastern parts, but mild in general
with
only few
e
xtremes.
Germany has Europe’s most advanced
telecommunication infrastructure and the
most reliable energy infrastructure. All
trans-continental paths meet here
in
Europe’s Centre, offering
e
x
cellent
proximity to customers, suppliers, and
sources. A dense network of roads,
seaports,
inland ports, waterways,
airports and railroads ensure on-time
delivery. Germany offers many
opportunities for doing business
all
over
Europe and worldwide
–
regardless of
east
or
west.
5
Doing Business in Germany
P
opulation
The population of Germany
is about 82.3
million. Due to the size of its population,
Germany is the largest consumer market
within the European Union. An
e
x
cellent
standard off living leads over 7 million
foreigners to make
their home in
Germany. Educational opportunities are
diverse, accessible, and excellent. Besides
German, many citizens speak one
or
two
other languages of which English, French
and Russian
are
the most common.
Government and Legal System
For
business success
a
reliable
framework of underlying conditions is
one of the most important factors.
Germany has been successfully
established
as a
democratic home for
modern, pluralist and open-minded
people. Germany is
a
modern
constitutional Republic. The principle of
the divisions of power guides the
parliamentary democracy, which is based
on
a
multiparty, coalition-based system.
The Government is committed
to
transparency, citizens rights, freedom of
speech and press.
16 Federal States called
“Länder
”
(Baden-
Württemberg, Bavaria, Berlin, Bremen,
Hamburg, Hesse,
Lower Saxony, North
Rhine-Westphalia,
Rhineland-P
alatinate,
Schleswig-Holstein, Saarland,
Brandenburg,
Mecklenburg-
V
orpommern,
Saxony, Saxony-Anhalt and Thuringia)
form together the Federal Republic
of
Germany
.
Companies can benefit from
a
reliable
legal system. The Constitutional Law
provides freedom and stability
–
although
initially only for the Germans in the W
est
of the nation that remained divided
until
1990. The primacy of
constitutional
rights,
the definition of the principles of a
democratic and social federal state, and
the foundation of
a
Federal
Constitutional
Court that watches over adherence
to the
constitution
–
these
are
the basic
cornerstones of German democracy
.
In addition, around 2,100 federal
laws
govern practically
all
areas of life. Some
areas
are
governed by the 16 Federal
States on
a
regional basis (e.g. Education,
P
olice
-Law).
The judicial system is operated by the
Federal Constitutional Court
(Bundesverfassungsgericht) and Courts
in
five different judicial branches. Each
branch has its own Federal
Supreme
Court
and lower courts in each Federal
State. Additionally, there is
a
Supreme
Court for Intellectual Property
as a
sixth
Supreme Court (but without specialised
lower courts).
•
The ordinary courts, Lower Court
(Amtsgericht), District Court
(Landgericht), Court of Appeal
(Oberlandesgericht) and Supreme
Court (Bundesgerichtshof) have
jurisdiction over civil matters not
assigned to special courts, and are
overall responsible for criminal matters.
•
Labour courts rule on disputes
between parties to
a
collective labour
agreement, between employers and
employees
as
well
as
certain special
cases. There
are
Labour Courts, High
Labour Courts and the Federal
Labour Court.
•
Administrative courts decide on public
law disputes if they
are
not assigned
to
another court. There are
Administrative Courts, High
Administrative Courts and the Federal
Administrative Court.
•
Tax courts decide on
all
matters of tax
law and excise duties. Surprisingly,
there
are
no lower courts, but only the
Tax Courts
as
High Courts (normally
one
per
Federal State) and the Federal
Tax Court.
•
Social courts
are
responsible for
disputes relating to social security
insurance, unemployment insurance
and other sectors effecting social
rights. Again, there
are
Social Courts,
Higher Social Courts and the Federal
Social Court.
Doing Business in Germany
6
Economy and Currency
Germany is
an
industrialized nation
with
stable economic conditions,
an e
fficient
industry and highly qualified
work
ers.
The geographic location and
e
x
cellent
infrastructure contribute to the
importance of Germany
as a
strategically
outstanding investment location.
Germany provides
a
good and solid
investment climate and the economic
policy generally welcomes foreign
investment.
Germany is
a
founding member of the
European Union and takes
a
leading
role
in
the harmonisation process. Germany
supported the admission of further
Member States, most of them Eastern
European states. Situated
in the centre of
the enlarged European
Union, Germany is
a
gateway to Eastern European markets.
The official currency in Germany and the
other fourteen Member Countries of the
European Monetary Union (EMU)
is the
Euro. The participating countries were
deemed by the European council to have
satisfied the convergence criteria
“price
stability”, “no excessive
government
deficits” and “no excessive
government
debt
”.
Germany is the world third largest
economy. Accounting for
27%
of the EU’s
GDP, it is also the engine driving Europe’s
economy. The Gross Domestic Product
(GDP)
in 2009 amounted to 2,36 billion
Euro. The
GDP per
sector of the economy
(2008) was: Services 50.9%, Industry
&
Construction 30.4%, Trade 17.8%,
Agriculture 0.9%. The average
inflation
rate in 2009 was about 0.4%.
One of the factors for the German
economy’s great success is the principle
of
a
social market economy. The
relationship between the government and
the private sector is based on the concept
of
a
free market economy with fairly
clear-cut boundaries. The state should
restrict itself to setting up the framework
in which the economic decisions of all
parties can freely
be
tak
en.
German firms have been able to increase
their competitive strength considerably
in
recent years. Exports
are
flourishing and
an
increasing number of enterprises have
been established, in particular by foreign
investors. With
€
460 billion in foreign
investments, Germany is
a
much sought
-
after business destination.
Approximately
40,000 foreign companies
–
including the
world’s 500 largest corporations
–
operate here.
Germany pursues
a
very open approach
to international trade which plays an
important role in the economy of the
country. Germany has only
a
few natural
resources, but has
a
specialised and
efficient industry. Foreign trade policy is
intended to encourage the freedom of
movement in each sector of trade and
to
have
a
free
attitude towards worldwide
trade and capital movement.
The German Office for Foreign Trade
Affairs (www.bfai.de) offers
a
wide range
of useful information about business
opportunities. They can assist you in
establishing business relations
with
German companies. The free
internet
-
based service enables foreign and
German companies to
record and publish
their business interests easily and quickly
by completing
an
online form. The
German Business Portal
(www
.german-
business-portal.info) is the central contact
platform that steers
all
inquiries about
Germany through the right channels. The
goal is to make Germany and its domestic
market more transparent to foreign
companies interested in Germany
as
a
location for their businesses. Invest
in
Germany (www.invest-in-germany.de) is
the inward investment promotion agency
of the Federal Republic of Germany. They
assist and advise potential investors
in
Germany. Information about fairs and
exhibitions is provided by
www
.auma.de.
7
Doing Business in Germany
investment factors
Special Features
Many regional, federal and European
Union incentive programmes exist
to
promote investment in Germany. In
particular, programmes exist to support
investments in certain economic regions
as
well
as
in less developed regions of
the country and especially in the East
German States (“New Federal
States”). In
principle the level of grants available
depends on the size of the enterprise and
may, in individual cases, amount to as
much
as 50%
of the investment.
Government Incentives
Public incentives may
be
classified
as
follows:
•
Federal Programmes
•
Regional Programmes
•
Incentives by the European Union
The support is mainly provided in the
shape of grants and allowances,
advantages in the depreciation of assets,
beneficial interest rate loans and the
provision of security bonds, guarantees
and other securities.
One of the most important federal
incentives is the public investment grant
(Investitionszulage).
It is supervised by
the federal tax authorities. In general, the
investment grant means that certain
manufacturing businesses
in the New
Federal States
(Brandenburg
,
Mecklenburg-Western
P
omerania,
Saxony, Saxony-Anhalt and Thuringia)
may claim
a
certain percentage
of their
investment in new assets
as a
grant. It is
important that the assets
are
used only
for manufacturing purposes and only
in
the region of the New Federal States for a
period of five years.
Furthermore, the European Union
programme on the “improvement of the
regional economic structure” and the
means provided by the European
development programme funds
are
other
significant investment incentives. The
main emphasis of the support measures
has shifted to the New Federal States,
because
that is where investment
incentives
are
needed
most, especially for
the starting of
a
business
or
profession
(Existenzgründung) and maintaining
it,
environmental protection measures as
well
as
research and development
projects. But there
are
also some other
regions in the western part of
Germany
,
especially in the North, where firms may
apply for support from the European
Union programme. These
are
regions
with
a
weaker and less developed
infrastructure.
However, especially in the New Federal
States, the setting up and expansion of
businesses
as
well
as
general investment
in fixed assets
are
supported by
numerous
regional and federal aid programmes.
In principle, there
are
also
a
number of
possible ways of obtaining grants from
EU
institutions. Public invitations to apply
for this type of funding may
be
found in
the Official Journal of the European
Union. Assistance from European
funds
may
be
in the form of subsidies, loans at
concessionary rates
of interest, equity
investments
or
the provision of venture
capital.
However, support for enterprises is
usually given indirectly through the
provision of federal and regional grants
funded by
EU
capital. The European
Union provides support measures by
means of the European Investment Bank
(EIB), the European Coal and Steel
Community
(ECSC)
as
well
as
the
European Regional Development Fund
(ERDF). The
EIB
provides loans and
guarantees for investment projects,
which contribute to the support of a
balanced regional development
as
well as
Doing Business in Germany
8
serving the modernisation and
restructuring of companies in the interest
of the community. These include
development and implementation of
new
technologies, cross border technical and
economic cooperation
as
well as
investments in the area of environment
and energy. The
ERDF
is intended to help
level out regional differences
in
development and wealth within the
EU
.
The measures of the
EU
also support
investments in the New Federal States
to
a
major
e
xtent.
Banking System and Sources
of Finance
The German banking system consists of
the German Federal Bank and
a
large
number of private commercial banks,
credit institutions incorporated under
public law, cooperative credit
institutions
and specialised banks. All together, there
are
about 2,277 banks and credit
institutes with
an
extensive network of
about 38,000 branches. Banks, financial
services institutions and insurance
enterprises in Germany
are
governed by
the state regulator, the Federal Financial
Supervisory Authority (Bundesanstalt
für
Finanzdienstleistungsaufsicht
–
BaFin)
and
are
regulated by the German Banking
Act (Kreditwesengesetz
–
K
WG).
The German Federal Bank (Deutsche
Bundesbank) is part of the European
System of Central Banks (ESCB)
which
comprises the European Central Bank
(ECB)
and the National Central Banks of
all
27
EU
Member States. The duties of
the German Central Bank include
country
-
specific tasks, within the framework of
European monetary policy, such
as,
for
example, joint decision-making and the
implementation of
a
common European
monetary policy, the management of
currency reserves and provision of
a
non-
competitive giro system for the banks.
In Germany, there
are
several hundred
private commercial banks of which the
largest are: Deutsche Bank
A
G
,
HypoVereinsbank AG (Uni Credit Group),
and Commerzbank AG. They grant
short
-
term loans and credit lines, medium and
long-term loans, and trade in securities
for customers and their own account.
They
are
also allowed to own shares and
other equity interests in other industries.
The credit institutes incorporated under
public law (mainly savings and loan
banks)
are
mostly municipal and regional
banks coordinated through central
institutions, which serve
as
regional
clearing houses. They offer the same type
of services
as
the private commercial
b
anks.
Credit cooperatives for trade
(Volksbanken)
and for agriculture
(Raiffeisenbanken) generally
grant credit
lines and long-term loans to their
members
–
generally smaller businesses,
but also individuals. Regional and federal
central institutions serve
as
clearing
houses and sources of
refinancing.
Mortgage banks (Hypothekenbanken) are
specialised in long-term mortgage loans
and long-term loans to federal, state and
local governments. They issue bonds
secured by mortgage loans and loans
to
public authorities.
In addition,
a
number of private and
public banks provide highly specialized
services and special forms of
financing.
Insurance banks and leasing companies
also play
an
important role in the
financing of industrial business.
Foreign Exchange Controls
The Euro is freely convertible into other
currencies, and the import and export of
capital is free, subject only to reporting
requirements.
A free European capital market
was
introduced by the relevant
EU
directive
which completely abolished all
restrictions on the transfer of capital
between
EU
Member States.
Employment
R
egulations
In Germany, there
are a
number of
general legal regulations which establish
a
general framework for wages and
salaries
as
well
as
for other terms and
conditions of employment. Detailed terms
9
Doing Business in Germany
and conditions (e.g. the level of wages
and salaries, working hours, notice
periods, holidays, social security
payments etc.)
are
generally agreed upon
in collective negotiations between
employee unions and employers’
associations. Companies which
are
not
member of such
a
board of
representatives, in principle, can
negotiate their employment conditions
independently. However, certain
statutory
requirements must also
be
taken into
account.
A foreign national who intends to work in
Germany for
a
resident
or
non-resident
employer generally needs
a
residence
permit and
a
working permit.
Before entering Germany,
a
foreign
national from outside the
EU
must obtain
a
prior residence
permit
(Aufenthaltsgenehmigung) in the form of
a
visa from
an
official representative of
the
Federal Republic of Germany
in his
home country, if
he or
she intends to stay
more than three months
or
to take up
paid work. The granting of
a
visa needs
prior approval by the immigration
authority
(Ausländerbehörde) of the place
where the foreign person intends to settle
if
he or
she intends to stay longer than
three months in Germany
or
intends to
work in Germany. In the latter case, the
employment authority (Agentur
für
Arbeit) must also approve the granting of
the visa.
Nationals of
EU
Member States enjoy
special privileges. They will usually be
granted residence permit without any
difficulties and they
do
not required
separate work permits. However, there
are
certain special requirements for the
citizens of the new
EU
member states.
In addition to
a
residence permit, foreign
nationals from outside the
EU
who are not
self-employed and intend
to work in
Germany need
a
work permit. A work
permit is issued by the local employment
authority for the geographical area where
the job is located. The foreign person
who intends to work in Germany and
applies for
an
entry visa at
a
German
consulate
or
embassy abroad
must
provide evidence at the time of
application for the visa that the local
employment authority has assured him or
her that
a
work permit will
be
granted.
Members of the management board of
corporations
are
inter alia exempt from
the requirement of
a
work permit.
In general,
all
employees
working in
Germany
are
subject to mandatory social
insurance, regardless of their citizenship
or
the residence of the employer
.
Employees temporarily delegated by a
foreign employer to
a
German branch of
the enterprise
are
generally exempt from
German social security payments.
The German social security system
provides for pension insurance,
unemployment insurance, health
insurance and nursing care insurance.
The contributions
are
shared equally
or –
in the case of health insurance
–
nearly
equally by the employer and the
employee. Contributions
in 2010 in
percentages of gross salary are:
•
pension insurance 19.9
%
•
unemployment insurance 2.8
%
•
health insurance (average) 14.9
%
•
nursing care insurance 1.95
%
The percentages
are
applicable only
up to
a
maximum base
income. In 2010, this
maximum base is
€
66,000 p.a. for
pension insurance and unemployment
insurance, and
€
45,000 p.a. for health
insurance and nursing care insurance. In
excess of this maximum, neither
employer nor employee pay
further
contributions.
As
mentioned before,
foreign employees
are
subject to the
same social security regulations as
German employees.
By
contrast, there is
no insurance obligation for
a
stay of less
than three months and for certain part
-
time employment. However within the
European Union, employees may remain
in their national security system, if certain
requirements of European law are
fulfilled.
Doing Business in Germany
10
types of business
organisations
Principal Forms of Business
German law offers
a
broad variety of legal
forms for conducting business. An
individual may wish to start business as
a
sole proprietor (Einzelkaufmann)
or as
a
branch (Zweigniederlassung) of
a
foreign
entity. An investor may, however,
prefer
to
set
up
an
independent
entity in
Germany, which is legally separate
from
his home country’s business. In this case,
the investor can select between
a
variety
of forms of partnerships
(Personengesellschaften)
and corporations
(Kapitalgesellschaften). These legal
forms
are:
I.
Sole Proprietorship
(Einzelk
aufmann)
II.
Partnerships
(P
ersonengesellschaften)
1. General Partnership (Gesellschaft
bürgerlichen
R
echts)
2. Business Partnership (offene
Handelsgesellschaft
–
oHG)
3. Limited
P
artnership
(Kommanditgesellschaft
–
KG)
4. GmbH &
Co. KG as a
special form of
limited partnership with complete
limitation of liability
5. Silent Partnership (Stille Gesellschaft)
III.
Corporations (Kapitalgesellschaften)
1. Limited Liability Company
(Gesellschaft
mit beschränkter Haftung
–
GmbH)
including the new limited
liability entrepreneurial company
[Unternehmergesellschaft
(haftungsbeschränkt)]
2. Stock Corporation
(Aktiengesellschaft
–
A
G)
3. Limited Partnership by Shares
(Kommanditgesellschaft auf
Aktien
–
KGaA)
I.
Sole Proprietorship
In
a
sole proprietorship the owner is
engaged in
a
typical commercial
business.
He
is personally liable for all
debts and has to register his business
in
the Commercial
R
egister
.
Setting up
a
sole proprietorship incurs
little cost: Only registration with the
Commercial Register and the local
authorities is necessary, but they require
low registration fees.
II.
P
artnerships
1. General
P
artnerships
A General Partnership (Gesellschaft
bürgerlichen Rechts) is
a
partnership
which does not pursue
a
certain business
and has no registered business name.
It
must have
a
certain
non-
commercial
purpose. The General
Partnership is
useful e.g. for associations for
professionals, for individual transactions
or
contracts (e.g. construction projects).
A General Partnership can
be set
up
without any costs.
As
it has
a
non-
commercial purpose, no registration is
necessary. The Partnership may have
–
but does not need to have
– a
written
partnership agreement. A written version
is certainly better to prevent disputes,
but
it can also
be
made by oral
or
even non-
verbal consent.
2. Business
P
artnerships
A business partnership (offene
Handelsgesellschaft
–
oHG) is a
partnership in which
all
partners are
jointly and severally liable for
all
debts.
The relationship between the partners
can
be
stipulated in
a
partnership
agreement. Each
partner has the right
and the duty to
be
involved in the
management. Although not
a
legal
person,
a
general partnership can acquire
11
Doing Business in Germany
rights and liabilities and obtain real
property and other rights over land. Legal
actions may
be
brought by
or
against the
partnership, and not against the
individual partners
as a
whole (such
as
in
the case of
a
General
P
artnership).
A business partnership has to register
with the Commercial Register and
with
the local authority,
as
it is
a
business
organisation. A written partnership
agreement is not necessary,
but
recommendable.
3. Limited
P
artnership
A limited partnership
(Kommanditgesellschaft
– KG)
is
a
special
form of business partnership. The major
difference is that there is at least one
limited partner who’s liability is limited to
his fixed contribution to the partnership
(Kommanditist). Equally
as
the business
partnership,
a
limited partnership has a
general partner
(at
least one)
who is fully
liable (Komplementär). The partners
own
all
partnership property in joint
tenancy
.
The general partners
are
entitled to
manage and to represent the partnership,
whereas the limited partners may only
participate in the management if the
partnership agreement
so
provides. The
partnership has to
be
registered in the
Commercial
R
egister
.
4. GmbH & Co. KG
A very popular form of limited partnership
is the “GmbH &
Co.
KG”. This type of
partnership offers
a
complete limitation of
liability. The general partner
(Komplementär) is
a
GmbH,
a
corporation
with limited liability. The result is that all
partners benefit from
a
limited liability:
the general partner because of its legal
form
as
corporation, the limited partners
because of their role
as
limited partners
within the limited partnership.
An investor who comes e.g. from a
common law country may now
ask
why
the whole business is not run in a
corporation where liability is effectively
limited to the same extent. The answer is
that the partnership offers
a
lot of
advantages
in taxation and administration
which corporations
do
not have. Another
important factor in the past was that
interests in partnerships were privileged
for inheritance tax purposes. This
was
interesting especially
for family owned
businesses. In 2009, the rules of
inheritance tax were subject
to
fundamental reforms. The inheritance of
partnership stakes is generally taxed at an
equal level
as
shares in corporations.
Nevertheless, it is still possible to pass
partnership stakes on to heirs
without
any tax liability, if certain criteria
are
met.
Therefore, for
a
period of seven years, the
average sum of salaries
must amount to
700
per
cent of the origin sum and the
stake must not
be
transferred. If these
criteria
are
not fulfilled within this period,
the tax is only due pro rata. A tax free
transfer of 85
per
cent of the stake is
possible if the stake is held for five years
and the sum of salaries
amounts to 400
%.
Furthermore, there
are
still advantages
for partnerships in the normal course of
the business.
It would
be
wrong to consider that the
GmbH &
Co. KG
is preferable in every
case. It depends very much on the
demands and needs of the investor or
businessman whether
a
GmbH &
Co.
KG
is
useful
or
not. Generally speaking, it can
be
said that the GmbH &
Co. KG
is
preferable
for smaller
or
family owned
businesses
and for those businesses
where gains
are
not necessarily
reinvested into the
business
but
distributed to the partners.
By
contrast,
foreign investors often choose
a
corporation
as
the legal form of their
holding company. It must not be
neglected that
a
GmbH &
Co. KG
is often
less useful to
a
foreign investor especially
in the context of double taxation treaties.
5. Silent
P
artnership
A silent partnership is
a
specific legal form
of granting mezzanine capital. Depending
on the partnership agreement, the capital
can usually
be
qualified
as
equity rather
than debt mezzanine capital.
In
a
silent partnership
a
person
Doing Business in Germany
12
contributes
an
amount of capital to an
existing business without incurring any
liabilities towards creditors. In return, the
silent partner shares
in the profits
(possibly also in loses). Besides
for
certain
tax planning purposes, silent
partnerships
are
used especially
to allow
third parties to share profits and risks of
the business without the need to acquire
rights and obligations not specifically
covered in the silent partnership
agreement and to avoid the disclosure of
their investment since silent partnerships
are
generally not registered in the
Commercial Register. However, it
has to
be
registered if the business in which
it
participates is
a
stock corporation
because this arrangement would be
considered
an
agreement to transfer a
portion of the profit. Also
a
silent
partnership agreement with
a
limited
liability company (GmbH) requires
registration within the Commercial
R
egister
.
III.
Corporations
1. Limited Liability Company
The limited liability company (GmbH) is
the most common form of incorporated
companies under German commercial
law.
Due to the flexibility it offers, the
GmbH is generally preferred
as a
vehicle
for closely held companies and
subsidiaries for foreign corporations.
Limited liability companies have
a
legal
personality of their own. It can
be
formed
by one
or
more persons. The persons
may
be
individuals
or
corporate bodies,
residents
or
non-residents, foreign or
domestic companies.
A comprehensive reform of the
law
governing limited liability companies
came into force on 1 November 2008.
The major issues arising from the
new
law are:
•
The limited liability entrepreneurial
company [Unternehmergesellschaft
(haftungsbeschränkt)] regulated
in
section
5a
is
a
GmbH without needing
to have
a
certain minimum nominal
capital which is particularly attractive
for start-ups in the service sector. This
kind of GmbH cannot, however, mak
e
a
full distribution of profits in order to
save the minimum nominal capital
required for
a
normal
GmbH
.
•
The minimum value of one share has
been reduced to
€
1,-.
•
Some administrative regulations
will
be
abolished, e.g. the need for
a
one
-
man-company to present
a
bank
guaranty if the fixed share capital has
not fully been paid into the company
at the time of registration with the
company’s
register
.
•
The currently very difficult rules
concerning the qualification of a
shareholder
’s loan
as
equity
or
debt
have been simplified, partly abolished
and partly transferred to the
Insolvency Code.
•
The statutory provisions have been
adapted to the jurisdiction of the
European Court of Justice of recent
years, especially concerning the
location of the company. German
companies
are
able to choose
administration headquarters abroad
deviating from their seat of
incorporation.
•
The danger of fraudulent misuse of the
company will
be
reduced.
•
Cash-management-systems,
currently
permitted under uncertain conditions,
will get clear statutory regulations. A
cash-management-system is
a
system
within
a
company group that ensures
the solvency of each member
company
.
The statutory minimum share capital
amounts to
€
25,000. If contributed by
cash, at least half of the capital,
€
12,500,
needs to
be
paid in at the time of
registration in the Commercial
R
egister
.
The foundation of
a
Limited Liability
Company must
be
stated by
a
notary
public. The usual costs of foundation are
about 1,500 Euro. The costs can
be
lower
if the model articles of association
are
used
because the notarial deed
certifying
the articles of association is
not
necessary
.
The shares of
a
GmbH are, subject to the
articles of association, freely negotiable.
13
Doing Business in Germany
The transfer of shares has to
be
agreed
upon in the presence of
a
notary public.
This effort makes the GmbH relatively
inconvenient for companies with
a
greater
number of shareholders.
Any transfer of ownership can
be
made
conditional upon the consent of the
GmbH
or
the other shareholders
or
any
other restriction in the articles of
a
ssociation.
The Articles of association, which
have to
be
drawn up by
a
notary public, must
contain:
•
the company’s name and
registered office
•
the purpose of the enterprise
• the amount of fixed capital
•
the amount of capital contributed by
each
member
.
The articles of association can include
further arrangements. They can be
designed to the specific needs and
demands of the company and
its
members.
The company is properly formed when
it
has been registered in the Commercial
Register of
a
local court. The appointment
of one
or
more persons to manage the
company can
be
provided for either in the
articles
or
by agreements between the
members. A managing director must
be
an
individual person rather than a
company but does not need to
be
a
citizen
or
resident of Germany. The
supervisory board is mandatory only if the
GmbH has more than 500 employees.
Shareholders’ resolutions
are
taken at
shareholders’ meetings. Shareholders’
meetings
are
normally called by the
managing directors
(or
the supervisory
board, if any)
or
by holders of at least
10
%
of the share capital
(as a
means of
minority protection). The meetings
do
not
need to
be
held in Germany. Votes can be
cast through the use of telefax, etc.
Unless otherwise provided within the
articles of association, shareholders’
meetings include decisions of e.g. basic
company policy, approval of the financial
statements, distribution of profits,
appointment and removal of
the
managing
directors and amendments
to
the Articles of Association. Decisions are
made by simple majority of votes, subject
to the provisions of the articles. In some
cases,
a
75
%
majority is required by
law
.
2. Stock
Corporation
A stock corporation (AG)
is the most
suitable business vehicle for
a
large scale
operation, especially
an
international
business. The principal advantage of a
stock corporation is that the shares of the
corporation may
be
transferred
with
relative ease and can
be
listed on
a
stock
e
x
change.
The holder of shares has no personal
liability to creditors of the AG, but
he
is
liable to the corporation for any unpaid
consideration for his shares. Creditors can
attach
all
of the assets of
a
corporation
and thereby endanger
or
even wipe out
the
interests of the shareholders, they can
not
claim the personal assets of the
shareholders.
The statutory minimum capital stock
(Grundkapital) for
an
AG is
€
50,000. The
shares of
a
stock corporation can
be
held
privately by individuals
or
publicly quoted
on stock exchanges. The foundation of a
Stock Corporation must
be
stated by a
notary public.
An AG can
be
formed by one
or
more
persons. These persons may be
individuals
or
corporate bodies, residents
or
non-residents. The formation of
an
A
G
starts with the drafting of
a
deed,
certified
by
a
German
public notary, in
which the founders
(or
single founder)
issue
a
declaration of formation,
undertake the obligation to pay in the
share capital and
lay
down the articles of
incorporation. These articles
must
include:
•
the corporation’s name and
registered office
•
the purpose of the corporation
•
the initial amount of fixed share capital
•
the composition of statutory minimum
Doing Business in Germany
14
capital (the par value shares and non-
par value shares and the issue
premium)
•
the composition of the board of
directors
•
the method by which corporate
announcements will
be
published.
The name of the corporation must always
include the designation
“
AG”
(Aktiengesellschaft). The stock
corporation exists only when
an
entry is
made in the Commercial
R
egister
.
Each stock corporation needs to have a
board of directors and
a
supervisory
board
consisting of at least three persons.
The shareholders meet and vote
in the
general meeting
(Hauptversammlung).
The AG is managed and represented
by
the board of directors. Subject to the
articles,
all
members of the board of
directors must act jointly in both
managing the corporation and
representing the corporation vis
-à-vis
third
parties. The board of directors has a
duty to report periodically to the
supervisory board about the business.
There
are
no statutory restrictions on
nationality
or
residence. A managing
director may
be a
shareholder, but cannot
be a
member of the supervisory board
and vice versa.
The supervisory board of the AG controls
and supervises the board of directors,
but
may not participate in the corporation
’s
day to day management. Members of the
supervisory board
are
allowed to inspect
books and records at any time and call
extraordinary shareholder meetings. In
addition, certain decisions of the board of
directors have to
be
approved by the
supervisory board. It consists of at least 3
members, the number of members has
to
be
divisible by three. Residence or
citizenship in Germany is not required.
A general meeting of the shareholders
has to
be
held annually. The meeting is
normally held in Germany at the place
where the AG has its registered office.
The statutory rights of the general
meeting include decisions regarding the
appointment of members of the
supervisory board, formal approval of the
supervisory board and the board of
management with respect to their
activities during the preceding business
year, the appointment of auditors,
amendments of the articles of
incorporation and reorganisation.
Decisions
are
made by
a
simple majority
of votes; in some cases
a
majority of 75
%
is required by
law
.
There
are
certain regulations for the
so
-
called “small stock corporation”,
e.g
.
fewer
formalities with regard to dividend
distribution, merger and invitation to the
general meeting. Furthermore, smaller
stock corporations
are
allowed to
renounce
the need to have the general meeting’s
decisions certified by
a
notary
public. This
applies especially
to
companies not listed
at
a
stock
e
x
change.
3. Limited Partnership by Shares
A partnership partly limited by shares
(Kommanditgesellschaft auf Aktien
–
KGaA) has elements of
a
stock
corporation
and
a
partnership. It is a
separate legal entity with legal rights and
obligations separate from those of
its
partners. The capital stock is divided into
par value shares. The liability of
shareholders is limited to the amount of
their investment of the
company
.
However, there must
be
at least one
partner who is fully and personally liable
for the company’s debts. This special
form of corporation is not very common
in
Germany
.
15
Doing Business in Germany
legal, accounting
and
audit requirements
Commercial
R
egister
In most cases, registration with the
Commercial Register is mandatory. The
Commercial Register is
a
public record
maintained by the local Lower Court
(Amtsgericht). It contains information
about the legal affairs of the enterprises
existing in the area. The Commercial
Register is divided into two sectors:
Sector A: for the sole trader, oHG and KG
Sector B: for the AG, KGaA and GmbH
Depending on the type of business
organisation, companies
are
subject to
special registration rules, e.g.
a
limited
liability company is required to state:
•
the name of the company
•
the head office of the company
•
the commercial purpose of
the company
• the amount of initial capital of
the company
•
the date when the Articles of
Association were signed
•
the names of the managing directors.
Changes of managing directors need
to
be registered. Notices of appointment
which have to
be
reported to the
Commercial Register must
be
certified by
a
notary public.
Anyone is entitled to inspect the
Commercial
R
egister
.
Financial Statements
With regard to accounting duties, all
business enterprises
are
obliged to
prepare financial statements every
year
.
The financial reporting requirements vary
according to the size and legal form of
the company concerned.
Irrespective of the legal form of the
enterprise, every business is required
to
maintain accounts and to record in them
its business transactions and its financial
position in accordance with German
principles of proper accounting. These
principles
are
derived from
a
variety of
sources and
are
constantly being updated.
Specifically, German accounting
principles
require that entries be complete, correct
and made
in
chronological order, that
annual financial statements
be
prepared,
that all computations
be
made in Euros
and
that
books and records
be
maintained
in
German and kept for
a
certain period of
time.
The questions
as
to which accounting
rules apply and whether
or
not some
more specific rules may
be
neglected
depend on the size of the enterprise and
of its legal form. In general, companies
and partnerships where
all
partners
with
unlimited liability
are
corporations rather
than natural persons (especially GmbH
&
Co.
KG’s) must adhere to the principles of
the commercial Code (HGB). Enterprises
with at least one natural person
without
limited liability
are
subject to the rules of
the Disclosure Code (Publizitätsgesetz)
which is more generous with the duties
of accounting and disclosure. The size
and the legal form of the company is also
vital to the question of disclosure. If
income and accounting statements have
to
be
disclosed, they have to be
Doing Business in Germany
16
transferred to the Electronic German
Federal Gazette (E-Bundesanzeiger). The
Electronic Federal Gazette published all
required information and is accessible
to
anyone.
The classification of corporations and
GmbH &
Co.
KG’s in different sizes
depends on the following figures.
To
include
a
corporation
or
GmbH &
Co.
KG
within
a
larger size, the company
must
meet two of the three criteria on
two
successive balance sheet dates:
euros
s
m
a
ll
medium
large
balance
sheet total
up to
4,840
million
up to
19,250
million
above
19,250
million
turnover
up to
9,680
million
up to
38,500
million
above
38,500
million
employees
up to
50
up to
250
above
250
Small companies
are
allowed to prepare
an
abbreviated balance sheet
in which
only specific items need to
be
included
separately. There
are
some other
exceptions for small and medium sized
companies relating to the profit and loss
statement and to the notes to the
financial statements. Furthermore, the
disclosure requirements vary according
to
the size of the company
.
The financial statements of
all
medium
and
large sized corporations and GmbH
&
Co.
KG’s have to
be
audited by
a
German
Public Auditor
(W
irtschaftsprüfer).
Accounting Principles
Accounting and valuation principles are
laid down in the Commercial Code
(Handelsgesetzbuch
–
HGB)
as
follows:
•
Financial statement have to
be
correct,
understandable and complete.
•
Values must
be
determined
prudently.
All foreseeable risks and losses
arising
up to the balance date have to
be
tak
e
n
into account, but profits may only be
taken up if they
are
realised at the
balance sheet date.
•
The valuation methods applied in the
preceding financial statements should
be retained.
•
The going concern principle has
to
be
followed.
•
The financial year usually corresponds
with the calendar year. The length of
the financial year may not
e
x
ceed
twelve month.
The financial statements have to give a
true and fair view of the financial affairs
of the
company
.
The Accounting Law Reform
Act
(Bilanzrechtsreformgesetz
–
BilReG)
was
enacted in December 2004. The
Accounting Law Reform Act introduced
international accounting standards and
ensures quality of annual audits.
It
implements into national law several EU
directives in addition to the IAS
regulations.
The Act to Modernise Accounting Law
(Bilanzrechtsmodernisierungsgesetz
-
BilMoG) which came into force on 29
May 2009 made some important changes
to German accounting rules.
Generally
,
the changes come into force on 1 January
2010. The aim of the Act is to adapt
German
accounting principles to
international standards without leaving
the field of accounting legislation to
European
IAS or
US-GAAP. Some
of the
important changes may
be
summarised
as
follows:
•
Rights of variable valuations of assets
have been abolished.
•
All Self-made intellectual properties
have to
be
carried
as
assets.
•
Changes in the valuation of pension
liabilities.
•
The influence of tax accounting rules
17
Doing Business in Germany
on business accounting rules has been
reduced, while the opposite principle,
the influence of business accounting
rules on tax accounting rules, will stay
in force.
•
The
key
figures for the classification of
corporations and GmbH &
Co.
KG’s as
small, medium
or
large,
as
outlined
above, have been raised by about 20 %.
•
Companies have the right to account
according to IFRS-standards.
If they
take this opportunity, they
are
allowed
to produce HGB-based annual
accounts in
a
shorter version
only.
Doing Business in Germany
18
taxation
Tax
Y
ear
In general, taxes
are
levied on
a
calendar
year basis. In the case of
a
non-
calendar
business year, tax is due for the calendar
year in which the business year ended.
VAT is always levied on
a
calendar year
basis in line with the European
V
A
T
regime.
General structure
First of all,
a
company’s tax status
depends on whether
or
not it is
incorporated. Corporations
are
treated as
taxable entities and
are
subject to federal
corporation tax (Körperschaftsteuer),
to
the solidarity surcharge
(Solidaritätszuschlag) and
to the
municipal trade tax (Gewerbesteuer).
In contrast, partnerships
are
transparent
entities for corporation
or
income tax
purposes. The income determined at the
level of the partnership is allocated to the
individual partners. The partnership files
returns only for information purposes,
and each partner declares his respective
share of the partnership’s profits or
losses in personal income/ corporation tax
returns. The partnership itself is only
subject to trade tax. The main aspects of
corporation tax
are
explained
below.
Corporation
T
ax
Stock corporations (“AG” and
“KGaA
”)
and limited liability companies (“GmbH”)
resident in Germany
are
subject to
taxation on their world wide income
(unlimited tax liability). Non-resident
corporations
are
subject to taxation on
income from sources in Germany (limited
tax liability). A corporation is considered
resident in Germany, if it maintains either
its seat
or
its central place of
management in Germany. The central
place of management is where
k
e
y
decisions
are
regularly made. Otherwise,
a
corporation is considered non-resident.
In general, taxable income is calculated
on the profit of the operating business
under German GAAP (HGB)
with certain
add-backs and/or deductions. The main
adjustment item is the financing cost
deduction (“Zinsschranke”). For
corporations within
an
affiliated group, the
deduction of the surplus of financing
costs over interest income is restricted to
30%
of the income before depreciation,
financing costs and interest
(EBITD
A).
This does not apply, if financing costs do
not exceed
interest income by more than
€
3,000,000.
Disallowed financing costs can
be
carried
forward for future deduction.
Trade
T
ax
Every business operating in Germany is
subjected to trade tax on income
(“Gewerbesteuer
”). This also includes
foreign owned business operations.
The tax base for trade tax is calculated on
the profit of the business with certain
adjustments. The most important
adjustment is the partial addition of
financing costs. One-quarter of the
financing costs exceeding the amount of
€
100,000 has to
be
added.
For
trade tax
purposes, also annuities, share in profits
of silent partners,
20%
of rents for
chattels and 50
%
of property rentals
must
be
regarded
as
deemed financing
e
xpenses.
19
Doing Business in Germany
Trade tax is based on federal law, but is
levied by local municipalities. The
provisional assessment rate is established
on business profits. 3.5
%
of business
profits is determined and multiplied by
200 to 490
%
depending on local
circumstances.
As
from 2008, this tax is
a
non-deductible business expense
for
the calculation of trade tax, income tax
and corporation tax.
An allowance of
€
24,500 on profits (of
individuals and general partnerships) is
granted. Most of the trade tax on profits
of
a
partnership
or
sole trader can
be
set
off against the respective income
tax
during the same year
(no
carryforward or
carryback available), provided certain
rules
are
observed.
Dividend
T
axation
Germany applies the so-called
“part
-
income
system
”
(“Teileinkünfteverfahren”). Under
this
method, distributed profits
are
in principle
subject to double taxation, which is,
however, reduced through
a
relief both at
the level of the company and the level of
the shareholders.
As
from 2009, the taxable portion of
dividends received
after costs by
individuals through
a
partnership has
been raised from 50
%
to 60
%, so
the
effective rate will
be
28.49
%
in the
highest bracket. Dividends from privately
held shares will
be
subject to
a
flat tax in
the amount of 26.375
%
effectively
(“
Abgeltungssteuer
”). It is optional to
declare these dividends in the income
tax
return,
so
if the
taxpayer
’s personal tax
rate is below 26.375
%,
any
e
x
ceeding
withholding tax can
be
refunded.
If the shareholder is
a
corporation, only 5
%
of the distributed profits is taxable, so
the effective tax rate is approx. 1.5% (incl.
solidarity surcharge and trade tax). This
applies both to domestic and foreign
dividend income.
Loss relief
Corporations can apply for
a
loss
carryback into the previous year
of up to
€
511,500 for corporation tax purposes
(not for trade tax). Losses exceeding
this
threshold may
be
carried forward to be
offset against profits in future years.
However, the utilization in future years is
limited to
an
amount of
€
1m plus
60%
of
the income exceeding
€
1m each
year
,
which applies for corporation and
municipal trade tax purposes. This leads
to
a
so-called “minimum taxation
”
of 40%
of the aforementioned excess in the
respective tax
year
.
Withholding
tax
es
Corporations, whether with unlimited or
limited liability to tax in Germany, are
required to withhold taxes at source for
the following types of payment and to
remit such taxes to the tax authorities
(the same applies to individuals and
partnerships):
•
Wage tax
(“Lohnsteuer
”) must be
withheld by the employer and remitted
to the tax authorities.
•
Dividends (incl. deemed dividends),
other profit distributions and income
from
a
silent partnership
or
profit
participating loan
are
subject to
withholding tax at
a
rate of 26.375
%
as
from 2009.
•
If applicable, the amount of
withholding tax on payments to
foreigners depends on the double
taxation treaty
(DT
A
;
“Doppelbesteuerungsabkommen
”
=
“DBA
”).
According to the
EU
P
arent
-
Subsidiary
-
Directive the withholding tax rate on
dividends to
a
parent company in another
EU
member state can
be
reduced
down
to 0
%.
Please
note that anti-avoidance
legislation requires certain conditions
to
be
met by the foreign parent company
to
be
eligible for
a
reduction of
withholding
tax
es.
Doing Business in Germany
20
Solidarity surcharge
Since 1995, corporation and income
tax
i
n
Germany has been subject to a
solidarity surcharge
(“Solidaritätszuschlag”). The solidarity
surcharge is levied on the assessed
amount of income
or
corporation tax
es,
income
or
corporation tax prepayments
and withholding taxes. The rate of the
solidarity surcharge is 5.5
%.
The tax rate
for corporations of 15
%
is therefore
increased by the solidarity surcharge
to
15.825
%
(15
%
plus 5,5
%
of 15
%).
If,
however,
a
tax treaty is in place
which
reduces the withholding tax on dividends,
no solidarity surcharge can
be
levied
upon the withholding tax. The
aforementioned effective tax rates have
always been calculated considering the
solidarity surcharge.
Personal
T
axation
Income tax
Individuals
are
required to pay individual
income tax
(“Einkommensteuer
”). The tax
year for income tax purposes is the
calendar year. The tax liability of an
individual depends on his residence.
Citizenship is not
a
relevant
factor.
According to the concept of unlimited
liability to tax, individuals resident in
Germany
are
subject to income tax on
their world-wide income. The status of
unlimited liability to tax is also relevant
for various tax allowances and
filing
options (e.g. joint returns for married
people, child benefit payments, child
allowances).
Residents
are
subject to income tax on
seven categories of income:
•
income from agriculture and forestry
•
income from
a
trade
or
business
•
income from
self-
employment
•
income from employment
•
income from capital investment (for
assets acquired after Dec 31st, 2008
also capital gains)
•
income from real estate and leasing
activities
•
other sources of income
Other income includes annuities, certain
gains from speculative transactions
(e.
g.
gains from the disposal of real property
within 10 years after acquisition),
occasional activities and rent of movable
property. Income which is not covered by
one of the seven categories is not taxable.
In order to determine the total amount of
taxable income on
a
calendar-year basis,
the amounts of income from the different
categories must
be
calculated
separately
.
For
the first two categories of income
(from agriculture and forestry/from
a
trade
or
business), the normal method of
computing the gross income relevant for
income taxation is the accrual method
based generally based on German GAA
P
.
According to this method, the relevant
gross income is the difference
between
the
net worth of the assets
pertaining to
each category of income at the end of the
proceeding compared to the current
assessment period. In the case of income
from agriculture and forestry
or
trade or
business where the annual profits
do
not
exceed
€
50,000 and sales revenue does
not exceed
€
500,000, the “net income
method” maybe used. Under this method,
the taxable income is computed by
reducing the gross income by income
-
related expenses in accordance with a
cash receipts and disbursement method.
Business related expenses
are
generally
deductible under both methods.
Net income from agriculture and
forestry,
from
a
trade
or
business and from self-
employment must
be
determined by
deducting business expenses from gross
receipts.
Net income from employment, investment
income, rental income and certain other
income is determined by deducting any
expenses that
are
incurred to produce,
maintain and safeguard that income
(income related expenses) from gross
receipts (cash accounting method). For
employees, these expenses include
commuting expenses, tools, work clothes,
certain membership dues and certain
away-from-home expenses. In case of
rental income, interest
e
xpenses,
depreciation and other related
e
xpenses
can
be
deducted.
21
Doing Business in Germany
The basic level of tax-exempt income
(“Grundfreibetrag”) is
€
7,834. For
married tax payers (joint filing), the basic
level of tax-exempt income is doubled.
For tax payers having children, there is a
child allowance of
€
7,008
per
child.
Within
a
taxation period, earnings and
losses can
be
fully offset against each
other. If
a
loss still exists for an
assessment period, it can
be
used to
offset income in other assessment
periods. The first option is to carry the
losses back into the preceeding year,
but
only to
a
maximum of
€
511,500 (double
in case of joint filing). If
a
loss still
e
xists
after the carry-back, it can
be
carried
forward to future assessment periods to a
maximum of
€
1 million (double in case of
joint filing).To the extent the loss carry
forward exceeds
€
1 million, it can only
neutralise 60
%
of the remaining positive
taxable current income. Any remainder is
carried forward further. Individual income
tax is imposed at progressive tax rates
depending on the amount of taxable
income. In 2008, effective tax rates of 0
%
up to 47.475
% are
levied. The top tax
rate of 47.475
%
is levied on
an
annual
taxable income exceeding
€
250,000.
Withholding tax on investment
income
Investment income, in particular interest
and dividend income, is subject to a
withholding tax on investment income
(“Kapitalertragsteuer
”) at
a
rate of 25 %,
which can
be
credited against domestic
income tax.
If applicable, the amount of
withholding
tax on investment income to
be
paid by
foreigners depends on the double
taxation treaty (“DTA
”
–
“Doppelbesteuerungsabkommen
–
DBA
”).
Double Taxation
Treaties
Germany has concluded double
taxation
treaties with more than 100 countries. In
these conventions two methods to avoid
double taxation
are
applied. Generally,
the
foreign tax arising from dividends, foreign
interest is credited against the tax
payable in Germany. A tax
e
x
emption
with progression is in particular granted
for income from immovable property,
business profits and employment. This
means
that the taxable income in
Germany is taxed at the tax rate
that
would result if the worldwide income
were to
be
taxed in
Germany
.
Other
T
ax
es
Stamp Duty
There is no stamp duty levied
in
Germany
.
Value Added Tax
(V
A
T
)
VAT
(“Umsatzsteuer
”) applies to supplies
of goods and services which an
entrepreneur delivers
or
renders, for
consideration (monetary
or
non-monetary)
within Germany. It also applies to the
importation of taxable goods and services
(import turnover tax
–
“Einfuhrumsatzsteuer
”) which
are
subject
to the same taxes
as
domestic products
and services.
Since 2007, the standard rate for supplies
of goods
or
services taking place
in
Germany has been 19
%.
Certain goods
and services (e.g. books, newspapers,
food, and,
as
from 2010, accommodation
services)
are
subjected to the reduced
rate of 7 %.
Certain goods and services
are
either
zero-rated for VAT (e.g. export of goods
to
EU
and non-EU destinations)
or
e
x
empt
from VAT (such
as
medical services and
real estate supplies). The latter supplies
do
not qualify for
an
input VAT deduction.
A German entrepreneur is normally
allocated
a
single tax reference
number
for
all
taxes including VAT. Furthermore a
VAT identification number is issued for
each registered entrepreneur by the
Bundeszentralamt für Steuern
(www
.bzst.de).
In general,
an
entrepreneur has to issue
an
invoice showing VAT due on
a
supply,
which becomes due to the tax
authorities. Most German entrepreneurs
Doing Business in Germany
22
must submit
a
preliminary VAT
return to
the tax authorities on
a
monthly basis
(under certain circumstances, such
V
A
T
returns
are
only requested quarterly or
not at
all)
and pay the net VAT amount
due to the tax authorities at the same
time. The normal deadline for submission
and payment is the 10th calendar day
after the end of the calendar month. A
permanent extension of time for filing and
payment of 1 month is available, if the
entrepreneur pays
a
deposit of 1/11 of the
preceeding tax
year
’s VAT liability. In
addition,
an
annual VAT return has to be
filed for the calendar year, summarising
the information already reported in the
preliminary monthly returns and
correcting eventual areas. This annual
return must
be
submitted by May, 31st of
the following year (December
31st, if tax
adviser is employed).
In cases of intra-EU supplies and services
(as
from 1st January 2010),
a
so
-
called
EC
Sales List (“Zusammenfassende
Meldung”) must
be
completed for each
month in general and submitted to the
tax authorities electronically within the
same deadline
as
agreed for the
submission of preliminary VAT returns.
The
EC
Sales List must show the
V
A
T
identification number of the recipient of
the goods and services and the value of
the supply made to the recipient.
Foreign entrepreneurs not registered for
VAT in Germany can attempt to recover
VAT incurred in German purchases only
if they
do
not supply goods
or
render
services in Germany and if they
do
not
have
a
permanent establishment there.
When applying for
a
refund, foreign
entrepreneurs
must submit the form
“USt 1T”
(
www
.bzst.de/003_menue_links/006_ust
-
verguetung/061_ausl_untern/inde
x.html)
along with the original VAT invoices from
the German suppliers to the
Bundeszentralamt für Steuern, Dienstsitz
Schwedt, Passower Chaussee
3b, 16303
Schwedt/Oder.
As
from 1st January 2010
European entrepreneurs have
to claim
back the German input VAT
via
an
electronic application (invoices have to be
submitted electronically
as
well) till 30th
September of the subsequent year
of the
supply. The application has to be
transmitted to the competent tax
authority
in the country of the
entrepreneur. The respective
domestic tax
authority is to submit the application
to
the German tax office. Further questions
in regards to the application may be
asked by the German tax office to the
entrepreneur directly. Non-EU
entrepreneurs without
a
presence
within
the
EU
may choose one country to lodge
the application for the whole of the
EU
.
Real
Estate Transfer T
ax
The transfer of
Real
Estate triggers
R
e
a
l
Estate Transfer Tax (Grunderwerbsteuer)
at 3.5
%
(4.5
%
in the City of Berlin) of the
purchase price
or
any value received
in
exchange for the
property.
If 95
% or
more of the shares in a
corporate holding real estate are
transferred (directly
or
indirectly), the tax
falls due,
as
well. There is no
e
x
emption
for intra-group transfers/restructuring
transactions. Likewise, the transfer of 95
% or
more in
a
partnership triggers the
tax
as
well. The
95%
limit is monitored
over
a
period of five years.
As a
consequence, restructuring and
acquisition operations require thorough
analysis of the underlying real estate
portfolio.
Real
Estate T
ax
Real
Estate Tax
(“Grundsteuer
”) is an
annual tax levied by
German
Municipalities
on real property (land and
buildings). It is payable by the owner of
the property irrespective of residence. The
tax is levied on the assessed value
(“Einheitswert”) of the property using the
basic federal tax rate of 0.35
%. On
the
resulting base amount
(“Steuermessbetrag”), the municipalities
apply their respective multipliers to arrive
at the final tax due. The multipliers
vary
by
municipality and may
be
different for
industrial
or
agricultural property. Average
multipliers for industrial property range
from 150
%
to 600
%,
depending on local
circumstances.
23
Doing Business in Germany
Withholding Tax on
Building/Construction Services
In order to fight tax evasion in the
construction sector,
a
withholding tax
regime ("Steuerabzug
bei
Bauleistungen")
has been imposed. Service providers
suffer
a
15
%
withholding on their gross
invoice amounts, unless they can present
an
exemption certificate. The certificate is
issued by the competent tax office upon
a
pplication.
Other Taxes on Consumption
Numerous taxes
are
levied on the
consumption of goods (tobacco, petrol,
alcohol) and services (insurances, electric
energy). Except for the tax on electric
energy (Stromsteuer), they
are
not
refundable. They
are
levied by the dealer
and
are
not stated separately on the
invoice.
HLB
Deutschland GmbH
National Secretariat, Steinstrasse 27, 40210 Düsseldorf
Telephone: +49 (0)211 323 91 93 Fax: +49 (0)211 323 91 95 E-mail: [email protected]
Web: www.hlb-deutschland.de
HLB Deutschland GmbH is a member of HLB International. A world-wide network of independent accounting firms and business advisers
