Germany

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Germany is officially known as the Federal Republic of Germany. Germany is located in the Central Europe and is one of the most important countries in the European Union (EU). Germany is bordered by North Sea and Denmark to its north and to the south it shares its border with Austria and Switzerland, Germany is surrounded by Poland and Czech Republic to its east and to its

West Germany shares its border with France, Belgium and Netherlands. With more than 81.8 million inhabitants (approximately) residing in the country, Germany is the most populated country in the European Union. Germany is one of the few countries that enjoy the distinction of being of the third largest countries in the world with the highest number of immigrants staying in the country.
Germany has a very liberal social market economy. It is ranked first as the largest economy in European continent. Since the onset of Industrialization, Germany has been one of the forerunners in the technological advancement and has been a leading global economy. Germany is a key member of the G8 and G20. It is second largest exporter and the third largest importing country in the EU. The trade sector contributes to a staggering $189.7 (approx) to the German exchequer. Germany’s aggressive international policy makes it a fertile ground for foreign investment.

Population: 82,175 million
Form of government: Federal parliamentary constitutional republic
Official & spoken languages: German
Currency: EURO €
Time zone: UTC +1
GDP (PPP): $ 3.842 trillion
GDP (PPP)/per capita: $ 47,033
Public debt: 78.4% of GDP
Average salary: 3,423€/month
Unemployment: 4.2% (June 2016)
Major trading partners: China, France, United States, Italy

 


Advantages of doing business in Germany

Germany is one of the world’s leading industrial nations. It offers a large market, a central location in Europe and a high level of innovation. Do you need more reasons to invest in Germany?

  • Large Market: With 82 million inhabitants, Germany is the European Union’s most populous country and therefore also the largest market within the EU. With a gross domestic product of more than 2.2 trillion Euro, Germany is the largest economy in Europe and the third strongest economy in the world.
  • Central Location: Germany’s central location in Europe makes it a hub for goods and services. Germany more than other countries benefits from EU enlargement. As a result, it is the only country among the seven most important industrialized nations to increase its share of world trade since 1995.
  • Open Market: Germany is an open market and warmly welcomes foreign investors. That is demonstrated by the 22,000 foreign enterprises that have established businesses in Germany and now employ more than 2.7 million people. The German market is open to entrepreneurial investment in practically all areas. There are no longer any state-controlled industries. Germany is receiving increasing attention from private equity firms and hedge funds due to its highly attractive companies legislation and favourable investment conditions.
  • International Location: More than 7 million foreigners live in Germany. Several metropolitan regions have prominent foreign communities with their own schools, churches, shops and restaurants. For example, a large number of Japanese live in the Düsseldorf region, Frankfurt is home to many Koreans and there is a thriving Chinese community in Hamburg. Approximately 70% of German blue- and white-collar workers can speak more than one language.
  • Qualified Personnel: Germany offers an exceptionally well-qualified, motivated and conscientious workforce. German employees’ high standard of knowledge and skills is internationally recognized. The demand for professionals is met by 383 institutions of higher education. Another pillar of the German training system is the “dual system” of vocational education, which combines workplace training and school instruction and produces an acknowledged high standard of training closely geared to the needs of industry.
  • High Level of Innovation: Statistically, Germany has 277 international patents per one million inhabitants – more than anywhere else in the world. The close cooperation between industry and world-famous research institutions like the Max Planck and Fraunhofer Institutes, swiftly transforms new ideas into products for the world market.
  • Highly Developed Infrastructure: Germany has a closely knit network of roads, railways and international airports. This guarantees swift connections. Frankfurt Airport is renowned as an international hub, whilst the Port of Hamburg is one of the largest container transshipment centres in Europe. Communications infrastructure is exceptionally well-developed throughout the country.
  • Legal Security: Germany is a modern constitutional state with transparent and reasonable laws, the advantages of which are internationally recognized. The German legal system has served as a model for legal systems in many other countries and international studies have shown that German legal security is highly regarded by investors. Out of all countries, Germany ranks fourth in terms of legal security.
  • Strong “Mittelstand” (SME’s): The German economy is characterized by privately owned small to medium-sized enterprises, the Mittelstand, or SMEs. 85% of all businesses are SMEs. This makes German industry very flexible, multifaceted and competitive. Many of these highly specialized firms are international market leaders in their field, the so-called “hidden champions”.
  • World Famous Trademark: Products with the “Made in Germany” seal stand for the highest quality worldwide. This has played no small part in maintaining Germany’s position as a world champion exporter for many years. The automobile, mechanical engineering, electrical engineering and chemical sectors are particularly strong. Industries of the future, such as environmentally friendly energy production and nanotechnology, in which the number of patent applications is doubling every two years, are steadily gaining in importance. All of this means that foreign investors can reap the benefits from the “Made in Germany” seal of quality.

Disadvantages of doing business in Germany

  • Some of the risks of doing business in Germany include the high cost of labor, powerful labor unions, and high taxation. Germany’s wages of $25 per hour in 2002 (U.S. $21) were among the highest in the world.
  • High taxation is also a risk of doing business in Germany. As stated earlier, Germany raised its VAT tax rate from 16% to 19% on January 1, 2007. This lowers the purchasing power of the consumer, resulting in fewer goods purchased within Germany. Germany also places an import turnover tax of 19% on all industrial imports. The tax is designed to place the same tax burden on imported goods as those produced domestically (U.S. Commercial Service, 2006).

Business Friendliness Environment Index (EUROPE) by Novasigma – 2017

Novasigma has published an annual BFEE (Business Friendliness Environment – Europe) -index for 2017. European economies are ranked from  1-51 based on their business friendliness. The rankings are determined by sorting the aggregate distance to frontier scores on 20 topics each consisting of several indicators, giving equal weight to each topic. The rankings for all countries and economies are bench-marked to January 2017

GERMANY – OVERALL RANK 2017: 3rd (Europe) 77/100 points
1. Ease of incorporation process (bureaucracy, costs, time frame) 2/5 points
2. Privacy level of shareholders and investors 3/5 points
3. Privacy level of company directors and signatories 3/5 points
4. Availability of the private equity funding 5/5 points
5. Availability of the public and / or bank sector financing instruments 4/5 points
6. Reputation of the country (trading across borders with a company registered in this country) 5/5 points
7. Easiness of recruiting professional staff (professionalism, average pay, protection against dismissal) 4/5 points
8. Easiness of getting business premises (price, availability) 3/5 points
9. Suitability for production of physical products 5/5 points
10. Suitability for producing services 5/5 points
11. Size of the home market B2C (population and purchasing power) 5/5 points
12. Size of the home market B2B and public sector purchasing services from local businesses 5/5 points
13. Exporting physical products (markets nearby, logistics and toll) 5/5 points
14. Exporting services 5/5 points
15. Immaterial rights (compared to other countries) 4/5 points
16. The level bureaucracy or corruption during business operations 3/5 points
17. Company taxation 2/5 points
18. Dividend taxation, withholding taxes and tax treaties 3/5 points
19. Easiness of selling a business 4/5 points
20. Easiness of closing down a company 2/5 points

The World Bank’s “Ease of Doing Business ranking”

Overall rank 2016: rank 15th (change in rank: 0)
– Starting a business: rank 107 (average processing time 10.5 days)
– Dealing with construction permits: rank 13 (no change) (average processing time 96 days)
– Getting electricity: rank 3 (average installation time 28 days)
– Registering property: rank 62 (no change) (average processing time 39 days)
– Getting credit: rank 28
– Protecting minority investors: rank 49 (change -3)
– Paying taxes: rank 72 (change -4) (average company tax from profits 23,2%, average time used for taxation 218 hours per year)
– Trading across borders rank 35 (change -1)
– Enforcing contract: rank 12 (average 429 days, average cost from standing amount 14,4%)
– Resolving Insolvency: rank 3 (Average time processing bankruptcy: 1.2 years)

 

New businesses registered in 2013: 68 526

Freedom Index: Germany

Overall rank 2016: 12th (69/100 points)
– Property rights: 90/100 points
– Freedom from taxes: 61/100 points
– Freedom of speech/religion: 94/100 points
– Limited government: 38/100 points
– Gun rights: 32/100 points
– Drug rights: 55/100 points
– Freedom from corruption: 78/100 points
– Freedom from inflation: 81/100 points
– Business freedom: 90/100 points

Corporate Taxation in Germany

  • Residence: A corporation is resident if it maintains its registerred office ( as determined by its articles of incorporation) or central place of management in Germany.
  • Basis: Resident are taxed on worldvide income; nonresidents are taxed only on Germany-source income. Branches are taxed the same as subsidiaries.
  • Taxable income: Corporation tax is imposed on a companys profits, wich consist of business/trading income, passive income and capital gains. Business expenses may be deducted in computing taxable income.
  • Taxation of dividends: Dividends received by a German resident corporation (from both resident and foreign corporations) generally are 95% tax exempt: however, the exemption is not applicable if the dividends are treated as tax deductible expenses for the payer.
  • Losses: Losses may be carried back one year and carried forward indefinitely. Losses may be offset against profits up to EUR 1 million without restriction, but only 60% of income exceeding EUR 1 million may be offset against loss carry forward. A direct or indirect change in ownership of more than 25%/50% to one purchaser/related party results in a partial/complete forfeiture of all tax loss carryforwards. Loss carryforward forfeiture may be avoided in certain intragroup restructurings. Loss carryforwards continue to be available to the extent built-in gains in the loss company are subject to tax in Germany.
  • Foreign tax credit: Foreign tax paid may be credited against German tax that relates to the foreign income or may be decuted as a business expense. Germany typically applies the exemption system.
  • Taxable income: 25% (26,375% including the solidarity surcharge).

Compliance for corporation:

  • Tax year: The tax year is 12 months or the period for which accounts are prepared, if shorter. The tax accounting period may not exceed 12 months in total.
  • Consolidated returns: Although companies may be taxed on a consolidated basis, each company must file a separate tax return (except for VAT). Tax consolidation for corporate income tax and municipal trade tax purposes (Organschaft) requires that the parent in the consolidation holds the majority of the voting rights in the subsidiary from the beginning of the subsidiary’s fiscal year. The parties must conclude a profit and loss transfer agreement (PL TA), which must be in effect and carried out for at least five years, unless an important reason exists for termination of the agreement (e.g sale of the subsidiary) before the end of the five-year period. Strict formal requirements for a PLTA apply. Tax consolidation for VAT purposes does not require a PLTA, but the subsidiary in the consolidation must be financially, organizationally and economically integrated in the parent company.
  • Filling requirements in Germany: The tax return generally must be filed electronically by 31 may of the year following the tax year; extension of the filling deadline to 31 December of the year following the tax year typically is granted if a tax advisor is involved. Quarterly advance payments of corporate tax are due in March, June, September and December.
  • Penalties: Penalties may be imposed for late filling (up to 10% of the tax due and a maximum of EUR 25,000) as well as for late payment of assessed taxes (1% on the outstanding rounded down tax amount per month or part thereof). Findings in tax audits generally do not result in penalties. However , taxes assessed as a result an audit are subject to interest of 0,5% per full month (6% per year). The interest calculation begins 15 months after the calendar year in which the assessment became effective. Penalties also can be imposed if the taxpayer does not comply with the transfer pricing documentation requirements. If the taxpayer fails to submit, or submit inadequate documentation, an additional charge between 5% and 10% of any transfer pricing adjustment (a minimum of EUR 5000) can be assessed. An additional charge for the late submission of documentation can be assessed of a least
    EUR 100 per day, up to EUR 1 million.
  • Rulings: A taxpayer may be apply for an advance ruling on the tax consequences of a proposed transaction. Administrative fees may apply.
  • Tax authorities: Federal Ministry of Finance, Federal Central Tax Office, Ministry of Finance of the German States

Services for corporations interested in Germany

  • Consultation and advisory (business, tax, legal) services before incorporation / during your business operations in Germany
  • Assistance in incorporation process: Tailor made German company formation or shelf companies available
  • Administration services available for new German companies incorporated through Novasigma

For corporations operating in Germany

  • Banking and financial solutions for a German company
  • Accounting and Audit services for a German company
  • Legal services for a German company

For individuals and families interested in Germany

  • Consultation and advisory (tax, legal) services before re-located to Germany
  • Assistance in immigration process when moving to Germany (residency permanent, work permit, tax residency)
  • Incorporation and administration services for your privately held German holding company

For individuals and families who hold the German residency

  • Banking services in Germany for private persons
  • Local and international accounting services for German tax residents
  • Local and international legal services for German residents

Interested in Germany? Please leave us a message and we will come back to you shortly.

In cases KYC or/and Due Diligence process required Novasigma requires a personal meeting with all its new clients before proceeding any assignment

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