1 Facts & Figures Investor s Basics: Setting Up Business in Germany
2 Setting Up Business in Germany Legal Issues Important to Foreign Investors This brochure explains how the business establishment process in Germany works. It focuses on the questions most often posed by foreign investors. These can be grouped into four key categories: entry and residence requirements, business establishment, corporate taxation, and employees and social security. You will find essential information on these matters and many useful tips on how to establish a new business in Germany both quickly and easily. Entry and Residence At some point within the process of establishing a business in Germany, investors usually have to come to Germany in person. Depending on the country of origin, investors may require a visa to enter Germany. Long-term stays require a residence permit. Different types of residence titles are available subject to the intended business activities. Our legal experts help you in preparing your business trip to Germany by checking: whether a visa is needed before entering Germany or not. what type of visa or residence permit might be required for the planned business activity. granting requirements for different kinds of residence permits. how the application procedure works. Business Establishment German company law offers a variety of different legal structures suitable for every type of business. Formation procedures are swift and efficient, with only a few steps needed to establish a company in Germany. Our legal experts help you in preparing business establishment in Germany. We inform about: general ways to take up commercial activities in Germany. different company forms. the establishment procedure in detail. registration with the commercial register and trade office. Corporate Taxation Tax implications must be taken into account when choosing a legal company form, since company taxation details mainly depend on the company form. Germany has a comprehensive regime of double taxation agreements with foreign countries which, for instance, prevent double taxation of distributed profits. Our taxation experts help you in optimizing your business. We inform about: the German tax environment. tax implications of certain company forms. how to avoid double taxation. how to register with tax authorities. Employees and Social Security Attention should already be paid to the question of how to recruit required specialists and employees at the company formation stage. Moreover, knowledge of the different employment models and the terms and conditions of employment help successfully complete the hiring process. Our legal experts help you optimize the hiring process in advance by giving advise on: flexible models of employment. different terms of employment. the social security system and payroll accounting. registering employees for the social security system.
3 Setting Up Business in Germany Company Forms for Foreign Investor Expansion Anyone can establish a business in Germany irrespective of nationality or place of residence. There is no specific investment legislation in Germany, nor is a minimum percentage of German shareholdings required for foreign entrepreneurs setting up business in Germany. Foreign investors can choose between a variety of legal forms for conducting business in Germany. Existing companies can also conduct business via a German branch office. Decisive criteria for the choice of legal form are generally the intended function of the shareholders, liability and terms of taxation. The basic structure of all company forms is stipulated by law which provides for predictability and legal certainty. The same legal conditions apply for foreign and local entrepreneurs. Legal Structures for Your Business in Germany There are a number of different ways to enter the German market. Expanding foreign companies often choose to establish a local subsidiary or to register a local branch office. The subsidiary s degree of independence is a major argument for this option. Either way, the establishment procedure is straightforward with welldefined steps. There are no restrictions placed upon foreigners who wish to establish a company or register a branch office in Germany. There are several ways of taking up commercial activities in Germany. Subsidiary With separate legal personality Different legal forms are available (e.g. GmbH) Subsidiary A subsidiary is an autonomous company established and predominantely held by another company (parent company). For subsidiary formation, foreign companies can choose the most suitable legal company form as a corporation or partnership. Foreign Companies Corporations The main feature of a corporation is the contribution of capital by shareholders. A corporation is a legal entity, meaning that the holder of rights and obligations is not the individual shareholder, but the company itself. The corporation itself concludes contracts, holds assets and is liable for taxation. Corporations are liable to corporate income tax, trade tax and the solidarity surcharge. Shareholders have limited personal liability. As such, a minimum share capital is required. Branch Office No separate legal entity but fully part of the foreign company Construction governed by foreign law German Market Presence Other Forms No independent business activity of the foreign company ("representative office") Activities typically via an independent commercial agent A corporation can be established by one or more shareholders. The most important corporate forms in Germany are the private limited liability company (Gesellschaft mit beschränkter Haftung GmbH) and the stock corporation (Aktiengesellschaft AG). Please find further information about the GmbH in the Business Establishment fact sheet. Partnerships Characteristic for a partnership is the personal commitment of the partners to their working efforts to the partnership. Partners have unlimited personal liability - a minimum share capital is not required. Any partnership requires at least two partners. There are four major forms of partnerships: Civil Law Partnership (GbR); General Commercial Partnership (ohg); Limited Partnership (KG); and Corporate Partnership (GmbH & Co. KG).
4 Setting Up Business in Germany Branch Office Any foreign company with a head office and registered business operations outside of Germany can establish a German branch office. A branch office is a suitable business form for a foreign company wanting to establish a presence in Germany for the purpose of initiating business and maintaining contacts with business partners. Main Characteristics A branch office has no independent or separate legal personality distinct from the head office itself. In legal and organizational terms, it is part of the head office business and is therefore subject to the law governing the head office. In this context, the foreign head office company is fully liable to the extent of its own assets for any claims creditors might assert against the branch office. Any obligations or debts incurred by the branch office are also legal responsibility of the foreign company. In Germany, there are two kinds of branch establishment which primarily differ due to the degree of the independence from the head office company. Autonomous Branch Office The autonomous branch office (selbständige Zweigniederlassung) fulfills tasks that exceed mere implementation and support-related tasks. It has its own business discretion that is limited by the scope of the business objective of the head office. The autonomous branch also has its own management with executive powers, a separate bank account, and accounting as well as independent business assets. Dependent Branch Office The dependent branch office (unselbständige Zweigniederlassung) focuses on maintaining contacts and initiating business in Germany. It performs support and implementation-related tasks without having any individual business discretion and is entirely dependent on the head office. Please find more information about the registration procedure of the two different branch office categories in the Business Establishment fact sheet. Branch Office Taxation A branch office is subject to taxation in Germany if it is considered as a permanent establishment according to the applicable double taxation agreement. An autonomous branch office is generally regarded as a permanent establishment, whereas a dependant branch office is only ever considered a permanent establishment under certain conditions. A German permanent establishment of a foreign corporation is taxed in Germany according to German taxation rules for corporations (corporate income tax, solidarity surcharge and municipal trade tax). Please find further information in the Corporate Taxation fact sheet. Other Forms Offices that purely serve to observe the market and pave the way for initial customer contacts are often described as representative offices. However, this term does not exist in German commercial law. Once an office is used by a foreign company for commercial activities (thus forming part of the foreign company organization), it generally must be registered at least as a dependent branch office in Germany. This is typically the case if the foreign company has a permanent representative who conducts the commercial activities of the company in a sustained manner and, in doing so, is subject to its instruction. An office managed by a self-employed third party (e.g. a commercial agent authorized by the company) might be considered a case in which no independent business activity is conducted on behalf of the foreign company. In this case, registration of the foreign company with the local trade office is generally not required. Decisive here is the actual level of independence of the agent and their freedom to act without instruction from the company.
5 Entry and Residence Residence Titles Germany distinguishes between different kinds of residence titles for specific purposes subject to the length of stay and intended (business) activity in Germany. These include: Visa (Schengen visa and national visa) Residence permit Settlement permit A visa enables the holder to entry and short-term stays (up to 90 days per half year from the date of first entry) in Germany. A residence or settlement permit is required for the purpose of employment and selfemployment and for long-term stays (more than 90 days per half year from the date of entry). Who Needs a Residence Title? EU citizens do not require any residence title to be able to settle or work in Germany. Citizens of the new EU states Bulgaria and Romania still require a work permit if they are employed in Germany. These transitional rules will cease by the end of However, the labor market has been opened up to university graduates from the new EU states since Specific provisions may apply to Croatian citizens from July 2013 on. Non-EU Citizens: Entry and Short-term Stays Non-EU citizens generally require a Schengen visa for entry and shortterm stays in Germany. However, individual rules apply for certain countries. For example, nationals from Argentina, Australia, Brazil, Canada, Israel, Japan, Mexico, New Zealand, South Korea, the United States, and Hong Kong can stay in Germany for up to 90 days (per half year from the date of first entry) without a visa. Residence title Visa (Schengen visa and national visa) Residence permit or settlement permit Enables the holder to Entry into Germany followed by a shortterm stay (up to 90 days). Entry into Germany followed by a longterm stay (for which an additional residence or settlement permit is required). Long-term stays and stays with the intention to take up gainful occupation. Non-EU Citizens: Long-term Stays For long-term stays, non-eu citizens require a residence or settlement permit. The respective local German mission initially issues a national visa for entry into Germany. The national visa is subsequently converted into a residence permit by the competent local Immigration Office (Ausländerbehörde). Non-EU citizens from those countries exempt from the short-term stay visa requirements also require a national visa when entering Germany for long-term stay purposes. Exceptions apply for nationals from Australia, Canada, Israel, Japan, New Zealand, South Korea, and the United States who may enter Germany for long-term stay purposes without a national visa. These foreign nationals can directly apply for the necessary residence or settlement permit at the Immigration Office in Germany. Which foreign nationals require a residence title? Non-EU citizens excluding nationals from Argentina, Australia, Brazil, Canada, Israel, Japan, Mexico, New Zealand, South Korea, the United States, Hong Kong, and some other countries. Non-EU citizens excluding nationals from Australia, Canada, Israel, Japan, New Zealand, South Korea, and the United States. Non-EU citizens Application Procedure The residence title generally has to be applied for at the competent German embassy or consulate general prior to entering Germany. The respective visa is then issued in the applicant s home country within a period of a few weeks. The application fee is in general EUR 60. Residence Titles for Differing Business Activities The relevant residence title required depends on the investor s nationality, and particularly on the specific area of business activity intended in Germany. A residence permit is not normally required for the setting up of a business. However, a residence permit is required in those cases where the foreign national intends to run the business on-site.
6 Entry and Residence Establishing a Company For most of the activities in the formation phase of a company, a Schengen business visa is sufficient. It enables its holder to stay in Germany for up to 90 days, during which time all fundamental establishment activities can be performed. Establishment Activities with a Schengen Visa Signing and notarization of articles of association Application for registration in the commercial register (submitted by a German notary) Trade office registration Other preparatory activities in the company set-up phase (e.g. the opening of a bank account or the conclusion of lease contracts) Negotiation and conclusion of contracts with business partners Setting up a company in Germany using a Schengen visa does not alone warrant residence permit issue at a later date. If necessary, a residence permit for self-employment or employment should be applied for in due time. A residence permit must also be applied for if the proceedings for setting up a company exceed 90 days. Company Management On-Site (self-employed) Entrepreneurs from non-eu countries managing a company on-site in Germany in a self-employed capacity require a residence permit for the purpose of self-employment. This permit may be granted if the planned business is expected to have a positive economic effect and has secure financing in place. An individual assessment of the intended business project is then made, taking into account, e.g.: the viability of the underlying business idea, the foreigner s entrepreneurial experience, the level of capital investment, and whether an economic interest or regional need regarding the intended business activity exists. A residence permit for the purpose of self-employment is limited in time for up to three years. A settlement permit (permanent) can be granted after three years if the investment project has been successfully realized and has stable income prospects. Who is considered self-employed (e.g.)? Entrepreneurs (including freelance professions) Partners in a partnership Majority shareholders of a GmbH who are also managing directors of the GmbH Employment in Germany Non-EU citizens employed in Germany require a residence permit for the purpose of taking up employment. As with the residence permit for self-employment, the residence permit for the purpose of taking up employment is limited for a period of up to three years. This can however be extended. A permanent settlement permit can be issued after five years. As a rule, a residence permit for the purpose of taking up employment is only awarded to certain occupational groups (e.g. academics, IT specialists, managerial staff and employees with specialist knowledge) if a concrete job offer can be demonstrated and the Federal Employment Agency FEA (Bundesagentur für Arbeit) has granted approval. The FEA approves if no suitable German or EU employees are available for the job (priority check) and the non-eu citizen is hired at the same terms and conditions of employment as comparable German employees (especially in terms of wages and working hours). Certain occupational groups are however entirely exempt from the FEA approval requirement. Occupational Groups Exempted from FEA Approval Employed managing directors Managerial employees Scientific research personnel Specialists holding a German university degree The granting of an EU Blue Card FEA approval without priority check for internal company specialists EU Blue Card - Residence Permit for Highly Qualified Employees The EU Blue Card Scheme is an EU initiative designed to make Europe a more attractive destination for skilled workers from outside the European Union. In Germany an EU Blue Card can be granted to a non-eu citizen holding a university degree or a proven comparable qualification and demonstrating a job contract with an annual gross salary of at least EUR 46,400 (2013). The annual gross salary level is lower (EUR 36,192, 2013) in professions with a particular skill shortage (e.g. engineers, IT-specialists). A permanent settlement permit can be granted after 33 months - or after 21 months if the foreign citizen has attained a certain German language skill level.
7 Business Establishment Efficient Company Formation Procedures There are a number of different ways to enter the German market. Expanding foreign companies normally opt to establish a local subsidiary or register a local branch office. In both cases the establishment procedures are swift and efficient, requiring only a few clearly defined steps. A subsidiary is an autonomous company established and completely held by another company (parent company). The establishment procedure starts with the formation of a company and is completed upon registration. Foreign companies typically choose the private limited liability company option (Gesellschaft mit beschränkter Haftung GmbH) for local subsidiary formation. A branch office forms part of the foreign head office company s organization. A formation procedure is therefore not applicable only the registration of the branch is required. Setting Up a GmbH: Formation Procedure The GmbH is the most widely used legal form for corporations. It combines high flexibility with relatively few obligations. A GmbH can be set up by an optional number of shareholders. At least one shareholder is required (private individual or legal entity). The nationality and residence of the shareholder(s) and the managing director(s) of a GmbH are irrelevant. However, the company must have a German business address. Chronological Steps Needed to Set Up a GmbH Step 1 Step 2 Step 3 Step 4 Step 5 Drafting of articles of association Notarization of articles of association Payment of share capital Registration in the commercial register Trade office registration Application for entry in the commercial register is usually prepared by the authorized notary when articles of association are notarized. Compensating the limited personal liability of the shareholder(s), the GmbH requires a minimum share capital of EUR 25,000. It can be contributed in cash or in kind (e.g. real estate or patents). The formation procedure can be divided into the following steps: 1: Drafting of Articles of Association The articles of association shape the identity and constitution of the company. Thanks to the large scope for contractual design, the GmbH is a very flexible corporation. Mandatory content includes share capital, shareholders and respective shares held, business name, registered office, and company object. 2: Notarization of Articles of Association The drafting and notarization of the articles of association are normally performed in one session by a German notary. The founding shareholder(s) adopt(s) its articles of association and appoint(s) one or more managing directors in a notarial deed. The articles of association must also be signed by all founding shareholders and notarized. 3: Payment of Share Capital Once the articles of association have been notarized, a company account should be opened and the share capital deposited. A payment of EUR 12,500 in total is sufficient for registration with the commercial register of a standard EUR 25,000 GmbH. German Notaries Civil law notaries are appointed lawyers sworn to impartiality and entrusted with public functions. Depending on in which part of Germany the notary is appointed, he or she practices either as a single profession notary or as an attorney-notary. The number of notaries in each federal state is limited in order to ensure independence and impartiality. In Germany notarization is required, amongst other things, for establishment of corporations and applications for entry in the commercial register (Handelsregister). Notary fees are stipulated by law and subject to the value of the transaction. The notary fees for a GmbH establishment depend among other things on the share capital. The estimated total costs for a standard GmbH are approximately EUR 400 to EUR 800.
8 Business Establishment Setting Up a GmbH: Registration Procedure Before taking up commercial activities, a new business in Germany has to be registered with the public commercial register and the local trade office. 4: Registration in the Commercial Register When the required share capital has been verifiable contributed to the GmbH, the managing director(s) apply for the registration of the GmbH in the commercial register. The application is electronically filed by a notary. This must be personally signed by all managing directors of the GmbH (power of attorney not possible) and accompanied by documentation pertaining to the applying GmbH. Moreover, the commercial register requires documentation verifying the existence of any parent company as well as the power of representation for persons acting on behalf of it. 1 The commercial register checks if all formation requirements for a GmbH have been met. If so, the GmbH is registered and comes into existence as a separate legal entity. 5: Trade Office Registration Before business operations are started, the trade office must be notified about the planned activity. Trade office registration must be submitted at the latest on commencement of business. A business license or permit is not necessary for registering the business in the majority of cases. For some business sectors, a permit or authorization may be required. Specific documents from the commercial register or equivalent abroad must be submitted in officially recognized translation excerpt form. Required permits and verification of representatives must also be submitted. Setting Up a Branch Office Any foreign company with a head office and registered business operations abroad can establish a German branch office. There are two different categories of branch offices: the autonomous branch office (selbständige Zweigniederlassung) and the dependent branch office (unselbständige Zweigniederlassung). Registering in the Commercial Register Registration in the commercial register is only required by the autonomous branch office. The application must include detailed information pertaining to the foreign company and the branch office. This includes, for example, documentation verifying the existence of the foreign company as well as the power of representation for persons acting on its behalf.¹ Trade Office Registration Both the autonomous and dependent branch must register in the trade office before business operations are started. As with the registration of a GmbH, a business license or permit is generally not necessary for registering the business. A permit or authorization may be required in a few business sectors. Trade office registration must be submitted on commencement of business at the latest. 1 Generally the following documents are required: excerpt of the foreign commercial register or certificate of incorporation and certificate of good standing as well as articles of association of the foreign parent company. The documentation must be notarized and either legalized or issued with an apostille. It should also be accompanied by a certified translation into German language. Please notice that the documentation required can differ depending on the legal form and origin of the foreign company. Please contact Germany Trade & Invest for further information: Commercial Register The commercial register (Handelsregister) is administered by the local courts (Amtsgericht) and ensures legal certainty in the area of commercial law by providing important information about registered companies. For instance, it is fairly quick and easy to check the existence and power of representation of any given company. All corporations have to be registered in the commercial register as well as many other enterprises requiring business operations to be set up in a commercial manner. Any application for inclusion in the commercial register must be submitted by a German notary in certified and electronic form. Commercial register excerpts can be ordered online. (www.unternehmensregister.de) Trade Office Each company is obliged to register in the local trade office (Gewerbeamt) of the municipality in which the business is located. The trade office generally forwards the registration to the tax authority, the regional association of professional trading associations, and the chambers of industry and commerce (Industrie- und Handelskammer IHK) or the chambers of crafts (Handwerkskammer). Chamber membership is automatic and mandatory.
9 Corporate Taxation Competitive Tax Conditions Germany offers one of the most competitive tax systems of the big industrialized countries. For corporations, the average overall tax burden is just below 30 percent, with certain local municipalities offering significantly lower rates still. Germany does not have a consistent nationwide tax rate for corporate income taxation. Instead, taxation of corporate companies consists of two major components: Corporate income tax + solidarity surcharge Trade tax Corporate income tax and the solidarity surcharge are components with a fixed rate, whereas the trade tax rate varies locally. The total amount of these two taxation components forms the overall tax burden. As a result of the fixed and variable components, the overall tax burden can differ by up to ten percentage points between locations. Germany Trade & Invest can support you in identifying attractive locations in Germany. Corporate Income Tax Corporate income tax is levied as a flat nationwide tax at a rate of 15 percent of the taxable corporate income. Corporate income tax is payable by all German corporations such as the GmbH and AG, as well as by all branches of foreign corporations in Germany. The solidarity surcharge (Solidaritätszuschlag) is a fixed and flat nationwide component of company taxation. It was introduced in 1995 to finance German reunification. The surcharge is 5.5 percent of the assessed amount of corporate income tax. Average Corporate Tax Burden of Selected Countries 2012 Czech. Rep. Poland Hungary UK Netherlands Germany Spain Italy Belgium France Japan USA (NY) Note: 1 National German average; lower overall tax rates in certain areas are possible, e.g % in certain municipalities. 2 Top corporate income taxation rate; lower starting rates or other special tax rates available. Example USA: progressive central state rate from 15% to 35%. 3 Local corporate income tax added. 4 As of April 2013 (according to OECD) Source: German Federal Ministry of Finance, 2013 (data as of December 2012) Thus, the solidarity surcharge is 5.5 percent of the 15 percent corporate income tax; creating a total of percent of the taxable income. Trade Tax Trade tax is a municipal tax. As such, tax rates are individually determined by each municipality. The individual trade tax rate of a specific site is therefore the decisive factor for the overall tax burden. The trade tax rate starts at seven percent. The German average trade tax rate is around 14 percent. The individual trade tax burden depends on two factors: The tax base rate (= standard trade tax base rate according to German trade tax code) of 3.5 percent. The multiplier (Hebesatz) stipulated individually by every municipality. The taxable income is multiplied with the tax base rate resulting in the so-called tax base amount. This tax base amount is then multiplied by 19.00% 19.00% 20.62% % 2, % % % % 33.99% % % 2 0% 5% 10% 15% 20% 25% 30% 35% 40% the applicable municipal multiplier. The individual percentage of the local trade tax rate is calculated by multiplying the trade tax base rate of 3.5 percent with the local municipal multiplier. 3.5% base rate X municipal multiplier = trade tax rate 39.62% 2, 3 By law, the trade tax rate must be at least seven percent. There is no statutory ceiling. As a result, the overall tax burden including trade tax rate in metropolitan areas can currently be as high as percent. Significantly lower tax rates are available in certain German municipalities up to ten percentage points less. The overall tax burden can therefore be as low as percent. The trade tax rate tends, as a rule, to be higher in urban areas than it is in rural areas.
10 Corporate Taxation Taxation of Dividends Germany provides an extensive network of double taxation agreements to ensure that double taxation in international business relations is ruled out. If a German subsidiary pays out dividends to a foreign parent corporation, generally a withholding tax (Kapitalertragssteuer) of 25 percent plus solidarity surchage is due. In the case of an existing double taxation agreement with a foreign country, the withholding tax is usually levied at a significantly lower rate, e.g. 15, 10 or 5 percent. Withholding tax still paid in Germany can be credited against existing foreign tax obligations or the parent company has been exempted from dividend-payable tax abroad. The double taxation agreement with the USA for example even allows a reduction of dividend taxation to zero percent if certain requirements are fulfilled. Moreover, EU law, under certain conditions, allows tax free transfer of dividends between all 27 EU member states. Value-added Tax (VAT) Value-added tax (VAT) is a tax on the exchange of goods and services. Companies generally are obliged to add value-added tax to the prices of their goods or services and to invoice their customers accordingly. The 19 percent VAT rate in Germany is below the European average. A reduced rate of seven percent applies to certain consumer goods and everyday services (such as food, newspapers, local public transport, and hotel stays). Some services (such as bank and health services or community work) are completely VAT exempt. Value-added tax which is collected has to be paid to the responsible tax The overall tax burden for corporations is calculated as below: Taxable Corporate Income (EUR) Trade Tax (3.5% x Municipal Multiplier) Corporate Income Tax (Tax Rate 15%) Solidarity Surcharge (5.5% of Corporate Income Tax) office on a monthly, quarterly or annual basis. The exact time frame depends on the company s level of turnover. Companies themselves also pay VAT when they purchase goods or services. The taxes collected and paid can be balanced out in the VAT return as input VAT deduction (Vorsteuerabzug). Minimal Municipal Multiplier -70,000 (Municipal Multiplier: 200%) Trade Tax Rate 7% German Average 1,000,000 1,000, ,000 Corporate Income Tax 15% -8,250 Solidarity Surcharge -140,000 (Municipal Multiplier: 400%) Trade Tax Rate 14% -150,000 Corporate Income Tax 15% -8,250 Solidarity Surcharge Overall Tax Burden % 29.83% Net Income (EUR) 771, ,700 The overall tax burden of a corporation depends on the municipal multiplier within the trade tax. Value-added Tax in Selected EU Countries Hungary Sweden Poland Belgium Italy Netherlands Spain UK France Germany Source: European Commission % 21% 21% 21% 20% 19.6% 19% 23% 25% 27%
11 Employees and Social Security Labor Market Hiring a Workforce Germany is internationally known for its highly qualified, motivated, and conscientious workforce. Employers are free to tailor the recruiting process to their individual needs. Only a few guidelines need to be observed; such as offering jobs in a non-discriminatory manner (meaning that employers are required to hire on an equal opportunity basis without discrimination in terms of race, ethnicity, gender, religion, conviction, disability, age, or sexual orientation). Recruitment services are offered by the Federal Employment Agency FEA (Bundesagentur für Arbeit), which provides its services free of charge and operates job centers in all large towns and cities in Germany. There are several programs offering extensive public support for hiring employees. Employment Models Regular Employment Regular employment contracts are unrestricted and can be terminated by a written letter of termination, provided a mandatory notice period has been observed. Regular employment contracts include a six-month probationary period during which the contract may be terminated at any time with two weeks notice. Fixed-term Contracts Fixed-term contracts expire automatically on a specified date without a formal dismissal requirement. It is for the employer to decide whether to renew the contract or not. Fixedterm contracts are generally limited to a maximum of two years and may be extended up to three times provided the total duration of contract Labor Cost Growth in Total Economy (annual average growth in percent) Germany France Netherlands Spain UK Czech Rep. Poland Hungary Slovak Rep. 1.6% 2.3% 2.7% 2.7% 0% 5% 10% Source: Eurostat 2013 does not exceed the maximum of two years. During the first four years of a company s existence in Germany, employment contracts may be limited or extended several times up to a total duration of four years. Temporary Employment Temporary employment means that a company leases employees from a temporary employment agency. The employee is legally employed by the temporary employment agency and receives the salary from them as no formal contractual relationship exists between the leasing company and the employee. The employment conditions are usually regulated by collective agreements. The temporary employment sector is subject to statutory hourly minimum wage rates. The duration and the terms of termination of the service of the employee in the hiring company are subject solely to the service contract between the hiring company and temporary employment agency not to labor regulations. 3.4% 5.2% 5.4% 6.0% 6.1% In recent years there has been a significant increase in the number of temporary employment agencies providing appropriate personnel at short notice. Wage Level Development Germany is known for very stable labor costs. Since 2003, labor costs have risen in most European countries (EU-27). While some countries particularly those in eastern Europe experienced a rise of five to six percent, Germany recorded the lowest labor cost growth within the EU at just 1.6 percent. In Germany, wages are generally negotiated freely; there is no overall statutory minimum wage. Minimum wage regulations exist only in certain industries.
12 Employees and Social Security Social Security In contrast to some other industrialized countries, the core social security in Germany is collectively financed by means of a process of redistribution. The current costs for pensioners, sick people, those in need of nursing care, and unemployed people are paid directly from contributions by employees and employers alike. Components of Social Security Insurance Social security contributions are made up of: Accident insurance contributions have to be transferred by the employer to the Employers Liability Insurance Association (Berufsgenossenschaft). The salary tax of the employee is also withheld by the employer and transferred to the tax authorities (Finanzamt). In order to facilitate the international transfer of employees, Germany has signed social insurance agreements with countries including Brazil, Canada, China, India, Israel, Japan, Morocco, South Korea, Tunisia, Turkey, and the USA. Within the EU, the posting of employees is facilitated by EU regulations. This allows transferred employees to remain within the national social insurance system of their home country, if they are relocated to Germany for a certain time. In this case, the employer does not have to pay German social security contribtions for the employees temporarily located in Germany. Health insurance * Nursing care insurance Pension insurance Unemployment insurance Accident insurance Generally speaking, social security contributions are roughly shared equally by employer and employee with the exception of accident insurance costs which are solely borne by the employer. Allocation of Social Security Contributions Employer share of social security contributions Employee share of social security contributions Income tax to be paid by employee Payroll Accounting Employees in Germany receive a net wage - meaning a salary from which tax and social security contributions have already been deducted. All social security contributions are withheld by the employer after calculation of the gross wage. These are transferred to the employee s health insurance company. From here, all contributions are distributed to the relevant funds with the exception of accident insurance. * From a certain level of monthly gross wage salary on, employees have the possibility to join a private health insurance company instead of the statutory health insurance obligatory for all employed people. Gross salary Social security contributions are more or less shared equally by employer and employee. Each corresponds to approximately 21 percent of the employee s gross salary. Only the costs for accident insurance are exclusively borne by the employer. Components of social security insurance in Germany Pension insurance Health insurance Unemployment insurance Nursing care insurance Accident insurance Employee gross salary before personal income tax deduction Employee net salary
13 Germany Trade & Invest Support Germany Trade & Invest Helps You Germany Trade & Invest s teams of industry experts will assist you in setting up your operations in Germany. We support your project management activities from the earliest stages of your expansion strategy. We provide you with all of the industry information you need covering everything from key markets and related supply and application sectors to the R&D landscape. Foreign companies profit from our rich experience in identifying the business locations which best meet their specific investment criteria. We help turn your requirements into concrete investment site proposals; providing consulting services to ensure you make the right location decision. We coordinate site visits, meetings with potential partners, universities, and other institutes active in the industry. Our team of consultants is at hand to provide you with the relevant background information on Germany s tax and legal system, industry regulations, and the domestic labor market. Germany Trade & Invest s experts help you create the appropriate financial package for your investment and put you in contact with suitable financial partners. Incentives specialists provide you with detailed information about available incentives, support you with the application process, and arrange contacts with local economic development corporations. All of our investor-related services are treated with the utmost confidentiality and provided free of charge. Complete your project management needs from our range of investment and one-stop project consultancy services. Strategy Evaluation Decision & Investment Project Management Assistance Business opportunity analysis and market research Market entry strategy support Project partner identification and contact Joint project management with regional development agency Coordination and support of negotiations with local authorities Location Consulting /Site Evaluation Identification of project-specific location factors Cost factor analysis Site preselection Site visit organization Final site decision support Support Services Identification of relevant tax and legal issues Project-related financing and incentives consultancy Organization of meetings with legal advisors and financial partners Administrative affairs support Accompanying incentives application and establishment formalities
14 Contact Imprint Publisher Germany Trade and Invest Gesellschaft für Außenwirtschaft und Standortmarketing mbh Friedrichstraße Berlin Germany T. +49 (0) F. +49 (0) Executive Board Dr. Benno Bunse, Chairman/CEO Dr. Jürgen Friedrich, CEO Authors Christina Schön, Tax & Legal Services, Germany Trade & Invest, Udo Sellhast, Tax & Legal Services, Germany Trade & Invest, Editor William MacDougall, Germany Trade & Invest Layout Germany Trade & Invest Print Das Druckhaus Bernd Brümmer, Bonn Support 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. Notes Germany Trade & Invest, May 2013 All data 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. Order Number 15720
15 About Us Germany Trade & Invest is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises and supports foreign companies seeking to expand into the German market, and assists companies established in Germany looking to enter foreign markets. All inquiries relating to Germany as a business location are treated confidentially. All investment services and related publications are free of charge. Photo: Reicher - Fotolia.com Germany Trade & Invest Friedrichstraße Berlin Germany T. +49 (0) F. +49 (0) 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.
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How to establish a business in Germany Andreas Seidel firstname.lastname@example.org BUTZEL LONG A PROFESSIONAL CORPORATION 150 WEST JEFFERSON, SUITE 100 DETROIT, MI 48226 TEL: 313 225 7000 I FAX: 313 225 7080 www.butzel.com
Starting a Business in Israel Inspiration Invention Innovation Content: Page 1. Business Entities....... 2 a. Company...... 2 b. Foreign Company (e.g. a branch)...... 2 c. Partnership...... 3 d. Self Employed......
www.pwc.com/globalmobility Global Social Security Newsletter June 2014 2 Introduction Welcome to the June 2014 edition of our global social security newsletter, bringing you updates on changes in the social
Contract Work in Switzerland. A Brief Guide Introduction to Swissroll There are approximately 1,000,000 foreign employees in Switzerland, 25% of which commute from outside the country. Swissroll are registered
& McKenzie Software Tax Characterization Helpdesk Quarterly June 2008 Characterizing foreign software revenues is a complex challenge for large and small software firms alike. Variations in the rules around
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Greece Country Profile EU Tax Centre March 2013 Key factors for efficient cross-border tax planning involving Greece EU Member State Double Tax Treaties With: Albania Estonia Lithuania Serbia Armenia Finland
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I. INTRODUCTION Doing business in Hong Kong Tim Drew Partner email@example.com Karen Yan Associate firstname.lastname@example.org Robert Wang Solicitors 1 On 1 July 1997, sovereignty over Hong Kong transferred
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Posting abroad 2010 Introduction This booklet is intended as a guide for employers and employees when planning a posting abroad. The booklet answers the following questions: Which country are the social
Turkey is located as a bridge between two continents and in close proximity to Europe, the Middle East and the Caucasus. The proximity to the Balkans and the rest of Europe as well as to the growing emerging
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Working and living in Denmark A brief introduction to tax, social security and immigration Tax 2015 1. Introduction This booklet contains brief information about the main aspects of individual taxation,
Information for our international students who would like to start working in Germany Interview with Holger Esen, bsu Bremen The bsu is unique on a nationwide scale: It is a joint institute of University
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Ogletree Deakins International LLP Fourth Floor, Thavies Inn House 3-4 Holborn Circus London EC1N 2HA United Kingdom Tel: +44 (0)20 7822 7620 www.ogletreedeakins.co.uk www.ogletreedeakins.com Introduction
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Metopro Associates Limited Management & Accounting Professional Useful Information for Starting the business in Hong Kong Date : 1 st January 2009 Presented by: Metopro Associates Limited Unit A10, 6/F,
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IMMIGRATION TO AND EMIGRATION FROM GERMANY IN THE LAST FEW YEARS Bernd Geiss* Germany, Destination for Migrants Germany is in the middle of Europe and has common borders with nine countries. Therefore,
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Issue 2016 Photo: onlinebewerbung.de Fotolia.com OPPORTUNITIES IN THE GERMAN SOFTWARE MARKET German SMEs: Driving Digitization Forward MARKET OVERVIEW Germany is the single largest software market in Europe.
Austria Belgium Czech Republic Tax credit of EUR 400 for low pension income up to EUR 17,000; the tax credit is fully phased out once pension income equals EUR 25,000. pension income of maximum EUR 1,901.19.
Worldwide personal tax guide 2013 2014 Japan Local information Tax Authority Ministry of Finance Website www.mof.go.jp Tax Year 1 January to 31 December Tax Return due date 15 March Is joint filing possible
Health Systems: Type, Coverage and Mechanisms Austria Belgium Bulgaria (2007) Czech Republic Denmark (2007) Estonia (2008). Supplementary private health Complementary voluntary and private health Public
News Flash September, 2015 Tax guide for property investment in Hungary Tax guide for property investment in Hungary In our current newsletter we would like to inform you about the most important taxation
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STRUCTURING A BUSINESS AS A LIMITED LIABILITY PARTNERSHIP (LLP) CORPORATE LAW INTRODUCTION Partnerships have been used for many years as flexible business vehicles for enterprises, especially where they
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DOING BUSINESS IN SWEDEN CONTENTS 1 Introduction 3 2 Business environment 4 3 Foreign Investment 7 4 Setting up a Business 9 5 Labour 12 6 Taxation 14 7 Accounting & reporting 17 8 UHY Representation in
Setting Up A Business In Portugal: Key Issues To Consider CURRENT BUSINESS ENVIRONMENT The combination of Portugal s economic openness, strong ties with the EU and unique geo-strategic location, make it
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INTERNATIONAL EXECUTIVE SERVICES 2013 Thinking Beyond Borders Ukraine kpmg.com Ukraine Introduction Individuals are subject to Ukrainian income tax as either tax residents or tax non-residents. Residents
Laws & Regulations on Setting Up Business in Japan Preface The Japan External Trade Organization (JETRO) has long provided various resources for foreign businesses interested in setting up operations in
Ireland Country Profile EU Tax Centre July 2015 Key tax factors for efficient cross-border business and investment involving Ireland EU Member State Yes Double Tax Treaties With: Albania Armenia Australia
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GOLDEN VISA A quick residency guide for investors in real estate in Spain A quick residency guide for investors in real estate in Spain SPANISH GOLDEN VISAS This memo outlines the most relevant legal aspects
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Egypt s Investment Promotion Program 8. Licensing and Permitting Egypt Open for Business Egyptʹs Investment Promotion Program 8.1. Business Licensing Forms of Companies and Their Legal Frameworks Overview
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Company Formation in Turkey At Ketenci&Ketenci we regularly assist foreign corporations and investors to form new companies and branches in Turkey. Thanks to the Turkish Direct Foreign Investment regulation;
Guide to Establishing a Business in Denmark www.investindk.com Contents Introduction: Establishing a Business in Denmark... 2 Key Facts About Setting up a Business in Denmark... 2 Business Activities in
DESCRIPTION OF THE PLAN PURPOSE 1. What is the purpose of the Plan? The purpose of the Plan is to provide eligible record owners of common stock of the Company with a simple and convenient means of investing
This appendix contains a summary of laws and regulations in respect of taxation and foreign exchange in Hong Kong and the PRC. I. TAXATION IN THE PRC 1. Taxes Applicable to Joint-Stock Limited Companies
Bulgaria is a parliamentary republic situated in the heart of the Balkan Peninsula at the south - east part of Europe. It is a member of NATO since 2004 and of the European Union since 2007. The territory
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Tax l Accounting l Audit l Advisory Company Formation in Austria When considering an investment abroad thought must be given to taxation of income received as dividends and interest as well as any capital
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