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1 Germany – Business and Taxation Guide Business and Taxation Guide to Germany

1 Germany – Business and Taxation Guide Business and Taxation Guide to Germany 2 Germany – Business and Taxation Guide Preface This guide was prepared by Falk GmbH & Co. KG in 2011. Here is a complete list of Praxity participating firms in Germany: Falk GmbH & Co. KG Contact: Gerhard Meyer (Gerhard.Meyer@falk-co.de) Website: www.falk-co.de FIDES Treuhand GmbH & Co. KG Contact: Dr. Christoph Löffler (c.loeffler@fides-treuhand.de) Website: www.fides-treuhand.de Mazars GmbH Contact: Uwe Wolf (Uwe.Wolf@mazars.de) Website: www.mazars.de © Praxity 2011 This guide is intended as a general guide only and should not be acted upon without further advice. 3 Germany – Business and Taxation Guide Contents Page 1. General information 5 1.1 Opportunities and possible obstacles for foreign investors 1.2 Area and population 1.3 Government and law 1.4 Key economic indicators 1.5 Financial status 1.6 Currency 2. Regulation of foreign investment 8 3. Government incentives 9 3.1 Cash grants 3.2 Interest-reduced loans 3.3 Research & Development project incentives 4. Business organisations available to foreigners 11 4.1 Joint Stock Corporation (AG) 4.2 European Company (SE) 4.3 Limited Liability Company (GmbH) 4.4 Partnership (OHG or KG) 4.5 Limited Liability Partnership (GmbH & Co.KG) 4.6 Sole proprietorship 4.7 Permanent establishment or branch 4.8 Joint venture 4.9 Silent partnership 4.10 Commercial register 5. Setting up and running business organisations 17 5.1 Business environments 5.2 Permanent establishment or branch 5.3 Work and residency permits 5.4 Labour law 5.5 Acquisition of German enterprises 6. Corporate taxes and social charges 21 6.1 General information 6.2 Domestic corporations and corporate income tax 6.3 Calculating taxable profit 6.4 Service charges and inter-company transactions 6.5 Losses 6.6 Foreign income 6.7 Inter-company dividends 6.8 Group taxation 6.9 Taxation of non-resident corporation 6.10 Taxation for a branch of a foreign corporation 6.11 Trade tax 4 Germany – Business and Taxation Guide 6.12 Dates for tax declarations, tax payments and refunds 6.13 Social security contributions 7. Personal taxation 31 7.1 Income tax 7.2 Personal income tax rates 7.3 Assessment and filing 7.4 Taxation of non-residents 7.5 Inheritance and gift tax 8. Double taxation agreements 36 9. Sales tax – Value Added Tax 38 9.1 VAT rate 9.2 Input VAT deduction 9.3 International VAT considerations 10. Portfolio investment for foreigners 40 11. Trusts 41 12. Practical information 42 12.1 Transport 12.2 Language 12.3 Time relative to Greenwich Mean Time (GMT) 12.4 Business hours 12.5 Public holidays 12.6 Useful links 5 Germany – Business and Taxation Guide 1. General information 1.1 Opportunities and possible obstacles for foreign investors The Federal Republic of Germany welcomes investment from abroad. Many foreign companies are active here, conducting business either as a subsidiary of a foreign parent corporation or as a branch office. Germany is one of the most attractive locations for setting up business enterprises in Europe. Some of the key attractions for foreign investors include:  Excellent sales opportunities  Access to a significant world market  Attractive terms of finance and a low inflation rate  A favourable competitive environment. Investing in Germany means investing in the economic core of the European Union. The single European market has the potential to reach 500 million consumers. 1.2 Area and population The Federal Republic of Germany lies in the heart of Europe. It borders nine countries: Denmark to the north, Netherlands, Belgium, Luxembourg and France to the west, Switzerland and Austria to the south and the Czech Republic and Poland to the east. The reunification of Germany in 1990 made its central geographic position even clearer. Germany is a member of the European Union (EU) and a member of the North Atlantic Treaty Organization (NATO), providing a political bridge to the Middle East and Eastern European nations. The Federal Republic of Germany covers an area of 357,000 km² stretching 876 km from north to south and 640 km from east to west. The German borders measure a total of 3,767 km. Germany has a total of 23 international airports, with major airports in Berlin, Bremen, Cologne, Düsseldorf, Frankfurt, Hamburg, Hannover, Leipzig, Munich and Stuttgart. Germany’s harbours give access to both the North Sea and the Baltic Sea. The passenger and freight railway network, as well as excellent motorways, complete a sophisticated transportation system. With a population of nearly 82 million, Germany is the country with the second largest population in Europe, behind Russia. Nevertheless, Germany is smaller in size than France (552,000 km²) and Spain (505,000 km²). The population density of Germany is 230 persons per km², compared to the European average of 116 persons per km². Of the 82 million inhabitants, approximately 7 million persons are of another nationality. The most significant of these international communities located in Germany include Turkish (1.7 million), Italians (500,000), Polish (400,000) and Greeks (280,000). Over 95% of the country speaks Standard German, although most people in Germany speak one or two foreign languages, in particular English, French, Italian, Spanish and Russian. The climate of Germany is influenced by the moderately cool westerly Atlantic Ocean winds and the continental climate of Eastern Europe. Temperatures are generally not subject to rapid or significant variations. There is precipitation at all times throughout the year. The average winter temperature is between 2 °C and - 6 °C. In the summer months, the average temperature is between 18 °C and 20 °C. 6 Germany – Business and Taxation Guide 1.3 Government and law The Federal Republic of Germany is a constitutional democracy established on the basis of the constitution of 1949 (basic law). Since reunification in 1990, Germany comprises 16 Federal States (Länder). Each level of administration (federal, state, municipal) is governed by an elected body. These official bodies undertake decisions on all matters assigned to them by the constitution. The political centre and capital is Berlin. The federal parliament comprises two chambers:  The lower chamber (Bundestag) is elected by the population for a four-year term. The government is formed by a coalition of parties, which have a majority of seats. The Government of Germany is headed by the Chancellor. Since November 2005, the Chancellor has been Angela Merkel.  The upper chamber (Bundesrat) consists of members appointed by the state governments. These members represent the respective governing parties of each state. The number of delegates for each state more or less reflects its proportion of the overall German population. The German legal system follows the constitution. All legislative acts of the parliaments have to conform to the constitution. The German legal system is based on detailed codes and is principle based. Initial Acts of Parliament are regularly proposed and debated in the parliament (Bundestag). Legislation is enacted by the Bundestag and, if necessary, approved by the representatives of the German states (Bundesrat). The German court system is a decentralised, multi-tier system. There are different jurisdictions for certain areas of law, such as civil law, tax law or labour law. Consequently, there are separate courts for each area of law. The judgements of the supreme courts of each area of law are only binding for the involved litigants. However, they are seen as a guiding line for other courts, especially the lower courts. 1.4 Key economic indicators The Federal Republic of Germany is an export country, with a GDP of €2.5 trillion in 2010. Every third job depends directly or indirectly on the export industry. Germany is the third largest exporting nation in the world, exceeded only by China and the USA. In 2010, goods and services with a value of nearly €960 billion were exported and €806 billion were imported. In the immediate future, exports are anticipated to become even more critical to economic growth and stability. The eastern expansion of the EU, the increasing acceptance of the Euro as an international commercial currency and the development of new markets, such as China and India, will increase the importance of exports for the German economy. While the EU nations are traditionally the most important trading partners, exports to other countries have increased above average, for example to China and South East Asia. Also, the U.S. has constantly been Germany’s second most important export partner. In addition, Germany hosts some of the largest and most successful trade fairs in the world, and has traditionally done so for centuries. This makes Germany the place where the world meets to present their products. Investors in Germany can rely on stable political, legal and social conditions as well as stable costs of living. 7 Germany – Business and Taxation Guide 1.5 Financial status Germany is one of the founders of the EU (formerly the European Community) and participates in the European Monetary System. It is also a member of the General Agreement on Tariffs and Trade (GATT) and the International Monetary Fund (IMF). Germany has a highly sophisticated banking system, including publicly-owned as well as private banks. These provide all of the customary business banking services, including financial and commercial services. The most important international retail, wholesale and investment banks have branch offices in Frankfurt, Düsseldorf, Hamburg, Munich or Berlin. Most short-term financing of business is done through overdraft uploads/Geographie/ tax-guide-germany.pdf