China: Germany - The EU Favorite For Chinese Investors - Part I

Last Updated: 8 May 2007

Originally published December 2006

By Thomas Busching and Stefan Peters in Squire Sanders’ Frankfurt office.

According to a recent survey of top executives from the largest Chinese companies, Germany is the number one destination for Chinese companies establishing operations in Europe. The reason: favorable conditions that suit international first-timers. The main factors cited by the 96 respondents were Germany’s cost of operations, legal infrastructure and tax system. According to the survey, Chinese companies seek to establish European operations mainly to find new markets for Chinese goods and acquire new management as well as technology.

The choice of Germany for Chinese companies seems to make sense. The largest market within the European Union, Germany is highly regarded for its technology in the automotive, aerospace, logistics, pharmaceutical and chemical, machinery and mechanical engineering industries. Beyond those traditional industries, Germany leads the field in several new industries such as renewable energies, medical technology and optoelectronics, as well as nano- and biotechnology. Also, as one of the leading export nations, Germany has managers who are well-versed in trade at the international level. In essence, by establishing operations in Germany, Chinese investors can kill three birds with one stone.

The fastest and, in most instances, most costefficient way of entering a new market is by acquiring a local company with an established brand, distribution channels, technology, management, know-how and know-who. When entering the market via an acquisition, an investor will be in a much clearer position to calculate the costs of entering the market and to immediately see what he is receiving for his investment – which may be different with greenfield investments, in which unpleasant surprises and uncertain returns are more likely than not.

Given these basics, the standard M&A procedure for a Chinese company investing in Germany involves several steps. Here, we provide a brief overview of the main legal and tax parameters for German investment by a Chinese investor, starting with the approvals required by China.

1. Chinese Approval Procedures

Generally, cross-border investments by Chinese corporations and individuals are subject to government approvals. The legal effectiveness of key transaction contracts executed by Chinese investors, and the ability of these investors to complete various procedures and formalities relating to foreign exchange controls, tax matters, customs regulations and other matters necessary for an investment offshore, are usually subject to governmental approvals or, at least, to application for such approvals. The authority to approve overseas investments in nonfinancial sector businesses is shared between the State Development and Reform Commission (SDRC) or the State Council, depending on the size and nature of the specific investment, and the Ministry of Commerce (MOFCOM). The SDRC or the State Council approves policy-related aspects of overseas investments, while MOFCOM reviews and approves transaction documents related to investments.

Additionally, overseas investments must comply with registration and approval requirements imposed by the State Asset Supervisory and Administration Commission (SASAC), if the Chinese investor holds state-owned assets.

However, the main obstacle for Chinese overseas investments is China’s currency system. All PRC investors investing in or acquiring overseas companies must go through the process of foreign exchange-related examinations and registrations with the State Administration on Foreign Exchange (SAFE) or its local equivalent. A PRC investor is not able to remit foreign exchange out of China until it has completed the necessary SAFE examinations and registrations. SAFE slightly relaxed its regulations in 2006, specifically with regard to payment of preliminary costs for an overseas investment to be remitted out of China, but SAFE approval is still one of the biggest concerns related to Chinese overseas investments.

Once Chinese domestic issues surrounding a Chinese investment in Germany have been addressed, the Chinese investor can focus on the German issues.

2. Mergers and Acquisitions in Germany

In principle, the process of an acquisition in Germany structured in the form of a share deal does not differ very much from the M&A process in China. The procedure may be summarized as follows:

Please note that the standard procedures may need to be adjusted to the specific deal structure and legal status of the target (e.g., in an asset deal; under bidding, antitrust, impending or ongoing insolvency conditions; for listed companies, partnerships, etc.).

3. The General Investment Environment in Germany

With no foreign ownership restrictions, Germany provides very favorable conditions for foreign investments. Chinese investors may invest in any industry and own the whole business if they wish. This is equally true for the purchase of freehold real estate property. Capital and profits may be moved freely across borders. There are no currency restrictions, and the euro floats freely with all other currencies. In most cases, business licenses are either not required or are readily obtained – and have already been approved if an existing company is acquired.

One of the most common corporate forms used by German businesses is that of a "GmbH," described below.

4. The GmbH

A. Nature of a GmbH

A GmbH is a limited liability company used for small businesses, medium-sized family businesses or even large businesses. An incorporated entity with its own legal personality, it can be established for any lawful purpose. Its share capital is determined in its Articles of Association and corresponds with the sum of its shareholders’ capital contributions.

Only the company is liable to creditors for debts incurred by the company.

A GmbH is the simplest and least expensive form of corporate entity available in Germany. The particular advantage of a GmbH is its flexibility. As with a corporate entity in China, the Memorandum and Articles can be drafted in many different and flexible ways. A GmbH is subject to less severe regulations than a public limited company (AG); its formation is less formal and is, therefore, simpler and less costly.

In the case of small GmbHs, a supervisory board is not required. There are no restrictions on the sale of shares other than the need to have their transfer notarized by a notary public. However, the Articles may make the sale and transfer of shares dependent on other requirements; for example, they may be dependent upon the approval of the other shareholders.

B. Main Features

The GmbH is a capital-based company; unlike a partnership, the main feature is not an agreement to work together, but the assembly of capital contributions. However, it is a more personal form of entity than a public limited company (AG). The minimum capital required is €25,000.

A GmbH is a separate legal entity from its shareholders. It has its own organization, objectives and corporate bodies. The activities of a GmbH are determined by its Articles of Association, director or directors and its general meeting of shareholders. The directors are required to adhere to the instructions of the shareholders. A supervisory board may be appointed, but such a board is necessary only for larger GmbHs. Shareholders are not personally liable to creditors once their capital contributions have been paid to the company in full.

C. Shareholders of a GmbH

There is no requirement that a GmbH have a minimum or maximum number of shareholders. It is even possible for only one person to form a GmbH. Additionally, the citizenship of the shareholders is not restricted. They may be either individuals or legal entities, domestic or nondomestic.

The company’s name may be freely chosen, so long as it is not misleading or in conflict with existing companies’ names. The abbreviation "GmbH" must be added to the company’s name.

D. Formal and Publicity Requirements

The initial Articles of a GmbH must be certified by a notary, and every subsequent amendment or adjustment must also be certified. The Articles must include the following particulars: company name, registered office, object of business, amount of share capital and amount payable by each shareholder to the share capital. Otherwise, flexibility is permitted in drafting the Articles.

However, it is advisable to include information covering the following areas in the Memorandum and Articles: duration of the company; rules for appointment of managers; the extent of the representative powers of managers; rules for the convocation of a general meeting; rules for allocation of votes; rules for disposals of shares and inheritance of shares; rules for production of annual accounts, allocation of profits, repurchase of shareholdings, disposal of shares and disputes; rules on formation costs; an exemption from the ban on managers contracting with themselves; and arbitration and noncompetition clauses.

Upon notarization of the Articles, the shareholders must produce valid identification documents to prove their identities. If the person appearing is an agent for someone else, the agent must have a formal written power of attorney, or his or her actions must be certified retrospectively in notarially certified form. If a notary outside Germany is performing the certification, a legalization is required. This can be obtained from a German consulate or embassy. If the founders include a legal entity, the existence of this corporate entity must be proven in the form of a certified extract from the commercial register (or the equivalent official registration documents, such as, in the case of non-German entities, certificates of incorporation).

To read Part II of this article please click on the 'Next Page' link below.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

This article is part of a series: Click Germany - The EU Favorite For Outbound Investors, Part II for the next article.
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.