Germany: 5 German Law Changes That SMEs And Start Ups Should Know About

Last Updated: 4 May 2016
Article by TMF Group

Operating or thinking about expanding your business to Germany in the near future? Here are some recent German law changes that may affect you.

Understanding the German legal and regulatory environment – and how it may change in the future – is just one step to putting your new German business on the path to success. Following are some recent German law changes that may affect you.

1. Lighter administrative and accounting burden for SMEs and start ups

Under the so-called Bürokratieentlastungsgesetz (BüroKrEntlG) Act, a company is now qualified as a SME (Small-Medium-sized Entity) if its annual profit does not exceed €60,000 (previously, €50,000) and if annual turnover amounts to less than €600,000 (previously, €500,000).

This means that qualified SMEs are exempt from ongoing requirements and interim reporting. Preliminary VAT returns, annual tax returns and statutory financial statements still need to be prepared within the legal time frames; however, less information is required. Archive rules have also been relaxed.

2. Private persons must now use an IBAN for any and all payments

For the past two years, it has been mandatory for companies in Germany to use an International Bank Account Number (IBAN), and now private persons must also follow this rule to see their bank payments successfully processed. However, a Bank Identifier Code (BIC) is no longer required for any payments within the European Economic Region (EU, Island, Liechtenstein and Norway).

3. Data protection requirements in Germany/the EU remain in a state of flux

Following last year's European Court of Justice (EuGH) ruling that the Safe Harbour rules did not offer enough protection for the use of transferred personal data from EU citizens to the USA, the EU-US Privacy Shield was agreed upon. However this new deal has been met with criticism that may affect its scheduled June 2016 adoption. The ongoing debate around this issue impacts each data transfer a business in Germany makes to the US, and it should be appropriately monitored on a regular basis.

4. The fourth directive on money laundering and money transfer regulations

The European legislator's fight against money laundering and terrorist financing has never been stronger, and persons and responsible entities falling under the German money laundering regulations must obtain accurate information with regard to identification of a contracting party, ultimate beneficial owner, background of the business and financial transactions, and to monitor and control these processes on a regular basis.

These measures make it possible to trace money flows and to detect unusual or even suspicious transactions. Meantime the fourth version of the money-laundering directive regulates cross-border cases. Subsidiaries/branches must comply with local money laundering rules in the host country.

5. CRS – Common Reporting Standards

German residents affected by CRS need to provide specific data on their financial accounts to the German Federal Central Tax Office. The first report will be filed for the 2016 fiscal year by 31 July 2017, and then annually by 31 July. Failure to comply with CRS may result in a fine of EUR 50,000.

The German Act for Standard for Automatic Exchange of Financial Account Information (FKAustG) came into effect on 31 December 2015. The aim of the automatic exchange of financial account information is to avoid cross-border tax fraud and evasion.

Need more information? Register to attend our briefing with AmCham in Frankfurt on Thursday 12 May and find out more about the complexities of setting up a business in Germany, compared to in the USA.

Business set-up and operational processes in Germany differ from those in other countries and regions around the world.

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.

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