Germany: How Difficult Is Corporate Compliance In Germany?

Last Updated: 9 November 2018
Article by TMF Group

Germany's reputation for efficiency extends to the ease with which you can establish new business operations. But when it comes to corporate compliance, local requirements can be difficult to navigate.

It takes an average of just 10.5 days to initiate all steps necessary to register a new business in Germany. Entrepreneurs have long flocked to the country which offers residence permits to those with commercial activities that meet the requirements . And Germany is increasingly in the spotlight as Brexit uncertainty forces companies to consider new locations for their European operations. The city of Frankfurt is proving particularly popular among financial services companies and banks.

When it comes to corporate complexity, Germany is not considered especially difficult – but it's not simple either. It received a mid-range ranking in TMF Group's Compliance Complexity Index, sitting in 42nd position out of 84 jurisdictions just behind Taiwan - 41st and more complex – than Jersey, ranked 43rd.  The UAE at number one is most complex for corporate compliance, followed by Qatar and China. Ireland is the simplest jurisdiction at 84th. Jurisdictions were assessed based the level of difficulty for companies to adhere to local business regulations and associated issues. These include the time taken to set up, and comply with reporting requirements.

"Once a company has determined the right form of entity, the process of setting up a business and maintaining it in Germany is pretty clearly outlined in the company law, and can be completed swiftly" said Johannes Schoenfeldt, senior lawyer at TMF Germany.

"The complexity that does exist in German corporate compliance relates mostly to the local language reporting requirements, strict checks before opening bank accounts, and small-but-important differences to other jurisdictions such as the involvement of a notary when setting up a German corporation or making changes."

Mr Schoenfeldt explained that many countries allow the principle of a corporate director, but in Germany, the managing director of an entity can only be an individual that must accept the possibility of personal liability in a case of non-compliance.

While these elements can be challenging for foreign businesses to get accustomed to, Mr Schoenfeldt said they typically only prove to be short-term hurdles. "Once they examine their German compliance obligations, companies quickly seek out the support of local experts - such as ourselves - to help them make sure they're meeting all legal requirements necessary to be compliant with German company law."

The increasing demand for financial transparency globally has also increased the level of required reporting for companies in Germany. Ursula Rutovitz, managing director of TMF Germany explained: "The challenge of movements such as FATCA (foreign account tax compliance act), CRS (common reporting standard) and BEPS (base erosion and profit shifting) for German businesses lies in that they remain very new requirements that must be adhered to. For many companies, internal adjustments in order to comply are ongoing. The bureaucratic burden is further intensified by GDPR (general data protection regulation) as well as additional requirements set forth in the German Data Protection Act (BDSG – neu)."

Ms Rutovitz recommends businesses looking to establish in the country, especially as Brexit contingency plans speed up, take steps to truly understand the German corporate compliance landscape, and work with local partners who have the right knowledge to help keep them compliant.

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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