Germany: Top 10 Challenges Of Doing Business In Germany

Last Updated: 22 February 2019
Article by Ursula Rutovitz

One of the most attractive business destinations in the world and Europe's top FDI country, Germany is known for being a secure and rewarding investment location. But doing business in Germany can still be a challenge for those unfamiliar with the local requirements.

Germany is the biggest economy in Europe and the fourth-largest in the world. Built on research, innovation and its ability to attract foreign direct investment (FDI), around 80,000 foreign companies are doing business in the country, employing more than 3.7 million people. Germany boasts first class infrastructure, a modern finance system and the largest consumer market (82 million population) on the continent.

Germany offers international businesses strong economic conditions and a competitive corporate tax rate. When it comes to investments and establishing companies, the country makes no distinction between German and foreign nationals, favouring the principle of freedom of foreign trade and payment. 

But it's important to be aware of some key challenges to doing business in Germany, and understand the benefits of having local help on board to successfully navigate any legal, tax and cultural barriers.

1. Starting a business

Despite its global standing and modern outlook, the World Bank ranks Germany in 114th in the world in 2019 for ease of starting a business. This is largely down to the numerous procedures companies are required to navigate. One of the main difficulties that people face in setting up a German limited liability company (GmbH) is in opening a bank account and the relevant know-your-customer (KYC) processes. There are workaround solutions however, such as purchasing a company with an existing bank account.

Among other steps, starting a business in Germany involves checking the availability of the company name at the local chamber of industry and commerce, registering the company with the local trade register as well as registering with the professional association of the relevant trade and liaising with local labour, business standards and tax offices.

2. Dealing with construction permits and getting electricity

At 25 days on average, obtaining a building permit and approval of static calculation (21 days) are the lengthiest procedures when dealing with construction permits, although obtaining a water connection for newly-built premises can take as long as 47 days. Germany boasts one of the most streamlined procedures for getting electricity to business however in the world – ranked fifth, it requires only three procedures and takes 28 days.

3. Registering property

The registration of property is another task that is quite bureaucratic in Germany, requiring six procedures. Companies must register the ownership of a property with the Land Registry and notarise the transfer agreement. Also in many cases a waiver of pre-emption rights with the municipality needs to be obtained. The purchase of a property also triggers transfer tax. This takes an average of 52 days to complete.

4. Getting credit 

Germany is home to a modern financial sector that operates within a strict legal environment. Market-determined rates of credit are available to both domestic and foreign investors, with borrowing predominantly made through banks (private commercial banks, cooperatives and public banks). Getting credit is a relatively streamlined process, however banks will expect a written presentation of your business plan or investment, complete with information about the legal structure, contracts, cost and profitability projections.

5. Sourcing local talent 

Germany boasts a highly-educated workforce including among its migrant population, whose average education levels are on the rise. However there is a skilled labour shortage, particularly in the nursing and care, construction and IT industries. This makes for strong competition between companies to hire the best people.

The country's worker shortage saw the December 2018 passing of the Fachkräftezuwanderungsgesetz – or skilled labour immigration law. The law makes it easier for employers to recruit the skilled staff they need from outside the European Union, as companies no longer need to go through the burdensome process of proving there is no one in Germany or the EU who can fill the role. The law also opens non-EU recruitment to all work sectors, whereas previously companies were restricted to hiring foreigners in specific sectors only.

Obtaining a working (employment) visa for a qualified foreigner in Germany can take as long as three months and requires a lot of paperwork. Local HR administration experts such as ourselves can assist companies with the application process to ensure it goes smoothly. 

6. Paying taxes

The 2018 Financial Complexity Index ranked Germany 21st out of 94 jurisdictions globally for its high level of accounting and tax complexity. However the country has made efforts to simplify its tax legislation and extend various reporting and filing deadlines. Businesses can expect an average of nine tax payments per year, taking around 218 hours in total to deal with. The standard rate of VAT for a company in Germany is 19% while corporate income tax is 15%. A 'solidarity surcharge' (Solidaritätszuschlag) of 5.5% also exists, and must be paid by any individual person or legal entity that owes income tax, capital gains tax and corporate tax in Germany. Trade taxes (Gewerbesteuer) are levied on profits and the rates are set by each municipality. The average rate being around 14%.  

7. Trading across borders

Germany belongs to the EU customs union and adheres to the EU's relatively liberal policies when it comes to exports and third country import duties, restrictions and prohibitions. However there are for example specific EU health and technical goods standards that must be met.

Documents required when exporting from Germany include the following.

  • A bill of lading
  • Commercial invoice
  • Packing list
  • Customs export declaration
  • SOLAS (International Convention for the Safety of Life at Sea) certificate.

Importing goods to Germany requires the following documents, among others.

  • Packing list
  • Commercial invoice
  • CMR waybill
  • Instrastat.

German businesses benefit from EU trade agreements with countries and regions around the world. The USA is the top export destination for Germany, followed by France and China. The highest level of imports to Germany come from China, the Netherlands and France.

8. Enforcing contracts

The average time and cost for resolving a commercial dispute through the courts in Germany is 499 days, and 14.4% of the total claim value.

9. Resolving insolvency

Germany's modern legal system handles insolvency with relative efficiency. However, it still takes an average 1.2 years.

10. Culture

Doing business in Germany requires a good level of cross-cultural awareness. Their penchant for punctuality is well known, so it should come as no surprise that in the corporate world, Germans value thorough planning. Those new to the country can expect to encounter many rules and regulations and a low degree of flexibility and spontaneity. This can result in slow progress when it comes to making decisions and an aversion to sudden changes – even if they may be beneficial to the outcome. Having a bit of patience is crucial to successful business negotiations. The German communication style is quite clear and direct with no language subtleties, but rather than meaning to be impolite, Germans simply intend to be efficient and get 'to the point'. Gift-giving among associates is not common, nor is mixing work with personal life.

Talk to us

With Accounting and Tax, HR and Payroll, Corporate Secretarial and Consultancy Solutions experts based in Munich and Frankfurt, we have the local knowledge to help you navigate your German business challenges.

Whether you want to set up in Germany or streamline your existing operations, contact us today.

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions