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Setting Up Business Operations in Germany: Company Establishment,
Corporate Taxation and Incentives
Udo Sellhast, Senior Manager Tax & Legal Services,
Germany Trade & Invest
www.gtai.com
I. About Germany Trade & Invest
II. Business Establishment in Germany
III. Initial Information on Corporate Taxation
IV. Incentives Overview
September 30, 2014 2 Setting Up Business Operations in Germany
www.gtai.com
Company Tasks
The foreign trade and inward investment promotion agency of the Federal
Republic of Germany
I. About Germany Trade & Invest
September 30, 2014 3 Setting Up Business Operations in Germany
Investment Attraction Location Promotion Export Promotion
German Parliament Resolutions for Founding/Financing
Federal Government
Federal Ministry for Economic Affairs and Energy - Shareholder
www.gtai.com
Two Headquarters in Germany - 50 Locations Worldwide
I. About Germany Trade & Invest
September 30, 2014
Chicago New York San Francisco Toronto Washington D.C.
Buenos Aires Bogotá Mexico City Santiago de Chile Sao Paulo
Athens Brussels Helsinki London Madrid Milan Paris Stockholm The Hague
Dubai Istanbul Riyadh
Accra Cairo Johannesburg Nairobi Tunis
Almaty Belgrade Budapest Bucharest Kiev Moscow Prague Warsaw Zagreb
Bangkok Beijing Hanoi Hong Kong Jakarta Kuala Lumpur Mumbai New Delhi Seoul Shanghai Taipeh
Tokyo
Sydney
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Berlin Bonn
Setting Up Business Operations in Germany 4
www.gtai.com
Macroeconomic analyses and forecasts
Country and industry analyses (over 125
countries)
International projects and tenders
Foreign economic and tax law
Customs information and tariffs
Practical business tips
Business contacts
Coordination of federal foreign trade
activities
Areas of Activity
I. About Germany Trade & Invest
For Companies Abroad
(Foreign Investors)
Setting Up Business Operations in Germany
For Companies in Germany
(Exporters/Investors)
Identification of attractive markets and
companies
Economic framework in Germany
Site specific information
Industry specific information
Direct contact with potential investors
abroad
Investor consultancy services
Project management support
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www.gtai.com
Germany Trade & Invest serves as a one-stop consultant to the investing
company with German expertise, supported by the Federal States.
September 30, 2014 6
Investment consultancy services:
Discussion on the market / industry and competition in Germany and Europe
Information on tax and legal issues in Germany
Information on the financing of the project (including incentives)
Joint project management with regional economic development agencies
Discussion of location proposals / site evaluation incl. site visits
Assistance in applying for incentives
Information on different registration or licensing requirements
Investor
I. About Germany Trade & Invest
Setting Up Business Operations in Germany
Economic Development Agencies of the Federal States
www.gtai.com
I. About Germany Trade & Invest
II. Business Establishment in Germany
III. Initial Information on Corporate Taxation
IV. Incentives Overview
September 30, 2014 7 Setting Up Business Operations in Germany
www.gtai.com
For Italian companies there are different ways to establish a German market
presence.
II. Business Establishment in Germany
Italian Company
Subsidiary Indirect Forms Branch Office
Establishment of a new legal entity.
Different legal forms
are available (e.g. GmbH or UG).
German Market Presence
Fully part of the Italian company.
Registration of a
German physical business presence.
No independent business activity.
Activities typically
via a commercial agent.
8 September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
II. Business Establishment in Germany
9
GmbH:
Is suitable for almost every business object (except for e.g. listing on the stock exchange).
Combines high flexibility with relatively few obligations.
Well-known company form with good reputation not only within Germany. Requires a minimum share capital of EUR 25,000 (cash or kind). The liability of the shareholders is limited to their respective contribution.
The German private limited liability company (GmbH) is the most widely used legal form for corporations in Germany.
September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
II. Business Establishment in Germany
The managing director(s) (Geschäftsführer) represent(s) and manage(s) the GmbH.
The shareholders’ general meeting (Gesellschafterversammlung) is sovereign and
can issue directions binding the management.
There are no requirements regarding nationality or domicile of the managing
director or the shareholders.
German business address as well as a local representative are required.
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The GmbH has two mandatory bodies1: the managing director(s) and the shareholders’ general meeting.
GmbH
Managing Director(s) Shareholders’ meeting Binding Instructions
September 30, 2014 Setting Up Business Operations in Germany
1 A supervisory board can be appointed in addition, but is only mandatory if it is prescribed by law (e.g. in a GmbH with more than 500 employees).
www.gtai.com
II. Business Establishment in Germany
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Drafting of articles of
association (AoA)
Notarization by a German
Notary
Opening a bank
account & payment of
share capital
Entry in commercial
register
Trade office notification;
further licenses or
registrations (e.g. in crafts
sector)
The establishment procedure of a GmbH is straightforward with well-defined
steps.
The timeframe for a GmbH establishment is ideally 1-2 weeks. The statutory regulated establishment costs for a standard GmbH are around EUR 800.
September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
II. Business Establishment in Germany
UG (haftungsbeschränkt):
The UG is largely subject to the same provisions as the GmbH (establishment
procedure, mandatory bodies, limited liability etc.).
Main differences include:
For the establishment of an UG a minimum share capital of only EUR 1 is sufficient.
The UG has to retain a quarter of its annual profit until it has accumulated the minimum share capital of an ordinary GmbH (EUR 25.000).
The accumulated EUR 25.000 can be converted into share capital and the UG can change its corporate affix from “UG” to “GmbH”. From now on profit can be fully distributed, if desired.
The UG – Unternehmergesellschaft (haftungsbeschränkt) – also known as Mini-GmbH is a special form and a starter version of the GmbH.
12 September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
For Italian companies there are different ways to establish a German market
presence.
II. Business Establishment in Germany
Italian Company
Subsidiary Indirect Forms Branch Office
Establishment of a new legal entity.
Different legal forms
are available (e.g. GmbH or UG).
German Market Presence
Fully part of the Italian company.
Registration of a
German physical business presence.
No independent business activity.
Activities typically
via a commercial agent.
13 September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
II. Business Establishment in Germany
Branch office (autonomous):
Dependant upon head office at internal level, but engaging in business activities
independently, e.g.: own management with power of attorney separate bank account accounting (on its own or via head office company) independent business assets (allocated by head office company).
No minimum share capital. No separate legal personality.
The foreign head office company is fully liable for the debts of the branch office.
A branch office can be another way of establishing a business presence in Germany for Italian companies.
14 September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
II. Business Establishment in Germany
The steps for the registration of an autonomous branch office are similar to the establishment of a GmbH.
Decision to set up a branch office
Entry in commercial
register
Trade office notification;
further licenses or registrations (e.g. in crafts sector)
15 September 30, 2014 Setting Up Business Operations in Germany
The timeframe for a branch office establishment is ideally 1-2 weeks. The statutory regulated establishment costs for an autonomous branch office are
around EUR 300.
www.gtai.com
I. About Germany Trade & Invest
II. Business Establishment in Germany
III. Initial Information on Corporate Taxation
IV. Incentives Overview
September 30, 2014 16 Setting Up Business Operations in Germany
www.gtai.com
Germany does not have a consistent nationwide tax rate for the corporate
income taxation – it depends on the locally varying trade tax.
1National German average. Lower overall tax rates in certain areas are possible, e.g. only 22.83% in certain municipalities. 2Top corporate income taxation rate incl. local taxes; lower starting rates or other special tax rates available. 3Based on standard rate of IRAP (3.9% of value creation; reduction to 3.5% in April 2014 not yet included).
Source: Federal Ministry of Finance (BMF)
III. Corporate Taxation
Average Corporate Tax Burden (2013, in %)
17 Setting Up Business Operations in Germany September 30, 2014
www.gtai.com
Income taxation of corporations consists of three taxation components.
1. Corporate Income Tax
(Körperschaftsteuer)
2. Solidarity Surcharge
(Solidaritätszuschlag)
15 % of the taxable income
0.825 % all over Germany
(5.5% of the corporate income tax rate of 15%)
15.825 %
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3. Trade Tax
(Gewerbesteuer)
Trade tax rates are individually determined by each municipality.
Trade tax rates range starts with 7.0 % and the average trade tax rate is around 14 % of the taxable income
Starts at 7 %
III. Corporate Taxation
September 30, 2014 Setting Up Business Operations in Germany
www.gtai.com
I. About Germany Trade & Invest
II. Business Establishment in Germany
III. Initial Information on Corporate Taxation
IV. Incentives Overview
September 30, 2014 19 Setting Up Business Operations in Germany
www.gtai.com
Germany offers various public funding instruments for different business
activities.
September 30, 2014 20 Setting Up Business Operations in Germany
IV. Incentives Overview
Incentives in Germany
Mezzanine Capital
Grants Loans Equity Capital Guarantees
Public funding instruments:
Personnel Investments Working Capital
Specific Purposes
Research & Development
Required funding for:
Financing available by any of the following public funding instruments (combinations of instruments usually possible)
www.gtai.com
The main funding instrument that significantly lowers investment costs is the
Investment Grant program.
September 30, 2014
IV. Incentives Overview
Setting Up Business Operations in Germany 21
Investment Grant
Objective Job creation by setting up new manufacturing or service facilities
Offered in Specific regions throughout Germany
Offered as Non-repayable grant, covering up to 40%1 of eligible costs
Eligible costs Purchase or production costs of new buildings, machinery, and equipment and
purchase costs of new intangible assets or salary costs for 2 years
Requirements Creation of long-term “quality” jobs
Subsidized equipment and positions must remain on-site for at least 5 years
Mezzanine Capital
Grants Loans Equity Capital Guarantees
Public funding instruments:
Personnel Investments Working Capital Specific Purposes
Research & Development
Required funding for:
Note: 1 depending on investment location, company size, investment volume, and respective federal state Investment Grant regulation
www.gtai.com
To reduce cap-ex, Germany offers Investment Grants of up to
40 percent, depending on the region, the company size, the investment
volume, and on respective state regulation.
Notes: 1 Includes a bonus of 20%; 2 Includes a bonus of 10%; 3 Until 31 December 2017; aid intensity 2018-2020 as in „Non-predefined C Regions“; 4 “De-minimis-rule“
IV. Incentives Overview
September 30, 2014
The bonus of 20% for a small enterprise and of 10% for a medium-sized enterprise is not granted to large investment projects with eligible investment costs > EUR 50 million. An additional aid intensity reduction would apply in these cases.
Timeframe
01.07.2014-31.12.2020
Small Enterprises1
(< 50 employees and ≤EUR10 mio annual
turnover or ≤ EUR 10 mio annual balance sheet total)
Medium-sized Enterprises2
(< 250 employess and ≤EUR 50 mio
annual turnover or ≤ EUR 43 mio annual balance sheet total)
Large enterprises
Predefined
C Region 35%3 25%3 15%3
Border area
to Poland 40% 30% 20%
Non-
predefined
C Region
30% 20% 10%
D Region 20% 10% max.
EUR 200,0004
C/D Region 30% / 20% 20% / 10% 10% / max.
EUR 200,0004
22 Setting Up Business Operations in Germany
www.gtai.com
Mezzanine Capital
Grants Loans Equity Capital Guarantees
Public funding instruments:
Personnel Investments Working Capital Specific Purposes
Research & Development
Required funding for:
September 30, 2014
Depending on the scope of the planned R&D project grants are available at the
European, national and/or regional level.
European Level:
National Level:
Regional Level:
Horizon 2020 - The EU Framework Program for Research and Innovation:
Projects require transnational cooperation
EU periodically calls for project proposals mainly targeted for specified research topics
High-Tech Strategy: calls for proposals focusing on 6 “future priorities” (one of them: Sustainable Economy and Energy)
Technology-open programs also available, Central Innovation Program for SME (ZIM)
Programs available in all German states
Programs usually technology-open
IV. Incentives Overview
Setting Up Business Operations in Germany 23
www.gtai.com
When hiring from the pool of the unemployed, different grant programs are
available, independent of industry and location.
September 30, 2014 24 Setting Up Business Operations in Germany
IV. Incentives Overview
Mezzanine Capital
Grants Loans Equity Capital Guarantees
Public funding instruments:
Personnel Investments Working Capital Specific Purposes
Research & Development
Required funding for:
Recruitment support Training support Wage subsidies
Objective Finding new personnel Training potential
candidates Hiring unemployed
candidates
Offered in Throughout Germany, independent of industry and location
Offered as Non-repayable grant,
covering up to 100% of eligible costs
Non-repayable grant, covering up to 100% of eligible costs for max. 3 months
Non-repayable grant, covering normally up to 50% of eligible costs for max. 12 months
Eligible costs Depending on program of
local employment agency
Labor costs of trainees
Costs for training courses
Wage costs, including employer´s contribution to social security system
Requirements Depending on program of
local employment agency Only unemployed
candidates covered
Only unemployed candidates covered
Long-term labor contract
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Public loan programs from different sources are available for all funding
purposes.
IV. Incentives Overview
September 30, 2014
Regional level (State Development Banks)
Usually max. amount EUR 10 million (depending on program)
For financing of investment costs and working capital
Special programs available for R&D, energy efficiency and other specific purposes
National level (KfW Bankengruppe)
Usually max. amount EUR 25 million (depending on program)
For financing of investment costs and working capital
Special programs available for R&D, energy efficiency and other specific purposes
European level (European Investment Bank)
Loans to individual projects with total investment costs exceeding EUR 25 million
Loans to local banks and other intermediaries which subsequently lend to the final beneficiaries
Setting Up Business Operations in Germany 25
Mezzanine Capital
Grants Loans Equity Capital Guarantees
Public funding instruments:
Personnel Investments Working Capital Specific Purposes
Research & Development
Required funding for:
Public loans offer reduced and fixed interest-rates, long terms, and repayment-free years.
www.gtai.com
Contact
© 2014 Germany Trade & Invest GmbH All information provided by Germany Trade & Invest has been put together with the utmost care. However , we assume no liability for the accuracy of the information provided.
Tax & Legal Services Mr. Udo Sellhast Senior Manager
T. +49 30 200 099-509 F. +49 30 200 099 77-509
26 September 30, 2014
Supported by the Federal Ministry for Economic Affairs and Energy on the basis of a decision by the German Bundestag.
Setting Up Business Operations in Germany