Doing Business in Germany 2018
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Doing business in Germany 2018 Moore Stephens Europe PRECISE. PROVEN. PERFORMANCE. Doing business in Germany 2018 Introduction The Moore Stephens Europe Doing Business In series of guides have been prepared by Moore Stephens member firms in the relevant country in order to provide general information for persons contemplating doing business with or in the country concerned and/or individuals intending to live and work in that country temporarily or permanently. Doing Business in Germany 2018 has been written for Moore Stephens Europe Ltd by Moore Stephens Deutschland AG. In addition to background facts about Germany, it includes relevant information on business operations and taxation matters. This Guide is intended to assist organisations that are considering establishing a business in Germany either as a separate entity or as a subsidiary of an existing foreign company. It will also be helpful to anyone planning to come to Germany to work and live there either on secondment or as a permanent life choice. Unless otherwise noted, the information contained in this Guide is believed to be accurate as of 1 August 2018. However, general publications of this nature cannot be used and are not intended to be used as a substitute for professional guidance specific to the reader’s particular circumstances. Moore Stephens Europe Ltd provides the Regional Executive Office for the European Region of Moore Stephens International. Founded in 1907, Moore Stephens International is one of the world’s major accounting and consulting networks comprising 271 firms independently owned and managed firms and 614 offices in 112 countries around the world. Our member firms’ objective is simple: to be viewed as the first point of contact for all our clients’ financial, advisory and compliance needs. They achieve this by providing sensible advice and tailored solutions to help their clients achieve their commercial and personal goals. Moore Stephens member firms across the globe share common values: integrity, personal service, quality, knowledge and a global view. Brussels, September 2018 Doing business in Germany 2018 Contents 1. Germany at a glance 1 Thin capitalisation / Interest restriction 18 Geographical location and population 1 Transfer pricing 18 Language and climate 1 Controlled Foreign Company (CFC) Rules 18 Politics and government 1 Withholding taxes on outbound payments 18 Currency, time zone, weights and measures 1 Rate of corporate income tax 19 General economic outlook 2 Assessment procedure 20 2. Doing business 3 Returns and payments 20 Main forms of business organisation 3 Appeals 20 Introduction 3 Trade tax (Gewerbesteuer) 20 Partnerships 4 Tax rates 20 Branch of a foreign company 5 Basis of calculation 20 European Company (Societas Europaea) 5 Deductibility 21 Labour relations and working conditions 6 Value added tax 21 Working hours 6 Taxable entities 21 Notice periods 6 Taxable activities 21 Wages, fringe benefits and other regulations 6 Exempt supplies 22 Holidays 7 Standard, reduced and zero rates 22 Social security system 7 Registration 22 Trade unions and workers’ councils 7 Returns and payment 22 Working conditions 7 7. Personal taxation 23 Work permits, visas etc. 7 Income tax (including capital gains taxes) 23 Starting business in Germany 8 Territoriality and residence 23 3. Finance and investment 9 Persons liable 23 Business regulation 9 The family unit 23 Banking & finance 9 Categories of income 23 Banking system 9 Taxation of employment income 24 Capital Markets 9 Taxation of personal business income Exchange Controls 9 & income from self-employment 24 Incentives for investment 10 Taxation of investment income 25 4. The accounting and audit environment 11 Private capital gains and losses 25 Accounting regulations & the audit requirement 11 Allowances and deductions 26 5. Overview of the tax system 13 Tax rates 26 Main taxes 13 Returns and payments 27 Tax authorities 13 Appeals 27 6. Taxes on business 14 Trade tax 27 Corporate Income Tax 14 Inheritance and gift taxes 27 Scope and Extent 14 Reliefs and allowances 28 Residence 14 Rates 29 Taxable entities 14 Wealth tax 29 Income calculation 14 8. Other taxes 30 Capital gains 14 Property and property transfer taxes 30 Deductions 15 Property tax 30 Dividends, interest and royalties 15 Immovable property transfer tax (IPTT) 30 Group Taxation 16 9. Social security contributions 31 Tax losses 17 Employers and employees 31 Sample calculation 17 The self-employed 31 Doing business in Germany 2018 10. Moore Stephens in Germany 32 Appendix 1: Double tax treaties 33 Comprehensive double tax treaties 33 Double tax treaties: air transport and shipping 34 Double tax treaties: estates, gifts and inheritances 34 Agreements on mutual administrative assistance 34 Social security agreements 35 Appendix 2: Moore Stephens around the world 36 Doing business in Germany 2018 1. Germany at a glance Geographical location and population Germany is the most populous country within the European Union. It borders on nine other countries: Denmark, the Netherlands, Belgium, Luxembourg, France, Switzerland, Austria, the Czech Republic and Poland. In 2016, the population of Germany was estimated at 82.5 million inhabitants, living in an area of 357 000 km2 (a population density of 237 inhabitants per square kilometre). The population is currently increasing by 0.4% per year (Dec. 2016 – Dec. 2017), the main reason for this being immigration. At the end of 2016, about 9.2 million individuals without German citizenship were living in Germany (compared to about 8.59 million at the end of 2015), which is about 11% of the population. Most of them have migrated from Turkey, former Yugoslavia, Italy, Poland or Greece. Germany is a federation of 16 states (Bundesländer). Its capital is Berlin; other main cities are Hamburg, Munich, Cologne and Frankfurt. Language and climate The official language in Germany is German, which belongs to the Germanic branch of the Indo-European family of languages. The climate in Germany is moderate, being influenced by the Gulf Stream and thus resulting in fairly moderate temperatures in relation to the latitude. Politics and government Germany is a democratic republic with a federal system of government. Certain powers lie with the 16 federal states, others are reserved to the federal government. As in all western democracies, the separation of powers into legislative, executive and judicial is one of the cornerstones of the German constitutional system. As Head of State positioned above these three constitutional powers is the Federal President (Bundespräsident), the incumbent being Frank-Walter Steinmeier, elected for a five-year term by the Federal Convention (Bundesversammlung, an electoral body composed of members of parliament and representatives of the federal states). The president’s function is largely ceremonial. The Head of the German Government is the Federal Chancellor (Bundeskanzler), and the holder of that office since 2005 is Angela Merkel. Following the general election in September 2017, a ‘grand coalition’ was formed in March 2018 between the Chancellor’s own centre-right Christian Democratic Union / Christian Social Union (CDU/CSU) and the centre-left Social Democratic Party (SPD). The German Parliament consists of two houses with distinctive roles: the federal assembly (Bundestag) and the assembly of the representatives of the 16 federal states (Bundesrat). The Bundesrat consists of members of the governments of the 16 German states, delegated by the state governments. Members of the Bundestag are elected directly in single-member constituencies (by simple plurality) or via a regional party list (by proportional representation) for four-year terms. Currency, time zone, weights and measures The euro (ISO designation: EUR) is the unit of currency. One euro is composed of 100 cents. The European Central Bank is the central banking entity that manages the European currency. At the time of going to press (late-August 2018), the euro was quoted against the US dollar at EUR 1 = USD 1.1411. In Germany, there is a single time zone, Central European Time (CET), being GMT (Greenwich Mean Time) +1. In summer, Germany follows the daylight-saving time system (DST), starting on the last Sunday in March and ending on the last Sunday in October, during which time clocks are advanced by one hour. Germany uses the metric system of weights and measures (the MKS system). Temperature is measured in degrees Celsius. Moore Stephens Europe 1 Doing business in Germany 2018 General economic outlook In 2008, Germany, together with most other economies, was hit by the global financial crisis. However, the unemployment rate did not significantly increase and was down to 5% in June 2018. Inflation rates in Germany are very moderate; after 0.9 % in 2014, 0.3% and 0.5% were recorded in 2015 and 2016, respectively. The annual inflation rate in 2017 was 1.8%, in June 2018 it was up to 2.1%. For 2018 and 2019 the forecast for annual inflation growth is 1.7%, largely as a result of increasing energy costs. 2 Moore Stephens Europe Doing business in Germany 2018 2. Doing business Main forms of business organisation Introduction The most important forms of business organisations in Germany are: Table 1 Abbreviation English translation Aktiengesellschaft AG Joint-Stock company Gesellschaft mit beschränkter Haftung GmbH Limited-Liability company Kommanditgesellschaft auf Aktien KGaA Partnership limited by shares Offene Handelsgesellschaft oHG General partnership Kommanditgesellschaft KG Limited partnership GmbH & Co. KG Limited partnership with a GmbH as general partner Gesellschaft bürgerlichen Rechts GbR Civil-Law partnership Niederlassung Branch (registered) Einzelunternehmer Sole Proprietor Investors are free to choose the form of entity with which to operate in Germany. Foreign investors mainly operate through a branch or – in fiscal terms – a permanent establishment (Betriebsstätte), a GmbH or a partnership (mostly in the specific form of a GmbH & Co. KG (see explanation below)). Joint-Stock company (Aktiengesellschaft – AG) To form a joint-stock company, the Articles of Incorporation or Association need to be officially notarised by a public notary.