This publication is a joint project with

Doing business in Contents

Executive summary 4 Disclaimer

Foreword 6 This document is issued by HSBC Trinkaus & Burkhardt AG (the Introduction – Doing business in Germany 8 ‘Bank’) in Germany. It is not intended as an offer or solicitation for business to anyone in any Conducting business in Germany 14 jurisdiction. It is not intended for distribution to anyone located in Taxation in Germany 20 or resident in jurisdictions which restrict the distribution of this Audit and accountancy 25 document. It shall not be copied, reproduced, transmitted or further Human Resources and Employment Law 26 distributed by any recipient.

Trade 28 The information contained in this document is of a general 29 nature only. It is not meant to be comprehensive and does not HSBC Trinkaus in Germany 30 constitute financial, legal, or other professional advice. You Country overview 32 should not act upon the information contained in this publication without Contacts 34 obtaining specific professional advice. This document is produced by the Bank together with PricewaterhouseCoopers (‘PwC’). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/ or PwC only and are subject to change without notice.

The materials contained in this publication were assembled in December 2012 and were based on the law enforceable and information available at that time. Executive summary

Germany’s highly developed • Germany’s foreign direct infrastructure, relative economic investment reached stability and location in the EUR 509 billion in 2010. middle of Europe has made it More than 55,000 foreign a popular hub for investment. companies are already This guide introduces some of operating in Germany. the key issues which investors should be aware of in setting • Germany has significantly up and running a business reduced the level of its in Germany, ranging through burden since 2008. corporate structures, tax and employment matters. • The government also develops reforms to improve the general Some of the key matters to be tax framework in order to keep aware of are as follows: indirect labour costs down.

• In Germany you will find a • Customers in the German highly developed economic, market do appreciate contracts political and infrastructural under German law and local framework providing the contacts and addresses. necessary security. • Make sure you find the right • Judiciary and civil service location under consideration institutions are professionally of available work force, regulated to ensure customer base and tax. consistently excellent service. Contractual agreements • Enjoy the cultural background are secure and intellectual and the regional differences property is strictly protected. in Germany!

4 Foreword

While doing business in In Germany we bank primarily Manfred Krause Germany, you gain valuable internationally operating Member of the Management insights into the German companies from the corporate Board and Head of Corporate market and ideas to unlock its segment. Banking Germany enormous potential. This guide is a collaboration of HSBC and Experienced relationship PricewaterhouseCoopers. Like advisors serve our clients at PwC, we both have a strong our head office in Düsseldorf global network and a deep and at five further locations in understanding of local markets. Germany. They are the central Together, we possess a wealth contacts and coordinate the of experience to support your deployment of the product ambitions in these markets. specialists.

HSBC Trinkaus-founded more Having had first-hand experience than 227 years ago- is one of that you should never Germany’s leading commercial underestimate local knowledge, banks and a member of the I am certain you will find this HSBC group. guide useful.

Based on HSBC Trinkaus’ consistent strategy, the resulting earnings strength and integration into the HSBC Group. Our current Fitch rating of AA- Stable, still makes us the best-rated private commercial bank in Germany.

6 Introduction Doing business in Germany

Economic environment of the World Economic The GDP (2011) of EUR 2.6 of Germany Forum – 2011/2012. trillion was earned to 54% by Services, to 30% by More and more companies Germany’s economic Industry, to 15% by Trade discover Germany as a secure performance has improved and to 1% by Agriculture. and profit-driving investment from the economic down- location. In the last five years turn of the 2008/2009 winter Traditionally, strong industries (2005 to 2010), Germany’s since the second quarter of in Germany are: mechanical foreign direct investment 2009. In 2011 Germany’s engineering, the automotive stocks increased by a total of economy grew by 2.7%. industry, aerospace, logistics, 42% to reach EUR 509 billion Despite the ongoing and the pharmaceutical and in 2010. More than 55,000 European debt crisis the chemical industries. But also foreign companies are operating German government Germany is the world leader in Germany, employing forecasts an economic in the sustainable industry over three million people. growth of 0.7% in 2013. revolution and German companies also lead the According to recent studies, Also in the business climate field in new technologies Germany ranks as the top index in October 2010, people’s (i.e. nanotechnology, medical investment location in Europe opinion on the future of the technology and biotechnology). with a relative economic stability. German economy has As the largest domestic market continued to be optimistic. With of goods of within the EU it creates a EUR 952 billion (2010) and considerable and stable customer Industries and imports of goods of EUR 798 base for investors. Germany Business Segments billion (2010), Germany is a earned 20% of Europe’s GDP traditional exporting nation. (EU-27) and was home to Germany’s economic position 16% of the total European enhances an extensive Availability of Labour Union population in 2011. and competitive industrial The German economy is environment with a focus on Germany has highly qualified both highly industrialised innovative future technologies. and motivated specialists and is and diversified – with equal Many small-and medium-sized known as having a high standard focus placed on services and enterprises use this potential, of efficiency and organisation. production. making them market leaders The German education and in their respective markets. sophisticated training system Given its location in the German ‘Middle Market’ is ensures that employed middle of Europe, Germany regarded as the backbone of personnel are qualified for is frequently used as a hub the German economy with companies’ purposes. for investments and logistics more than 99.7% (2011) of likewise to reach established all companies being small- Although there is a current and growing markets across and medium-sized entities unemployment rate of 6% Europe and especially and approximately 39.1% (2011 estimated) reported Eastern Europe. Germany’s (2011) of net value added by the International Labor infrastructure ranked number being generated by small- Organization in 2012, it is not one in the world in a Global and medium-sized entities. always easy to find skilled Competitiveness Report employees at short notice.

8 One of the reasons for this is the automotive industry, whether you are a German compatible, energy-saving Many speak at least Additionally, a handshake that the location of available the industrial machinery and citizen or not but dependent production procedures. one other foreign language may be accompanied with a and skilled employees does equipment industry and the on the area of the business such as French, Spanish, slight bow. Reciprocating the not always match the regions consumer goods and and creation of jobs. Make sure that potential Russian or Italian. nod is a good way to make a of high economic power chemical industries. incentives are scrutinized and good impression, as failure to and demand. Therefore, The most important applied for before the actual Business Etiquette respond with this nod/bow depending on the business The business activities of development institution set-up because this may be (especially a superior) may get of the investors, they should new investment projects are at the federal state level is the relevant for the incentive Business dress code in you off to a bad start. Be sure make sure that the relevant sales, marketing and support state-owned Kreditanstalt für being granted. Germany is generally to look directly into the person’s workforce is available in offices. Also, in almost 21% Wiederaufbau (KfW). conservative. Businessmen eyes while shaking hands. the region of set-up. of all investment, project Companies must submit Cost of living wear suits, conservative activities are carried through by applications for loans and ties, and plain or only slightly In Germany business is viewed Foreign Direct Investments manufacturing sites. Projects incentives via their house bank. With the cost of living below patterned shirts. Women also as being serious, and Germans with the highest volume were Funding is generally available for: the global average and that of dress conservatively, in suits do not appreciate humour in a The German market is initiated by the Netherlands • Start-up funds other European countries (i.e. and blouses. business context. welcoming investments (22%), (16%) and • Capital for start-ups Norway, Denmark, Belgium, in nearly all industry sectors France/US (10%) in 2011, as • Capital for growth the Netherlands, UK and Italy), The German thought and Germans frequently greet and lines of business. There reported by the International • Entrepreneur loans Germany provides moderate planning process is very time- each other with Herr or Frau are industries and professions, Monetary Fund. Also, in recent • Micro loans consumer prices. intensive, with each aspect and the last name, even when however, that are restricted years, Germany has become • Environmental and energy- of a project being examined they know each other very to specific qualifications or increasingly more attractive saving programmes Whilst total goods and services and discussed in great detail. well. Titles are very important necessitate a registration for investors from Asia. expenditures in German cities However, after the planning to Germans. Do your best to (i.e. auditors, lawyers, tax Also financial support can be are around the European process, a project will move address people by their full, advisors, insurance companies, Trade expected by different German average, the service prices in very quickly and deadlines are correct title, no matter how banking companies). authorities when starting up Germany lie below the Western expected to be held. long that title may seem to China, the Netherlands a business in specific regions. European average. foreigners. This is also true The legal framework for foreign and France are the largest Regional business development Germans do not like surprises. when addressing a letter. direct investments in Germany importers to Germany, whilst units may take over parts The monthly gross apartment Sudden changes in business grants the principle of freedom the most exports go to France, of the set-up costs and rent levels range among the transactions, even if they may Germans love to talk on the of foreign trade and payment. the US and the Netherlands. specific loans are generally lowest in Western Europe. improve the outcome, are telephone. While important Germany’s main trading available under defined unwelcome. Punctuality is a business decisions are not Germany was quoted fifth in the partners include European conditions. Regional Business Language necessity in Germany. Arrive made over the phone follow- world as a recipient of foreign countries such as France, the Development Agencies have on time for every appointment, up calls are expected. direct investment, according to Netherlands, UK and Italy as competent experts with The official language is whether for business or social. the United Nations Conference well as international markets in-depth knowledge of the German. However, there are Being late, even if it is only Germans guard their private on Trade and Development such as the United States, respective region. There are several different dialects in the by a few minutes, may be life, so do not phone a German (UNCTAD) in 2010. China, Russia and Japan. subsidies amounting to up various regions. regarded as very insulting executive at home without to 50% for investments in to a German executive. permission. Business cards Attractive foreign investment Incentives structurally weak areas. English is the best known are frequently handed out on sectors in Germany are the foreign language and is In business situations, shake the occasion of a meeting. information and communication If you start up a new business, There are industries that frequently used as a cross- hands at both the beginning technology and software the German government and are specifically promoted, border business language. and the end of a meeting. industry, the business and local authorities may support such as new technologies financial services industry, you financially, irrespective of and environmentally

10 . Regulation Import duties

There are restrictions and Deliveries to and from Germany prohibitions in place to protect and other EU countries are not business and economic regarded as imports or exports, environments. The restrictions as the EU member states are intend to ensure as far as regarded as one single European possible equality of chances Market. duties at between the different different rates are levied opponents and to avoid depending on origin and type hindering the development of and value of goods. The new businesses in the market. administration of customs duties has to be carried through at the Import restrictions of entry into Germany by the carrier general application are those or any other forwarding agent. in accordance with the UN Also the importer needs to standards. Otherwise there comply with return, reporting is a special licensing procedure and filing requirements within for certain specific types the EU-Intrastat system. of goods such as military equipment and drugs. Also Exit there are import quotas set by the EU. Base shifting of companies established in Germany and The import and rules exit of private individuals or differ according to the country companies from Germany, of origin and the type of goods may lead to an exit taxation involved. depending on the circumstances. Also incentives granted may No customs duties apply to be at risk. trade within the EU. Many customs-related regulations for trade outside the EU are nonetheless uniform. This applies in particular to trade regulations dealing, inter alia, with dual use goods, technical barriers to trade and safety and health requirements, protection of intellectual property rights, restrictions imposed on specific items, such as illegal substances or goods deemed to be of special cultural value.

12 Conducting business in Germany Forms of business

When doing business in Societas Europea (SE) Germany, one of the initial decisions to be made is the A is a legal person, Aim: Unification of company form in which the business meaning that the holder of structures across Europe. is to be conducted. This rights and obligations is not the decision cannot be generalised individual shareholder, but the Disadvantage: Founding as it highly depends on the company itself. The company formalities and costs of a individual circumstances of the itself concludes contracts, SE are relatively high, and investor. In this context the possesses assets and must the SE is subject to extensive investor needs to decide if, pay . Liability is limited organisational obligations in for example, limitation of the to the corporation’s business day-to-day business (Compared liability, separate taxation of assets, including share to GmbH). profit making and distribution, capital. A minimum share a stable business unit or flexible capital is required, and the Minimum Share Capital: exit are necessary. accounting obligations are more EUR 120,000. extensive than those for other Types of vehicles available business legal forms (such as Premises: Involvement of are Corporates, partnerships). businesses in at least two and Branches. EU-member states. Possible forms of corporation are: Organs: Shareholders’ assembly, management board, • SE (Societas Europaea, SE). optional supervisory board.

• Stock Coporation Liability: Shareholder capital, (Aktiengesellschaft, AG). whereby each shareholder is liable to the extent of his share • Limited by Shares in the registered capital. (Kommanditgesellschaft auf Aktien, KGaA).

• Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH).

• Limited Liability Entrepreneurial Company (Unternehmergesellschaft (UG), haftungsbeschränkt/ ‘Mini GmbH’).

14 Stock Corporation (AG) Partnership Limited by Private Limited Liability Minimum Share Capital: Civil Law Partnership (GbR) Minimum Share Capital: Shares (KGaA) Company (GmbH) 1 EUR. No minimum share capital. Aim: High market reputation, Aim: Association of flexible capital acquisition, Aim: Connection of structures Aim: Most widely used legal Organs: Shareholders’ individuals or enterprises to Organs: Shareholders’ anonymity of shareholders, of a stock corporation (AG) and a form for limited liability. assembly, management board/ achieve a contractual purpose; assembly. flexible transfer of limited partnership (KG) flexible managing director, optional uncomplicated formation shares partners. capital acquisition, anonymity of Disadvantages: Share transfers supervisory board. without obligation of written Liability: Personal liability shareholders, flexible transfer of need to be notarised. agreement or registration of partners with their Disadvantage: Founding shares partners. Liability: Shareholder capital, into commercial register if no private assets. formalities and costs of an Minimum Share Capital: whereby each shareholder is considerable business activity. AG are relatively high, and Disadvantage: Not very EUR 25,000. At the time of liable to the extent of his share Limited Partnership (KG) the AG is subject to extensive frequently used. registration, at least half of in the registered capital. Disadvantage: Personal organisational obligations in the minimum capital (i.e. EUR liability of partners with their Aim: Same as oHG but with day-to-day business Minimum Share Capital: 12,500) must be actually and In general, directors and private assets. the option of limiting the liability (Compared to GmbH). EUR 50,000. verifiably contributed into a supervisory board members of some of the partners, flexible bank account. may be held liable under civil Premises: At least increase of capital by including Minimum Share Capital: Organs: general partners, law by the company and two shareholders. other limited partners. EUR 50,000. shareholders’ assembly, Organs: Shareholders’ creditors and criminal law optional supervisory board. assembly, management board/ if acting against statutory Minimum Share Capital: Disadvantage: Personal Organs: Shareholders’ managing director, optional provisions or commonly agreed No minimum share capital. liability of general partners assembly, management board, Liability: Shareholder capital, supervisory board. diligence of a business man. with their private assets. optional supervisory board. whereby each limited Organs: Shareholders’ assembly. shareholder is liable to the extent Liability: Shareholder capital, Partnerships Premises: At least two Liability: Shareholder capital, of his share in the registered whereby each shareholder is Liability: Personal liability of shareholders, limitation whereby each shareholder is capital. At least one partner, the liable to the extent of his share The main aspect of a partners with their private assets. needs to be registered in liable to the extent of his share general partner, has to be liable in the registered capital. partnership is the personal the commercial register. in the registered capital. for debts and liabilities of the commitment of the partners General Commercial KGaA without limitation. Special Form of Limited and generally the liability of the Partnership (oHG) Minimum Share Capital: Liability Entrepreneurial partners for the partnership’s No minimum share capital. Company (‘Mini GmbH’) debts and liabilities is unlimited Aim: Association of individuals and personal. Accounting or enterprises to achieve a Organs: General Aim: Reduced share capital. obligations and publication contractual trade purpose; partners assembly. Accelerated foundation process requirements are generally uncomplicated formation without (i.e. sample articles). less extensive than those for obligation of written agreement. Liability: At least one corporations. Most commonly partner, the general partner Disadvantages: In order to used partnerships are: Disadvantage: Personal (Komplementär), is personally compensate the initial absence liability of partners with their liable without limitation. The of capital the company – Civil Law Partnership private assets, commercial liability of the limited partners has to retain a quarter of (Gesellschaft bürgerlichen register entry. (Kommanditisten) is limited its annual profit until it has Rechts, GbR) to their respective share of accumulated the minimum – General Commercial Premises: At least the partnership capital. shareholder capital of an Partnership (Offene two shareholders. ordinary GmbH (EUR 25,000). Handelsgesellschaft, oHG) New company type and – Limited Partnership therefore less established. (Kommanditgesellschaft, KG) – Corporate Partnership (GmbH 16 & Co.KG)

Corporate Partnership Branch Offices Autonomous Branch Representative Office Formation procedures i.e. real estate, family status, (GmbH & Co. KG) Office (selbstständige (general) some business structuring Another possibility to establish Zweigniederlassung) The so-called representative activities. In particular, the Aim: Same as KG, but general a business in Germany is a offices are neither known to The formation process of transfer of shareholdings partner (Komplementär) is German branch office. Display of autonomy German commercial law nor to investment vehicles can be in a limited liability company a limited liability company by having its own: . Their defined purpose generalized as follows: (GmbH) and the appointment or (GmbH), leading to limitation Aim: A branch office is – management with its is simply to make the company removal of managing directors of the liability; common form suitable for a foreign company own executive powers; known within the country and 1. Procurement of capital in a GmbH require notarisation. among middle-sized companies. wanting to establish a – separate bank accounts; to maintain business links with and partners. presence in Germany for the – separate ; and the country. The offices do 2. Notarisation of the Articles of The reason for notarisations Premises: At least two purpose of initiating business – independent business assets. not undertake any commercial Association/Formation Report in Germany is not only to shareholders, limitation and maintaining contacts transactions themselves, if required/Resolution to ascertain the identities needs to be registered in with business partners in Extensive registration although they may initiate set-up branch. of the parties signing the the commercial register. combination with offering obligations such transactions. They are 3. Opening a bank account documents but also to inform a contact point in Germany for The application for registration not independent organisations and payment of share capital. the participants of the risks Minimum Share Capital: potential or already existing with the Commercial Register and should therefore not be 4. Commercial register application resulting from the signature No minimum share capital. customers. In legal and must include detailed regarded as branches. Notice (notary required). in the respective transaction. organisational terms, it is part information on the foreign of the start of activity must 5. Commercial register entry. In most cases of business Organs: General of the head office business and company i.e. certified and be sent to the local authority 6. Limitation of liability comes structuring activities, the notary partners assembly. is therefore subject to the laws notarised translations of key exercising supervision over into effect if applicable. is also required to notify the the head office is governed by. documents of the headquarter commercial activity (usually 7. Trade office registration. trade registry of the notarisation Liability: The GmbH is fully company. The Register in the trade division of the 8. Application for permits or to submit the notarised liable for the GmbH & Co. Minimum Share Capital: Germany must be notified regulatory office of the city if applicable (respective documents themselves for KG’s debts and liabilities. No minimum share capital. of changes in the headquarter or other local community research should be done particular information to be companies key information. – Gewerbeabteilung/ beforehand). recorded in the trade registry. The liability of the limited Organs: Depending on the Ordnungsamt). Self-employed 9. Registration with tax authorities. The fees of a German notary partners (Kommanditisten) type of a branch. Registration with the external business person (e.g. are set by a schedule that, is limited to their local trade office a commercial agent authorised The cost for registration and like court filing fees, is based respective share of the Liability: A branch office has including documentation by the company) without any publication at the commercial on the value of the particular partnership capital. no independent or separate on the foreign company independent business activity register are: transaction at hand. legal personality. The legal on behalf of the foreign – for a partnership is currently liability of the branch office Dependent Branch company generally do not EUR 250 minimum; If documents within a depends on the liability of the Office (unselbstständige require a registration as branch – for a GmbH EUR 400 minimum; foundation process that legal entity of the head office. Zweigstelle) of the foreign company. and need notarisation under – for an AG EUR 500 minimum. German law are signed abroad, There are different types No autonomy registration proper care should be taken of branch offices: with the local trade office Additional costs are incurred to surrogate the notarisation including documentation through the use of a notary and a by an acceptable certification on the foreign company. legal advisor to draft documents. act in the respective country.

German law requires notarisation of various types of legal transactions covering

18 Taxation in Germany

Companies and individuals In the case of corporations, to withholding tax on these Trade Tax (Gewerbesteuer) The trade taxable earnings The tax base is calculated by generally have to file applies on the level profits (i.e. ). This are multiplied with the tax making adjustments to the their annual tax return by of the corporations themselves. needs to be withheld and paid Income from commercial assessment rate and the accounting profits to reflect 31 May following the year In the case of partnerships or by the company making the operations in Germany applicable municipal collection differences in accounting of assessment. This deadline branches, the income taxation profit distribution. Withholding is subject to trade (Hebesatz). The municipal between statutory law and can be extended, but usually applies on the level of the tax may also be applicable on (Gewerbesteuer). For collection rate is at least 200% tax law. Generally, the tax no longer than 31 December partners, or headquarters interest and royalties paid by partnerships and individuals, (leading to a minimum trade tax base is derived from the tax of the following year. respectively. the company depending on the this applies only to of 7%). There is no statutory base calculated for corporate respective Double , exceeding ceiling, so that the collection or income tax purposes. There is unlimited taxation Trade tax is levied on the level the national law and the EU EUR 24,500 p.a. rate in some municipalities may However, there are specific for tax residents and limited of the corporate or partnerships. Parent Subsidiary Directive. actually be up to 490%. The partially non-deductible items taxation for non-resident The applicable trade tax burden average municipal collection rate for trade tax purposes (i.e. rent, companies with income Corporate Income Tax In certain cases withholding depends on two factors: lies between 350% and 400% lease payments, licence fees) achieved in Germany i.e. through for Corporations tax on income paid to foreign leading to an effective trade tax and further requirements a or (Körperschaftsteuer) parent companies can either – the rate (3.5%); between 7% and 17.15%. for the applicability of the a partnership. The taxation of be refunded to a certain extent – the trade tax collection rate general taxation for a permanent establishment The standard corporate or participation exemption can stipulated individually by every The trade tax can be credited corporate companies (add-back very often corresponds with income tax rate is 15% and it be applied for, according to the municipality (Hebesatz). against personal income tax for of 5%) such as a minimum branches held in Germany, applies to all the corporation’s rules set out in the EU Parent shareholders of partnerships or percentage of shares held but there are cases where a taxable earnings. Corporate Subsidiary Directive or Double individuals paying trade tax. A and/or activity clauses. permanent establishment is income tax applies to both Tax Treaties combined with the standard municipal collection constituted without a branch retained and distributed profits. German tax law. rate of 380% is applied by the being voluntarily established. A solidarity surcharge of 5.5% law for the crediting. Therefore all businesses of the assessed amount Income derived from conducted in Germany non- of corporate tax is added to participations of corporates in withstanding their organisational a combined corporate income other corporates are tax-free Overall Tax Burden (Corporate Tax Trade Tax) in Germany by Municipal Multiplier form, may be liable to pay taxes tax and solidarity surcharge except for an add-back of 5% Minimal Municipal Minimal Municipal in Germany. burden of 15.825%. of the income. Income derived German Average from partnerships are taxed Multiplier Multiplier (mun. multiplier: Company Taxation Adjustments are required to the on the level of the shareholder Examples (mun. multiplier: (mun. multiplier: 400%) profits shown in a company’s (individual person/corporate) 200%) 490%) Trade Tax There are two types of taxes statutory accounts to arrive at for income tax purposes. Trade Tax Rate 14% Trade Tax Rate 7% Rate 17.15% on business profits: the amount of taxable profits – corporate income tax for all due to differences in accounting Taxable Corporate Income (EUR) 100,000 100,000 100,000 corporates or personal income between statutory law and Trade Tax (3.5% x Municipal tax for partnerships both levied tax law (i.e. depreciation, -7,000 -17,150 -14,000 by the federal government and valuation), disallowance of Multiplier = 7% to 7.15%) solidarity surcharge thereon; entertainment expenses for Corporate Income Tax -15,000 -15,000 -15,000 – trade tax for all business tax purposes etc.). (Tax Rate 15%) operations, imposed by local municipalities (i.e. the town Once the profits are Solidarity Surcharge (5.5% of -825 -825 -825 or city where the company distributed to shareholders, Corporate Income Tax = 0.825% is based). the shareholders are liable (EUR) 77,175 67,025 70,170 Overall Tax Burden 22.83% 32.98% 29.83%

20 Personal Income Tax General Income Taxation Information

Personal Income Tax according to specific tax rules withheld by the employer or other financial institution pays Loss Carry-Back and Loss Finance Court which may for Partnerships costs in connection with from the gross wage and out such income from capital, Carry-Forward lead to changes within the (Einkommensteuer) receiving the taxable income transferred to the employee’s the bank or financial institution corporation law in the future. and individuals (i.e. such as travel costs to the health insurance company. simply withholds the tax and Losses for corporate income working site) and special costs are transfers it to the responsible tax purposes (not for trade tax Also amendments to the current Personal income tax deductible within defined limits. Social security contributions tax authorities. Exemption purposes) may be carried back loss carry forward and forfeiture applies to all resident or in 2013 are made up of: certificates are available for for one year, limited to a total scheme are being discussed. limited taxable non-resident There are options to apply capital gains up to a threshold loss amount of EUR 511,500. individual persons. In case different tax rates to income • health insurance: 15.5% of EUR 801 per person. If the Losses can be carried forward Deductibility of Interest of partnerships the partners derived from a partnership (0.9% to be borne solely by individual tax rate is lower than for trade tax and corporate Payments that are individuals are subject and retain part of the the employee; remainder to the withheld tax, the inclusion income tax purposes with to personal income tax at an income to be taxed later be split in two equal shares) of such gains into the income no time restriction. Up to an There is a restriction in individual tax rate applicable to under certain conditions. • nursing care insurance: 2.05% tax declaration may lower the amount of EUR 1 million loss deducting the negative each partner. (2.3% childless) withheld amount to the individual carry-forward is possible free interest margin (surplus of Employees working in Germany • pension insurance: 18.9% tax rate. In case of dividend from any restrictions. For sums interest expenses over the Also individuals in general are receive a net wage or salary from • unemployment insurance: 3.0% income a flat of 25% (+ 5.5% in excess of EUR 1 million, at interest income) exceeding subject to personal income which tax and social security • accident insurance (borne solidarity surcharge) may apply least 40% of the taxable income 30% of the total EBITDA tax with their total taxable contributions have already solely by the employer; the or under certain circumstances must remain subject to taxation. (earnings before interest, income derived from different been deducted. The employer amount depends on the for shareholdings of 1% or more, Therefore a maximum 60% taxes, depreciation and sources (i.e. employment, withholds personal tax that the wage and the class of risk). 60% of the dividend may be of taxable earnings exceeding amortization). This restriction capital investments, partnership employee is required to pay and taxed at the individual tax rate. EUR 1 million can be offset is not applicable for negative investments, rent, etc.). transfers the money directly Social security contributions against incurred losses. interest margins of less than to the tax authority. Generally, are roughly shared equally EUR 3 million. It is also not The personal income tax all payments and non-cash by employer and employee. The change of direct or indirect applicable if the company rates for 2012 are set out in benefits exceeding explicit Employees earning a gross wage shareholders of more than does not or only partially the table below (for married allowances (i.e. company car, of less than EUR 3,937.50 (if 25% within 5 years may lead belongs to a group or if it is couples the doubled amounts subsistence) are subject to privately insured as at 31.12.2002) to a partial loss carry forward a group company that meets apply). In 2013 the amounts wage tax. Therefore the wage or less than EUR 4,350 (2013) forfeiture, in case of change specific equity ratio compared will increase by 1.6%. taxable amount can differ from per month are compulsorily of more than 50%, a total loss to the group equity ratio. For insured by one of the public carry forward forfeiture arises corporates the last sentence Taxable Income up to EUR health insurance providers and if the shares are acquired by only applies if less than per fiscal year Percentage employees earning a gross wage one shareholder or a number 10% of the negative interest of less than EUR 5,800 in the of new shareholders regarded margins paid to a shareholder Up to 8,004 – Western German states and EUR as a group. There are however of at least 25%. Negative Between 8,005 and 13,469 14% 4,900 in the Eastern German specific and complex rules that interest margins that cannot states are compulsory insured may save the losses in case of be used in one year may be Between 13,470 and 52,881 sliding scale up to 42% by the state pension scheme. group restructuring or hidden carried forward. The sale of Between 52,882 and 250,730 42% less EUR 8,172 Employees whose earnings are reserves could be set off. shares of an interest carrying above these income thresholds forward company may lead More than 250,730 45% less EUR 15,694 can choose from both public and The question whether the to the loss of the forwarded private insurance companies. current regulations concerning interests similar to the loss The solidarity surcharge is also the actually agreed wage. the loss carry-forward may be forfeiture rules (see above). added to personal income tax. Generally, income from financial unconstitutional is discussed The employer is also liable investments (i.e. dividends, by the German Federal The German income taxation regarding this withholding type disposal profit) bares a final concept is based on the idea tax. Therefore, all employees withholding tax at a flat rate that individuals are to be taxed must be registered with the of 25% (+ 5.5% solidarity according to their individual local tax authority. Social surcharge). If in the absence of economical situation. Therefore security contributions are also an exemption certificate, a bank

22 VAT Other Taxes

Fiscal Unit Concept Value Added Tax Real Estate Tax Audit and accountancy There is a fiscal unit concept in For all countries located in Every property owner in place that, if certain conditions the EC the basic rules on VAT Germany is liable to pay real are met, allows profit and loss treatment are similar as they (Grundsteuer). pooling in order to determine are based on a EC directive. The tax rate depends on the Every businessman with sales for the authorities with their According to the MicroBilG (of the profit at the level of the type of real property owned. exceeding EUR 500,000 or programme. 27 December 2012) companies controlling parent within Some of the details e.g. regarding revenues exceeding EUR 50,000 that fulfil two out of three of Germany for tax purposes. and documentation Real Estate is required to keep records The complexity of accounting the criteria (balance sheet Conditions are, amongst may be different in each country. (Grunderwerbsteuer) in Germany prepared to the depends on the size of the < 350 kEUR or equal; others, the conclusion and German accounting standards company. Sales < 700 kEUR or equal; public registration of a profit Companies must generally add When real estate in Germany and prepare annual financial no more than 10 employees in and loss pooling agreement value added tax (VAT) to the is sold or changes ownership, statements through balance The statutory accounting rules average) as at two consecutive as well as generally a 5-year prices of their services or goods, a real estate transfer tax sheet accounting under the in Germany are generally set out business years do no longer minimum period. save for defined exemptions. (Grunderwerbsteuer) of 3.5% German Commercial Law. With in the Commercial Code (HGB). have to meet certain disclosure Other companies may deduct to 5.0% of the purchase increasing size of the company Under certain circumstances and reporting requirements Changes of the fiscal unity VAT paid on incoming invoices price (depending on the preparation requirements rise. companies are allowed to use such as: preparation of notes concept are currently being from their liability from outgoing state of location) is levied The annual financial statements IFRS. However, as the statutory to the financial statements, discussed, in particular the invoices. Therefore VAT is only if the purchase price or are to be prepared on a calendar accounting is the starting publication of financial legal requirement of a profit paid by the end user of a product consideration exceeds EUR year basis generally, but point for tax declarations this statements. Also the reporting and loss pooling agreement. or service. Companies transfer 2,500. Mostly the rate is 5%. other periods not exceeding very often does not relieve schedule of balance sheet and the VAT received netted with the 12 months can be determined. the company from preparing profit and loss account will be VAT paid to the tax authorities Real estate transfer tax may also For tax purposes this needs statutory accounts. less detailed. on either a monthly, quarterly, be triggered on occasion of the to be agreed with the local Germany has extensive or annual basis. The frequency sale of all shares in a company tax authorities. If bookkeeping All corporates need to disclose Medium- and large-sized transfer pricing rules not generally depends on the level holding real estate, no matter functions are to be taken over their financial statements. corporates need to have their only setting out the ways of a company’s turnover. if the change of shareholding abroad, an application to the However, the disclosure financial statements audited. to determine transfer prices happens at the level of the tax authorities to seek for items depend on the size of but also including strict and The general VAT rate amounts direct parent company or at permission has to be filed. the company. For example, There is an obligation to file comprehensive rules in to 19%. A lower rate of 7% the indirect parent company. It has to be made sure that whereas large- and medium- group financial statements respect of transfer pricing is charged on the sales of German financial authorities are sized corporates need to under specific circumstances. documentation, which is goods and services needed There are exemption not restricted in their ability to disclose balance sheet, income The filing fees start at EUR 20 reviewed on the occasion on a day-to-day basis (i.e. food, possibilities in case of seek information, for example, statement, notes to the up to a significant higher of tax audits. Transfer prices newspapers or public transport). group restructuring. by viewing the bookkeeping financial statements and the amount, depending on delivery need to be agreed beforehand Some services (including banking system via electronic access. management report, a small format and length of the and have to meet the arm’s unless opted in, healthcare, and Inheritance/ corporate only needs to disclose matter to be disclosed at the length principle. Methods to non-profit work) are VAT exempt. The bookkeeping must the balance sheet and notes to Electronic Federal Gazette. determine a reasonable price Germany has a complex therefore remain readable the financial statements. depend on the business. Input VAT system of inheritance and gift tax for transferrals without A branch is not regarded as Companies have to pay VAT consideration. The tax is Company Sizes related party as technically when they purchase goods or levied on the market value Medium-sized it belongs to the headquarter services for the business. This of assets transferred. The If at least two of the following Small Corporate Corporate company. However, whenever VAT can be netted against VAT tax rates depends upon the criteria apply for two consecutive up to and up to and Large Corporate costs and profits are allocated received from customers or relationship/kinship of the financial statement dates the transfer pricing principles claimed back as input VAT in donor and beneficiary. There including including More than are a good guideline. case it exceeds the output VAT. are allowances depending Sales Revenue in EUR million 9.68 38.50 38.50 There are requirements in place on the relationship between regarding the form of invoices donor and beneficiary. Balance Sheet total in EUR million 4.84 19.25 19.25 documenting the input VAT that There are special rules for Employees 50 250 250 need to be adhered to avoid the transferral of family homes, 24 rejection by tax authorities. businesses, and shares. Human Resources and Employment Law

There are different types of law, employees are allowed to The state pays subsidies of contracts for employment: work up to 48 hours per week. up to 50% of the wage costs, A total of 60 hours per week if the employer hires employees – Fixed-term contracts – (or ten hours a day over six that were unemployed for a unlimited term or defined term; days) is possible under certain long time, or are older. – Temporary employment circumstances. Overtime will agreements with temporary generally be paid extra or the Initially, the notice for employment agency; employee may take some termination period is four – Mini and Midi Jobs with the time off as compensation. weeks. It increases depending social security totally being paid on how long the employer by the employer within certain The statutory minimum leave has been working for the limits of the total wage; and is 24 working days per year company. When termination – Student jobs. (6-day week) 20 working days is driven by the employers per year (5-day week). side and the German Freelancing contracts with Employment Protection Act independent individuals are If an employee is sick, he or (Kündigungsschutzgesetz) technically not employment she continues to be paid by is applicable there are specific contracts. In this case the the employer for six weeks reasons that justify dismissals employer generally would only on submission of a doctor´s and if termination is planned pay an hourly fee (for example) certificate. for economic reasons, a social to the contract partner without selection has to take place. taking over social security The employees´ pay can Termination periods can be amounts and wage tax be negotiated freely unless prolonged under the German deduction. There is always a a minimum wage applies. Employment Protection Act risk of qualification as normal Depending on the region, (Kündigungsschutzgesetz). employment contract within costs vary. The state is a wage tax audit and obligation generally not involved in In the case of a short- for the employer to pay social wage fixing. The associations term contract, the end of security afterwards, if certain of employers usually agree employment is contractually requirements are not met. collective bargaining agreed from the outset. This agreements with the contract is a good choice for Usually there is an up to six- industry trade unions. young companies, however month probationary period German trade unions are professionals mostly prefer at the beginning of any new strong and well-organised. an unlimited contract term. employment contract. If unions are not involved the For stock companies or limited The general weekly working wage is fixed individually. In liability companies with more hours are forty hours per week Germany an employee receives than 500 employees, the law with generally no work on a wage or salary from which tax sets out a requirement of Sundays and public holidays and social security contributions representation of the employees if not exceptionally permitted. (approx. 20% – see personal in a supervisory board. Generally, under German labour income tax) have already been deducted (net).

26 Trade Banking in Germany

Customs The European currency (EUR) is managed by the European The customs regulations in Central Bank in . Germany are governed by EU law as in all other EU member Banks in Germany usually states. This is due to the offer universal services for European Customs Union. businesses and individuals Administration lies in the comprising both the lending hand of the German Customs side with the full service of Administration offices corporate finance and the in Germany. saving side also including investment banking. The European Customs Union Anyone running a company in Germany should have a bank The European Customs Union account in Germany. To open is a single trading union based a bank account, you usually on the EU-wide community need only a valid passport customs code (Zollkodex der and a confirmation from the Gemeinschaften). Custom residents’ registration office duties between EU-member that your place of residence states were abolished by the is in Germany. European Customs Union as well as import VAT between In many banks, it is possible EU-member states. The to have accounts in foreign European Customs Union has currencies. Practically all stipulated common customs large international banks are tariffs for rates of goods represented in Germany. imported from non-EU-member states into the European If amounts of more than Customs Union and created EUR 15,000 are paid into an uniform customs rules. account in cash, the banks check the identity of the depositor, in order to prevent money laundering.

28 HSBC Trinkaus in Germany

Committed to values. Network Historical Milestones 1980 Corporate Sustainability Our environmental programme For more than 227 years. The English focuses on the HSBC Climate Branches are located in 1785 Group took over the majority For HSBC, Corporate Partnership – a five-year HSBC Trinkaus is in a unique Baden-Baden, , , Christian Gottfried Jäger set up of the shares of Trinkaus Sustainability is about bringing environmental programme to position among the German Düsseldorf, Frankfurt/Main, his trading house in Düsseldorf. & Burkhardt. social and environmental reduce the impact of climate banks: Private bank since 1785 , , issues together with financial change on people, forests, and at the same time part of and Luxembourg. HSBC 1852 1985 performance to maintain and freshwater and cities. HSBC’s HSBC, one of the world’s Trinkaus has around 2,500 Christian Gottfried Trinkaus, Trinkaus & Burkhardt was grow a successful business for programme partners are carrying largest banking groups. The employees. Baden-Baden, a nephew of the founder, took converted into a partnership the benefit of our stakeholders. out original scientific research, bank has three target groups Cologne and Luxembourg do over the house and gave it his limited by shares (KGaA) and developing demonstration – high net worth private clients, not cover corporate customers. name. He concentrated fully brought to the stock exchange. • We apply clear policies and projects, creating working institutional clients and on the banking business. processes to manage potential models, and proving clear corporate clients, in particular, Awards 1992 social and environmental risk in solutions so that governments internationally-operating 1874 HSBC Holdings plc acquired our lending and other financial can enact legislation for the companies from the upper • ‘Wealth Manager of the year Together with a number Midland Bank giving it a activities in sensitive sectors. adoption of low-carbon policies. SME segment as well as 2010, category dynamic’, Börse of influential entrepreneurs majority holding in Trinkaus large corporations from the Online 02/2011. from Düsseldorf, the Bank & Burkhardt. • We help our clients to seize the production, trading and is instrumental in the opportunities presented by the service sectors. • ‘The Elite among the asset establishment of the stock 1999 shift to a low-carbon economy. managers’, Elite Report 2011. exchange in Düsseldorf. The Bank was renamed HSBC Overview Trinkaus & Burkhardt KGaA. • We try to reduce our own • ‘Asset management for high 1919 environmental footprint • City of incorporation: Düsseldorf. demands’, Fuchs-Report 2012. The last family members left 2006 and share good practice the company. It was then taken HSBC Trinkaus & Burkhardt on this with our clients • Relationship with parent: • ‘Outstanding asset over by institutional investors changed the legal form of and other stakeholders. HSBC Group holds 80.6% management’ according to (including ). the Bank from a KGaA to an of our shares, 18.7% of the Bankentest of Focus Money/ AG (German stock corporation). • We focus our community remaining shares are held n-tv, October 2010. 1972 investment (philanthropic by the Landesbank Baden- C. G. Trinkaus merged with 2010 activities) on education and Württemberg and the rest • ‘TOP-Risk management for Bankhaus Burkhardt & Co. HSBC Trinkaus increased the the environment. are freefloat. asset management’, Deutsches From then on the Bank share capital by EUR 150m Institut für Servicequalität, operated under the name to promote the growth in Our education programmes • Total assets (as at 30.09.2012): July 2010. Trinkaus & Burkhardt. the corporate business help to lift people out of EUR 24.6 billion. in Germany as part of poverty, build financial • EUROMONEY Awards for 1974 HSBC’s overall strategy. literacy and promote • Tier 1 ratio (as at 30.09.2012): Excellence 2011. acquired the environmental awareness. 11.7%. majority in 1974. • Custodian of the Year: Germany • Rating (Fitch): AA- Stable. 2008, 2009 and 2010, ICFA European Awards.

30 Country overview

Capital city Berlin

Area and population Area of 357,104 sq km and population of 81.8 million

Language German

Currency EUR

International dialling code +49

National Holidays Scheduled Public Holidays for 2013

New Year’s Day 1 January Good Friday 29 March Easter Monday 1 April Labour Day 1 May Ascension Day 9 May Pentecost 19 May Day of German Unity 3 October Christmas Day 25 December Boxing Day 26 December

Business and banking hours Depend on the banking institutes and authorities involved

Major Stock exchanges Berlin, Düsseldorf, Hamburg/Hannover, Frankfurt, München, Stuttgart

Political structure Federal Republic of Germany/16 states

32 Contacts

Victoria Willcox-Heidner

Tel: +49 521 96497-472

Email: [email protected]

Dr. Uwe Hohage

Tel: + 49 521 96497-947

Email: [email protected]

http://www.hsbc.de

Website: www.hsbctrinkaus.de

Phone: +49 211 910-0

Head Office: HSBC Trinkaus & Burkhardt AG Königsallee 21/23 40212 Düsseldorf

3rd Edition: January 2013

Copyright

Copyright 2013. All rights reserved.

‘PwC’ and ‘PricewaterhouseCoopers’ refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member 34 firm’s professional judgment or bind another

member firm or PwCIL in any way. 141TP_Germany_010913_3