Doing Business in Panama Doing Business in Germany
www.votum.eu
Doing business in Germany
2019
Doing business in Panama
2019
A member of www.mgiworld.com www.mgiworld.com 1 1 Contents ...... 2 7 Other forms of taxation ...... 15
2 Disclaimer ...... 2 7.1 Sales tax/VAT (Umsatzsteuer) 15
3 Introduction ...... 3 7.2 Real Estate Transfer Tax ...... 16
7.3 Inheritance and Gift Tax ...... 16
4 Germany ...... 4 7.4 Thin capitalisation rules ...... 17
4.1 Size and Population ...... 4 7.5 Transfer pricing ...... 17 01 4.2 Economy ...... 4 4.3 Currency and banking system 4 8 Intellectual Property Protection 18
Contents 4.4 Political system ...... 5 8.1 Copyright ...... 18
4.5 Legal system ...... 5 8.2 Patents ...... 18
8.3 Trademarks ...... 18
5 Forms of business enterprise .. 6 8.4 Design rights ...... 18
5.1 Sole proprietorship ...... 6
5.2 Branches ...... 6 9 Labour relations ...... 19
5.3 Corporations ...... 6 and social security
5.3.1 Limited Liability Company ...... 6 9.1 Terms of Employment ...... 19
(GmbH) 9.2 Anti Discrimination Act ...... 20
5.3.2 Stock Corporation (AG) ...... 7 9.3 Termination of Employment ... 21
5.3.3 Partnership Limited ...... 7 9.4 The German Social ...... 21 by Shares (KGaA) Security System
5.3.4 European Company ...... 8 9.4.1 Health Insurance ...... 21
5.4 Partnership ...... 8 9.4.2 Nursing Care Insurance ...... 21
5.4.1 Civil Law Partnership (GbR) ...... 8 9.4.3 Pension Insurance ...... 21
5.4.2 General Commercial ...... 8 9.4.4 Unemployment Insurance ...... 22
Partnerships (oHG) 9.4.5 Accident Insurance ...... 22
02 ...... 5.4.3 Limited Partnership (KG) 8 9.4.6 Work and residence permits 22 Disclaimer 5.4.4 Corporate Partnership ...... 9 (GmbH & Co. KG) 10 Quality of life ...... 23
The information contained in 5.4.5 Partnership Company (PartG) 9 10.1 Education ...... 23 this booklet is intended solely 5.5 European Economic Interest ... 9 10.2 Communication & transport ... 23 to provide general guidance on Grouping (EWIV) 10.3 Social security benefits ...... 23 matters of interest for the personal use of the reader, who accepts full 6 Taxation of income ...... 10 Contact Us ...... 24 responsibility for its use. 6.1 Income tax – individuals ...... 10
While we have made every attempt 6.1.1 Unlimited individual ...... 10 to ensure the information contained income tax in this booklet has been obtained 6.1.2 Limited individual income tax 11 from reliable sources, VOTUM AG 6.2 Income tax – companies ...... 11 Wirtschaftsprüfungsgesellschaft 6.2.1 Corporate Income Tax ...... 12 Steuerberatungsgesellschaft is (Körperschaftssteuer) not responsible for any errors or omissions. 6.2.2 Personal Income Tax for ...... 13 Partnerships (Einkommensteuer)
Nothing herein shall to any extent 6.2.3 Trade Tax (Gewerbesteuer) ...... 13 substitute for the independent 6.2.4 Holding companies ...... 13 investigations and the sound 6.3 Withholding taxes ...... 13 technical and business judgement 6.3.1 Dividends ...... 14 of the reader. Laws and regulations are continually changing, and can 6.3.2 Interest ...... 14 be interpreted only in the light of 6.3.3 Royalties ...... 14 particular factual situations. 6.3.4 Wage Tax ...... 14
2 www.votum.eu 03
This booklet presents an overview of matters to be Introduction considered by those contemplating investment in Germany.
While it covers the relevant areas, it can, of course, not be exhaustive and it is emphasized that this booklet was not designed to provide the comprehensive and detailed information necessary to make investment decisions.
All information contained in this booklet is as of January 2019.
Frankfurt, August 31th, 2019
Alexander Leoff German Public Auditor
www.mgiworld.com 3 The government is opening more paths for creativity, innovation, and the smooth delivery of goods and services. This is accomplished by means of educational and employment reforms designed to meet economic demands as well as financial support for businesses.
Key economic indicators are: 04 Gross national income 2018: EUR 3.46 billion Germany Gross domestic product (GDP) 2018: EUR 3.39 billion GDP growth 2018: +1.4 %
GDP per inhabitant 2018: EUR 40.852
Services 68.2 %, industry and Shares in the GDP: construction 31.1 %, agriculture 0.7 %
Exports 2018: EUR 1.318 billion
Imports 2018: EUR 1.090 billion
Cars and car parts, machines, electronic Major export goods: products, pharmaceutical products
4.1 Size and Population 4.3 Currency and banks of the euro zone countries). As an independent central bank, the ECB With an area of approx. 357,092 banking system has sole authority to set monetary square kilometres (138,000 square policy. The Eurosystem participates in The euro (currency sign: €; banking miles) and a population of approx the printing, minting and distribution code: EUR) is the official currency of 82.98 million, Germany has the of notes and coins in all member the European Union (EU), used in 19 biggest population of all European states, and the operation of the member states known collectively countries. The population density of Eurozone payment systems. as the Eurozone (Austria, Belgium, 232 inhabitants per square kilometres Estonia, Cyprus, Finland, France, is close to the European average. While all European Union (EU) Germany, Greece, Ireland, Italy, Latvia, member states are eligible to join if Lithuania, Luxembourg, Malta, the they comply with certain monetary 4.2 Economy Netherlands, Portugal, Slovakia, requirements, not all EU members Slovenia, Spain). It is also used in have chosen to adopt the currency. With annual sales of more than EUR six further countries with formal All nations that have joined the EU 3.3 trillion in goods and services, agreements and three other countries since the 1993 implementation of Germany is the strongest economy without such agreements. Hence it the Maastricht Treaty have pledged to in Europe and one of the largest is the single currency for over 344 adopt the euro in due course. worldwide. Accounting for 17.82% million Europeans. Including areas of the EU’s GDP (28 countries) and using currencies pegged to the euro, Maastricht obliged current members 28.4% of the Euro-zone (19 countries), the euro directly affects close to 539 to join the euro; however, the United it is also the engine driving Europe’s million people worldwide. With more Kingdom and Denmark negotiated economy. Germany’s international than EUR 956 billion in circulation exemptions from that requirement competitive strengths are not as of December 2013 (equivalent to for themselves. Sweden turned down coincidental but rather the result of US$1,319 billion at the exchange rates the euro in a 2003 referendum, and sustained progress in the fields of at the time), the euro is the currency has circumvented the requirement to education, research, and innovation. with the highest combined value of join the euro area by not meeting the As a technology driven nation, cash in circulation in the world, having membership criteria. Germany is a leader in the filing of surpassed the U.S. dollar. patents relevant to international The special feature of the German markets and, measured according The euro was introduced to world banking system compared with to population size, is number two financial markets as an accounting most other industrialised countries worldwide in this category. currency in 1999 and launched as is the dominant position of universal physical coins and banknotes on 1 banks. While they differ considerably Germany’s economy is founded upon January 2002. It replaced the former in terms of legal form, ownership, the principle that the government, European Currency Unit (ECU) at a size, administrative organisation and the population, and the private sector ratio of 1:1. business structure, the great majority should work together to guarantee of credit institutions conduct every benefits and safety for all. Private The euro is managed and conceivable type of banking business enterprise is supported by laws administered by the Frankfurt-based under one roof. The commercial banks that provide businesses with an European Central Bank (ECB) and the may be grouped into three broad effective protection of their rights. Eurosystem (composed of the central categories:
4 www.votum.eu • the private commercial banks All three banking groups rely on In Germany, the administration of numbering approximately 284 making profits to safeguard their justice is divided into five branches: (the three big banks, the regional existence in the long term, which ordinary, labour, administrative, social and other commercial banks, the is why profit earning, together with and financial courts. In a normal case private bankers and the branches security and liquidity, (the so-called there are three higher tiers that can re- of foreign banks), with a full 42% “magic triangle” of banking policy), is assess court decisions. The plaintiffs share of the aggregate business their prime corporate objective. and the accused can appeal against a volume of all commercial banks; court ruling. Thereupon the litigation • the around 600 public savings 4.4 Political system goes before a “higher” court and a banks and their central banks ruling is handed down. Not until the third level has been reached is there (central giro institutions), with a The Federal Republic of Germany no longer any right of appeal and the share of almost 45%; is a democratic, federal and social litigation thus comes to an end. • some 1,200 credit constitutional state. Together with cooperatives (Volksbanken and the basic rights, these principles form Justice is passed down by some Raiffeisenbanken) and their the inviolable core of the constitution 20,400 independent judges who are central banks, with a share of just guarded over by the Federal bound only to the law and are, as a under 13%. Constitutional Court. rule, appointed for life. They may not on principle be removed from office. Although the private commercial 4.5 Legal system Moreover, there are some 5,130 public banks, the savings banks and the prosecutors in Germany and more credit cooperatives all have different The Federal Republic of Germany is a than 155,000 lawyers. business priorities, there is no division democratic constitutional state that of activities among them as such. guarantees stable laws, the protection In surveys on political and legal Neither are there any significant of liberties, and equality before the stability, foreign investors put differences regarding their operations law. This is essentially ensured by Germany second only to Great Britain. in the market place, even though, the Basic Law, as the principles of a This legal stability attracts foreign unlike the private banks, the savings democratic constitutional state are companies and is to the benefit of banks and the cooperative banks enshrined in the constitution. The investments and entrepreneurial do not seek - at least not formally - German supreme court, namely the activity in Germany. to maximise profits but to achieve Federal Constitutional Court monitors a reasonable surplus and provide maintenance of these rights and the support to their members. preservation of justice.
www.mgiworld.com 5 5.2 Branches shareholders. The GmbH is not subject to as many legislative regulations Foreign companies not wishing to as aStock Corporation (AG) or the set up a new business vehicle or not European company (SE). yet sure about the sustainability of their engagement and commitment Immediately after notarization in Germany can simply carry on of the deed of formation and the business directly and register a articles of association, but prior to 05 the application with the commercial branch (Zweigniederlassung) with the commercial register and with a local register, the company has to open a Forms of trade office of the municipality where bank account. Cash contributions to the branch office is to be located. the share capital must be deposited business to this account prior to filing the A branch has no separate legal entity application forms for registration. status and, therefore, is regarded as an enterprise integral part of the foreign company. In order to be valid, the GmbH must be The choice between doing business in entered into the commercial register. Germany through a branch or through All managing directors have to sign a separate legal entity is mostly tax the commercial register application driven. Apart from tax considerations, in person before a notary. The notary a branch is the suitable business certifies the signatures, informs the vehicle if the business will most likely managing directors about their duties have no substantial size and / or a and files the application. long term commitment in Germany is 5.1 Sole proprietorship not wanted or still uncertain. In case Only upon registration in the of sustainable medium to long term commercial register, the GmbH Anyone who desires to start a investments, the investor should becomes a legal entity and acquires business immediately may establish normally set up an independent full legal capacity. The time needed a sole proprietorship or sole trader German company. for the formation procedure can (Einzelunternehmer). differ regionally. In Frankfurt / Main it usually requires two to three weeks. This is the easiest way of forming a 5.3 Corporations company because special formalities A GmbH must be also registered at the such as a partnership agreement or 5.3.1 Limited Liability Company (GmbH) local trade office (Gewerbeamt). minimum capital are not required. A sole proprietorship can only be The German limited liability company Share capital established by one natural person and (Gesellschaft mit beschränkter To set up a GmbH, a minimum share is suitable for small businesses and Haftung, GmbH) is the most popular capital of € 25,000.00 is required (this start-ups. legal form for corporation. It combines can also be made up of contribution high flexibility with relatively in kind). At the time of registration, A sole proprietorship conducting few obligations. Additionally the however, it is sufficient for half of the trade must be registered with the local formation procedure of a GmbH is minimum capital, i.e. € 12,500.00, trade office. However, an entry in the fairly uncomplicated. It is designed to have been actually and verifiable commercial register as a registered for closely held businesses (no IPO contributed. business person, (eingetragener possible) with a clear and stable Kaufmann, e.K.) is only necessary if shareholder structure looking for full The GmbH is not required to issue the conducted business requires a liability protection of its shareholders. share certificates or to maintain level of organisation that indicates the For Start-ups and new businesses share register, book or ledger, or to existence of a commercial enterprise. the legislator provides a form of keep other formal records of share “small” GmbH (haftungsbeschränkte ownership. The ownership of the Furthermore, a notification to the local Unternehmergesellschaft UG) that shares is documented only in the Trade Office (Gewerbeamt) is required. does not require any minimum share incorporation deed and any later Unless a specially regulated business capital provided that the company transfers will be documented in notarial is carried out, there are no further does not distribute any profits to the transfer deeds. Upon each transfer of requirements for starting the business. shareholders until a minimum capital shares the managing directors must In some industries special approvals of EUR 25.000 of the “classic” GmbH submit updated shareholders’ lists to and permissions are mandatory. has been accrued. the commercial register.
A sole trader is subject to special Formation procedure Managing Directors provisions of the German Commercial The GmbH is established by the A GmbH is managed and legally Code (Handelsgesetzbuch, HGB) with founding shareholder(s) executing represented by its managing directors regard to inter alia the conduct of the a deed of formation and articles of (Geschäftsführer). The corporation business, legal representation of the association (Gesellschaftsvertrag) must have at least one managing business, bookkeeping obligations, before a notary. The articles of director, who does not have to be a drawing up of financial statements association of a GmbH can be easily shareholder or a German resident. and notification requirements. adapted to the requirements of the By issuing binding instructions or
6 www.votum.eu directions to the managing directors, higher market reputation of an AG and has to be scrutinized by the boards. the shareholders may exercise direct the fact that the management is not The formation of the AG must be influence on the GmbH management. bound by the shareholders directions. registered with the commercial register. The application for A managing director must manage An AG is subject to extensive registration must be signed before a the company’s business with the due legislative regulations. Because notary by all founding shareholders, care of a prudent business person. most of the regulations constitute as well as by the initial members Additional specific obligations mandatory law, little flexibility exits of the management board and the may be imposed by the articles of to adopt the articles of association to supervisory board. Upon registration association or the service contract specific shareholder requirements. the AG exits as a separate legal entity. or in shareholders’ resolution. Further, the shareholders can give Another feature of an AG is the Share capital binding instructions to the managing independence of a management board, An AG must have a minimum share directors which they have to obey with regard to managing the AG, as the capital of EUR 50,000.00, which unconditionally unless the instructions members of the management board must be fully subscribed by the are unlawful. Managing directors who are appointed by the supervisory founding shareholders. Shares must are in breach of their duties are jointly board (Aufsichtsrat) rather than by the be issued either with a par value and severally liable to the company for shareholders. A supervisory board is (Nennbetragsaktien) of at least EUR any damages sustained. mandatory for an AG. 1.00 per share or multiples there of all without a par value (Stückaktien). 5.3.2 Stock Corporation (AG) Incorporation and registration In principle, any person can establish Transfer of shares Stock Corporation (Aktiengesellschaft, an AG. The formation procedure of Shares in an AG are transferable with AG) is the German legal form which an AG is similar to that of a GmbH. relative ease. Unlike the transfer of is comparable to public companies In particular, it requires notarization shares in a GmbH, a transfer of shares in Anglo-Saxon jurisdiction. The AG of the articles of association and in an AG does not require the execution offers two main advantages: subscription for initial shares by of a notarized transfer deed. its founding shareholder(s). The • Shares can be transferred easily founding shareholder(s) appoint the 5.3.3 Partnership Limited by Shares • The AG can be listed publicly on the first auditor and supervisory board, (KGaA) stock exchanges which appoints the first management board (Vorstand). The appointment of German company law also provides for Capital may therefore be raised from the first auditor and supervisory board a partnership limited by shares (KGaA the public and extended without must be notarized. - Kommanditgesellschaft auf Aktien). difficulty. Although constituted as a partnership, The founding shareholders must the KGaA is legally treated as an AG However, some closely held also prepare a formation report for most purposes and its shares can businesses have also adopted this with the relevant details of the be traded on the stock exchange as corporate form due to the arguably establishment of the AG. This report though they were shares in an AG.
www.mgiworld.com 7 The KGaA has at least one general forms, but these are all either highly businesses and must be registered partner with unlimited liability. The specialised in nature or are otherwise in the commercial register. For this shares are issued to and held as unsuitable for foreign investors. reason, the GbR cannot be entered in investments by the limited partners the commercial register; as soon as a who thus have a similar status as 5.3.4 European Company GbR is registered with the commercial shareholders in an AG. All rights to register, it automatically becomes manage the KGaA fall to the general Since December 2004, the European a general commercial partnership partners, who therefore have, in Company (also called Societas (Offene Handelsgesellschaft, oHG). this regard, the same position as the Europea, or SE) can be used as a legal members of the Vorstand of an AG. The entity to set up business in Germany. The GbR is established when the division of profits and losses between The provisions that govern the SE in partnership agreement is concluded. the general and the limited partners is a Germany are based on EU regulations. A written partnership agreement is matter for the statutes of the KGaA. The features of a SE in Germany are recommended, but is not compulsory. very similar to those of an AG. The If the GbR conducts trade in the form The KGaA has a long tradition on the SE must have a link to at least two of a small trade business, it has to German corporate scene, although member states of the European register with the local trade office. there are few examples currently in Union (EU). Therefore a mere German Other than that, there are no specific existence. It is, however, favoured by business operation cannot be requirements or registration fees for insurance companies. conducted through an SE. establishing a civil law partnership.
There are also various other German The SE must have a minimum capital 5.4.2 General Commercial corporate or semi-corporate legal of EUR 120,000. Unlike other German Partnerships (oHG) legal forms, the SE is entitled to relocate not only its principal place of The general commercial partnership management, but also its registered (Offene Handelsgesellschaft, oHG) is office to another state in the EU. the classic company form for small Therefore the SE can easily transfer its and medium-sized businesses. Its registered office within the EU without structure corresponds to the civil law dissolving the company in one partnership (GbR). Member State in order to form a new one in another Member State. Every GbR that runs a commercial enterprise (a business enterprise The major difference compared to of a type or size requiring business the AG is, that the SE may choose operations to be set up in a to have a one-tier board system commercial manner) automatically (Administration Board) instead of the qualifies as an oHG. otherwise mandatory two-tier board system (Management Board and All partners are jointly and severally Supervisory Board). liable for the oHG’s debts and liabilities. Accounting regulations for an oHG are 5.4 Partnership also stricter than those for a GbR. In order to establish an oHG, two 5.4.1 Civil Law Partnership (GbR) or more partners must conclude a partnership agreement. It is advisable A civil law partnership (Gesellschaft for the partnership agreement to be bürgerlichen Rechts, GbR) is defined in writing. as an association of individuals or enterprises united in the achievement The oHG must be entered in the of a joint contractual purpose. It is commercial register and registered often formed to launch a business with the local trade office. The idea in cooperation with others. application to the commercial register must be made by all partners and be The GbR is considered a type of certified and filed by a notary. partnership because at least two partners must agree to establish the 5.4.3 Limited Partnership (KG) company. This form is suitable for small or new companies. The partners are The limited partnership jointly liable with their private assets for (Kommanditgesellschaft, KG) is a debts incurred by the company. legal form related to the oHG, but with the option of limiting the liability If a GbR conducts business, this of some of the partners. This legal business must be a non-trade form is suitable for medium-sized business or a “small trade business” companies seeking additional start-up by law. Businesses with a commercial capital, but wishing to limit individual set-up are deemed to be commercial responsibility.
8 www.votum.eu A KG is established when a partnership 5.4.5 Partnership Company (PartG) agreement between two or more partners, including at least one The partnership company limited and one unlimited partner, (Partnerschaftsgesellschaft, PartG) is is concluded. It is advisable for the a legal form specifically designed for partnership agreement to be in writing. the joint exercising of professional freelance activities; mere capital In the KG, at least one partner, the so participations are therefore excluded. called general partner (Komplementär), This form of company enables is personally liable without limitation. members of the same or different The liability of the so called limited freelance professions to form a partners (Kommanditisten) is limited mutually profitable company. to their respective share of the partnership capital. The partnership company is effectively and flexibly tailored to the freelance A KG must be entered in the professions. The personal liability of commercial register and registered the partners can be excluded with with the local trade office. The liability regard to professional errors for of the limited partner will only become which one individual partner is alone limited once the registration of the responsible. KG and the subscribed partnership contribution has been entered in the A partnership company is formed by commercial register. The application the conclusion of a written partnership to the commercial register must be agreement between at least two made by all partners and be certified partners. Only natural persons can be and filed by a notary. partners of a partnership company. results” of the members’ activities. The partnership company is registered The purpose of the grouping is not to The most important advantage of a KG in a notarized form in the partnership make profits for itself. over an oHG is the greater flexibility register located at the local court. gained by increasing the capital base The EWIV has legal status and through the inclusion of additional 5.5 European Economic therefore may have obligations and limited partners. rights of any kind. It can conclude Interest Grouping (EWIV) a contract or accomplish any legal 5.4.4 Corporate Partnership act, it can sue and be sued. It can be (GmbH & Co. KG) The European Economic Interest formed with or without assets, cash or Grouping, a little-known legal form for material contribution. The members The GmbH & Co. KG is a limited a company has been conceived after of the EWIV are jointly and without partnership (KG) in which the general the example of the French company limitation liable for its debts. partner (Komplementär) is a limited form called G.i.e. (groupement liability company (GmbH). The GmbH d´intérêt économique). The formation of an EWIV is simple. is fully liable for the GmbH & Co. KG’s Legal basis for the EWIV is the EC It requires a written contract. The debts and liabilities. The liability of the Regulation No. 2137/85 (31.7.1985). minimum contents of the contract are: limited partners (Kommanditisten) The German legislator adopted the is limited to their respective share EWIV in the EWIV-Ausführungsgesetz • the name of the EWIV, of the partnership capital. This dated 14.4.1988. • the official address of the EWIV, legal form is a very popular way • the object of the EWIV, of achieving the advantages of a The EWIV must be formed by a • information about each member partnership structure (advantageous minimum of two members coming (name, company name, legal form, tax treatment in some regards), but from two different European states. permanent address, number and nonetheless shielding the partners Members of a grouping can be place of registration if any), from an unlimited personal liability closed companies, stock companies, • duration of the EWIV, except where risk as in a corporation by appointing freelancers like architects, tax it is indefinite. a corporation (generally a GmbH) as a consultants etc., self-employed sole general partner of the KG. Usually persons, associations, public law The signatures of the founders or of the limited partner(s) also holds all corporate bodies and other legal the managing director(s) have to be shares in the GmbH which acts as the bodies. The main condition is the authenticated by a notary and the general partner. activity within the EU. EWIV has to be registered with the responsible commercial register. The result of this structure is that The purpose of the EWIV is to facilitate the limited partner(s) are not only or to develop the cooperation among The EWIV pays value added tax (V.A:T.) holding all interest in the KG directly its members; it supports the activities and employment taxes. It does not and indirectly via the GmbH but also run by the members but shall not pay any company taxes, such as controlling the partnership via their replace the members’ own activities. corporation tax or, e. g. in Germany, Shareholding of the GmbH, even According to art. 3 of the EC regulation taxes on trade earnings. Profits though they are excluded from the the purpose of the grouping shall resulting from the activities of an EWIV management of the KG directly. be “to improve and increase the shall be taxable only with its members.
www.mgiworld.com 9 6.1 Income tax – six months. Non-resident individuals are taxed (usually by withholding) on individuals their German-source income only.
6.1.1 Unlimited individual income tax Contrary provisions in double taxation treaties override German All resident individuals (natural national law unless the latter is more 06 persons) are taxed on their worldwide favourable (from the German tax income. Domestic law deems a person point of view only) to the taxpayer. to be resident if he has a home or his However, German law contains a Taxation of habitual abode in Germany. Generally, number of provisions to prevent individuals are deemed to have their what the authorities see as treaty- income habitual abode in Germany if they are abuse, such as those making treaty physically present for more than six relief conditional on taxation in the months in any one calendar year or other state. On the other hand, a tax for a consecutive period of six months treaty determination that a person over a year-end. However, persons is resident in the other state – for with their permanent and habitual example where he has a home in abode in Germany will not lose their both states, but has closer links to tax residence simply because they the other – does not mean that he happen to be travelling for longer than loses his status as a German resident
10 www.votum.eu in respect of his German source income. Thus he remains entitled to allowances and reliefs available to residents only (so-called taxpayer with unrestricted liability).
Nationality is not of itself a criterion for determining residence or tax liability, although it may give an indication in (unusual) cases of doubt where a taxpayer has ties of equal strength to at least two countries.
All earnings from the following sources are subject to personal income tax:
• Non-self-employed work (dependent work) • Self-employed work • Business operations • Capital assets • Rents and leases • Income from agricultural and forestry work As of year 2021 the solidarity German income can be earned • Other earnings (e.g. from surcharge shall be omitted for 90% for example from a permanent speculative profit) of taxpayers. establishment, which is defined as a fixed place of business from where The taxable income consists of the Residents in Germany who have business activities are performed. sum of all earnings after admissible chosen to officially register Mere auxiliary activities e.g. storage deductions, such as expenses for themselves as members of the Roman or procurement of goods do not private pension insurances. Catholic or Protestant-Lutheran establish a permanent establishment. churches are liable to church tax. The personal income tax rate In contrast a dependent agent or progresses linearly from the lowest Church tax is not a sub-category of representative, who is authorized tax rate of 14% up to the current personal income tax. However, the to conclude contracts in the name maximum rate of 45%: amount of church tax depends on the of the foreign trader, establishes a personal income tax liability. permanent establishment. • An allowance EUR 9.168 personal income per year is exempt from Depending on the federal state, personal income tax. The first church tax amounts to between 8% 6.2 Income tax – euro above this amount is taxed at and 9% of an individual’s personal companies 14%. (2019) income tax burden. Church tax is • The tax rate then increases collected by the tax authorities and German corporations and foreign progressively up to the maximum distributed among the churches. corporations that are tax residents rate of 42%, which is applicable in Germany are subject to German to taxable earnings of EUR 55.961 Secular persons or members of other corporate income tax, plus solidarity or more. religious affiliations are not liable to surcharge on their worldwide income. pay a church tax. An additional charge of 3% applies A corporation is tax resident in to taxable income exceeding EUR 6.1.2 Limited individual income tax Germany, if it has its legal seat in 265.327. Accordingly, every euro Germany or if it is effectively managed exceeding EUR 265.327 is liable to a If an individual is not a German and controlled in Germany. personal income tax of 45%. resident for tax purposes, he is subject to limited income tax liability Corporations in Germany are usually The solidarity surcharge, introduced in with his income earned in Germany. taxed on two levels: 1995 to finance German reunification, Depending on the kind of income it is 5.5% on the assessed amount of can either be subject to withholding On the first level, corporations – such both personal and corporate income tax or progressive individual income as the stock corporation (AG) and taxes. Accordingly, the solidarity tax rates from 14 to 45%. limited liability company (GmbH) surcharge is 5.5% of a person’s – are subject to corporate income personal income tax rate. In the case Under certain circumstances, an tax (Körperschaftssteuer), whereas of an individual income tax rate of application for unlimited tax liability partnerships and sole proprietorships 30%, the combined personal income can be made. If this is the case, are subject to personal income tax tax + solidarity surcharge burden the regulations for income tax of (Einkommensteuer). Both taxes are would equal 31.65%. individuals resident in Germany apply. levied by the federal government.
www.mgiworld.com 11 On the second level, all business Thus, for example, depreciation of income tax + solidarity surcharge operations – corporations, fixed assets taken in the books in burden of 15.825%. partnerships and sole proprietorships excess of that amount allowable under alike – are subject to the trade tax the relevant provisions of the Income Limited corporate income tax (Gewerbesteuer), which is imposed Tax Act will be added back in the tax Non resident corporations receiving by municipalities, i.e. the town or city returns, while a company showing income from a permanent where the company is based. depreciation expense in its profit and establishment in Germany are subject loss account of less than that which to limited corporate income tax with 6.2.1 Corporate Income Tax could have been claimed under the their income received in Germany. (Körperschaftssteuer) tax rules, will have to base its taxable income on the lesser amount of the A permanent establishment is Taxable income expense actually shown. defined as a fixed place of business Taxable income is derived from from where business activities are the statutory accounts drawn up in Companies accounting under IFRS performed. Mere auxiliary activities accordance with the provisions of are required to adjust their financial e.g. storage or procurement of the Commercial Code. In principle, all statements to reflect German goods do not establish a permanent income is taxable except for dividends accounting principles as the basis for establishment. and capital gains on the sale of shares. their tax returns. The same adjusted In both cases, the exemption applies statements are also the basis for the In contrast a dependent agent or to shareholdings of 10% or more dividend resolution. representative, who is authorized to regardless of the length of time for conclude contracts in the name of which the shares were held and it also Corporate income tax rate the foreign company, establishes a applies equally to German and foreign The standard corporate income tax permanent establishment. investments. The non-deductible (Körperschaftssteuer) rate is 15% on directly related cost of earning this all taxable earnings of the corporation Tax rates tax-free income is presumed to be 5% within the fiscal year. This tax applies to Income received from a German of the dividend received or capital gain both retained and distributed profits. permanent establishment by a foreign realised. Banks are subject to special corporation is subject to corporate rules on their trading portfolios. However, once profits are distributed income tax at a rate of 15% plus to shareholders, the shareholders solidarity surcharge. German law describes the statutory must, in turn, pay personal income tax financial statements as being “decisive” on these profits (i.e. dividends). Non residents are also subject to trade for the determination of taxable tax (q.v. 6.2.3 Trade Tax) income. This does not mean that the The solidarity surcharge was tax authorities are obliged to base the introduced in 1995 to finance the Compensation Tax corporation and trade tax assessments German reunification. The surcharge is (Abgeltungssteuer) on the profit before taxation as shown 5.5% of the assessed amount of both 100% of all dividends and speculation in the financial statements, but rather corporate and personal income taxes. gains are subject to a 25% that no expense, even if otherwise compensation tax. Shareholders with allowable, may be deducted from Accordingly, the solidarity surcharge is an individual personal income tax rate taxable income, unless it has also been 5.5% of the 15% corporate income tax, of less than 25% can request that their taken up in the financial statements. adding up to a combined corporate individual tax rate to be applied.
12 www.votum.eu 6.2.2 Personal Income Tax for centrally by the tax office responsible 6.3 Withholding taxes Partnerships (Einkommensteuer) for the company’s German taxation (the place of German management). Germany has an extensive system of Partnerships – such as oHG, KG, GbR, The tax office then allocates this withholding taxes (“Quellensteuer”) Partnership Company – and sole over the various local authorities deducted in order to secure the tax proprietorships are not separate where the company has business revenue. The most important of these legal entities but associations of establishments, generally in is the income tax deducted from partners, with the partners themselves proportion to the total wages paid employees salaries (the so-called generally being subject to all rights to the employees in each. Special “wage tax”), followed by withholding and obligations. Income derived by a rules apply to German permanent taxes of 25% from capital income partnership is allocated to its partners, establishments without employees, such as dividends and interest, capital and each partner is subject to personal such as pipelines passing through gains from investments held for safe- income tax, plus solidarity surcharge Germany, but operated and controlled keeping by banks and of 15% from on the partner´s proportion of income from abroad. payments to builders. The wages and at the partner´s individual tax rate, other withholding taxes are uplifted regardless of whether the income Each local authority then issues its by a “solidarity surcharge” of 5.5%. is retained in the partnership or own notice of assessment to the withdrawn by the partners. taxpayer, that is, it charges its share These domestic withholding taxes are of the overall basis of assessment to not final burdens, unless the taxpayer In order to achieve a tax burden trade tax at its own local rate. Each does not file a tax return. Any resident neutrality between partnerships and local authority is also responsible for taxpayer may file a tax return; those corporations, the personal income collecting its own trade tax. whose only income is from a single tax rate applicable to retained employment are not obliged to do so. earnings (thesaurierte Gewinne) of a Because the assessment rate for partnership is now limited to 29.8% – trade tax is determined by the 28.25% plus solidarity surcharge. After municipalities, tax rates vary from offsetting personal income tax against municipality to municipality and trade tax payments, retained earnings therefore depend on where the of a partnership will therefore be business is located. subject to an average tax burden similar to that of a corporation under Trade tax rates of larger towns generally the corporate income tax. fall within the range of 14.5-17.5%.
After distribution to the partners, Those of smaller towns and country the distributed earnings are subject districts are usually between 12% and to a subsequent taxation of 25%, 16%, although there are a few isolated provided and insofar as the annual instances of local authorities with rates balance between a partner’s capital of lower than 12%. The legal minimum contributions and withdrawals rate is 7%. exceeds the annual profits of the company or the partner’s share in 6.2.4 Holding companies the company (“excess withdrawals”). The overall tax burden on distributed Holding companies located in earnings would therefore add up to Germany are subject to unlimited approximately 47.7%, corresponding corporate income tax and trade tax. to the distributed dividends of the corporation. Dividends received from a German or foreign corporation and capital 6.2.3 Trade Tax (Gewerbesteuer) gains gained from the sale of shares in a German or foreign corporation All commercial business operations in are generally exempt from corporate Germany – defined as all independent income tax. 5 per cent of the tax- activities aimed at generating profits exempt dividend or capital gains are over the long term, irrespective of the treated as non-deductible expenses legal form – are subject to trade tax whereas actual expenses incurred in (Gewerbesteuer) with regard to their connection with the shareholding are taxable earnings. fully deductible.
Independent freelancers such as Income derived from permanent doctors, architects, lawyers, or artists establishments located in treaty are not deemed commercial business countries is exempt from corporate operations and therefore are exempt income tax under most German tax from the trade tax. treaties. Tax credits are available for income from permanent The basis of assessment is the taxable establishments in non-treaty income. This basis is determined countries.
www.mgiworld.com 13 Although dividends received from of the German corporation for an Interest payments made by a German a German corporation are generally uninterrupted period of at least 12 corporation on a fixed interest-bearing exempt from corporate income tax, months at the time of the dividend loan from its German or foreign the distributing company has to distribution. For distribution to foreign shareholders are not generally subject deduct 25% withholding tax plus 5,5% non-EU shareholders, the double tax to withholding taxes. solidarity surcharge. treaties with the respective countries provide for withholding tax reductions 6.3.3 Royalties For non EU shareholders double to 5 %, 10 % or 15 % if certain holding taxation agreements provide requirements are full filled. Royalties, e.g. for the use of reductions of withholding tax intellectual property such as patents, between 5% and 15% if certain holding 6.3.2 Interest know-how, copyrights etc. and for requirements are fulfilled. artistic or sports events are only Withholding tax of 25 % (plus 5.5 subject to withholding taxes if paid 6.3.1 Dividends % solidarity surcharge) is levied on to a non-resident. The withholding interest from profit participating loans tax rate amounts to 15 % (plus 5.5 % Dividends distributed by a German and from silent participations. solidarity surcharge). corporation are subject to withholding tax at a rate of 25 % (plus 5.5 Interest payments made on fixed 6.3.4 Wage Tax % solidarity surcharge). Where interest bearing loans, on bonds and distributions are made to EU corporate on other interest bearing securities Employers are responsible for shareholders the withholding tax is, are subject to withholding tax at 25 withholding wage taxes (plus 5.5 % upon application, reduced to zero % (plus 5.5 % solidarity surcharge) solidarity surcharge) from wages and if the EU entity directly has held if made by banks or financial salaries paid to employees. at least 10 % of the share capital institutions.
14 www.votum.eu 07 Other forms of taxation
7.1 Sales tax/VAT exceeded EUR 7,500.00 monthly In this case, smaller companies do preliminary VAT returns, as well as not need to forward the VAT to the (Umsatzsteuer) annual VAT returns. tax authority until the payments have actually been received. Value Added Tax (VAT) is currently Procedure levied on the supply of goods and Companies must add VAT to their VAT in the European Single Market services, in Germany at a rate of 19% prices. Assuming the net sales price Trade within the EU is free from which is just under the European of a good or service is EUR 15,000, customs and other restrictions. average. A lower rate of 7% is charged the entrepreneur must demand for convenience goods and services an extra 19%, or EUR 2,850, from However, a few rulings must be kept needed on a day-to-day basis, such as the buyer. The gross price for the in mind with regard to VAT. When food, newspapers, or public transport. customer is therefore EUR 17,850. goods or services are sold to private The entrepreneur transfers the VAT consumers in other member states, Some services – including banking, received to the tax authorities on a the VAT for a delivery from Germany healthcare, and non-profit work – are monthly, quarterly, or annual basis. is included on the invoice in the same VAT-exempt. The period depends on the level of manner as for deliveries in Germany, company turnover. and is collected and transferred to the The official German term for VAT is tax authority. Umsatzsteuer, but it was originally SMEs – Imputed Taxation and called Mehrwertsteuer and is still often Taxation of Actual Value The foreign consumer therefore referred to by this name. An important ruling for small and pays the German supplier the price medium-sized companies is the including VAT, and the vendor then Any entrepreneur supplying goods option of actual receipts taxation transfers the VAT to the German tax or services in Germany is liable for (Istbesteuerung). Under the normal authority. In the case of imports VAT, regardless of legal form and method of imputed taxation from countries that also charge VAT, nationality. The German VAT system (Sollbesteuerung), VAT is due as soon as however, no German VAT needs to be is designed so that VAT is not borne goods or services are billed, irrespective paid. The German consumer only pays by the selling company, but paid by of the time of actual payment. the purchase price including (foreign) the end user of a product or service. VAT to the foreign importer, who then VAT charged to an entrepreneur for However, German law provides an pays the VAT in the home country. goods supplied or services rendered exception to ensure that companies by another entrepreneur may, do not experience cash flow problems VAT identification numbers exist therefore, be claimed as input VAT, as a result. A company can apply for to enable the tax authorities to with some restrictions. VAT to be calculated by the actual retain an overview of the traffic of receipts taxation method for a goods across borders. This number The entrepreneur has to file quarterly turnover of up to EUR 500,000, rather indicates that European companies or, if VAT due in the previous year than the imputed taxation method. are liable to VAT.
www.mgiworld.com 15 Import Turnover Tax Like all other input VAT, the tax- company outside Germany that owns (Einfuhrumsatzsteuer) paying entrepreneur can directly the shares in another German or Goods imported from non-EU states deduct the paid acquisition tax in the foreign holding company owning in are liable to import VAT. advance VAT return. turn the shares of another company owning the German site. Thus, a The import VAT corporate reorganisation or merger (Einfuhrumsatzsteuer) rate is 19% 7.2 Real Estate Transfer agreed and implemented at a level far and is paid to the customs authority. Tax above that of the German subsidiary will trigger the liability to this German However, the Import Turnover Tax The Real Estate Transfer Tax tax, even though there may well be on goods imported from non-EU (Grunderwerbsteuer) can be an no perception within the corporation states can be deducted as input tax important factor for consideration of the reorganisation as a German (Vorsteuer) by the tax authority if when restructuring corporate taxable event. the company resells the goods. As a groups with German subsidiaries or prerequisite, the company must have with German intermediary holding The basic tax rate amounts to 3.5%, the necessary import documents companies. This tax is levied on the although the 16 provinces in Germany with customs proof of payment (the sale and transfer of real estate located have the power to levy the tax at a import declaration). Exports are in Germany and on certain other different rate on transfers of property exempt from VAT. transactions deemed to be a transfer within their territory. Actually the rate, of real estate, such as the transfer of at depending on the province, amounts No Import VAT on Intra-Community least 95% of the shares in a company between 3.5 % up to 6.5 %. Shipments owning real estate or the complete or Goods sold directly from a Germany- almost complete change of partners in The basis for this tax is the based company to a commercial a partnership owning real estate. consideration paid for the real estate, customer in another EU member state in certain situations, a special assessed in the course of commercial trade are Unfortunately, these rules apply tax value of the real estate. exempt from import VAT. regardless of the business background of the share transfer. However, the recipient entrepreneur They apply equally to the straight 7.3 Inheritance and Gift in the EU member state of destination sale of the shares in a real estate Tax is subject to acquisition tax with owning company at market value to regard to the received intra- an outside third party as to otherwise Inheritance and Gift Tax is levied Community shipment. The acquisition tax-free dropdowns, mergers or other on the transfer of property by gift tax rate – like import VAT – amounts forms of corporate reconstruction or by inheritance. Monetary assets to 19% / 7%, but in contrast to import within a closely related group are valued at their face value; non- VAT it is the recipient entrepreneur of companies, whether for monetary assets are valued on specific who has to declare these acquisitions consideration or not. They also apply formulae. The rates vary between 7% to the tax authorities in the to the transfer of shares indirectly and 50% depending on the amount of advance VAT return (Umsatzsteuer- held, that is, to share transfers of the transfer and the degree of family Voranmeldung). an ultimate or intermediary holding relation.
16 www.votum.eu Smaller gifts or inheritances are expense, which is reclassified as a and recommendations on the subject, exempted from tax altogether by constructive dividend. Whether the although they are more detailed deducting “general allowances” from interest income corresponding to and more specific. Inter-company the value of the assets transferred. the interest payments is subject to pricing between affiliated companies tax in Germany is irrelevant. The must be on an arm´s length basis German inheritance and gift tax constructive dividend is subject to be accepted for tax purposes. To applies if either the donor or the to dividend withholding tax and demonstrate this, it is necessary that beneficiary is tax-resident in Germany taxable to the shareholder. However, all important overall relationships and at the time of the transfer. if the shareholder is itself a German each charge for services (anything corporation, the dividend received other than the delivery of goods) be is 95% tax exempt in its hands. The covered by a prior written agreement. 7.4 Thin capitalisation withholding tax on the dividend is rules fully creditable. Inter-company is especially vigorously pursued by the German tax authorities Germany put thin-capitalization Thin-capitalization rules have to be where multinational groups are rules into place according to the taken into consideration especially in involved. Charges for goods and requirements of European law. The the following cases: services to a German company (and thin-capitalization rules apply to all vice versa) that are not on an arm´s loans granted to a corporation subject • Loans between affiliated length principle will be adjusted and to unlimited or limited German corporations increase the basis for taxation. In tax liability by Germans or foreign • Guaranteed bank loans addition there are documentation shareholders owning directly or • Inter-company loans to foreign requirements for transfer prices with indirectly at least 25% of the share corporations affiliated companies. According this capital of the borrowing company, by • Holding companies the taxpayer is obliged to record persons related to these shareholders the types and contents of its cross- or by third parties who can take 7.5 Transfer pricing border transactions with related recourse to a shareholder or to a parties and to provide information on person related to a shareholder. Germany has extensive related party the economic and legal background transfer pricing rules. Indeed, transfer of inter-company transactions for If a loan received by a corporation pricing issues are almost always one the determination of arm´s length from a substantial shareholder or a of the most important components transfer prices. If such documentation related party exceeds a 1.5:1 debt- of tax audits of German subsidiaries cannot be provided the tax authorities to-equity safe haven or violates other of multinational groups. The German can make income adjustments on restrictions, the debtor corporation transfer pricing rules are substantially estimates and penalties can be is denied a deduction for its interest in accordance with the OECD reports imposed.
www.mgiworld.com 17 law is complemented by the option The patent can be transferred or the to apply for and register licences of any extent can be granted. Community Trademarks. 8.3 Trademarks 8.1 Copyright According to the trademark strategy Under German copyright law only a trademark can be registered as a 08 a natural person can be author. National German trademark with the Copyright protection begins DPMA or as a Community trademark Intellectual automatically upon creation of the with the Office for Harmonization work as an individual original creation. of the Internal market (OHIM) in A registration of the copyright Alicante. In order to be registered the Property under German law is not necessary. trade mark must be distinctive for Copyright protection ends 70 years the relevant goods and services. Also after the death of the author. It is not it is recommendable to undertake Protection transferrable except by inheritance trademark research prior to the but the author can grant licences of application to avoid future similarity various extent. Licence agreements disputes with other trademark owner should be drafted with great care since since the registration offices do not without according provision in the check possible trademark confusion. licence agreement German copyright law will only grant copyrights to the This is up to the applicant. Trademark extent necessary to execute the protection may last for an unlimited contract, which in particular cases can time span provided the owner pays a The choice of investing and lead to avoidable disputes. renewal fee after each ten year term. doing business in a certain Also the trademark protection may country obviously depends be lost if the trademark isn’t actually 8.2 Patents used for the goods and services for on an array of factors. For which it is registered during a time Other then the copyright patents must innovation driven businesses span of five years. Trademarks may be be registered with the German patent transferred or licences of any extent one key factor is the level of and trademark office (Deutsches may be granted. IP-protection. Patent- und Markenamt – DPMA). For a technical invention to be granted a Germany offers a high and efficient patent German patent law requires 8.4 Design rights level of registration and protection that the invention is new in the of intellectual property rights that respective technical field, inventive, Under German law design rights offer is partially harmonized with EU law. disclosed in the application and protection for creative work that does German intellectual property law commercially viable. The application not qualify as a copyright. In contrast mainly consists of the Copyright Act process that usually is carried out to a copyright design rights have to (UrhG), Patent Act (PatG), Trademark and overlooked by specialised patent be registered with DPMA to provide Act (MarkenG), Utility Model Act lawyers can take two to three years. full legal protection. The duration of (GebrMG) and Design Rights Act The granted patent gives the holder protection is upto 25 years. Design (GeschMG). The national trademark an exclusivity of use for upto 20 years. rights may be transferred or licensed.
18 www.votum.eu 09 Labour relations and social security
9.1 Terms of related industries had higher monthly wage, is customary in introduced minimum wages generally Germany. In some cases, it has been Employment binding the applicable collective wage legally determined by a collective agreements: wage agreement or other agreement. Employment contracts do not have to be in writing to be valid. However, an • Main construction trade (EUR 8.40 Working Hours employer must provide in writing the to EUR 12.40 per hour) Employees are allowed to work 48 essential provisions of an employment • Roofing/tiling (EUR 10.00 per hour) hours per week (or 8 hours / 6 days). relationship within one month after • Painting and varnishing (EUR 7.15 to concluding a contract. This document EUR 10.73 per hour) A total of 60 hours per week (or 10 must include the • Demolition work (EUR 8.80 to EUR hours / 6 days) is possible if the 6 11.60 per hour) month average does not exceed 8 • name and address of the parties, • Building cleaners (EUR 6.36 to EUR hours per day. • date of commencement, 7.87 per hour) • job description, • Electricians (EUR 7.70 per hour for A work day of over 10 hours may • place of work, eastern Germany and EUR 9.20 per be agreed upon by collective labour • salary including any additional hour in western Germany) agreements for certain sectors in which payment, work time frequently and to a significant • working hours and If these wages are higher than the amount consists of on-call duty. • vacation entitlement current statutory minimum wage they remain untouched. As a rule, employees are not allowed The parties may agree on a to work on Sundays and public probationary period which ranges Equal Payment holidays. However, exceptions exist usually from three to six months. Equal pay legislation ensures equal for quite a few industries. At least 15 During this period the employment payment for men and women. Sundays per year must remain work- agreement can be terminated without free, though a smaller number can reason at short notice, which must be Night Work be agreed upon by collective labour at least two weeks. Night work is usually compensated, agreement for certain professions. but there are no common standards. Remuneration In the absence of collective Vacation and Public Holidays The German law does prescribe a labour agreements, night work is Full-time employees working 6 days nationwide statutory minimum wage compensated by either additional paid per week are entitled to a minimum of (“Mindestlohn”) of currently EUR 9.19 holidays, or night work premiums on 24 paid vacation days (the equivalent per hour since 1st January 2019 (2020). the gross wage. of 4 weeks) per year; accordingly, full- time employees working 5 days per A few industry sectors, predominantly Christmas Bonus (Weihnachtsgeld) week are entitled to a minimum of 20 the building industry and some A Christmas bonus, or thirteenth days per year.
www.mgiworld.com 19 While working for less than six months caused the incapacity to work by his or 9.2 Anti Discrimination within 1 calendar year, the employee her own misbehaviour. is entitled to a pro-rated period of Act paid vacation. During the common Maternity 6-month trial period at the beginning Female employees enjoy special The General Equal Treatment of a new employment contract, protection during pregnancy and after Act of 2006 (AGG, Allgemeines employees are usually not entitled to birth from Gleichbehandlungsgesetz), often take any vacation days. referred to as the Anti-Discrimination • dismissal, Act, implements EU regulations on The number of public holidays varies • health hazards for mother and anti-discrimination. from state to state in Germany. child and • temporary income reductions. The AGG mandates a general Sick Leave prohibition of discrimination against Employees are obligated to inform The employee should inform her any person for reasons of: their employer about any sickness employer of any pregnancy and the requiring an absence from work and expected birth date as early as possible. • Race the expected duration of this absence • Ethnicity as soon as possible (generally on The maternity protection period starts • Gender the first day of the sick leave). If six weeks before the expected birth • Religion sick leave exceeds three days, date and ends eight weeks after birth. • Disability employees are obligated to have a Only if a doctor certifies that the work • Age medical doctor provide proof of their will not be harmful to the health of • Sexual orientation incapacity to work. Notwithstanding the mother and child are pregnant this employers may request medical employees allowed to work: Employers are obliged to prevent certification of an employee’s or eliminate any unequal treatment incapacity to work beginning on the • Overtime based on these characteristics. first day of the sick leave. • Nights • On Sundays This protection covers employees as Employees are entitled to sick pay • On public holidays well as apprentices, job applicants, amounting to 100% of the normal • During the last six weeks before birth and temporary workers. salary until the time of recovery, • During the eight weeks after birth though limited to a maximum of 6 Discrimination is prohibited in relation to: weeks. Sick pay can be denied until In cases of premature or multiple the employee presents a medical births the employee is not obligated • Recruiting / employment certification of illness from a doctor. to return to work for up to 12 weeks • Work conditions (including An employee is not entitled to sick after birth without having to provide remuneration and conditions of pay during the first four weeks of proof of medical necessity for this termination) employment, or if the employee has extended absence. • Career advancement
20 www.votum.eu As a first step employees affected by 9.4 The German Social course of payroll accounting and discrimination may file a complaint transferred to the nursing care with their superior or with an Security System insurance company via the health employee specifically appointed to insurance company. handle these complaints. In certain Germany has a compulsory social cases, discriminated employees may security system that covers five 9.4.3 Pension Insurance refuse to work until the source of principle areas: discrimination has been removed. Pension insurance is compulsory for • health insurance, employees. The Contributions to the Moreover, discriminated employees • nursing insurance, pension insurance are currently levied have a legal claim against their • pension insurance, at a rate of 18.6 % (2019) of the gross employer for compensation for • unemployment insurance and wage and is divided equally between material and immaterial damages • accident insurance employee and employer. (material damages only have to be compensated in cases involving actual Contributions to the social security The assessment ceiling for pension fault of the employer). system are generally shared between insurance contributions currently employer and employee. The amounts to EUR 6,050.00 per month employer withholds the employee’s (EUR 72,600 annually). For states in 9.3 Termination of share of the contribution and is eastern Germany, the assessment Employment responsible for the payment to the ceiling is slightly lower at EUR 5,200 Federal Insurance Agency. (EUR 62,400 annually). The employer´s right to issue a notice of termination may be restricted 9.4.1 Health Insurance The employee’s health insurance by individual contracts, collective company is responsible for collecting bargaining agreements or by statue Employees that earn a gross wage these contributions. such as the Employment Protection of less than EUR 5.063,00 (2019) Act 1969 (Kündigungsschutzgesetz). per month are compulsorily insured by one of the public health In the case of a fixed-term contract, insurance providers (Gesetzliche the end of the employment period is Krankenversicherung, GKV). Above contractually agreed from the outset. this gross wage ceiling, employees can In the case of permanent contracts of freely choose their health insurance employment, certain notice periods provider and can pick from both public are required by law. and private insurance companies (Private Krankenversicherung, PKV). After the probationary period of Employee and employer also share the a new employment contract has premiums for private health insurance ended, the initial notice period is plans up to the amount of the basic four weeks. This increases to seven health insurance sum (maximum grant months after 20 years of job tenure for 2019 EUR 351,66). in the same company. Benefits from public health insurance Individual notice periods can be include the payment of medical and agreed upon, but these must comply hospital expenses and compensation with minimum statutory notice for loss of salary. periods. The determination of the minimum statutory period depends 9.4.2 Nursing Care Insurance on whether the employee or employer is seeking to terminate the contract. Nursing care insurance assumes the An employee must submit a notice financial burden of assistance and with a minimum notice period of four support services should a covered weeks, effective either on the 15th or person become ill or incapacitated and on the end of the month. thus require nursing care.
Under exceptional circumstances, an It is organized mainly in the same way immediate termination of contract as health insurance, with a contribution may be possible. rate of 3,05 % (2019) of the gross wage. Like with health insurance Every notice of termination must employer and employee both pay half always be issued in writing; electronic of the contribution rate, with childless form is insufficient. employees paying an extra 0.25 % on top of their contribution. Special regulations exist to protect recent mothers, mothers-to-be, The assessment ceiling amounts to and severely disabled persons from EUR 5.063,00 per month. unjustified dismissal. The premiums are deducted in the
www.mgiworld.com 21 9.4.4 Unemployment Insurance trade industry associations under employment may be accompanied consideration of the risk of a work by their spouses from abroad if they Unemployment insurance is accident occurring in the particular intend to stay for more than one year. compulsory for employees. The branch, the record of accidents during Spouses must show sufficient language Contributions to the unemployment the previous year and the total annual skills. There are exceptions however insurance are currently levied at a rate salaries of all employees affected. for spouses holding a university-level of 2.6% (2019) of the gross wage and degree, spouses of highly qualified is divided equally between employee Every employer must inform the workers, spouses of holders of the and employer. relevant association about the EU Blue Card (see below) and spouses establishment of his or her business of nationals of certain countries, for The assessment ceiling for and register with this organization. example the U.S., Canada and Japan. unemployment insurance Children are allowed to accompany an contributions currently amounts 9.4.6 Work and residence permits immigrating parent. to EUR 6,050.00 per month (EUR 72,600 annually). For states in eastern EU citizens are free to migrate to Since 1 August 2012, the EU Blue Germany, the assessment ceiling Germany and take up an employment Card makes it possible for university is slightly lower - EUR 5,200 (EUR or engage in business activities graduates from non-EU countries 62,400 annually). without the need to apply for a to work legally in Germany without “residence certificate”. complicated or bureaucratic The employee’s health insurance procedures if the following two company is responsible for collecting Non-EU nationals from third state requirements are fulfilled: these contributions. companies moving to Germany require residence and work permits. While the • applicants must demonstrate that 9.4.5 Accident Insurance two are different documents issued by they have successfully completed different authorities, the procedures are university studies, The accident insurance system in fact coupled, insofar as a residence • and they must have a job paying at is administered by associations permit will not be issued without least 50.800 EUR a year (2019). (Berufsgenossenschaften) set up by demonstration of the applicant’s ability all branches of trade and industry. to support him or herself financially. In occupations with a large number This insurance provides coverage if an Work permits are initially granted of vacancies in Germany, such as employee suffers an industrial disease annually. Renewal periods then usually doctors and engineers, the minimum or accident at his working place or on match the residence permit. In case salary is only about 39.624 EUR the way to work. the local labour authorities feel that the (2019). The EU Blue Card offers further position could be filled by an out-of- privileges for immigrant workers and In contrast to the other four work German or EU citizen it won´t their families. After three years, they obligatory insurances (health, nursing, be granted. However, renewal will not qualify for a permanent settlement pension, and unemployment), the normally be refused. permit; those who demonstrate good costs for accident insurance are German language skills are eligible for exclusively borne by the employer. Foreign professionals holding a a permanent settlement permit after The contribution is fixed by various residence title for the purpose of only two years.
22 www.votum.eu 10 Quality of life
10.1 Education 10.2 Communication 10.3 Social security
Attending a state-run school is free and transport benefits of charge, and it is compulsory for Located at the heart of Europe, In Germany, families are given children beginning at age six. Germany is Europe’s number one special consideration in the German logistics market. constitution, the Grundgesetz. The standards in state schools are usually high, teachers are highly A sophisticated energy and Families benefit from numerous qualified, and student qualifications communications infrastructure and family-oriented regulations, such as are internationally recognized. excellent transportation networks tax benefits for married couples and ensure on-time delivery and short child support. For every child, the For the first four years, children usually roads to success. government pays an allowance of EUR attend a local elementary school. At 204 per month for each of the first the end of elementary school, parents Germany has one of the world’s two children, and EUR 210 for the third can choose between various types most developed transportation and child and EUR 235 per month for every of secondary schools, ranging from communication infrastructures. additional child. (1st July 2019) lower secondary school (Hauptschule, Intensive investment since Realschule) to higher secondary school reunification in 1990 has brought Since 2007, parents have been able (Gymnasium). The selection of the the undeveloped eastern Germany to file for parental leave and receive secondary school depends on the (former German Democratic Republic) 65 percent of their net income (up to child’s interests and abilities. in line with that of western Germany. a maximum of EUR 1,800 per month and at least EUR 300) as a parental Students who gain a qualification A dense and efficient network of allowance from the government for a from a higher secondary school or motorways, railways, and waterways duration of up to 14 months. Gymnasium (Hochschulreife) can connects the country with major attend university. centres all around the world. In Germany, every child between the age of 3 and 6 has a legal claim to a Students who gain a qualification from There are 39 traffic airports in Germany. place in a kindergarden. a technical or specialized secondary The busiest airport, in terms of aircraft school can attend a university of movements, passenger departures, Kindergardens are mainly run by applied science, where the courses are and freight traffic is the Frankfurt the municipalities, churches, and more practically oriented. (Main) airport, followed by Munich. charitable organizations, but also by companies and associations. Parents contribute to childcare costs with an earnings-related payment. In addition, childcare costs may be deducted in amount of 2/3 until a maximum of EUR 4,000 from the taxable income.
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VOTUM AG is a member of MGI Europe, part of MGI Worldwide, a top 20 Alexander Leoff ranked international audit, tax, accounting and consulting network with MGI Worldwide Key Contact some 5,200 professionals in over 260 locations around the world. and Partner at Votum AG
VOTUM AG is an owner managed accountancy firm with offices in +49 6192 995760 Frankfurt, Hofheim and Wiesbaden, Germany. Our experienced team of [email protected] financial auditors, tax consultants and attorneys help many medium sized Alexander has been a Qualified businesses in all aspects of national and international tax, accounting and German Certified Auditor since 2005 corporate law. before which he completed his CPA examination in New Hampshire, USA, For decades we have offered successful, comprehensive and sustainable in 2002 and licensing in Maine, USA, solutions in cooperation with our international partners from the MGI in 2005. He has a degree in business studies from the University of Applied Worldwide network. Science in Mainz, Germany.
Alexander has been a member of the German Advisory Board of the Chamber of Public Accountants, and a member of the Accounting and Auditing Committee of the Chamber of Public Accountants since 2018. He also served between 2011 and 2014.
VOTUM AG +49 69 97160 440 Main areas of expertise include national and international financial accounting Guiollettstraße 54 +49 69 97160 444 (German Commercial Code, IFRS), audits 60325 Frankfurt/M. [email protected] of annual accounts and consolidated Germany www.votum.eu financial statements, reorganization and restructuring, company valuation, due diligence audits, special audits, and investment fund conception. He serves a large number of financial services institutions and therefore has in-depth knowledge of the factoring industry.
Doing business in Germany
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