Doing business in Germany 2017 Moore Stephens Europe PRECISE. PROVEN. PERFORMANCE. Doing business in Germany 2017 Introduction The Moore Stephens Europe Doing Business In series of guides have been prepared by Moore Stephens member firms in the relevant country in order to provide general information for persons contemplating doing business with or in the country concerned and/or individuals intending to live and work in that country temporarily or permanently. Doing Business in Germany 2017 has been written for Moore Stephens Europe Ltd by Moore Stephens Deutschland AG. In addition to background facts about Germany, it includes relevant information on business operations and taxation matters. This Guide is intended to assist organisations that are considering establishing a business in Germany either as a separate entity or as a subsidiary of an existing foreign company It will also be helpful to anyone planning to come to Germany to work and live there either on secondment or as a permanent life choice. Unless otherwise noted, the information contained in this Guide is believed to be accurate as of 1 September 2017. However, general publications of this nature cannot be used and are not intended to be used as a substitute for professional guidance specific to the reader’s particular circumstances. Moore Stephens Europe Ltd provides the Regional Executive Office for the European Region of Moore Stephens International. Founded in 1907, Moore Stephens International is one of the world’s major accounting and consulting networks comprising 276 independently owned and managed firms and 626 offices in 108 countries around the world. Our member firms’ objective is simple: to be viewed as the first point of contact for all our clients’ financial, advisory and compliance needs. They achieve this by providing sensible advice and tailored solutions to help their clients achieve their commercial and personal goals. Moore Stephens member firms across the globe share common values: integrity, personal service, quality, knowledge and a global view. Brussels, November 2017 Doing business in Germany 2017 Contents Capital gains 14 Contents Deductions 15 Dividends, interest and royalties 15 1. Germany at a glance 1 Group Taxation 16 Geographical location and population 1 Tax losses 17 Language and climate 1 Sample calculation 17 Politics and government 1 Thin capitalisation / Interest restriction 18 Currency, time zone, weights and measures 1 Transfer pricing 18 General economic outlook 2 Controlled Foreign Company (CFC) Rules 18 2. Doing business 3 Withholding taxes on outbound payments 18 Main forms of business organisation 3 Rate of corporate income tax 19 Introduction 3 Assessment procedure 20 Joint-Stock company (Aktiengesellschaft – AG) 3 Returns and payments 20 Limited-Liability company (Gesellschaft mit Appeals 20 beschränkter Haftung – GmbH) 3 Trade tax (Gewerbesteuer) 20 Partnerships 4 Tax rates 20 Branch of a foreign company 5 Basis of calculation 20 European Company (Societas Europaea) 5 Deductibility 21 Labour relations and working conditions 6 Value added tax 21 Working hours 6 Taxable entities 21 Notice periods 6 Taxable activities 21 Wages, fringe benefits and other regulations 6 Exempt supplies 22 Holidays 7 Standard, reduced and zero rates 22 Social security system 7 Registration 22 Trade unions and workers’ councils 7 Returns and payment 22 Working conditions 7 7. Personal taxation 23 Work permits, visas etc. 7 Income tax (including capital gains taxes) 23 Starting business in Germany 8 Territoriality and residence 23 3. Finance and investment 9 Persons liable 23 Business regulation 9 The family unit 23 Banking & finance 9 Categories of income 23 Banking system 9 Taxation of employment income 24 Capital Markets 9 Taxation of personal business income Exchange Controls 9 & income from self-employment 24 Incentives for investment 10 Taxation of investment income 25 4. The accounting and audit environment 11 Private capital gains and losses 25 Accounting regulations & the audit requirement 11 Allowances and deductions 26 5. Overview of the tax system 13 Tax rates 26 Main taxes 13 Returns and payments 27 Tax authorities 13 Appeals 27 6. Taxes on business 14 Trade tax 27 Corporate Income Tax 14 Inheritance and gift taxes 27 Scope and Extent 14 Reliefs and allowances 28 Residence 14 Rates 29 Taxable entities 14 Wealth tax 29 Income calculation 14 8. Other taxes 30 Doing business in Germany 2017 Property and property transfer taxes 30 Property tax 30 Immovable property transfer tax (IPTT) 30 9. Social security contributions 31 Employers and employees 31 The self-employed 31 10. Moore Stephens in Germany 32 Appendix 1: Double tax treaties 33 Comprehensive double tax treaties 33 Double tax treaties: air transport and shipping 34 Double tax treaties: estates, gifts and inheritances 34 Agreements on mutual administrative assistance 34 Social security agreements 35 Appendix 2: Moore Stephens around the world 36 Doing business in Germany 2017 1. Germany at a glance Geographical location and population Germany is the most populous country within the European Union. It borders on nine other countries: Denmark, the Netherlands, Belgium, Luxembourg, France, Switzerland, Austria, the Czech Republic and Poland. As of September 2015, the population of Germany was estimated at 82.175 million inhabitants, living in an area of 357 000 km2 (a population density of 230 inhabitants per square kilometre). The population is currently increasing by 1.19% per year (Dec. 2015 – Dec. 2016). Due to immigration, the rate of growth has increased by 0.32 of a percentage point. At the end of 2016, about 8.96 million individuals without German citizenship were living in Germany (compared to about 7.77 million at the end of 2015), which is about 11% of the population. Most of them have migrated from Turkey, former Yugoslavia, Italy, Poland or Greece. Germany is a federation of 16 states (Bundesländer). Its capital is Berlin; other main cities are Hamburg, Munich, Cologne and Frankfurt. Language and climate The official language in Germany is German, which belongs to the Germanic branch of the Indo-European family of languages. The climate in Germany is moderate, being influenced by the Gulf Stream and thus resulting in fairly moderate temperatures in relation to the latitude. Politics and government Germany is a democratic republic with a federal system of government. Certain powers lie with the 16 federal states, others are reserved to the federal government. As in all western democracies, the separation of powers into legislative, executive and judicial is one of the cornerstones of the German constitutional system. As Head of State positioned above these three constitutional powers is the Federal President (Bundespräsident), the incumbent being Frank-Walter Steinmeier, elected for a five-year term by the Federal Convention (Bundesversammlung, an electoral body composed of members of parliament and representatives of the federal states). The president’s function is largely ceremonial. The Head of the German Government is the Federal Chancellor (Bundeskanzler), and the holder of that office since 2005 is Angela Merkel. Following the general election in September 2017, she is negotiating to form a new coalition. Her previous government, which remains in office in the interim, was a ‘grand coalition’ of her own centre-right Christian Democratic/Christian Social Union party (CDU/CSU) and the centre-left Social Democratic Party (SPD). The SDP has announced that it will be going into opposition. The German Parliament consists of two houses with distinctive roles: the federal assembly (Bundestag) and the assembly of the representatives of the 16 federal states (Bundesrat). The Bundesrat consists of members of the governments of the 16 German states, delegated by the state governments. Members of the Bundestag are elected directly in single-member constituencies (by simple plurality) or via a regional party list (by proportional representation) for four-year terms. Currency, time zone, weights and measures The euro (ISO designation: EUR) is the unit of currency. One euro is composed of 100 cents. The European Central Bank is the central banking entity that manages the European currency. At the time of going to press (mid-November 2017), the euro was quoted against the US dollar at EUR 1 = USD 1.1779. In Germany, there is a single time zone, Central European Time (CET), being GMT (Greenwich Mean Time) +1. In summer, Germany follows the daylight-saving time system (DST), starting on the last Sunday in March and ending on the last Sunday in October, during which time clocks are advanced by one hour. Germany uses the metric system of weights and measures (the MKS system). Temperature is measured in degrees Celsius. Moore Stephens Europe 1 Doing business in Germany 2017 General economic outlook In 2008, Germany, together with most other economies, was hit by the global financial crisis. However, the unemployment rate did not significantly increase and was down to 5.6% in July 2017. Inflation rates in Germany are very moderate; after 2.0% in 2012, 1.5% and 0.9% were recorded in 2013 and 2014, respectively. The annual inflation rate in May 2015 was 0.7% and in June 2016 it was down to 0.3%. For 2017 the forecast for annual inflation is 1.7%, conditioned by increasing energy costs. 2 Moore Stephens Europe Doing business in Germany 2017 2. Doing business Main forms of business organisation Introduction The most important forms of business organisations in Germany are: Table