Germany - Next global destination for your business
Germany’s economic freedom score is 73.7, making its economy the 14th freest in the 2023 Index. It is ranked 10th out of 44 countries in the Europe region, and its overall score is higher than the world and regional averages.
Germany Economy
The economy of Germany is a highly developed social market economy. It has the largest national economy in Europe, the fourth-largest by nominal GDP in the world (almost tied with Japan), and fifth by GDP (PPP).
Foreign Direct Investments
It is considered an attractive country for foreign direct investment. According to data from national Trade and Investment Agency Germany’s federal states registered 1,806 FDI projects in 2021 a 7% rise compared previous year.
Opportunity Mapping
It is one of the leading European markets for e-commerce cross-border trade, and their already established delivery infrastructure is another huge benefit to retailers looking to reach the country’s 58 million online shoppers.
India in Germany
The total bilateral trade between the two countries stood at US$24.8 billion during the financial year (FY) 2021–22, while it was valued at US$21.76 billion in FY 2020–21. In February 2022, Robert Bosch announced its plans to invest a total of US$260 million in India over a five-year period towards the localization of advanced automotive technologies and in building digital platforms like the mobility marketplace and the mobility cloud platform.
Corporate Structure
Germany is most attractive location for business in the European Union. Company formation can be significantly cheap. From office overheads to the cost of living, it is notoriously cheaper than the majority of its European counterparts.
Mini (GmbH)
It can be incorporated with capital of as little as €1 or any amount up to the €25,000 required for GmbH. . 1/4 of a mini-GmbH’s annual profit has to be contributed to its capital reserves until they reach €25,000, at which point it can become GmbH.
Limited Liability Corporation (GmbH)
The minimum share capital required is €25,000 but this can be made up of contributions in kind. At least €12,500 must be contributed when incorporating the GmbH. The company only requires one director and one shareholder.
Stock Corporation (AG)
The minimum share capital is €50,000 and the company may have a minimum of one shareholder. This type of company is subject to heavy regulation as a listed company. AG’s have a “two-tiered board” structure, consisting of a supervisory and a management board.
Foreign Entities in Germany
To register a foreign company in Germany with a VAT registration, you will need to complete a tax form and submit it to the Finanzamt (finance office). The Finanzamt will then issue your tax number. As a result of choosing this basic option and applying for a VAT number in Germany, companies are also able to carry out transactions that are taxable in Germany, to export products and to import products.
Taxation System
Taxes are levied by the federal government, federal states and municipalities. Tax administration is shared between two taxation authorities: the Federal Central Tax Office and the approximately 650 regional tax offices.
Corporate Tax
Germany levy tax rate at 15% and is then subject to a surcharge of 5.5%. This results in a total tax rate of 15.825%. It taxes its corporate residents on their worldwide income. However, most double tax treaties (DTTs) exempt income attributable to a foreign permanent establishment (PE).
Dividend Tax
The taxation of portfolio dividends was enforced and it stipulates that all shareholders owning less than 10% dividends in a company are subject to a corporate income tax of 15.825% including solidarity charge.
VAT
Proceeds of sales and services effected in Germany are subject to VAT under the common system of the European Union at the standard rate of 19% (7% on certain items, such as food and books). The taxpayer generally is entitled to deduct the VAT charged on inputs from that payable on outputs.
Taxation of Non Resident entities
The controlled foreign companies regulations (CFC rules) apply ·to a foreign company established in Germany receiving passive income. German subsidiaries of foreign companies are subject to 25% withholding tax on dividends. However, if a double taxation agreement is enforced between Germany and another country, the dividend tax may be reimbursed. Foreign companies that have a permanent establishment in Germany are also subject to the municipal trade tax that ranges between 7% and 17.2% depending where the permanent establishment is located.
Foreign entity options
Germany is having the largest economy in Europe. Moreover, it has a social market economy, meaning it embraces the spirit of free enterprise but at the same time imposes controls and other measures to establish fair competition within the country.
Branch Office
It is an establishment that will be connected to the parent company and it does not have assets or accounting system of its own. The foreign investors are only required to register with the local trade office and the commercial register for setting up a branch.
Subsidiary Company
It is usually considered a limited liability company (GmbH) and it must have its own share capital, management, and accounting system. It is allowed to conduct business operations in name of parent company. It is required to register with the local commercial register and the trade office.
Joint Venture
JVs can be used in every sector of the German economy. However, they are mainly used for projects which require special measures. Cross-border JVs are relatively common. Foreign parties often form EU or domestic entities to hold their interests for tax reasons.
Germany Business
Germany has the world's fourth-largest economy and is the powerhouse in the European economy, being featured as the largest in the European Union. The country is a major hub for business in Europe. Both the service and the manufacturing industries are extremely buoyant in Germany, a country respected world-over for its automotive and engineering sectors. German culture standards and values are central to doing good business.
