Doing Business in Germany
|GDP||3677.44 billion USD|
|Average Monthly Gross Salary in Euro||€3,771|
|World Bank Doing Business Ranking||20 (USA Ranking 6)|
Most Common Form of Business Entity
A foreign business can establish their operations in Germany as companies, partnerships or branches. The most common form of legal entities are:
|Stock Company – AG – Aktiengesellschaft –
(public limited company)
|Capital Requirements||Minimum share capital of €50,000|
|Directors||Executive Directors meets as a management board and take decisions collectively|
|Shareholders||Shareholders may vote on the resolutions tabled at the shareholders meetings|
|Limited Liability Company – GmbH – Gesellschaft mitBeschrankterHaftung –
Private Limited company
|Capital Requirements||Minimum share capital of €25,000|
|Directors||Managing Directors meet informally and take decisions collectively or on their sole responsibility|
|Shareholders||Shareholders may resolve on all resolutions set before them and can purpose resolutions on their own behalf.|
Corporate profits are taxed at a national and municipal level. Corporate Income Tax is taxed at 15% on a national level. In addition, there is a solidarity surcharge of 5.5% on the amount of corporate income tax due, which results in an aggregate tax rate of 15.825%. On the municipal level, corporations are subject to a trade tax. This typically ranges between 14% and 17%. The total effective corporate tax rate (including the solidarity surcharge and municipal tax) will typically vary between 30% and 33%.
Employment / HR Requirements
Employment Contracts: While not mandatory, employment agreements are usually in written form. If no written contract is in place, the employer is required to provide the employee with a written summary of the key terms and conditions of employment.
Employee Tax: Employees whose residence or usual place of abode is in Germany, are considered tax residents. The income tax rate ranges from 14% to 45% (for 2018). There is an initial general tax-free amount of EUR9,000 for individuals and EUR18,000 for married couples (for 2018). There is an additional tax-free amount of EUR1,000 (for 2018) for all employees. Depending on the personal circumstance, taxable persons can claim various deductions (such as child allowance). In addition to wage taxes, there is a “solidarity surcharge” of 5.5% on the tax levied.
Employers: Employers must withhold tax (income tax, solidarity surcharge and church tax) and social security contributions on behalf of their employees.In addition to the employee’s contributions, the employer must pay social security contributions of about another 19% (in 2018) of the employee’s gross salary (capped at the same thresholds as the employee’s contributions).
Valued Added Tax:
The standard rate of VAT is 19% (reduced rates are 7% and 0%).
Valued Added Tax on Digital Services:
All Non-EU based businesses that provide electronic services or download to individuals or non-business consumers in Germany must register for VAT either in Germany or in another EU state.
The German Federal Council approved the Federal Data Protection Act (“new FDPA”) which replaced its existing law when the General Data Protection Regulation 2016/679 (“GDPR”) came into force on May 2018. In the event of contradictions between the new FDPA and the GDPR, the GDPR prevails. In addition to the requirement to appoint a data protection officer in the GDPR, a controller or processor regularly employing at least ten employees is obliged to appoint a data protection officer.