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Doing Business in Germany

One of the leading economies in the world.

The Federal Republic of Germany is one of the leading economies in the world and has participated in the G8 circle since its foundation in the 1970s. The economy is export orientated with an emphasis on quality manufactured goods. Germany possesses certain mineral resources including substantial coal reserves but these play a secondary role within the economy. The import of raw materials exceeds the value of imported manufactured goods tenfold. The agricultural sector, although contributing considerably less to GDP than manufacturing, still retains agrarian production and forestry as significant contributors with a healthy recovery of animal husbandry after the MCD crisis.

The emphasis of economic development policy has been to combine capital and labour in a manner designed to achieve maximum efficiency and productivity through rationalisation and the use of the latest technology. Investment in this direction has ensured that industries such as machine tools, vehicle production, electrical engineering and electronics have remained at the forefront of manufacturing and exports.

The German economy's main trading partners are the European Union countries and the USA. The structural economic problems created by reunification are gradually being resolved following substantial social and capital investment. Present trends indicate that the regional economies, at the points of the compass, are generating internal growth thereby contributing to the dynamics of a more unified national economy. The service sector is also growing significantly to add a dimension of diversity and strength in economic performance.

Legal System

The German legal system is based on a civil code. At present, German law is predominantly federal law.

Foreign investment

The government actively encourages foreign investment. Areas, like those along the borders of the former East Germany and the Czech Republic, as well as Berlin, are designated development areas and receive combined federal and state aid. In these areas businesses can qualify for investment subsidies.

Business associations

The most popular business association is the limited liability company (Gesellschaft mit beschränkter Haftung) and the stock corporation (Aktien Gesellschaft). Shares in GmbH cannot be listed on the stock market. GmbHs are more attractive for small, medium and personally controlled companies. The AGs are usually preferred by large companies. German law allows formation of general partnerships and limited partnerships. It also allows for a special form of limited partnership in which the general partner is a limited liability company.

Registration formalities

A GmbH must be registered in the commercial register of the local court. All that is required is agreement on the name, the domicile, the intended purpose of the business, the amount of capital and a managing director. The existence of an AG starts on registration with the commercial register of the local court. The articles must include the name, domicile, the number of board members, the amount of share capital, the par value, registered shares issued to the bearer, the various classes of stock and the number of shares that can be allocated to each class. A formation report must also be attached.

An AG must have a management board, consisting of at least one manager, and a supervisory board of at least three members. It supervises and controls the business of the management board as well as appoints its members. Members of the supervisory board are elected by the shareholders meeting. No person can be a member of both boards and it does not need to be a shareholder or a German citizen.

In a GmbH statutes require at least one managing director appointed by shareholders.

A GmbH or an AG may be formed with just one shareholder. The AG requires minimum capital of 58,800 US$, while the GmbH requires only 30,000 US$. Shareholders meetings must be hold once a year. Transfer of GmbH shares requires notarisation. The shares of an AG can be easily transferred.

The managing directors must prepare a financial statement containing a balance sheet and profit and loss statements after the end of the financial year. These statements are submitted to the Commercial Register and are published in the Federal Gazette.

Managing directors and members of a management board are liable for damages resulting from mismanagement or violation of their duties. Any person who intentionally uses his influence on an AG to its detriment is personally liable.

Every business must have a registered in the Commercial Register office and designated headquarters for correspondence and jurisdictional purposes.


Germany's antitrust law, the act against Restraints on Competition (GWB), is quite restrictive and highly detailed. It is competition oriented and offers a high degree of predictability. Under the new version of the GWB mergers must not be executed before they have been reported to and reviewed by the Federal Cartel Office.

Major pitfalls

Purchasers should be wary of hidden tax or pension fund liabilities when acquiring an existing company because vendors are usually unwilling to disclose information and public information is relatively scarce.

Tax (companies)

In general, the tax year is the calendar year. It may be changed with the consent of the Tax Authority. The most important taxes are on individual income (including partnerships), on corporate income, on trade activity, as well as a withholding tax on investment income and income of employment.

Tax (branches)

The tax year for branch subsidiaries is usually the calendar year. However, the branch may choose another 12-month period with the consent of the Germany Tax Authority. Non-limited companies are subject to limited income tax on profits from income received from a branch (permanent establishment) in Germany. Inter-company charges paid by German branch to the parent can be deducted as business expenses.


A written contract is not required to conclude an employment relationship except where collective bargain agreements require one.

Statutes allow for a 48-hour working week including Saturdays. There is a statutory minimum annual vacation of 24 work days. In addition, workers receive up to 14 paid legal holidays, depending on the German state. All employees are statutorily entitled to six weeks sick pay. All female employees are entitled to 14 weeks leave of absence and an "educational leave" until the child reaches the age of three. The employee is protected from termination during some periods connected with pregnancy.


The right to termination is limited extensively by law (Kündigungsschutzgesetz, KschG). For the employer to effect proper termination he must not only give proper notice but the termination must be socially justifiable. Otherwise the employee may file a claim in the Labour Court. If the termination is found to be socially unjustified then it is null and the employee can continue his or her employment. Alternatively, the employee can ask the court to set a severance compensation. In the case of `mass dismissal`, the employer must notify the Labour Office at both the federal and state levels. For each employee, employers pay contributions for health insurance, unemployment benefits, workmens' compensation, insurance and social security pension insurance.

Marketing arangements

There is a difference in meaning between the terms 'agent' and 'distributor' in the German court. A German court will look beyond the title given to the arrangement to ascertain which law should be applicable in case of conflict.


A franchise agreement is treated as a type of licensing contract that combines know-how, trademark and patent licensing.

Intellectual property

A patent can be granted for an invention that is new or reflects the state of the art, involves an `innovative step` or represents a sufficient intellectual achievement and is capable of commercial application. The patent protection lasts 20 years from the date of the application. The right to exclusive use of a trademark expires after 10 years but can be renewed continuously for successive 10 year periods.

Copyrights do not require registration except in the cases of designs and models. In most cases copyright protection ends 70 years after the author's death. Trade secrets and know-how may be protected by agreement. Their misuse is a criminal offence.

The Product Liability Act of 1990

Strict liability attaches when a person is killed or injured or a chattel is damaged due to a product defect. The statute of limitations is three years after the date when the defect or damage has been caused and the manufacturer has been identified, provided that the claim is brought within 10 years after the product has been marketed.

Dispute resolution

There are five different categories of courts in Germany: general courts (they handle civil and criminal matters), administrative courts, tax courts, labour courts and courts that handle social matters.

So, we see that Germany is a state with a developing economy and a strict legal system. It has nice landscapes and friendly people!