21/08/2017

Business Climate

Germany is one of the most attractive business locations in the world.


The German legal system protects property and individual rights. Competitive tax regulations and a wide range of funding options offer a strong framework for investment.
The excellent infrastructure and highly qualified workforce are further factors that contribute to sustainable business success.


 Infrastructure


The excellence of Germany’s infrastructure is confirmed by a number of recent studies, including the Swiss IMD’s World Competitiveness Yearbook and various UNCTAD investor surveys. According to the 2011-2012 Global Competitiveness Report, Germany's extensive infrastructure was singled out for special praise due to its capacity for highly efficient transportation of goods and passengers. This ranking includes high marks for the quality of roads and airports, the rail and port infrastructure, and the country’s outstanding communications and energy infrastructure.



Germany’s  logistics’ infrastructure includes not only the port of Hamburg – Europe’s second largest container port, but also Bremerhaven – Europe’s largest car port for vehicle traffic, and Duisburg – home of the continent’s largest inland port.

Together with over 250 additional inland ports, Germany’s port infrastructure facilitates the efficient delivery of goods in Europe’s largest market. The Rhine and Elbe rivers serve as major arteries for barge traffic to the deepwater ports in various river bights and along the north and northwest coastlines.

Germany has a dense network of airports, of which 23 offer international service. Frankfurt rank’s the world’s seventh and ninth largest airport in terms of cargo and passenger volume respectively. The country’s highway system has one of the greatest kilometer density levels in Europe and the 37,900 km of railway tracks are nearly enough to circle the globe while its high-speed railway network, with speeds of up to 300 km/h, is the fourth largest in the world.

Europe's Global Logistics Hub

With its state-of-the-art transportation networks by air, rail, waterway, or autobahn, Germany provides quick access to domestic and international markets. It’s hardly surprising that Germany is a global logistics hub. With turnover of EUR 200 billion in 2009, Germany enjoys market size without compare in Europe. Its dominant share of the European logistics market makes it the most significant player in driving Europe’s economic growth. More goods pass through Germany than through any other European country.

In the north, Germany’s seaports are an important conduit for trade with the UK, Scandinavia, and the Baltic states. Moreover, road and rail links through the Jutland peninsula provide easy access to Denmark and the rest of Scandinavia. In the west, an extensive network of roads, rail links and inland waterways feeds into France and the Benelux countries.

To the south, Germany has strong commercial ties with Switzerland and Austria and direct road, rail and water links with the Balkan states. Turning eastwards, Germany’s borders with Poland and the Czech Republic also bring Slovenia, the Slovak Republic and Hungary within easy reach and make the more distant markets in Greece, Turkey, Ukraine and Russia readily accessible.

Not only is Germany’s logistics infrastructure world-class, its companies are also global logistics leaders. In fact, the world’s largest logistics service provider is a German company – Deutsche Post (DHL). Deutsche Bahn operates Europe's largest rail network and Lufthansa Cargo is one of the world's leading global air freight companies.

 Legal System


Stable and Transparent Legal System

German business law is governed by the principle of freedom of economy, meaning that business activities generally do not require a specific permit or license. Moreover, German law usually does not make a distinction between Germans and foreign nationals regarding investments or the establishment of companies.

Germany is home to a legal environment rightly renowned for its stability and transparency. The World Economic Forum ranked Germany among the leading countries of 144 competitors for its judicial independence. Solid codifications and an effective enforcement system provide investors with a secure legal framework and the possibility to quickly enforce their rights.


A Safe and Secure Business Landscape

On registering intellectual property rights, the same conditions apply for both foreign nationals and Germans. Patent applicants who do not have a place of residence or a branch in Germany have to nominate a patent attorney as the representative for the signing of the patent registration.

Germany is second overall in the renowned corporate law firm Taylor Wessing’s Global Intellectual Property Index, just behind the United Kingdom.



Efficient Company Formation Procedures

Company formation procedures are swift and efficient, requiring only a few clearly defined steps to establish a new company. Company establishment costs are moderate and, more importantly, can be easily determined from the outset.

The GmbH Act provides a set of model articles of association, which can be used for uncomplicated standardized formations of a GmbH.

Public business registers provide transparent information pertaining to company legal representation and individual personnel authorized to conduct business transactions. This information is freely accessible to everyone. As such, the risk of fraud and manipulation – a major cause for concern in some industrial nations – is effectively negligible in Germany.

 Labor Market Availability


Highly Skilled Workforce

Germany’s world-class education system ensures that the highest standards are always met. The German workforce comprises over 40 million people – making it the largest pool of ready labor in the EU. Additionally, companies in Germany benefit from the high levels of education in the workforce: More than 80 percent of the German workforce has received formal vocational training or is in possession of an academic degree.

Germany’s globally renowned dual system of vocational training consists of about 1.4 million apprentices and almost 8,800 vocational schools. In addition, about 2.7 million students are enrolled at one of Germany’s 425 universities. The majority are on courses with a technical focus. Germany’s share of university students in the sciences, mathematics, computer sciences, and engineering is the highest in the EU, with 36 percent of all students. According to OECD statistics, Germany has one of the highest rates of graduates with a doctoral degree in sciences and engineering.


Dual Education System

To secure the economy’s demand for highly-qualified personnel, Germany traditionally relies on a dual system of vocational training - combining the benefits of classroom-based and on-the-job training over a period of two to three years. Every fifth German company participates in the dual vocational training system, which turns their best apprentices into specialists that fulfil each company’s individual needs.

The apprentices also benefit from the system. In 2011, about 68% of all apprentices received an employment contract after completing their training. Almost 1.4 million young people are currently on a vocational training course in Germany. Germany has Europe’s lowest youth unemployment rate and enjoys an excellent reputation as a result of the dual system.

There are currently around 350 occupations recognized by the system. The German government, in close cooperation with the German Chambers of Industry and Commerce (IHKs) and the German Confederation of Skilled Crafts (ZDH), ensures that exacting standards are adhered to rigidly, guaranteeing the quality of training provided across Germany.

The higher education system also applies the dual system of vocational training. There are currently around 64,400 students taking part in a dual study program. These are usually offered by universities of applied sciences. Most of the dual study programs cover engineering or business degrees because of the high level of integration within the 39,600 participating companies.


Motivated and Dependable Employees

German labor flexibility is reflected in higher than average employee motivation levels – exceeding those of most leading industrialized nations. In fact, according to the IMD World Competitiveness Yearbook, German employee motivation levels are greater than those of their counterparts in the US, China, Russia, Poland, France and the UK. A direct corollary of this is the fact that Germans work more than their international peers (40.4 hours per week) and lose less days per annum to strike action than other European nations (significantly below the EU-28 average according to Eurofound).


Stable Labor Costs

An excellent labor force and efficient production process standards have led to a major increase in productivity in the past decade – a marginal increase over the respective labor cost increase.

Since 2004, wages have risen in most European countries (EU-28). The growth rate averaged 2.8 percent. While some countries – particularly those in eastern Europe – experienced an increase of about seven percent, Germany recorded one of the lowest wage rises within the EU at about 1.8 percent.

This has led to falling unit labor costs, which represents a genuine competitive cost advantage – particularly in manufacturing. In marked contrast to other large industrialized countries in Europe, which have experienced an overall increase in unit labor costs, Germany’s unit labor costs decreased by a yearly average of 0.3 percent for the period 2004 to 2013.

 Tax Environment


Germany offers one of the most competitive tax systems among the big industrialized countries. The average overall tax burden for corporate companies amounts to 29.83 percent.

To understand the German tax system, it is important to note that there is no consistent nationwide corporate tax rate. Instead, the overall tax burden for corporate companies can differ from municipality to municipality. The abovementioned overall tax burden rate of 29.83 percent is an average amount. Significantly lower tax rates are available in certain German municipalities – up to eight percent less.

Germany Trade & Invest can offer valuable support in site selection to help identify attractive locations in Germany.

The overall tax burden level between certain municipalities can differ by up to ten percent. This is because corporate taxation in Germany consists of three components.

The first component is the corporate income tax with a flat nationwide tax rate of 15 percent. The second component is the solidarity surcharge with a nationwide rate of 0.825 percent. The third component is the trade tax which is a municipal tax. The trade tax rate is therefore set by each municipality individually. The trade tax rate must at least be seven percent but there is no statutory ceiling.

As such, the overall tax burden of all three components can therefore be as low as 22.83 percent in some German municipalities. This puts Germany in a position where it is even able to compete with low tax countries in Europe and overseas.

 

Moreover, Germany provides an extensive network of double taxation agreements (DTA) ensuring that double taxation is ruled out, e.g. when dividends are transferred from a German subsidiary company to the foreign parent company.

The DTA between Germany and the US, for example, reduces taxes on dividends paid by a German subsidiary to its US parent company to only five percent if the US parent company holds at least ten percent of the German subsidiary. This five percent withholding tax paid in Germany can then be offset against taxes to be paid in the US.

The tax on dividends can even be reduced to zero percent if the US parent company holds at least 80 percent of the shares of the German subsidiary company for a period of at least twelve months and certain other criteria are fulfilled (e.g., the US company is a stock corporation listed on a US stock exchange).

 Investment Incentives

Investment projects in Germany can receive support through a number of public funding instruments. The incentives help investors meet their immediate capital needs by providing non-repayable grants at the beginning of an investment project when capital expenditures are high compared to later investment phases. Interest-reduced loans and public guarantees complement the public financial support.

Investment grants are predominantly offered through the “Joint Task for Improving Regional Economic Structures” (GRW). The maximum level of funding allowed varies within Germany. Large enterprises can be reimbursed for up to 20 percent of the eligible investment costs, medium-sized enterprises for up to 30 percent, and small enterprises for up to 40 percent. The actual amount granted depends on factors such as the location of the investment project, company size, core activities, investment volume, and the number of new jobs created.

Enterprises in Germany can apply additionally for further funding programs:



There is a particular focus on assisting research and development activities, usually in the form of non-repayable grants. Qualification and training support as well as wage subsidies are offered when hiring personnel.

All of the public funding instruments can be used for all of the investment activities. Another key benefit lies in the ability to combine the funding instruments. This means that support does not stop at one point, but is available in all business phases.

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