International Joint Ventures and Merger & Acquisitions

Doing Business in Germany

August 22, 2016

Germany as a destination for doing business has always been at the heart of every Entrepreneur owing to its stature around the world...

GERMANY has proved to be the pivot of finding growth & opportunity in Europe. Almost all forms of industries are present in German economy. We have the experience and presence across Germany that will ensure easy transition for you to do business in any part of GERMANY for all industrial sectors and operate swiftly beyond boundaries of Indian Markets.

We are the one stop solution catalyst for all your requisites to do business in Germany by way of:

  • Setting up of a business
  • Finding a Technology
  • Joint Venture Partner
  • Acquiring a business in specific industry
  • Other Legal, Accounting and Consulting Services
We along with our team at Germany can help you achieve your European expansion plan. We have our representative office at Dusseldorf with 3 offices with our partner in Germany, namely at Dusseldorf Frankfurt & Eschborn. We have extensive knowledge and rich experience in successfully concluding the transition and providing assistance for Legal, Accounting and corporate finance needs. We are the member of Indo German Chamber of Commerce and have some of the prestigious clients to our credit, who have successfully established themselves in Germany and vice versa in India through us.

In case you are keen to enter the German market, we would be delighted to offer our services & also help you think up the right strategy to enter the market.



Germany has a social market economy with provisions to prevent large economic participants from skewing other interests. Hence, there are laws against unfair competition, for the protection of the environment and those protecting employees. The cases of serious industrial unrest are rare due to presence of strong and well-established trade union movement. There is no favoured industry.

A few large German corporations have partial state ownership but are progressively being placed on the market with the objective of privatisation amongst a large number of individuals. There is modest trend toward industry concentration, resulting in frequent mergers and acquisitions. are frequent. The German industry in a state of movement with new businesses being formed and old ones going out of businesses.


It is government policy to encourage a wide spread of share ownership among the general public, and a number of incentive programmes support this objective. The banks offer caretaking services to the shareholders, which include collecting dividends on their behalf and also acting as proxies at shareholders' meetings. There are no significant controls preventing or restricting foreign investment as such and the typical form of foreign participation in German industry is that of a wholly or substantially majority-owned subsidiary.

Government Policy

There is almost no government guidance of business but many restrictions and prohibitions designed to protect business and non-business interests and to prevent abuses. The Government policy aims to protect the existing employment level and, if possible, to increase it and encourage competition on a level playing-field.

Germany has no overall national economic plans, but does offer various specific incentives and regional programmes, subject to EU approval. Companies benefiting from the programmes receive incentives and other support on fulfilment of specified conditions, most of which are negotiated individually and usually include a guaranteed minimum employment level.
Stock exchange takeovers are regulated by a Securities Acquisition and Takeover Act to ensure that management's recommendations are not coloured by self-interest.


Most German towns have established their own trading estates.There are no free-trade or privileged economic zones within Germany. General information is freely available from various government and other authorities, such as the federal ministry for the economy, from local Chambers of Commerce and Industry, or from German embassies and consulates abroad.

Corporate Governance

Corporate management boards are held to a semi-voluntary code of conduct and disclosure, the Code of Corporate Governance by the Federal Ministry of Justice. The government legislation limits the remuneration of directors of, particularly, public companies to levels justified by the performance of the company and by the market.

Trade Registers

Each entity carrying on a trade or business in Germany must register with the local registry court (trade register) for the town of its seat or of its principal place of business using the electronic format. Branches in other towns must also be registered if the branch effectively trades independently, but not if it solely supports, and is dependent on, the activities of the main company. The same distinction applies to German branches or other establishments of foreign companies. A German subsidiary, as a legal entity, must be registered in at least one trade register. The Federal Gazette also maintains a database of registered businesses. Annual Reports of companies are also filed with the Federal Gazette in a set XBRL (eXtensible Business Reporting Language) format and are open to public inspection and interrogation.

Safety & Environment

Apart from the registry court, each town or other local authority maintains a Trading Office. Each place of business must be registered with the local Trading Office, which exercises a degree of supervision over matters such as public access and safety, adherence to any applicable regulations regarding the use to which certain premises may be put, and any compulsory opening and closing times. Their records are not open to the general public.

Germany has many statute and other law, regulated by E.U., on all aspects of environmental and consumer protection, including, especially, minimum warranties and product liability, often stricter than other E.U. counterparts.

Regulated Industries & Professions

Banks and other financial services institutions, insurance companies, stock-brokers and asset managers are subject to close supervision by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungs-aufsicht or BaFin). A number of products and services are subject to specific German government and EU registration requirements such as Pharmaceuticals, any electrical or mechanical product, compulsory insurance cover for tour operators in the travel trade. The professions-doctors, auditors, tax consultants, engineers, architects, and lawyers are subject to institutional supervision.

Capital Markets

Germany’s bond market is the third largest in the world, after New York and London, and her stock market is the fourth, after New York, London and Tokyo. There are nine German stock exchanges, although they are all linked to the Frankfurt exchange, the centre of the German money market and the seat of the various organs that ensure the smooth control and completion of transactions. Trading is on the regulated and unregulated (or open) markets. The minimum equity capital for regulated market is €1.25m. The unregulated market is open to issuers with an equity capital of at least €250,000. Foreign companies may meet all stock market filing and publication requirements in English. Financial statements and disclosures may follow IFRS or US GAAP.

Money Laundering

In concert with other EU members, Germany has strict set of rules and institutional procedures to prevent money laundering, the misuse of German financial institutions for organised crime, etc. These rules are impositions on service providers at risk of being abused, such as banks and other financial institutions, investment consultants and agents, lawyers, accountants and all businesses handling large amounts of cash.


Types of Entity

Foreign businesses may establish their German operations as

  • companies,
  • partnerships or
  • branches of the parent entity or
  • may be establish an informal presence through a liaison office.


Almost all German companies are either AGs (Aktiengesellschaften - public limited companies suitable for large number of shareholders) or GmbHs (Gesellschaften mit beschränkter Haftung - private limited companies suitable for owner managed business). Depending on the strategy of foreign investors keen to form a German subsidiary may choose to be AG (vision for any public offering as these companies are tradable on stock exchange) or GmbH (management owned and simplicity of procedure).

Capital Requirements

The minimum share capital of an AG is €50,000 divided into ordinary shares or any other class of shares of equal nominal value of at least €1. The minimum share capital of a GmbH is €25,000. In case capital is of less than €25,000, such a business must disclose its status in its firm name and put 25% of its annual net profit to a legal reserve until it reaches to amount that makes to the legal minimum. Once having the minimum requisite capital, it is free of the reserve obligation and may change its status name to that of a GmbH.

Shareholders, directors and officers

Both the AG and the GmbH are managed by one or more directors. The directors of an AG meet as a board (Vorstand), take decisions collectively and record their meetings in board minutes. The directors of a GmbH (Geschäfts-führer) meet informally and take decisions collectively or on their sole responsibility depending on agreement by the shareholders. Both form of companies must appoint a “labour director” if the employees exceed 2000. Any company with more than 500 employees must appoint a supervisory board, made up of non-executive directors, for the supervision of the executive board, monitoring financial reporting and the appointment of directors and auditors on behalf of the shareholders. A small AG (fewer than 500 employees) must, by virtue of its legal form, appoint a supervisory board of at least three members elected by the shareholders.

Corporate Governance

All companies with a stock or capital market listing, and other "public interest entities" must follow the German Code of Corporate Governance issued by the Ministry of Justice. The companies' compliance, or any non-compliance, must be publicly disclosed, verified by the auditor.

Partnership Limited by Shares

German company law also provides for a partnership limited by shares (Kommanditgesellschaft auf Aktien – KgaA) but is effectively treated as an AG for most purposes and its shares can be traded on the stock exchange The KGaA has at least one partner with unlimited liability. The division of profits and losses among the partners is a matter for the statutes of the KGaA. There are also various other forms but are all either highly specialist in nature or are otherwise unsuitable for foreign investors.


A partnership is a separate business entity from an operating point of view but not legally separate from its owners (the partners) in many respects, including taxation.

There are two common German partnership forms, the general partnership (offene Handelsgesellschaft - oHG) and the limited partnership (Kommanditgesellschaft - KG). The difference between the two forms is that some (but not all) of the partners of a KG have limited liability. The European economic interest grouping (Europäische Wirtschaftsinteressen- Vereinigung - EWIV) is similar to a general partnership (oHG).

Branches of Foreign Companies

A foreign business may carry on operations in Germany through a branch registered for that purpose. A branch, registered or not, is not a separate legal entity from its foreign parent company. The parent business therefore always bears ultimate legal liability for all liabilities and obligations of the branch. Registration is with the local court for the area in which the branch is located or on which the German activities are centred. There are no formal minimum capital or other requirements (except for branches subject to specific industry supervision), but one or more local branch managers must be named. Registration is required if the German activity constitutes an apparently independent business unit capable of a self-contained and self-supporting existence, but is not possible if this is not the case, as for example with a liaison, or sales support, office.

Change of Legal Form

All forms of corporate reconstructions, mergers, splits, spin-offs, drop-downs, and changes of legal form are regulated by an omnibus Reconstructions Act and mostly can even be done free of tax.


The German labour force is well-trained and well-educated, and is used to high standards of efficiency, organisation, and protection and to generous fringe benefits and remuneration. German employment relationships are regulated by statutory and extra-statutory instruments, trade union and similar agreements. Organised employee representation is at two levels. The first is the "workers' council", elected for each "shop" by its employees. The second, or external, level of employee representation is through the trade unions, one union for each major sector of industry. Apart from pension schemes, fringe benefits in Germany tend to include canteen meals, child care, company transport and similar amenities that make the work place more attractive. Working weeks vary by industry sector and by location, but are mostly within the range of 37 to 40 hours. Overtime is often payable at premium rates. The legal minimum paid holiday entitlement is 20 working days each year for employees on a five-day working week. All employers are subject to health and safety regulations.

Employers and employees can terminate contracts of employment at any time by giving four weeks' notice to the 15th or end of any month. However, the Act on Protection against Termination (Kündigungsschutzgesetz-KSchG) provides for longer minimum notice periods for long-serving employees. The German social security system is broken down into four main components- retirement insurance, unemployment insurance, invalidity insurance, and health insurance-and a number of minor elements. Germany has concluded social security treaties withAustralia, Bosnia-Herzegovina, Brazil, Canada, Chile, China, India, Israel, Japan, Korea, Kosovo, Macedonia, Montenegro, Morocco, Serbia, Tunisia, Turkey, United States and with Uruguay (not yet in force). EU citizens have the right of migration to Germany. Individuals of other nationalities moving to Germany require residence and work permits.


Import Restrictions

The import restrictions in Germany are accordance with UN sanctios. Some impons. In addition, there is a special licensing procedure for certain specific types of goods, mostly military equipment and drugrt quotas are imposed by the EU (e.g. for textiles), and these are also applied by Germany, which issues licences freely until the quota is filled. Whole sale import of products is prohibited in Germany. Since the EU member states constitute a single European market, the terms "export" and "import" refer to trade between Germany and non-EU countries.

Import Duties

German customs duties are all based on value and are levied at rates dependent on the type of goods and on the country of origin. The rate of duty on imports of manufactured products from other countries ranges from zero and rarely rises above 10%. Additional duties are levied from time to time on specific products from specific countries at the direction of the EU, usually as a result of an anti-dumping case. The general basis for assessing duties is the supplier's invoice. With respect to agricultural products, there are special procedures, subject to special EU levies, usually based on net weight.

Authorized Economic Operator

Regular importers and logistics businesses may register as an "authorised economic operator" under EU-harmonised rules. Authorisation will be granted to businesses who are reliable from the financial, record keeping and, technical points of view. Authorisation is granted locally, but is valid through-out the EU. There are two types of authorisation available-Customs simplifications and security and safety and enable Customs to grant the holder priority in dealing with his requests for permits or rulings. Other benefits include fewer test checks of transactions and a more flexible approach to routine examinations.

Local Representation

Foreign exporters looking forward to have own employees in Germany or to appoint their own German representatives shall have to meet the preconditions of a taxable "permanent establishment" in Germany under the terms of the relevant double tax treaty. It is also quite usual for a foreign business to establish a German sales subsidiary or branch to regularly and systematically exploit the German market.

Consumer Sales from Foreign Websites

Foreign businesses providing electronic services or downloads to private, non- business consumers in Germany from outside the EU must register for VAT in an EU state of their choice. The German rate of VAT is 19% and businesses should abide by the German requirement to keep records in support of the VAT returns filed and retain them in hard and softcopy for ten years.


Statutory Requirements

The Commercial Code requires all but the smallest businesses to keep an orderly set of books that conform to a generally accepted standard of record keeping in euros and written-up in German. The Commercial Code also contains additional requirements for the audit (small companies are not subject to audit) and publication of financial statements of all limited companies (categorised into small, medium-sized or large), and of partnerships in which no natural person ultimately carries unlimited liability.

Not exceeding any two of the three criteria Small company Medium Company

  • Annual Sales €9,680,000 €38,500,000
  • Balance Sheet Total €4,840,000 €19,250,000
  • Employees 50 employees 250 employees

Accounting Principles

All German statutory financial statements must be accurate, agree with the underlying accounting records, must follow the historical cost convention and be drawn up within three months of the company's year-end. The financial statements must follow the accruals, consistency and prudence accounting principle. Financial statements must be drawn up under the assumption of going-concern. Appropriate depreciation of fixed assets must be recorded, liabilities must be taken up at their anticipated repayment amounts and provision must be made prudently for foreseeable financial risks.

Form and Content of Annual Reports

The basic German financial statements are a balance sheet and a profit and loss account. The notes thereto are the subject of an "appendix" (Anhang). The financial statements are accompanied in the annual report by the auditor's report, the directors' report (the so-called "business report" or Lagebericht). In addition, Quoted companies must publish a cash flow statement and a declaration of compliance with the Code of Corporate Governance.

Valuation- Shareholders’ equity, assets and liabilities

Shareholders' equity consists of the issued share capital, capital and other reserves and the retained earnings. Fixed assets consist of tangible fixed assets, intangibles and investments. No planned amortisation may be taken on the investments or on land, but all other assets must be depreciated over their useful lives as per guidelines of the tax rules. Inventories are valued at the lower of cost or market.

Inventory usage is normally accounted for on an averaging method or by FIFO. Other methods may be used if they more accurately reflect usage in practice.

Prudent provision must be made for all foreseeable financial risks. Expenses already incurred must be accrued. Payables and other liabilities include only those amounts where the amount, the obligation to pay and the identity of the creditor are certain. Foreign currency balances due within one year are translated into euros at the official middle rate on balance sheet date. Unpaid taxes actually assessed are included in other liabilities. Income taxes currently payable but not yet assessed are shown as a separate item under the amounts accrued. Pension provisions are shown as a separate item under provisions and accruals. Partial pay-out leases are almost always treated as operating leases, full pay-out leases are generally capitalised by the lessee if the minimum lease period is less than 40% or more than 90% of the asset's anticipated useful life.

Consolidated Accounts

A German company with at least one subsidiary must prepare and publish a set of audited consolidated financial statements, unless the consolidated whole fits the definition of a small group.Companies can be exempted from the consolidation requirement if they themselves are subsidiaries of an EU or foreign parent (US or those who follow internationally recognized accounting principles and auditing standards) and that parent publishes a German translation of its own consolidated financial statements in Germany.

International Financial Reporting Standards (IFRS)

As per European law, all quoted companies (optional for non-quoted companies) must draw up their published consolidated financial statements under IFRS.


A privately organised German Accounting Review Board (Deutsche Prüfstelle für Rechnungslegung ) has been set up under the Financial Statements Review Act and is subject to the overall control of the Federal Financial Supervisory Authority. It conducts field reviews of the published financial statements and other reports of quoted companies.

Auditing Profession and Auditing Standards

The auditing profession is led by the Institut der Wirtschaftsprüfer (Institute of Auditors).Membership in the Institute is voluntary whereas membership in the Chamber of Wirtschaftsprüfer is compulsory for the some 17,000 Wirtschafts- prüfer and firms. The Institut der Wirtschaftsprüfer provide detailed and extensive standards of auditing and reporting and sets rules for ethical behaviour and professional conduct. An audit opinion must be easily understandable, must draw clear attention to major problems - especially those endangering the business as a going concern - and must confirm that the directors' report is not misleading.

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