Doing Business in Germany

Explore the challenges, risks and potential rewards of setting up your business in Germany

Thinking about doing business in Germany? Give your plans a head start with our quick guide to everything you need to know – from the country’s economic outlook and business environment, to the opportunities, costs and potential risks of expanding your operations here.

1 Overview

Explore our detailed guide to explore the following key points essential to plan your business expansion strategy for Germany:

2 Business opportunities in Germany

Dynamic economy

As a potential new market entrant, you’ll be pleased to hear that Germany is renowned for its innovative business culture and large consumer spending power. Located right in the heart of Europe, it’s an ideal springboard for further commercial expansion into neighbouring countries like France, Italy and Austria. The country also boasts an excellent transport network and highly skilled workers.

Help for startups

One of the ways the government has made doing business in Germany easier is by setting up professional information centres in each state. When it comes to international business opportunities in Germany, it may also be worth enquiring about funding.

Starting a business:

The government has made doing business and investing in Germany a little easier by smoothing over the overall process and making it less costly for startups to get underway.

3 Ease of doing business in Germany

Skilled workforce

If you’re thinking of expanding into Germany, the country’s current shortage of skilled workers may initially sound like cause for concern. However, freedom of movement laws allow businesses to recruit people from all other EU countries – and the visa rules make it easy to hire workers from abroad. One of the top tips for doing business in Germany is that companies are allowed to sponsor foreign workers in return for fast-tracked residency.

Trading across borders

Because Germany is part of the EU customs union, it’s relatively open to exports and third country import duties, restrictions and prohibitions. That said, there are certain EU standards that must be met when it comes to health and technical goods – and you’ll find more information on those here.

Germany also has multiple EU trade agreements with other countries – including the U.S., and key markets like France, China, and the Netherlands.

The OECD (Organisation for Economic Co-operation and Development) gives Germany a Trading Across Borders score of 91.77 out of 100 – versus a regional average of 94.21 out of 100.1

Enforcing contracts

In Germany, all cases are processed by the Berlin Regional Court, and the average claim value is currently €77, 070. To resolve a commercial dispute through the courts takes an average of 499 days, and 14.4% of the total claim value. Overall, Germany ranks 14th in the world for its Enforcing Contracts score – ahead of Iceland (31) and Finland (46), but behind France (12) and Denmark (14).2

Resolving insolvency

Germany’s legal system is respected around the world. Ranked 4th overall for its ability to resolve insolvencies, claimants can expect to receive an average of 80.4 cents on the dollar, with an average case lasting 1.2 years.3

Securing credit

Germany prides itself on having a modern financial system and strict legal framework. Obtaining credit is a fairly smooth process and usually made through private, public and cooperative banks. Nonetheless, any lender will want to see a written presentation of your plan, along with details about your legal structure, overheads, and financial projections.

4 Benefits of doing business in Germany

Strong intellectual property (IP) laws

If your product is especially innovative, you may well be in safe hands in Germany. IP is well protected there – with copyright, patent law and trademark law all designed to help businesses protect their most-valuable of assets. One of the other advantages of doing business in Germany is the country’s strict competition laws, which prevent rivals making false claims about your product in order to attract customers for themselves.

5 Risks of doing business in Germany

Any market expansion plan comes with its own set of risks and potential drawbacks.

While the benefits of investing in Germany are clear, the country is not without its frustrations – namely its many rules, regulations and minimal flexibility and spontaneity.

One of the major challenges of doing business in Germany is the often slow rate of progress in making decisions, and a dislike of sudden change. To succeed there, you’ll need to be patient – and also be prepared for the German style of communication, which can feel overly-direct and abrupt. However, rather than being impolite, this is often just the ‘German way’ of wanting to get to the point.1

Economics

Following the European debt crisis in 2017, Germany’s economy recovered and the country recorded an encouraging 2.5% growth in GDP.

In the longer-term forecast, GDP is likely to grow although things have slowed down a little since 2017.

Looking further afield, decreased foreign demand and weaker order inflows are making the situation more challenging – especially when viewed alongside trade tensions which have built up globally.

Closer to home, reduced industrial activity and weakening consumer and business sentiment are also negatively impacting Germany’s economy. The automotive sector is an area that’s been hit especially hard, and the costs associated with adapting to changes in emissions standards have undoubtedly played a part.2

Intellectual property

Germany has well-established IP laws but it’s worth noting that your rights are territorial, and only protect you in the countries they are granted. In Europe, patents comprise a range of separate national patents – and there is no one, single, European patent. In other words, when trading internationally, give serious thought to registering your IP rights in each of your new markets.3

6 Costs of doing business in Germany

Construction permits

In Germany, it takes an average of 25 days to obtain a building permit, and 21 days for a static calculation. That’s around half the time it takes to obtain a water connection for a newly-built premises.1

Getting electricity

Getting connected to the grid is relatively easy in Germany. It takes just 28 days and requires only 3 procedures – placing it 5th overall in the world.2

Registering property

Registering a property in Germany is a fairly bureaucratic process. It takes an average of 6 procedures, and businesses must register their ownership of the building with the Land Registry and notarise the transfer agreement. Also worth bearing in mind is that in some cases a waiver of pre-emption rights with the municipality needs to be obtained. Purchasing a property in Germany also incurs transfer tax, which takes an average of 52 days to complete.3

Paying taxes

While the German government has taken steps to simplify its tax laws, the 2018 Financial Complexity Index ranked the country 21st out of 94 jurisdictions globally due to the complexities involved. In the average year, businesses will make 9 tax payments and spend around 218 hours managing the process. The standard rate of VAT in Germany is 19% and corporate income tax is 15%. There’s also something called a ‘Solidaritätszuschlag’ or ‘solidarity surcharge’ – which is a 5.5% fee that must be paid by any person or legal entity that owes income tax, capital gains tax and corporate tax. Lastly, trade taxes (‘Gewerbesteuer’) are due on profits. Each municipality sets its own rate, and the current rate is around 14.4

Wages

In Germany, the minimum wage is €1,557 per month or €9.19 per hour. While social contributions are high, these are split fairly equally between both the employer and employee.5

Rent

Much debate has occurred in recent years around regulations in the private rental housing sector – with the onus being on finding ways to curb further increases.6

Health insurance

Statutory health insurance (Gesetzliche Krankenversicherung) is provided for workers on a gross annual wage of up to €60,750. Over that amount, employees can choose from a private or public provider. However, it is the employer’s responsibility to pay any accident insurance contributions.7

7 How to start a business in Germany

There are plenty of small business opportunities in Germany, but the first thing you’ll need to do is ensure your company is set up and registered correctly.

While Germany is undoubtedly a dynamic and forward-thinking country, starting a limited liability company (GmbH) there is surprisingly tricky. The World Bank ranks Germany in 114th place in terms of the ease of starting a business, due mainly to the high number of procedures that users are required to follow1. For example, opening a bank account is notoriously time-consuming, and you’ll also need to check the availability of your company name with the chamber of commerce; submit the business name to the local trade body; register with any relevant professional associations; and liaise with local labor, business standards and tax offices.2

The first step to starting a business abroad is knowing which markets are suitable for the products or services you offer. That’s where Market Finder can help. It not only allows your business to quickly identify potential markets overseas, but also has lots of useful features, guides and success stories to help you build your operations and market your business to the right audience. Plus you’ll discover new potential partners that can help make your overseas expansion plans a success. Click here to find out more.