Entry Barriers in Germany and how to enter the market and open a business.

1. Ralph Rached
Business In Germany

2. Outline
Business Culture
Accountancy and Tax
Directors’ Duties
Company Formation
Market Entry

3. Business Culture
• Germany continues to retain its position as the driving force of the European
economy.
• It is a successful modern economy with a massively effective export engine at its
core.
• Germany is also a highly attractive market for your products and services.
• Germany has a large sophisticated consumer base with high levels of disposable
income and a large manufacturing base looking for components, inspiration and
expertise.

4. Business Culture-Dress code in Germany
• It is common for men to wear sports jackets and trousers with a shirt
and tie in business situations and for women to wear smart casual
clothes.
• In some of the new technology industries, dress is more casual – with
jeans being seen as acceptable attire.

5. Business Culture-Meeting Etiquette
• Germans could be described as pre-planners who like to attend meetings
having done a considerable amount of preparation in order to help them
debate.
• People are expected to contribute to the debate when discussions touch
their area of expertise but are not necessarily expected to have an opinion
on everything.

6. Business Culture-Structures
• Most of the power in German companies is vested in the hands of a few
senior managers.
• The management board is the final decision-maker on policy matters which
affect management.
• Companies tend to have a strictly hierarchical approach within which
individuals’ specific roles and responsibilities are tightly defined and
compartmentalised.

7. Accountancy and Tax
• Germany has become one of the largest exporters in the world and, due to the
size of its population, Germany is the largest consumer market in Europe.
• Like most of the major economies, Germany has been affected by the financial
crisis in 2008 and 2009, but the impact was less in Germany than elsewhere.
• As Germany is a part of the European Monetary Union, the Euro has been its
official currency since January 1, 1999.

8. Accountancy and Tax (cont..)
• After a period of weakness at the beginning, the Euro and the US dollar
have almost achieved parity (EUR 1.00 vs USD 1.07 in April 2017).
• Transport infrastructure:
With its 12,993 kilometers of motorways and its very extensive railway
system, Germany offers good conditions for the exchange of services
and goods.
 More than 100 international airlines fly to Germany.

9. Accountancy and tax- Audit Requirements
• All corporations must complete the financial statements by notes.
• Medium sized and large corporations should additionally prepare a
management report.
• The German Commercial Code defines three size classes: small, medium
sized and large companies.
• The criteria used to determine to which size class the company belongs
are balance sheet total, turnover, and the number of employees.

10. Accountancy and tax- Employment
• The German social security system provides that a portion of the
employee’s gross salary must be withheld for: pension insurance,
unemployment insurance, health insurance, supplemental insurance to
cover long-term nursing care and workmen’s compensation insurance.
• The employer’s portion is not considered taxable income of the
employee.
• If an individual is a German resident, then all employment income is in
principle subject to German income taxation.

11. Accountancy and tax- Taxation
• Once a corporation commences its business activities in Germany, it
is automatically subject to taxation in Germany.
• If a German representative office of a foreign corporation merely
supplies information to customers in Germany but otherwise does
not provide any other service in Germany, the office is not deemed
to be a “permanent establishment” and, thus, is not taxable in
Germany.

12. Directors’ Duties
• The duties and responsibilities of directors are codified by the German
Limited Liability Companies Act
• You must act within the powers imposed by legislation, the company’s
Articles of Association (“articles”) and by-laws.
• The articles govern how the company is to be run, including the powers
and responsibilities of directors.

13. Directors’ Duties- Liabilities and penalties
• In several cases, misconduct of a managing director can lead to
criminal liabilities, eg in case of:
Reporting false information to the commercial register.
Failure to inform the shareholders of losses amount to half of the
registered capital
Failure to comply with bookkeeping and accounting obligations

14. Company Formation
• Does the name of the company require approval by the Registry or other
authorities?
Answer: No, but a review on whether the chosen name is restricted by legal
requirements or trademark rights of third Parties required.
• Does the company need to provide a registered address?
Answer: Yes, it has to have a domestic business address.
• How many shareholders are required?
Answer: One Shareholder

15. Company Formation (cont..)
• Will the company need to specify a maximum number of shares
that can be issued?
Answer: No, but the minimum share capital must be EUR 25,000
and the number of shares must be specified.

16. Market Entry
• There are few restrictions regarding a business in Germany which
makes it an attractive region to start a business or to enter the
European market with an existing business model.
• The market is very competitive and does present some challenges.
• Advantages of entering Germany:
A Dynamic economy (significant spending power, an innovative climate
and it is located in the heart of Europe.)

17. Market Entry (cont..)
A Good Home for ideas (Inventions, intellectual property is well
protected in Germany.)
Support and Funding (All German states have professional
information centres for entrepreneurs and the advice is free. )
A Diverse Society
Skilled Labor Pool (Although Germany has a shortage of skilled
labour the freedom of movement principle of the EU allows the
country to recruit suitable employees from the rest of the EU.)

18. Market Entry- Barriers
• Regulations and bureaucratic procedures (There are complex safety
environmental standards that can complicate market access for foreign
businesses.)
• Regional Differences (The decentralized German market is very diverse.
Interests and tastes will differ from one German state to another.)
• Tax rates and complicated business and tax laws (Germany’s relatively
high marginal tax rates and complicated tax laws may present a You must
have a good tax consultant to guide you through this complexity and to
avoid critical errors.)