Germany Market Overview

Company Formation
• Establishment of a “GmbH”
• Steps for formation of “GmbH”
• Taxation Of Corporations
• Incentives

• ESTABLISHMENT OF A GMBH
– High flexibility and few obligations.
– At least one shareholder (private individual or legal
entity) is required in order to establish a GmbH.
– Two mandatory corporate bodies.
• Main Body (shareholder(s))
• Executive body (managing director(s))
– The company must have a physical German
business address and at least a local
representative.
– The GmbH requires a minimum share capital of
EUR25,000. It can be contributed in cash or in kind
(e.g. real estate or patents). Liability is limited to the
corporation‘s business assets including share
capital.
Establishment of
a “GmbH”

1. DRAFTING OF ARTICLES OF ASSOCIATION
Mandatory content includes share capital, shareholders and respective shares held,
business name, registered office, and company object.
2. NOTARIZATION OF ARTICLES OF ASSOCIATION
The drafting and notarization of the articles of association are normally performed
in one session by a German notary. The founding shareholder(s) adopt(s) the
articles of association and appoint(s) one or more managing directors in a notarial
deed.
3. PAYMENT OF SHARE CAPITAL (CASH CONTRIBUTION)
Once the articles of association have been notarized, a company account should be
opened and the share capital deposited. A payment of EUR 12,500 in total is
sufficient for standard EUR 25,000 GmbH registration in the commercial register.
4. REGISTRATION IN THE COMMERCIAL REGISTER
When the required share capital has been verifiable contributed to the GmbH, the
managing director(s) apply for the registration of the GmbH in the commercial
register (Handelsregister). The application is electronically filed by a notary. The
GmbH comes into existence as a legal entity and its limitation of liability becomes
effective upon registration in the commercial register.
5. TRADE OFFICE REGISTRATION
Before business operations are started, the trade office (Gewerbe-/Ordnungsamt)
must be notified about the business activity in question. Required permits and
verification of representatives must also be submitted.
Steps for formation
of “GmbH”

Taxation Of
Corporations
The total corporate income tax burden varies from region
to region, in some areas it can be as low as 22.83 percent.,
however the average corporate tax is 29.83 percent.
1. Corporate Income Tax
All corporations are liable to pay corporate income tax. The
rate of tax is 15 percent on the taxable profits of the
company. Corporate income tax is payable on undistributed
as well as distributed profits.
2. Solidarity Surcharge
The solidarity surcharge is added to the corporate income
tax. This totals 5.5 percent of the 15 percent rate of corporate
income tax or 0.825 percent. Taken together, the corporate
income tax and solidarity surcharge amount to a total
taxable rate of 15.825 percent.

Taxation Of
Corporations
3. Trade Tax
All commercial business operations in Germany are liable to pay trade tax
irrespective of their legal form. The tax rate is set by local authorities – which
means that it can vary from one municipality to the next. However, the trade tax
rate is generally the same for all businesses within one municipality. The trade tax
rate starts at 7 percent. The German average trade tax rate is around 14 percent.
The corresponding rate of trade tax depends on two components:
• The tax base rate (3.5 percent throughout Germany)
• The multiplier (Hebesatz) stipulated individually by every municipality
The taxable income of the company is multiplied with the tax base rate (3.5
percent) which will give ”tax base amount.“ This tax base amount is then
multiplied with the corresponding municipal multiplier, which results in the
sum total of trade tax due. The multiplier is set by each municipality. On
average, it is between 350 percent and 400 percent but may not total less than
200 percent. There is no upper limit for the municipal multiplier. The
municipal multiplier is often higher in urban than in rural areas. The
solidarity surcharge is not levied on trade tax.

Taxation Of
Corporations
Overall Tax Burden by Municipal Multiplier
Minimal Municipal
Multiplier
Maximal Municipal
Multiplier
German Average
Taxable Corporate Income
1,000,000 1,000,000 1,000,000
(EUR)
Trade Tax -70,000 -171,500 -140,000
(3.5% x Municipal
Multiplier)
(mun.
multiplier: 200%)
(mun.
multiplier: 490%)
(mun.
multiplier: 400%)
Trade Tax Rate Trade Tax Rate 17.15% Trade Tax Rate
7% 14%
Corporate Income Tax -150,000 -150,000 -150,000
(Tax Rate 15%)
Corporate Income
Tax 15%
Corporate Income Tax
15%
Corporate Income
Tax 15%
Solidarity Surcharge -8,250 -8,250 -8,250
(5.5% of Corporate
Income Tax)
Solidarity Surcharge
0.825%
0.825%
0.825%
Net Income (EUR) 771,750 670,250 701,700
Overall Tax Burden 22.83% 32.98% 29.83%

Incentives
• EU Criteria Determining Company Size
– Company size is generally determined according to an EU-wide
classification system in which companies are categorized as being small,
medium-sized or large .
– The size of a company is an important criteria to determine the possible
incentives level a company may receive. Most incentives programs offer
the highest incentives rates to small and medium-sized enterprises
(SMEs).
Enterprise Category Employee Numbers Annual Turnover Annual Balance Sheet Total
Small Enterprise (SE) < 50 ≤ EUR 10 million or ≤ EUR 10 million
Medium-Sized Enterprise
(ME)
< 250 ≤ EUR 50 million or ≤ EUR 43 million
Large Enterprise (LE) ≥ 250 > EUR 50 million or > EUR 43 million
– The criterion concerning the headcount is compulsory. In addition, either of the annual
turnover or the balance sheet criteria must also apply.

Incentives
Notes:
1 Includes a bonus of 20%, 2 Includes a bonus of 10%, 3 “De-minimis-rule” (*) Available from July 1, 2014 until December 31, 2017
The bonus of 20% for a small enterprise and of 10% for a medium-sized enterprise is not granted to large investment projects with eligible investment
costs above EUR 50 million.

Agenda
• Germany: An Overview
• Economy & Investment Overview
• Business Environment: Germany
• Innovation & Technology
• Labour Market & Population Skill Set

GERMANY:
An Overview
• Strategic Location:
– Good
• Population and social circle:
– Declining
• Language:
– German
• Political system:
– Stable
• Legal system:
– Strong well defined
• Economy:
– Moving towards digitalization

Economy & Investment
Overview
• ECONOMIC CLIMATE
– Social market and free spirited, but
under strict and legal administrative
control.
– Laws against unfair competition.
– Highly motivated, well-trained and
disciplined work force.
– Well-established trade union to
safeguard protection for employees.
– The labor force - 41.2 million gainfully
employed by 3.6 million enterprises.

Overview
• FOREIGN INVESTMENT
– Worldwide important investment location. No 5
worldwide ( 2012)
– New investments on high level and stable.
– The foreign direct investment inflows:
2008 – 8.1 USD Billion
Though Germany saw a fall in FDI in 2012 but then
again rose in 2013 and 2014.
– Most important industries for foreign investments
: ICT, software & Services, automotive, machine
building, chemistry.

Overview
• LOCAL CONSIDERATIONS
– No free trade or privileged economic zones
within Germany.
– There is an arrangement for exempting IT and
certain other skilled employees from non-EU
countries
– There is no hindrance to obtaining in-depth
marketing information, initiating searches for
potential investment targets, or to obtaining
the necessary outside professional support for
the solution of complex problems.

Business Environment:
Germany
• KEY FACTS:
– Germany ranked 4th out of 148 economies, demonstrating
its attractive business environment. (GCI) 2013;
– Fiscal discipline resulted in 0.0% in its general
government net budget in 2013, versus a deficit of 4.2%
of total GDP in 2010;
– Taxes hamper Germany’s competitiveness, at total tax
rate equated to 49.4% of commercial profits, higher than
the OECD average of 41.3%, according to the World
Bank’s Ease of Doing Business (Doing Business) 2014
report;
– R&D expenditure amounting to 3.0% of total GDP in
2013, above the EU average of 2.1%.
– 26.4% of the German population aged 15+ attained higher
education, above the 2013 EU average of 21.5% in 2013.
– Healthy GDP per person employed standing at
US$80,620 in 2013, above the EU average of US$71,350.

Ease of doing business

OPERATING ENVIRONMENT
• EASE OF DOING BUSINESS
– Germany ranked 21st out of 189 countries, versus 19th
out of 185 countries in the previous year.
– Germany’s worst category was “Starting a Business”
(111th) which is incongruent with the country’s image as a
highly efficient economy.
– Dropped from 104th out of 185 countries in Doing
Business 2013, as no further reforms were undertaken in
this area and Eurozone uncertainty adversely impacted
Germany’s business environment.
– The time taken to start a business and associated costs of
14.5 days and 4.7% of income per capita respectively,
versus 11.1 and 3.6% for the OECD average respectively
and is done in 9 different procedures.

TAX ENVIRONMENT
• TAX Rates
– Effective corporation tax rate is between 30% and 33%(2014),
depending on surcharges and trade tax.
– The total tax rate equated to 49.4% of commercial profits,
somewhat higher than the OECD average of 41.3%.
– Whilst labour tax and contributions were 21.8% of
commercial profits, compared with 23.1% for the regional
average.
– The standard value-added-tax (VAT) is 19.0% (2014), with a
reduced rate of 7.0% applicable on certain goods and
services, books, hotel accommodation, food and agricultural
produce.
– VAT exemption on Land, buildings, financial transactions,
medical services, education and insurance.

• GERMANY’S FOCUS ON TECHNOLOGY
– Germany has a well-developed information and
communications technology (ICT) sector and a mature
telecoms market
– 107 Million mobile phone users (11th in the World)
– 96.7% of total Businesses used the Internet in 2013, up from
94.8% in 2008, higher than the EU average of 95.5% in 2013, a
sign of a mature and highly sophisticated market.
– 85.2% of the total population used the Internet in 2013, up
from 78.0% in 2008
– German companies represent 15.6% of research advanced
goods worldwide, ranking 2nd in the world followed by US.
Innovation &
Technology

• LABOUR MARKET LANDSCAPE
– 70.7% of the female working age (15-64) population in 2013,
compared to 65.7% in 2008, considerably above the 2013 EU average
of 61.2%.
– 80.8% of the male working age (15-64) population in 2013, compared
to 77.4% in 2008.
– 12.5% employment from Finance, Insurance, Real Estate and
Business Services sectors, accounting for 29.5% of total GVA in 2013.
– Manufacturing sector saw the biggest fall in employment from 23.8%
in 2008 to 22.2% in 2013.
– Rigid labour market (GCI 2013), and a low rankings in “Flexibility of
wage determination” (141st out of 148 economies).
– “Hiring and firing practices” (118th rank).
– “Cooperation in labor-employer relations” (18th rank).
The country has attempted to make the labour market more flexible
through reforms in favour of employers (initiated by Angela Merkel), as
well as facilitating hiring and firing practices through the Agenda 2010
(introduced in 2003).
Labour Market &
Population Skill Set

• WAGES AND PRODUCTIVITY
– €24.4 (US$32.4)/hour wage in 2013, whilst
the average wage per hour stood at €21.5
(US$28.6), considerably above the EU
average of US$16.8 and US$17.2
respectively.
– €857 (US$1,137)/Month, is fairly
competitive than that of the UK (US$1,594)
and France (US$1,899) in 2013.
– GDP per person employed stood at
US$80,620 in 2013, somewhat above the
EU average of US$71,350.
Labour Market &

Labour Market &
Agriculture, Hunting,
Forestry & Fishing
1.20%
Community,
Education, Health,
Social, Personal &
Public Service &
Defence
32.40%
Construction
6.50%
Electricity, Gas & Water
Supply
1.30%
Finance, Insurance,
Real Estate &
Business Service
13.20%
Manufacturing
22.20%
Mining &
Quarrying
0.30%
Transport, Storage and
Communication
6.20%
Trade, Vehicle,
Personal Goods,
Repairs & Hotels and
Restaurants
17.00%
Undefined Sectors
0.1
Employment by Industry

Author: Rahil Pathan
Email – rahil.pathan@cahead.com
Business Executive
C Ahead Info Technologies India Pvt. Ltd.

Germany Market Overview

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