An Overview | Doing Business in Germany
With over 81 million inhabitants, Germany is the most populous member state in the European Union. The capital and largest city in Germany is Berlin, where 3.5 million people reside. Germany has been a member of the European Monetary Union since 2002, when it adopted the Euro currency. Germany is the major economic and political power in Europe and a historic leader in many cultural and technical fields. It has also consistently experienced significant inbound investment, which has had a considerable impact on the country’s growth and prosperity. As a result, the German government actively encourages foreign investment. In fact, a foreign-owned company registered in Germany as a limited liability company or a joint stock company is treated the same as a German-owned company.
As Europe’s largest economy, Germany offers a prime continental location, a qualified labor force, openness to foreign investment and relative economic stability, making it a popular international expansion choice for U.S.-based companies. But with highly discerning consumers, competitive industries and a complex set of employment laws, Germany can also pose unforeseen challenges for foreign businesses starting up operations.
Expanding to Germany? Key things to keep in mind
Strict Employment Law
Governed by a broad and complex body of law, the German employee-employer relationship is highly regulated. The concept of “at-will” employment does not exist in Germany, and failure to meet statutory obligations, especially those related to employment terminations, can put your company at legal risk.
Unique IP Rules
Strict rules and process govern copyrights, trademarks, inventions and patents, as they do in many other jurisdictions, but Germany also outlines specific rules for the transfer of intellectual property rights between employers and employees. It is very difficult under German IP law to transfer rights of an employee to the employer.
Complex Tax Structure
Though it has been simplified over the last several years, the German tax environment remains relatively complex, with numerous taxes that may be unfamiliar to U.S.-based businesses, including value-added tax, “trade” tax and solidarity surcharges. Expanding companies will need experienced insight from partners familiar with the German system.
Openness to Foreign Investment
With few formal barriers to foreign trade and investment and government-sponsored incentives for new businesses, Germany is quite open to non-native businesses setting up in country. However, the process to establish and operate a company in Germany is highly bureaucratic and missteps are common. For example, guidance on import controls and other business protections may be of benefit.
An Emphasis on Quality
German products have a worldwide reputation for quality and sophistication, and German consumers often expect goods produced and marketed in country to be top-notch. Businesses should consider carefully not only what they produce or offer, but also how they market their goods or services.
While U.S. investors must reckon with a relatively high cost of doing business in Germany, they can count on high levels of productivity, a highly skilled labor force, quality engineering, a first-class infrastructure and a location in the heart of Europe. Many foreign investors have found that these benefits of operating in Germany far outweigh the costs.