Executive Summary
The Federal Republic of Germany is a Central European country, which borders with Poland, Czech Republic, Austria, Switzerland, France, Luxembourg, Belgium and the Netherlands. The North Sea and the Baltic Sea are located to the North of the country. Germany consists of 16 states, which are divided in 439 districts, which all together cover a total area of 357,021 sq km. Germany has the biggest population among other EU member states, and it is the world’s third largest international migration destination. Berlin is the capital of Germany; German is its official language.

Germany has implemented a federal parliamentary representative democratic republic model. The Federal Chancellor is the head of the government, to which executive power belongs. Legislative power is exercised by the bi-cameral parliament. Germany has a civil law judiciary system, based on Roman and Germanic law.

Industries of Germany contribute approximately 29% to the GDP, 70% is generated by the services sector, while the remaining 1% derives from agricultural activities. Germany is specialized in automobiles, machinery, metals, chemical goods as well as solar power technology and wind turbine production. Germany is a homeland of numerous largest multinational corporations, and is one of the world’s top exporters.

Germany is a member state of numerous international organizations such as UNO, EU, NATO, G8, OECD and others. It has a high standard of living with a well developed social security system. It is an active participant of the international economic and political life, playing one of the determinant roles on the international arena.

The Euro has been adopted as the national currency of Germany.

Germany has a diversified landscape with mountainous ranges in the South of the country, and sea sides of the North Sea and the Baltic Sea to the North. Zugspitze rises at 2,962 metres above the sea level and is the highest point of Germany. The country is rich with forested territories and lowlands, it is traversed by several largest rivers of Europe such as Rhine, Elbe and Danube.

Germany has a temperate seasonal climate with frequent westerly winds. Generally, summers are relatively cool and winters are rather mild, however, the weather may differ significantly in different parts of Germany due to the near location to the sea or mountains. Germany’s flora and fauna is rich and diversified. There are many zoos and wildlife parks on its territory.

The country is concerned about environmental issues. Although its carbon dioxide emission per capita is one of the highest in the EU, it is significantly lower than that of other highly industrialized countries of other world regions such as Australia, the US and Canada. Germany implements low emission standards, recycling policy and popularizes the use of renewable energy.

Map, Flag and Coat of Arm

Types of Company

Limited Liability Company (GMBH)

It is the most popular type of company for conducting a business activity in Germany. At least one shareholder is an obligatory requirement in order to set up this type of company, and at least one director must be appointed, in order to administer it. In case a number of employees exceeds 500, a company must delegate a supervisory committee.  A minimum capital is stated by law, of which a certain amount must be paid up upon incorporation.

Stock Company (AG)
At least five shareholders may create this type of company. Directors administer a company, shareholders appoint a supervisory committee. There is a minimum capital stated by law.

Branch of a Foreign company
In case a foreign company wishes to conduct a business activity in Germany it must be registered with local authorities. It usually takes a form of a Limited Liability Company for its local presence.

Holding Company
In case the following criteria are satisfied, Germany is an attractive jurisdiction where to establish and manage a holding company. In order to achieve tax advantages, the following steps must be undertaken: a) incoming dividends from a subsidiary must be subject to low withholding tax or exempt from it in a subsidiary’s jurisdiction; b) income received from the dividends by a holding company must be subject to a low corporation tax or exempted from this tax in a holding company’s jurisdiction; c) capital gains received from sale of shares of a subsidiary are subject to a low rate or exempt from capital gains tax in a holding company’s residence country; d) outgoing dividends paid by a holding company to a parent corporation must be subject to a low withholding tax or exempt from it in the jurisdiction of a holding company.

Thus, Germany may offer favourable environment for setting up a holding company, although other European countries might be even more advantageous for establishing this type of company.

Regular Partnership (OHG)
Usually a partnership agreement regulates partners’ relations and cooperation. All the partners are jointly and severally liable for all the partnership’s debts and obligations.

Limited Partnership (KG)
At least one partner must have a limited liability up to the amount of its investment into a partnership, and at least one partner must have unlimited liability within this structure.

A taxation year coincides with a calendar year, which starts on 1st January and ends on 31st December.

Residents of Germany are liable to pay taxes on their worldwide income. Non-residents pay taxes solely on income generated in Germany. Individuals are liable to pay income tax which has a scalable nature, the rates of which start at 14% after the exempted amount and can reach 45%, depending on a total annual income of a person. Social security contributions are payable by employers and employees. Solidarity tax is payable in addition to the income tax rate, as well as a municipal trade tax may be added. Partners of partnerships are taxed individually.

Inheritance and gifts tax rates vary between 7% and 50% depending on the value of the asset and a person who receives it. Exemptions may be granted on various occasions.

A standard rate of a corporation tax, including solidarity tax and trade tax ranges between 30% and 33%. Capital gains are taxed at different rates or may be exempted for this tax purposes on various occasions. Withholding tax is levied at different rates on dividends, royalties and interests.

A standard rate of the VAT is 19%, some goods and services are applied with a discounted rate of VAT at 7%. Real estate transfer tax is levied at a rate of 3.5% of the value of the property.

Even though Germany has a high taxation regime, it offers a well developed social security coverage, as well as a number of business incentives and exemptions in case a company invests in former Eastern Germany development; in addition, it may be advantageous to register shipping and insurance companies in Germany, as well as holding companies and other corporate bodies which can achieve tax optimization through co-ordination centres.

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