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Germany is a very attractive market for investors and new business owners alike. The country's economy is Europe's largest, and ranks fourth globally. Thanks to its large, diversified economy and robust manufacturing sector, Germany is a powerful magnet for outside investment. About four percent of worldwide foreign direct investment (FDI) runs through the country, and few other nations are as tightly integrated into the global economy.
Despite these advantages, Germany is often a challenging place to do business if you lack familiarity with its tax structure and legal environment.
Why Doing Business in Germany Makes Sense
Germany boasts one of the world's most well-educated and highly trained workforces, offering new businesses a massive pool of talented labor. The country is also known for its elevated technology development standards. Germany has long been one of the world's leading producers of well-made goods, with the "Made in Germany" logo celebrated across the globe as a mark of high quality.
With more than 45,000 foreign companies employing in excess of three million people domestically, Germany is a major hub for foreign direct investment. This ability to attract foreign business—along with a strong commitment to research and innovation—are key components of the German economy.
Germany's economy has also become far more competitive in recent years, thanks to structural reforms and adjustments to the corporate tax rate. The country also features infrastructure of unrivaled quality, a highly-developed finance system and a massive consumer market with strong purchasing power.
With a reliable legal system and a stable economic climate, Germany is an incredibly attractive market for foreign investment—provided you have local help navigating legal, cultural and tax-related issues.
The Challenges of Doing Business in Germany
Though Germany possesses many of the attributes that are attractive to investors, starting a business in the country isn't always an easy process. Germany ranks 110th in the world for ease of starting a new business, according to a study by the World Bank and International Financial Corporation (IFC).
This is largely due to the high number of sometimes complex procedures new businesses must undertake. For example, new businesses must register with the local tax and trade offices, the local chamber of commerce, the commercial register and any relevant professional or industry organizations.
The bureaucratic requirements don't end there. When seeking to register property, new companies must seek an extract from the land registry, notarize the transfer agreement, acquire a waiver of pre-emption rights with the municipality and pay a transfer tax.
The fiscal system in Germany is also quite challenging to negotiate. Businesses must make nine tax payments per year, requiring on average 207 hours of business time. Social security payments are also very time-consuming, taking on average 134 hours of corporate work time.
Factor in other requirements such as corporate tax payments and VAT payments, and Germany's tax system becomes rather arduous to comply with. In fact, the country has 14 different taxes that may be levied on businesses.
The challenges of operating in a new country are often daunting—regulations are constantly evolving and no business landscape remains static. Without a solid grasp of the issues at hand, businesses are exposed to tax penalties, and even the prospect of civil or criminal litigation.
If you are considering entering the German market, it is critical to have an experienced partner with a global footprint. CT has a worldwide network of offices and partners who will make sure your local needs are met, accurately and on time.
CT can help you get set up, provide a single point of contact and provide you with customized solutions for all your needs. We know that one-size does not fit all. From incorporation to dissolution, major mergers and acquisitions, registered agent services and all the day-to-day compliance needs in between, we’ll make sure you have the right support tailored for your global needs.
We offer a full suite of international products and services for our customers, including:• Global Transactional Services• Global Managed Services• Global Business Expansion GuidesCT has helped businesses and law firms expertly manage compliance issues for 120 years. To learn more about how we can help you better manage your global compliance needs, contact a CT representative at 844-318-1457 (toll-free US).
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