Solving the challenges of doing business in Germany

Established and expanding trade links to some of the fastest growing markets in the world makes Germany a highly attractive investment location, but a reputation for complex regulation and bureaucracy may be off putting for some. Professional expertise and services can overcome these obstacles and open up opportunities.

Germany has long been the economic anchor of Europe, being the largest economy in the region and the third largest in the world. The Organisation for Economic Cooperation and Development (“OECD”) forecasts economic growth of 1.2% in 2025 and expects a pick-up in overseas investment over the next few years.

But Germany’ importance extends far beyond Europe. It is also a significant investment and trade hub linking Europe to the world’s largest and fastest growing economies including the US, China and India.

Germany faces domestic challenges, but these also present opportunities for investment. For example, the country is known for relatively low levels of digitalization. At the same time, it faces energy and environmental challenges to meet its net zero carbon emission target by 2050. These factors are driving a demand for infrastructure investment, with public authorities laying significant foundations for growth.

However, while the opportunities in Germany are significant, setting up a business operation in Germany to capture them can be challenging without support from a local market expert.

Company set up and tax

There are multiple types of company in Germany, from partnerships to private limited companies and stock companies, each with its own legal status, different forms of incorporation and structure and, depending on its size, different taxation and employment regulations.

German tax regulation is notoriously complex and strict, with several tiers of taxation and variable rates across business, types, industry sectors and regions.

At the highest level there is Federal Corporate income tax followed by states and municipal tax authorities. Corporate income tax is levied at federal level while states and municipalities levy local taxes, principally the Trade Tax, which varies depending on location but typically ranges between 7% and 17%.

Municipal tax authorities also levy a real estate tax based on the size and value of business real estate assets, which again varies between municipalities. Since 2023, Germany has been undergoing a transformation in its approach to determining local property tax rates, with revised rates set to come into force in 2025. Real property tax in Germany (also called “Grundsteuer”) is a communal tax levied by the local authority in each region. Unlike the property tax applied in the USA, the assessed value, also known as the “Einheitswert”, is usually lower than the market value of the property and is not used as the primary source of funding for local services and communal infrastructure.

Dividend payments to individuals and to corporate shareholders, including those overseas, are subject to withholding taxes, the practical effect of which can be reduced or refunded depending on double taxation treaties with the shareholders’ countries of residence.

Numerous other taxes, energy or insurance taxes for example, may also apply to businesses operating in Germany. Navigating the full range of tax obligation requires a close understanding of the system and its local variations.

Employment law

Employee rights in Germany are strong and employment terms are highly formalized. Every employee, including part-time and temporary workers, is contracted with a wide range of employee rights. Employees in even the smallest firms have a right to form works councils while for larger businesses, employee representation on a supervisory board is mandatory.

Specific regulations apply in a wide range of circumstances including:

• Minimum wages
• Dismissal and notice periods
• Holiday and sick pay entitlement
• Maximum working hours
• Parental leave

Employment contracts may contain provisions on non-compete or non-solicitation for departing employees, but these too are subject to regulation and can include payment to former employees during non-compete periods.

The complexity, formality and bureaucracy of German business has its positive dimensions of transparency, legal clarity and security, as well as a range of tax incentives for business in different sectors and regions.

It also means the intricacies of setting up a company in Germany need not be a matter of guesswork. These obstacles can be overcome and investment opportunities realized with the advice and assistance of professionals with the appropriate experience and expertise.

How can Amicorp help?

Amicorp Group can provide multiple services to companies looking to invest in Germany, including:

• Entity set-up and corporate compliance services
• Accounting and tax services
• HR and payroll services

If you are a business that is looking to set up or operate in Germany, or looking to expand into other international markets, get in touch with our Globalization team to find out more about our services by contacting the team here