DOING BUSINESS IN GERMANY. California, March 2011

Transcription

1 DOING BUSINESS IN GERMANY California, March 2011

2 Corporate Law

3 3 Choosing the Legal Form (I) Choice of several forms of business: representative office, small and large partnerships, or corporations, such as a GmbH or Aktiengesellschaft

4 4 Choosing the Legal Form (II) Questions/Checklist: Direct business activity or maintaining contacts and initiating business? How many people for establishing the company? Formalities / legal counsel Managing the company Equity capital Restriction of personal liability Credit standing Entry in the commercial register

5 5 Branch Offices Foreign company with headquarters and business operations outside of Germany Suitable business form for establishing presence in Germany for initiating business and maintaining contacts with business partners No independent or separate legal personality Legal liability of branch office depends on liability of legal entity of head office

6 6 Corporations Best option for larger, established companies Two major forms of corporations under German law: Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH) Stock Corporation (Aktiengesellschaft, AG) Liability is limited to the corporation s business assets, including share capital

7 7 Partnerships Main feature: personal commitment of the partners to the partnership Liability of the partners for partnership s debts and liabilities generally unlimited and personal Five different forms of partnerships: Civil Law Partnership (GbR) General Commercial Partnership (ohg) Limited Partnership (KG) Corporate Partnership (GmbH & Co. KG) Partnership Company (PartG)

8 8 Civil Law Partnership (GbR) Association of individuals or enterprises united in the achievement of a joint contractual purpose Suitable for start-ups launching a business idea in cooperation with others Partners are jointly liable with their private assets for debts incurred by the company Only allowed to conduct small trade business

9 9 Limited Liability Company (GmbH) Most widely used legal form for corporations Combination of high flexibility with relatively few obligations Reform of the GmbH Act in 2008

10 10 Setting up a GmbH

11 11 GmbH Formation by the founding shareholder(s): deed of formation and articles of association in notarized form Minimum capital EUR 25,000 at least EUR 100 each shareholder cash or non-cash Attractive form of company for the freelance professions

12 12 GmbH Formation Costs: approximately EUR 1,000 to EUR 1,500 plus fees for legal counsel Entry in the commercial register (Handelsregister) and registered at the local trade office (Gewerbeamt) Addendum GmbH in company name

13 13 GmbH Liability in general: only company assets partners not personally liable Distribution of profits: according to company shares or according to agreement Transfer of Interest: possible to freely sell company shares Dissolution time limit / resolution / insolvency

14 14 GmbH Management of the GmbH Managed and represented by its managing director(s) All managing directors must act jointly Power of representation can not be restricted vis-à-vis third parties Only internally the management authority can be restricted

15 German Tax

16 16 GmbH Taxation (I) Tax implications in Germany always classified as corporation, no check-the-box option possible subject to corporation tax: corporation income tax return subject to trade tax: trade tax return general tax burden accumulated since 2008 about 30% Distributions are dividends

17 17 Lower Corporate Tax Burden Reduction of average tax burden for corporations from 38.7% to 29.8% Ireland Poland Slovakia Czech Republic Hungary Netherlands UK Germany Spain Italy Canada France Germany (till 2007) Japan USA 12,5 19,0 19,0 20,0 21,2 25,5 28,0 29,8 30,0 31,4 33,0 34,4 38,7 39,5 39,6 0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 45,0

18 18 Lower Corporate Tax Burden Reduction of average tax burden for corporations from 38.7% to 29.8% Hongkong Singapore Cambodia Russia Soutzkorea Taiwan Malaysia Vietnam China Indonesia Germany Philippins India Germany (till 2007) USA 16,5 18,0 20,0 20,0 24,2 25,0 25,0 25,0 25,0 28,0 29,8 30,5 34,0 38,7 39,6 0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 45,0

19 19 GmbH Taxation (II) Tax implications for U.S. investor in Germany if investor is a natural person: generally non-resident liability, if income is generated investment income subject to withholding tax 25% taxes withheld are definite and final, no further tax obligations (sec. 50(5) EStG) reduction of withholding tax rate at 15% for natural persons if applicable under DTT (most likely)

20 20 GmbH Taxation (III) Tax implications for U.S. investor in Germany if investor is a corporation: generally non-resident tax liability, if income is generated subject to withholding tax 25% (Kapitalertragssteuer) taxes withheld are definite and final, no further tax obligations (Abgeltungswirkung, sec. 32 KStG) if Art. 10 DTT is applicable, reduction of withholding tax to 5% further possibility that remaining 5% actually not being claimed (according to latest DTT regulations)

21 21 GmbH Taxation (IV) Taxation in the U.S. generally income received from and already taxed in Germany is also subject to tax in the U.S. in order to avoid double taxation of income (Art. 10 DTT), income tax paid in Germany can be deducted from U.S. tax burden (Art. 23 DTT) Miscellaneous capital gains are also non-resident tax liable in principle no special tax rates special regulations for investor debt financing (sec. 8(a) KStG- Zinsschranke): if applicable, debt interest might not be deductible in full or an unauthorized distribution of dividends tax implications may occur due to function reallocation German accounting principles

22 22 GmbH Accounting (I) Legal requirements Companies act (GmbH-Gesetz) German commercial code (HGB) (contains German GAAP ) German tax law VAT wage tax (income tax) corporate tax and trade tax general fiscal law (German internal revenue code)

23 23 GmbH Accounting (II) German commercial code Bookkeeping Annual financial statements of accounts Balance (Assets, liabilities) Profit- and Loss- calculation Appendix (more detail information) Publication Annual disclosure / obligation (electronic Bundesanzeiger ) Sanctions (fines ranging from 2500 to )

24 24 GmbH Accounting (III) German tax law VAT 19%, 7%, 0% (non-taxable or tax-free) Input-tax Wage tax Trade tax (depends on location) about 14% of taxable income Corporate tax 15%, solidarity surcharge 5,5%

25 25 GmbH Accounting (IV) Bookkeeping/ Accounting Generally: Preparation in Germany Exception: Application for moving the accounting according to general fiscal law: only with permission from German tax authority before moving

26 26 GmbH Accounting (V) When moving Bookkeeping/ Accounting documents (contracts, invoices..) have to stay in Germany, only entries can be made abroad only to EU/ EEA and only with possibility of data access by German tax authority suitable Software has to be used (German GAAP) special know-how in German rules of bookkeeping separation of revenues according German VAT act Sanctions: moving without permission, no data access possible fines ranging from 2500 to

27 27 GmbH Accounting (VI) Requirements for invoices full name and address of vendor and costumer tax identification number of vendor date of issue invoice number (one after another without any gap) amount and type (commercial name/ detailed description) of goods or services/ date of delivery or service split of charges for goods and services according to the applicable tax rates (7%, 19%, tax-free/non-taxable) tax rates (percentage) and tax amounts or reference to the tax exemption

28 28 GmbH Accounting (VII) Reimbursment of travel expenses Expenses can be refunded tax-free Maximum for tax-free refund: lump sum according to tax law, especially for meals Company guidelines are totally irrelevant for the tax-free reimbursement in Germany

29 29 GmbH Transfer Pricing (I) Transfer prices are subject to closer inspection by the revenue service for all company related matters no deadline for preparing a transfer pricing documentation BUT: in case of tax audit 60 days time for preparing, otherwise estimation of taxable profit increase of profit (surcharge) late delivery: fine from at least 100 Euros per day, till to Euro (all together)

30 30 GmbH Transfer Pricing (II) Standard methods (OECD) price comparison method market prices internal and external arm's length resale method adequate trade margin internal and external arm's length cost plus method

31 31 GmbH Transfer Pricing (III) Brief description of the cost-plus-model: cost-based reimbursement mark up between 5% and 10% of the costs (percentage depends on risk involvement of the entity) fulfillment of transfer pricing documentation regulations: outbound transactions between affiliates: records to be kept with reference to nature and content of the transaction as well as to economic and legal foundations of the agreement of transfer prices at arms length model easy to handle and therefore cost-efficient

32 Labor & Employment Law

33 33 German Labor & Employment Law I. Individual Labor Law II. Collective Labor Law III. Co-determination at Company Level

34 34 Individual Labor Law (I) Contract of Employment: A contract of employment is not subject to written form. Minimum Salary: German government has introduced a minimum salary in certain work branches. 13th monthly Salary, incentive payment, bonus A legal title to a 13th monthly salary does not exist. Many tariff agreements provide for special payments together with the November salary and with the June salary. Working Hours: 40 hours weekly are the general rule. In the tariff agreement for retail trading, the normal working time is fixed at 37.5 hours per week. Payment for overtime: employees shall receive the same remuneration Probationary period: During the probation time, the employment relationship may be terminated with short notice. Part-time employment

35 35 Individual Labor Law (II) Leave 24 working days of leave. For managers in leading positions, the standard leave amounts to 30 days. Benefits Company car, asset-creating benefits, life insurance, company pension, additional insurances. Trainees and apprentices Sickness The employee is entitled to continued payment for a time period of six weeks. After these six weeks, the employee receives from the health insurance, over a time period of up to the 78 th week of sickness leave, a sickness allowance amounting to 70% of his/her last net wage. Legally, the contract of employment continues and the employer is obliged to reinstall the employee immediately upon his/her convalescence. Parental leave and maternity protection Pregnant employees are granted special protection against termination and are excluded from certain health-damaging activities. Until completion of the child's third year, female employees, but fathers, too, and also both parents are entitled to take parental leave.

36 36 Individual Labor Law (III) Temporary employment contracts Temporary employment contracts are permissible as far as a factually justified reason for a temporary limitation prevails. Temporary employment contracts require the written form. Termination of contract Unless the employee is entitled to protection against termination ( 23 KSchG more than 10 employees), the employment may be terminated observing the respective notice periods. The statutory notice periods are: 1 month if employment exists for at least 2 years 2 months if the employment exists for at least 5 years 3 months if the employment exists for at least 8 years 4 months if the employment exists for at least 10 years 5 months if the employment exists for at least 12 years 6 months if the employment exists for at least 15 years 7 months if the employment exists for at least 20 years Employees with special protection Severally handicapped persons Pregnant mothers Work council members

37 37 Collective Labor Law In addition, there are collective law provisions, which apply additionally to the provisions of individual labor law. The collective law provisions in particular deal with employee participation, with the rules of tariff law, the right of labor law coalitions as well as with the law of labor disputes.

38 38 Co-determination at company level Other than many other legal systems, German company law provides for employees co-determination on company management level. In Germany, this codetermination take place in the supervisory board, which is the company's regulatory body. With more than 500 employees, one third of the supervisory board members are representatives of the employees. In the event a company has more than 2000 employees, the employees' representatives and the shareholder representatives in the supervisory board are represented at equal footing.

39 39 Bridging the expertise BridgehouseLaw BridgehouseLaw Atlanta 1170 Peachtree Street, N.E. Suite The Proscenium Atlanta, Georgia U.S.A. T: F: E: atlanta@bridgehouselaw.us BridgehouseLaw Munich Karlstrasse 35 Karlshöfe München Deutschland T: +49 (0) F: +49 (0) E: munich@bridgehouselaw.de BridgehouseTax BridgehouseTax Atlanta The Proscenium, Suite Peachtree Street, NE Atlanta, GA U.S.A. T F E joerg.kemkes@bridgehousetax.us BridgehouseLaw Cologne Bonner Strasse Köln Deutschland T: +49 (0) F: +49 (0) E: cologne@bridgehouselaw.de