How to do Business in Germany Economic and Legal Framework

Transcription

1 How to do Business in Germany Economic and Legal Framework Dr. Christian Ostermaier Christine Schaller Jakarta, September 2, 2008

2 Overview page 2 General Information about Germany Relations Indonesia Germany Reasons to Choose Germany Access to the German Market Legal Forms for Business Enterprises in Germany The GmbH Limited Liability Company Incentives Subsidies for Foreign Investment Projects Labor Law and Social Security System in Germany Tax Law Tax System in Germany Import and Export of Goods Legal Process Enforcing Rights Useful Links for Further Information

3 General Information about Germany Geographical Facts & Population Located in Central Europe (Coordinates: North, East) Size: 357,092 km² (less than one fifth of Indonesia s size) Capital: Berlin (3.4 million inhabitants) Population (2007): 82.2 million (one third of Indonesia s population) 62.5% Christians, 4.0% Muslims, 1.8% Others, 31.7% without religious denomination Time Zone: Central European Time (CET) with European daylight savings time (compared to Jakarta: -5) Official Language: German page 3 Law and Politics Form of Government: Parliamentary Federal Republic Administration: 16 Federal States Parliament: Bundestag (Lower House) and Bundesrat (Upper House) Constitution from 1949 with amendments Civil Law System similar to the Netherland s legal system

4 General Information about Germany Economy Economic System: Social market economy Financial Center: Frankfurt am Main Business Centers: Munich, Frankfurt am Main, Hamburg Currency: Euro (1 Euro is 100 Cent); 1 Euro equal to approx Rupiah (current exchange rate) Gross National Income (in current prices): 2,446.8 billion Euro (2007) Gross Domestic Product (in current prices): 2,423.0 billion Euro (2007) GDP per sector of the economy: page 4 Services: 51.3% Industry & Construction: 30.0% Trade: 17.8% Agriculture: 0.9% Exports: 989 billion Euro (2007) Imports: billion Euro (2007) German Economy characterized by small and medium-sized enterprises which make up 85% of all companies => particularly flexible, varied and competitive economy Around 40,000 foreign businesses the 500 largest companies in the world are represented

5 General Information about Germany Germany in the European Union (EU) European Union as a supranational community Membership of 27 states throughout Europe Population of the European Union: 493 million (twice the population of Indonesia) European Single Market is the world s leading market Four fundamental freedoms are granted by the European Community to EU citizens: page 5 Freedom of movement of persons Right of establishment Freedom to provide services Freedom of movement of goods EU has power to pass legislation in areas essential to the establishment of a common market, i.e. where necessary to grant the four fundamental freedoms => insofar, member states have delegated their national authorities to the EU EU law has to be incorporated into national law in Germany effected to a very high extent

6 Relations Indonesia - Germany Germany s economic relations to Indonesia Long tradition of economic relations: Since the 16 th century people of German origin live in Indonesia First business companies were set up in the 19 th century (Siemens 1855, Krupp 1876) Currently some 250 German companies do business in Indonesia Volume of trade between the countries: 4.3 billion Euro (German exports to Indonesia: 1.5 billion Euro, Indonesian exports to Germany: 2.8 billion Euro) Political relations/development cooperation Support of the reform process in Indonesia and cooperation with a wide range of projects e.g. in the areas of good governance and building or strengthening administrative structures page 6 Scientific and Technological Cooperation Indonesia is one of the priority countries in scientific and technological cooperation in Asia The bilateral cooperation was institutionalized since the 1970 s, particularly in branches such as marine, geological and environmental research, bio- and transformation process and currently as well renewable energies

7 Reasons to choose Germany Leading Economy Innovative Power page 7 Global Player High Productivity Excellent Workforce Europe s economic engine World s third largest economy Large domestic market Access to growing markets in the European Union Inviting Incentives Competitive Tax Conditions Secure Investment Framework

8 Reasons to choose Germany Leading Economy Innovative Power Global Player Inviting Incentives page 8 High Productivity Excellent Workforce No. 1 exporter in 2007 Money magnet for foreign investors: 439 billion Euro inward investment in 2006 More than 40,000 foreign companies operate in Germany with a total annual turnover of more than 750 billion Euro Competitive Tax Conditions Secure Investment Framework

9 Reasons to choose Germany Leading Economy Innovative Power page 9 Global Player High Productivity Excellent Workforce One of the highest productivity rates in the world Steadily decreasing unit labor costs (below those of France, Spain and Italy) One of Europe s most cost-effective productions Inviting Incentives Competitive Tax Conditions Secure Investment Framework

10 Reasons to choose Germany Leading Economy Innovative Power page 10 Global Player High Productivity Excellent Workforce High standard education system 84% of population have been trained to university entrance level or possess recognized vocational qualification Inviting Incentives Competitive Tax Conditions Secure Investment Framework

11 Reasons to choose Germany Leading Economy Innovative Power page 11 Global Player High Productivity Europe s No. 1 location for research German R&D backed by 5 billion Euro in annual federal funds Europe s leading patent applicant Leading global force in renewable energies Excellent Workforce Inviting Incentives Competitive Tax Conditions Secure Investment Framework

12 Reasons to choose Germany Leading Economy Innovative Power Global Player Inviting Incentives page 12 High Productivity Excellent Workforce Comprehensive range of programs to support a broad spectrum of business activities at all stages of the investment process: Cash incentives as well as incentives for labor and R&D Competitive Tax Conditions Secure Investment Framework

13 Reasons to choose Germany Leading Economy Germany has significantly reduced its corporate tax levels: Far reaching reform of company taxation is helping companies invest and secure new business Global Player Innovative Power Inviting Incentives page 13 High Productivity Excellent Workforce Competitive Tax Conditions Secure Investment Framework

14 Reasons to choose Germany Leading Economy Innovative Power page 14 Global Player High Productivity Highly developed economic and political frameworks providing security for business investments Judiciary and civil service systems are professionally regulated Secure contractual agreements Strict protection of intellectual property Excellent Workforce Inviting Incentives Competitive Tax Conditions Secure Investment Framework

15 Access to the German Market Access to German Market: Visa All foreigners except citizens of EU Member States require a visa (applied for before entry) For stays of up to 90 days per half year in Germany a so-called short stay or Schengen visa is required For stays of more than 90 days in Germany a so-called national visa (temporary residence permit) is required (due to the huge number of visa applications the processing time is up to several months) Generally sufficient for formation phase of business: Schengen visa for stays of up to 90 days per half a year Responsibilities for issuing visas lie with the missions of the Federal Republic of Germany, i.e. the embassies and consulates-general Fee for a visa is 60 Euro page 15 Visa may be granted provided that The applicant s presence does not prejudice or endanger the interests of the Federal Republic of Germany The applicant proves that he has adequate funds for the intended stay The applicant has got sufficient travel health insurance (minimum coverage 30,000 Euro)

16 Legal Forms for Business Enterprises in Germany Classification into: Companies Individuals Corporations Partnerships page 16 Limited Liability Company (GmbH) Stock Corporation (AG) Partnership (GbR) General Partnership (OHG) Limited Partnership (KG)

17 Legal Forms for Business Enterprises in Germany Questions to be answered before choosing the legal form: Is direct business activity planned in Germany or is the focus initially on maintaining contacts and initiating business? How many people are going to establish the company? Should the founding formalities and costs be as low as possible? Should only the company partners manage the company or others as well? How much equity capital can be raised? page 17 Is personal liability to be restricted? What taxes will the company be subject to? Limited Liability Company generally is a good compromise and a well accepted legal form for business enterprises in Germany

18 Legal Forms for Business Enterprises in Germany ABC ABC Natural persons; individually-owned businesses: 70.17% O H G: 8.62% K G: 4.01% A G: 0.24% GmbH: 14.92% Trade and industrial cooperatives: 0.18% Indust rial-t ype businesses of public corporat ions: 0.20 % Other legal forms: 1.68% Natural persons, individually owned businesses 70.17% page % 0.20% 0.18% % GmbH (limited liability company) 0.24% 4.01% AG (stock corporation) 8.62% OHG (general partnership) Source: Federal Statistical Office, Statistical Yearbook 2006

19 Legal Forms for Business Enterprises in Germany For an Indonesian business company usually two options: Set up a subsidiary: Limited Liability Company Set up a Branch Office page 19 Incorporation of a company is not a must Everyone can establish a company no restrictions for foreigners Alternatively: Purchase of shares in existing company Registration of a branch office of a foreign corporation/business enterprise is possible Existence of the foreign business entity has to be proved which is eventually difficult Proof of power of representation difficult as well Note: Real property can be purchased by any one no restrictions! Our recommendation: Set up a subsidiary

20 The GmbH Limited Liability Company Nature Corporation Merchant by virtue of the legal form No restrictions for shareholders, one-man GmbH possible Full legal capacity of the GmbH as juridical person Entry in the commercial register at the place of the GmbH s place of business Required for the incorporation of the GmbH as such page 20 Name/Firm Obligation to maintain a firm name, legal form supplement GmbH required Bank Account Company should have a bank account in Germany System of housebank unique in Germany: housebank manages all day-to-day financial activities and is main partner in financing investment projects (e.g. for certain incentives/public funding)

21 The GmbH Limited Liability Company Capital requirement Minimum share capital Euro 25, Contribution in cash (for one-man GmbH full payment or security in the amount of the outstanding contribution) or in kind (full contribution) Fees: 2, Euro up to 3, Euro for notary, registration and lawyers fees Total Costs: ca. 28, Euro (equal to 364 million Rupiah) Excursus: Reform of the Limited Liability Act page 21 Principle concern: facilitate and accelerate the establishment business (in other Member States of the European Union requirements applying to the formalities of establishment and to the raising of minimum capital are less stringent) New type of limited liability company can be established without minimum capital Liability Limitation of the unlimited liability to the company assets Liability of shareholders only in the amount of the assumed contribution

22 The GmbH Limited Liability Company Management and Representation Managing director as legal representative is authorized to manage and represent the GmbH managing shareholder or third party (control by another company possible) Instruction right of the meeting of shareholders Managing director may grant power of attorney No restrictions for natural persons: foreigners can be appointed as managing directors Note: Corporations, companies etc. cannot be managing directors! Permanent representation/duty of presence in Germany? No duty of presence in Germany for the managing director page 22 No permanent representation of the company in Germany required The right to enter the country must be given at any time Ensuring the company s capacity to act is recommended to affix signatures on behalf of the company and for contact with authorities Recommendation: Appointment of a person permanently resident in Germany as managing director or power of attorney to a person resident in Germany

23 The GmbH Limited Liability Company Duty to keep books/accounting Duty to keep books and duty of accounting by virtue of the legal form pursuant to the HGB (German Commercial Code) Annual financial statements (balance sheet, profit & loss account) plus notes and, if applicable, management report Discontinuance/sale of the business Liquidation (in the event of the existence of a cause for liquidation) and subsequent liquidation procedure Sale of the business shares in a GmbH possible page 23 No subsequent liability of the shareholders to third parties In the interior relationship subsequent liability in the amount of the outstanding initial contribution

24 The GmbH Limited Liability Company Registration Duties for Business Enterprises/Statutory Memberships Trade Office: Every establishment of a trade business initially requires registration with the trade office Tax Office: Every trade business must be registered with the tax office, tax number is assigned Commercial Register at the Local Court: All corporations and trade businesses have to be registered at the commercial register of the Local Court Professional Chambers: For all corporations membership in the Chamber of Industry and Commerce is compulsory, contributions have to be paid Additional registration duties when employing staff: page 24 Accident insurance associations: Registration with the accident insurance association responsible for the respective professional industry is necessary Local employment agency

25 Incentives Subsidies for Foreign Investment Projects Incentives Operational Incentives (to reduce operating costs) Investment Incentives (to reduce investment costs) page 25 Cash Incentives Reduced Interest Loans Public Guarantees Grants Partnerships Labor-related Incentives R&D Incentives Loans Guarantees

26 Incentives Subsidies for Foreign Investment Projects General Information Public funding is allocated basically to a region s level of economic development Federal government funds investment projects and supports employment in Germany in cooperation with the Federal States Substantial funding hereby comes from the European Union Incentives are offered to all investors, regardless of whether or not they are from Germany Investment Incentives Cash incentives are offered in specific regions throughout Germany, their target is job creation page 26 wage costs for two years or the purchase/production costs for buildings, machinery and equipment can be subsidized Interest-reduced loans and guarantees are additional options for the investment project

27 Incentives Subsidies for Foreign Investment Projects Labor Related Incentives Recruitment and training support by the local Employment Agency Wage subsidies (for employment of formerly long-term unemployed or people under 25 years (amount: up to 30% of eligible costs)) On-the-job-training: financed by the European Social Fund, amount: up to 50% of eligible costs R&D Incentives R&D incentives are offered to certain business branches (cash incentives, loans etc.) Broad range of R&D incentives e.g. subsidies granted by the State of Bavaria concerning page 27 Advanced materials Microsystem technologies Information and communication technologies Technology funding by Bavaria s Foundation for Research (BFR) Funding for high-tech startups with high degrees of technological and business risks Participatory capital for innovative technologies: e.g. Bayern Kapital GmbH, tbg

28 Labor Law Contractual relationship between employer and employee According to the German labor law system the contractual relationship between employer and employee is regulated by law to a high extent Usually a written contract of employment is drawn up written form is not required by law, but basic conditions of the employment relationship have to be set out in writing, such as Names and addresses of the parties Date from which the contract is valid In case of fixed term contracts: duration of the agreement Place of work Area of activity with a concrete description of tasks page 28 Remuneration Daily and/or weekly working hours Leave entitlement Ruling on the notice periods Indication of wage agreements or works council agreements, if applicable Additionally, if required: Declaration of confidentiality and/or non-competition clause for the employee for a two-year period after leaving the company (valid only if compensation for non-competition is paid)

29 Labor Law Payment Generally, the employees pay can be negotiated freely unless a minimum wage applies Gross wages in Germany are very stable compared to other countries, the unit wage costs are falling Payroll Accounting: Employer deducts both employer s and employee s share of the social security contributions as well as tax (Wage Tax - form of assessment of income tax), employee receives net wages page 29 Leave Entitlement and Sick Pay Annual leave entitlement by law: 24 days based on working time of 6 days per week Entitlement to sick pay: Employee receives continued remuneration in case of sickness

30 Labor Law Notice of termination Notice of termination requires written form, statutory notice periods apply Small companies with up to 10 employees can dismiss employees without reason at any time observing the statutory notice period In companies with more than 10 employees the Dismissal Protection Act applies for every employee with a contract uninterrupted for more than six months; in these companies, termination within the notice period is only possible for conduct-based reasons, personal reasons or for operational reasons if it is socially justified No notice of termination for fixed term contracts page 30 Extraordinary termination for good cause is possible at any time, notice period is two weeks Co-determination through internal employee representatives Employees right to build a works council (companies with at least 5 employees) Employees right to be represented in the supervisory board of the company (500 employees)

31 Social Security System in Germany Health Insurance NursingCareInsurance Monthly income threshold of 4, Euro for compulsory insurance with one of the public health insurance companies (average contribution rate 14.25%) Above this threshold private health insurance is possible Health insurance contribution is shared almost equally by employer and employee Pension Insurance page 31 Unemployment Insurance Accident Insurance

32 Social Security System in Germany Nursing Care Insurance Pension Insurance Protection against financial consequences of needing nursing care, assistance and support services Contribution rate: 1.7% of the gross wage, shared half by employer and half by employee Contribution deducted during payroll accounting Unemployment Insurance page 32 Accident Insurance Health Insurance

33 Social Security System in Germany Pension Insurance Pension insurance cover is compulsory for employees Contribution rate: 19.9% of the gross wage, shared half by employer and half by employee Unemployment Insurance Accident Insurance page 33 Health Insurance NursingCareInsurance

34 Social Security System in Germany Unemployment Insurance Accident Insurance Mandatory contribution Contribution rate: 3.3% of the gross wage, shared half by employer and half by employee Contribution is collected by health insurance companies and transferred by them to the Federal Employment Office Health Insurance page 34 NursingCareInsurance Pension Insurance

35 Social Security System in Germany Accident Insurance Health Insurance Employer s liability insurance if an employee suffers an industrial disease or an accident at or on the way to work Costs are exclusively borne by the employer Employer has to inform the relevant trading association about the establishment of his business and register with this organization NursingCareInsurance page 35 Pension Insurance Unemployment Insurance

36 Tax Law Tax System in Germany: Basic Principles Any individual, partnership or corporate entity residing in Germany is subject to unlimited taxation on its worldwide income Corporate entities with no seat or place of management and control in Germany and nonresident individuals have limited liability for German taxes on German source income Unlimited Taxation or Limited Taxation Individuals/Partnerships Income Tax No business tax if individual/partnership operates freelance profession Solidarity Surcharge Business Tax Value Added Tax (VAT) Corporations Corporation Tax All corporations have to pay business tax

37 Tax Law Tax System in Germany Average Tax Burden after Tax Reform 2008 in Germany Taxable Corporate Income 1,000, Euro Business Tax (tax rate depending on local area) - 140, Euro Corporate Income Tax (15% of taxable income) - 150, Euro Solidarity Surcharge (5.5% of CIT) - 8, Euro page 37 Net Income Overall Tax Burden 701, Euro %

38 Tax Law Tax System in Germany page 38 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Corporate Tax Burden 2008 Corporate Tax Burden 2008 Poland Hungary Czech Republic United Kingdom Malaysia Germany Spain France Canada (Ontario) Italy USA (New York) Japan Sources: German Federal Ministry of Finance, bfai, German Chambers of Commerce Abroad

39 Tax Law Tax System in Germany Taxable Corporate Income Business Tax (tax rate depending on local area) Corporate Income Tax (15% of taxable income) Solidarity Surcharge (5.5% of CIT) Net Income Overall Tax Burden General tax rate: 19% Reduced tax rate: 7% Tax has to be borne by the consumer but the business enterprise has to pay it to the tax office Right to deduct input VAT 1,000, Euro - 140, Euro - 150, Euro - 8, Euro 701, Euro % page 39 Value Added Tax (VAT)

40 Tax Law Tax System in Germany Tax assessment Annual assessment on corporation tax and business tax Duty to file the tax return until May 31 of the following year Notice of assessment by tax office in charge If profits are expected, quarterly pre-payments have to be made Tax liability becomes due for final annual payment once the notice of assessment is issued VAT has to be paid on a monthly basis Taxation Procedures The German tax system is highly complicated and in a constant change page 40 In addition, influence of EU directives and rulings of the European Court of Justice are growing Recommendation: In any case, professional help should be used when starting business operations in Germany To avoid double taxation: Double Tax Agreement between Germany and Indonesia - in force since December 28, 1991 (former version since 1977)

41 Import and Export of Goods Customs duties Customs duties apply on imports from other countries to and on exports to other countries from Germany No customs duties within the European Single Market EU-wide customs community code Common customs tariff (CTT), EU-wide uniform tariff rates for goods imported from other countries In which amount customs duties accrue has to be determined separately for each type of goods, depending as well on the origins of such goods Import Value Added Tax Import VAT has to be paid on all imports (except imports from EU member states) page 41 Tax rate is 19% and 7%, corresponding to regular VAT Generally, no restrictions for imports to and exports from Germany However, restrictions on imports may apply depending on the state the goods are imported into

42 Import and Export of Goods CE Marking for certain products Mandatory conformity mark on many products placed on the European Single Market European Union has set out the products requiring the CE Marking by EU Directives (for example: toys, machinery, terminal equipment) CE Marking certifies that a product meets EU health, safety and environmental requirements which ensure consumer safety page 42 To permit use of the CE mark on a product it has to be proved and documented that the product meets the requirements. This is achieved using an external test house or by a company-internal self-certification process EC-Declaration of Conformity has to be issued by the responsible organization (manufacturer, representative, importer)

43 Legal Process Enforcing Rights Civil Procedure System is effective and efficient every second case is settled within three months Costs (court as well as lawyers) can be calculated since they depend on the claim Note: No compensation awarded in terms of punitive damages in Germany Actions for damage do generally not bear incalculably high risks as in other countries Cases usually go to the regional court Right of appeal against initial decisions => Higher regional court and Federal Court of Justice Arbitration Agreements page 43 Disputes can alternatively be settled by an arbitrator, if previously agreed upon between the parties of a contract => e.g. Chambers of Industry and Commerce can act as arbitrators Non-bureaucratic procedure, arbitration rules apply (e.g. ICC arbitration rules) Order for Payment Procedure Applicable to all claims relating to the payment of a specific amount of money Enforcement order can be achieved with a small fee if the defendant does not file an objection Interlocutory relief In very urgent cases preliminary protection of rights can be obtained within a few days or even hours

44 Useful Links for Further Information page 44 (Information about Business in Germany) (Information about business in Germany) (General information about Germany) (Information about Germany, entry regulations, visa, exchange programs) (Germany s cultural institute operating worldwide information on cultural, social and political life) (German-Indonesian Chamber of Commerce and Industry) (German Embassy Jakarta) (German Office of Foreign Trade information about business opportunities) (TARIC system can be used to determine customs duty for an import) (Federal Office of Economics and Export Control information on import and export) cordis.europa.eu/en/home.html (Subsidies) (Subsidies Bavaria and others, general business information) oami.europa.eu/ows/rw/pages/index.en.do (Trade Marks and Designs Registration Office of the European Union) (German Patent and Trade Mark Office) (Information on tax issues) (Comprehensive current statistics and time series) (Comprehensive statistics on income, productivity, labor costs, prices in foreign currency etc., general monetary and business indicators) (Federation of German Industries (BDI))

45 Dr. Christian Ostermaier Rechtsanwalt, Fachanwalt für Arbeitsrecht, Fachanwalt für Handels- und Gesellschaftsrecht, Solicitor (England and Wales) Phone: Fax: Christine Schaller Rechtsanwältin Phone: Fax: SNP Schlawien Naab Partnerschaft Brienner Straße 12 a Munich Germany