FACTS & FIGURES

Investor’s Basics
Setting Up Businessin Germany

ISSUE 2024

INVESTOR’S BASICS

Important Legal Issues
This publication explains how the business establishment process in Germany works. It focuses on the questions most often posed by foreign companies. Thesecan be grouped into four key categories: entry and residence requirements, business establishment, corporate
taxation, and employees and social security.
You will find essential information on these matters andmany useful tips on how to establish a new business in Germany – both quickly and easily.
Entry and Residence
At some point within the process of establishing a businessin Germany, foreign entrepreneurs usually have to cometo Germany in person. Depending on the country of origin,individuals may require a visa to enter Germany. Long-termstays require a residence permit. Different types of residence
titles are available subject to the intended business activities.
Our legal experts provide information helping you prepare
your business trip to Germany by checking:· whether a visa is needed before entering Germany or not,Corporate Taxation
Tax implications must be taken into account when choosing
a legal company form, since company taxation details mainly
depend on the company form. Germany has a comprehensive regime of double taxation agreements with foreigncountries which, for instance, handle double taxation of
distributed profits.
We inform about:· the German tax environment,· tax implications of certain company forms,· applicable double taxation agreements,· how to register with tax authorities.
Employees and Social Security
Attention should already be paid to the question of how to
recruit required specialists and employees at the company
formation stage. Moreover, knowledge of the different
employment models and the terms and conditions of
employment help successfully complete the hiring process.

· what type of visa or residence permit might be required forthe planned business activity,

Our legal experts help you optimize the hiring process inadvance by providing information on:· granting requirements for different kinds ofresidence permits,· flexible models of employment,· how the application procedure works.
Business Establishment
German company law offers a variety of different legal
structures suitable for every type of business. Formation
procedures are swift and efficient, with only a few steps
needed to establish a company in Germany.
Our legal experts help you in preparing business establishment in Germany. We inform about:· general ways to take up commercial activities in Germany,· different company forms,· the establishment procedure in detail,· registration with the commercial register and trade office.

FACTS & FIGURES 2024 | gtai.com· different terms of employment,· the social security system and payroll accounting,· registering employees for the social security system.

INVESTOR’S BASICS

Legal Structures for Your Business
Anyone can establish a business in Germany, irrespectiveof nationality or place of residence. There is no specificinvestment legislation when setting up a branch office
or a new subsidiary in Germany; nor is a minimum percentage of German shareholdings required for foreign
entrepreneurs setting up business in Germany.
The basic structure of all company forms is stipulated by
law which provides for predictability and legal certainty. The
same legal conditions apply for foreign and local entrepreneurs. Foreign companies often report that engaging withbusiness partners, suppliers, public institutions and banks on
the German market generally is easier if a German company
is established. In practice, a separate company held by a foreign company – a subsidiary – in the form of a corporation
is often established. However, it is also possible to set up acompany held by individual entrepeneurs.
Existing companies can also conduct business via a German
branch office. Either way, the establishment procedure isstraightforward with well-defined steps. Generally speaking,there are no restrictions placed upon foreign nationals whowish to establish a company in Germany. However, the local
trade office registration generally requires that a local representative of the business must be located in Germany.

GmbHThe most common corporate form in Germany is the private
limited liability company (Gesellschaft mit beschränkter
Haftung – GmbH), which combines high flexibility withrelatively few obligations. Another advantage of the GmbHis that the liability for German business activities is limited
to the assets of the GmbH. Please find further information
about the GmbH form in the "Business Establishment" fact
sheet.
AG
The German stock corporation (Aktiengesellschaft - AG) isa company form intended for larger companies with a large
number of shareholders. Eligibility for a stock exchange listing and the easy assignability of the shares makes it ideal for
attracting capital. In contrast to the GmbH, the founding andorganizational formalities of an AG are relatively numerous
and inflexible due to mandatory rules. This said, the AG form
enjoys a high market reputation.

Company Forms for Setting up Business Activities

Subsidiary

Branch OfficeSubsidiary· Establishment of a
new legal entity· No establishment of
a new legal entity

A subsidiary is an autonomous company established and predominantly held by another company (parent company). The
corporation form is often chosen for subsidiary formation.

· Different legal
forms available(e.g. GmbH, AG)· R egistration of a
German physicalbusiness presence

The main feature of a corporation is the contribution of capital by shareholders. A corporation is a legal entity, meaningthat the holder of rights and obligations is not the individual
shareholder, but the company itself. The corporation itself
concludes contracts, holds assets and is liable for taxation.
Corporations are liable to corporate income tax, trade tax
and the solidarity surcharge. Shareholders have limited personal liability. As such, a minimum share capital is required. A
corporation can be established by one or more shareholders.

FACTS & FIGURES 2024 | gtai.com

INVESTOR’S BASICS

Branch Office
Any foreign company with a head office and registeredbusiness operations outside of Germany can establish
a German branch office. A branch office may be a suitable business form for a foreign company seeking toestablish a presence in Germany for the purpose of
initiating business and maintaining contacts with business partners.
A branch office has no independent or separate legal personality distinct from the head office itself. In legal andorganizational terms, it is part of the head office businessand is therefore subject to the law governing the head office.
In this context, the foreign head office company is fully liable
to the extent of its own assets for any claims creditors mightassert against the branch office. Any obligations or debts
incurred by the branch office are the legal responsibility of
the foreign company.
In Germany, there are two kinds of branch establishment
which primarily differ due to the degree of the independence
from the head office company. Both forms require at least
one representative be located in Germany.
Autonomous Branch Office
The autonomous branch office (selbständige Zweigniederlassung) fulfills tasks that exceed mere implementation andsupport-related tasks. It has a certain degree of business discretion that is limited by the scope of the business objectiveof the head office. The autonomous branch usually has its
own management with executive powers, a separate bankaccount, and accounting (on its own or via the head officecompany) as well as independent business assets (allocatedby the head office company).
Dependent Branch Office
The dependent branch office (unselbständige Zweigniederlassung) focuses on maintaining contacts and initiating
business in Germany. It performs support and implementation-related tasks without having any individual businessdiscretion and is entirely dependent on the head office.

The profit attributable to a German permanent establishment of a foreign corporation is taxed in Germany according
to German taxation rules for corporations (corporate income
tax, solidarity surcharge and municipal trade tax). For further
information about corporate taxation please refer to therespective fact sheet.
In order to determine the taxable income of the permanentestablishment, an analysis of its functions and risks is necessary. This means that its people functions, assets, risks, andcapital have to be identified and documented. Special rules
apply for tax returns.
Moreover, any transactions between the permanent establishment and the head office company or other affiliatedcompanies must comply with transfer pricing rules.

Other Forms
Offices that purely serve to observe the market andpave the way for initial customer contacts are often
described as “representative offices.” However, thisterm does not exist in German commercial law. Once
an office is used by a foreign company for commercial
activities (thus forming part of the foreign company
organization), it generally must at least be registeredas a dependent branch office.
This is typically the case if the foreign company has apermanent representative who conducts the commercial activities of the company in a sustained manner
and, in doing so, is subject to its instruction.
An office managed by a self-employed third party (e.g.
a commercial agent authorized by the company) might
be considered a case in which no direct business activity is conducted by the foreign company itself. In thiscase, registration of the foreign company with the local
trade office is generally not required. Decisive here is
the actual level of independence of the agent and theirfreedom to act without instruction from the company.

Please find more information about the registration procedure of the two different branch office categories in the"Business Establishment" fact sheet.
Branch Office Taxation
A branch office is subject to taxation in Germany if it isconsidered to be a permanent establishment according to
the applicable double taxation agreement. An autonomous
branch office is generally regarded as a permanent establishment, whereas a dependant branch office is only ever considered a permanent establishment under certain conditions.

FACTS & FIGURES 2024 | gtai.com

INVESTOR’S BASICS

Business Establishment
There are different ways to enter the German market. Expanding foreign companies normally opt to establish a local subsidiary or register a local branch office. Foreign companies
often choose the private limited liability company option(Gesellschaft mit beschränkter Haftung – GmbH) for local
subsidiary formation.

Setting Up a GmbHThe GmbH is the most widely used legal form for corporations in Germany. It combines high flexibility with relatively
few obligations and enjoys a good reputation. Anotheradvantage of the GmbH is the limitation of liability to its
corporate assets. At least one shareholder (private individual or legal entity) and one managing director (private
individual) are required for the establishment of a GmbH.
The shareholder and the managing director can be the same
person. The nationality and residence of the shareholder(s)and the managing director(s) of a GmbH are irrelevant.
However, the company must have a German businessaddress and a local representative. The GmbH requires aminimum share capital of EUR 25,000. It can be contributedin cash or in kind.
Online Formation
The online formation procedure of a GmbH is applicable toformations with contributions in cash and in kind (except forthe contribution of objects whose transfer itself is subject tonotarization). The online notarization takes place in a videoconference between the notary and the parties involved. The
German Federal Chamber of Notaries provides a video communication system with a two-step identification procedure,
which requires an electronic proof of identity (eID from
Germany or other EU member state). The signatures required
for the incorporation are obtained by means of a qualified
electronic signature.
Necessary Documentation
In order to successfully register a business in Germany, certain
documentation verifying the existence of any parent company
as well as the power of representation for persons acting on
behalf of it is needed. Generally, an excerpt of the foreigncommercial register as well as articles of association of theforeign parent company will be required. The documentationmust be notarized and either legalized or issued with an apostille. It should also be accompanied by a certified translation
into German language. Please notice that the documentation
required can differ depending on the legal form and originof the foreign company. It is advisable to consult a German
notary at an early stage for individual advice.

FACTS & FIGURES 2024 | gtai.com

GmbH Incorporation Procedure
Step 1
Drafting of Articles of Association
The articles of association shape the identity and constitution of the company. Thanks to the large scope for contractual design, the GmbH is a very flexible corporation
form. Mandatory content includes share capital, shareholders and respective shares held, business name, registered office, and company purpose.
Step 2
Notarization of Articles of Association
The drafting and notarization of the articles of association
are normally performed in one session by a German notary.
The founding shareholder(s) adopt(s) its articles of association and appoint(s) one or more managing directors in anotarial deed.
Step 3
Payment of Share CapitalOnce the articles of association have been notarized, acompany bank account must be opened and the sharecapital contributed. A payment of EUR 12,500 in total issufficient for registration with the commercial register ofa standard EUR 25,000 GmbH (cash contribution).
Step 4
Commercial Register Registration
When the required share capital has been verifiable contributed to the GmbH, the managing director(s) apply forthe registration of the GmbH in the commercial register(Handelsregister) via a German notary. If the commercial
register considers all formation requirements to be fulfilled,
the GmbH is registered and starts to exist as a legal entitywith limited liability.
Step 5Trade Office Registration
Before business operations are started, the trade office(Gewerbe-/Ordnungsamt) of the municipality in which
the business is located, must be notified about the planned
activity. A business license or permit is not necessary forregistering the business in the majority of cases. However,a permit or authorization may be required for some business sectors. The trade office registration requires at least
one local representative.

→ For details on the procedure, please refer to:

www.gtai.com/company-set-up

INVESTOR’S BASICS

Setting Up a Branch Office
Any foreign company with a head office and registeredbusiness operations abroad can establish a German branch
office. There are two different categories of branch offices:
the autonomous branch office (selbständige Zweigniederlassung) and the dependent branch office (unselbständige
Zweigniederlassung). A branch office has no independent or
separate legal personality distinct from the head office itself.
In legal terms, it is part of the head office business, which
also is liable for any of its business obligations. A formation
procedure is therefore not applicable – only the registrationof the branch with German business registers is required.
The autonomous branch office is dependent upon the head
office company at the internal level but engages in businessactivities independently. At the organizational level, autonomous branch offices are to a certain extent independent
from the head office company: The autonomous branchusually has its own management with executive powers, aseparate bank account, business assets and accounting (onits own or via the head office company). The dependent
branch office focuses on maintaining contacts and initiating
business in Germany. It performs support and implementation-related tasks without having any individual businessdiscretion and is entirely dependent on the head office.

Legal Certainty
Business establishment procedures in Germany provide
entrepreneurs legal certainty in the commercial law field –creating transparency and offering companies the highest
level of security in their day-to-day business activities.
Important functions are fulfilled by German civil law notaries, and Germany's unique commercial register.
German Notaries
Civil law notaries are appointed lawyers sworn to impartiality and entrusted with public functions. Depending on
where in Germany the notary is appointed, he or she practices either as a “single profession notary” or as an “attorney-notary.” The number of notaries in each federal stateis limited in order to ensure independence and impartiality.
In Germany notarization is required, amongst other things,
for establishment of corporations and applications for entry
in the commercial register. Notary fees are stipulated bylaw and subject to the value of the transaction. The notary
fees for a GmbH establishment depend, among otherthings, on the share capital.
→ www.notar.de

FACTS & FIGURES 2024 | gtai.com

Branch Office Registration
Commercial Register Registration
Registration in the commercial register (Handelsregister) is only required by the autonomous branch office.
The application, which is electronically filed by a German
notary, must include detailed information pertaining to
the foreign head office company and the branch office.
This includes, for example, documentation verifying theexistence of the foreign company as well as the power ofrepresentation for persons acting on its behalf. Please notethat the documentation required can differ subject to thelegal form and country of origin of the foreign company.
It is also advisable to consult a German notary at an earlystage. A dependent branch office only requires registration
with the trade office.

Trade Office Registration
Before starting their business operations, all business operators must inform the competent local trade
office (Gewerbe-/Ordnungsamt). This applies to all companies regardless of company form (excluding freelance
professionals). Accordingly, both the autonomous anddependent branch must register in the trade office before
business operations are started. Generally, the same procedure applies as for the GmbH. As with registering a GmbH,
trade office registration of a branch office requires atleast one local representative in Germany. A businesslicense or permit is not required in the majority of cases.
However, it may be required for some business sectors.

Commercial Register
The public commercial register (Handelsregister) ensureslegal certainty in the area of commercial law by providing
important information about registered companies. It isadministered by the local courts (Amtsgericht). Some of thecompany data is also available online. This means that it isfairly quick and easy to check the existence and power ofrepresentation of any given company. All corporations – aswell as many other enterprises requiring business operations
to be set up in a commercial manner – have to be registeredin the commercial register. Any application for registrationin the commercial register must be submitted by a German
notary. Notarial online procedures are in place, for example,
for applications for entry in the commercial register.
→ www.unternehmensregister.deINVESTOR’S BASICS

Entry and Residence
Germany offers various residence titles. The type of residence title required depends on the person's country oforigin, the length of the intended stay and the intended
business activity in Germany. Considering a business expansion into Germany the following titles are the most relevant:· Schengen visa
· Residence permit

Settlement Permit
A settlement permit is an unlimited permit for residence
and gainful occupation in Germany. Depending on the typeof residence permit this can be granted e.g. after holding a
residence permit for three years as a skilled employee or aself-employed person. The EU Blue Card offers even more
beneficial granting requirements.

· Settlement permit

Application - Visa / Residence Permit
Residence title

Entitlement

Schengen Visa

Enables the holder to entry and shortterm stays (up to 90 days in any 180-day
period) in Germany.

Residence Permit

Settlement Permit

Required for limited but long-term stays(more than 90 days in any 180-day period) or for work on a self-employed basis
or as an employee in Germany.
Unlimited permit for residence and gainful occupation in Germany.

Schengen Visa for Company Set Up
Citizens of many non-EU countries generally require a
Schengen visa for entry and short-term stays in Germany.
This visa is generally sufficient for most steps required to
set up a company in Germany. Using a Schengen visa for
a company formation does not warrant residence permit
issue at a later date. If necessary, a residence permit for
self-employment or employment should be applied for indue time. A residence permit must also be applied for if theincorporation phase exceeds 90 days.

Residence Permit
Normally a residence permit is not required for the setting
up of a business. However, a residence permit is requiredin those cases where the foreign national intends to run abusiness or to work in Germany. Depending on the planned
activity, there are different options available to foreigncompanies planning to set up business in Germany and theiremployees.

FACTS & FIGURES 2024 | gtai.com

Schengen visa generally have to be applied for at the local
German embassy or consulate general prior to entering
Germany. Visa exemptions apply for many countries. If a
residence permit is wanted, the application for a national
visa must usually be submitted to the relevant German
embassy or consulate general before entering Germany. A
national visa allows entry to Germany, where a residence
permit can be issued. Some non-EU nationals may apply fora residence permit (self-employed or employed) after entry
into Germany without a national visa. This only applies tonationals of Australia, Canada, Israel, Japan, New Zealand,South Korea, UK, and the United States.
The application fee is in general EUR 80 for a Schengen visa
and EUR 75 for a national visa. Additional fees of up to EUR
100 for a residence permit are also payable.

EU Citizens
Citizens of the European Union (EU) and the European
Economic Area (EEA) do not require any residence title
to be able to enter, settle or work in Germany. A registration at the local registration office (Einwohnermeldeamt) is sufficient, if they move to Germany.
Swiss nationals have to notify the local immigration
office about their long-term stay in order to obtaina residence permit certifying their right to free movement.

→ For further details please refer to:

www.gtai.com/residence-titles

INVESTOR’S BASICS

Residence Permit for Self-Employment
Entrepreneurs from non-EU countries managing a company
on-site in Germany in a self-employed capacity require a
residence permit for the purpose of self-employment. Thispermit may be granted if the planned business is expected
to have a positive economic effect and has secure financing
in place. An individual assessment of the intended businessproject is then made, taking into account, e.g.: the viabilityof the underlying business idea, the foreigner’s entrepreneurial experience, the level of capital investment, effects on
the employment and training situation and contribution to
innovation and research. A residence permit for the purposeof self-employment is limited in time for up to three years.
A settlement permit can be granted after three years if thebusiness activity has been successful and is expected tohave a sustainable development in the future.

Who is typically considered self-employed?
• Entrepreneurs (including freelance professions)• Partners in a partnership• Majority shareholders of a GmbH who are also
managing directors of the GmbH

Residence Permit for Employment
Residence permits for qualified professionals are generally
issued where applicants have a concrete job offer, a sufficient qualification and approval from the Federal Employment Agency (FEA).
A reform of the Skilled Immigration Act – largely in force
since March 2024 - has further opened up the German labormarket to qualified professionals from outside the EU. Qualified professionals include university graduates and persons
who have successfully completed vocational training for atleast two years. Foreign qualification - both academic andvocational - must be checked for equivalence with German
qualifications and officially recognized. A new feature is
the possibility to do this after entry into Germany. For thispurpose, skilled workers and employers must agree on arecognition partnership. Work experience and qualifications
obtained and recognized abroad may also be sufficient insome specific cases.
Another new aspect is that skilled workers with a qualification obtained or recognized in Germany can pursue any
form of qualified employment and not just in the sector
in which they obtained their qualification. In addition,

FACTS & FIGURES 2024 | gtai.com

employers based in Germany who have hired a foreign
skilled worker can speed up the visa procedure by applying
for a fast-track procedure on behalf of the foreign skilledworker for an extra fee. A residence permit can be granted
for up to four years, with a settlement permit issued after
three years.
→ For further details please refer to:

www.gtai.com/employees-residence-permit

EU Blue Card
The EU Blue Card allows qualified professionals with auniversity degree to be fast-tracked into employment in Germany. Through the reform, the EU Blue Card is now available
to a greater number of skilled workers as the salary threshold has generally been lowered. In addition, the scope of
the EU Blue Card for professions in special demand has beensignificantly expanded. Non-EU citizens may apply for thisresidence permit if they hold a German university degree (ora proven comparable qualification) and a job contract withan annual gross salary of at least EUR 45,300 (2024).
The annual gross salary level is EUR 41,042 (2024) in professions with a particular skill shortage. In addition to STEM
professions, this category also includes, for example, managers in production or logistics as well as an extended group of
healthcare professionals. Within this category, IT specialists
without a university degree but with at least three years of
relevant professional experience in the last seven years canalso obtain an EU Blue Card. Regardless of profession, entry
level employees (graduated within the last three years) can
also benefit from the lower salary threshold. Approval fromthe FEA is required in all cases subject to the lower salarylevel. A settlement permit can be granted after 27 months –or after 21 months if the foreign citizen has attained a specified German language proficiency level.

ICT Card
Germany has also facilitated long-term intra-corporatetransfers of specific staff categories through the introductionof the ICT Card. This enables an intra-corporate transfer froma sending entity outside the EU to a host entity in Germany.
Both entities must be part of the same company or company
group. Eligible employees are non-EU managers and specialists who have been employed in the sending unit for at least
six uninterrupted months immediately preceding the transfer. Moreover, the work contract and, where necessary, theassignment letter e.g. need to state details of the transfer
and proof of the employee’s professional qualification. The
ICT Card must be applied for at the competent German mission abroad and is subject to FEA approval.

INVESTOR’S BASICS

Corporate Taxation
All corporations – including the limited liability company(GmbH), the stock corporation (AG) and German permanentestablishments of foreign corporations – are subject tocorporate income taxation. Income taxation of corporatecompanies generally consists of three components:· Corporate income tax· Solidarity surcharge· Trade tax
There is no consistent nationwide tax rate for corporate
income taxation due to locally set varying trade tax levels.
Corporate income tax rate plus solidarity surcharge are,however, determined nationwide. Many municipalities offer
combined corporate tax rates below 25 percent. The German corporate tax average is 29.9 percent. Germany Trade& Invest can support you in identifying attractive locationsin Germany. For more detailed information on the taxationof branch offices as permanent establishments of foreign
corporations in Germany, please refer to the folder of thispublication.

Trade Tax
Even though trade tax (Gewerbesteuer) is regulated byfederal law, it is a municipal tax. The rules for determining
the taxable income (business profits plus certain statutory additions and allowances) are the same throughout
Germany. Moreover, the trade tax rate is the same for all
businesses within one municipality. However, the tax rateapplicable in a municipality is individually determined byeach municipality. The individual trade tax rate of a specificsite is therefore the decisive factor for the overall corporate
tax burden. The minimum trade tax rate must be at least
seven percent. There is no statutory ceiling of the tradetax rate, but the German average trade tax rate is slightly
above 14 percent (2022). As a rule, the trade tax rate tends
to be higher in urban than in rural areas. The solidarity surcharge is not levied on trade tax.
Calculating Trade Tax
The individual trade tax amount depends on two factors:· the multiplier (Hebesatz) stipulated individuallyby every municipality,

Corporate Income Tax· the tax base rate of 3.5 percent (across Germany).

Corporate income tax (Körperschaftsteuer) is levied as aflat nationwide tax at a rate of 15 percent of the taxable
corporate income. Taxable income (i.e. annual business profits) forms the tax base for corporate income tax. Under German commercial law, corporate companies' annual profits arecalculated and recorded in the annual financial statement.
This also forms the basis for determining taxable income.
However, German tax law provides different accounting
options and income correction rules, meaning that the
taxable income usually differs from the annual profit determined in the financial statement under commercial law.

The taxable income is multiplied with the tax base rate
resulting in the so-called tax base amount. This tax baseamount is then multiplied by the applicable municipal multiplier. The multiplier is set by each municipality. On average, it
is slightly above 400 percent, but may not total less than 200
percent. There is no upper limit for the municipal multiplier.

Model Calculation – Trade Tax· A GmbH with an annual taxable income of EUR 1,000,000
is based in city A.

Solidarity Surcharge
The solidarity surcharge (Solidaritätszuschlag) is a fixedand flat nationwide component of company taxation. It is
added to the corporate income tax and set at a rate of 5.5
percent of the corporate income tax rate (and not 5.5 percent
of income). Taken together, the corporate income tax andsolidarity surcharge amount to a total taxable rate of 15.8
percent.

FACTS & FIGURES 2024 | gtai.com· City A has stipulated a municipal multiplier of 400 percent.
· The tax base amount for the GmbH is 3.5 percent of its
annual taxable earnings or EUR 35,000.
· The EUR 35,000 is multiplied by the municipal multiplier of
400 percent, resulting in a total trade tax amount for theGmbH of EUR 140,000.

INVESTOR’S BASICS

Taxation of Dividends
Germany provides an extensive network of double taxationagreements to ensure that double taxation in international
business relations is ruled out. If a German subsidiary pays
out dividends to a foreign parent corporation, generally awithholding tax (Kapitalertragsteuer) of 25 percent plus
solidarity surchage is due.
In the case of an existing double taxation agreement (DTA)
with a foreign country, the withholding tax is usually levied
at a significantly lower rate, e.g. 15, 10 or 5 percent. Withholding tax still paid in Germany can be credited against
existing foreign tax obligations or the parent company has
been exempted from dividend-payable tax in the respective
DTA state. Different rules may apply for dividend paymentsby partnerships.
→ The double taxation agreement with the USA, for example,

even allows a reduction of dividend taxation to zero percent
where certain requirements are fulfilled. Moreover, EU law,under certain conditions, allows tax-free transfer of dividends between all EU member states.

Input VAT Deduction
Companies themselves regularly pay VAT when they purchase goods or services. The taxes collected and paid canbe balanced out in the VAT return as input VAT deduction(Vorsteuerabzug). For companies, value-added tax represents
a transitory item only.

Value-added Tax in Selected European Countries
standard rate in percent

Germany
France20

Belgium

21

Netherlands

21

Spain

21

Italy

Value-added Tax (VAT)
Value-added tax (VAT) is a tax on the exchange of goods
and services. Companies are generally obliged to add valueadded tax to the prices of their goods or services and to
invoice their customers accordingly.
In specific business-to-business transactions, the businessclient has to transfer the VAT to the tax authority – so-called
reverse charge procedure (applicable for example to certain
types of construction work carried out by subcontractors).
The reverse charge procedure is also generally applicable for
intra-community supplies, i.e. the sale of goods or services
from an entrepreneur in one EU member state to a commercial customer in another EU member state. In general, thecommercial customer has to pay VAT in his or her EU member
state in cases of intra-community acquisitions.
VAT Rate
The 19 percent VAT rate in Germany is below the European
average. A reduced rate of seven percent applies to certain
consumer goods and everyday services (such as food, newspapers, local public transport, and hotel stays). Some services(such as bank and health services or community work) arecompletely VAT exempt. Value-added tax which is collected
has to be paid to the responsible tax office on a monthly,quarterly or annual basis. The exact time frame depends
on the company’s level of turnover.

FACTS & FIGURES 2024 | gtai.com

19

Poland22
23

SwedenHungary25
27

Source: European Commission, Taxes in Europe database, February 2024

Tax Office Registration
All companies have to register with the local tax authority (Finanzamt) in order to be issued with a tax
number required for corporate income taxation as wellas national German VAT purposes. A tax assessment
questionnaire must be completed within one monthafter establishing a company or a permanent establishment. Where the company intends to deliver/import goods to or from other EU member states, it requires a specific VAT identification number issued by
the Federal Central Tax Office. The VAT identification
number application can be filed online or even be combined with the application for the regular tax number.

INVESTOR’S BASICS

Employees and Social Security
Germany is internationally known for its highly qualified,
motivated, and conscientious workforce. Employers are free
to tailor the recruiting process to their individual needs. Onlya few guidelines need to be observed; such as offering jobs
in a non-discriminatory manner (meaning that employers
are required to hire on an equal opportunity basis without
discrimination in terms of race, ethnicity, gender, religion,
conviction, disability, age, or sexual orientation). Recruitment
services are offered by the Federal Employment Agency(Bundesagentur für Arbeit). There are several programs offering extensive public support for hiring employees.

Employment Models
Regular Employment
Regular employment contracts are unrestricted and canbe terminated by a written letter of termination, provided a
mandatory notice period has been observed. In companies
with more than 10 employees, a justified reason is required
for regular termination. In a regular employment contract,
employer and employee usually agree upon a six-monthprobationary period during which the contract may be terminated by either party at any time with two weeks’ notice.
Fixed-term Contracts
Fixed-term contracts expire automatically on a specified
date without a formal dismissal requirement. It is for theemployer to decide whether to renew the contract or not.
Fixed-term contracts are generally limited to a maximum of
two years and may be extended up to three times provided
the total duration of contract does not exceed the maximumof two years. During the first four years of a company’s existence in Germany, employment contracts may be limited or
extended several times up to a total duration of four years.
Temporary Employment
Temporary employment means that a company leases
employees from a temporary employment agency. The
employee is legally employed by the temporary employment agency and receives the salary from them – as nocontractual relationship exists between leasing company
and employee. General working conditions such as weekly
working hours and wages are usually determined in collective agreements. They can modify the “equal treatment”principle of leased employees and permanent staff to alimited degree. The service contract between the hiring
company and the temporary employment agency regulates
the duration and terms of termination of service of theemployee in the hiring company. The statutory maximum
hiring term for the same leased employee at the same company generally is 18 months.

FACTS & FIGURES 2024 | gtai.com

Wage Level
Wages are generally subject to individual negotiations. It
must be noted that a general minimum wage of EUR 12.41
an hour is applicable from January 2024. An adjustment to
EUR 12.82 is set for January 2025. Higher minimum wages
may be set in certain industries (e.g. those with universally
applicable collective wage agreements).
There are also general exemptions from the national minimum wage. For instance, the following group categories are
not covered by the minimum wage regulation:· young people under 18 years of age,
· students completing compulsory internships/
internships up to three months,· long term unemployed (one year or longer)
for the first six months in employment.

Working Times and Vacation
Working hours in Germany are in line with the EU Working
Time Directive. Employees are allowed to work eight hours
per day - 48 hours per week. Saturday is considered to be anormal working day. With a five-day week, the permitted
weekly working time totals 40 hours. Most business is conducted from Monday to Friday but retailers and manufacturing industries usually operate on Saturdays as well. Sundays
and public holidays in contrast, are generally considered to
be days off. However there are numerous exceptions fromthis general rule, permitting Sundays and public holiday
work. An extension of the working time to a maximum often hours per day is possible under certain conditions.
The statutory amount of work breaks depends on the total
number of hours worked per day. Employees are entitled to abreak of 30 minutes when working between six and nineworking hours per day. Employees are entitled to 45 minutes
break when working more than nine hours a day.
Full-time employees working six days per week are entitledto a minimum of 24 paid vacation days (the equivalent offour weeks) per year. Accordingly, full-time employees
working five days per week are entitled to a minimum of
20 days per year.
→ Our Economic Overview Germany provides detailed infor-

mation and statistics on the German labor market, the highqualification and productivity of the workforce in Germany.
www.gtai.com/economic-overview-germany

INVESTOR’S BASICS

Social Security

Payroll Accounting

In Germany, core social security provision is collectively
financed by means of a process of redistribution. The current
costs for pensioners, sick people, those in need of nursing
care, and unemployed people are paid directly from contributions by employees and employers alike. The contributions
are roughly shared equally by employer and employee withthe exception of accident insurance costs which are solely
borne by the employer. Each share corresponds to approximately 20 percent of the employee's gross wage.

Employees in Germany receive a net wage – meaning asalary from which tax and social security contributions
have already been deducted.

Components of Social Security Insurance
The German social security insurance system consists of:· Pension insurance· Health insurance· Unemployment insurance· Nursing care insurance· Accident insurance

Common funds exist for all social security components. Only
the statutory public health insurance provider can be chosen
individually by the employee. Employees can also choose
to opt out of the statutory health insurance in favor of a
private health insurance scheme subject to satisfaction ofa minimum monthly gross salary level.

Allocation of Social Security Contributions (SSC)

Employer's Share of SSC
approx. 20%
of gross wage

Employee's Share of SSC

Employee's gross wage

approx. 20%
of gross wage

FACTS & FIGURES 2024 | gtai.com

Wage Tax
Employees pay wage tax (Lohnsteuer) – a special term forthe income tax paid by employees. The employer is obliged
to deduct the wage tax due directly from the salary of
the employee and to pay it to the tax office. This must becompleted electronically with authentication on a monthly,quarterly or annual basis depending on the amount of total
wage tax. To obtain the electronic certificate required forauthentication, the employer has to register him or herself
and all employees electronically at the "Elster" online tax
portal (www.elster.de).
Social Security Contributions
Social security contributions are also withheld by the employer after calculation of the gross wage and transferredto the employee's health insurance company (which passeson the contributions excluding accident insurance to all
relevant parties). The employer must register each individual
employee with their respective health insurance company.
The company number (Betriebsnummer) is a prerequisite forregistration. Employers must apply for a company number at
the Federal Employment Agency Saarbrücken.
Statutory accident insurance contributions have to be transferred separately by the employer to the statutory accident
insurance association (Berufsgenossenschaft). To do so, theemployer has to register separately with the Berufsgenossenschaft in advance.
International Social Security Agreements
In order to facilitate the international transfer of employees,
Germany has signed social insurance agreements with countries including Australia, Brazil, Canada, China, India, Israel,
Japan, South Korea, Turkey, and the USA.
Within the EU, the posting of employees is facilitated by
EU regulations. This allows transferred employees to remain
within the national social insurance system of their homecountry if they are relocated to Germany for a certain time.
In this case, the employer does not have to pay Germansocial security contributions for the employees temporarily
located in Germany.
The EU has concluded special agreements on social security
topics with countries including Switzerland and the UK.

Pension insurance
Health insurance
Unemployment insurance
Nursing care insurance
Accident insuranceINVESTOR’S BASICS

Germany Trade & Invest Helps You
Germany Trade & Invest’s teams of industry experts willassist you in setting up your operations in Germany. We
support your project management activities from theearliest stages of your expansion strategy.
We provide you with all of the industry information you
need – covering everything from key markets and related
supply and application sectors to the R&D landscape.
Foreign companies profit from our rich experience in identifying the business locations which best meet their specificinvestment criteria. We help turn your requirements into
concrete investment site proposals; providing consulting
services to ensure you make the right location decision.
We coordinate site visits, meetings with potential partners,
universities, and other institutes active in the industry.

Our team of consultants is at hand to provide you with therelevant background information on Germany’s tax and legal
system, industry regulations, and the domestic labor market.
Germany Trade & Invest’s experts help you create the appropriate financial package for your investment and put you in
contact with suitable financial partners. Incentives specialists
provide you with detailed information about available incentives, support you with the application process, and arrange
contacts with local economic development corporations.
All of our investor-related services are treated with theutmost confidentiality and provided free of charge.

Our support services for your investment project

Strategy

Evaluation

Decision & Investment

Project management assistanceBusiness opportunity
analysis and market
research

Project partner
identification andcontact

Joint project management with regional
development agency

Coordination and support of negotiations
with local authorities

Cost factor
analysis

Sitepreselection

Site visit
organization

Final site
decision support

Market intelligenceand statistics

Financing & incentives
consultancy

Information on visa
options and labor law

Contact to financial
partners

Market entry
strategy support

Location consulting/Site evaluation
Identification ofproject-specificlocation factors

Support services
Facts on incorporationand taxation

FACTS & FIGURES 2024 | gtai.com

CONTACT

Investor Support Services
The Tax & Legal Services team is part of Germany Trade &Invest's Investor Support Services division. A team of experts
supports foreign companies seeking to establish a businessin Germany with information about Germany's tax and legal
system. Information provided addresses the questions mostoften posed by international companies regarding incorporation; corporate taxation; entry and residence regulation; andemployee and social security obligations.

For questions on how to establish your business in Germany
please contact us at invest@gtai.de
For more information about the tax and legal frameworkin Germany please visit our website:www.gtai.com/investment-guide

The Investor Support Services division also provides a rangeof other services including financing and incentives information support and industry-specific market analyses.
The Investor Support Services division has more than adecade of experience and a proven track record in helping
international companies set up their business operations inGermany.

Imprint
Publisher
Germany Trade and Invest
Gesellschaft für Außenwirtschaft
und Standortmarketing mbH
Friedrichstraße 60
10117 Berlin
Germany
T +49 30 200 099-555
F +49 30 200 099-999
invest@gtai.de
www.gtai.com

Authors
Tax & Legal Services:
Christina Schönchristina.schoen@gtai.de
Udo Sellhast
udo.sellhast@gtai.de
LayoutDanielle Röbbenack, GTAI
Print
Kern GmbH, 66450 Bexbach
www.kerndruck.de

Executive Board
Julia Braune Chairwoman/CEO
Dr. Robert Hermann, CEO

Picture Credits
Cover: fotolia/JFL Photography

EditorWilliam MacDougall, GTAI

Order Number
20859/3

Notes
All rights reserved ©Germany Trade &Invest, March 2024
Reproduction, in whole or in part,
only permissible with express priorauthorization. All information provided
is based on the most current market
information available at the time of
publication. ­Germany Trade & Invest
accepts no liability for the actuality,
accuracy, or completeness of theinformation provided.

About Us
Germany Trade & Invest (GTAI) is the economic development agencyof the Federal Republic of Germany. The company helps create andsecure extra employment opportunities, strengthening Germany as
a business location. With more than 50 offices in Germany and abroad
and its network of partners throughout the world, GTAI supports ­German companies setting up in foreign markets, promotes Germany asa ­business location and assists foreign companies setting up in G
­ ermany.
All investment services and related publications are free of charge.

Germany Trade & Invest
Bonn Office
Villemombler Straße 76
53123 Bonn
Germany
T +49 228 249 93-0
F +49 228 249 93-212
info@gtai.de
www.gtai.de

Christina Schön
Senior Manager
Tax & Legal Services
christina.schoen@gtai.de

Udo Sellhast
Senior Manager
Tax & Legal Services
udo.sellhast@gtai.de

For more information on how to set up business in Germany,please contact Germany Trade & Invest’s Tax & Legal team.

Germany Trade & Invest
Headquarters
Friedrichstraße 60
10117 Berlin
Germany
T +49 30 200 099-0
F +49 30 200 099-111
invest@gtai.de
www.gtai.com