Investing in Germany

A Q&A guide to investing in Germany.

This Q&A gives an overview of the key factors affecting inward investment, including information on the jurisdiction's legal system; key laws and regulatory authorities; investment restrictions; and details of international treaties, customs and monetary unions. The guide also provides information on investor individuals; visa permits; restrictions on foreign ownership; transfer pricing and thin capitalisation rules; imports and import duties; safety regulations and standards for commercial goods and services; structuring and tax incentives; investment guarantees; recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Investing in... Country Q&A tool.

This Q&A is part of the Investing in…Global Guide. For a full list of contents, please visit

1. How does your jurisdiction compare internationally as a destination for inward investment?

The Federal Republic of Germany is an internationally orientated country with some 80 million inhabitants. The reunification of the Eastern (communist) and Western parts took place in 1989 and put an end to some 40 years of separation after World War II. Today, Germany welcomes investors from all over the world. As the largest economy in the EU, Germany finds itself in the heart of Europe. Bridging east and west in Europe with borders to nine other countries, Germany has a long tradition of opening its culture and economy to international investors. Germany is often regarded as bureaucratic, yet authorities and domestic business partners prove to be reliable negotiation counterparts. Business negotiation culture is based on facts and clearly expressed expectations. While in some instances this may be perceived as bluntness, it is rather intended as sincerity. Since Germany has not one business centre but 16 (one in each of its federal states), each with its own (sometimes very specific) industry basis, it is possible for any type of business to find a proper environment for its operations. Each federal state offers assistance and financial benefits for investors who create jobs and contribute to regional growth.

The country is ruled by the principles of a social market economy, meaning that it embraces the spirit of free enterprise, but tempered with democratic controls and administrative legal measures designed to prevent large economic participants from seriously damaging other interests. Laws against unfair competition, including anti-trust provisions, laws for the protection of the environment and laws protecting employees, while sometimes perceived as obstacles, may be said to be real stabilising factors for German economy. Since the end of World War II, Germany has survived every international or European economic and political crisis without severe damage.

All over the country, and especially in the urban regions, business people and representatives of public authorities are able to communicate in English. The larger cities such as Berlin, Munich, Frankfurt and Hamburg each host a big community of foreigners from virtually all over the world. Xenophobia, while a diminishing phenomenon, may still be visible in the remote rural areas. In general, the work force is highly motivated, and highly trained and disciplined. The strong and well-established trade union movement usually adheres to regular collective bargaining agreements which, over the years, have achieved an impressive degree of protection for employees. This in turn creates a stable and reliable environment for investors.

Since 2015, Germany has received more than one million refugees from countries in deep political crisis such as Syria, Afghanistan and Iraq. The economic, cultural, and political concerns begin to undermine the authority of the federal government under Chancellor Merkel. The "refugees-crisis" is testing the limits of Germany's willingness and preparedness for coping with the largest immigration situation since the end of World War II.

2. What types of companies are attracting foreign investment into your jurisdiction and what are the most active sectors?

Germany's traditional heavy industry has lost ground to newer industries in recent years. While the automotive, chemical and pharmaceutical industries are still alive and internationally competitive, other industries such as shipbuilding, mining, and steel production are decreasing. Due to the high social and living standards, the workforce in the country's manufacturing sector cannot compete cost-wise with other countries in and around Europe. However, the training standards in craftsmen's trades, as well as high-tech industries, are among the highest in the world. Specially designated industry parks are growing all across Germany from year to year, promoting specific industries such as bio-technology, nano-technology, renewable energies and next-generation information technologies, to mention just a few.

In contrast to this domestic growth, strong interest among foreign investors has been detected in the services sector in particular, including but not limited to advisory and financial services. Germany has also become attractive for investments in real estate due to its combination of solid protections for private property, steady demand for housing, commercial and office space, and still-competitive land prices.

Investing companies mainly originate from Europe, Asia and North America, but there has been a notable shift of interest towards investors from Asia, especially Indian and Chinese companies.

3. What will be the main factors affecting the market and how do you expect the market to develop?

Germany is heading towards a change in the energy sector. Renewable and decentralised energy production is being promoted, while conventional sources of energy such as gas or lignite, as well as nuclear energy, are to be phased-out in the next decades. While Germany may still be a bit behind in terms of ubiquitous high-speed internet access, larger cities routinely develop WiFi networks alongside schools, preparing their students for integration in the information society of the future. The role of the internet towards changing the habits of millions of consumers is causing both anxiety and hope at the same time.

Moreover, metropolitan areas such as Berlin, Hamburg or Munich have started to develop new-generation mobility networks (for example, car sharing by mobile apps) and are preparing for mobility concepts of the future (for example, self-steering cars and centralised remote traffic control). Increases in public funding for research projects and mid-term plans of large companies prove that this is the future for Germany's cities in the next ten years.

The special financing tools for the development of the eastern states of Germany (which belonged to the German Democratic Republic during the separation of East and West Germany) will remain in force for a few more years. While other European economies have not fared as well, the federal government under Angela Merkel as chancellor (see Question 4) has been determined to provide stability to the country even in times of crisis. Although the large number of refugees having entered Germany since 2015 proves to be a big challenge for the government, no substantial political change is foreseen and Germany will continue its role as the leading economy in Europe.


Legal system

4. Please briefly outline the government and legal system.

Germany is a federal parliamentary republic. Legislative as well as executive powers are divided between the federation (Bund) and the 16 federal states (Länder).

At the federal level, the central legislative institutions are the federal parliament (Bundestag) and the representative chamber of the federal states (Bundesrat). The federal parliament has responsibility for matters such as national security, international affairs, defence, economic policy and taxation, while the 16 federal states are responsible for public order and safety, education, and public administration. However, the German legal system is co-ordinated in many ways so that the states have adopted similar laws in most of the relevant fields. The Civil Law Code (Bürgerliches Gesetzbuch) as well as all corporate laws are deemed to be federal law and therefore the basic legal framework for corporations and individuals is the same all over Germany.

The German Cabinet (Bundesregierung) is the supreme executive body of the federation. It consists of the Federal Chancellor and the Cabinet Ministers/Secretaries. While the power of the German President is limited to representation, the position of the Federal Chancellor (currently Dr Angela Merkel) is fairly broad.

Most of the states are sub-divided into administrative regions, counties and municipalities with limited local legislative powers but strong powers of enforcement.

German legislation is modelled after the Roman system, as with most Continental European countries, and differs significantly from common-law legal systems. The German constitution or Basic Law for the Federal Republic of Germany (Grundgesetz) was passed in 1949 as the foundation of the entire body of German legislation. It constitutes fundamental human rights, principles of freedom and the rule of law. The Federal Constitutional Court (Bundesverfassungsgericht) is a powerful watchdog for the protection of the constitution. However, increasingly the German legal system is influenced, and sometimes overruled, by EU law, which sometimes causes conflict but up to now has not prevented Germany from being considered as the EU's model participant in the legal sphere.

5. What are the key laws and regulatory authorities governing foreign investment in your jurisdiction?

Foreign investors are generally subject to the same conditions as German investors and there are no administrative controls specifically for foreign investments in Germany, and no specific key laws or regulatory authorities that govern foreign investment. Regulated industries (such as pharmaceuticals, military products, radioactive substances and so on) are subject to special controls. All other products, services and financial investments enjoy freedom of trade. Investors from the EU, the European Economic Area (EEA) and Switzerland receive the same treatment as German companies both in theory and in practice. Investors from outside the EU/EEA countries are in practice relieved from tax or customs barriers due to a comprehensive set of bilateral treaties. A foreign individual or company can establish a legal entity (or affiliate or subsidiary) in Germany without any restriction. There is no requirement that a German national own or operate such an enterprise.

Each federal state, as well as the federation itself, has established investment promotional agencies, which assist in finding the right investment opportunities, meeting the general requirements for setting up a company, and obtaining financial aid (see box, Main investment organisations). These agencies generally do not have enforcement powers.

6. What international treaty organisations and/or economic, customs or monetary unions or free-trade areas is your jurisdiction a member of?

Germany is a founding member of the EU and one of its most important members.

In addition, Germany is also a member of the following international bodies:

  • United Nations (including its Security Council).

  • Organisation for Economic Co-operation and Development (OECD).

  • NATO.

  • G8.

  • G20.

  • European Monetary Union (EMU).

7. What other international agreements apply to foreign investment?

Germany has concluded a vast number of bilateral treaties, which affect certain industries, services, or types of investment. Most important are the double taxation treaties, which exist between Germany and most of the industrialised countries in the world.


Investor individuals

8. Are there any visas, permits or other requirements for foreign individuals entering your jurisdiction for business purposes?

In general, citizens of the EU, the EEA and Switzerland can enter, stay, and work in Germany without any visa requirements. Individuals must only register at the local registration office (Einwohnermeldeamt) on taking up permanent residency in Germany.

EU citizens from some of the eastern EU member states still require a work permit for a transitional period for taking up employment in Germany, which must be applied for with the Federal Employment Agency (Bundesagentur für Arbeit).

Immigrants from non-EU countries generally require a visa to enter, stay, and work in Germany. For a number of countries, the EU has mutually waived visa requirements for short-term stays in Germany (stays not exceeding 90 days during a six-month period starting from the initial date of arrival). Citizens from all other countries require a visa under the trans-European Schengen-Treaty (which allows travel through most European countries without border-controls). A Schengen visa is generally sufficient for most of the steps required to establish a business in Germany. If the duration of the stay exceeds 90 days (per six-month period) or if a business occupation is taken up, all non-EU citizens require a residence permit (Aufenthaltserlaubnis) or settlement permit (Niederlassungserlaubnis) to be applied for in Germany. For this purpose, German embassies or consulates issue a national visa for entering Germany, which would be transitioned into a residency or settlement permit in Germany (see Question 9). However, the "refugee crisis" which has hit most EU countries since 2015, introduced new concerns over the (still open) borders between the Schengen states. Some countries have announced that, in the near future, trans-border traffic will be controlled to prevent refugees from travelling through Europe. This will also affect Germany's borders. Germany has not yet established such border controls. In principle, business travellers should not be affected by such plans. However, the practical impact on international business travel cannot be assessed yet.

9. Are there any visa waivers or fast-track procedures available for foreign individuals entering your jurisdiction as investors?

The federal states' investment promotion agencies usually provide assistance for foreign investors for visa applications and can help to accelerate the bureaucratic procedures. A residence permit is limited to a maximum of three years for the purpose of self-employment. If the investment project is successful (and success and subsistence appear to be secure over the long term), it is possible to apply for a settlement permit (Niederlassungserlaubnis). A settlement permit is unrestricted in time and place.

Certain professional groups are granted a residence permit without requiring the Federal Employment Agency's approval. These include, among others:

  • Employed managing directors.

  • Managerial employees.

  • Scientific research personnel.

The EU-wide Blue Card work permit may be granted by the local immigration office to certain highly qualified employees either without, or with only a limited approval from the Federal Employment Agency. Since these instruments change from time to time, detailed advice should be sought in advance. Specific exemptions from general visa requirements apply to certain countries.

10. What are the circumstances under which an individual becomes liable to pay tax in your jurisdiction? Can individuals be liable for tax on foreign-source income?

All natural person individuals residing in Germany are taxed on their worldwide income. Domestic law deems a person to be resident if he has a home or his habitual abode is in Germany. This status can be created de facto quite easily by owning or renting an apartment, even if such apartment belongs to a company or a third person, meaning having the key to an apartment at any time can be sufficient to qualify as tax resident. There is no minimum period of physical presence required to obtain the taxpayer status. Generally, individuals are deemed to have their habitual abode in Germany if they are physically present for more than six months by year-end, even without having a permanent living space.

Most foreign residents are taxed (usually by withholding tax) on their income in Germany only, due to double taxation treaties. However, German law contains a number of provisions to prevent what the authorities regard as treaty-abuse. It is advisable to obtain detailed tax advice before acquiring a permanent living space in Germany.

Nationality is not of itself a criterion for determining residency or tax liability, although it may give an indication in unusual cases where a taxpayer has ties of equal strength to at least two countries. Unfortunately, Germany still does not offer a reliable procedure to clarify, negotiate or agree on taxpayer status.


Investment restrictions

11. Are there any restrictions on foreign ownership and investment in specific industry sectors? Do any formalities, permit or notification requirements apply?

There are in principle no restrictions on foreign investment in Germany. Foreign investors are generally subject to the same conditions as German investors. In principle, any person or legal entity of foreign nationality can own real property or shares in companies, or become a member of professional partnerships in Germany.

Restrictions apply in relation to money laundering laws. Individuals or companies with connections to terrorism or international crime are prohibited from doing business in Germany.

EU and German merger control may stand in the way of large transactions that may lead to monopolies or a dominant position of the relevant company or joint venture.

On setting up a business every person must register with the local trade office (Gewerbeaufsichtsamt) of the town or municipality in which the business operation is located. This applies to every person or company regardless of its company form, except for certain professionals.

For a number of regulated trades (medical clinics, private security services, banks, insurance companies and so on) a special licence or registration is required for both domestic and foreign companies. In most cases, licences obtained in another member state of the EU are accepted as equal. Self-employed craftsmen must register with the local chamber of crafts (Handwerkskammer) and prove their knowledge and training by submitting relevant certificates (which may require a recognition procedure). All other trades must register with the local chamber of industry and commerce (Industrie- und Handelskammer) (IHK). Professionals (architects, engineers, auditors and so on) and practitioners (physicians, veterinarians) must register with the relevant professional body.

The IHKs are independent bodies and, as such, are more than registration authorities. They represent the interests of the trade businesses in the political arena and also provide valuable information and advice on basic day-to-day business issues and offer seminars on a number of business-related topics.

Banks and other financial services institutions, insurance companies, stockbrokers and asset managers are subject to close supervision by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BaFin). This supervision comprises not only frequent reviews of the financial position of the business, but also close control over the methods by which the business is performed.

12. Does the government retain and exercise control over certain industry sectors? If so how?

Under the communist regime in East Germany, industry, commerce and trade were entirely state-owned until re-unification. Public ownership in West Germany was traditionally restricted to utilities and monopolised industries such as telecommunications, post, railroads, energy production and distribution, and so on. Before the turn of the century, most of these industries had been privatised in both East and West, and state-controlled enterprises were limited to a small number of economic fields. In only a few areas is state control required by law (such as for household waste disposal). In most other areas, any lingering state ownership is more a result of tradition, strategy or politics. Municipalities own housing companies to be able to provide living space for the underprivileged, as well as public transport companies, and hospitals for basic public needs. The state governments hold shares in airport or port authorities as central infrastructure hubs. However, at least in theory, such entities are not privileged over private companies in the same industry.

13. Are there restrictions on foreign ownership or occupation of real estate? Do any formalities, permit or notification requirements apply?

There are no restrictions on the ownership or occupation of real estate by foreigners in Germany. Any person of any country can own real estate in Germany. Exceptions apply only in cases of money-laundering or for the prevention of international crime.

The transfer of title in land requires a signing procedure in the presence of a notary public and the entry of the change of title in the land register (Grundbuch). For foreign companies, proving the existence and the power of representation of agents or proxies acting on their behalf entails some further formalities. Notaries and registration authorities will request sufficient proof via certificates of good standing and excerpts from register entries with verification procedures under the Hague Convention (by way of apostils) or under German consular laws (legalisation procedure). German notaries have a very strong and leading role in the transfer process and are obliged to impartially pursue the administrative procedures in completing the transaction. However, notaries are restricted in relation to rendering legal advice and therefore it is advisable for the parties to a transaction to obtain legal advice from their respective lawyers.

The land register gives evidence on the ownership of the title in land for most of the area of the country. A chain-of-title research procedure is not usually required.

14. Are there any minimum capital requirements for foreign investment?

The capital requirements do not differ between German or foreign investors who decide to start a business. Capital requirements rather depend on the corporate model of the intended business.

A stock corporation (Aktiengesellschaft) (AG) must have a minimum share capital of EUR50,000 divided into ordinary shares of equal nominal value of at least EUR1.

A limited liability company (Gesellschaft mit beschränkter Haftung) (GmbH) must have a minimum share capital of EUR25,000. On formation, each shareholder of a GmbH receives a single share in the nominal amount equal to the share capital he holds. It is possible for a company to have only one shareholder. Half of the share capital must be paid in on formation (a minimum of EUR12,500). Shares issued may be split later on. For small enterprises, the Federal Act on GmbH allows for the registration of an entrepreneur's company (Unternehmergesellschaft (haftungsbeschränkt)) (UG) with no statutory minimum share capital.

No minimum investment capital is required for:

  • Civil law partnerships (Gesellschaft bürgerlichen Rechts) (GbR).

  • Professional partnerships (Partnerschaftsgesellschaft) (PartG).

  • Commercial partnerships (Offene Handelsgesellschaft) (OHG).

  • Partly limited commercial partnerships (Kommanditgesellschaft) (KG).

Foreign-owned corporations can create a presence in Germany through an affiliate or branch registered in Germany.

15. Are there any exchange control or currency regulations? Are there any restrictions on the remittance of profits abroad?

Funds can be brought into and taken out of the country in any amount without restrictions. For statistical reasons, certain reporting obligations apply if single amounts exceed certain thresholds. Cash exports and imports must be notified to the customs office if they exceed the equivalent of EUR12,500. Wire transfers via bank accounts must be reported to the Federal Reserve Bank (Bundesbank) if they exceed specific thresholds. Detailed information is provided by the Bundesbank (see website:

Certain countries may be excluded from the free movement of funds due to embargoes declared under international laws. The same applies in cases of money laundering or in relation to measures against international terrorism.

There are no restrictions for companies or shareholders on repatriating or transferring profits abroad. The relevant taxation procedures must be observed.



16. Are there any restrictions on the importation of commercial goods?

The only import restrictions of general application are those imposed in accordance with UN sanctions. Besides that, there is a special licensing procedure for certain specific types of goods, mostly military equipment and drugs. Some import quotas are imposed by the EU (such for textiles), which automatically apply in Germany. In these cases imports are licensed unrestrictedly until the relevant quota is fulfilled.

There are no restrictions or any customs duties applicable within the EU. The terms "export" and "import" therefore technically now only refer to trade between Germany and non-EU countries (third countries). Import and export duties apply in relation to third countries according to international tax treaties, mainly under the World Trade Organization (WTO) framework.

17. What import duties apply to commercial goods?

German customs duties are all based on value and are levied at rates dependent on the type of goods and on the country of origin. Imports from Iceland, Liechtenstein, Norway and Switzerland are generally free of duty, and the same applies to most imports from Turkey and the other EU candidate or associate countries. The rate of duty on imports of manufactured products from other countries is often zero and rarely rises above 10%. Additional duties are levied from time to time on specific products from specific countries under the direction of the EU governing institutions, usually as a result of an anti-dumping case.

18. Are the safety regulations and standards applicable to commercial goods in your jurisdiction compatible with other standards that are recognised internationally?

Germany is among the leading countries in the world in terms of product quality and product safety. However, under the principles of EU law, any product which has lawfully been introduced in any member state's market may be sold and used in Germany. Since 1985, the European ''New Approach'' to product safety legislation has reduced administrative regulation to the indispensable minimum. In Germany, the relevant EU legislation on product safety has been implemented in the German Equipment and Product Safety Act (Geräte- und Produktsicherheitsgesetz) (GPSG). Its provisions affect 90% of all consumer goods and technical equipment. Some of the German legal provisions go beyond the European standard.

Vendors of food products generally do not need a special registration or permission to do business, as long as their merchandise conforms to legal standards, such as the specific product information and labeling requirements, and as long as they do not pose any danger to consumers' health. However, customs authorities can stop and investigate food imports. In particular, they may require an official laboratory report proving the product's safety if a national or EU institution has given an alert on the item. General authorisation requirements apply to the sale of novel foods. In addition, importers of dietetic foods need to notify the Federal Office of Consumer Protection and Food Safety (Bundesamt für Verbraucherschutz und Lebensmittelsicherheit) (BVL).

19. Are there any similar or equivalent restrictions on providing services into another jurisdiction?

There are no restrictions on providing services into another EU country (or a country deemed to be equivalent). Generally, there are also no restrictions on providers from other EU countries who enter the German market. However, not every business model which has successfully operated in other countries will be allowed under German law. Service providers who offer services for which German law in general requires a special license may need to:

  • Register with the German authorities.

  • Prove that their qualifications are mutually recognised by German and EU law.

In principle, all EU professionals in the legal, financial or other advisory business fields are free to offer their services in Germany if they have obtained similar licenses in their home countries. Business people from countries outside the EU must usually obtain a business license in Germany which often requires proof of professional training and qualifications comparable to German standards.


Structuring and tax

20. How is foreign investment into your jurisdiction typically structured? What forms of legal vehicle are attractive to foreign investors?

There is no prescribed or typical form as such for foreign investment. Usually, foreign companies establish their domestic presence in the form of a GmbH (see Question 14). The GmbH provides relative flexibility, allows the shareholders to exercise close control over the management and creates a corporate veil to extensively protect the shareholders from personal liability exposure. It can depend on the nature of the investment whether another form of corporation or partnership is more favourable from a taxation perspective.

A GmbH can be formed by establishment through a notary deed or by acquiring the shares in an existing GmbH. A number of reliable service providers offer ready-made or "shelf" GmbHs, which are free of debts or inherited burdens. Such a company can be operational within a week or so.

Acquiring or investing in an existing GmbH (or other type of company) is possible but should be carried out with utmost diligence. Since a share deal leads to the assumption of all existing claims and liabilities of the target company, whether known or unknown to the purchaser, a thorough review of the target company (legal due diligence) is recommendable.

21. What are the circumstances under which a business becomes liable to pay tax in your jurisdiction?

German business profits are subject to corporate income tax (Körperschaftssteuer) for corporations, or personal income tax (Einkommensteuer) for members of partnerships. Both are purely federal taxes. In addition, trade tax (Gewerbesteuer) is levied based on local tax tariffs. Corporate income tax and personal income tax are also subject to a surcharge, called solidarity surcharge (Solidaritätszuschlag), initially created to fund the economic reconstruction of the East German states after reunification.

A company becomes liable for income and trade tax if it is resident in Germany or if it maintains a business establishment (such as a shop or office) or even a virtual presence (postal box) in Germany. In most cases, tax obligations attach only to domestic income under the relevant double taxation treaties.

22. What are the main business tax rates?

Taxation of corporations

Germany does not have a nationally consistent total corporate income tax rate. The effective income tax burden depends on local trade tax tariffs. In some areas of Germany with low trade tax tariffs the total corporate income tax burden is 22.83%. The German corporate tax average total is 29.83%. Taxation of corporations consists of the following components:

  • Corporate income tax. All corporations are liable to pay corporate income tax. The rate of tax is 15% on the taxable profits of the company. Corporate income tax is payable on undistributed as well as distributed profits.

  • Solidarity surcharge. The solidarity surcharge is added to the corporate income tax. This totals 5.5% of the 15% rate of corporate income tax or 0.825%. Taken together, the corporate income tax and solidarity surcharge amount to a total tax rate of 15.825%.

  • Trade tax. All commercial business operations in Germany are liable to pay trade tax irrespective of their legal form. Narrow exceptions apply to certain industries or professions. The applicable trade tax depends on two components:

    • the tax base rate (3.5% throughout Germany);

    • the multiplier (Hebesatz) stipulated individually by every municipality.

The tax rate is determined by the local authorities by way of adjusting the multiplier, and this varies from one municipality to the next. The minimum trade tax rate amounts to 7%. The German average trade tax rate is around 14%. The taxable income of the company is multiplied with the tax base rate (3.5%) which results in the so-called tax base amount. This tax base amount is then multiplied with the local municipal multiplier, which results in the total of trade tax due. On average, the multiplier lies between 350% and 400% but may not total less than 200%. There is no upper limit for the municipal multiplier. The municipal multiplier is often higher in urban than in rural areas. The solidarity surcharge is not levied on trade tax.

Taxation of partnerships

Within partnerships, the partners generally take the sole entrepreneurial initiative and bear the related business risk. Accordingly, while the partnership itself is not subject to income taxation (as is the case with corporations), the individual partners are. Accordingly, the personal income tax rate for the corresponding partner applies. Taxation of partnerships is made up of the following components:

  • Personal income tax. To calculate the personal income tax burden of each partner, the taxable profit is determined at the partnership level and allocated to the individual partners according to their shares and declared to the competent tax authority. As a rule, both the undistributed and distributed profits of a partnership are liable to personal income tax.

    The personal income tax rates correspond to the level of income of the individual. The tax rates start with 14% for income that exceeds the annual tax-exempt amount of EUR8,354, and progressively increase to a rate of 42% (applying for an annual income of EUR52,882). A higher rate of tax (45%) is levied on income earned over EUR250,730 per year.

  • Solidarity surcharge. As with corporate income tax, the solidarity surcharge of 5.5% is also added to the partner's corresponding rate of personal income tax.

  • Trade tax. Partnerships, like corporations, are generally subject to trade tax. Exemptions apply for certain professions (such as lawyers, physicians and so on). Unlike corporations, partnerships can account trade tax partially against personal income tax.

Taxation of dividends

Dividends are subject to the following taxes:

  • Withholding tax. If a German subsidiary company distributes profits to its corporate foreign parent company (dividend payment), a 25% rate of withholding tax (Kapitalertragssteuer) plus solidarity surcharge is payable to the German tax authorities. Where a double taxation treaty between Germany and another country exists, the rate of withholding tax paid can often be reimbursed. As a rule, dividend payments are taxed at a reduced rate of 5%, 10%, or 15%. The withholding tax paid in Germany can also be credited against the tax liability of the parent company abroad, or the parent company may be made exempt from the taxation in regard to the received dividends. This means in effect that double taxation is avoided.

  • Final withholding tax. Profits that are distributed to private shareholders are subject to a final (not reimbursable) withholding tax (Abgeltungssteuer) of 25% plus the solidarity surcharge. The final withholding tax is retained by the debtor of the dividend or the institution managing the deposit (such as a bank) and then paid to the tax office. However, the application of a double taxation treaty may lead to a lower withholding tax.

Value Added Tax (VAT)

VAT is a tax on the exchange of goods and services and is subject to federal laws as well as European framework law. Companies are obliged to add VAT to the prices of their goods or services and to invoice their customers accordingly. VAT as invoiced must be transferred to the tax office based on monthly, quarterly or annual declarations. In specific business-to-business transactions, the business client must transfer the VAT to his own tax authority, in what is known as the reverse charge procedure.

The 19% VAT rate in Germany is below the European average. A reduced rate of 7% 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 and community work) are exempt from VAT.

Companies must regularly pay VAT on purchasing goods or making use of third-party services. The taxes collected and paid can be balanced out in the VAT return as an input VAT deduction (Vorsteuerabzug). As a consequence, only the balance must be paid out to the tax office, or there may even be a reimbursement from the tax office to the company if the balance is negative. For companies, VAT is regarded a transitory item only.

23. What is the tax treatment in your jurisdiction of profits from an investee company remitted outside your jurisdiction by an investor?

As a rule, dividend payments on the basis of a double taxation treaty are taxed at a reduced rate of just 5%, 10% or 15%. The withholding tax paid in Germany can also be credited against the tax liability of the parent company abroad, or the parent company may be made exempt from the taxation in regard to the received dividends. In such cases in effect no double taxation takes place. Where the creditor of the dividend-paying German corporation is a foreign corporation and no double taxation treaty between Germany and the other county exists, two-fifths of the withholding tax paid can, as a rule, be reimbursed. Different rules may apply for dividend payments by partnerships.

24. What transfer pricing and/or thin capitalisation restrictions may apply to investments into your jurisdiction from elsewhere?

Earnings stripping rules replaced the former thin-capitalisation rules following the 2008 Business Tax Reform. Now, a general limit on the deduction of interest payments is given, which applies to all kinds of debt financing. Accordingly, interest expenses are fully deductible if they do not exceed interest income. Any exceeding net interest expense is also deductible in cases where it does not exceed EUR3 million. If the net interest expense is more than EUR3 million, this interest expense is only deductible up to 30% of EBITDA (earnings before interest, taxes, depreciation and amortisation).



25. What tax incentive or other schemes exist to encourage foreign investment?

Germany offers numerous incentives to all investors, regardless of nationality or origin. However, some programmes are addressed only to small and medium-sized companies and a connection to large international groups may disqualify certain companies. Incentive packages may be structured as:

  • Tax incentives.

  • Cash incentives (subsidies paid out in connection to proven investments).

  • Loans with preferred conditions or guarantees.

  • Capital/shareholding investments by state authorities, in exceptional cases.

Such incentives are usually granted to support the establishment of an enterprise or for ongoing operational costs. As a rule, investments in production facilities are more likely to be eligible for incentives than investments in real estate or in service industries. In most cases incentives are granted as collateral to proven capital investments from the private sector.

Incentive programmes are often designed for and limited to certain key industries or regions in need of investment. There are no specific programmes designated to attract investors from abroad. However, in general, municipalities, states and the federation welcome foreign capital investments in Germany.

All incentives schemes must comply with EU laws to prevent damage to the free market by unfair state subsidies. In general, granting such incentives is subject to the relevant authority's discretion, which must be exercised in a fair and reasonable manner.

Regional state aid

There are wide variety of programmes for different regions, industries and size of companies, and conditions for application differ accordingly. In general the smaller the company applying for state aid and the more economically challenged (typically, the more Eastern) the region said company plans to invest in, the more regional state aid is to be expected.

The benefits depend on the size of company and region. For a medium-sized firm (up to 250 employees) in an area with a high need of investment, up to 25% of the eligible costs may be covered by regional state aid.

The most general investment programme is called Joint Task for Improving Regional Economic Structures (Gemeinschaftsaufgabe Verbesserung der Regionalen Wirtschaftsstruktur) (GRW), which is approved and partly funded by the EU. The GRW-programme provides for different incentive rates (as a percentage of co-funding based on the overall eligible investment amount) for different regions in Germany. The maximum co-funding rate amounts to 35% of eligible costs.

State aid in favour of employment and training

State aid is granted throughout Germany for creating (long-term) employment. There are special programmes for employing (more) women, disadvantaged workers or handicapped workers as well as creating training positions. In general, state aid in favour of employment is granted regardless the size of the company or the industry it belongs to.

State aid programmes are usually developed and executed by local authorities who adjust them on a regular basis to the economic situation in their region and to investors' needs. Therefore rules for application might differ over time.

Under some programmes employers can be granted a direct cash payment as a proportion of the employee's wages. Grants can account for up to 50% of wages including social benefits. They may be granted for a period of up to 12 months.

When hiring long-term unemployed people who are handicapped or senior, wage subsidies can be raised to a maximum 70% of wage costs paid for up to 96 months.

State aid for research, development and innovation (R&D)

To participate in R&D funding programmes, companies must define an R&D project with clear objectives and a fixed timeline. The project application should highlight the innovative character of the project and the technological risks involved.

An application for R&D funding must also set out a commercialisation plan, detailing how research results will be transformed into products, processes or services which generate additional turnover and/or employment in the region where the R&D project is located.

Industry and the public sector have made a commitment to spend around 3% of national GDP per year on R&D activities. This amounts to approximately EUR70 billion R&D spending each year.

State aid for environmental protection

Investment aids are granted to enable companies to go beyond EU standards for environmental protection or to increase the level of environmental protection in the absence of such standards, such as by using renewable energy or building energy efficient production plants. Programmes and conditions for application differ from state to state.

Up to 30% of the investment for such technologies can be covered by state aid/public funding.

Public guarantee programmes

Companies that cannot provide evidence for their credit-worthiness as demanded by national banks for granting loans can apply for public guarantees which the banks will accept.

Public guarantees issued by individual state governments range up to EUR10 million. Public guarantees issued by state and federal government may exceed this threshold. Guarantees can cover up to 80% of the loan amount.

Public loan programmes

Investors can also apply for publicly subsidised loan programmes in Germany. These programmes usually offer loans at below current market value interest rates in combination with attractive grace periods. These loans are provided by "development banks", which are publicly owned and organised banks that exist at the national and state level. Each financial tool or programme offered by such banks is accessible to foreign investors and subject to the same conditions available to investors from Germany.

Publicly owned and organised development banks offer a number of different financing tools such as promotional loan programmes, mezzanine financing, and private equity. Each German state has its own development bank financing projects within the respective state which offers loan programmes, especially targeted at start-ups and growing companies.

The state investment promotion agencies, development banks and designated departments of the municipalities assist with identifying relevant programmes and advise on the qualification criteria and the application procedures. In addition, local banks, tax advisors firms and the IHKs (see Question 11) have specialist advisers available.


Investment guarantees

26. What legal guarantees exist against expropriation and/or provide for appropriate compensation? What is your government's track record in this regard?

Germany is strongly sensitive to the protection of property due to the country's past history. Private property is protected under Article 14 of the German Constitution (see Question 4). Expropriation can take place only in very specific cases, such as if land is required to build roads or railways. Such acts follow strict rules and are fully subject to judicial review and fair compensation. The forced nationalisation of companies is not possible. The German legal system allows every act of public authorities to be challenged before the administrative courts or even before the state and federal constitutional courts.

27. Are there any issues in relation to the enforcement of intellectual property rights?

Intellectual property enjoys a high level of legal protection in Germany. Counterfeit products are detected and removed from the market with high efficiency. The protection of intellectual property is guaranteed by the registration of intellectual property rights. These intellectual property rights can be registered at the German Patent and Trademark Office (Deutsches Patent-und Markenamt) (DPMA) for technical and commercial innovations in the form of patents, utility models, trade marks, and design patents. The same conditions on registering intellectual property rights apply for both foreign nationals and Germans. Applicants who do not have a place of residence or a branch in Germany must nominate a patent attorney as the representative for the signing of the patent registration. A harmonised system of administering patents and trade marks has been established for the common European market. Community trade marks and designs are administered by the Office for Harmonisation in the Internal Market (OHIM). European patents can be obtained from the European Patent Office (EPO).

28. Are there any issues in relation to the gaining and enforcement of judgments and/or arbitral awards?

The German court system is complex but relatively efficient compared to other Western European jurisdictions. Civil lawsuits can expect to receive a judgment at first instance within a year or even earlier, although complex cases may take several years. The administrative courts dealing with complaints against authorities require more time but are unbiased. The level of effective protection of economic and human rights is high. Access to courts is easy but often requires the assistance of a German-qualified attorney. Corruption among judges is extremely rare. Corruption in public authorities is not accepted. According to Transparency International's corruption perceptions index, Germany ranks 12 of 175 and is among the countries with the lowest corruption rate.

Arbitral awards are recognised and can be enforced in Germany according to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) which is confirmed under section 1061 of the Civil Procedures Code (Zivilprozessordnung) (ZPO). Enforcement may be denied if the arbitral award does not comply with public policy or if it lacks the required formalities.


Recent developments and proposals for reform

29. Have there been any significant recent or proposed legal developments affecting investors?

There are no anticipated reforms that would specifically affect foreign investments.

30. Are there any planned or on-going treaty negotiations or political developments that could have an impact on your jurisdiction's bilateral relationships with other nations and/or other economic, customs or monetary unions, free-trade areas or markets?

There is a trend towards Germany's independence in negotiating conditions with countries outside the EU diminishing in the future for the benefit of a more integrated European foreign policy.

Germany will be significantly affected by the planned Transatlantic Trade and Investment Partnership between the EU and the US. This is being negotiated at EU level and Germany is a strong supporter.


Main investment organisations

Germany Trade & Invest

Main activities. Germany Trade & Invest is the economic development agency of the Federal Republic of Germany. The organisation promotes Germany as a business and technology location and supports companies based in Germany with global market information.


Association of German Chambers of Commerce and Industry (Deutscher Industrie- und Handelskammertag)

Main activities. The Chambers of Commerce and Industry represent the interests of millions of businesses. The commercial companies in Germany are members of their Chamber of Commerce and Industry (IHK), and all of the 80 German IHKs are members of the DIHK (Association of German Chambers of Commerce and Industry).


Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie)

Main activities. The Federal Ministry for Economic Affairs and Energy is competent at the federal level for all matters of industry and commerce. Its central task is to promote and to support the social market economy.


Online resources



Description. Investment Portal of the Federal Ministry of Economic Affairs and Energy.

OECD: Germany


Description. OECD portrait of Germany.

Invest in Bavaria


Description. Official website of Invest in Bavaria.

Business Location Centre: Berlin


Description. Official website of Berlin Business location centre.



Description. Official website of HWF Hamburg Business Development Corporation.

Hessen Trade & Invest


Description. Official website of Hessen Trade & Invest.

NRW Invest


Description. Official website of NRW.INVEST GmbH - Economic Development Agency of the German State of North Rhine-Westphalia (NRW)

Contributor profile

Klaus Jankowski, Partner

SKW Schwarz Rechtsanwälte Wirtschaftsprüfer Partnerschaft mbB

T +49 30 889 26 50 60
F +49 30 889 26 50 10

First Law International Board Member Firm (Chambers Global Elite Network)

Professional qualifications. Doctor iuris in environmental law; German qualified attorney (Rechtsanwalt)

Areas of practice. Advises his German and international clients on investment and settlement projects in Germany, in particular in real estate and technology related industries. Specialises in public and regulatory laws in relation to planning and construction of projects.

Languages. German, English

{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1248102178860", "objName" : "Investing in Germany", "userID" : "2", "objUrl" : "", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "25e8a493e:15b01daf53e:-40bd", "analyticsSessionCookie" : "25e8a493e:15b01daf53e:-40bc", "statisticSensorPath" : "" }