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Foreign Investment and Doing Business in Germany

 

In General, foreign investment in Germany is not subject to any restrictions or administrative control.  A foreign investor is treated in the same way as a German investor.

However, in order to conduct business operation efficiently and legally, a foreign investor should be aware of certain regulations under German law.  We summarize some of the most important ones below:

Anti-trust Control

The German Federal Antitrust Office (Bundeskartellamt) monitors the build-up of dominant positions.  Merger and acquisition are subject to application with the Federal Antitrust Office as long as the turnover of the participating parties separately or jointly exceeds the threshold specified in the Act Against Competition Restrictions (GWB).  Basically, if the worldwide turnover of the participating parties does not exceed 500 million Euro and none of the participating parties has a turnover in Germany exceeding 25 million, there is no requirement for application with the Federal Antitrust Office.  Response to the aforesaid application would normally be issued within 4 months.  Failure to file the required application and obtain the required approval will cause the consummated merger and acquisition invalid.  Further, a fin of up to 1 million Euro may be imposed.

Business Registration

Before commencing business operation, companies must complete business registration with the local Trade Office (Gewerbeamt) and obtain a Business Certificate (Gewerbeschein).  For tax purpose, companies are also required to notify the local Tax Office (Finanzamt) of their business operation and obtain a tax number.  Failure to comply with the forgoing will result in administrative fines (normally around 1,000 Euro).  For certain business such as banking, insurance, healthcare etc. special qualifications and government approval may be required, and foreign investment may be subject to restrictions.

Company Laws

German laws offer a variety of corporation forms with different establishment requirements and liability.  Foreign investors shall carefully decide on the corporation form according to their proposed business operation.  Most frequently, foreign investors would adopt the form of a representative office, branch or limited company (GmbH).  Please refer to our “Corporation Forms under German Laws” and “Establishment / Dissolution of German Corporations” for detailed information.

EU Regulations

As a EU member state, numerous EU regulations and directives would directly or indirectly affect German laws from time to time.  Those regulations or directives in the areas of anti-trust, labor, product labeling, intellectual property rights etc. may be relevant to foreign investment.

Insolvency and Debt Collection

In 2004 about 40,000 German companies applied for insolvency, which appears to be a relatively high risk for foreign creditors.  Our experience showed that due to unfamiliarity of German insolvency procedure, many foreign creditors, especially those non-European creditors, were unable to timely and appropriately participate in the distribution procedure claiming insolvent property.  Carefully prepared contracts (e.g. by way of retention of title) and early debt collection activities can help to diminish such insolvency risks.

Residence / Work Permits and Labor Laws

Generally, non-EU nationals need to obtain residence and work permits to work in Germany, which is often a big barrier for foreign investors if they want to send employees from their own countries to Germany instead of hiring local employees.  In addition, comparing to many non-EU countries, German labor laws provide relative intensive protection to employees working in Germany.  It is advisable to structure an appropriate employment plan in advance to secure the flexibility of employment and to control relevant costs.  Further information relating to labor issues can be found under our section of Introduction of German Labor Laws. 

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