Benefits and problems of registering a company in Germany
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Benefits and problems
Benefits of Germany company registration
Germany is the economic heart of the EU. This economic success is largely due to the ‘Mittlestand’ (SMEs), which form the backbone of the German economy. Some of the key factors behind the success of small and medium businesses in Germany are:
- Low-interest business loans are available for SMEs at both federal (maximum value €10m) and state level (value between €50,000 and 10m);
- To reduce pressure on businesses, the Government provides i) recruitment and training support and ii) wage subsidies to entrepreneurs who register a company in Germany;
- Grants are provided by the states through the GRW Scheme to cover either a firm’s investment costs or two years of wage costs. Approximately 95% of firms receiving these grants are German LLCs;
- IZ scheme provides monetary aid for investment in East Germany; this program can be combined with the GRW scheme to get cost coverage up to 50% for small firms and 40% for medium-sized enterprises;
- For selected SMEs, the KfW Development Bank provides loans, private equity and mezzanine financing. In 2012, the total loaned and invested by the bank was €24.1 billion;
- Government banks act as public guarantors to provide deficiency guarantees for up to 80% of loan amounts for expenses related to initial investments in Germany;
- Incentive Programs like grants and interest-reduced loans are provided to cover R&D costs. These programs help young firms improve product quality and process;
- Germany has signed doubled taxation agreements with over 90 different countries to minimize withholding tax on payments when doing business abroad.
- Business registration in Germany only requires one director and one shareholder, who do not need to be residents or citizens;
- There are no capital or exchange controls to discourage investment in Germany. Foreign firms can freely transfer funds from abroad and convert them into Euro;
- Germany is the 10th best in the world for the absence of corruption according to Transparency’s International’s 2015 ranking;
- Imported goods may be stored in the German free ports of Cuxhaven, Bremerhaven, Deggendorf and Duisburg without incurring any duties;
- Lastly, Germany is a metropolitan country which is highly accepting of foreign workers. People with religious convictions are offered protection under the law and won’t have to forsake their traditional roots.
Problems with Germany company registration
- Foreign entrepreneurs must submit the lease contract for office space to the German embassy to get visa approval;
- Company registration in Germany is an expensive process; paid up capital of €25,000 must be deposited as part of German GmbH registration, although the new UG company is more friendly to entrepreneurs;
- Hiring a non-EU citizen is a challenge, as businesses have to prove that an EU citizen could not adequately fill the role;
- A Germany resident firm face a high tax burden averaging between 30% and 33%;
- German employment law makes it difficult to dismiss poor-performing employees;
- Every German company must pay 50% of each employee’s health insurance premiums;
- The country follows strict environmental protection rules, which require that new products obtain certification and license approvals.
Best uses for a Germany company
Preferred Euro Base
- Germany is the EU’s most populous country and has a high per capita income (US$ 44,500). Consequently, a foreign-owned company in Germany will benefit from the massive consumer demand for foreign goods/services in the country;
- Registering a business in Germany is the top choice for product distribution within EU because the country has the world’s highest rated infrastructure. High quality airports, roads, railways and ports facilitate easy transfer of goods to, from and within Germany;
- Germany has EU’s most skilled labor with i) the largest labor force in Europe ii) a 99% literacy rate iii) a 99% computer literacy rate iv) 80% having formal job training v) the third highest weekly employee work hours in the EU and vi) the population with the most degrees in the EU;
- Germany’s EU membership offers resident firms i) duty free trade of goods/services with other European countries ii) free movement of labor and capital within the EU iii) no withholding tax on payments made to other EU countries and iv) access to an integrated European consumer base of 500 million;
- Starting a German company can be done without special licenses, except in a few highly specialized fields like insurance, medicine etc.;
- The country hosts the world’s biggest trade shows including MEDICA and the Hannover Fair. Registering a German company will enable our Clients to tap into a market of 10 million attending customers annually;
- “Made in Germany” is a globally renowned and trusted mark of origin; foreign entrepreneurs’ brands will benefit greatly from starting a manufacturing business in Germany.