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O.Law Annual Guide – Investing in Germany 2022

Foreword – Hello 2022!

The global Covid 19 pandemic still has a firm grip on our daily lives in 2022. However, in 2021 we have progressively come to terms with the circumstances and have been able to develop new and efficient strategies from the initially almost insurmountable challenges to adapt our lives to the new standards. As always, human beings were able to create new opportunities out of obstacles. The market is now getting more and more dynamic. Revolutionary developments in medicine as well as in technology are in the founders’ focus and allow for a reviving spirit on the investment market. Exciting collaborations and research that combine progress and sustainability have established themselves especially in North Rhine-Westphalia. This raises the question of how investment in Germany in particular works in its basic features and what entrepreneurs should be legally prepared for in its basic features. The O.Law Annual Report is a guide to the most frequently asked questions about investing in Germany. We hope you enjoy reading the report and are always happy to answer any questions you may have.

Hülya Oruç Aslan,

Founder of O.Law

Contents:

I. What to know when investing in Germany

II. Corporations

III. Forms of Investment

IV. Migration to Germany

V. Buying Property in Germany

VI. Protection of Technology and Intellectual Property

VII. Taxes in Germany

VIII. North Rhine-Westphalian business market – what happened in 2021?

I. What to know when investing in Germany

Clients use to ask what is so special about Germany and want makes it still attractive to invest in this country and not somewhere else in the world, for instance in the Asian market.

When taking a big step like making investments with high sums and looking around the world two points are important for investors: stability and rewarding of the investment made.

Not only Germany is a first-choice country for investors from within Europe, but also investments from Non-EU-countries are on a rise. North-American and Asian investors have to be mentioned here, who hold all together round about 30 percent of the FDI stocks in Germany (20 percent North America, 11% Asia according to Bundesbank).

Investing in Germany is not as cheap as in other, e.g. east European, countries, but is more rewarding. Germany is a stable country since WW II and the reunion with the former Deutsche Demokratische Republik in 1990 with a legal national and European framework given foreign investors the same chances as national investors.

Germany in General

Germany has the largest economy in Europe and is also one of the largest in the world. It has the largest population in the EU and is a federal republic, consisting of 16 states, called Bundesländer each of them having their own capital and own parliament.

The economy has been stable over the years, having met the global financial crisis in 2007/2008 easily. Germany has a highly skilled labour force, but still not enough to cover all needs. That is why big legal changes were made in June 2019, as the new Fachkräfteeinwanderungsgesetz (Law on Migration of Highly Skilled People) has been adopted by the parliament. The county has a large capital stock, is known for the low level of corruption and its innovations. When thinking of Germany many think of its industry and quality behind it, why Germany is one of the biggest exporters in the world.

Another important thing to know is that Germany has not a single economic centre as one might think of the capital Berlin. German is the official language, English is spoken widely.

What we do

O.Law supports investors from all around the world knowing the German market with legal advice in the relevant areas as well as supporting and representation in disputes.

II. Corporations

There are several corporate forms, of which foreign investors can think about when placing their investments.

First in mind there are companies such as

  • Gmbh (German form of Limited Liability Company, Gesellschaft mit beschränkter Haftung)
  • AG (German form of a Stock Corporation, Aktiengesellschaft)
  • SE (European Company, Societas Europeae)

Each of this company form has its own legal framework, in addition European regulations and constituent documents have to be acknowledged.

A Gesellschaft mit beschränkter Haftung (GmbH) is the best known form of corporations in Germany. With more than 1 Mio. companies, the formerly popular partnerships are overtaken now by this form of company (as of 2013). The GmbH in a legal entity that has its own rights and obligations. In consequence the GmbH is an independent legal personality, e.g. it can sue and be sued independently from the shareholders. The GmbH itself can be owner of movable properties. Bodies of the GmbH are the managing director (must be a natural person), the shareholders and the meeting of the shareholders. Further under certain circumstances a board of directors can be appointed. The registered share capital has to be at least EUR 25.000,00. There is no direct liability of its shareholders, unless in extraordinary cases exceptions apply and the corporate veil of a GmbH does not hold up.

A requirement like having a local director does not exist. In general, nationals of any country can become a managing director and they do not need to have a residence in Germany. Also, regarding the shareholders there do not exist any requirements regarding the legal form, location or nationality.

The managing directors have duties to the GmbH and the shareholders and can be personally responsible for actions or omissions of the company in certain circumstances (e.g. in insolvency, taxes or social security payments).

The establishment procedure is formalistic and requires the support of a notary. It is realistic to plan minimum of four weeks for such an establishment and to have the help of an attorney for drafting the articles of association for the needs of the shareholders. 

II. Corporations

The second alternative for structuring an investment can be a partnership. The forms of partnerships are

  • GbR (Civil Law Partnership, Gesellschaft bürgerlichen Rechts)
  • oHG (General Partnership, offene Handelsgesellschaft)
  • KG (Limited Partnership, Kommanditgesellschaft)
  • GmbH & Co. KG (Combination of Limited Partnership (KG) and a Limited Liability Company (GmbH))

The advantage of partnerships is that they are transparent for income tax purposes. On the other hand it has to be thought of the fact that the partnerships have full personal liability. Furthermore, partnerships are legally required to have their effective management in Germany.

As a third form of investment a Joint Venture can be an option, too. Joint Ventures mean that two or more individuals or entities agree on working together aiming the same strategic goal. Joint Ventures can be incorporated, organised as partnerships or can be unincorporated.

Another possibility for foreign investors is the establishment of a registered branch (Zweigniederlassung) in Germany. The investor can set up a foreign entity in Germany for doing business. A registration is not required when the branch is just a representative office, used for liaison purposes. German provisions and laws of the foreign entity apply for the registered branch. Every change that is made in the foreign entity effects the registrations and the commercial register has to be kept up constantly. Also, the registered branch is tax compliant meaning that it has bookkeeping and tax obligations. Registered branches are often used by entities with seat within the EU, because there usually exist regulatory benefits (such as for banks and insurances). 

III. Forms of investment

Any investment shall be well planned, and a due diligence investigation shall be undertaken in respect of the target company, target assets, the business, the vendors and any material assets or contracts owned or operated by the relevant company as well as regarding its tax situation and other areas which may be of importance.

The investment can be made by a company acquisition, an equity investment or an asset acquisition. A company acquisition will involve the investor acquiring ownership of the existing shares in a company. Such an acquisition will usually be done by a share purchase agreement when a private company is acquired. In case of a public company a mandatory public offer will generally be required in respect of the proposed acquisition when the investor wants to buy 30 percent or more.

Another way to acquire shares of a company is the subscription of new shares, the so-called equity investment. This means for the company to buy the shares from has to increase its capital and the shareholders have to waive their subscription rights and allow the buyer to subscribe. On top usually a shareholder agreement is signed to govern the future relationship of the shareholders as far as the articles of partnership agreements do not contain these.

Furthermore, the investor could buy the business without buying shares by way of asset acquisition. The investor does not buy the whole entity but purchases only specific assets and liabilities set out in the agreement. Thus, this transaction is more complex and may require substantial dealings with third parties, a due diligence examination is a must. Especially the consideration of transferring employees is essential. According to German law employees transfer automatically to the buyer of the business unless they object.

There does not exist a specific legal framework for foreign investors regarding this issue. In fact, there are no restrictions on the ownership of business and companies by foreigners or on capital in-flow or foreign exchange control mechanisms. Transactions can be subject to merger clearance and to export controls.

IV. Migration to Germany

Germany has the largest economy in Europe and is also one of the largest in the world. It has the largest population in the EU and is a federal republic, consisting of 16 states, called Bundesländer each of them having their own capital and own parliament.

The economy has been stable over the years, having met the global financial crisis in 2007/2008 easily. Germany has a highly skilled labour force, but still not enough to cover all needs. That is why big legal changes are being made in June 2019, as the new Fachkräfteeinwanderungsgesetz (Law on Migration of Highly Skilled People) has been adopted by the parliament. The county has a large capital stock, is known for the low level of corruption and its innovations. When thinking of Germany many think of its industry and quality behind it, why Germany is one of the biggest exporters in the world.

Another important thing to know is that Germany has not a single economic centre as one might think of the capital Berlin. German is the official language; English is spoken widely.

With investing in Germany, the question raises whether a migration to Germany is meaningful. It is good to know, that the German population is constantly growing older meaning that there is a shortage of skilled workers in Germany, e.g. in the fields of IT, engineering and health care. Germany has a widely range of migration laws which may affect the investment plan.

Entering and staying in Germany is connected with a visa requirement for non-EU-citizens. An exception exists for example for the citizens of the United States of America or the United Arab Emirates, who do not need a visa for a stay up to 90 days in a 180-days-period.

A visa means the Schengen visa, which can be extended for a total stay of 90 days per period of 180 days. For stays longer than 90 days, a visa (so-called national visa) is required. For those stays the following visa models are given:

  • residence permit,
  • EU Blue Card,
  • ICT card,
  • settlement permit and
  • EU permanent residence permit

The residence permit is a temporary residence permit issued for specific residence purposes. The settlement permit, on the other hand, is an indefinite residence permit entitling the holder to work. A settlement permit is mandatory if certain conditions are met (for example, if you hold a residence permit for 5 years, secure your livelihood, sufficient knowledge of German, etc.). The situation is similar with the EU permanent residence permit, which allows holders of a residence permit to enjoy the freedom of movement within the EU. In addition to the settlement permit, this is the strongest form of a residence permit.

IV. Migration to Germany

For foreigners with an academic or equivalent qualification level, it is possible to obtain a residence permit by applying for the so-called EU Blue Card. It is a requirement to obtain a German or recognized foreign or comparable foreign university degree and a minimum annual gross salary of EUR 56.800,00 or EUR 44.304,00 for skilled workers in certain fields. The EU blue card can be converted into an unlimited settlement permit. For an entrepreneurial transfer, the so-called ICT card and the so-called mobile ICT card are the right visas. The ICT card only enables activities in a German branch for executives, specialists and trainees for more than 90 days, but for a maximum of three years (for trainees a maximum of one year). In contrast, the Mobile ICT card is issued for short-term mobility for more than 90 days if the alien already holds a residence permit from another EU member state.

In general, the application procedure has to be done before entering Germany. The applicants have to submit their application with all needed documents in person at the competent authority.

V. Buying Property in Germany

As a matter of fact, it has to be said that in general Germans are not in favour of buying property. Germans rather rent their homes than buy properties.

Nevertheless, buying property in Germany is right now a great opportunity for investors to be done these days. The interest rates are very low and as said before Germans are not in favour of buying properties themselves. Germany has a very low unemployed rate (5,4 % as of January 2022). As well it is interesting and good to know that there are no for sale-signs in the front yards. Mostly houses and apartments are sold by real estate agents. Still, it is possible to avoid paying provisions to such agents when by luck privates decide to sell their property. The most common form of ownerships are the full freehold ownership and the condominium ownership.

Legal Background

First of all it is important to know that buying a property as a foreigner in Germany does not entitle you to get a residence permit. This means on the other hand that foreigners do not need a residence permit to buy a property in Germany.

For foreigners the same legal rules apply as for residents. There is one essential thing potential buyers have to have in mind: if they are married according to Art. 15 EGBGB the restrictions regarding the property regime of the state the married couple has been married applies for the purchase. Meaning that if this country foresees for example a gain compensation this applies fort the purchase too. Still the couple is free to choose which property regime shall apply to their marriage.

Buying a property is furthermore allowed for natural individuals as well as for legal entities which can have obligations. In Germany the so-called abstraction principle is common. This means that the causa (the purchase contract in this case) is not binding, therefore independent from the validity of the actual transmission of the property. A change of ownership is bound to the transmission at the land registry and not to the validity of the purchase contract.

The purchase contract has compellingly to be notarized. A non-notarized contract is not binding. The notary will make sure that the parties of the contract will understand what they are signing. If he is not sure, he will need the help of a sworn interpreter. The costs of the notary are usually paid by the buyer.

V. Buying Property in Germany

When buying a property, a proper investigation regarding the following issues should be made:

  • Ownership of the land
  • Mortgages and other liens
  • Easements and similar private and public third-party rights
  • Condition of structures
  • Land use rights and planning laws and
  • Tax situation as to real estate transfer tax (different tax rates apply depending on where the land is located, from 3,5 percent to 6,5 percent)

Important to know is furthermore, that the municipalities often have a right of first refusal on property transactions. A public consent may be needed (only for some types of properties, e.g. for agricultural land).

VI. Protection of Technology and

Intellectual Property

Investment usually comes with the responsibility to protect the ideas – such as technologic inventions or trademarks. Intellectual Property Law provides intangible rights for the human intellect, meaning rights for trademarks, patents, designation of origin, industrial designs and models as well as the copyright. Germany provides a strong protection with an extensive legal framework. The most important legal frameworks are:

  • Patentgesetz (Patent Act) and Gebrauchsmustergesetz (Utility Model Act)
  • Markengesetz (Trademark Act)
  • Designgesetz (Design Rights Act)
  • Urhebergesetz (Copyright Act)

Entering a foreign market must come with a check of the IP rights by way of due diligence or a market check regarding if any patents, utility models, trademarks or registered designs are affected or will be affected to ensure a proper protection for the investment to be made.

Patents are given for technical inventions that are new throughout the world, meaning that the invention has to be inventive and responsive for industrial application. A patent provides the owner an exclusive right for 20 years from the day of filling the patent application. Simple discoveries, scientific theories, mathematical methods, schemes, rules and methods for performing mental acts cannot be protected by a patent. The application has to be send to the DPMA (Deutsches Patent- und Markenamt) with seat in Munich.

Utility models are the so-called little brother of a patent. Similar to the patent the utility model is a protection for technical inventions with the difference that the examination for a utility model lasts only few months. The examination of a patent can last a couple of years. The utility model provides the owner like the patent an exclusive usage right, but only for 10 years. The main difference to the patent is that the utility model is not unchecked protect right, meaning that the DPMA is just checking if the legal requirements (novelty, innovative step and industrial applicability) are met. Also, the utility model is cheaper than a patent. A review will only be conducted upon a challenge by a third party. The utility model is a good way to protect your technical innovation while applying for a patent.

Trademarks are signs which are used to distinguish goods or services of one company from those another company. This can be words, images, sounds, logos, three-dimensional shapes or combinations all of these. The protection is valid for 10 years, with the possibility of renovation.

Furthermore, there is a protection for designs, which are similar to copyrights and offer protection for creative work. Design rights last for 25 years from registration.

A registration for copyrights is not necessary. The owner of a copyright holds automatically an exclusive usage and exploitation right, expiring 70 years after the death of the copyright owner.

VII. Taxes in Germany          

Germany has the largest economy in Europe and is also one of the largest in the world. It has the largest population in the EU and is a federal republic, consisting of 16 states, called Bundesländer each of them having their own capital and own parliament.

The economy has been stable over the years, having met the global financial crisis in 2007/2008 easily. Germany has a highly skilled labour force, but still not enough to cover all needs. That is why big legal changes were made in June 2019, as the new Fachkräfteeinwanderungsgesetz (Law on Migration of Highly Skilled People) has been adopted by the parliament. The county has a large capital stock, is known for the low level of corruption and its innovations. When thinking of Germany many think of its industry and quality behind it, why Germany is one of the biggest exporters in the world.

Another important thing to know is that Germany has not a single economic centre as one might think of the capital Berlin. German is the official language; English is spoken widely.

However, the German tax regime may be confusing to foreigners, it is easy to understand when knowing the main existing tax regimes in Germany:

  • Körperschaftsteuer is the corporate income tax, being a tax charged on the income of a corporate
  • Einkommensteuer is the income tax, being a tax charged on the income of individuals
  • Umsatzsteuer is the value-added tax, being a tax charged on the provision of goods or services
  • Gewerbesteuer is the trade tax, being a tax payable by businesses on their income, depending on the seat of the business
  • Grunderwerbsteuer is the real estate transfer tax, being a tax paid when a property is transferred

Partnerships are tax-transparent what means that the shareholders are reliable for taxes, depending on their legal form. Individuals have to pay income tax, whereas corporates have to pay the corporate income tax.

In case of operating a foreign branch in Germany the profits of the foreign branch have to be taxed in Germany. The taxes depend on the legal form meaning that those taxes have to be paid which would apply for the branch if it would have a German legal form. The profits generated in Germany are then either exempted from taxation in the foreign country or they are subject to taxation there. In this case the taxes paid in Germany will be offset against the corresponding taxes in the foreign state. 

VIII. North Rhine-Westphalian business market

– what happened in 2021?

By 2025, North Rhine-Westphalia should reach the „Top Ten“ of the largest European start-up locations. Despite the ongoing global pandemic, the NRW ecosystem has been developing dynamically since 2020: The number of start-ups in NRW increased by 15.2 percent compared to the previous year, which is higher than the national average (12.5 percent). Approximately 1.3 new registrations were added per day. Within North Rhine-Westphalia, Cologne and Düsseldorf are the locations with the highest density of start-ups.

Despite the Covid19 pandemic, there have been correspondingly exciting developments in the North Rhine-Westphalian market in 2021.

Tesla has opened its first branch in the Ruhr region.

Test drives can already be booked at the new Tesla Centre near Dortmund. The location also offers digital advice on the electric cars. According to Tesla, the service and sales areas will follow in spring for the official opening. In addition, jobs are to be created for a “medium double-digit number” of employees. Besides Cologne, Dortmund will now be the second official Tesla Centre in North Rhine-Westphalia.

In addition, the American carmaker Ford has invested one billion dollars in the Cologne location. The largest sum Ford has ever made in Cologne. 

The site is being converted into the Ford Cologne Electrification Center. Not only production, but also technical development is to begin as early as 2023. By 2030, Ford wants to convert its entire passenger car range in Europe to e-cars.

A promising project also emerged with the three-year research cooperation between the chemical company Evonik and Standfort University in California.

The Essen-based chemical company and renowned scientists from Standford University are jointly researching mRNA technologies. The mRNA medicine is considered revolutionary and is to be used in the future not only in the fight against Covid-19, but also in the treatment against cancer or AIDS.

The construction industry also experienced a milestone in 2021. Germany’s first printed house is ready for occupancy.

Less than ten months after the start of the project, the single-family house in Beckum, built by the PERI Group with a COBOD BOD2 concrete printer, was opened.  The state of North Rhine-Westphalia financially subsidized the project through its “Innovative Construction” funding programme.

Minister Scharrenbach said: “3D printing is a revolution for the construction industry (…) We are faster, we need less material and we are more environmentally friendly. If you no longer need the house, you can simply vacuum it up and reprint”it“.

Furthermore, an initiative from research and science is developing the first European quantum computer at Forschungszentrum Jülich.

Until now, quantum computers have been located mainly in the USA and China. In future, the first European computer is to be put into operati–n – at the Jülich Research Centre in North Rhine-Westphalia. The purpose of the quantum computer is to accelerate machine learning and to simulate processes in chemistry and material sciences. As soon as the computer can be put into operation, it will be possible for scientists all over the world to access results via the cloud.

These are just a few developments that have taken place in North Rhine-Westphalia in 2021. Basically, it can be said that the connection between technology and climate protection is increasingly becoming the focus of start-ups, and corresponding projects are being subsidizedsed more and more generously. In some cases, entire centres are being set up for this purpose. For example, the Global Entrepreneurship Centre (GEC) was opened in Meerbusch under the motto „Founding Spirit for a Better World“. The centre supports start-ups that are dedicated to sustainable and climate-neutral or climate-protecting innovations.

Information & Contact

O.Law supports investors from all around the world knowing the German market with legal advice in the relevant areas as well as supporting in and representation in disputes.

O.Law is a modern and dynamic law firm working in cooperation with highly motivated, professionals offering legal advice in the heart of Dusseldorf. We are characterized by our cooperation with a tax advisor and a network of lawyers in the whole world.

O.Law supports in all legal requests regarding commercial law, focusing on our international cooperation. In view of the intensity of German-Turkish trade relations and the importance of them, we established a Turkey Desk. Solutions that are efficient and economically sensible, with creative approaches are defining our hallmarks. We offer legal services in German, Turkish  and English and can support double culturally. To speak a common language is important to us.

O.Law – International Law Firm

Attorney at Law Hülya Oruç Aslan, LL.M.

Goethestr. 30

40237 Düsseldorf

+ 49 211 976 358 19

+ 49 1577 828 66 71

info@olaw.eu

www.olaw.eu

O.Law is a law firm based in Düsseldorf. Working for entrepreneurs worldwide, making their dreams come true.

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