Germany

Location

Located in the northern part of central Europe, Germany is officially known as the Federal Republic of Germany, Deutschland or Bundesrepublik Deutschland. It is one of Europe’s largest countries. It covers the area between the Netherlands, Belgium, Luxemburg, France, Switzerland, Austria, Czech Republic, Poland, Denmark, the Baltic Sea and the North Sea.

There are 16 German states, each with their own head of government, legislature and government party coalitions.

Population

The German population is roughly 79.9 million people.  With a life expectancy of almost 82 years and a steady decline in the birth rate to 1.5 births per woman, the country is now spending close to $265 million every year in an attempt to reverse the declining population. The population growth rate is currently around the 0.2 per cent mark but is expected to dip into the negatives by 2025.

Germany is the largest economy in Europe and the 4^th largest in the world with a GDP of approximately 4.238 trillion USD. Economic growth remains steady around 2% annually. Inflation has been slowly increasing to 2.0% from 0.4% in 2016.

Germany continues to experience large fiscal surpluses, which in turn has led to the steady decline of the public debt ratio.

Trade

With a strong financial system, low unemployment, low public debt and a highly-skilled workforce, the driving force of the German economy has shifted from exports to consumption and investment. Germany is the largest consumer market in Europe and much of its trade is focused on some of the world’s largest trade events, including MEDICA, the Hannover Fair, Automechanika and the ITB Tourism Show. For these reasons, many companies seek to base their European / international expansion in Germany.

Top Imports & Exports

With strong trade ties primarily with Europe, but also with Asia and the US. The export value in 2017 was $1.33 trillion, while imports came in at $1.08 trillion.

The country is primarily focused on exporting manufactured goods, with a focus on transportation for products such as cars, vehicle parts and planes, helicopters and/or spacecraft. Machinery and medical products also make up a large portion of German exports.

Germany’s largest trade partner, in terms of exporting its goods, is the United States, followed by France, China and the rest of the European Union. In terms of imports, China accounts for 10%, followed by much of the European Union and the United States.

Top imports into Germany include many of the same goods exported from the country, including machinery, transportation and chemical products.

Free Trade Agreements

As part of the European Union, Germany enjoys free trade with the rest of the European countries and is able to negotiate trade agreements with the backing of the EU. There are agreements with Vietnam, New Zealand, Australia, Singapore, Mexico, Japan, Canada and the Mercosur group in focus, but also many more currently in play.

Expanding to Germany? Here is a breakdown of the key things to keep in mind.

Company Setup

There are many ways that a business can be set up in Germany. International companies might choose to register a branch office, open a subsidiary, or form a general / limited partnership.

Employment

Most of the population, over 60% of the German workforce, is employed by SMEs.  The unemployment rate is currently around 5.3%, which has fallen by 1% over the last 3 years.

German employment laws tend to be more favourable towards the employee in terms of termination protection, applicable collective bargaining agreements, and holidays.

Grants are available to businesses looking to recruit and employ people unable to work due to personal circumstances, such as disability or long-term unemployment.

Immigration

From Germany, companies have access to the European talent pool. All EU citizens are able to work in Germany without a visa. Those recruited from outside of the EU are required to apply for and obtain a residence permit in order to work and live within Germany for more than 3 months. The visa is obtained from the German embassy consulate in the applicant’s country of permanent residence.

Payroll

Payroll in Germany requires companies to obtain an employer number and registrations from the country’s tax and social security authorities. Employment law encompasses the employees right to join a union, a minimum wage and legal entitlement to time off.

In terms of tax collection, it is the employer’s responsibility to calculate the amount of income tax for each employee. This amount should be withheld from gross payments each month and submitted to the appropriate tax office by the 10^th of the following month.

Employers and employees must both contribute to social insurance, including health, pension, unemployment and nursing care.

Tax

In Germany, the financial year follows a standard calendar year, ending on 31 December.  Corporation tax is 15.825% on company profits. Business can deduct expenses from computations of taxable income. The tax return must be filed electronically by 31 July of the following year. If working with a tax advisor, filing can be extended to the last day of February of the second year following the tax year.

VAT is applied on the sale of all goods and the provision of services at a rate of 19%, potentially reduced to 7% on certain transactions. A refund will be paid if the input tax exceeds the VAT.