CM September 2020

COUNTRY FOCUS
AUTHOR – Adam Bernstein
Foreign direct investment isn’t an issue per
se, but it should be noted that acquisitions of
German firms may be called in for review by
the German Federal Ministry for Economic
Affairs and Energy. A number of situations
require this when a 25 percent shareholding
threshold is about to be crossed. International
law firm Allen & Overy has reported that in
recent months the ministry has ‘…tightened
its approach and tends to initiate in-depth
review procedures. At the same time, clearance
procedures become more complex.’ In other
words, the process should be planned for.
EMPLOYEE WELFARE
Just as in the UK, Germany has no single
piece of legislation governing employment
relationships and there is no consolidated
employment law code. Collective bargaining
agreements (Tarifverträge), works agreements
(Betriebsvereinbarungen) and case law have
a bearing on relationships. In the event of a
conflict, the provision that’s most advantageous
for the employees applies. Germany differs
from the UK in that the importance of case law
is much higher in employment law than in the
rest of the German legal system.
Aside from a few exceptions (such as fixedterm
contracts), employment contracts do not
need to be in writing. With the official language
being German, it is sensible to use bi-lingual
contracts.
It should also be noted that Germany
has provisions in the law for dealing with
discrimination, minimum wages, sick pay
(after four weeks of employment workers get up
to six weeks at 100 percent of pay, beyond that
a lower level), holiday entitlements based on
EU law, and protection against unfair dismissal
after six months if more than 10 people are
employed ‘unless socially justified.’
On top of this is a right to establish a works
council if more than five people are employed.
Councils are consulted on social, personnel
and economic matters.
DISPUTE RESOLUTION
Over time ordinarily tranquil business
relationships can sour leaving firms with messy
disputes to resolve. Disputes in Germany are
resolved by the state courts, but the sides may,
however, choose to use arbitral tribunals or to
alternative dispute resolution mechanisms.
Germany has three main types of court – civil,
criminal and administrative – with the former
most likely to be used. In German litigation
proceedings written submissions are key. That
said, it’s the judge who takes the leading role –
they will decide whether to retain an expert or
order any person to testify as a witness. Unlike
in the UK, there is no disclosure of information
and each must provide the evidence on which
it wishes to rely.
It’s of note that in general, the unsuccessful
party regularly ends up bearing the court
fees and the opponent’s lawyer fees. Also, any
reimbursement will only ever include statutory
fees which more often than not, is considerably
lower than the actual legal fees. The average
civil case – in the first and second instance –
takes nine to ten months. Appeals to the highest
courts are rare. And judgments can be enforced
through seizure of movable assets, monetary
claims or enforcement against real estate by
way of, for example, forced public auction.
In comparison to the courts which are
public and appealable, arbitration is private
and findings are final.
INTELLECTUAL PROPERTY
Any civilised society protects the creations that
power businesses and Germany is no different.
EU law permits trademarks, designs and from
2018 onwards, patents, to be registered in one
country – Germany – and for the registration to
count EU-wide. Trademarks, designs, patents,
and utility models (but not copyright) are
registered at the German Patent and Trademark
Office. Further, protection of product designs
and business achievements is available under
German law against unfair competition.
Copyright is considered personal and unable to
be assigned – only licensed.
TAXATION
Lastly, tax affects profitability. In Germany,
there are three different types of income
taxes – Einkommensteuer, which is imposed
on individuals; Körperschaftsteuer, which is
imposed on corporations; and Gewerbesteuer
which is paid by individuals or corporations in
trade or a business.
Corporations are generally subject to German
corporate income tax at a uniform rate of 15.825
percent (including the solidarity surcharge on
its worldwide income. Partnerships themselves
are not subject to German corporate income
tax; instead the partners – corporate or
individuals – are taxed at the regular German
corporate income tax rate.
There is also a German trade tax rate which
depends on the local municipality where the
permanent establishment is located and ranges
from seven percent to 17.5 percent.
Personal income tax – Einkommensteuer
– is banded. There’s a nil rate band to €8004
per annum. Between that sum to a ceiling of
€52,882 it’s 14 percent to 42 percent. The next
band is 42 percent up to €250,731 and above
that it’s 45 percent.
As for VAT, purchases attract a rate of 19
percent which is generally recoverable by the
acquirer if the acquirer qualifies as a taxable
person for German valued added tax.
IN SUMMARY
Germany is a land of opportunity with a welleducated
and hardworking labour force.
The economy is facing new challenges, but
exporters would do well to attempt to gain a
foothold in the country.
Adam Bernstein is a freelance
business writer.
Advancing the credit profession / www.cicm.com / September 2020 / PAGE 26