Doing Business in Germany
Germany is Europe’s largest economy and the fourth largest globally, thanks to its research and innovation capabilities and its capacity to attract foreign direct investment (FDI). Over 45,000 foreign businesses conduct business in the country, employing over three million people, with the export sector accounting for more than one-fourth of all jobs.
Germany provides exceptional economic conditions for multinational enterprises and an excellent investment climate. Its economy is now significantly more competitive than previously due to structural reforms and modifications to the corporation tax rate. First-rate infrastructure, a modern financial system and a sizable consumer market attract investment. However, businesses should be aware of the numerous challenges inherent in doing business in Germany and the benefits of bringing in local expertise to help them navigate legal, tax and cultural barriers.
Doing Business in Germany – Why It is a Good Idea
There are numerous advantages to doing business in Germany. As the largest market in Europe, the country attracts investors from all over the world. Germany is a technological innovator in many fields, with a highly skilled workforce and a well-developed infrastructure. Small and medium-sized businesses, in particular, profit from a well-organised business environment and a stable legal climate.
Germany’s legal system fosters equity, informing and protecting industrial property for international and domestic businesses. Simultaneously, investors must adhere to their legal commitments. BDG stands by your side throughout the journey, bringing relevant market experience and insight.
To start a new business, buy an existing one, or set up a subsidiary in Germany, you need a lot of planning and preparation. BDG is your trusted partner in Germany for tax and legal guidance and audit and strategy services. Contact us for assistance with your unique business and investment questions in Germany.
One Touchpoint for All Your Needs When You Start Doing Business in Germany
For anyone wondering how to establish a business in Germany, we provide a comprehensive range of services ranging from market research to the production of comprehensive business plans. Irrespective of how clear your vision is for your new venture, we can help you get off the ground. Naturally, this also applies to establishing an online business in Germany.
For all issues beyond our area of competence, we have long-standing relationships with law firms, financial experts and tax advisors, among others. We will manage all aspects of your market entry on your behalf and serve as your primary point of contact.
If you’re still on the fence about doing business in Germany, we’ve got several compelling reasons to do so.
Doing Business in Germany – Overcome the Obstacles!
Expansion into another country can be daunting and diving into uncharted seas can be frightening. And, for foreigners, doing business in Germany might be a challenge.
However, this should not deter you from internationalising your firm and doing business in Germany. We are established to assist foreign businesses entering the German market. And we’ll be there to assist you in overcoming any obstacles and navigating the bureaucratic minefields.
One of the cultural barriers that international firms frequently face is the German business and consumer culture’s “buy local” mentality. However, in a more globalised world, even the traditionally conservative Germans can no longer ignore the quality of foreign products and services.
Why One Should Do Business in Germany
Deep Commitment to Innovation
Germany ranks among the world’s top ten most inventive countries, with a significant emphasis on the economic benefits of science. The country excels at translating scientific findings into practical applications. From software to pharmaceuticals, this practical orientation has catalysed job creation and a means of integrating German scientific research for the greater good of society.
Germany’s government demonstrates its commitment to applied research by financing research institutes, encouraging the establishment of start-up firms and licensing intellectual property to help researchers find work outside the academic setting.
The average German has completed 17 years of study, making them among the most educated people in the world. Along with literacy, the workforce possesses superior manufacturing abilities, as the industry employs more than 24% of the population. Despite Germany’s high unemployment rate, skilled labour might be challenging to acquire.
German industry is highly concentrated in a few important sectors. Around 825,000 people work in the automobile business; another 237,000 work in biotechnology and pharmaceuticals. Germany’s industrial workforce is evenly distributed throughout the energy, consumer products, food and beverage, technology and communications equipment.
Direct Style of Communication
German professionals are known to be straightforward; they don’t beat around the bush. The uninformed may perceive this as a sign of rudeness and coldness when in reality, it is only an illustration of German efficiency: employees are focused, committed and professional.
You can be assured of dealing with only competent, highly qualified personnel who will devote their attention to their task go above and beyond to meet set goals, key performance indicators and deadlines. This benefits your bottom line, such as increased efficiency, better operations and risk reduction.
Germany offers several incentive programs and public funding mechanisms that can be used for various reasons. The following are some of the most often seen and popular programs:
Cash incentives provided through grants can help offset the costs of establishing new facilities. Large organisations may be reimbursed up to 20% of approved investment costs, medium-sized businesses up to 20%, and small businesses up to 40%.
Research and Development Grants
Special grants are intended to aid in the advancement of research and development. These programs include interest-free loans and various forms of collaboration.
German states and the German Federal Employment Agency offer several labour incentive programs tailored to the needs of businesses wishing to grow their staff.
These unique programs can assist businesses looking to expand into the German market by offsetting some of the upfront investment expenditures.
Excellent English Proficiency
Germans are renowned for their outstanding command of both spoken and written English. This means that any German staff your company hires will almost certainly be able to communicate in English at a near-native level, reducing the danger of cross-cultural ambiguity and misunderstanding when conducting business in the country.
When it comes to doing business, the advantages of doing so in your tongue cannot be understated. Germans appreciate it when others go out of their way to speak their language. Former German Chancellor Willy Brandt famously stated, “If I am selling to you, I communicate in your language.” If I’m buying, dann müssen Sie Deutsch sprechen!”
Open to Imports and Exports
Germany exports around $1.3 billion worth of autos and parts, pharmaceuticals, machinery, chemicals, electronic components, electrical equipment, metals, transportation equipment, food, textiles, rubber and plastic products each year.
A further $983 billion is spent on comparable imports, such as machinery, electronic and electrical equipment, autos, chemicals, oil, gas, food and agricultural products.
Germany’s main trading partners include the Netherlands, France, China, Belgium, Italy, Poland, and the United States. In light of this substantial trade, many businesses consider doing business in Germany a desirable objective.
Pivotal Consumer Market
With an estimated population of 82.4 million, Germany is the EU’s largest consumer market. It is the world’s second-largest importer and third-largest exporter of agricultural products aimed at consumers and the most important European market for foreign producers.
Additionally, the German market is a formidable influence far beyond its borders. Germany hosts several of the world’s most significant trade shows, such as MEDICA, the Hannover Fair, Automechanika and the ITB Tourism Show, where a large amount of business is transacted. When combined with Germany’s geographic centrality within the European Union, these characteristics make it a cornerstone around which many US corporations base their European and global expansion strategies.
Germany’s infrastructure is superior to other European countries and scores highly in global rankings. Transportation and logistics are world-class, with more than 300 airports, 23 heliports, 27,000 miles of railway and 400,000 miles of perfect, pothole-free asphalt roadway.
Apart from transportation, the city has broad access to high-speed Internet and is one of the most advanced telephone systems globally, making it a perfect location for employing international remote employees. This type of infrastructure contributes to the ease of doing business in Germany. It enables enterprises to get ahead of the curve when embracing digital transformation and the inevitable future of remote work.
The Engine of Europe’s Economy
Germany is a global economic powerhouse, with a gross domestic product of over 4.029 trillion dollars. Germany’s economy is predicted to expand by approximately 2% over the next two years, with future growth forecast to range between 0.75% and 1.755% during the next 20 to 50 years. Consistently excellent economic performance translates into significant long-term growth potential for enterprises in countries like the United Kingdom and the United States. These figures alone are incentive enough to consider doing business in Germany.
Lucrative Market for SMEs
Germany is a land of small and medium-sized businesses (SME). While Germany is well-known for its industrial behemoths such as BMW and Siemens, around 85 per cent of all businesses are SMEs.
This indicates that over 3.6 million businesses account for more than 60% of all jobs in Germany. On this basis, foreign enterprises seeking to enter the market should be confident that size will not impede success, as the German market is particularly receptive to SMEs.
Germany is one of the most cost-effective manufacturing regions in Europe, boasting one of the world's most outstanding productivity rates. This trend is accelerating - with productivity increasing by more than 30% over the last five years. This is due to the prevalent work culture in Germany.
Germany's investor-friendly social market economy produces secure employment relationships and a contented, motivated workforce. Twenty-two thousand foreign firms have established operations in Germany, employing more than 2.7 million people. As previously stated, these figures alone are a compelling argument to start a firm in Germany.
Made in Germany
This internationally recognised trademark embodies the highest quality standards. Germany is also the world's second-largest exporter. While it is best known for automotive, mechanical and electrical engineering successes, futuristic industries such as eco-energy generation and nanotechnology are gaining traction. Therefore, even if your business is focused on emerging industry sectors, you can be sure that there is already a market for you in Germany.
Friendly Tax Policies
The Federal Government has implemented several efforts to simplify the overall tax system and contain labour costs. This, combined with significant corporate tax rate reductions, attracts an increasing number of investors and maintains a continual flow of new enterprises.
If the German tax system continues to overwhelm you, do not despair! As noted previously, we collaborate with finance and tax specialists, available for consultation.
Germany's ideal location in Europe as a hub for products and services has dramatically profited from EU membership. Germany shares borders with every major economy in central Europe, offering immediate access to established markets in Western Europe and emerging markets in Central and Eastern Europe. In a nutshell, you may significantly expand your reach while strengthening relationships with existing business partners.
A Stepping-Stone to Succeed In Other Countries
A foreign firm that demonstrates the qualifications and perseverance required to meet the German market's testing standards might use this accomplishment as a springboard for further international expansion. By establishing a successful business in Germany, foreign enterprises gain access to other rapidly rising markets!
Things to Remember When Doing Business in Germany
Before concluding a deal with a German business partner, it is critical to establish the date, location and mode of delivery of the product or service. Once a contract is signed, any alterations are considered unprofessional and conformity with the contract’s requirements is obligatory.
Prioritise Quality over Quantity
In Germany, it is critical to producing superior quality, and time is irrelevant as long as the final result is faultless and satisfactory. At any point in time, exceptional performance is expected.
Germans are Adept Readers of Small Prints
Have you ever wondered who reads the small print on products or contracts? What many regards as superfluous and time-consuming is taken quite seriously in Germany. Discuss arrangements and their repercussions in the event of non-compliance in advance with your business partner.
Maintain an Eye for Detail
Germans desire assurance; thus, every detail and response to unforeseen events and situations must be detailed in the agreement.
Time Commitments are Contractual
Germans take the adage “time is money” literally. Consistently adhering to established dates and times is regarded as a show of respect. If everything is done correctly, the Germans will express their gratitude and form a mutually beneficial relationship.
The Traditional German ‘Mittelstand’
Most business in Germany is conducted by small and medium-sized enterprises (SMEs – in German, “Mittelstand”). Historically, much business was conducted locally, and client ties were quite personal. A Mittelstand-firm typically employs between 10 and 500 people and has an annual revenue of less than €50 million. Around 3.7 million Mittelstand-companies are believed to exist in Germany, accounting for between 35 and 45 per cent of GDP.
Mittelstand businesses are typically focused on industry, manufacturing, commerce, skilled trades, professions, and service industries such as technology, construction, transportation, retailing, and the hotel and restaurant industry.
Operating in a foreign country presents unique obstacles. Regulations are continuously changing and no corporate environment is ever steady. Without a firm understanding of the pertinent problems, businesses risk facing tax fines and perhaps civil or criminal action. BDG’s knowledge and global reach enable us to provide the goods and services necessary to maintain compliance while doing business in Germany.
Your contact person
Thim has an entrepreneurial background and is a business strategist with passion for sales and business development. With 15+ years of experience, he coordinates the bigger projects and is head of the organization.