INTERNATIONAL BUSINESS PRACTICES
recognizes varied corporate forms. Principal
among these are: the Aktiengesellschaft (stock corporation); and the
Gesellschaft mit beschrankter Haftung (limited liability company).
Stock Corporations (AG): The stock corporation (Aktiengesellschaft
- denoted AG) is a legal entity whose shares are freely transferrable
on German stock exchanges. The corporate form of the AG is designed
for large enterprises with an indefinite number of private stock-
Establishment of an AG requires German notarization. Corporations need
at least five original incorporators who subscribe to stock in the
These five shareholders appoint the first supervisory board which,
turn, appoints the first board of management. Such appointments need
to be recorded in notarized deeds. After initial incorporation, the
must register with the commercial registrar to become a legal entity.
Limited Liability Companies (GmbH): Due to the flexibility
under German law, the closed corporation (limited liability company,
Gesellschaft mit beschranker Haftung - denoted GmbH) is particularly
popular. The majority of German subsidiaries of foreign corporations
are GmbHs rather than AGs (Aktiengesellschaften, or public stock
Establishment of a GmbH is simple and its by-laws can be more speci-
fically tailored to the requirements of the shareholder(s).
Incorporation in Germany (or acquisition of a German company) is not
subject to government control or authorization, with the exception
The German law concerning the different types of companies is codified
either as part of the commercial code or in the form of special laws,
such as the GmbH law. It provides for a legal entity separate from
shareholders, who may be individuals, partnerships, or corporations,
and whose liability is limited to an amount equal to their subscription
to the stated equity capital.
The company may have as few as one shareholder, with a minimum capi-
talization of DM 50,000. There is no requirement that the managing
director(s) be a German citizen or resident. A GmbH must be registered
with the commercial register in the local court where the company will
have its registered office. The application for registration must be
signed in notarized form by all managing directors.
Branches and Subsidiaries: In contrast to a subsidiary,
a branch is
not a separate legal entity distinct from the parent company. Branches
can be dependent or independent. Independent branches must appoint
formal branch manager. Whether dependent or independent, the foreign
corporation is fully liable for branch debt obligations. For tax
purposes, foreign firms that operate in Germany usually prefer wholly
or partly owned subsidiaries to branch offices, which are normally
used only on an initial, short-term basis. The local presence of a
branch may subject the foreign company to local legal jurisdiction.
Partnerships: German law also recognizes various
forms of partnerships.
The general commercial partnership (offene Handelgesellschaft -
denoted OHG) and the limited commercial partnership (Kommandit-
gesellschaft - denoted KG) are roughly analogous to general and limited
partnerships in the United States. As in the United States, the
liability of partners for the debts of the partnership is determined
by the nature of the partnership and the partnership agreement itself.
Exporters to Germany are generally free to conduct export transactions.
No specific incentives are offered by the government, although export
assistance is offered to German businesses or branches of foreign-
owned businesses which operate in Germany and are involved in expor-
ting to certain markets. There are restrictions on strategic goods
agricultural commodities. Trade in listed goods is subject to
licensing by the Bundesamt fur Wirtschaft (Federal Office for the
Economy). Germany cedes much of its trade negotiating power to the
European Community (EC), which is its official representative at the
Agents and Distributors: Agents and distributors are
mediaries for marketing products in Germany. Agents (Handelsvertreter)
are independent contractors who typically have long-lasting relation-
ships with their principals. Agents seek to secure and safeguard
markets for principals by arranging contracts. Some agents will make
arrangements on the principal's behalf, but only if the contract
governing their relationship specifies this understanding. Distri-
butors (Vertragshandler) are also independent contractors. However,
they act under their own name and on their own account. Distributors
will buy products and sell them to customers at their own risk.
Commission agents and brokers are other types of intermediaries which
are recognized and operate in Germany.
The Commercial Code and the German Civil Code serve as the principal
laws governing principal-agent relationships. The Codes allow "choice
of law" clauses. Choice of law allows parties to select the law that
will govern their agreement. German courts will generally adhere to
this selection. However, waivers of the agent's right to receive
compensation for unjust termination of the agency agreements are not
valid prior to termination of the agreement. With the exception of
termination notice, the parties are free to decide independently the
terms of their agreement.
With respect to the issue of contract termination, the Commercial Code
provides for minimum termination notice terms. The laws governing
these terms vary in relationship to the duration of the agreement,
however, some general information and guidelines are provided as
* Minimum termination notices vary from a six-week termination
notice (effective at the end of the calendar quarter for
contracts of up to three years duration) to a three-month
notice when the contract has been in effect for more than
* Indefinite term agreements may be terminated by giving the
second party the adequate termination notice. Definite
agreements may be terminated before expiration date for
cause". Termination notice must be served, unless termination
is due to just cause.
* Compensation for termination is received when termination is
not due to just cause. An agent's compensation for unjust
termination generally amounts to the value of the benefits
that the agent would have acquired during the omitted
period. If proper notice is given, compensation may be
claimed for the value of the goodwill developed by the
* The principal is under no obligation to compensate the agent
if the agent fails to perform according to the requirements
Exclusive representational agreements effective with the EC should be
carefully worded to avoid violation of Articles 85-86 of the Treaty
Rome on antitrust and restrictive business practices. Furthermore,
principals and agents should realize that German law is secondary to
If both parties continue business and abide by the terms of the
agreement after a definite term contract has expired, the agreement
will be considered renewed for an indefinite term.
Indemnification and compensation may not be waived in a contract or
prior to termination. The agent has one year to raise a claim for
compensation or indemnification.
The termination of a distributorship agreement is governed by section
89 of the Commercial Code. Provisions for notification of termination
and extension or non-renewal of contracts is governed by the agency
agreements. Upon termination of a distributorship agreement, the
distributor must transfer all relevant customers to the principal.
Import Restrictions: German regulatory policy has
few restrictions on
the importation of goods, services, and capital. Military equipment
and pharmaceuticals may be imported only under special licenses.
Import quotas established by the EC apply to goods destined for
Germany or through Germany for other member states.
As part of the EC's development of the Single Market, the EC has
adopted a number of product standards and licensing and certification
procedures. Ultimately, these will be adopted by all member states
(including Germany) and replace the previous national standards and
procedures. Exporters should inform themselves regarding the latest
developments, particularly in testing and certification of non-EC
Germany also maintains a list of goods subject to import licensing.
The "Import List" (Einfuhrliste) includes goods for which licenses
required, their code numbers, any applicable restrictions, and the
agency that will issue the relevant license. The Import List also
indicates whether the license is required under German or EC law.
Import Duties: Approximately 95 percent of imports
enter Germany duty
free. As of January 1, 1993, all imports from other EC member states
enter duty free. Goods are classified for custom purposes under the
Harmonized System (HS) and, like all other EC member states, Germany
applies the Integrated Customs Tariff of the European Communities
(TARIC). Duty rates are moderate. Most raw materials enter duty free
or at very low rates, while manufactured goods are subject to rates
between five and 17 percent. Most agricultural products are covered
by the Common Agricultural Policy (CAP) under which many items are
subject to variable levies designed to equalize prices of imported
commodities with those of commodities as produced in the EC. Duties
are calculated on an ad valorem basis, and on the transaction value
the good. Value-added taxes (VATs) are applied to the imports upon
entering the country.
Documentation: The documents required for freight
or air shipment to
Germany include the usual ocean bill of lading or air waybill and
commercial invoices. Requests for customs clearance must generally
filed within 15 days of arrival of the goods at the point of entry.
Additional documents required are the sales contract, consignment note
and, in certain instances, the import license, certificate of origin,
and quality control certificate.
Additional forms for statistical purposes may also be required.
Free-Trade Zones: Germany maintains a number of "free
ports", or "free
zones" within a port, that are roughly equivalent to U.S. foreign-
trade zones. Those ports or zones are not part of Germany customs
territory. Goods may be shipped to a port or zone, handled, processed
and re-shipped without incurring duties. German law also recognizes
the "bonded warehouse" in which imported goods may be stored for up
five years without liability for duty.
Under the Schengen Agreement on borders, products imported into
another EC member state which is a signatory to the Schengen Agreement
can be shipped to Germany without unnecessary delay or additional
Exchange Controls: At present, no exchange control
restrictions are in
force, although various reporting requirements are in effect for tax
Germany offers an attractive investment climate. Foreign firms are
generally treated as equals to national firms when investing. There
no limit on the percent of equity foreigners may own, or on the size
of their investment.
No license is required for any type of investment, although certain
large-scale investments, and other investments that may affect
national security, are precluded. Certain investments must be reported
for statistical purposes. Investments are not subject to foreign-
exchange controls. Profits and dividends may be freely repatriated
without restrictions of any kind. Germany has a well-established
system of arbitration of commercial disputes, and enforces (through
its courts) arbitral awards. Germany is also a signatory to the UN
Convention on Recognition and Enforcement of Foreign Arbitral Awards.
Investors should be aware of certain requirements when investing in
Germany. For example, German antipollution laws are stringent. The
Ministry for the Environment enforces existing laws and will soon
implement decrees and laws pertaining to a 1986 water-pollution law.
series of recycling programs started with a packaging decree of 1991.
These restrictions will apply to manufacturing and the impact of the
legislation should be considered when investing in manufacturing (new
or existing). Finally, special attention should be paid to EC environ-
Incentives: Germany has introduced a number of incentives and other
special conditions to encourage investments in eastern Germany. Sub-
stantial investments grants and tax incentives will be available for
investors in eastern Germany through the end of 1993. Investors should
also consider the following:
* Accelerated tax depreciation may be available in certain cases;
* In many cases municipal trade taxes in eastern Germany are
in effect until target dates; and
* The European Recovery Program (ERP) has provided credit for
investments in eastern Germany if they meet relevant
Germany will continue to offer other programs as it seeks to develop
eastern Germany. Interested parties should contact the Treuhandanstalt
(Trust Agency), which is the holding company assigned to privatize
state-owned assets and firms in eastern Germany. The Treuhandanstalt
has signed an agreement with the EC to computerize information, making
it more readily available to foreign investors, and has an office in
New York City.
Investors should recognize that certain challenges may exist with
eastern German enterprises, and that Treuhandanstalt's mission to
privatize businesses in eastern Germany takes the nature of tendered
bids as well as the size of such bids into account. This has caused
some confusion among potential investors, but it also reflects
Germany's dedication to encourage serious investment and avoid
speculation on properties. Characteristics of former state-owned firms
include: heavily depreciated and obsolete capital stock; labor
intensive production processes; environmental problems; and decline
sales revenue due to shocks of the open market.
INTELLECTUAL PROPERTY RIGHTS
Patents are protected in Germany by the Patents Act of 1936, as
amended. Trademarks are protected by the Trademark Act of 1936, as
amended. Copyrights are covered under the basic laws of 1965, as
Patents: German law provides for issuance of a
basic patent on an
invention for a period of 20 years following the effective filing date
of the application.
Grant of a patent provides to the holder much the same patent rights
as are available in the United States, except that, under certain
circumstances, compulsory licenses may be granted if the patent holder
fails to exploit the patent and refuses to license it to others.
Patents are not renewable.
Both Germany and the United States are signatories to the Paris
Convention for the Protection of Industrial Property under which
applicants for U.S. patents may receive priority rights with respect
to patent applications filed in Germany within 12 months of the date
of U.S. application. Germany is also a member of the European Patent
Trademarks: Trademarks and services marks may be
registered for goods
and services, respectively and are valid for 10 years from the appli-
cation filing date and are renewable for a similar period. Trademark
assignments must be recorded in the Trade Mark Register. Germany is
signatory to the Madrid Convention on the International Registration
of Trademarks, and protects registered trademarks owned by citizens
Copyrights: Germany is a member of the Universal
and the Berne Convention for the Protection of Literary and Artistic
Works. U.S. authors thereby receive automatic copyright protection
Germany for their work published and copyrighted in the United States.
The German Parliament (Bundestag) has the power to enact all tax
legislation submitted by the Ministry of Finance. Each Lander has a
Minister of Finance who is responsible for setting local taxes. The
principal taxes on income are the personal income tax (covering wages,
salaries, and capital gains), the corporate tax, and the municipal
trade tax on businesses.
Corporate Taxes: The corporate tax applies to for-profit
entities. The Tax Reform act of 1990 established the latest tax rate.
Companies incorporated under German law are taxed on profit distributed
to stockholders at a rate of 36 percent and undistributed profits at
rate of 50 percent. Resident corporate entities are taxed on their
worldwide income, however, income of foreign parents is excluded.
Branches of foreign corporations are taxed on the total profit derived
from sources within Germany at a flat rate of 46 percent. Other forms
of standard corporate taxes and tax deductions are included in the
Personal Income Taxes: Foreign nationals are not
given any special tax
preferences on income derived from businesses operating in Germany.
German residents are taxed on their worldwide income while non-
residents are taxed only on income derived from within Germany. In
most circumstances, a foreigner is considered a resident for tax
purposes after living in Germany for more than six months; however,
under the Tax Treaty between Germany and the United States, German
residents may exclude from gross income their personal income and any
revenue derived from a permanent industrial or commercial establish-
ment in the United States. Income taxes are applied to all salaries,
wages, tips, and benefits-in-kind. Benefits-in-kind are assessed at
their cost to the employer. Tax is based on a progressive scale which
ranges from 19 to 53 percent, minus the personal deduction.
Other Taxes: A value-added tax (VAT) is levied
at 15 percent. A
reduced rate of seven percent applies for specific goods such as basic
food items, books, newspapers, and antiques. There is no special rate
for luxury goods. Other taxes applying to commerce include: a munici-
pal trade tax ranging from 11.1 to 20 percent and an annual net assets
tax of 0.6 percent on 75 percent of taxable business assets over
In general, the German government has a limited amount of regulatory
policies that apply to residents and foreign business entities. Some
of the regulatory authorities that foreign investors and exporters
should be informed about are as follows:
* The German Bundestag has the power to legislate customs, duties,
and excise taxes;
* The Ministry of Finance is responsible for overall tax
* Companies with more than 20 percent market share must report
to the Federal Cartels Office (FCO);
* The Bundesbank is an autonomous agency whose capital is held
Federal Government. The main function of the Bundesbank
regulate the money supply, and to support the general
policy of the federal government.
U.S. Embassy in Germany
Deichmanns Alle 29
5300 Bonn 2, Germany
Telephone: (49 228) 339-2895
Facsimile: (49 228) 334-649
To mail from the United States:
U.S. Embassy, Bonn
APO AE 09080
Embassy of the Federal Republic of Germany
in the United States
4645 Reservoir Road, NW
Washington, DC 20007
Telephone: (202) 298-4000
Facsimile: (202) 298-4249
New York Office
599 Lexington Avenue
New York, NY 10022
Telephone: (212) 888-4073
Facsimile: (212) 888-6090
German-American Chamber of Commerce
666 Fifth Avenue
New York, NY 10103
Telephone: (212) 974-8830
Facsimile: (212) 974-8867
This resource is extracted from the Department of Commerce
Trade Databank (NTDB)