International Company Relocation Opportunities: Germany
Germany’s economy is the largest in Europe and induces a very liberal social market economic system. The investment environment is highly attractive to all foreigners. The U.S continues to be the central participant in relation to EU inward direct investments in Germany.
It ranks among the world's leading countries for foreign direct investments because of its strong points, such as having a highly educated and technically qualified labor force, vast resources of developed infrastructure, legal stability, good relationships between local and foreign investors, and outstanding and power house R&D. Germany, Italy, and France urge a reconsideration of foreign investments in European Union member countries to stop foreign investments or make them subject to conditions or reciprocity.
During the past 10 years, Germany’s inward Foreign Direct Investment stocks nearly doubled. Originally, the Foreign Direct investment was initiated in Japan, the U.S. and in other developing economies, particularly China, where the economy has significantly improved in 2005.
Accounting regulations and the legal system in Germany is complex, though there is consistency and transparency in terms of international standards. The country favors the value of freedom of businesses, where business activities are free from restrictions. German law makes no distinction between local and foreign investors with regards to incentives for investments and IP. Investor’s rights can be enforced by the country’s well-organized judicial system. Reliable laws allow first timers to plan their investments efficiently and fulfill their obligations legally.
Over the years, Germany’s banks have enhanced their market value in new equity, whereas the country’s capital market depends on its new banking scheme. Most Government owned companies are limited to German public utilities, such as railroads, energy, and municipal water. Creating more jobs and fostering economic growth is the government policy’s main objectives.
Collective bargaining happens at industry levels between a trade union and the employer’s organization to determine payment and conditions in Germany. The country continues to combat corruption and money laundering.
Every EU member state has a number of investment protection agreements, and Germany is covered by 129. The conferences on T-TIP (Transatlantic Trade and Investment Partnership) were commenced in 2013 and have caused issues and debates by the public about the ISDS in particular.
- Germany is ranked as the 10th least corrupt nation out of 176 countries in 2016’s Corruption Perceptions Index reported by Transparency International.
- Germany is ranked 17 among 190 economies in ease of doing business in 2017, reported by the World Bank.
- Germany is ranked 10 among 128 countries and economies in 2016’s Global Innovation Index.
Offshore Investment Regulations
The German government has an impartial response when it comes to offshore businesses. In 1956, there was an agreement which allowed US financiers to move their businesses smoothly. This treaty was established for the US and the German government.
Germany is also a member of OECD, which means it carries the same principles, like unlimited movement of investments, fairness in terms of the judicial process and using other methods to entice foreign investors to go to the country. The Economy and Energy Commission reviews the procurement of local corporations by foreign investors in detail and monitors any possible risks to the community or to the country's public interest.
The Department of Trade and Compensation Regulation has lawful grounds in this process. The German government's performance has shown stability and growth with regard to foreign investors coming into the country.
The US has been a major contributor to the economic strength and success of the country. In terms of investment concerns, foreign investors have experienced similar issues that local companies encounter. For instance, any laws relating to employment and tax-related discrepancies.
Restrictions on Acquiring Private Properties and the Regulation of Foreign Investments
The German government has formed a Foreign Economic Law which focuses on limitations of private investors leading to issues in foreign policies, foreign currencies, even to the security of the country. These limitations have been implemented in certain areas, like airline, marine, and railroad transportation businesses.
Germany refused to continue and released a statement that a re-evaluation is necessary to Aixtron (Semi-Conductor investor in Germany) which may compromise security on a national level. This happened in 2016.
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However, due to this incident, the company decided to discontinue their investment offer before Germany even released their decision on the matter. They stated there were issues on the ruling of CFIUS. In Addition, the German government restricts policies on the recruitment and employment of foreign nationals, including any administrative tasks, household help, or any other related services that seek employment in Germany.
The German government formed a provision enforcing equality, whether you have a foreign business or a local corporation within Germany. As long as the corporation you are in is signed with the FRG or the Federal Republic of Germany, the same laws will apply as if the company was owned by a German national. Currently, no specific requisites for high ranking officials, like a director or a shareholder exist.
Reviewing Policies on Investment: Helpful information when investing in Germany can be found in a "Doing Business" article published in 2017 by the WB (World Bank) with the help of other units in the organization.
Assistance in Business
Germany requires corporations, small businesses, and corporate events to have their information posted under public listings, namely the trading office registry and the registry of commercial businesses, 2 of the most important offices in Germany.
The registration process is electronic and usually requires certification by a law office. The corporate registry has detailed information regarding activities within different industries, which also includes the personal details of managers, stock performance in the market, liabilities and bankruptcy notices. The fee to register depends on the company's structure and size.
Germany's Trade and Industry provide assistance in registering businesses and gives recommendations. Medium-sized and small businesses can also obtain monetary or non-monetary benefits.
In terms of the European Union's perspective, enterprises have been classified as:
- Small businesses: Not exceeding 10 workers, 2 million euros annually or 2 million euros in total gross income.
- Small companies: Not exceeding 50 workers, 10 million euros annually or 10 million euros in total gross income.
- Medium-scaled companies: Not exceeding 250 workers, 50 million euros or 43 million euros in total gross income.
Progress in investments: Germany makes sure businesses are part of the development and rising economic agenda to prevent any further political issues. To ensure investments are protected, they must have practical rules. Risks within businesses are yet to be considered.
Mutual Investments and Agreement on Taxation
The German government did not form a bilateral business agreement with the US. However, in 1956, there was an FCN (or Friendship, Commerce, and Navigation) arrangement that includes some regulations pertaining to a treaty, like a favorable country, free from capital flows, national level assistance, and utmost security.
In addition to this, the German government has enforced agreements with almost 130 nations. These agreements include previous sovereign countries (like Sudan, Czechoslovakia, Yugoslavia, and the Soviet Union). They still have the same treaty with Germany with 7 more policies.
The countries which have an asterisk have not indicated how many agreements they have stipulated with Germany. The treaties are part of some territories, countries, and previous organizations.
The following countries are those which have investment plans: Angola, Afghanistan, Algeria, Albania, Argentina, Antigua and Barbuda, Azerbaijan, Armenia, Bahrain, Barbados, Bangladesh, Benin, Bosnia, Brunei, Belarus, Botswana, Cambodia, Burkina Faso, Cameroon, Burundi, Cape Verde, Chile, Central African Republic, China, Chad, Congo Republic, Costa Rica, Congo Democratic Republic, Cuba, Croatia, Greece, Guinea, Czechoslovakia, Dominica, Ecuador, El Salvador, Ethiopia, Gabon, Haiti, Georgia, Estonia, Ghana, Guatemala, Jordan, Kenya, Jamaica, Honduras, Hungary, Hong Kong, Iran, India, Ivory Coast, Indonesia, Kazakhstan, Korea, Republic of, Laos, Kuwait, Lebanon, Kyrgyzstan, Latvia, Lesotho, Libya, Macedonia, Madagascar, Mauritius, Malta, Moldova, Mongolia, Mexico, Morocco, Mauritania, Nepal, Lithuania, Montenegro, Mozambique, Namibia, Nicaragua, Panama, Slovenia, Singapore, Somalia, Poland, Syria, Oman, Nigeria, Slovak Republic, Tanzania, Senegal, Turkey, Ukraine, Uganda, UAE, Vietnam, Uruguay, Yemen, Zambia, Venezuela, Philippines, Zimbabwe, Tunisia, Swaziland, and Uzbekistan.
Bolivia and South Africa's Bilateral Treaties ended in 2014 and Oct 2014 respectively. As of this writing, there have been no reports indicating they will be reconsidered.
The German Government approved treaties with the remaining nations with which it hasn't gotten into an agreement: Brazil (September 1995), the Congo Republic (November 2010), Iraq (December 2010), Israel (June 1976), Pakistan (December 2009), Panama (January 2011). Previous agreements are still in effect.
Agreements on Mutual Taxation
How US companies are taxed in Germany is included in the Convention for Avoiding Double Taxation. The policy started its implementation in 1989 until 1991, during the previous democratic form of the government.
In this treaty, both parties agreed to grant credits in terms of income taxation, which were paid to revenues by corporations to each country. In 2006, there was an update in relation to the current treaty on taxes which included several revisions. It included removing provisions for dividends on subsidiaries, as well as a limited provision on benefits and provisions on settling disputes within the country.
The US and Germany had an agreement to regulate the exchange of information and other laws affecting their foreign relations in 2013. During the first quarter of 2016, the German government successfully formed mutual treaties in relation to taxation and their assets with about 90 countries (including the US). These include taxes on inheritance for 6 nations. The government has formed agreements relating to assets and income via moving and air transport businesses with about 9 territories.
Germany also had stipulations on exchanging information as well as assistance in the administration applicable to 28 nations. The German government has started proposals for revisions on wealth and income tax agreements which affect almost 50 territories.
There were special agreements in relation to assets and income in terms of moving and air transport companies which involve four countries. As for exchange of information and assistance in administration, there were agreements with almost 10 countries.
The Regulatory System
The legal regime and transparency: Germany has utilized its transparent and competent legal system and regulations to promote not only anti-trust laws but also a healthy competition between financial entities. Transparency and consistency with international standards are at the heart of its legal, administrative, and auditing organizations, however complicated they may be.
The government’s consultation of the public is governed formally by mutual procedural rules. It outlines the way ministries are obligated to discuss new legal overtures with shareholders as early and as comprehensively as possible. Policies and legal control in the country are published regularly in drafts, and feedback from the public is often welcomed.
Joint Rules of Procedure are expected to review consumer cooperatives, the group of concerned industries instead of environmental, singular companies, and other non-government organizations. Negotiations often last between 2-4 weeks.
International members are welcomed at the German Institute for Standardization (DIN).
Foreign Legal Concerns
The German Republic, being a constituent of the EU, is required to observe and execute the laws and decrees ratified by the European Union. These laws are irrevocable and must be implemented promptly by all EU member states.
A legal edict, while intentionally designed for member states, simply is a form of structural regulation that is expected to be developed by member states based on a distinctive legal procedure. Laws are established in accordance with the German standard legal process.
Member countries of the EU must execute regulations within a specific time period. If a deadline is not met, the constituent may be heavily fined through a violation process. The German Republic has policies that outline the rules on allocating penalty fines delegated between the Lander and the government. Both will partly suffer the costs based on their obligation within regulation and their complicity in being non-compliant.
The Federal States (Lander) have a voice in European concerns via the parliament’s upper chamber (Bundesrat), which is instructed by the government to act on all proposals significant to the Lander at the European Union level.
Germany gives notices of technical draft policies to the World Trade Organization’s Committee on Technical Barriers or Trade (TBT), via the Office of National Notification in the Energy and Economic Affairs Ministry (BMWi).
The Constitutional Process and Juridical Autonomy
The German legal system is at once calculable and competent. Through it, entities may impose contractual and property claims. The country has well-instituted administrative regulations and implementation services to enable entities and investors in asserting their interests and rights. Germany’s judicial courts are accessible to international financers in matters of financial disputes.
The German legal system is autonomous and not controlled by the government. The judiciary implements structural and fundamental guidelines, while legal counsels and notaries utilize the regulation to construct and harmonize certain situations. Courts have highly skilled judges, and Germany provides an adept judicial system devoted to lawful procedures and due processes. These facts have been attested by scientific data and international research.
Germany is governed by an extensive constitution with codes, statues, and regulations that oversee all critical legal matters. The most significant laws in relation to business include:
- The Burgerliches Gesetzbuch (BGB) civil code. This comprises of fundamental laws on the establishment, accomplishment, and implementation of financial obligations and on general forms of statutory bonds for legal negotiations between private companies;
- The Handelsgesetzbuch (HGB) commercial code. This contains specific regulations regarding business transactions and trading alliances;
- The GmbH-Gesetz, limited private companies and Aktiengesetz (limited public companies act), which cover two of the prevailing financial frameworks in the country (the Aktiengesellschaft and the GmbH); and
- The unfair competition act (UWG). This restricts deceitful and unlawful businesses processes.
Germany has a specifically designed judiciary to oversee labour, administrative, social, tax, and finance laws. Germany’s Patent Court handles cases on trademarks, property rights, and patents in relation to the German Patent and the Trademark Office’s decisions. Both the office of European Patent and the Office of German Patent (Deutsches Patertamt) are located in Munich.
International Direct Investments: Regulations and Policies
Acquisitions of foreign investors by local companies may be reviewed by the Energy and Economic Affairs Ministry to determine if these negotiations are a threat to Germany’s national security and public order. The Federal Ministry for Economic Affairs and Energy conducts the review, while the Ordinance on Payments and Foreign Trade as well as the Payments and Foreign Trade Act supply the legal framework. There are, however, very rare limitations imposed on international direct investments in practice.
Procedures on investments across multiple sectors are applicable to any entities’ foreign investment profit that operates outside EFTA districts or EU territories where investors have a minimum of 25% ownership of a company resident’s voting rights in Germany. Investors are not mandated to give notice of acquisition or gain approval of such.
However, the BMWi may initiate a review over a period of three months since the day the agreed upon acquisition was concluded. The investor may appeal for irrevocable documents pertaining to their objection provided by the BMWi ahead of the prospective merger to secure early legal certainties. If an extensive review is not opened by the BMWi within 1 month from the first day of request, the documentation will be considered approved.
There are specific applicable laws regarding company mergers operating within sensitive security locations, which include IT defence and security. These sensitive mergers, contrary to policies across multiple sectors, need to be explained in writing as to the fundamental instruction of the buyer, merger, and the regulated local entity.
A review conducted formally by the BMWi can be initiated within a month of being notified, or the merger will be considered granted. Once a review is initiated, the client must present the necessary documentation. Only within a month of submitting the documents can the acquisition be limited or forbidden.
A legal court shall conduct a constitutional review of any decision culminating from these review processes. The GTAI (German Economic Development Agency) offers a comprehensive instruction for financers, which includes the legal structures, as well as concerns related to incentive and labour.
Anti-Trust Regulations and Competition
Germany ensures a fair playing field for competitors based on two fundamental legal edicts:
Updated in 2013, the Limiting Competition Law is the statutory foundation of merger control, overseeing abuse, and the battle against syndicates. Governmental cartel officials are assigned to implement the anti-trust policy.
The Energy and Economics Minister, in rare instances, may offer a license under certain conditions. One example is the acquisition involving two entrepreneurs (Tengelmann and Edeka/Kaisers) which gained an administrative licence around March of 2016.
Local courts may invoke the Unfair Competition Law (recently revised in 2015).
Settlements and Seizures
Germany stipulates that private possessions can only be seized for public use via an impartial procedure and in compliance with codified doctrines of international and Democratic law. It has transparent purposes and follows a due process. Lenders and financers, to confiscated entities, must obtain a timely, sufficient, and competent compensation.
Pre-emptive activities are non-existent in the past 5 years and are not projected to be established soon. Long-standing cases of usurpation have been documented as far back as the communist and Nazi rule. Germany, during the economic crisis, had promulgated a law permitting seizure of a bankrupt institution that threatened the financial ecosystem. However, this law has ceased before it was even adopted.
The New York and the International Centre for the Settlement of Investment DisputesConvention: The German Republic is a constituent of both the convention in New York regarding the Enforcement and Recognition of International Arbitral Awards, as well as of the ICSID, which means domestic judiciaries must impose global adjudication awards under specific settings.
State-investor dispute handling: Overseeing disputes of investments which involve the United States or other international investors located in the German state are incredibly rare. Based on UNCTAD’s directory of contract-based financer dispute cases, the several instances when Germany was challenged did not involve an American investor. There is still a pending case regarding a well-known ICSID adjudication request submitted in 2012 via the Energy Charter Treaty by an energy company in Europe that questions Germany’s verdict in abandoning nuclear energy.
Global financial adjudication and international courts: The Institution of Dispute Settlement is Germany’s local adjudication agency, and Germany’s Code of Civil Procedure’s Book 10 discusses adjudication affairs. The office of the International Chamber of Commerce is located in Berlin. Additionally, the council for trade and industry provides services related to settlements and arbitration.
Statute on Bankruptcy
As consecrated in the German Insolvency Code, Germany’s Insolvency Law promotes and protects restructuring. If an enterprise or business owner declares bankruptcy, permissible parties are required to initiate proceedings on insolvency via bankruptcy filings.
It is not illegal to declare insolvency. However, the prosecuting body must investigate if certain premeditated behaviour exists.
The bankrupt entity, under a standard insolvency proceeding, is broken up and sold as individual rights or company parts to generate as much profit as possible. Revenues may then be used to repay collectors in the bankruptcy proceedings. The bankruptcy code provides detailed measures for the dissemination of money to creditors.
The bankruptcy code ensures a fairness of treatment to collectors, and some creditors reserve the license to seize property. Post-arbitration favoured creditors are offered bankrupt properties during the proceeding of insolvency.
Regular creditors are compensated based on the allotment of the remaining bankruptcy assets. Auxiliary creditors, including investors with loans, are served only if bankrupt items remain after other creditors were served. Germany is ranked 3rd in the “resolving insolvency” ranking of the Doing Business Report by the World Bank, sporting an 84.4 recovery rate.
Regulations on Industries
What incentive corporations get out of their investments: There are several types of incentives which companies get when investments are in place. These are grants on investments, employment-related, government incentives, research and development incentives.
It could also be in the form of public-approved loans and a public guarantee. These benefits are experienced by both foreign and local investors in the country. There are instances where these incentives are combined to boost the economy. In terms of eligibility, both domestic and foreign businesses must meet the criteria to qualify.
The German authority for Affairs on Economy and the Department of Energy is tasked to help improve businesses in some areas in the country through investment favors. The European Union supports these investment grants. Some financial institutions (KFW Group and Federal States' banks) offer reasonable rates on investments and loans, particularly for medium-sized and small enterprises.
In relation to Labor and Employment, the German government has around 700 locations of State Employment Offices which help the sector in the recruitment and training process before the employment starts.
Germany, along with the EU, helps provide incentives to Research and Development through investment grants, partnership projects and approving public loans.
Foreign Investments and Business Trades
The EU has mandated 3 free port areas in Germany. These are: Duisburg, Bremerhaven, and Cuxhaven. Also, there are permits given to duty-free areas to those manufacturers serving the European Union's markets, as long as they meet the guidelines.
These markets are available to foreign and local investors. Recently, taxes and the EU's expansion hindered the encouragement of investors to put up businesses within duty-free areas. An example of this was Emden and Kiel which lost their free trade area status in 2010. Hamburg also lost its status in 2013, and in 2016, Deggendorf was removed from the free-trade area status.
Requirements in Localized Data and Business Performance
In Germany, the government did not establish any requirements in terms of ownership, percentage on export or local sourcing. However, they have certain guidelines you need to follow to qualify for incentives, like generation of employment or having a specific rate of job stability for a particular period of time.
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The United States of America gets to have the required visas and permits when it has businesses in the country as part of the agreement. US citizens may get jobs and secure permits to reside in Germany.
With regards to accepting the validity of the people’s driver's licenses, some states in the US did not obtain an approval from the German government to recognize it. In this case, those areas in the US which are not being recognized get to use their licenses only for 6 months, while those which are validated by the German government get to have their licenses converted to a German license after 6 months.
There have been no reports indicating restrictions in storing data in the country. There was an opportunity recently for the country and EU data providers to promote local IT businesses and penetrate the competition.
Security of Assets
Asset Management: Germany has mandated a policy on a national level protecting the rights of domestic or foreign ownership. The German authority has provided reasonable collaterals when awarding properties to buyers. They have calculated risks by implementing security in the form of interests, both real and chattel, and are well imposed in the country. Based on statistics in the recent publication of WB Doing Business, 50 days are allowed for an owner to process the registration of an asset in the country.
Germany mandated an Act in Land Registration in 1897, but it was revised around 2015. The law is similar to the provisions of private properties and has detailed information regarding the policies involved in the estate. There is complete information pertaining to the proprietor, third party rights, obligations, and limitations in relation to some aspects.
A registration of the property to the Land Registration office needs to be done for the contract and rights to be in effect. Germany has started storing documents of properties electronically. This information may only be viewed and secured by authorized persons.
The German administration has an excellent reputation in terms of protecting the rights of Intellectual Property. Laws are strengthened and in effect all the time. However, until this moment, online issues like piracy have been addressed and are still being worked on.
The country is one of the members of the World IP Organization since 1970. Germany's Customs Authority gives a yearly releases report on the confiscation of fake products as part of their mandate.
The German government also became a member of Int'l IP Security Agreements: the Convention in Paris for Industrial Properties Protection, the Convention on Universal Copyrights, the Convention on Phonograms in Geneva, and the Convention on Artistry and Literary Works in Bern where some of them. A lot of improvements in Germany's IP provision came from laws meant to make the application process as quick as possible and get protection from EU Intellectual Property Rights.
There are several ways to protect businesses:
- Copyright: The country has authorized foreign businesses to copyright owners. This includes compensation to recordings. The government also provides legal assistance to US performers who have disputes over recordings which were performed without their permission in the country.
In terms of online concerns, Germany mandated treaties regarding WIPO and revised them last 2003. However, there were certain exceptions on the same provisions which allow copies. However, the government is sensitive to this. Most companies recognize the implementation of IP protection in Germany. Around 2008, the European Union released a regulation to make the copyright provision better, and Germany adhered and enforced it immediately.
- Trademark: Foreign investors can have their trademarks listed the same way that German citizens do it at the Trademark Registry. It is in effect for 10 years and may be renewed for the same number of years.
- Patents: Foreign investors may have their patents listed the same way that German citizens do at the Trademark Registry. Patents have been enforced particularly for inventions, whether they are technical in nature, a simple invention, or something associated to the industry.
For those who are interested in applying for a Patent, they must get a lawyer (Patent) in the country to act as their representative upon submission of their intent. The required documents should be in the German language.
Otherwise, translation is necessary. The application process may possibly be expedited as long as a past application was completed with the US government for Patents and had been previously approved at least once. There are few distinct provisions in Patents that a legitimate lawyer can only expound to US citizens who submitted their application.
US approved Intellectual Property rights are only enforced within the US alone. There is an option though to have them registered through the European Union, as a country or as an individual, for the European Union's trademark and protection for designs.
This enforces security for any designs among different industries or can be a trademark among the members of the EU market. The trademarks and CTM may submit an application with US Patents and the Trademark Registry as one of the requirements. They have an option to submit an application to an EU IP Office. The EU works on a "first come, first serve" basis, which is entirely different in the US.
The security of Patents may still be obtained through US authorities. The European Union still has not enforced any provisions that are applicable to all members of the EU. However, there is an EPO which allows single patents for Europeans as discussed in the convention for European Patents in 1977. There were 38 states which involved European members, and other countries in Europe discussed the agreement.
Trading secrets: In regards to the economic and technical agenda, trade secrets are well secured in the country. At present, European organizations are still deliberating provisions to sustain protection throughout its members.
The German government is also considering adding utility and design models as part of strengthening the law.
The Financial Sector
Stock market and investment portfolio: As a financially developed member of the EU, Germany accepts international portfolio investments and has a competent regulatory system. It has an open economy and regularly ranks among the world’s top countries for international direct investments and exports. As a Eurozone member, Germany doesn’t have sole authority over foreign payments, which is a Eurosystem shared task, composed of the European Central Bank, along with other reserve banks of EU member states, including the Central Bank of Germany. As established by European law, incoming and outgoing capital movements have no restrictions in Germany.
However, Germany along with Italy and France filed a petition to the European Commission last February 2017 to analyze the feasibility of giving EU members the capability to obstruct international investments because of reciprocity. To foreign investors, Germany is like a haven to invest in since the economy outshines other European countries and sovereign bonds retain Germany’s “safe haven” standing.
The Federal Financial Supervisory Authority (BaFin) monitors the compliance of the listed markets and companies in the Securities Trading Act. This act bans market manipulation and insider trading. The state government oversees stock exchanges and BaFin takes on foreign responsibility. The Capital Investment Code (KAGB) controls mutual fund operations in Germany since July 2013.
The agency depicts the fulfillment of added reforms on the financial market, dedicated to the effects of the financial crisis globally. The KAGB depicts the reinforcement of added regulatory reforms on financial markets, focused on the repercussions of the worldwide financial dilemma. The bill surpasses the least necessary mandates that are pertinent to the EU and displays an extensive overhaul on all current regulations related to investments with the goal of building a systemic rule to safeguard investors while keeping a systemic monetary stability.
Banking and Financial System
The financial system in Germany continues to be bank-based, even though corporate financing is rising via capital markets. Bank loans still dominate as the main source of funding, especially for small & medium sized companies in Germany’s famous Mittelstand. Credits are accessible to both foreign and domestic investors at market-determined prices with an array of credit instruments to use. Accounting, regulatory, and legal systems are mostly transparent and coherent with foreign banking standards.
Germany’s universal banking is regulated, controlled by federal experts and has no report of credit deficit in Germany’s economy. From 2010, the country prohibited some types of dangerous trading and “naked shorting”. In 2013, a law was passed that requires banks to segregate riskier activities, like propriety trading to a lawfully separate and fully capitalized part that is not guaranteed or inaccessible to deposit taking firms. Germany supports the global financial transaction levy and pursues to introduce such taxes together with other Eurozone members.
Germany has modern banks but is frequently coined “over-banked” because of continuous consolidation and small profit margins. Germany’s banking system, known as the “three pillars,” is composed of cooperative banks, commercial banks, and public banks (i.e., Sparkassen or savings banks and Landesbanken or state- owned regional banks). Private banking lead players are Deutsche Bank with €1.709 billion and Commerzbank with €558 billion in their 2015 figures. In 2009, Commerzbank acquired €18 billion in financial support from the government, which provided the later with a 25% bank share (now lowered to just 15.6%). State-owned regional banks were heavily affected by the financial crisis worldwide and still encounter challenges in their business. The German government is presently working on reducing several “bad banks,” like Hypo Real Estate and WestLB (known as Portigon AG), which are composed of failed banks’ underlying assets.
Remittances and Foreign Exchange
Foreign exchange policies: The euro is the form of currency used in Germany, as well as in the other 18 European Union members. The Eurozone doesn’t have restrictions on transferring or converting their cash, and the rate is determined freely in the forex market.
Germany recognizes the European Central Bank’s independence and has no engagement on controlling currency. In a report made by the European Commission on February 2017, they concluded Germany's consistently high record of surplus in 2016 improved much, and it was predicted to stay beyond 8% of GDP up until 2018.
Despite the price drop for basic materials, oil and the euro’s devaluation explains a vital part of the increase from 2015 to 2016. The surplus advancement and persistence shows a savings average on investments associated with fiscal, regulatory, and structural factors. German legislators suggest the surplus is an outcome of market capability instead of current government rules.
Germany is part of the Financial Action Task Force of the OECD. They are committed to strengthening its system for prevention, suppression, and detection of terrorist financing and money laundering. According to the Ministry of Finance’s press release in February 2017, the Financial Intelligence Unit of Germany is going to be reorganized and given additional employees.
So far, FIU is with the Bundeskriminalamt (BKA or Federal Criminal Police) that serves under the dispatch of the Ministry of Interior. Then, they will be delegated towards the Ministry of Finance, under the General Customs Directorate. Their ability and tasks are redefined, considering the EU Fourth Money Laundering Directive is focusing on strategic and operational analysis. A draft legislation was published by the government to enforce the European Funds Transfer Regulation, the 4th Money Laundering Directive, as well as the FIU restructuring which was anticipated to commence on the 26th of June 2017. This act has modified Germany’s Money Laundering Act and various laws.
Acquiring foreign exchange is not difficult.
Germany has no delays or restrictions on the incoming and outgoing flow of profits or investment remittances.
Although, as stated by the Ministry of Finance, remittance issues played a big part during Germany’s G20 Presidency. Emigrant remittances sent to their native country are essential to households in developing nations like Africa. With regards to campaigns against financing terrorist and money laundering, the G20 works on improving remittance infrastructure without jeopardizing the ideals of combating terrorist financing and money laundering.
An FSB active committee and G20’s FATF will arrange plans in this regard in association with the Global Partnership for Financial Inclusion. G20’s goal is to support the FATF with essential resources and to systematize it in a way it can pursue its task effectively in fighting terrorist financing and money laundering, which continued to develop through the years.
Sovereign Wealth Funds
At the moment, Germany doesn’t have an asset management agency or a government wealth fund. Following the German reconciliation, the government created a public bureau that will supervise asset privatization held by then East Germany. In 2000, TLG Immobilien was subjected to a strategic change from an agency focused on privatization to a profit-making organization for residential and commercial property. In 2012, TLG Immobilien was sold to individual investors by the government.
Government Owned Businesses
The formal translation for government-owned companies in German means “enterprises, institutions, or public assets” that are distinct from government-owned entities in terms of their financial plan and organization, but with fifty-percent of voting rights or investments being state-controlled. Public budgets include funding for both private and public state-owned companies.
Public legal companies are identified as lawful entities with established and clearly defined goals, systems, and duties set forth by specific legislations, with the publicly-controlled promotional institution KfW being a well-known example. The German state may claim ownership or partnership with a privately-owned business if certain conditions exist: crucial government interests are fulfilled, no other or more competent commercial alternative exists, the state’s financial obligation is restricted but with suitable governing influence, published annual reports, and such power is granted by the Ministry of Finance and the approving agency tasked for the matter.
The state failure of government-owned entities are disseminated and controlled by the appropriate bureau with a professional level of expertise. This participation aims primarily to further public interest than to generate profit.
The state is obliged to sever its investment in a privately-owned company if there is a change in function, or if technology offers more advanced solutions, although specific fields, like culture and science remain at the heart of state responsibilities. Germany’s state-owned companies are assessed with the same tax rate and value added tariff refund regulations as with privately-owned competitors.
Currently, there is no policy or regulation that aims to secure a primary role for state-owned companies in certain industries. Privately-owned companies enjoy the same amount of funding as government-owned ones, including participation in state-owned financial institutions like KfW. Under German law, state-owned entities are assigned with tough funding restrictions that are typically mandated.
The Office of Federal Statistics oversees a directory of state-owned entities from all 3 government levels (municipal, state, and federal). It has listed 15,707 total companies in 2014, or about 0.4 percent of the 3.6 million businesses in Germany. In 2014, government-owned enterprises had 534 billion euros in profit and expenditures totalling 523 billion euros.
Energy and water suppliers contributed 42.7 percent to state-owned revenues, social and health services by 11.6 percent, and transport services by 11.3 percent. Government-owned entities are determined not by size but by the number of businesses. Municipalities own 88 percent of state-owned entities. Germany’s sixteen states own ten percent, while the federal administration owns two percent.
The Federal Bureau of Finance must submit a yearly report in detail concerning public funding, organizations, and entities which the administration participates in directly, or indirectly by a minimum of 25 percent, and holds a nominal investment share beyond 50,000 euros. The administration directly participated in 108 entities and indirectly participated in 508 before 2015 ended, with Deutsche Bahn holding prominently 100 percent, Deutsche Post at 21 percent and Deutsche Telekom at 32 percent.
The administration oversees ownerships in infrastructure, economic development, development policy, science, increasing the efficiency of the federal government, real estate, culture, and defense. The financial assistance program resulted from the state-owned Financial Market Stability Fund in 2008-9 still holds the government‘s partial share in privately-owned financial institutions, which include the 15.6 percent stake in Germany’s Commerzbank, the country’s second biggest privately-owned bank.
Public financial institutions like banks comprise 1 of the 3 pillars of the country’s financial system (commercial and cooperative being the other 2). Municipalities primarily own the country’s savings banks, while district savings bank cooperatives and state administrators own Landesbanken. There are numerous government-owned development / promotional banks that have acquired important government functions related to infrastructure investments. These advanced functions eliminate payments for public funding, which is particularly useful in the wake of Germany’s equitable funding regulations that will be effective in 2020.
An example of a partially government-owned German business is the car manufacturer Vollkswagen. The Lower Saxony state has the fourth biggest stake ownership at 12.7 percent and has control of 20 percent of the voting rights.
In 1960, the Volkswagen Law was passed, restricting individual investor’s voting privileges in Volkswagen by a twenty percent maximum despite the number of actual investments owned, in order for the state to veto any attempts at a takeover. The European Commission has successfully prosecuted Germany in 2005, arguing the statute interfered with the free circulation of investments.
Amendments to the law were subsequently implemented in order to take away limitations on voting privileges. However, the twenty-percent voting rights share by Lower Saxony were preserved, conserving its block minority against violent appropriations. The European Court of Justice concluded in 2013 that the revised law is compliant with the mandated changes of the previous legal decision.
The Office of Federal Cartel and the European Commission has been investigating possible violations of authoritative market roles by the one hundred-percent federally owned railway entity Deutsche Bahn. In 2013, the EC terminated the investigation after the implementation of a new, aggressive pricing system by Deutsche Bahn. The OFC stopped the legal process in May of 2016 against the company in relation to the dominant market abuse allegations, after Deutsche Bahn distributed passenger tickets and agreed to establish some changes in its price systems in order to restrict disadvantages for competitors.
At present, no ongoing program for privatization exists. Germany, out of a sense of principle, regards foreigners equitably in matters of privatizations.
Sensible business behaviour: Germany’s Foreign Affairs Ministry has launched an initiative in November of 2014 called NAP, or the National Action Plan for Human Rights and Business. The goal of the program is to implement the United Nation’s Guiding Principles for human rights and business, applicable to commercial activities made by German businesses both in Germany and worldwide.
In December 2015, a comprehensive public discussion was held, and Germany implemented NAP on Dec.21, 2016 during one of its Cabinet meetings. NAP is built on top of the previous 2010 NAP, spearheaded by the Labour and Social Affairs Ministry and granted by the state Cabinet, in accordance with the United Nation’s Working Group on Human Rights and Business, which plans to anchor CSR more strongly in business and public agencies, including medium-scale and small businesses. The NAP of 2010 was founded on the guidance of the Forum on National CSR, comprising of forty-four experts across unions, businesses, academia, and non-state organizations and which shall assemble on a yearly or bi-yearly period for a general discussion.
Germany conforms to the Multinational Enterprises Guideline (OECD) and launched in 2000 the OECD’s National Contact Point (NCP) located in the Energy and Economic Affairs Ministry. It is financed by a board of advisors comprising of several bureaus, trade unions, non-governmental organizations, and business entities. The group typically holds a yearly meeting to deliberate on Guidelines-related concerns.
Consumers and producers are generally aware of governance, social, and environmental concerns, and numerous surveys have suggested there has been increasing consumer awareness of, and care for, social and ecological effects of the goods they purchase. The government offers information both in hard copies and online, to stimulate enterprises into considering the social, governance, and environmental impacts of their business decisions.
The German government grants several prizes related to CSR, sponsors CSR at corporate bazaars, generates regular newsletters and reports, and established a CSR website in the country. The government preserves and implements local legislations in relation to workers and labour rights, as well as environmental and consumer protections. Germany doesn’t suspend environmental and labour laws to garner attention and entice investments.
Regarding the corporate side, AmCham Germany (Germany’s American Chamber of Commerce) actively promotes social responsibility guidelines within its constituents’ business dealings. The bureau regularly releases publications on select member’s enterprises’ advancements to CSR.
The CSR Committee functions as the medium of exchanging the best practices, deliberate on lawful programs, and determine trends. CSR platforms, networks, and programs on sustainable business behaviour and CSR are available.
Publicly indexed companies launch annual social reports voluntarily, and typically include CSR policies on their website and their yearly reports.
The following society organizations function on CSR: Germany’s Amnesty International, CorA Corporate Accountability– Netzwerk Unternehmensverantwortung, Sustainable Management 3p Consortium, Germanwatch, Forest Stewardship Council, Greenpeace Germany, Stiftung Warentest, Naturschutzbund Deutschland, World Wide Fund for Nature, SNEEP, Transparency International, Südwind.
Corruption / Bribery
The corruption level in the country is very low. Germany is ranked as the 10th least corrupt nation out of 176 countries in 2016’s Corruption Perceptions Index reported by Transparency International. However, there were controversies that the automotive industry, public contracting, and construction sector in Germany are linked to party donations and influenced by political parties in relation to bribery and corruption.
Despite all the issues about corruption, U.S companies do not recognize it as a threat to investments in the country. Germany has signed the Council of Europe’s Civil and Criminal Law Convention against Corruption, and has ratified the OECD Anti-Bribery Convention.
For the past 2 decades, the German government raised fines for companies and public officials in connection with bribery. The country’s enforcement of anti-bribery and corruption laws has steadily increased, particularly on the monetary support provided by the OECD. Rules for competitive tenders were also tightened.
Public officials are not allowed to accept any form of gifts and favors related to their job. The local government and some state governments have their points of contact for the whistleblowers, and some rotating personnel were provided in corruption prone areas. There is a provision of criminal penalties for official corruption cases, particularly in public contracting due to inappropriate political party influence in the awarding of contracts.
In 2015, corruption in the government was at 71 percent, 16 percent in the corporate sector, 12 percent in justice administration, and 1 percent in politics, according to the German Federal Office of Criminal Investigation.
In October 2015, the proceedings on the Berlin Brandenburg Airport (BER) corruption case were opened against the airport’s department head, admitted at the Regional Court in Cottbus for corruption. There were another two senior employees admitted to knowing about the bribes who were also facing trial. The department head or the manager of the airport was condemned in October of 2016 by the District Court of Cottbus for imprisonment of three and a half years and a €150,000 - $160,000 fine due to corruption.
Public servants or members of the parliament are required to adhere to Disclosure Laws and Regulations by revealing information about their finances and income not related to their work. Disclosures can be found in Budestag’s Official Handbook and on the website of Budestag. Fines due to noncompliance to disclose income can add up to half of the annual earnings of a parliamentarian or can be an administrative punishment.
Political party donations are allowed. However, the Budestag President must be informed of any donations above €50,000. All party donations amounting to €10,000 or up should be stated in the annual accountability report of the party.
Generally, the police and prosecutors in the respective state investigate cases of corruption. However, not every state has corruption specialized prosecutors. Over the years, German prosecutors have prosecuted many cases of local corruption, including lawsuits against large companies.
In a 2010 report carried out and monitored by the OECD, Germany has made robust enforcement efforts and has continued to sanction a large number of individuals in suspected foreign bribery cases. The report emphasized there were prison sentence suspensions, low level corruption sanctions, and an ineffective and discouraging punishment system.
The periods of statutory limitation and plea bargains are criticized by Transparency International. Over the past few years, corruption awareness has been increased due to media reports about the bribery cases against Ferrostaal, Deutsche Telekom, Daimler, and Siemens, resulting in the expansion of compliance from firms and multinationals, in the tightening of internal controls, establishing a point of conduct, and offering workers a code of ethics training.
There are corruption prevention guidelines available in electronic and paper format provided by the BDI, DIHK, and ICC, made to influence companies of all sizes to practice corruption prevention. Moreover, BDI made a model text available for 2 companies with different codes of practice that would like to engage in a business partnership.
United Nations Convention against Corruption, OECD Anti-Bribery Convention
In 2003, Germany has signed the United Nations Convention against corruption and was ratified by Budestag in 2014.
Germany agreed to the OECD Convention on Combatting Bribery to criminalize foreign bribery in their national laws. Taxes can no longer be written off for bribery conducted abroad or in Germany. This has become a law in March 1999. The German legislation has increased the actual enforcement of laws and intensified the fight against corruption.
Though the country has participated and signed the two European Union conventions against corruption, Germany did not ratify them.
Politics of German Defense and Security
There has been a growth of political anti-domestic and anti-foreign violence in Germany. Cases are very rare and some were towards asylum seekers and certain minorities. The United States’ investments have not been affected by these political acts.
Provisions on employment: Germany's workforce is composed of individuals who have proven to be productive, graduated from reputable schools, and have expertise in different fields of industry. The workforce in Germany showed stability, especially during the crisis in Europe around 2016. For eleven years, Germany has repeatedly shown success in the employment rate. It achieved 43 million last 2016 and has increased to around 420,000. This was considered to be its highest peak since October 1990.
Along with its success in employment, Germany's rate of unemployment was on the verge of failure in 2005 and has managed to reach a bottom performance in the year-end statistics of last 2016, which was the lowest in twenty five years of existence. The German government received statistical data that almost 3 million individuals were jobless, which caused the rate of unemployment to reach about 6%.
This was based on Germany's Labour Agency data. According to the report from the EU, the country showed a 4% rate of unemployment around 2016, which was reportedly one of the lowest performances among EU members. Though the eastern part of Germany has shown improvement in terms of employment concerns, the total average of their unemployment was still high, almost 9% compared to the west part of Germany having almost 6%. This occurred in 2016.
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As for the unemployment report in 2015, the country stated about 5% of the youth population was part of it. The German government took training in vocational courses seriously as one of the contributing factors to generate highly competitive manpower and lessen the rate of unemployment of youth population.
The government made sure both theoretical and application courses were combined to meet the criteria of each employer in their business. There were around half a million posts for apprenticeship offered in 340 known training expertise to both the private and the government administration. Half of the population of students prefer to start their careers as an apprentice. Germany generates opportunities for apprenticeship programs and tie up with different sectors in the community. It was intended to pattern it to their vision of promoting training to potential young and skilled manpower.
One of the issues was the population of aging people, particularly highly skilled manpower. The Ministry of Employment released an official forecast that the growing concern of an aging population will continue to produce a lesser number of competitive workers reaching three million from 2010 to 2030.
The uncertainties and inefficiencies in some businesses were evident. Medical manpower, like nurses and doctors, and the mechanical workforce like engineers, automotive technicians, etc. have already been short in number. Germany has started to develop programs to fill the gap in the workforce by adding strength and number, like the youth, elderly, women, and in some cases, foreign workers to create a better performing working community. The country provided assistance in the facilitation of acquiring skilled workers from foreign countries.
The immigrant number rose in 2008 from around 10,000 to almost 900,000 around 2015. Around 2016, it was trimmed to about 300,000 foreign workers, based on a report from the German administration. Within the last years, most of the population chose to work in Germany because of its promising opportunities, but the number of immigrants who arrived between 2015 and 2016 were refugees, not a working group.
There was a forecast by the Ministry of Employment that the population of refugees will grow up to 2 million in 2030. Even if the number of the labor force will increase, the impact on the unemployment rate was also predicted to grow because there is no specific transition and endorsement of immigrants to the working community.
The working relations of both the employees union and the associations of employers was a key factor in the country's economy and helped Germany be strong when the crisis was felt.
Unions created by employees showed open door communication with their employers. There was a long discussion when the security of tenure was at stake. However, due to the fact that there were recessions, labor unions limited their demands in terms of collective bargaining agreements.
The German government reported an improvement. Some unions demanded additional benefits from the government all because there was an indication of recovery from the crisis. The number of lost workdays decreased as time passed by, from two million in 2015 to around 400,000 in 2016. The workforce community has the right to protest, with the exception of public workers, including the military workforce.
The German government has formed provisions to secure employees for choosing and joining a labor union. The majority of labor unions have members who are part of the largest union group in the country. There are few small unions that are not part of Deutscher Gewerkschaftbund, though.
In general, the number of members in labor unions continue to decrease. According to reports, 18% of people in a company are members of unions. There were about 12 million labor union members at that time. However, the number dropped to 6 million after Germany had an agreement for a better labor relation in the country. On the other hand, a few labor unions, like IG Metall, GEW, and GDP reportedly gained more members in 2016.
The German constitution provided security of rights to bargaining, making employees and employers maintain fairness in legal aspects. The coverage of the regulation was about 58% of the workforce, 60% of the force of labor in Germany’s west part, and about 47% in the eastern part. The CBA was valid for 21 months in the year 2015.
The CBA approved the increase of salaries by about 2% around 2016. It showed an increase of almost 2% and a 0.5% rate of inflation. Labor groups were successful with their bargaining agreements since they started in 2009.
In terms of compensation, they increased by 2.5% in 2016. In this aspect, Germany remained in the eighth position among EU members in 2015. The labor costs in Germany were below the average of the EU when the EU currency was introduced to its member states.
Germany mandated employers to implement a basic salary of 8.50 euros to compensate an hour of work, which was raised to 8.84 euros in January 2017. There were tax exemptions to employees below 18 years of age, to those unemployed for a long time that started working for 6 months, and to trainees - regardless of age - in relation to the country's advocacy in producing highly skilled workers.
In terms of regulations, employees may elect a group to represent them in the company to empower them by participating in any decisions made by the company, exercise their right to information, and be asked for their opinions. This council works as a mediator preventing concerns from turning into problems that may affect their jobs.
There is also a co-determination provision that gives employees the right to vote for a representative on the board of supervisors. This is applicable to medium-scale or big companies. This law is also formed to involve them in any company events relevant to their employment.
Overseas private investment corporations and insurance investment programs: OPIC projects were offered to some eastern states in Germany during the 90s. However, this was ended due to political and economic reasons.