Think globally, act locally.
As you expand beyond borders there are often different regulations, risks and cultural differences to consider. Our guides will help you figure out the best way of conducting business abroad.
Germany has been one of the world's leading economies and, with its stable economy and innovative strength, is an attractive location for companies from various sectors. In terms of population and gross domestic product, Germany is the largest country in the European Union. The following provides an overview of the most important aspects of the German market for foreign companies.
Germany is worldwide the fourth largest economy and the largest exporting country in the EU. The country is known for its industrial strength, particularly in sectors such as automotive, mechanical engineering, chemicals and electrical engineering. These industries account for a significant proportion of German exports and make a major contribution to economic stability. At the same time, the country has a strong service industry, including financial services, IT, telecommunications and logis-tics. A key feature of the German economy is the dominance of small and medium-sized enterprises (SMEs), the so-called ‘hidden champions. These companies are often world market leaders in specialised niche areas and contribute to Germany's international competitiveness. Alongside large multi-national corporations, SMEs play a decisive role in innovation and employment in this country.
A stable political and legal framework that offers companies a high degree of security is characterised for Germany. The federal system with 16 federal states (Bundesstaaten) allows for a certain amount of regional legislation, but the country remains largely standardised in terms of economic policy. The German legal system is closely intertwined with that of the EU, which can make it easier for German companies to access the markets of EU member states.
Germany invests heavily in research and development and is recognised as one of the most innovative countries in the world. The close cooperation between universities, research institutions and companies promote new technologies in areas such as artificial intelligence, renewable energies, electromobility and digitalisation. This makes Germany a leading centre of innovation. The dual train-ing system, which offers a combination of practical training and theoretical instruction, also supports innovation and provides highly qualified skilled workers.
The excellent infrastructure in Germany is ideal for national and international business activities. The country has a dense motorway network, modern rail networks and international airports that facilitate the rapid movement of goods. The port of Hamburg is an important hub for the global movement of goods. Thanks to its central location in Europe, Germany is also an important location for international logistics companies. The well-developed infrastructure supports the export sector, which accounts for a large part of the German economy.
But there are also challenges such as an ageing population, a shortage of skilled labour and increasing international competition. Nevertheless, Germany remains an extremely attractive market thanks to its economic stability, innovative strength and central location.
To summarise, Germany offers companies a wide range of business opportunities. With a stable economy, innovative technologies and excellent infrastructure, Germany is a key location for international investment and business.
The legal system in Germany is characterised by its federal structure and a clear separation of pow-ers. It is based on the Basic Law (Grundgesetz), the German constitution, which acts as the supreme legal standard and regulates the rights and duties of citizens as well as the structure of the state. Legislative competence lies with both the federal level (Bundesebene) and the 16 federal states (Bundesstaaten). While responsiblities for areas such as criminal law, labour law and commercial law remain at a federal level, the federal states can enact their own laws in certain areas, for example in education or the police.
Justice is administered by independent courts. Jurisdiction is divided into various branches: Civil Courts (Zivilgerichte), Criminal Courts (Strafgerichte), Administrative Courts (Verwaltungsgerichte), Labour Courts (Arbeitsgerichte), Social Courts (Sozialgerichte) and Fiscal Courts (Finanzgerichte). At the top is the Federal Constitutional Court (Bundesverfassungsgericht) in Karlsruhe, which rules on the constitutionality of laws and protects fundamental rights.
Another key element of the German legal system is freedom of contract (Vertragsfreiheit), which allows companies and individuals to enter into legally binding agreements as they see fit, if they do not violate the law. The EU law has a significant influence on the German legal system and can sup-plement or override national laws.
Foreign companies have attractive incentives in Germany, but also some restrictions that must be considered when entering the market. One of the most important incentives is access to the Europe-an single market. As the largest economy in the EU, Germany offers a central location and therefore excellent opportunities to tap into the entire European market. As mentioned, Germany's economic stability and innovative strength make the country a reliable and future-orientated location.
Germany is particularly interesting for companies wishing to invest in research and development. There are targeted subsidies in promising areas such as artificial intelligence, electromobility and renewable energies. Added to this is the excellent infrastructure, which facilitates both the transport of goods and communication on an international level. There are also numerous support programmes available to foreign investors that offer financial incentives such as subsidies, low-interest loans and tax benefits.
Despite these advantages, certain restrictions must also be considered. German bureaucracy and strict regulation, which includes both national and EU-wide regulations, can make market entry com-plex and time-consuming. In addition, labour law regulations are strict, particularly regarding protection against dismissal and the co-determination rights of works councils. Germany is also considered complex in terms of taxation: the tax level is comparatively high, particularly due to the regional variation in trade tax.
Another critical aspect is data protection. Companies operating in Germany must fulfil the strict requirements of the General Data Protection Regulation (GDPR), which requires high standards in the processing of personal data.
Overall, however, incentives and subsidies offer great opportunities for foreign companies wishing to invest in Germany.
A branch office, also known as a subsidiary, is a common way in which foreign companies can be-come active in Germany. It is not an independent legal entity but is legally a dependent part of the parent company. Nevertheless, it enjoys a certain degree of organisational independence and can conduct its own business, conclude contracts and operate on the German market. A branch office is bound to the foreign parent company and its liability also extends to the business of the branch office.
There are no minimum capital requirements to establish a branch in Germany, making it a flexible and cost-effective option for companies wishing to enter the market. However, the branch office must be entered in the German commercial register and provide proof of a German business address. The branch office is also treated as a permanent establishment for tax purposes, which means that its profits must be taxed in Germany. It is subject to German trade tax and corporation tax.
The branch office is particularly advantageous for companies that want to test the German market before making more extensive investments. However, it should be borne in mind that the parent company is fully liable for all liabilities of the branch. In terms of regulation, such as accounting obligations and compliance with German labour laws, a branch office is also subject to the same regulations as a German company. This status offers an easy way to enter the German market without setting up a separate legal entity, although entrepreneurial flexibility is limited by the link to the parent company.
A subsidiary is an independent legal entity that is founded in Germany by a foreign company. It is legally regarded as an independent company, even if it is wholly or majority owned by the foreign parent company. This provides a clear separation between the parent company and the German business unit, both legally and financially. For many foreign companies, establishing a subsidiary is the favoured form of market entry as it offers a high degree of legal independence and flexibility.
The most common form of subsidiary is the limited liability company (Gesellschaft mit beschränkter Haftung, GmbH), as it offers limited liability to the company's assets and is relatively easy to set up. As mentioned above, the GmbH requires a minimum share capital (Stammkapital) of 25,000 euros and must be entered in the commercial register (Handelsregister). As an independent company, the subsidiary is liable for tax in Germany and is subject to the same regulations as a domestic company, including the obligation to keep accounts, prepare balance sheets and pay corporation tax and trade tax.
The major advantage of a subsidiary is the limitation of liability. In contrast to a branch, the parent company is only liable up to the amount of its capital contribution, which minimises the financial risk. In addition, the subsidiary offers the opportunity to establish itself as an independent company on the German market, to employ its own staff and to intervene in strategic decisions independently of the parent company. There is also greater flexibility in the areas of financing and appropriation of profits. However, the establishment of a subsidiary is also associated with higher costs and a greater administrative burden, due to compliance with German company regulations and the start-up capital requirements.
A representative office, also known as a representative office or liaison office, is another option that foreign companies can consider becoming active in Germany. In contrast to a branch or subsidiary, a representative office is a purely administrative and non-profit-orientated unit. It is primarily used for market research, customer service or advertising and may not conduct its own business or conclude contracts on behalf of the parent company. The main purpose is to establish the company's presence in the German market without directly intervening in operations.
As a representative office does not carry out any business activities, there is no obligation to be entered in the commercial register. The office is neither considered a separate legal entity nor a permanent establishment for tax purposes, which means that it is not subject to German corporation or trade tax. This can be a decisive advantage if the company only wants to explore the market before investing in more extensive business activities. Employees of a representative office are often involved in marketing, customer service or information procurement, and the office itself is subject to fewer regulatory requirements.
A representative office is particularly suitable for companies that want to explore the German market, build local partnerships or develop a long-term strategy for market entry without making a major in-vestment immediately. However, the operational possibilities are severely limited as no sales or contractual activities are permitted. Companies planning to participate directly in the German market and generate revenue must therefore establish either a branch or subsidiary. However, a representative office can provide a cost-effective and straightforward initial presence in the market to explore future expansion opportunities.
Choosing the right legal form is crucial for liability, tax obligations and administrative costs. Common forms are the limited liability company (Gesellschaft mit beschränkter Haftung, GmbH), which offers limited liability and flexibility, and the UG (Unternehmergesellschaft), a variant of the GmbH with lower minimum share capital, i.e. lower start-up costs. Alternatively, larger companies can opt for a stock corporation (Aktiengesellschaft, AG) or sole proprietorships (Einzelunternehmen). Each legal form has specific advantages, but also obligations, such as minimum capital requirements and disclosure obligations. Before founding a company, you should analyse your own business objectives and risk appetite in detail.
At Gowling WLG Germany, we have many years of experience in providing cross-industry consulting services to companies of all sizes. We live the service concept and can rely on extensive expertise in economic and political developments in Germany. With over 1600 lawyers worldwide, we have the perfect network to support your success. We are innovative and help you to operate successfully and legally compliant in the German market. With our expertise in the German legal system, we are your experts in setting up or outsourcing your business in Germany. Our business relationships are based on strategic and long-term co-operation with personal contacts. We know the market and plan at an early stage. In the German market, we follow the approach: We connect. We perform. Always closer.
