On-demand seminar: Going International - Germany

Scott Jolliffe: This will now take us to our office in Germany. Let me introduce you to Manuela Finger who is partner in our Munich office. Manuela's particular specialty is IP, including soft IP and information technology, as well as commercial matters relating to intellectual property generally. Manuela has a particular focus in communication technology, digital media, entertainment and fashion and the retail industry. Over to you in Munich, Manuela.

Manuela Finger: Thank you Scott for the introduction and again, good morning Ontario. So you can distinguish me from my colleagues by the slightly hair I wear today. Let's look at Germany and maybe I start with a brief introduction. What you would have there is 82 million people living there. GEP in 2015 has been 3.36 trillion US dollars in GEP per capita, 47,400 which is I think is fairly close to Canada. The main industries are iron, steel, coal, chemicals, machinery of course, vehicles of course, machine tools, electronics, food and beverages, ship buildings and textiles and export and import is really very much the same as machineries, again, vehicles, chemicals, metals, manufacturers first off and textiles. If you look at the trade between Canada and Germany I picked 2014 so in that year Canada exported goods in the amount of $3.4 billion euro into Germany and Germany exported goods in the amount of $860 billion euro into Canada. Germany imported many raw materials while Canada mainly imported cars or car parts, as well as machinery, and both countries exchange their interprocessing equipment, electrical products, chemical products and optical products.

What is specific about Germany? Before a foreign investment is generally well know, welcome, you don't have any substantial restrictions for foreign investors but instead foreign investors are very much subject to the same conditions as German investors. English is a fairly common language in business and most of the higher educated Germans would also have a good command, a few of them, at least one of them, language including predominantly French and followed by Spanish, Italian and more Eastern European languages. What I have put on the slides are a few stereotypes like the Germans love all their cars, for beer and for complete lack of a sense of humor and that Germany has been voted the least funny country in the world, but what I have put on the slides is that the Germans love Canada. Canada is really a very good reputation in Germany including, business so Canadians are generally perceived as being really easy going, straight forward. That's obviously a good start.

If we look at opportunities, Germany is traditionally, really very much orientated to watch manufacturing and German manufacturers of predominantly cars and machines. That also can include electronic products, etc., have traditionally a really strong foothold on the global markets. We have a lot of industries in the forefront of technologies. Unfortunately when I heard my … well, less dominant in fashion industry, I heard that will change in the future at some point in time, but as I said it is mostly manufacturing and technology. There are roughly 1,400 hidden champions in Germany, per sector, which I think is slightly half of all hidden champions in the world, a third of them is a slight … that I've taken them from German stores so they might be have fell behind the respective sectors to come to their conclusion, but anyway, it's a big market and it's a healthy economy.

One particularity about Germany are the German Mittelstand companies. These are small and medium sized entities with mostly up to 500 employees and up to 50 million euro annual turnover. Also there are also some Mittelstand companies with really much higher annual turnover. The Mittelstand companies actually comprise more than 99%25 of all German corporations and they put to use 52%25 of the total economic output. They are mostly family owned. Many are also managed by their owners which leads to a certain particular in transactions. It's slightly more personal thing to be owners which you have to just take into account. They are usually having high equity ratio and the most known course is many hidden champions and they are usually truly international.

If you would like to start a business in Germany and just supply goods and services, it's quite straightforward, they are under general restrictions for Canadians suppliers. You don't really need a physical presence. Language is usually not an issue and what my colleagues said before you have … now you will see what it will be like. If you establish a business in Germany, you can say basically everything is possible. You can have just a representative office without a trading activity. You can just have a branch of your foreign entity but it must be registered. Or you can have a subsidiary in a variety of legal forms. What you have to bear in mind is the registered filing so you would have to file activity with the Commercial Register. If you would like to establish a GmbH which is the German Limited Liability Company. There is a notarization requirement for the deed so that has a certain cost element which has to be considered when contemplating setting up your business in Germany. But otherwise it is a fairly straight forward process. It takes usually a couple of days to maybe two weeks and if you contemplate just buying a shelf company that will be even quicker, that can possible within a day.

If you look at acquiring a business doing a transaction in Germany then most of the deals actually are option processes, with strict timings. If you do a share deal that would be very similar to what you would expect in Canada. As I've already said, there are certain notarization requirements which you should bear in mind. For example, if you acquire a GmbH or if you transfer real estate, in which case the notary public would read out the whole deed, there is a time and cost element. If you look at the public GmbH in Germany, the German Takeover Act requires the purchaser to make a mandatory takeover if the purchaser gains more than 30%25 of the voting rights and both for mandatory and voluntary takeover offers they must take draws as to the purchase price. It must be appropriate. It is calculated based on the average market price and depending on the circumstances you might even be required to pay, to offer, a fairly increased purchase price.

Taxation and deals, this is just to give you a slight overview on what you just find in Germany, the corporate income tax is 15%25, which is … on the world wide income if the company is located in Germany or on specific German sourced income. You have to add the solidarity surcharge and you have to add to the trade tax and at the end of the day you might end up with an overall effective tax rate in the area of 27%25-30%25, that might be higher in certain cases. What you have to take into account is the real estate transfer tax and you have to consider that in the structuring of the transaction. If you transfer real estate or a company only the real estate will have that real estate transfer tax.

Merger control applying to all investments in Germany you are required notification and clearance if the acquisition qualifies as a concentration. If you acquire the majority of shares or voting rights and cumulatively if the parties meet certain turnover thresholds together and individually. If you are a foreign investor and acquire a company in Germany the German Ministry of Economics can review the transaction and can verify whether that transaction has an impact on the interest of the German public order and then possibly intervene depending on the outcome of their evaluation. If you invest in a business specialized in military technology, IT security products or certain data there is a mandatory formal notification requirement and the German Ministry of Economics would then have 3 months to review the transaction. As a result you would obviously, in many cases, just postpone closing until then. In all other industry areas there is not a mandatory formal notification requirement but the German Ministry of Economics can review, has the option to review the transaction within 3 months before signing. In order to avoid any issues in that respect you would usually apply and file for a negative clearance. That usually takes around 1 month so it's something which can be done or started at the start of the transaction process.

What else you have to bear in mind? My colleagues addressed that already is very similar in Germany. You can do an asset deal and can do cherry picking but that wouldn't help with employees. As soon as your asset deal constitutes the same as a business or even a part of a business, the employee relationships would be transferred automatically, so you can't avoid that. As Scott said, I'm an IP lawyer so I struggled really hard to tell you something about IP and what is specific and the pitfalls of IP but unfortunately there isn't so much. It's quite straightforward. The only thing you have to bear in mind is that Germany is many countries and continental Europe follows the ... called … term so no work made for hire. You have to have a chain of title in terms of copyright, etc. but it is something which is very easily being handled. So, as I have nothing to say as an IP lawyer I will probably stop here but if you have any questions in Germany, my colleagues and I are here to help. Many thanks.

Scott Jolliffe: Manuela, thank you indeed.