Doing Business And Investing In Germany

Doing Business and Investingin Germany a practical guide for foreign investors October 2009Taylor Wessingby Nicole Battistini-Kohler, LL.M.Eur.Doing Business and Investing in GermanyOctober 2009- 1-

IntroductionThe following guide is addressed to foreign investors who are interested in taking up businessin Germany and designed to give the addressees an overview of potentially involved legalissues which may arise when setting up a new or running an already existing business.While being focussed on commercial, corporate and labor law, the guide does also includefurther aspects relating e.g. to the German tax system, financing of companies as well as protection of patents and trademarks. Furthermore, litigation and arbitration as well as foreignexchange law are briefly summarized where deemed appropriate.The main part of the guide is drafted to give any interested person an understanding of business-related legal concepts and potential issues arising therefrom while technical information(including more detailed information about specific aspects and checklists) for lawyers is contained in the Annexes.Please note that the guide cannot replace legal and tax advice when starting or runningbusiness activities on-site. The information presented hereafter further reflects the status oflaw as per October 2009 and may be subject to alteration in the future. Finally, the legal issues described in the following are presented in a simplified manner focussed on key elements; accordingly, a number of special cases, exceptions and specific issues may not becovered.October 2009Taylor WessingFor further information please contact:Nicole Battistini-Kohler, LL.M.Eur.Tel:Fax:E-Mail: 49-(0)89-2 10 38-480 49-(0)89-2 10 38-300n.battistini-kohler@taylorwessing.comTaylor WessingIsartorplatz 880331 MünchenGermanyor your personal contact person with us; we would be happy to assist you!Doing Business and Investing in GermanyOctober 2009- 2-

Taylor Wessing Taylor Wessing (“TW”) is a full service practice based primarily in the three largest economiesin Europe (Germany, United Kingdom and France), and has offices in the emerging markets,in particular in China where our Beijing and Shanghai office serve a thriving Chinese marketas well as in the Middle East where our Dubai office offers the full range of services for companies doing business in this part of the world. Through the Brussels office TW provides, inaddition to EU law and competition practice, a full advisory service on all aspects of Belgianlaw. As of 1 May 2009 TW has established a strategic alliance with BSJP, one of Poland’sleading law firms. With this step TW followed its German and international clients which areincreasingly investing in Poland, especially in infrastructure, energy and “cleantech”, IT, financial services and real estate.Taylor Wessing is an active member of the World Law Group, a non-exclusive global networkof highly recommended law firms in more than 45 jurisdictions which allows its members andtheir clients access to more than 10.000 lawyers worldwide.We provide a full range of legal services including finance, corporate, employment, tax, realestate, intellectual property, and dispute resolution and have recognised industry experts inkey areas such as banking and financial services.Doing Business and Investing in GermanyOctober 2009- 3-

What others say about us “Operates closely with excellent teams in Paris and London on pan-European portfoliomanagement.“European Legal 500, 2007 EditionRanked as the 7th largest law firm in GermanyJuve German Commercial Law Firms 2007'Frequently recommended law firm for Corporate Law'Juve Legal Directory 2008/2009Nicole Battistini-Kohler is a member of the Practice Department Corporate / M&A specialized in advising foreignand national companies in (cross-border) M&A and private equity transactions and corporatelaw in general. She also advises domestic and international clients with respect to jointventures.Before coming to Germany in 2005 and being admitted to the bar as a German lawyer shewas admitted to the bar (in 2002) and worked as a corporate lawyer in Switzerland where shenich Business School and at the Center for Digital Technology and Management in Munich.Nicole, a native German speaker, is fluent in English and French, and has a basic knowledgeof Italian.Juve Awards (Germany):Law firm of the year for MediaLaw firm of the year for EntertainmentLaw firm of the year for Distribution systemsLaw firm of the year for Information TechnologySeveral timesawarded by:Law firm of the year for Media/Copyrightand PublishingDoing Business and Investing in GermanyOctober 2009- 4-

More Contact Persons for your Business in Germany and Europe Martin RothermelTaylor Wessing MunichPartnerTel:Fax:E-Mail: 49-(0)89-2 10 38-176 49-(0)89-2 10 38-300m.rothermel@taylorwessing.com is a member of the Commercial Practice Department and is specialised in international distribution, contracts and trade law. He advises companies on import and export, sales, qualityassurance, distribution (e-commerce, commercial agency, authorised dealers, franchising systems) and product liability. His areas of practice comprise the structuring of contracts andrepresentation of clients in legal disputes as well as in arbitration.Martin Rothermel worked as a trainee lawyer for Siemens AG, Munich, and Procter & GambleComp. in the US. He earned his doctor’s degree in antitrust law and was admitted to the barin 1999. He then worked as legal counsel to a medium-sized IT company and as a management consultant for Roland Berger Strategy Consultants. He also worked for a domesticcommercial law firm before he joined the Taylor Wessing Munich office in 2004.Martin Rothermel regularly publishes expert articles and gives presentations on internationaldistribution and e-commerce law as well as product liability.Native language: German; fluent written and spoken EnglishPhilipp GrosskopfTaylor Wessing MunichTel:Fax:E-Mail: 49-(0)89-2 10 38-176 49-(0)89-2 10 38-300p.grosskopf@taylorwessing.com is a member of the Commercial Practice Department and is specialised in distribution, contracts and trade law. He advises companies on supply, quality assurance, distribution (ecommerce, commercial agency, authorised dealers, franchising systems) and product liability.His areas of practice comprise the structuring of contracts as well as representation of clientsin legal disputes and the enforcement of rights all over Europe.Philipp studied in Munich and earned a Ph.D. from the University of Göttingen. He worked forinternational Law Firms and a company in the corporate and M&A department during his Ph.D.studies and his legal traineeship.Philipp, a native German speaker, is fluent in English and Spanish, has a sound knowledge ofFrench and basic knowledge of Arabic and Swedish.Doing Business and Investing in GermanyOctober 2009- 5-

ContentIntroduction. 2Content . 6A. Germany – some facts & figures. 9I. Germany . 9II. As a Member State of the European Union . 10B. A short overview of the German market (2009) . 11I. General overview . 11II. Impact of the financial crisis. 12C.Entering Germany . 13D. Starting business activities in Germany . 15I. Analysis before entering the market . 15II. Indirect Distribution . 16III. Direct distribution . 18E. Setting up a branch or a company. 19I. Overview . 191.Setting up a branch. 192.Setting up a company . 20II. Limited Liability Company (GmbH) . 241.Organization. 242.New sub-form: “Mini-GmbH”. 253.Setting up or purchasing a (shelf) GmbH . 25III. Stock corporation (AG). 261.Organization. 262.New law on the remuneration of directors in stock corporations . 273.Setting up or purchasing a (shelf) stock incorporation . 27IV. Partnership with a limited liability company as general partner. 291.Organization. 292.Setting up or purchasing a (shelf) GmbH & Co. KG. 30F. Duties after setting up a German company . 31I. Notification duties. 31II. Opening up a bank account . 31III.Mandatory indications on business letters, e-mails and internet sites. 31IV.Applications with the commercial register at a later stage . 31V. Keeping the shareholder list up to date . 32G. Accounting and publication duties. 33H. Financing a German subsidiary . 34I. Financing by shareholders. 341.Equity Financing . 342.Debt Financing. 35Doing Business and Investing in GermanyOctober 2009- 6-

II. Financing by third parties. 351.Equity Financing . 352.Debt Financing. 363.Mezzanine Capital . 364.Cash incentive programs . 36I.German tax system (2009) . 37I. Taxation of Companies . 371.Overview . 372.Corporate Income Tax for corporations. 373.Personal income tax for individuals and partnerships. 394.Trade Tax (for corporations, partnerships and individual enterprises) . 405.Overall tax burden . 406.Final withholding tax (Abgeltungssteuer) . 40II. Taxation of Property. 411.Overview . 412.Real Property Tax. 413.Real Estate Transfer Tax. 41III. Value Added Tax (VAT) . 421.Overview . 422.Input VAT deduction (Vorsteuerabzug) . 423.Trade within the EU-Market. 424.Trade with Non-EU Member States. 43IV. Customs . 441.Overview . 442.European Customs Union. 443.EU Trade Agreements . 44J. Employment and social security. 45I. Employing staff. 451.Management . 452.Employees . 46II. Works Councils . 50III. Social security system. 50K. Protecting inventions and trademarks . 52I. Protection of inventions. 521.What can (not) be patented in Germany? . 522.How long does patent protection last? . 523.Application of patents . 53II. Protection of trademarks. 541.What can (not) be protected? . 542.How long does trade mark protection last? . 543.Registration of trademarks. 54L. Some key issues relating to international commercial agreements . 57I. Applicable law . 57II. Venue . 57III. General Terms and Conditions . 57IV. Securing payment . 57V. Supply conditions and risk allocation. 57M. Litigation, venue, arbitration and enforcement . 58Doing Business and Investing in GermanyOctober 2009- 7-

I. Official Courts. 581.Courts hearing civil disputes. 582.Special courts . 593.Costs . 59II. Venue . 62III. Execution of court decisions under the Brussels I Regulation within the EU. 63IV. New regulation relating to the execution of claims within the EU. 63V. Arbitration . 641.Arbitration vs proceedings before the official courts . 642.Arbitration clauses . 643.Arbitration proceedings. 654.Costs . 665.Enforcement of arbitration awards. 69N. Insolvency proceedings in Germany . 70I. Overview . 70II. Prevention: securities for claims in agreements . 70III. Application for the opening of insolvency proceedings . 71IV. Preliminary insolvency proceedings . 72V. Main insolvency proceedings. 72O. Foreign Exchange Law. 73I. Acquisition of shares in German companies by foreign investors. 73II. Notification duties vis-à-vis the German Federal Bank. 73III. Export control by the Federal Office of Economics and Export Control . 74IV. Import control by the Federal Office of Economics and Export Control . 75ANNEXESDoing Business and Investing in GermanyOctober 2009- 8-

A.Germany – some facts & figuresI.Ge

Doing Business and Investing in Germany October 2009 - 3- Taylor Wessing Taylor Wessing (“ TW ”) is a full service practice based primarily in the three largest economies in Europe (Germany, United King