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Settling in Germany

Export guide beyond the Rhine for French SME

 

Legal and technical facts for Germany: answers to the most common questions

PRACTICAL SHEETS

1. Labor law: what are the rules for hiring an employee in Germany?

2. Company law: what are the steps and the costs to create a limited liability company under German law ("GmbH")?

3. How are the income generated by your company in Germany taxed?

4. What information must be displayed on a website?

PRACTICAL SHEET 1

Labor law: what are the rules to know when hiring an employee in Germany?

Boat working contract

1. Do we have to create a company in Germany to hire an employee? NO :

The creation of a company in Germany is not necessary to hire an employee. It is quite possible to sign a work contract between the French company and the employee based in Germany.

However, it will be necessary to take care of certain points:

  • Choice of applicable law (see point II)
  • Avoid the establishment of a permanent establishment in Germany

An employee working from home alone can establish a permanent establishment in Germany. The consequence is that the French company, although having no legal structure in Germany, has to pay its corporate tax in Germany as well as charge German VAT. The renting of a German business premises and the employment of an employee engaged in a commercial activity are generally regarded as characterizing a permanent establishment.

2. Is it wise to opt for French labor law? NO :

As a matter of principle, the French company and the employee can freely decide the applicable law. It is therefore possible to opt for French law or German law. It is strongly recommended to explicitly provide in the contract of employment the law applicable to the contract. French companies often opt for French labor law because they or their French board do not know German law and believe that French law is more advantageous to them. In fact, German law has a number of advantages for the employer, including: 40 hours instead of 35 hours, wider possibility of using fixed-term contracts, six-month probationary period, absence of severance pay, etc.

3. Should the 35 hours be respected? NO :

The 35-hour legislation is not applicable in Germany. The legal working time in Germany is 40 hours, without the need to pay overtime within the limit of 40 hours.

4. Is it possible to conclude fixed-term contracts (CDD) in Germany? YES :

Contrary to French law, German labor law makes it possible to conclude fixed-term contracts without imposing a specific reason for a period of up to two years. It is also possible to provide a fixed-term contract for a shorter period and to extend it for up to three times, within the limit of 24 months.

5. What are the terms of the trial period in Germany?

The legal probationary period is six months, regardless of the status of the employee. The employment contract can then be terminated with a notice period of two weeks.

6. Is it difficult and / or expensive to fire staff in Germany? NO (for small structures):

Unlike French law, the Law on protection against dismissal (Kündigungsschutzgesetz) does not apply to companies with less than 10 employees. As a result, a dismissal can be pronounced by a small company without cause or severance pay, regardless of the seniority of the employee; the only cost is the salary to be paid during the notice period (except in special cases such as pregnancy, etc.).

According to German case law, this small business privilege also applies to French companies with more than 10 employees in France but no more than 10 in Germany.

7. Are the German notice periods shorter than in France? YES :

Unless otherwise agreed, legal notice periods are as follows: :

  • 1 month for a seniority of less than 5 years,
  • 2 months for a seniority of 5 to 8 years,
  • 3 months for a seniority of 8 to 10 years, etc.

8. What is the wage cost?

Whatever the law applicable to the employment contract, the amount of the salary will be freely negotiated by the parties during the hiring. However, to know the total cost to the employer, it is necessary to know the amount of the social charges to be paid.

The amount of the social charges will depend on the status of the employee:

  • if the employee is attached to the German social protection system (standard case), the charges will correspond to the amount of German social security contributions, ie an average of 19.5% of employer contributions and 21% of wage costs. There is also an exemption from the employer's contributions on the part of the salary exceeding 67,200 euros (pension insurance) and 45,900 euros (health insurance) gross per year.

  • if the employee is attached to the French social protection system, the expenses will correspond to the amount of French social security contributions, ie on average
    42% of employer contributions and 22% of salary costs (case of secondment). Social charges in Germany are therefore much lower for the French employer.

It should be noted, however, that income tax in Germany is significantly higher than in France. In Germany, taxation is done throughout the year, the tax is levied by the employer every month directly on the salary, or at source. Thus, the "net" perceived by the employee is a net after deduction of tax while in France we speak of "net" before tax.

The basis for negotiating wages before hiring must therefore take into account these particularities. Indeed, for the same gross salary, the employee will not receive the same "net" according to whether it is taxable in France or in Germany. A clear negotiation will avoid any further discussion with the employee when he pays his first salary.

9. How much does an employee working in Germany cost?

It is almost impossible to make an exact comparison of French and German salaries in view of the multitude of criteria to be taken into account (ex: executive or non-executive status, family situation, place of tax residence, etc.). However, for information purposes, the comparison (in 2011) for a single, childless, 35-year-old, non-managerial, non-practicing employee (that is, not having to pay the church tax of 8% in Germany) would be as follows:

  France (social contributions and French income tax) Allemagne (social contributions and German income tax)
Gross salary 45,000 € 45,000 €
Social charges for the employer 18,900 € (42%) 8,775 € (19,5%)
Total cost for the employer 63,900 € 53,755 €
Social charges for the employee 9,900 € (22%) 9,450 € (21%)
Pre-tax salary
(= French net salary)
35,100 € 35,550 €
Income tax 3,911 € 8,725 €
Net salary after tax
(= German net salary)
31,189 € 26,825 €

Scissors cutting money

10. What are the administrative procedures for employing an employee in Germany?

The employer must notify the conclusion of the new employment contract to the primary health insurance fund of the employee and the competent tax office. Then he will draw up a monthly pay slip and pay the social security contributions (health insurance, pension, etc.) to the health insurance fund every month and the income tax withheld at the source. It is strongly recommended to outsource the establishment of payslips since this activity proves to be somewhat technical. Providers usually provide a turnkey solution that minimizes administrative work.

PRACTICAL SHEET 2

Company law: what are the steps and the costs to create a limited liability company under German law ("GmbH")?

Challenge

The procedure to follow for the creation of a GmbH

Unlike France, the creation of a GmbH under German law (GmbH) must
to be notarized.

1. Writing the statutes

Usually, the statutes are either prepared by a law firm or by the notary himself. It is always wise to have the statutes translated into French to have a perfect knowledge of the statutory provisions.

2. Power of Attorney

If the appointment with the notary for the signing of the statutes must be made by an agent (in particular because the officials do not wish to travel for this appointment), each partner must establish, beforehand, a power of attorney for his representative respective (his lawyer, for example). Form of power of attorney: According to German law, the signature of this power of attorney must be certified by a notary, which certificate must be translated into German by means of a sworn translation if it is drawn up in French.

3. Extract Kbis

If the partner is a legal entity, a certified extract from the Trade and Companies Register must be submitted to the notary, which must be translated into German by means of a certified translation.

4. Go to the notary for the signing of the statutes

5. Payment of the share capital

Once the statutes have been signed, the bank account can be opened and the share capital released.

Chapters

  1. Settling in Germany: why it's a good idea
  2. How to know if you are ready to export to Germany
  3. How to establish your winning strategy beyond the Rhine
  4. What you need to know before writing your business plan in Germany
  5. How to conclude your first sales in Germany
  6. How to sustain: recruit and manage a German subsidiary
  7. Legal and technical facts for Germany: answers to the most common questions


Brochure
Brochure: Preparation and questions for a successful job interview in Germany (French)
 

About the Author

Cécile Boutelet is a freelance journalist. As a specialist in the German economy and companies, she has been a correspondent for the newspaper Le Monde since 2010. She has been very interested in this book and she has found great interest in it: she has devoted her first years abroad to creating and developing a little company.

Illustrations : Katharina Bußhoff. www.katharinabusshoff.de

 

 

6. Conclusion of contracts with the company in formation

When the statutes are signed, the company is called in formation (in Gründung). It is then possible to conclude contracts for the name and on behalf of the company, but the partners will be responsible for the commitments made until the registration of the latter. As a precaution, we recommend, as far as possible, to wait for the registration of the company.

7. Declaration of registration and list of partners

Once the capital has been paid up, the manager of the new company signs (i) the declaration of registration which is similar to the French declaration of non-conviction and (ii) the list of partners of the company.
The signature of the declaration of registration must be certified by a notary (German or French, with a sworn translation of the signature certificate in the latter case).

8. Payment of the fees of the commercial register

Once the declaration is signed, the notary submits all the documents to the German Commercial Register, which issues a payment notice for the registration fees. Registration is made after payment of these fees.

ATTENTION TO FRAUD

When establishing a GmbH under German law, newly created companies often receive, shortly after their registration, documents that are strangely similar to invoices from the German commercial register. In reality, this is an offer to publish the company's contact information on a private site. Some customers pay these bills in error and struggle to recover their costs. So pay attention to the payments made following the registration of your company! In the absence of vigilance, you risk losing a few thousand euros.

What are the costs to be taken into account for the creation of a GmbH?

  • Notary fees: they are based on the share capital
  • Registration fees in the commercial register
  • Translation costs
  • (Minimal) fee for reporting activity to the office of industrial, commercial and / or artisanal activities
  • Legal fees for drafting acts

The costs incurred for the creation of a GmbH depend on the share capital of the new structure and are between 2,000 and 3,500 euros in total (bilingual documents, notary fees, legal fees and translation included) for a company single partner with a share capital of 25,000 euros.

PRACTICAL SHEET 3

Taxation: how are the income generated by your company in Germany taxed?

Finanzamt

German tax law provides for a withholding tax system, which concerns, in particular, corporation tax and income tax (such as interest or dividends).

1. Taxation of the company's income

German companies with share capital are subject to corporation tax (CIT), the solidarity contribution on the CIT and the business tax (for industrial or commercial activities) on their entire taxable profit. This also applies to the profits of a French company that can be attributed to a permanent establishment in the tax sense in Germany.

The current effective corporate income tax rate is 15.825% in Germany, ie 15% of corporate tax and a 5.5% increase on this rate in respect of the solidarity contribution. The rate of business tax (Gewerbesteuer) is calculated in two stages: application to the taxable profit of a fixed rate of 3.5%, then multiplication of this rate with the municipal rate (varying from municipality to municipality). For example, since the Cologne municipal rate is 4.75%, the effective tax rate for Cologne is 16.62%. It will therefore be necessary to reckon with a taxation of profits of around 28 to 30%.

Any losses are first allocated to the tax period directly preceding the current period and, if they cannot be offset against the results of the previous financial year, they can in principle be carried forward indefinitely to future financial years. However, the use of loss carryforwards is legally restricted, in particular the so-called tax floor: uncompensated losses are deducted without restriction for subsequent years up to an amount of €1.0 million, and above this threshold, only up to 60% of the amount exceeding €1.0 million (loss carryforwards). The use of loss carryforwards is also restricted in the event of a transfer of shares.

2. Taxation of dividends paid to a French partner

a) Shareholder: a corporation

Under a European directive, dividends paid by a German company to its French shareholders are exempt from withholding tax, provided that the shareholders concerned hold at least 10% of the subsidiary's capital.
However, a 5% share of the net dividend received is reinstated in the partner's taxable income in France for the costs and expenses allocated to the distribution of this income.

b) Associate: natural person

In the case of shares held by German residents, distributions of profits on shares held in limited liability companies as private property are theoretically subject to the 25% withholding tax on capital income plus solidarity tax. Professional expenses such as custody fees, financing costs, etc., cannot be deducted as such.

Conversely, in some cases, a tax option is possible under the partial income tax system (Teileinkünfteverfahren), under which the tax due on income can be taxed at the unitholder's income tax rate. In this case, 60% of the distributions on profits are recorded as taxable income and the related expenses can be declared as professional expenses, i.e. also 60%.

If the shares held in the company are included in the operating assets of a trader or partnership, then profit distributions are still subject to the partial income tax system. In this case, the tax on capital income is deducted from the income tax due by the unitholder or partners of the partnership.

With respect to shares held by French residents, dividends paid by a company established in Germany to a person resident in France are taxable in France under the Franco-German Double Taxation Convention. However, the German State retains the right to withhold up to 15% of the gross amount of dividends by way of withholding tax in accordance with its legal provisions. These taxes are to be taken into account in the context of the imputation system in France.

PRACTICAL SHEET 4

What information must be displayed on a website?

For legal reasons, the legal notice (imprint) is an integral part of a German website. In the absence of legal notices or if they are impossible to find, the operation of the site may receive a warning and be sentenced to pay a fine.

German legal notices must be easily identifiable, directly accessible and always available. That is why they should be integrated so that they can be easily found without a long search. They should therefore be placed in a prominent place, for example as a menu item.

According to the rules in force, the legal notices must appear on each website. The Telemedia Act (Telemediengesetz) also requires the presence of legal notices for any online commercial service. These include not only online retail sites, but also paid advertising banners appearing on a website.

From the moment when the use of the Internet site exceeds the personal or family framework, the German convention relative to the reorganization of the national television broadcasting requires the presence of legal notices on any website because of its journalistic and editorial conception.

The legal notices allow the visitor of a website to identify the company, organization or person responsible for this site. Thanks to the information contained in the legal notice, it is possible at any time to contact the persons in charge or to inquire about the operator of the site.

At present, German case law on the failure to disclose legal notices is not uniform. It sometimes qualifies the absence of legal notices as a criminal offence in the event of a violation of legal provisions, but in other circumstances refuses to issue a simple warning when the legal notices are only incomplete. To exclude any risk, it is recommended to display the correct legal information on the website.

Champagne in beer bucket

In accordance with Articles 5 and 6 of the German Telemedia Act and Article 55 of the German Convention on the Reorganization of Broadcasting, the following information must appear in the legal notices:

  • the name of the site operator and the mailing address.
  • in the case of a legal person, a legal representative and the legal form of the legal person must be mentioned.
  • the email address.
  • lmention of the telephone and fax number is recommended as well as a person responsible for the content of the site.

In case of administrative authorization, the following additional information must also be mentioned:

  • In case of administrative authorization, the following additional information must also be mentioned
  • registration in a register, for example register of Commerce and Companies or register of associations,
  • the registration number
  • where applicable, the intra-community VAT number.
 
 
 
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