With the end of the Brexit transition period looming, many UK businesses are faced with an uncertain future. Setting up shop in Germany may well be the answer, and not just for its position in the European single market. With a stable economy, excellent transportation links, a developed infrastructure and R&D opportunities, Germany has much to offer the European and global business community.
The transition period
Although the UK left the EU on 31 January 2020, an 11-month transition period has meant that in practice, little has changed for British citizens and businesses, with the UK essentially still being treated as a member state. However, that will all change on 1 January 2021 once the transition period has ended, but with negotiations still ongoing between the UK Government and the EU, there is a huge amount of uncertainty over their future relationship.
There are numerous benefits to setting up a business or branch in Germany.
- Location, location, location. Located at the heart of Europe and the EU and with excellent transportation links, Germany is perfectly placed as a European base, easily accessible by suppliers, customers and investors alike.
- The European single market. Germany is a member of the single market, which has over 500 million consumers and a GDP of EUR 15 trillion, making it one of the largest economies worldwide.
- Free movement. As a member of the single market, Germany benefits from the free movement of goods, services, people and money all over the EU. This not only makes trade simpler, but also ensures that businesses have a huge workforce pool. For example, around 17 million people within the EU live or work in another member state.
- Free trade agreements. As a member of the EU, Germany benefits from the huge number of free trade agreements between the EU member states and other countries, simplifying trade on a global scale.
- Infrastructure. According to the 2018 Logistics Performance Index, Germany had the best logistics infrastructure worldwide able to efficiently transport goods both within and across its borders.
- Strong economy. In 2019, Germany had, by far, the largest economy in Europe with a GDP in excess of EUR 3.4 trillion.
Establishing a company in Germany
Although there are certain legalities and formalities to be undergone when setting up a company in Germany, the country is open to new business from both nationals and internationals and generally speaking, there are no restrictions. Currently ranking fifth in StartUp Blink’s Global Startup Ecosystem Rankings and with a myriad of grants, incentives and funding options, the upsides to establishing a business in Germany arguably outweigh the red tape disadvantages.
Corporate tax currently stands at 15% with an additional 5.5% (of the amount paid) solidarity surcharge and a local trade tax which varies based on area. This results in a combined rate of 30 to 33% although there are various tax incentives available.
Following the transition period, a double taxation treaty with the UK will apply, such that any dividends paid by a German subsidiary to a British parent company will incur withholding tax of 5% in Germany.
At the current time, British citizens do not require a visa or residence permit to work and live in Germany, but this is likely to change once the transition period has ended.
The relocation of a business to, or setting up of a branch in, another jurisdiction is a significant step and should not be entered into lightly. A full understanding of the pros and cons, the formalities and legalities are required, and local advice should be taken.
Please contact us for an initial consultation to discuss your options regarding your relocation or entry to Germany and the EU.