Germany remains one of the most important economic centers of Europe. Germany also leads in innovation and is one of the top 5 economics in the world right now. Because of all this, it is easy to see why lots of businesses want to expand into Germany. However, there are several factors and things business owners need to know before moving into Germany and establishing an entity there. In this article, we will look at some of the most important things you should know about expanding into and running a business in Germany.
Personal Data Protection
One of the biggest hurdles and shocks for businesses expanding into Germany is just how seriously Germans take personal data protection. There are strict laws that govern the types and amount of data you can collect, notably that you cannot collect more information than you require to complete a sale or transaction. Additionally, you will be required to keep meticulous records of where all your data is stored because you must be able to explain what customer information you have and to delete or change it as soon as a customer requests you do so.
You will therefore need a lot of patience and understanding, as well as a lot of will to succeed if you want to break into the German market or establish a business there.
Business Opportunities in Germany
Germany has an excellent business environment for new entrants that is characterized by innovative business culture and massive consumer spending power. Additionally, Germany is located optimally for businesses that want to use it as a starting point for their expansion into the larger European market.
There is also a lot of help for startups. The German government has made professional information centers available in all states while funding is available for those who want to expand their international businesses into Germany. The government has also smoothed over the process of doing business and investing in Germany and has lowered the cost for startups looking to get into this lucrative market.
Doing Business in Germany
Germany is currently experiencing a shortage of skilled workers. However, this should not discourage you, because freedom of movement laws allow businesses located in Germany to hire people from other European Union nations. Additionally, favorable visa rules make it easy for businesses to hire employees from overseas. Lastly, the government has made it possible for businesses to sponsor foreign workers who can be placed on a fast track to residency.
In addition to allowing workers from other EU nations, Germany also allows businesses to export their products and services to other nations in the EU. Do note that there are some restrictions and standards that must be adhered to for technical and healthcare products. The standards and specifications you should keep in mind are outlined on the European Commission website.
Germany has a robust financial system that is supported by a very strict legal framework. Both of these make it relatively easy to obtain credit through either public, private or cooperative banks. Any lender you approach will need to see details of your business’s legal structure, a written and detailed presentation of your business plan, as well as financial projections and overheads.
Costs of Doing Business in Germany
As with starting a business anywhere else in the world, and particularly the EU, there are some costs associated with starting a business in Germany. If you need a construction permit after moving your business to Germany, you may have to wait for about 25 days to obtain a building permit. For water and electricity connections, you will have to wait for about two months and 28 days respectively.
Wages are something you will need to think about when hiring new employees. Germany’s minimum wage is €9.19 per hour. Also, social contributions are fairly high and are split between the employee and the employer, meaning they are another cost you need to think about. To make things easier for yourself and stay compliant, you should establish a payroll system.
Businesses that want to expand into Germany might need to establish a Germany payroll outsourcing system, but that can be incredibly complicated due to Germany’s unique and often complex administrative procedures and employment laws. This is why many businesses turn to companies like New Horizons Global Partners to help establish a Germany payroll outsourcing system. New Horizons does all this while helping you fulfill withholdings and tax obligations, helping you and your employees contribute to social security, and handling terminations and entitlements on your behalf. You can visit New Horizons Global Partners’ website to find more information on payroll outsourcing as well as the benefits you will receive by hiring a company to handle it for you.
You might also need to think about health insurance costs. Although employees who earn up to €60,750 have access to statutory health insurance, you can still choose to pay more to give your employees more public and private insurance options. Do note that you will still be responsible for handling accident insurance contributions.
Benefits of Doing Business in Germany
If you are dealing with an innovative product, you will be right at home in Germany. Germany has some of the strictest patent, copyright, and trademark laws which are designed to protect the intellectual properties and assets of innovative businesses.
Germany also has strict competition laws. These laws ensure competitors cannot make false claims about a business, its products, and services to attract or steal customers.
As outlined above, starting and running a business in Germany also gives you access to the larger European market and can be the basis on which you come up with an expansion strategy into Europe.
Risks and Potential Drawbacks
As with any other market, an expansion into Germany also comes with some risks and drawbacks.
A major cause of frustration for a lot of investors is how slowly things change and how long it takes for important decisions to be made. Germans do not like sudden change, which means you will have to be patient as you wait for things to get going. Also, do not be surprised by the abrupt and direct way of German communication. Germans communicate this way to get to the point quickly.
Germany’s economy is another area you should keep an eye on. After the European debt crisis of 2017, Germany largely recovered, but long-term forecasts show the GDP will keep growing but not at the rate it was doing before 2017.
Trade tensions that have been building up over the past few years, as well as a decreasing demand and lower order exports, make Germany somewhat challenging.
Lastly, while Germany has strict intellectual property laws, those do not transfer into other countries. This means that if you would like to sell your product anywhere other than in Germany, you might have to think about registering your patents in all the countries you wish to operate in.
Germany remains one of the most important economic centers in Europe and it is easy to see why many businesses would like to establish a presence here. For the strong consumer spending power, protections businesses are afforded, and the ease of getting financing, Germany stands out for lots of positive reasons.