Executive Summary

As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time. Germany has been consistently ranked by business consultancies as one of the most attractive destinations for FDI, thanks to the country’s reliable infrastructure, highly skilled workforce, positive social climate, stable, predictable, and transparent legal environment, and world-class research and development. While welcoming foreign investment, however, the German government does review – and can ultimately block –acquisitions that threaten national security. In February 2017, Germany, along with France and Italy, asked the European Commission to develop an EU-wide framework to uniformly address prospective third-country investments in high-risk technological sectors, emphasizing the problem of state-directed acquisitions, including by Chinese enterprises, and the need for reciprocity. As such, German authorities support the European Commission’s September 2017 legislative proposal for an EU-wide framework to coordinate governments’ efforts to review foreign investments for national security threats.

The United States is the leading source of non-EU foreign investment in Germany, with a stock of $108 billion in 2016. Foreign investment in Germany has been stable in recent years, mainly originating from other European countries, the United States, and Japan. FDI from emerging economies (particularly China) grew substantially over 2012-2015, albeit from a low level.

German legal, regulatory, and accounting systems can be complex, but are generally transparent and consistent with international norms. Businesses enjoy considerable freedom within a well regulated environment. Foreign and domestic investors are treated equally when it comes to investment incentives, and the establishment and protection of property, both real and intellectual. Foreign investors can fully rely on the legal system, which is efficient and sophisticated. At the same time, this system requires investors to pay attention to their legal obligations. First-time investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all requirements.

Germany has effective capital markets and relies heavily on its modern banking system. Majority state-owned enterprises are generally limited to public utilities such as municipal water, energy, and national rail transportation. The primary objectives of government policy are to create jobs and foster economic growth. Labor unions play a generally constructive role in collective bargaining agreements, as well as on companies’ work councils.

German authorities continue efforts to fight money laundering and corruption. Smaller companies are joining multinational enterprises in becoming increasingly aware of the due diligence approach to responsible business conduct.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2017 12 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2017 20 of 190 doingbusiness.org/rankings
Global Innovation Index 2017 9 of 127 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2016 107,711 http://www.bea.gov/
international/factsheet/
World Bank GNI per capita 2016 $43,940 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

Policies Towards Foreign Direct Investment

The German government and industry actively encourage foreign investment. U.S. investment has been strong and continues to account for a significant share of foreign investment. The investment-related problems foreign companies face are generally the same as for domestic firms, for example, high marginal income tax rates and labor laws that impede hiring and dismissals. The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD Declaration on International Investment, including a commitment to National Treatment, and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.

Limits on Foreign Control and Right to Private Ownership and Establishment

While the Federal Ministry for Economic Affairs and Energy may review acquisitions of domestic companies by foreign buyers in specific cases to assess whether these transactions pose a risk to the public order or to national security, (for example, when the investment pertains to critical infrastructure) in practice, no investments have been blocked to date. The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for this investment review. Growing Chinese investment activities and acquisitions of German businesses – including Mittelstand (mid-sized) industrial market leaders – in recent years have led German authorities to amend domestic investment screening provisions in 2017, clarifying the scope and giving the government more time to conduct reviews.

German law affords foreign investors national treatment: under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company. There are no special nationality requirements for directors or shareholders. However, Germany limits the foreign provision of employee placement services, such as providing temporary office support, domestic help, or executive search services.

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2017” and Economist Intelligence Unit both provide additional information on Germany investment climate. The American Chamber of Commerce in Germany annually publishes results of a survey among U.S. investors in Germany on business and investment sentiment called the “AmCham Germany Transatlantic Business Barometer.”

Business Facilitation

Before engaging in commercial activities, companies and business operators have to register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is publically available under www.handelsregister.de , are electronically filed in publicly certified form through a notary. The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings. Registration costs vary depending on the size of the company.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes (https://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html ) and advise investors, including micro, small, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

  • Micro enterprises: less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total;
  • Small enterprises: less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total;
  • Medium-sized enterprises: less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

Outward Investment

The Federal Government provides political risk insurance for investments by German-based companies in developing and emerging economies and countries in transition. In order to receive guarantees, the host government must guarantee adequate legal protection. The Federal Government does not insure against commercial risks.

Germany does not share a bilateral investment treaty (BIT) with the United States. However, a Friendship, Commerce and Navigation (FCN) treaty dating from 1956 contains many of the same commitments regarding national treatment, most-favored nation treatment, free capital flows, and full protection and security.

Germany has bilateral investment treaties in force with 127 countries and territories; treaties with former sovereign entities (including Czechoslovakia, the Soviet Union, Sudan, and Yugoslavia) continue to apply in an additional seven cases. These are indicated below with an asterisk (*). Treaties are in force with the following states, territories, or former sovereign entities. For a full list of treaties containing investment provisions that are currently in force, see the UNCTAD Navigator at http://investmentpolicyhub.unctad.org/IIA/CountryBits/78#iiaInnerMenu .

Afghanistan; Albania; Algeria; Angola; Antigua and Barbuda; Argentina; Armenia; Azerbaijan; Bahrain; Bangladesh; Barbados; Belarus; Benin; Bosnia and Herzegovina; Botswana; Burkina Faso; Brunei; Bulgaria; Burundi; Cambodia; Cameroon; Cape Verde; Central African Republic; Chad; Chile; China (People’s Republic); Congo (Republic); Congo (Democratic Republic); Costa Rica; Croatia; Cuba; Czechoslovakia; Czech Republic*; Dominica; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Gabon; Georgia; Ghana; Greece; Guatemala; Guinea; Guyana; Haiti; Honduras; Hong Kong; Hungary; Iran; Ivory Coast; Jamaica; Jordan; Kazakhstan; Kenya; Republic of Korea; Kosovo*; Kuwait; Kyrgyzstan; Laos; Latvia; Lebanon; Lesotho; Liberia; Libya; Lithuania; Macedonia; Madagascar; Malaysia; Mali; Malta; Mauritania; Mauritius; Mexico; Moldova; Mongolia; Montenegro*; Morocco; Mozambique; Namibia; Nepal; Nicaragua; Niger; Nigeria; Oman; Pakistan; Palestinian Territories; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Serbia*; Sierra Leone; Singapore; Slovak Republic*; Slovenia; Somalia; South Sudan*; Soviet Union; Sri Lanka; St. Lucia; St. Vincent and the Grenadines; Sudan; Swaziland; Syria; Tajikistan; Tanzania; Thailand; Togo; Trinidad & Tobago; Tunisia; Turkey; Turkmenistan; Uganda; Ukraine; United Arab Emirates; Uruguay; Uzbekistan; Venezuela; Vietnam; Yemen; Yugoslavia; Zambia; and Zimbabwe.

A BIT with Bolivia was terminated in May 2014, a BIT with South Africa was terminated in October 2014, and BITs with India and Indonesia were terminated in June 2017.

Germany has ratified treaties with the following countries and territories that have not yet entered into force:

Country

Signed Temporarily

Brazil

09/21/1995

Congo (Republic)

11/22/2010

Iraq

12/04/2010

Israel

06/24/1976

Pakistan

12/01/2009

Timor-Leste

08/10/2005

Panama*

01/25/2011

(*) Previous treaties apply

Bilateral Taxation Treaties:

Taxation of U.S. firms within Germany is governed by the “Convention for the Avoidance of Double Taxation with Respect to Taxes on Income.” This tax treaty has been in effect since 1989 and was extended in 1991 to the territory of the former German Democratic Republic.

With respect to income taxes, both countries agreed to grant credit for their respective federal income taxes on taxes paid on profits by enterprises located in each other’s territory. A Protocol of 2006 updates the existing tax treaty and includes several changes, including a zero-rate provision for subsidiary-parent dividends, a more restrictive limitation on benefits provision, and a mandatory binding arbitration provision. In 2013, Germany and the United States signed an agreement on legal and administrative cooperation and information exchange.

English-language documents:
https://www.irs.gov/businesses/international-businesses/germany-tax-treaty-documents .

German-language documents: https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/
Steuern/Internationales_Steuerrecht/Staatenbezogene_Informationen/Laender_A_Z/
Verein_Staaten/2013-10-15-USA-Abkommen-FATCA.html
 
).

As of January 2016, Germany had bilateral treaties with respect to taxes on income and assets with a total of 96 countries, including with the United States, and, with respect to inheritance taxes, 6 countries. It has special bilateral treaties with respect to income and assets owned by shipping and aerospace companies with 10 countries and has treaties relating to the exchange of information and administrative assistance with 27 countries. Germany has initiated and/or is currently renegotiating new income and wealth tax treaties with 61 countries, special bilateral treaties with respect to income and assets owned by shipping and aerospace companies with 3 countries, and information exchange and administrative assistance treaties with 9 countries.

Transparency of the Regulatory System

Germany has transparent and effective laws and policies to promote competition, including antitrust laws. The legal, regulatory and accounting systems are complex but transparent and consistent with international norms.

Formally, the public consultation by the federal government is regulated by the Joint Rules of Procedure, which specify that ministries must consult early and extensively with a range of stakeholders on all new legislative proposals. In practice, laws and regulations in Germany are routinely published in draft, and public comments are solicited. According to the Joint Procedural Rules, ministries should consult the concerned industries’ associations (rather than single companies), consumer organizations, environmental, and other NGOs. The consultation period generally takes two to eight weeks.

The German Institute for Standardization (DIN) is open to foreign members.

International Regulatory Considerations

As a member of the European Union, Germany must observe and implement directives and regulations adopted by the EU. EU regulations are binding and enter into force as immediately applicable law. Directives, on the other hand, constitute a type of framework law that is to be implemented by the Member States in their respective legislative processes, which is regularly observed in Germany.

EU Member States must implement directives within a specified period of time. Should a deadline not be met, the Member State may suffer the initiation of an infringement procedure, which could result in high fines. Germany has a set of rules that prescribe how to break down any payment of fines devolving on the Federal Government and the Lander (federal states). Both bear part of the costs depending on their responsibility within legislation and the respective part they played in non-compliance.

The German Lander have a say over European affairs through the Bundesrat (upper chamber of parliament). The Federal Government is required to instruct the Bundesrat at an early stage on all EU plans that are relevant for the Lander.

The federal government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT) through a National Notification Office within the Federal Ministry of Economic Affairs and Energy.

Legal System and Judicial Independence

German law is both predictable and reliable. Companies can effectively enforce property and contractual rights. Germany’s well-established enforcement laws and official enforcement services ensure that investors can assert their rights. German courts are fully available to foreign investors in an investment dispute.

The judicial system is independent, and the federal government does not interfere in the court system. The legislature sets the systemic and structural parameters, while lawyers and civil law notaries use the law to shape and organize specific situations. Judges are highly competent. International studies and empirical data have attested that Germany offers an efficient court system committed to due process and the rule of law.

In Germany, most important legal issues and matters are governed by comprehensive legislation in the form of statutes, codes and regulations. Primary legislation in the area of business law includes:

  • the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;
  • the Commercial Code (Handelsgesetzbuch, abbreviated as HGB), which contains special rules concerning transactions among businesses and commercial partnerships;
  • the Private Limited Companies Act (GmbH-Gesetz) and the Public Limited Companies Act (Aktiengesetz), covering the two most common corporate structures in Germany – the ‘GmbH’ and the ‘Aktiengesellschaft’; and
  • the Act on Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, abbreviated as UWG), which prohibits misleading advertising and unfair business practices.

Germany has specialized courts for administrative law, labor law, social law, finance and tax law. The Federal Patent Court hears cases on patents, trademarks, and utility rights which are related to decisions by the German Patent and Trademarks Office. Both the German Patent Office (Deutsches Patentamt) and the European Patent Office are headquartered in Munich.

Laws and Regulations on Foreign Direct Investment

The Federal Ministry for Economic Affairs and Energy may review acquisitions of domestic companies by foreign buyers in cases where investors seek to acquire at least 25 percent of the voting rights to assess whether these transactions pose a risk to the public order or national security of the Federal Republic of Germany. The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for screening investments. To our knowledge, the Federal Ministry for Economic Affairs and Energy had not prohibited any acquisitions as of March 2018.

Cross-sector investment review procedures apply to acquisitions of a company resident in Germany by a foreign investor, located outside the territory of the EU or the European Free Trade Association region, where that investor acquires ownership of at least 25 percent of the voting rights. There is no requirement for investors to obtain approval for any acquisition, but they must notify the Federal Ministry for Economic Affairs and Energy if the target company operates critical infrastructure. The Federal Ministry for Economic Affairs and Energy may launch a review within three months after obtaining knowledge of the acquisition; the review must be concluded within four months after receipt of the full set of relevant documents. An investor may also request a binding certificate of non-objection from the Federal Ministry for Economic Affairs and Energy in advance of the planned acquisition to obtain legal certainty at an early stage. If the Federal Ministry for Economic Affairs and Energy does not open an in-depth review within two months from the receipt of the request, the certificate shall be deemed as granted.

Special rules apply for the acquisition of companies that operate in sensitive security areas, including defense and IT security. In contrast to the cross-sectoral rules, the sensitive acquisitions must be notified in writing including basic information of the planned acquisition, the buyer, the domestic company that is subject of the acquisition and the respective fields of business. The Federal Ministry for Economic Affairs and Energy may open a formal review procedure within three months after receiving notification, or the acquisition shall be deemed as approved. If a review procedure is opened, the buyer is required to submit further documents. The acquisition may be restricted or prohibited within three months after the full set of documents has been submitted.

The German government amended domestic investment screening provisions, effective June 2017, clarifying the scope for review and giving the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by high-risk foreign investors. The amended provisions provide a clearer definition of sectors in which foreign investment can pose a “threat to public order and security,” including operators of critical infrastructure, developers of software to run critical infrastructure, telecommunications operators or companies involved in telecom surveillance, cloud computing network operators and service providers, and telematics companies. All non-EU entities are now required to notify Federal Ministry for Economic Affairs and Energy in writing of any acquisition of or significant investment in a German company active in the above sectors. The new rules also extend the time to assess a cross-sector foreign investment from two to four months, and for investments in sensitive sectors, from one to three months, and introduce the possibility of retroactively initiating assessments for a period of five years after the conclusion of an acquisition. Indirect acquisitions, such as those through a Germany- or EU-based shell company, are now also explicitly subject to the new rules.

Any decisions resulting from review procedures are subject to judicial review by an administrative court. The German Economic Development Agency (GTAI) provides extensive information for investors, including about the legal framework, labor-related issues and incentive programs, on their website: http://www.gtai.de/GTAI/Navigation/EN/Invest/investment-guide.html .

Competition and Anti-Trust Laws

German government ensures competition on a level playing field on the basis of two main legal codes:

The Law against Limiting Competition (last amended in 2017) is the legal basis for the fight against cartels, merger control, and monitoring abuse. State and Federal cartel authorities are in charge of enforcing anti-trust law. In exceptional cases the Minister for Economics and Energy can provide a permit under specific conditions. The last case was a merger of two retailers (Kaisers/Tengelmann and Edeka) to which a ministerial permit was granted in March 2016.

The Law against Unfair Competition (amended last in 2016) can be invoked by regional courts.

Expropriation and Compensation

German law provides that private property can be expropriated for public purposes only in a non-discriminatory manner and in accordance with established principles of constitutional and international law. There is due process and transparency of purpose, and investors and lenders to expropriated entities receive prompt, adequate, and effective compensation.

There have not been expropriatory actions in the last five years and none are expected for the near future. Certain long-running expropriation cases date back to the Nazi and communist regimes. During the 2008-9 global financial crisis, the parliament adopted a law allowing an emergency expropriation if the bankruptcy of a bank would endanger the entire financial system, but the measure expired without having been used.

Dispute Settlement

ICSID Convention and New York Convention

Germany is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards under certain conditions.

Investor-State Dispute Settlement

Investment disputes involving U.S. or other foreign investors in Germany are extremely rare. According to the UNCTAD database of treaty-based investor dispute settlement cases, Germany has been challenged a handful of times, none of which involved a U.S. investor. A much-publicized ICSID arbitration request filed in 2012 by a European energy company under the Energy Charter Treaty, challenging Germany’s decision to phase out nuclear energy, remains pending.

International Commercial Arbitration and Foreign Courts

Germany has a domestic arbitration body called the German Institution for Dispute Settlement. ”Book 10” of the German Code of Civil Procedure addresses arbitration proceedings. The International Chamber of Commerce has an office in Berlin. In addition, chambers of commerce and industry offer arbitration services.

Bankruptcy Regulations

German insolvency law, as enshrined in the Insolvency Code, supports and promotes restructuring. If a business or the owner of a business becomes insolvent, or a business is over-indebted, insolvency proceedings can be initiated by filing for insolvency; legal persons are obliged to do so. Insolvency itself is not a crime, but deliberately late filing for insolvency is.

Under a regular insolvency procedure, the insolvent business is generally broken up in order to release as much money as possible through the sale of individual items or rights or parts of the company. Proceeds can then be paid out to the creditors in the insolvency proceedings. The distribution of the monies to the creditors follows the detailed instructions of the Insolvency Code.

Equal treatment of creditors is enshrined in the insolvency code. Some creditors have the right to claim property back. Post-adjudication preferred creditors are served out of the insolvency assets during the insolvency procedure. Ordinary creditors are served on the basis of quotas from the remaining insolvency assets. Secondary creditors, including shareholder loans, are only served if insolvency assets remain after all others have been served. Germany ranks fourth in the global ranking of “resolving insolvency” in the World Bank’s Doing Business Report, with a recovery rate of 80.6 cents on the dollar.

Investment Incentives

Federal and state investment incentives – including investment grants, labor-related and R&D incentives; public loans, and public guarantees – are available to domestic and foreign investors alike. Different incentives can be combined. In general, foreign and German investors have to meet the same criteria for eligibility.

The Federal Ministry of Economic Affairs and Energy offers investment grants intended to improve business conditions in certain regions in Germany. These grants are approved by the EU Commission. The KfW Banking Group and development banks of the individual Federal States offer attractive interest rates, especially for small and medium-sized enterprises (SMEs).

Labor-related incentives are offered by the Federal Employment Agency for programs that focus on recruitment support, and pre-employment training.

R&D incentives are provided by the European Union, the German Government, and the German state governments in the form of R&D grants, public loans, and special partnership programs.

Germany Trade & Invest, Germany’s federal economic development agency, provides information on incentives in English at www.gtai.com/incentives-programs .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently three free ports in Germany operating under EU law: Bremerhaven, Cuxhaven, and Duisburg. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements. All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.

Performance and Data Localization Requirements

In general, there are no requirements for local sourcing, export percentage, or local or national ownership. In some cases, however, there may be performance requirements tied to the incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the visas and work permits required to do business in Germany. U.S. Citizens may apply for work and residential permits from within Germany. Germany Trade & Invest offers detailed information online at www.gtai.com/coming-to-germany .

There are no localization requirements for data storage in Germany. However, in recent years German and European cloud providers have sought to market the domestic location of their servers as a competitive advantage.

Real Property

The German Government adheres to a policy of national treatment, which considers property owned by foreigners as fully protected under German law. In Germany, mortgages are given based on recognized and reliable collateral. Secured interests in property, both chattel and real, are recognized and enforced. According to the World Bank’s Doing Business Report, it takes an average of 52 days to register property in Germany.

The German Land Register Act dates back to 1897 and was last amended in 2015. The land register mirrors private real property rights and provides information on the legal relationship of the estate. It documents the owner, rights of third persons, liabilities and restrictions and how these rights relate to each other. Any change in property of real estate must be registered in the land registry to make the contract effective. Land titles are now maintained in an electronic database and can be consulted by persons with a legitimate interest.

Intellectual Property Rights

Germany has a robust regime to protect intellectual property (IP) rights. Legal structures are strong and enforcement is good. Nonetheless, internet piracy and counterfeit goods remain an issue. Germany has been a member of the World Intellectual Property Organization (WIPO) since 1970. The German Central Customs Authority publishes annual statistics on customs seizures of counterfeit and pirated goods. The statistics for 2017 can be found under: http://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2017.html .

Germany is also a party to the major international intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, the Brussels Satellite Convention, and the Treaty of Rome on Neighboring Rights. Many of the latest developments in German IP law derived from European legislation with the objective to make applications less burdensome and to allow for European IP protection.

The following types of protection are available:

Copyrights: National treatment is also granted to foreign copyright holders, including remuneration for private recordings. Under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights, Germany also grants legal protection for U.S. performing artists against the commercial distribution of unauthorized live recordings in Germany. Germany has signed the World Intellectual Property Organization Copyright Treaty and ratified it in 2003. Most rights holder organizations regard German authorities’ enforcement of intellectual property protections as effective. In 2008, Germany implemented the EU enforcement directive with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action.

Trademarks: Foreigners may register trademarks subject to exactly the same terms as German nationals at the German Patent and Trade Mark Office. Protection is valid for a period of ten years and can be extended in ten-year periods.

Patents: Foreigners may register patents subject to the same terms as German nationals at the German Patent and Trade Mark Office. Patents are granted for technical inventions which are new, involve an inventive step, and are industrially applicable. However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application. The documents must be submitted in German or with a translation into German. The duration of a patent is 20 years, beginning on the day following the invention patent application. Patent applicants can request accelerated examination when filing the application provided that the patent application was previously filed at the U.S. patent authority and that at least one claim had been determined to be allowable. There are a number of differences in patent law which a qualified patent attorney can explain to U.S. patent applicants.

U.S. grants of IP rights are valid in the United States only. It is possible to register for trademark and design protection nationally in Germany or for the EU-wide European Union Trademark and/or Registered Community Design. These provide protection for industrial design or trademark in the entire EU market. Both national trademarks and the CTM can be applied for at the U.S. Patent and Trademark Office as part of an international trademark registration system (http://www.uspto.gov), or the applicant may apply directly for those trademarks at the European Union Intellectual Property Office at https://euipo.europa.eu/ohimportal/en/home . U.S. intellectual property owners should also note that the EU operates on a “first to file” principle and not on the “first-to-invent” principle, used in the United States.

For patents, the situation is slightly different but protection can still be gained via the U.S. Patent Office. Although there is not yet a single EU-wide patent system, the European Patent Office (EPO) does grant individual European patents for the contracting states to the European Patent Convention (EPC), which entered into force in 1977. The 38 contracting states include the entire EU membership and several more European countries. As an alternative to filing patents for European protection with the U.S. Patent Office, the EPO, located in Munich, provides a convenient single point to file a patent in as many of these countries as an applicant would like: https://www.epo.org/index.html .

Trade Secrets: Trade secrets, both technical and commercial, are protected in Germany by the Law Against Unfair Competition. According to the law, illegally passing trade secrets to third parties – including the attempt to do so – for reasons related to competition, self-interest, benefit of a third party, or with the intent to harm the business owner is punishable with prison sentences of up to three years or a monetary fine. In severe cases, including commercial-scale theft and cases that involve passing trade secrets to foreign countries, courts can impose prison sentences of up to five years or a monetary fine.

In addition, German law offers the possibility to register designs and utility models.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Country resources:
For additional information about how to protect intellectual property in Germany, please see Germany Trade & Invest website at http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/The-legal-framework/patents-licensing-trade-marks.html .

Statistics on the seizure of counterfeit goods are available through the German Customs Authority (Zoll):
http://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2017.html 

Investors can identify IP lawyers in AmCham Germany’s Online Services Directory: https://www.amcham.de/services/overview/member-services/address-services-directory/  (under “legal references” select “intellectual property.”)

Businesses can also join the Anti-counterfeiting Association (APM):
http://www.markenpiraterie-apm.de/index.php?article_id=1&clang=1  or the Association for the Enforcement of Copyrights (GVU) http://www.gvu.de .

Capital Markets and Portfolio Investment

As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment. As a member of the Eurozone, Germany does not have sole national authority over international payments, which are a shared task of the Eurosystem, comprised of the European Central Bank and the national central banks of the 19 member states that are part of the eurozone, including the German Central Bank (Bundesbank). There are no restrictions on capital movements into or out of Germany, based on European law, but a European Commission proposal in 2017 on investment screening could provide such basis under EU law. Global investors see Germany as a safe place to invest, as the real economy continues to outperform other EU countries and German sovereign bonds retain their “safe haven” status.

Listed companies and market participants in Germany must comply with the Securities Trading Act, which bans insider trading and market manipulation. Compliance is monitored by the Federal Financial Supervisory Authority (BaFin) while oversight of stock exchanges is the responsibility of the state governments in Germany (with BaFin taking on any international responsibility). Investment fund management in Germany is regulated by the Capital Investment Code (KAGB), which entered into force on July 22, 2013. The KAGB represents the implementation of additional financial market regulatory reforms, committed to in the aftermath of the global financial crisis. This law goes beyond the minimum requirements of the relevant EU directives and represents a comprehensive overhaul of all existing investment-related regulations in Germany with the aim of creating a system of rules to protect investors while also maintaining systemic financial stability.

Money and Banking System

Although corporate financing via capital markets is on the rise, Germany’s financial system remains mostly bank-based. Bank loans are still the predominant form of funding for firms, particularly the small- and medium-sized enterprises that comprise Germany’s “Mittelstand,” or mid-sized industrial market leaders. Credit is available at market-determined rates to both domestic and foreign investors, and a variety of credit instruments are available. Legal, regulatory and accounting systems are generally transparent and consistent with international banking norms. Germany has a universal banking system regulated by federal authorities, and there have been no reports of a shortage of credit in the German economy. After 2010, Germany banned some forms of speculative trading, most importantly “naked short selling.” In 2013, Germany passed a law requiring banks to separate riskier activities such as proprietary trading into a legally separate, fully capitalized unit that has no guarantee or access to financing from the deposit-taking part of the bank.

Germany supports a worldwide financial transaction tax and is currently pursuing the introduction of such a tax along with several other Eurozone countries.

Germany has a modern banking sector, but is often considered “over-banked,” as evidenced by ongoing consolidation and low profit margins. The country’s so-called “three-pillar” banking system is made up of private commercial banks, cooperative banks, and the public banks (savings banks, or Sparkassen, and the regional state-owned banks, or Landesbanken). The private bank sector is dominated by Deutsche Bank and Commerzbank, with a balance sheet total of €1.3 billion and €452 billion respectively (2017 figures). Commerzbank received €18 billion in financial assistance from the federal government in 2009, which gave the government a 25% stake in the bank (now reduced to 15.6%). Germany’s regional state-owned banks (Landesbanken) were among the hardest hit by the global financial crisis and were forced to reduce their business activities but have lately stabilized again.

Foreign Exchange and Remittances

Foreign Exchange Policies

As a member of the Eurozone, Germany uses the euro as its currency, along with 18 other European Union countries. The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.

German authorities respect the independence of the European Central Bank (ECB), and thus have no scope to manipulate the bloc’s exchange rate. In a March 2018 report, the European Commission (EC) concluded Germany’s persistently high current account surplus – the world’s largest in 2017 at $287 billion (7.8 percent of GDP) – “has slightly narrowed since 2016 and is expected to gradually decline due to a pick-up in domestic demand in the coming years whilst remaining at historically high levels over the forecast horizon.” While falling prices of oil, other raw materials, and the depreciation of the euro explain a substantial part of this increase in 2015-2016, the high level and persistence of Germany’s surplus is a matter of international controversy. German policymakers argue the large surplus is the result of market forces rather than active government policies, while the EC and IMF have called on authorities to rebalance towards domestic sources of economic growth by expanding public investment, using available fiscal space, and other policy choices that boost domestic demand.

Germany is a member of the OECD-based Financial Action Task Force (FATF) and is committed to further strengthening its national system for the prevention, detection and suppression of money laundering and terrorist financing. In 2017, Germany’s Financial Intelligence Unit (FIU) was restructured and given more staff. It was transferred to the General Customs Directorate in the Federal Ministry of Finance. At the same time, its tasks and competencies were redefined taking into account the provisions of the Fourth EU Money Laundering Directive. One focus is now on operational and strategic analysis. On June 26, 2017, legislation to implement the Fourth EU Money Laundering Directive and the European Funds Transfers Regulation (Geldtransfer-Verordnung) entered into force. (The Act amends the German Money Laundering Act (Geldwaschegesetz – GwG) and a number of further laws).

There is no difficulty in obtaining foreign exchange.

Remittance Policies

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

Germany is the sixth-largest remittance-sending country worldwide. Migrants in Germany posted c. $22 billion abroad in 2015 (World Bank, Bilateral Remittances Matrix 2015; later estimates are not yet available). The total volume of remittances outflows remained almost stable since 2014 ($23.4 billion), but did not continue its increasing trend of previous years. The most important receiving states in 2015 for remittances from Germany were EU-neighbors such as Poland, France, and Italy. Around $8 billion was sent to developing countries, out of which Lebanon, Vietnam, China, Nigeria and Serbia were the biggest receivers. Remittance flows into Germany amounted to around $15.4 billion in 2015, approximately 0.5 percent of Germany’s GDP.

The issue of remittances played a role during the German G20 presidency, when Germany passed an updated version of its “G20 National Remittance Plan.” The document states that Germany’s focus will remain on “consumer protection, linking remittances to financial inclusion, creating enabling regulatory frameworks and generating research and data on diaspora and remittances dynamics.” The 2017 “G20 National Remittance Plan” can be found at: https://www.gpfi.org/sites/default/files/documents/2017%20G20%20Financial%20Inclusion%
20Action%20Plan%20final.pdf
 
.

Sovereign Wealth Funds

The German government does not currently have a sovereign wealth fund or an asset management bureau. Following German reunification, the federal government set up a public agency to manage the privatization of assets held by the former East Germany. In 2000, the agency, known as TLG Immobilien, underwent a strategic reorientation from a privatization-focused agency to a profit-focused active portfolio manager of commercial and residential property. In 2012, the federal government sold TLG Immobilien to private investors.

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50 percent of the capital shares or voting rights. Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks, and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, yearly reports are published, and such control is approved by the Federal Finance Ministry and the ministry responsible for the subject matter.

Government oversight of SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is promoting public interests rather than generating profits. The government is required to close its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors or industries. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 16,206 entities for 2015, or 0.5 percent of the total 3.5 million companies in Germany. SOEs in 2015 had €547 billion in revenue and €528 billion in expenditures. Over 40 percent of SOEs’ revenue was generated by water and energy suppliers, 11.9 percent by health and social services, and 11.3 percent by transportation-related entities. Measured by number of companies rather than size, 88 percent of SOEs are owned by municipalities, 10 percent are owned by Germany’s 16 states, and 2 percent are owned by the federal government.

The Federal Finance Ministry is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share), or an indirect participation greater than 25 percent and with a nominal capital share worth more than €50,000. The federal government held a direct participation in 106 companies and an indirect participation in 469 companies at the end of 2017, most prominently Deutsche Bahn (100 percent share), Deutsche Telekom (32 percent share), and Deutsche Post (21 percent share). Federal government ownership is concentrated in the areas of science, infrastructure, administration/increasing efficiency, economic development, defense, development policy, culture, and real estate. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008-9, the federal government still has a partial stake in several commercial banks, including a 15.6 percent share in Commerzbank, Germany’s second largest commercial bank. The 2017 annual report can be found here: https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/
Bundesvermoegen/Privatisierungs_und_Beteiligungspolitik/Beteiligungspolitik/
Beteiligungsberichte/Beteiligungsbericht-2017.html
 

Publicly-owned banks also constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful in light of Germany’s balanced budget rules, which go into effect for the states in 2020.

A longstanding, prominent case of a partially state-owned enterprise is automotive manufacturer Volkswagen, in which the state of Lower Saxony owns the fourth-largest share in the company at 12.7 percent share but controls 20 percent of the voting rights. The so-called Volkswagen Law, passed in 1960, limited individual shareholders’ voting rights in Volkswagen to a maximum of 20 percent regardless of the actual number of shares owned, so that Lower Saxony could veto any takeover attempts. In 2005, the European Commission successfully sued Germany at the European Court of Justice (ECJ), claiming the law impeded the free flow of capital. The law was subsequently amended to remove the cap on voting rights, but Lower Saxony’s 20 percent share of voting rights was maintained, preserving its ability to block hostile takeovers.

The wholly-federal government owned railway company, Deutsche Bahn, has been investigated for potential abuse of a dominant market position by the European Commission (EC) and the Federal Cartel Office. The EC closed the investigation in 2013 after Deutsche Bahn implemented a new, competitive pricing system. The German Cartel Office also terminated its proceedings against Deutsche Bahn in May 2016.

Privatization Program

Germany does not have any privatization programs at this time. German authorities treat foreigners equally in privatizations.

In December 2016, the Federal Government passed the National Action Plan for Business and Human Rights (NAP). The NAP aims to apply the UN Guiding Principles for Business and Human Rights for the activities of German companies nationally as well as globally in their value and supply chains. The Federal Ministry of Foreign Affairs originally drew up the NAP in November 2014 in collaboration with the Ministries of Labor and Social Affairs, for Economic Cooperation and Development, Justice, Environment, and for Economic Affairs. Its formulation involved broad public consultations with representatives from politics, enterprises, labor unions, civil society, associations and academia in order to foster greatest possible societal acceptance for the action plan. The 2018 coalition agreement for the 19th legislative period between the governing parties—the Christian Democratic Union parties, CDU/CSU, and the Social Democratic Party of Germany (SPD)—states its firm commitment to the NAP, including the principles on public procurement. It further states that, if the NAP 2020’s effective and comprehensive review comes to the conclusion that the voluntary self-commitment of enterprises is not sufficient, the government will initiate legislation for a EU-wide regulation.

Germany adheres to the OECD Guidelines for Multinational Enterprises and established an OECD National Contact Point (NCP) in 2000, housed in the Federal Ministry of Economic Affairs and Energy. It is supported by an advisory board composed of several ministries, as well as business organizations, trade unions, and NGOs. The working group usually meets once a year to discuss all Guidelines-related issues. The German NCP for the MNE Guidelines can be contacted through the Ministry’s website: https://www.bmwi.de/Redaktion/EN/Textsammlungen/Foreign-Trade/oecd-guidelines.html .

There is general awareness of environmental, social, and governance issues among both producers and consumers in Germany, and surveys suggest that consumers increasingly care about the ecological and social impacts of the products they purchase. In order to encourage businesses to factor environmental, social, and governance issues into their decision-making, the government provides information online and in hard copy. The federal government promotes corporate social responsibility (CSR) through awards and prizes, business fairs, and reports and newsletters. The government also offers practice days to help nationally as well as internationally operating small- and medium-sized companies discern and implement their entrepreneurial due diligence under the NAP. To this end it has created a website on CSR (http://www.csr-in-deutschland.de/EN/Home/home.html  in English). The German government maintains and enforces domestic laws with respect to labor and employment rights, consumer protections, and environmental protections. The German government does not waive labor and environmental laws to attract investment.

On the business side, the American Chamber of Commerce in Germany (AmCham Germany) is active in promoting standards of ecological, economic, and social responsibility and sustainability within their members’ entrepreneurial actions in keeping with the UN Sustainable Development Goals, adopted in 2015. AmCham Germany issues publications on selected member companies’ approaches to CSR. Its Corporate Responsibility Committee serves as a platform to exchange best practices, identify trends, and discuss regulatory initiatives. Other business initiatives, platforms, and networks on sustainable corporate conduct and CSR exist. In addition, Germany’s four leading business organizations regularly provide information on a common CSR internet portal to promote and illustrate companies’ engagement on CSR: www.csrgermany.de .

Social reporting is voluntary, but publicly listed companies frequently include information on their CSR policies in annual shareholder reports and on their websites.

Civil society groups that work on CSR include 3p Consortium for Sustainable Management, Amnesty International Germany, Bund für Umwelt und Naturschutz Deutschland e. V. (BUND), CorA Corporate Accountability – Netzwerk Unternehmensverantwortung, Forest Stewardship Council (FSC), Germanwatch, Greenpeace Germany, Naturschutzbund Deutschland (NABU), Sneep (Studentisches Netzwerk zu Wirtschafts- und Unternehmensethik), Stiftung Warentest, Südwind – Institut für Ökonomie und Ökumene, TransFair – Verein zur Förderung des Fairen Handels mit der “Dritten Welt” e. V., Transparency International, Verbraucherzentrale Bundesverband e.V., Bundesverband Die Verbraucher Initiative e.V., and the World Wide Fund for Nature (WWF).

Among industrialized countries, Germany ranks 12th out of 180, according to Transparency International’s 2017 Corruption Perceptions Index. Some sectors including the automotive industry, construction sector, and public contracting, exhibit political influence and party finance remains only partially transparent. Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany. Germany is a signatory of the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery.

Over the last two decades, Germany has increased penalties for the bribery of German officials, corrupt practices between companies, and price-fixing by companies competing for public contracts. It has also strengthened anti-corruption provisions on financial support extended by the official export credit agency and has tightened the rules for public tenders. Government officials are forbidden from accepting gifts linked to their jobs. Most state governments and local authorities have contact points for whistle-blowing and provisions for rotating personnel in areas prone to corruption. There are serious penalties for bribing officials and price fixing by companies competing for public contracts.

According to the Federal Criminal Office, in 2016, 49 percent of all corruption cases were directed towards the public administration (down from 71 percent in 2015), 30 percent towards the business sector (up from 16 percent in 2015), 18 percent towards law enforcement and judicial authorities (up from 12 percent in 2015), and 3 percent to political officials (up from 1 percent in 2015).

A prominent recent corruption case concerns the BER Berlin Airport construction project. Proceedings were opened in October 2015 against a manager of the airport operating company. In October 2016, the Cottbus district court sentenced the manager to 3.5 years in prison and a fine of €150,000 ($160,000) on the grounds of corruption. Two leading employees of a technical company working on electricity, heating, and sanitary equipment received suspended jail sentences.

Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment. Disclosures are available to the public via the Bundestag website (next to the parliamentarians’ biographies) and in the Official Handbook of the Bundestag. Penalties for noncompliance can range from an administrative fine to as much as half of a parliamentarian’s annual salary.

Donations to political parties are legally permitted. However, if they exceed €50,000, they must be reported to the President of the Bundestag. Donations of €10,000 or more must be included in the party’s annual accountability report to the President of the Bundestag.

State prosecutors are generally responsible for investigating corruption cases, but not all state governments have prosecutors specializing in corruption. Germany has successfully prosecuted hundreds of domestic corruption cases over the years, including large scale cases against major companies. In a February 2017 report, Transparency International states that the German “government has been generally supportive of an anti-corruption environment and has set up a robust regulatory and institutional framework that enables the authorities to be effective in detecting, preventing and tackling corruption in all its manifestations.” However, the report criticized the lack of specific open data regulation that would require government agencies to proactively publish data, following the country’s adoption of the G20 Anti-Corruption Open Data Principles in 2015.

Media reports in recent years about bribery investigations against Siemens, Daimler, Deutsche Telekom, and Ferrostaal increased awareness of the problem of corruption. As a result, an increasing number of listed companies and multinationals have expanded their compliance departments, tightened internal codes of conduct, established points of conducts, and offered more ethics training to employees.

The Federation of Germany Industries (BDI), the Association of German Chamber of Commerce and Industry (DIHK) and the International Chamber of Commerce (ICC) provide guidelines in paper and electronic format on how to prevent corruption in an effort to convince all including small and medium sized companies to catch up. In addition, BDI provides model texts if companies with two different sets of compliance codes want to do business with each other.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Germany was a signatory to the UN Anti-Corruption Convention in 2003. The Bundestag ratified the Convention in November 2014.

Germany adheres to the OECD Anti-Bribery Convention which criminalizes bribery of foreign public officials by German citizens and firms. The necessary tax reform legislation ending the tax write-off for bribes in Germany and abroad became law in 1999. Germany actively enforces the convention and is increasingly better managing the risk of transnational corruption.

Germany participates in the relevant EU anti-corruption measures and signed two EU conventions against corruption. However, while Germany ratified the Council of Europe Criminal Law Convention on Corruption in 2017, it has not yet ratified the Civil Law Convention on Corruption.

Resources to Report Corruption

There is no central government anti-corruption agency in Germany.

Contact at “watchdog” organization:

Prof. Dr. Edda Muller
Chair
Transparency International Germany
Alte Schonhauser Str. 44, 10119 Berlin
+49 30 549 898 0
office@transparency.de

The Federal Criminal Office publishes an annual report: “Lagebild Korruption” – the latest one covers 2016.

https://www.bka.de/SharedDocs/Downloads/DE/Publikationen/JahresberichteUndLagebilder/
Korruption/korruptionBundeslagebild2015.html;jsessionid=6498B8909CDD2549EBD2BCF686B
D3A95.live0601?nn=28078
 

Political acts of violence against either foreign or domestic business enterprises are extremely rare. Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.

The German labor force is generally highly skilled, well-educated, and productive. Employment in Germany has continued to rise for the twelfth consecutive year and reached an all-time high of 44.3 million in 2017, an increase of 638,000 (or 1.5 percent) from 2016—the highest level since German reunification in 1990.

Simultaneously, unemployment has fallen by half or more since 2005, and reached in 2017 the lowest average annual value in 26 years. In 2017, around 2.53 million people were registered as unemployed, corresponding to an unemployment rate of 5.7 percent, according to data and methodology used by Germany’s Federal Employment Agency. Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.8 percent in 2017, the second lowest rate in the European Union. Although the unemployment rate gap between federal states in eastern Germany versus western Germany has narrowed considerably in recent years, the average unemployment rate in the eastern states (7.6 percent) still significantly exceeded that of the western states (5.3 percent) in 2017.

Germany’s national youth unemployment rate was 7.0 percent in 2016, the lowest in the EU. The German vocational training system has gained international interest as a key contributor to Germany’s highly skilled workforce and its sustainably low youth unemployment rate. Germany’s so-called “dual vocational training,” a combination of theoretical courses taught at schools and practical application in the workplace, teaches and develops many of the skills employers need. Each year, there are more than 500,000 apprenticeship positions available in more than 340 recognized training professions in all sectors of the economy and public administration. Approximately 50 percent of students choose to start an apprenticeship. The government is promoting apprenticeship opportunities, in partnership with industry, through the “National Pact to Promote Training and Young Skilled Workers.”

An element of growing concern for German business is a shrinking labor force due to an aging population and a shortage of skilled labor. Official forecasts at the behest of the Federal Ministry of Labor and Social Affairs predict that the current working age population will shrink by almost 3 million between 2010 and 2030 resulting in an overall shortage of workforce and skilled labor. Labor bottlenecks already constrain activity in many industries, occupations, and regions. According to the Federal Employment Agency, doctors; medical and geriatric nurses; mechanical, automotive, and electrical engineers; and IT professionals are in short supply. The government has begun to enhance its efforts to ensure an adequate labor supply by improving programs to integrate women, elderly, young people, and foreign nationals into the labor market and also by the 2015 introduction of a federal statutory minimum wage, which was increased to €8.84 ($10.94) on January 1, 2018. Sectors in which the labor shortage is particularly severe can pay higher wages. The government has also facilitated the immigration of qualified workers.

The net immigration rate of foreigners (immigrants minus emigrants) rose from a 2008 low of 10,700 to 1.5 million in 2015 and 482,000 in 2016. Whereas in recent years the majority of immigrants came from other EU member states choosing Germany due to its positive labor market situation, the majority of arrivals in 2015 and 2016 were refugees/asylum-seekers. The Federal Ministry of the Interior reported that in 2015, 890,000 refugees/asylum-seekers came to Germany, followed by 280,000 in 2016, and 186,644 in 2017. An updated 2016 forecast commissioned by the Federal Ministry of Labor and Social Affairs predicts that the immigration of refugees will increase the population by 1.4 to 2.1 million until 2030, lifting annual economic growth by 0.25 percent than without immigration. The number of employed will increase by 1.2 million, but unemployment is also likely to rise given the slow integration of many refugees into the labor market.

Labor Relations

Germans consider the cooperation between labor unions and employer associations to be a fundamental principle of their social market economy and believe this has contributed to the country’s resilience during the economic and financial crisis. Insofar as job security for members is a core objective for German labor unions, unions typically show restraint in collective bargaining in weak economic times and often can negotiate higher wages in strong economic conditions. According to the Institute of Economic and Social Research (WSI), the number of workdays lost to labor actions fell to 238,000 in 2017, compared to 462,000 in 2016. WSI assesses this decline was due to unions negotiating somewhat higher wages over longer periods in their collective wage agreements in 2017. All workers have the right to strike, except for civil servants (including teachers and police) and staff in sensitive or essential positions, such as members of the armed forces.

Germany’s constitution, federal legislation, and government regulations contain provisions designed to protect the right of employees to form and join independent unions of their choice. The overwhelming majority of unionized workers are members of one of the eight largest unions — largely grouped by industry or service sector — which are affiliates of the German Trade Union Confederation (Deutscher Gewerkschaftsbund, DGB). Several smaller unions exist outside the DGB. Overall trade union membership has, however, been in decline over the last several years. In 2013, less than 18 percent of the workforce belonged to unions. Since peaking at around 12 million members shortly after German reunification, total DGB union membership has dropped to 5.9 million with IG Metall being the largest German labor union with 2.3 million members, followed by the influential service sector union Ver.di (1.9 million members).

The constitution and enabling legislation protect the right to collective bargaining, and agreements are legally binding to the parties. In 2016, over three quarters (78 percent) of non-self-employed workers were directly or indirectly covered by a collective wage agreement, 59 percent of the labor force in the western part of the country and approximately 47 percent in the East. On average, collective bargaining agreements in Germany were valid for 24 months in 2075.

Collective bargaining resulted in an overall real wage gain of 0.6 percent in 2017, on top of an inflation rate of 1.8 percent.

Labor costs increased by 2.6 percent in 2017. With an average labor cost of €34.10 ($42.24) per hour, Germany ranked fifth among the 28 EU-members states (EU average: €26.80/$33.20) in 2017. Since the introduction of the European common currency, the increases of the unit labor cost in Germany remained significantly below EU average.

By law, workers can elect a works council in any private company employing at least five people. The rights of the works council include the right to be informed, to be consulted, and to participate in company decisions. Works councils often help labor and management to settle problems before they become disputes and disrupt work. In addition, “co-determination” laws give the workforce in medium-sized or large companies (corporations, limited liability companies, partnerships limited by shares, co-operatives, and mutual insurance companies) significant voting representation on the firms’ supervisory boards. This co-determination in the supervisory board extends to all company activities.

OPIC programs were available for the new states of eastern Germany for several years during the early 1990s following reunification, but were later suspended due to economic and political progress which caused the region to “graduate” from OPIC coverage.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

Host Country Gross Domestic Product (GDP) ($M USD)

2017

2015

€3,263,400

€3,043,700

2016

$3,477,796.27

www.destatis.de 
(Federal Statistical Office,
data only available in €)

www.worldbank.org/en/country 

Foreign Direct Investment

Host Country Statistical Source

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2015

€52,651

2016

$107,711

http://www.bundesbank.de 
(German Central Bank,
2015 data published in April 2017,
only available in €)

BEA data available at
http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm
 

Host country’s FDI in the United States ($M USD, stock positions)

2015

€227,033

2016

$372,778

http://www.bundesbank.de 
(German Central Bank,
2015 data published in April 2017,
only available in €)

BEA data available at
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 

Total inbound stock of FDI as % host GDP

2015

1.7%

2016

3.1%

N/A

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 786,051 100% Total Outward 1,335,756 100%
Netherlands 146,029 18.6% United States 262,202 19.6%
Luxembourg 143,574 18.3% Luxembourg 128,990 9.7%
United States 74,792 9.5% Netherlands 128,570 9.6%
United Kingdom 66,523 8.5% United Kingdom 128,039 9.6%
Switzerland 64,989 8.3% China, P.R.: Mainland 75,372 5.6%
“0” reflects amounts rounded to +/- $500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 3,283,434 100% All Countries 1,164,329 100% All Countries 2,119,106 100%
Luxembourg 628,059 19.1% Luxembourg 521,548 44.8% France 308,557 14.6%
France 404.412 12.3% United States 139,305 12.0% United States 248,626 11.7%
United States 387,932 11.8% France 95,855 8.2% Netherlands 225,042 10.6%
Netherlands 264,742 8.1% Ireland 95,089 8.2% Italy 151,971 7.2%
United Kingdom 203,215 6.2% United Kingdom 54,371 4.7% United Kingdom 148,843 7.0%

Minister-Counselor for Commercial Affairs
Clayallee 170, 14191 Berlin, Germany
+49-(0)30-8305-1900
office.berlin@trade.gov

2018 Investment Climate Statements: Germany
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