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 is consistently ranked as one of the most attractive investment destinations based on its stable legal environment, reliable infrastructure, highly skilled workforce, and world-class research and development.
An EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Capital markets and portfolio investments operate freely with no discrimination between German and foreign firms. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment.
Foreign investment in Germany mainly originates from other European countries, the United States, and Japan, although FDI from emerging economies (and China) has grown in recent years. The United States is the leading source of non-European FDI in Germany. In 2020, total U.S. FDI in Germany was $162 billion. The key U.S. FDI sectors include chemicals ($8.7 billion), machinery ($6.5 billion), finance ($13.2 billion), and professional, scientific, and technical services ($10.1 billion). From 2019 to 2020, the industry sector “chemicals” grew significantly from $4.8 billion to $8.7 billion. Historically, machinery, information technology, finance, holding companies (nonbank), and professional, scientific, and technical services have dominated U.S. FDI in Germany.
German legal, regulatory, and accounting systems can be complex but are generally transparent and consistent with developed-market norms. Businesses operate within a well-regulated, albeit relatively high-cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property. Germany’s well-established enforcement laws and official enforcement services ensure investors can assert their rights. German courts are fully available to foreign investors in an investment dispute. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.
The German government continues to strengthen provisions for national security screening of inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors, particularly from China, in recent years. German authorities screen acquisitions by foreign entities acquiring more than 10 percent of voting rights of German companies in critical sectors, including health care, artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing, and quantum technology, among others. Foreign investors who seek to acquire at least 10 percent of voting rights of a German company in one of those fields are required to notify the government and potentially become subject to an investment review. Furthermore, acquisitions by foreign government-owned or -funded entities will now trigger a review.
German authorities are committed to fighting money laundering and corruption. The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The German government and industry actively encourage foreign investment. U.S. investment continues to account for the largest share of Germany’s FDI. 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 National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations. The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Climate Action (MEC) to review acquisitions of domestic companies by foreign buyers and to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure). For many decades Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The investment-related challenges facing foreign companies are broadly the same as those that face domestic firms, e.g., relatively high tax rates and energy costs, stringent environmental regulations, and labor laws that complicate hiring and dismissals. Germany Trade and Invest (GTAI), the country’s economic development agency, provides extensive information for investors: https://www.gtai.de/gtai-en/invest
Limits on Foreign Control and Right to Private Ownership and Establishment
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.
Companies seeking to open a branch office in Germany without establishing a new legal entity, (e.g., for the provision of employee placement services, such as providing temporary office support, domestic help, or executive search services), must register and have at least one representative located in Germany.
While there are no economy-wide limits on foreign ownership or control, Germany maintains an elaborate mechanism to screen foreign investments based on national security grounds. The legislative basis for the mechanism (the Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance) has been amended several times in recent years to tighten parameters of the screening as technological threats evolve, particularly to address growing interest by foreign investors in both Mittelstand (mid-sized) and blue-chip German companies. Germany amended its investment screening mechanism May 1, 2021 and has now fully implemented the EU Screening Directive. With the amendment, firms must notify MEC of foreign investments and MEC can then screen investments in sensitive sectors and technologies if the buyer plans to acquire 10 percent or more of the company’s voting rights and may be required, regardless, for a non-EU company acquiring more than 25 percent of voting rights (https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/investment-screening.html).
In the screening process, MEC considers “stockpile acquisitions” by the same investor in a German company or “atypical control investments” where an investor secures additional influence in company operations via side contractual agreements. MEC can also factor in combined acquisitions by multiple investors if all are controlled by one foreign government. The total time for the screening process, depending on the sensitivities of the investment, may take up 10 to 12 months. BMWK – Investment screening (bmwi.de)
Other Investment Policy Reviews
The World Bank Group’s “Doing Business 2020” Index provides additional information on Germany’s investment climate. [Note: this report is no longer updated]. The American Chamber of Commerce in Germany publishes results of an annual survey of U.S. investors in Germany (“AmCham Germany Transatlantic Business Barometer.” https://www.amcham.de/publications).
Before engaging in commercial activities, companies and business operators must 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 (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. According to the World Bank’s Doing Business Report 2020, the median duration to register a business in Germany is eight days, though some firms have experienced longer processing times.
Micro-enterprises: fewer than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
Small enterprises: fewer than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
Medium-sized enterprises: fewer than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.
U.S.-based exporters seeking to sell in Germany (e.g., via commercial platforms) are required to register with one specific tax authority in Bonn, which can lead to significant delays due to capacity issues.
Germany’s federal government provides guarantees for investments by Germany-based companies in developing and emerging economies and countries in transition in order to insure them against political risks. In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks. In 2020, the government issued investment guarantees amounting to €900 million for investment projects in 13 countries, with the majority of those in China and India.
2. Bilateral Investment and Taxation Treaties
Germany does not have a bilateral investment treaty (BIT) with the United States. However, a Friendship, Commerce and Navigation (FCN) treaty dating from 1956 contains many BIT-relevant provisions including national treatment, most-favored nation, free capital flows, and full protection and security.
Germany has bilateral investment treaties in force with 125 countries and territories. Treaties with former sovereign entities (including the Czech and Slovak Federative Republic (CSFR), the Soviet Union, Sudan, and Yugoslavia) continue to apply in an additional seven cases. For a full list of treaties containing investment provisions that are currently in force, see the UNCTAD Navigator at https://investmentpolicy.unctad.org/country-navigator/79/germany
Germany has ratified treaties with the following countries and territories that have not yet entered into force:
(*) 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.” A 2006 Protocol 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 regarding the U.S. Foreign Account Tax Compliance Act.
As of January 2021, Germany had bilateral tax treaties with a total of 96 countries, including with the United States, and, regarding inheritance taxes, with six countries. It has special bilateral treaties with respect to income and assets by shipping and aerospace companies with 11 countries and has treaties relating to the exchange of information and administrative assistance with 27 countries.
Germany is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax https://www.oecd.org/tax/beps/about/.
3. Legal Regime
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.
Public consultation by federal authorities 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 form for public comment. According to the Joint Rules of Procedure, ministries should consult the concerned industries’ associations, consumer organizations, environmental, and other NGOs. The consultation period generally takes two to eight weeks.
The German Institute for Standardization (DIN), Germany’s independent and sole national standards body representing Germany in non-governmental international standards organizations, is open to German subsidiaries of foreign companies.
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 Member States transpose via their respective legislative processes. Germany regularly adheres to this process.
EU Member States must transpose directives within a specified time period. Should a deadline not be met, the Member State may suffer the initiation of an “infringement procedure,” which could result in steep fines. Germany has a set of rules that prescribe how to break down any payment of fines devolving to the Federal Government and the federal states (Länder). Both bear part of the costs. Payment requirements by the individual states depend on the size of their population and the respective part they played in non-compliance. In 2020, the Commission opened 28 new infringement cases against Germany; at year-end, 79 total infringement cases remained open against Germany.
In accordance with WTO membership requirements, the Federal Government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT) through the Federal Ministry of Economic Affairs and Energy.
Legal System and Judicial Independence
German law is stable and predictable. Companies can effectively enforce property and contractual rights. Germany’s well-established enforcement laws and official enforcement services ensure investors can assert their rights. German courts are fully available to foreign investors in an investment dispute.
The judicial system is independent, and the 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 and impartial. International studies and empirical data have attested that Germany offers an effective 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.
Apart from the regular courts, which hear civil and criminal cases, Germany has specialized courts for administrative law, labor law, social law, and finance and tax law. Many civil regional courts have specialized chambers for commercial matters. In 2018, the first German regional courts for civil matters (in Frankfurt and Hamburg) established Chambers for International Commercial Disputes, introducing the possibility to hear international trade disputes in English. Other federal states are currently discussing plans to introduce these specialized chambers as well. In November 2020, Baden-Wuerttemberg opened the first commercial court in Germany with locations in Stuttgart and Mannheim, with the option to choose English– language proceedings.
The Federal Patent Court hears cases on patents, trademarks, and utility rights 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
In the case of acquisitions of critical infrastructure and companies in sensitive sectors, the threshold for triggering an investment review by the government is 10 percent. The Federal Ministry for Economic Affairs and Climate Action may review acquisitions of domestic companies by foreign buyers, regardless of national security concerns, 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.
In 2021, the Federal Ministry for Economic Affairs and Climate Action screened 306 foreign acquisitions and prohibited none. MEC officials told Post the mere prospect of rejection has caused foreign investors to pull out of prospective deals in sensitive sectors in the past. All national security decisions by the Ministry can be appealed in administrative courts.
There is no general requirement for investors to obtain approval for any acquisition unless the target company poses a potential national security risk, such as operating or providing services relating to critical infrastructure, is a media company, or operates in the health sector. The Federal Ministry for Economic Affairs and Climate Action 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 Climate Action in advance of the planned acquisition to obtain legal certainty at an early stage.
If the Federal Ministry for Economic Affairs and Climate Action does not open an in-depth review within two months from the receipt of the request the certificate is deemed as granted. During the review, MEC may ask 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 has continuously amended domestic investment screening provisions in recent years to transpose the relevant EU framework and address evolving security risks. An amendment in June 2017 clarified the scope for review and gave the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by foreign investors with apparent ties to national governments. 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, and which are subject to notification requirements. The new rules also extended 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 introduced 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 affiliate company are now also explicitly subject to the new rules.
With further amendments in 2020, Germany implemented the 2019 EU Screening Regulation.
The amendments a) introduced a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) consider the impact on other EU member states, and c) formally suspend transactions during the screening process.
Furthermore, acquisitions by foreign government-owned or -funded entities now trigger a review, and the healthcare industry is now considered a sensitive sector to which the stricter 10% threshold applies. In May 2021, a further amendment entered into force, which introduced a list of sensitive sectors and technologies (like the current list of critical infrastructures), including artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing, and quantum technology. Foreign investors who seek to acquire at least 10% of ownership rights of a German company in one those fields must notify the government and potentially become subject to an investment review. The screening can now also consider “stockpiling acquisitions” by the same investor, “atypical control investments” where an investor seeks additional influence in company operations via side contractual agreements, or combined acquisitions by multiple investors, if all are controlled by one foreign government.
The Ministry for Economic Affairs and Climate Action provides comprehensive information on Germany’s investment screening regime on its website in English:
The German government ensures competition on a level playing field based on two main legal codes:
The Law against Limiting Competition (GesetzgegenWettbewerbsbeschränkungen– GWB) is the legal basis for limiting 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 Economic Affairs and Climate Action can provide a permit under specific conditions.
A June 2017 amendment to the GWB expanded the reach of the Federal Cartel Office (FCO) to include internet and data-based business models; the FCO has shown an interest in investigating large internet firms. A February 2019 FCO investigation found that Facebook had abused its dominant position in social media to harvest user data. Facebook challenged the FCO’s decision in court, but in June 2020, Germany’s highest court upheld the FCO’s action. In March 2021, the Higher Regional Court in Düsseldorf referred the case to the European Court of Justice for guidance. The FCO has continued to challenge the conduct of large tech platforms, particularly with regard to the use of user data. Another FCO case against Facebook, initiated in December 2020, regards the integration of the company’s Oculus virtual reality platform into its broader platform, creating mandatory registration of Facebook accounts for all Oculus users.
In 2021, a further amendment to the GWB, known as the Digitalization Act, entered into force codifying tools that allow greater scrutiny of digital platforms by the FCO, in order to “better counteract abusive behavior by companies with paramount cross-market significance for competition.” The law aims to prohibit large platforms from taking certain actions that put competitors at a disadvantage, including in markets for related services or up and down the supply chain – even before the large platform becomes dominant in those secondary markets. To achieve this goal, the amendments expand the powers of the FCO to act earlier and more broadly. Due to the relatively modest number of German platforms, the amendments will primarily affect U.S. companies. The Cartel Office commenced investigations against four U.S. platforms – Alphabet/Google, Amazon, Meta/Facebook and Apple – in 2021 to assess whether they fall under the scope of the new legislation. In January 2022, the competition authority determined Alphabet/Google will be subject to abuse control measures under the scope of the new law but has not yet announced remedies. The three other investigations are still ongoing.
While the focus of the GWB is to preserve market access, the Law against Unfair Competition seeks to protect competitors, consumers, and other market participants against unfair competitive behavior by companies. This law is primarily invoked in regional courts by private claimants rather than by the FCO.
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 in and lenders to expropriated entities are entitled to receive prompt, adequate, and effective compensation.
The Berlin state government is currently reviewing a petition for a referendum submitted by a citizens’ initiative calling for the expropriation of residential apartments owned by large corporations. At least one party in the governing coalition officially supports the proposal. Certain long-running expropriation cases date back to the Nazi and communist regimes.
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 known treaty-based investor dispute settlement cases, Germany has been challenged a handful of times, none of which involved U.S. investors.
International Commercial Arbitration and Foreign Courts
Germany has a domestic arbitration body called the German Arbitration Institute (DIS). The body offers commercial arbitration in accordance with UNCITRAL arbitration standards. “Book 10” of the German Code of Civil Procedure addresses arbitration proceedings. The International Chamber of Commerce has an office in Berlin. In addition, local chambers of commerce and industry offer arbitration services.
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 filing late for insolvency is.
Under a regular insolvency procedure, the insolvent business is generally broken up in order to recover assets through the sale of individual items or rights or parts of the company. Proceeds can then be paid out to creditors in the insolvency proceedings. The distribution of monies to creditors follows detailed instructions in 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 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 Index, with a recovery rate of 79.8 cents on the dollar.
In December 2020, the Bundestag passed legislation implementing the EU Restructuring Directive to modernize and make German restructuring and insolvency law more effective.
The Bundestag also passed legislation granting temporary relief to companies facing insolvency due to the COVID-19 pandemic, including temporary suspensions from the obligation to file for insolvency under strict requirements. This suspension expired in May 2021.
4. Industrial Policies
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 must meet the same criteria for eligibility.
Germany’s Climate Action Program provides targeted support for research and development into climate-friendly technologies, through which it aims to build on Germany’s position as a leading provider and a lead market for such technology. The Energy and Climate Fund, which is scheduled to reach a volume of $220 billion (200 billion euros) by 2026, is the main instrument for financing Germany’s energy transition and climate action measures. It facilitates investments in climate protection and security of supply.
The federal government also funds a program offering subsidized loans or nonrepayable cash grants to support the purchase of equipment leading to energy savings. Up to 45 percent of energy efficiency expenditures by large enterprises and 55 percent of expenditures by SMEs are eligible for coverage under the program.
There are currently two free ports in Germany operating under EU law: Bremerhaven and Cuxhaven. 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 discriminatory export policies or import policies affecting foreign investors: no requirements for local sourcing, export percentage, or local or national ownership. In some cases, however, there may be performance requirements tied to an incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.
Visa, residence, and work permit procedures for foreign investors are non-discriminatory and, for U.S. citizens (as investors or employees), generally liberal. No restrictions exist on the numbers of foreign managers brought in to supervise foreign investment projects. Work permits for managers can be granted for a maximum of three years and permits can only be renewed after a six-month “cooling off period.”
There are no general localization requirements for data storage in Germany. However, the invalidation of the Privacy Shield by the European Court of Justice in July 2020 in the Schrems II case has led not only to increased calls for localized data storage in Germany but also to greater scrutiny by the German data protection commissioners of U.S. service providers handling German user data. In recent years, German and European cloud providers have also sought to market the domestic location of their servers as a competitive advantage.
5. Protection of Property Rights
The German Government adheres to a policy of national treatment, which considers property owned by foreigners as fully protected under German law. In Germany, mortgage approvals are 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 to 1897. 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, as well as liabilities and restrictions. 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 rights (IPR). Legal structures are strong and enforcement is good. Nonetheless, internet piracy and counterfeit goods remain issues, and specific infringing websites are occasionally included in USTR’s Notorious Markets List. Germany has been a member of the World Intellectual Property Organization (WIPO) since 1970. The German Central Customs Authority annually publishes statistics on customs seizures of counterfeit and pirated goods. The statistics for 2020 are available at
Germany is party to the major international IPR agreements: the Berne 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 (PCT), the Brussels Satellite Convention, the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Many of the latest developments in German IPR law are derived from European legislation with the objective to make applications less burdensome and allow for European IPR protection.
The following types of protection are available:
Copyrights: National treatment is granted to foreign copyright holders, including remuneration for private recordings. Under the TRIPS Agreement, Germany grants legal protection for U.S. performing artists against the commercial distribution of unauthorized live recordings in Germany. Germany is party to the World Intellectual Property Organization (WIPO) Copyright Treaty and WIPO Performances and Phonograms Treaty, which came into force in 2010. Most rights holder organizations regard German authorities’ enforcement of IP rights as effective. In 2008, Germany implemented the EU Directive (2004/48/EC) on IPR enforcement with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action. Germany implemented the Digital Single Market Directive with the “Act to Adapt Copyright Law to the Requirements of the Digital Single Market,” which entered into force on June 7, 2021. This new law implemented necessary changes to the German Copyright Act. As part of the implementing legislation parliament passed the new Copyright Service Provider Act, which entered into force on August 1, 2021.
Trademarks: National treatment is granted to foreigners seeking to register trademarks 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. It is possible to register for trademark and design protection nationally in Germany or for an EU Trade Mark and/or Registered Community Design at the EU Intellectual Property Office (EUIPO). These provide protection for industrial design or trademarks in the entire EU market. Both national trademarks and European Union Trade Marks (EUTMs) can be applied for from the U.S. Patent and Trademark Office (USPTO) as part of an international trademark registration system, or the applicant may apply directly for those trademarks from EUIPO at https://euipo.europa.eu/ohimportal/en/home.
Patents: National treatment is granted to foreigners seeking to register patents at the German Patent and Trade Mark Office. Patents are granted for technical inventions that 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 from the patent application filing date. Patent applicants can request accelerated examination under the Global Patent Prosecution Highway (GPPH) when filing the application, provided that the patent application was previously filed at the USPTO and that at least one claim had been determined to be patentable. There are a number of differences between U.S. and German patent law, including the filing systems (“first-inventor-to-file” versus “first-to-file”, respectively), which a qualified patent attorney can explain to U.S. patent applicants. German law also offers the possibility to register designs and utility models.
A U.S. applicant may file a patent in multiple European countries through the European Patent Office (EPO), which grants European patents for the contracting states to the European Patent Convention (EPC). The 38 contracting states include the entire EU membership and several additional European countries; Germany joined the EPC in 1977. It should be noted that some EPC members require a translation of the granted European patent in their language for validation purposes. The EPO provides a convenient single point to file a patent in as many of these countries as an applicant would like: https://www.epo.org/applying/basics.html. U.S. applicants seeking patent rights in multiple countries can alternatively file an international Patent Coordination Treaty (PCT) application with the USPTO.
Trade Secrets: Trade secrets are protected in Germany by the Law for the Protection of Trade Secrets, which has been in force since April 2019 and implements the 2016 EU Directive (2016/943). According to the law, the illegal accessing, appropriation, and copying of trade secrets, including through social engineering, is prohibited. Explicitly exempt from the law is “reverse engineering” of a publicly available item, and appropriation, usage, or publication of a trade secret to protect a “legitimate interest,”, including journalistic research and whistleblowing. The law requires companies implement “adequate confidentiality measures” for information to be protected as a trade secret under the law. Owners of trade secrets are entitled to omission, compensation, and information about the culprit, as well as the destruction, return, recall, and ultimately the removal of the infringing products from the market.
As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Capital markets and portfolio investments operate freely with no discrimination between German and foreign firms. 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 European Central Bank and the national central banks of the 19 member states, including the German Central Bank (Bundesbank). A European framework for national security screening of foreign investments, which entered into force in April 2019, provides a basis under European law to restrict capital movements into Germany because of threats to national security. Global investors see Germany as a safe place to invest. German sovereign bonds continue to 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. The law went 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; 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. Since the creation of the European single supervisory mechanism (SSM) in November 2014, the European Central Bank directly supervises 21 banks located in Germany (as of January 2022), among them four subsidiaries of foreign banks.
Germany has a modern and open banking sector characterized by a highly diversified and decentralized, small-scale structure. As a result, it is extremely competitive, profit margins notably in the retail sector are low, and the banking sector is considered “over-banked” and in need of consolidation. The country’s “three-pillar” banking system consists of private commercial banks, cooperative banks, and public banks (savings banks/Sparkassen and the regional state-owned banks/Landesbanken). This structure has remained unchanged despite marked consolidation within each “pillar” since the financial crisis in 2009. By the end of 2020 the number of state banks (Landesbanken) had dropped from 12 to 6, savings banks from 446 in 2007 to 377, and cooperative banks from 1,234 to 818. Two of the five large private-sector banks have exited the market (Dresdner, Postbank). The balance sheet total of German banks dropped from 304 percent of GDP in 2007 to 192 percent of year-end 2020 GDP with banking sector assets worth €9.1 trillion. Market shares in corporate finance of the banking groups remained largely unchanged (all figures for end of 2021): commercial banks 25.5 percent (domestic 16.2 percent, foreign banks 9.3 percent), savings banks 31.2 percent, credit cooperative banks 22 percent, regional Landesbanken 9.3 percent, and development banks/building and loan associations/mortgage banks 12 percent.
Germany’s retail banking sector is healthy and well capitalized in line with ECB rules on bank capitalizations. The sector is dominated by globally active banks, Deutsche Bank (Germany’s largest bank by balance sheet total) and Commerzbank (fourth largest bank), with balance sheets of €1.32 trillion and €507 billion respectively (2020 figures). Commerzbank received €18 billion in financial assistance from the federal government in 2009, for which the government took a 25 percent stake in the bank (now reduced to 15.6 percent). Merger talks between Deutsche Bank and Commerzbank failed in 2019. The second largest of the top ten German banks with €595 billion of assets per year-end 2020 is DZ Bank, the central institution of the Cooperative Finance Group (after its merger with WGZ Bank in July 2016), followed by German branches of large international banks (UniCredit Bank, ING-Diba), development banks (KfW Group, NRW Bank), and state banks (LBBW, Bayern LB, Helaba, NordLB).
EUR bn (December 31, 2020)
Deutsche Bank AG
DZ Bank AG
Unicredit Bank AG
J.P. Morgan AG
ING Holding Deutschland GmbH
DKB Deutsche Kreditbank AG
German credit institutions’ operating business proved robust in 2020 despite the prolonged low interest rate environment and the coronavirus pandemic. Operating income rose by €1.8 billion (+1.5 percent) on the year to €120.5 billion. In 2020 German credit institutions reported however a pre-tax profit of only €14.3 billion, coming in below the long-term average of €17.6 billion and significantly lower than the average of the post-financial crisis years (2010 to 2018) of €25.4 billion. Their 2020 net interest income of €81.1 billion remained below the long-term average of €87.2 billion. Credit risk provisioning rose significantly due to the impact of the coronavirus pandemic on economic activity, reaching €5.3 billion or 0.8 percent of big banks’ annual average lending portfolio. The banking sector’s average return on equity before tax in 2020 slipped to 2.71 percent (after tax: 1.12 percent) (with savings banks and credit cooperatives generating a higher return, and big banks a negative return).
Foreign Exchange and Remittances
As a member of the Eurozone, Germany uses the euro as its currency, along with 18 other EU 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. There is no difficulty in obtaining foreign exchange.
Germany is a member of the 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. Federal law is enforced by regional state prosecutors. Investigations are conducted by the Federal and State Offices of Criminal Investigations (BKA/LKA). The administrative authority for imposing anti-money laundering requirements on financial institutions is the Federal Financial Supervisory Authority (BaFin).
There are no restrictions or delays on investment remittances or the inflow or outflow of profits.
In 2020 Germany was the largest source country for remittances in the EU, making up 17.4 percent of all outbound personal remittances of the EU-27 (Eurostat). Migrants in Germany posted €19.3 billion ($22 billion) (0.6 percent of GDP) abroad in 2020. Remittance flows into Germany amounted to around €15.7 billion ($ 17.9 billion) in 2020, approximately 0.5 percent of Germany’s GDP. Approximately 20 percent of remittances are paid through online channels and 80 percent are paid in cash.
During its G20 presidency in 2017, Germany passed an updated version of its “G20 National Remittance Plan,.” which it has updated annually. 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.” Current publications on the subject are available here:
The German government does not currently have a sovereign wealth fund or an asset management bureau.
7. State-Owned Enterprises
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). KfW’s mandate is to promote global development. 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, and yearly reports are published.
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 19,009 entities for 2019, or 0.58 percent of the total 3.35 million companies in Germany. SOEs in 2019 had €646 billion in revenue and €632 billion in expenditures. Forty-one percent of SOEs’ revenue was generated by water and energy suppliers, 12 percent by health and social services, and 11 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 two percent are owned by the federal government.
The Federal Ministry of Finance 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 401 companies at the end of 2019 (per the Ministry’s April 2021 publication of full-year 2019 figures), 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 infrastructure, economic development, science, administration/increasing efficiency, defense, development policy, and culture. 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. In 2020, in the wake of the COVID-19 pandemic, the German government acquired shares of several large German companies, including CureVac, TUI, and Lufthansa in an attempt to prevent companies from filing for insolvency or, in the case of CureVac, to support vaccine research in Germany.
The 2021 annual report (with 2019 data) can be found here:
Publicly-owned banks 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. Given their joint market share, about 40 percent of the German banking sector is thus publicly owned. 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 considering Germany’s balanced budget rules, which took effect for the states in 2020.
Germany does not have any privatization programs currently. German authorities treat foreigners equally in privatizations of state-owned enterprises.
8. Responsible Business Conduct
In December 2016, the Federal Government passed the National Action Plan for Business and Human Rights (NAP), applying the UN Guiding Principles for Business and Human Rights to the activities of German companies though largely voluntary measures. A 2020 review found most companies did not sufficiently fulfill due diligence measures and in 2021 Germany passed the legally binding Human Rights Due Diligence in Supply Chains Act. From 2023, the act will apply to companies with at least 3,000 employees with their central administration, principal place of business, administrative headquarters, a statutory seat, or a branch office in Germany. From 2024 it will apply to companies with at least 1000 employees. The 2021 coalition agreement between the SPD, the Greens party, and the Free Democrats Party (FDP) committed to revising the NAP in line with the Supply Chains Act. Germany promoted EU-level legislation during its 2020 Council of the European Union presidency and the EU Commission published a legislative proposal in 2022.
Germany adheres to the OECD Guidelines for Multinational Enterprises; the National Contact Point (NCP) is housed in the Federal Ministry of Economic Affairs and Climate Action. The NCP is supported by an advisory board composed of several ministries, business organizations, trade unions, and NGOs. This working group usually meets once a year to discuss all Guidelines-related issues. The German NCP can be contacted through the Ministry’s website: https://www.bmwi.de/Redaktion/EN/Textsammlungen/Foreign-Trade/national-contact-point-ncp.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 impacts into their decision-making, the government provides information online and in hard copy. The federal government encourages corporate social responsibility (CSR) through awards and prizes, business fairs, and reports and newsletters. The government also organizes so-called “sector dialogues” to connect companies and facilitate the exchange of best practices and 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 in Germany (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.
Social reporting is currently 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 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, known as the “World Wildlife Fund” in the United States).
The government has an ambitious national climate strategy which, by law, requires the reduction of greenhouse gas emissions 65 percent by 2030, 88 percent by 2040, and the achievement of complete carbon neutrality by 2045. It also aims to source 100 percent of its electricity from renewables by 2035. To achieve this objective it is investing heavily in renewables and implementing a combination of carrots and sticks for private companies to spur investment and deter continued use of climate-polluting energy sources. The country earmarked $220 billion (€200 billion) to fund industrial transformation through 2026, including climate protection, hydrogen technology, and expansion of its electric vehicle charging network. It is also removing bureaucratic hurdles for renewable projects. States must designate two percent of their land for onshore wind energy, and solar energy panels will be mandatory on new commercial buildings. Germany also intends to phase out coal “ideally” by 2030, although Russia’s February 2022 further invasion of Ukraine could lead to a delay as the government seeks alternatives to Russian oil and gas. The government aims to increase domestic rail freight transport by 25 percent, as moving freight by rail instead of trucks emits far fewer greenhouse gases, and it will advocate for EU legislation to encourage rail travel and greener forms of transport throughout the bloc. Germany is part of the EU’s greenhouse gas Emissions Trading System, which sets a price on carbon emissions from power stations, energy-intensive industries (e.g., oil refineries, steelworks, and producers of iron, aluminum, cement, paper and glass), and intra-European commercial aviation. It also instituted a national emissions trading system to cover the transport and building heating sectors in 2021.
The Global Green Growth Institute ranked Germany fourth globally in its 2020 Green Growth Index. Germany ranked fifth in the category “Natural capital protection,” which takes factors such as environmental quality and biodiversity protection into consideration, and second in “Green economic opportunities,” which measures green investment, green trade, green employment, and green innovation. In 2021, Germany launched a $1 billion fund aimed at halting global biodiversity loss and providing long-term financial support for protected areas across Africa, Asia, and South America. The new government plans to significantly increase Germany’s financial commitment to global biodiversity and promote “an ambitious new global framework” at the April 2022 UN Biodiversity Conference.
Public procurement policies include environmental and green growth considerations such as resource efficiency, pollution abatement, and climate resilience. The German Environment Agency has formulated clear requirements and recommendations for climate change mitigation at public agencies, including their procurement policies, and it has an environmental management system in place certified according to the EU Eco-Management and Audit System. The federal government and 11 of Germany’s federal states have committed to achieving greenhouse gas-neutral administration.
Among industrialized countries, Germany ranks 10th out of 180, according to Transparency International’s 2021 Corruption Perceptions Index. Some sectors including the automotive industry, construction sector, and public contracting, exert political influence and political 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 whistleblowing 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.
To prevent corruption, Germany relies on the existing legal and regulatory framework consisting of various provisions under criminal law, public service law, and other rules for the administration at both federal and state levels. The framework covers internal corruption prevention, accounting standards, capital market disclosure requirements, and transparency rules, among other measures.
According to the Federal Criminal Office, in 2020, 50.6 percent of all corruption cases were directed towards the public administration (down from 73 percent in 2018), 33.2 percent towards the business sector (down from 39 percent in 2019), 13.4 percent towards law enforcement and judicial authorities (up from 9 percent in 2019), and 2 percent to political officials (unchanged compared to 2018).
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. In early 2021, several parliamentarians stepped down due to inappropriate financial gains made through personal relationships to businesses involved in the procurement of face masks during the initial stages of the pandemic.
Donations by private persons or entities to political parties are legally permitted. However, if they exceed €50,000, they must be reported to the President of the Bundestag, who is required to immediately publish the name of the party, the amount of the donation, the name of the donor, the date of the donation, and the date the recipient reported the donation. 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.
Media reports in past years about bribery investigations against Siemens, Daimler, Deutsche Telekom, Deutsche Bank, and Ferrostaal have increased awareness of the problem of corruption. As a result, listed companies and multinationals have expanded compliance departments, tightened internal codes of conduct, and offered more training to employees.
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 and actively enforces 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 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. Federal states are responsible for fighting corruption.
Due to Germany’s federal state structure, original responsibility in the area of anti-corruption lies with the individual federal states. Further information, in particular contact persons for corruption prevention, can be found on the websites of state level law enforcement (police) or the ombudsmen of the cities, districts and municipalities.
These offices, special telephone numbers or web-based contact options also offer whistleblowers or interested citizens the opportunity to contact them anonymously in individual federal states.
(The Federal Ministry of the Interior’s website provides further information on corruption prevention regulations and integrity regulations at the federal level.)
Claimants can contact “watchdog” organizations such as Transparency International for more information:
Hartmut Bäumer, Chair
Transparency International Germany
Alte Schönhauser Str. 44, 10119 Berlin
+49 30 549 898 0
The Federal Criminal Office publishes an annual report on corruption: “Bundeslagebild Korruption” – the latest one covers 2020.
Overall, political acts of violence against either foreign or domestic business enterprises are extremely rare. Most protests and demonstrations, whether political acts of violence against either foreign or domestic business enterprises or any other cause or focus, remain peaceful. However, minor attacks by left-wing extremists on commercial enterprises occur. These extremists justify their attacks as a means to combat the “capitalist system” as the “source of all evil.” In the foreground, however, concrete connections such as “anti-militarism” (in the case of armament companies), “anti-repression” (in the case of companies for prison logistics or surveillance technology), or the supposed commitment to climate protection (companies from the raw materials and energy sector) are usually cited. In several key instances in larger cities with a strained housing market (low availability of affordable housing options), left-wing extremists target real estate companies in connection with the defense of autonomous “free spaces” and the fight against “anti-social urban structures.” Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.
11. Labor Policies and Practices
The German labor force is generally highly skilled, well-educated, and productive. Before the economic downturn caused by COVID-19, employment in Germany had risen for 13 consecutive years and reached an all-time high of 45.3 million workers in 2019. As a result of the COVID-19 pandemic, employment fell to 44.8 million in 2020 and remained stagnant in 2021 at 44.79 million workers. The pandemic had a disproportionate impact on female workers, who comprise most employees in the tourism, restaurant, retail, and beauty industries.
Unemployment has fallen by more than half since 2005, and, in 2019, reached the lowest average annual value since German reunification. In 2019, around 2.34 million people were registered as unemployed, corresponding to an unemployment rate of 5.2 percent, according to German Federal Employment Agency calculations. Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.2 percent in 2019, the second lowest rate in the European Union. For the pandemic year 2020, the Federal Employment Agency reported an average unemployment rate of 5.9 percent and an average 2.7 million unemployed. In 2021, employment recovered despite the persistent pandemic, with the unemployment rate falling to 5.7 percent and the total number of unemployed dropping by 82,000. However, long-term effects on the labor market and the overall economy due to COVID-19 are not yet fully observable. All employees are by law covered by federal unemployment insurance that compensates for lack of income for up to 24 months. A government-funded temporary furlough program (“Kurzarbeit”) allows companies to decrease their workforce and labor costs with layoffs and has helped mitigate a negative labor market impact in the short term. At its peak in April 2020, the program covered more than six million employees. By December 2021 the number had decreased considerably to 790,000 but remained a key government tool to cope with the impact of COVID-19 on the labor market. The government, through the national employment agency, has spent more than €22 billion on this program, which it considers the main tool to keep unemployment low during the COVID-19 economic crisis. The government extended the program for all companies already meeting its conditions in March 2022 until the end of June 2022.
Germany’s average national youth unemployment rate was 6.9 percent in 2020, the lowest in the EU. The German vocational training system has garnered 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 promotes 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 the country’s decreasing population, which (absent large-scale immigration) will likely shrink considerably over the next few decades. Official forecasts at the behest of the Federal Ministry of Labor and Social Affairs predict the current working-age population will shrink by almost three 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. 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. The government has also facilitated the immigration of qualified workers.
Germans consider the cooperation between labor unions and employer associations to be a fundamental principle of their social market economy and believe this collaboration has contributed to the country’s resilience during economic and financial crises. Insofar as job security for members is a core objective for German labor unions, unions often show restraint in collective bargaining in weak economic times and often can negotiate higher wages in strong economic conditions. In an international comparison, Germany is in the lower midrange with regards to strike numbers and intensity. 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 2021, total DGB union membership amounted to 5.9 million. IG Metall is the largest German labor union with 2.2 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 2020, 52 percent of non-self-employed workers were covered by a collective wage agreement.
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 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.
From 2010 to 2020, real wages grew yearly by 1.4 percent on average. As a result of the COVID-19 pandemic, real wages fell in 2020 by 1.1 percent over the previous year, ending a six-year period of real wage increases. Job losses and enrollment in the government’s temporary furlough program (at 70 percent of previous wage levels) were the drivers of this reduction. In 2021 employment picked up again and nominal wages increased by 3.1 percent. Inflation in 2021 of 3.1 percent resulted in another year of real wage reduction of 0.1 percent.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
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. There is no DFC activity in Germany.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
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
Host Country Gross Domestic Product (GDP) ($M USD)