Country report Germany

Economic overview

Germany is the first economy in the EU and produces, with a GDP in 2020 of 3,329.0 billion euros (in 2019 it was 3,436.0), about 30% of the GDP of the Eurozone and 25% of that of the ‘EU.

The German GDP mainly contributes to services (70% of GDP), and the manufacturing industry (about 23% of GDP, net of the construction sector which accounts for 6%), while agriculture and fishing represent about 0.7% of GDP.

In 2020, due to the lockdown due to the Covid-19 emergency, the German economy suffered a deep recession (albeit less severe than that of 2009) which put an end to the ten-year growth phase, resulting in a decline in GDP of the 5.0% at the end of the year (compared to a decline in the Eurozone average of 7.8%).

The number of unemployed thus reached its highest level since 2016 and the unemployment rate, which represents the unemployed as a percentage of the workforce, rose to 4.0% from 3.0% the previous year. According to provisional calculations of the Federal Statistical Office – Destatis (1), the number of people employed in 2020 was 1.1% lower than in 2019. This means that the increase in employment observed for more than 14 years in Germany, even during the 2008-09 economic and financial crisis, it ended with the coronavirus crisis. However, according to Destatis, the trend of employment growth seen from 2007 onwards would likely end soon even without the pandemic due to the diminishing potential of the workforce due to demographic change. The compensation effect on this development caused by the increased labor force participation of the domestic population and the immigration of foreign labor is decreasing.

Foreign trade has also been severely affected by the effects of the pandemic. For a comparison, in the Eurozone there was a drop in exports of 9.2% and imports of 10.8% (3). In 2020, Germany achieved a nominal export surplus of € 188.4 billion. Net exports were € 11.5 billion lower than the previous year.

According to preliminary calculations by the Federal Statistical Office (Destatis), the government deficit in 2020 was € 158.2 billion (4.8% of GDP), after the state had reached a surplus of 52.5 billion euros. This financial deficit is the first after eight years of surplus and represents the second highest since unification, surpassed only by the record deficit of 1995. Public debt instead increased in 2020 to 70% of GDP (in 2019 it was 59, 6%).

Main sectors of industry

Agriculture, which is practiced on 34% of the national territory, employs 3% of the active population and does not cover the food needs of the country. Rye, which adapts to poor soils and cold climates, is grown in the northern plains while wheat, corn and barley are widespread in the hollows of the southern regions. The production of oats, sugar beets and potatoes are also important. Hops grow in the south and in the Main valley and are used for beer production. Among the fruit and vegetable crops, apples, pears and plums prevail. Cattle and pig breeding is highly developed. The bovine one is carried out intensively and with specialized technologies for the dairy and butter industry. Pork supplies the raw material for the sausage industry.

The country’s main mineral resource has long been coal; today the large coalfields, concentrated in the Ruhr area and the Saarland, are less and less exploited and the number of mines is drastically reducing. Germany imports oil and natural gas from abroad. The basic industry, metallurgical and iron and steel, is powerful. Most of the steel plants are located in the Ruhr basin and along the Rhine; the main centers are Essen, Dortmund and D uisburg. Other plants are located in Saxony, where the iron mines are located, and in the port cities of Hamburg and Lübeck.

The mechanical industry is highly developed, especially the automotive industry. Agricultural machinery, tractors, textile machinery, locomotives and ships are also produced in Germany. The optical and photographic equipment industry is thriving.

The chemical and pharmaceutical industry is also very important, also because Germany has made massive investments in scientific research. The most important products in this sector are plastics, synthetic fibers, pharmaceuticals, fertilizers and dyes.

The petrochemical industry, on the other hand, has located its plants at the arrival points of crude oil: in the ports of Hamburg and Bremen and near the city of Hanover.

The enormous German industrial apparatus, which is based on continuous exchanges of raw materials, products, workers and capital, has an efficient and developed transport system. The same morphology of the territory, mainly flat, has favored the construction of roads, railways, navigable canals and airports. The road and motorway network covers the territory in a capillary way, while railway communications are developed above all in the western regions.

In the trade sector, Germany is the second largest country in the world after the United States: about one sixth of world trade has Germany as its origin or destination.

Tourism has as its main destinations, in addition to the cities, rich in art and history, the forests of the Black Forest and the Bavarian Forest, the Thuringian mountains, the Rhine valley, the villages along the Romantic Strasse, the ancient university towns and the big cities. Note is the ski resort of Garmisch.

Taxation for businesses in Germany

A company in Germany is considered a tax resident if there is a registered office (which must also be indicated in the certificate of incorporation) or if the administrative office (place of management) is located in Germany. The place of registration of the company is not tax.

Corporate tax rate in Germany

The tax rate for companies is 15%. For this purpose, a solidarity surcharge and a commercial tax can be paid up to a total percentage of 30-33%. The tax varies by location: cities like Munich or Frankfurt charge higher taxes, while lower taxes apply in regions with low economic potential.

Corporate tax is levied on corporate profits. These include corporate profits or trading results, passive income and / or capital gains. Some business expenses are deductible and individuals can apply certain tax minimization strategies.

The fiscal year (fiscal year) can be the calendar year, but companies can set their own fiscal year. The fiscal year cannot exceed 12 months; Our specialized company formation representatives can help you with the legal requirements relating to the accounting period (accounting period).

Other taxes in Germany

Other information for companies in Germany includes:

  • municipal property tax (land tax),
  • real estate transfer tax,
  • Customs and excise duties
  • Social security contributions

Branches in Germany are taxed at 15 percent, just like their subsidiaries. Sales tax (VAT) is usually 19 percent or 7 percent as a reduced tax rate. There is no capital duty (on capital contributions) levied, there is no income tax and no stamp duty (stamp duty). Companies hiring employees in Germany are required to pay 50 percent of their social security contributions.

There is a withholding tax deduction on dividends (calculated at 25%) and royalties (15%). The withholding tax is also levied on interest income. If the tax rate is imposed on a company, it is 25 percent.

Double taxation in Germany can be avoided by companies and individuals due to the numerous double taxation treaties concluded between Germany and other countries. Companies only enjoy the provisions of such agreements in case the companies are located in the countries with which Germany has concluded a double taxation agreement.

Investing in Germany

Many investors choose Germany because it is one of the strongest states in Europe, and therefore economically better off than other countries.

Despite the general crisis that has hit Europe in recent years, it seems that the German state is the one that has suffered the least from economic difficulties. This is due to a series of elements that still make Germany an important development pole on a global level.

Germany in Europe is undoubtedly the most important European market in various product sectors, first of all in the food sector, then in other areas such as furniture and subcontracting. While it is clear that these are interesting sectors, they are not the only ones to invest in.

Investing in Germany is certainly one of the best choices that can be made by foreign investors, as it is one of the most solid states not only in Europe but also in the world.

But why does Germany have such a high level of investment solidity? What are the most advantageous aspects that make the German state one of the main countries in which to flow one’s capital?

There are at least three main reasons that make Germany the best place in Europe to invest, and they are the following:

  • Its strong economy which is the first in Europe and fourth in the world for global dimensions. Not only that, even in the export sector it is very strong, as it is second in the world. Finally, a substantial figure is the GDP, which during the year 2017 reached a value of 3.65 billion.
  • It is the strongest country in the EU economically, therefore an oasis to invest in the crisis that has hit our continent.
  • The workforce is among the best in Europe, this is mainly due to higher education rates which are significantly higher than the European average. Furthermore, to make the workforce better, it was also the choice to follow very favorable economic policies, so much so that today Germany hosts 40 of the 500 largest companies in the world that are listed on the stock exchange.

Therefore, these aspects make the German state a fertile ground for investments, both for local and international investors. In Italy there are many investors who have directed their choices in Germany, the growth has mainly occurred in recent years.