Cross border B2B payments to Germany

As one might expected from a country that is famous for the strength of its economy, legal protections, education system, and infrastructure, there are many benefits of doing business in Germany. The country offers competitive tax regulations, a variety of incentives for business investment and a legal system that protect intellectual property.

The country is a hub of research and development: it ranks tenth among the 132 countries surveyed in the Global Innovation Index. Much of Germany’s success has stemmed from its ability to translate research into practical applications. Berlin has been ranked the second-best tech hub in Europe and the first choice for start-ups, surging ahead of London, with Dusseldorf also gaining in significance. The government supports research institutions and start-ups, and it licenses intellectual property to assist researchers’ careers.

Other benefits include access to the EU’s biggest consumer market, massive trade events, its geographic location at the centre of the EU, attractive investment incentives, and a robust start-up culture.

The country is well-known as an automotive manufacturer, but it also comprises a high concentration of businesses specialising in electrical and engineering equipment and textiles, in addition to pharmaceutical companies. Innovative areas such as robotics are balanced out by more traditional commodity-based industries such as steel, coal and iron, while industries such as aviation are drawn to the number of cutting-edge engineering companies and specialists.

When it comes to business opportunities in Germany for foreigners, the most interesting aspect of the commercial landscape is the high proportion of SMEs (named ‘mittelstand’) across a broad range of industries.

Mittelstand companies are equivalent to UK SMEs; the classification includes any company with less than 500 employees and therefore may relate to many expats starting a business here. One of the reasons that these companies are high profile in Germany is because there are many global leaders due to specialisation.

A sense of the scale and importance can be seen in the numbers – fewer than 30 of the 500 biggest companies across the globe are located in Germany, but 48% of small world market leaders in specialist markets are German in origin. This group of small and medium-sized enterprises form the backbone of the Germany economy.

If you have a unique proposition in a specialist or niche industry, Germany might just be the perfect place to foster that innovation and start expanding into markets across the globe.

The corporate tax rate for Germany is 15%, but business tax is made up of several component parts. A solidarity surcharge of 5.5% is levied in corporate income tax, and a municipal surcharge which ranges from 14% to 17% depending on the district. This brings the combined rate of tax roughly between 30% and 33%. This is levied on profits from business revenue, investments and the sale of assets.

If your company is based in Germany, the tax applies to worldwide profits. If you’re opening a German branch of your business, on the other hand, you are only liable for taxation on activities and profits relating to activities in Germany. It’s worth investing in a tax specialist in-country, because there are specific accounting rules that apply. One of the key points is that books must be kept on an accrual basis, and profits are calculated using the net worth comparison message, meaning that they are determined as the difference between net assets at the end of the previous year and net assets at the end of the current year. Capital contributions are tax-free, and withdrawals must be financed out of taxable income.

In many cases, the commercial and tax balance sheets are likely to be identical, but if there are any differences, companies are required to prepare both a commercial balance sheet (Handelsbilanz) and a tax balance sheet (Steuerbilanz) or an appendix added to a single balance sheet. When it comes to payments, companies must file their corporate taxes by the deadline on 31st May for the previous year with most paying quarterly on an advanced basis on 10 March, 10 June, 10 September and 10 December.

In some areas, red tape can pose a significant challenge when doing business in Germany. If you’re in the initial stages of starting a company and have purchased office space, allow roughly 40 days for the registration of property. You will require an extract from the Land Registry and a notarised transfer agreement to obtain a waiver of pre-emption rights, in addition to confirmation that transfer tax has been paid. Building permits and obtaining utilities can also be lengthy procedures, with the exception of gaining electricity; this takes just 17 days compared to the OECD average of 98 days.

Paying taxes in Germany is also a rather complicated process; there are nine tax payments that are taken each year, in addition to 14 different taxes. Germany’s employment laws are also some of the strictest in the world, and so it is important that you take the time to understand the regulations and know what your responsibilities are as an employer.

However, the advantages of doing business in Germany may outweigh the challenges when starting a business in this great nation: the streamlined financial sector makes it easy to obtain credit, work is underway to improve protections for investors and both contract enforcement and insolvency resolution are relatively efficient.

Whether you’re starting a business in Germany or setting up an outpost of an existing company, you’ll need to register the business. This is a complex, time-consuming process.

The first step involved in register your business in Germany is to register your address (‘Anmeldung’). After you’ve completed this step, you’ll receive a registration certificate (Anmeldebestätigung), a tax ID (Steueridentifikationsnummer) and a VAT number (Umsatzsteuernummer).

It’s worth checking the specific classification of your work, as the German system differentiates between a Freiberufler (freelancer, including engineering, architecture, teaching and professional services) and a Gewerbetreibender, or tradesman. Working in a trade will require a trade license, and it means that you may be liable for trade tax and subject to different rules of taxation. It also includes a listing in the trade register. The certificate of registration is needed to open a bank account, which is itself a requirement for registration with the Finanzamt, or tax office.

Correct business etiquette is taken very seriously across Germany and is something with which you should become familiar when branching out into the German market.

As anyone who has spent any length of time in Germany, punctuality is of the utmost importance amongst Germans. Delivering the work that you have agreed to do is also of the utmost importance.

There are a number of nuances in the German language that you’ll need to understand. If you are conversing in German, it’s necessary to know the difference between the formal ‘you’ (Sie) and the informal ‘you’ (du) direct speech. Although it depends greatly on the type of business or workplace you are in, a formal dress code is typically adhered to, and greetings are always made with a handshake and eye contact.

Whether you are transferring funds to a German supplier or sole trader, you can make ad hoc payments for overseas invoices via your online moneycorp business account. From here you can also buy currency, make payments and set up users and approval workflows for your payment needs. Read our full guide on how to pay an international invoice for more information.

Our global payments solutions are designed to address the mass payment needs of our clients, automatically selecting the most competitive available rate from our pool of 18+ liquidity providers for your payment.

No matter if it's a workforce of 10 or 1000 employees, our global payments service ensures that your employees are paid on time, with access to a wide range of currencies. As well as helping you to pay German-based employees, our solutions can also be ideal to cover other operating costs of yours.

For those considering doing business in Germany, there are several opportunities to be seized in this dynamic economy.

Germany’s consumer market is the largest in the European Union, with a population of 83.2m. Easily the most significant European market for foreign producers, Germany is the third-largest importer, after the United States and China, and thus offers myriad opportunities for those looking to sell their goods and services to companies operating within it. Its main imports are machinery including computers, electrical machinery and equipment, vehicles, mineral fuels and pharmaceuticals.

Germany is also very well-connected: it borders nine countries, and its transport infrastructure connects it to every region on the planet, with Frankfurt airport alone offering more than 300 destinations.

Germany’s education system is one of the best in the world, and its culture of innovation and commitment to nurturing research and development make it the ideal location to connect with Europe’s best and brightest