Germany has been a major European hub for foreign direct investment primarily due to its deep connections with the global economy. However, despite the fact that forming a company in Germany is relatively easy as compared to other European countries, running a business in the country can be quite challenging. This is mainly due to the somewhat complicated legal and tax structures as applicable to businesses in Germany, which can be fully understood and resolved only with the help of local professionals having ample expertise. Discussed below are some common challenges that overseas entrepreneurs are likely to face while doing business in Germany.
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Starting A Business
Even though Germany is known for its global standing and modern look in terms of starting a business, most companies are required to fulfill several procedures before they can start doing business. This includes liaising with the local chamber of industry and commerce, the local commercial register, as well as the local office for business and standards.
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Obtaining Construction Permits
Most businesses operating in Germany are run from rented facilities mainly due to the fact that obtaining construction permits in the country is extremely lengthy and time-consuming. In fact, many entrepreneurs also face difficulties in obtaining water and telephone connectivity while setting up a company in Germany. In this context, seeking the help of local professionals can cut down the time taken to get these basic amenities quite significantly.
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Property Registration
Like in most other countries, registering property is a compulsory aspect of doing business in Germany. However, the process is so heavily laden with various bureaucratic intricacies that it is rarely completed before a period of 40 days. It requires the companies to obtain an extract from the Land Registry and get the transfer agreement notarized before seeking the waiver of preemption rights from the municipality and paying the transfer tax.
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Payment Of Taxes
The taxation system of Germany is notoriously difficult to navigate and requires the businesses to pay nine different taxes in a year. The payment of these taxes is an extremely time-consuming process, especially the VAT and income tax. In some cases, the businesses might be required to pay around 14 taxes over the course of one year, which can be extremely constrained in terms of both time and money. That is why most overseas investors hire the services of local companies specializing in German taxation procedures.
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Lack Of Cross-Cultural Awareness
Setting up a GmbH in Germany and doing business without gaining proper information about the cross-cultural nuances can prove to be extremely challenging. Companies should make sure that they learn to appreciate the intricacies of both the business landscape and culture prevalent in the country. Being aware of things like respect for hierarchy, being patient about the pace at which things are done and other such aspects can play a critical role in ensuring the smooth functioning of the business.
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