2011 Investment Climate Statement - Germany

2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011

Openness to, and Restrictions upon, Foreign Investment

The German government and industry actively encourage foreign investment in Germany, and German law provides foreign investors national treatment. Under German law, foreign-owned companies registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) are treated no differently from German-owned companies. Germany also treats foreigners equally in privatizations. There are no special nationality requirements on directors or shareholders, nor do investors need to register investment intent with any government entity except in the case of acquiring a significant stake in a firm in the defense or encryption industries. The investment-related problems foreign companies face are generally the same as for domestic firms, for example high marginal income tax rates and labor laws that impede hiring and dismissals. The German government has begun to address many of these problem areas through its reform programs. German courts have a good record in upholding the sanctity of contracts.

The 1956 U.S.-FRG Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the U.S. and Germany. Germany subscribes to the OECD Committee on Investment and Multinational Enterprises' (CIME) National Treatment Instrument and the OECD Code on Capital Movements and Invisible Transactions (CMIT). While Germany's Foreign Economic Law contains a provision permitting restrictions on private direct investment flows in either direction for reasons of foreign policy, foreign exchange, or national security, no such restrictions have been imposed in practice. In such general cases, the federal government would first consult with the Bundesbank and the governments of the federal states. Specific legislation requiring government screening of foreign equity acquisitions of 25% or more of German armaments companies took effect in July 2004. Under the 2004 law, foreign entities that wish to purchase more than 25% equity in German manufacturers of armaments or cryptographic equipment are required to notify the Federal Economics and Technology Ministry, which then has one month in which to veto the sale. The transaction is regarded as approved if the Economics and Technology Ministry does not react in that time. The German government expanded the scope of the law in 2005 to include tank and tracked-vehicle engines.

A 2009 amendment to the Foreign Economic Law requires the German government to examine and potentially prohibit the acquisition of German companies of any size or sector by non-EU investors if they intend to buy more than 25% of the company’s shares in cases where a threat to national security or public order is perceived. According to the American Chamber of Commerce in Germany, no foreign companies have complained so far about difficulties under the amendment.

Germany ranks 15th in the Transparency International Corruption Perception Index (CPI) that compares 178 countries worldwide (rank 1 being the country with least corruption).




TI Corruption Perception Index


Rank 15 of 178, CPI 7.9 (8.0 in 2009)

Heritage Economic Freedom Index


Rank 23 of 179, freedom score 71.8 (+0.7 from 2010)

World Bank Doing Business Index


Rank 22 of 183

Conversion and Transfer Policies

As a result of European Economic and Monetary Union (EMU), the Deutsche Mark (DM) was phased out on January 1, 2002, and replaced by the euro, which is a freely traded currency with no restrictions on transfer or conversion and which is the unit of currency in Germany and 16 other European countries. There is no difficulty in obtaining foreign exchange. There are also no restrictions on inflows and outflows of funds for remittances of profits or other purposes.

Expropriation and Compensation

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

Dispute Settlement

Investment disputes concerning U.S. or other foreign investors and Germany are rare. Germany is a member of the International Center for the Settlement of Investment Disputes (ICSID), as well as a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. German courts are fully available for foreign investors in the event of investment disputes. The government does not interfere in the court system and accepts binding arbitration.

Performance Requirements and Incentives

European Union, federal and state authorities offer a broad range of incentive programs for investors in Germany. Cash Grants under the Joint Task for the Improvement of Regional Economic Structures, a program administered by the Ministry of Economics and Technology, is one available instrument for improving the infrastructure of regional economies and the economy as a whole – a primary objective of the German federal and state governments.

A comprehensive package of federal and state investment incentives, including cash, labor-related, and R&D incentives, interest-reduced loans, and public guarantees is available to domestic and foreign investors. In some cases, there may be performance requirements tied to the incentive, such as employment creation and maintaining a certain level of employment for a prescribed length of time. There are no requirements for local sourcing, export percentage, or local national ownership. Germany is in compliance with its WTO TRIMS obligations.

The government has emphasized investment promotion in the states of the former East Germany and offers several programs only in these regions. The major program is the Investment Allowance Act, which provides tax incentives for investments in the eastern states in the form of tax-free cash payments or tax credits. With the beginning of the current budgetary period of the EU, which started in January 2007 (and runs through 2013), Germany is to receive a total of EUR 26.3 billion. The German states located in the former East Germany received the majority of the EU subsidies allocated to Germany, EUR 15.1 billion, for the budget period of 2007-2013.

Foreign investors are generally subject to the same eligibility conditions as German investors for incentive programs.

Programs in Germany:

· Investment grants: Cash incentives in the form of non-repayable grants usually based on investment costs or assumed wage costs. Incentives vary according to the economic development level of the region, with up to 30 percent of eligible expenditures channeled to large enterprises, 40 percent to medium-sized enterprises and 50 percent to small enterprises.

· Credit Programs: Loans at below-market interest rates from the KfW banking group and state development banks, partially targeting small and medium sized enterprises (SMEs).

· Public guarantees: Public guarantees for companies which do not have the collateral that private-sector banks ordinarily require.

· Labor-related incentives: Support from 800 local job centers, programs focus on recruitment support, pre-hiring training, wage subsidies, and on-the-job training.

· R&D Incentives: R&D grants, reduced-interest loans, and special partnership programs provided by the EU, the German government and German state governments.

Foreign investors can obtain more information on investment conditions and incentives from:

Germany Trade and Invest
The inward investment promotion agency of the Federal Republic of Germany
Friedrichstraße 60
10117 Berlin, Germany
Telephone: [49][30] 2000 99 0
Telefax: [49][30] 2000 99 111


Germany Trade & Invest
1776 I Street, N.W.
Suite 1000
Washington, D.C. 20006
Telephone: 202 629 5711
Telefax: 202 347 7473

Germany Trade & Invest
321 Clark Street, Suite 1425
Chicago, IL 60654
Telephone: 312 377 6131
Telefax: 312 377 6134

Germany Trade and Invest
One Embarcadero Center, Suite 1060
San Francisco, CA 94111
Telephone: 415 248 1246
Telefax: 415 627 9169

Germany Trade and Invest
75 Broad Street, 21st Floor
New York, NY 10004
Telephone: 212 584 9715
Telefax: 212 262 6449

Germany Trade and Invest is the foreign trade and investment agency of the Federal Republic of Germany, formed by the merger of Invest in Germany with the German Office for Foreign Trade in January 2009.

American companies can, with effort, generally obtain the resident visas and spouse work permits they require to do business in Germany, but the relevant laws are quite broad and considerable administrative discretion is exercised in their application. A number of U.S. states have not yet concluded reciprocal agreements with the German government to recognize one another’s driver's licenses. As a result, licenses from those states are not usable in Germany for longer than six months, whereas licenses from states that have signed agreements can be converted to German licenses after six months.

Right to Private Ownership and Establishment

Foreign and domestic entities have the right to establish and own business enterprises, engage in all forms of remunerative activity, and acquire and dispose of interests in business enterprises.

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. There is almost no discrimination against foreign investment and foreign acquisition, ownership, control or disposal of property or equity interests, with airline ownership being an exception based on EU regulations, which require an EU majority ownership of shares to obtain an operating permit as an EU airline. In Germany, the concept of mortgages is subject to a recognized and reliable security. Secured interests in property, both chattel and real, are recognized and enforced.

Intellectual property is well protected by German laws. Germany is a member of the World Intellectual Property Organization (WIPO). Germany is also a party to the major international intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, the Brussels Satellite Convention, and the Treaty of Rome on Neighboring Rights.

National treatment is also granted foreign copyright holders, including remuneration for private recordings. Under the TRIPS agreement, the federal government also grants legal protection for practicing U.S. artists against the commercial distribution of unauthorized live recordings in Germany. Germany has signed the WIPO Internet treaties and ratified them in 2003. Foreign and German rights holders, however, remain critical of provisions in the German Copyright Act that allow exceptions for private copies of copyrighted works. Most rights holder organizations regard German authorities' enforcement of intellectual property protections as sufficient, although problems persist due to lenient court rulings in some cases and the difficulty of combating piracy of copyrighted works on the Internet.

In 2008, Germany implemented the EU enforcement directive with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action.

Transparency of the Regulatory System

Germany has transparent and effective laws and policies to promote competition, including anti-trust laws. In recent years, German authorities lifted many restrictions on store business hours, which had formerly restrained competition and business opportunities. There are concerns in Germany and abroad about the level of regulation prevailing with regulatory authority dispersed over the federal, state, and local levels. Many investors consider Germany's bureaucracy excessive, which has prompted most state governments to establish investment promotion offices and investment banks to expedite the process. New rules have simplified bureaucratic requirements, but industry must sometimes contend with officials' relative inexperience with deregulation and lingering pro-regulation attitudes.

In response to the problem, the federal government continues to reduce bureaucracy. In 2006, the National Regulatory Control Council was established, tasked with assessing the impact of regulatory law and encouraging the federal government to cut red tape. The council reports annually and recommends further measures. The federal government also set the target of reducing the costs of law-induced bureaucracy by 25 percent by 2011. Economics Minister Rainer Brüderle (pro-market FDP) seems to be very interested in reducing the bureaucratic burden and has moved the section within the Economics Ministry dealing with bureaucracy reform closer to his own office. Germany now uses the Standard Cost Model to quantify and identify bureaucratic costs in every new legislative proposal. This provides increased transparency about the amount of time and cost that companies and citizens have to spend because of bureaucratic requirements. The German National Regulatory Control Council estimates that applying the Standard Cost Model has reduced bureaucratic costs for companies by 3.5 billion euro in the past four years, measured against the bureaucratic burden that was in effect before the new, improved legislation.

Laws and regulations in Germany are routinely published in draft, and public comments are solicited. The legal, regulatory and accounting systems can be complex but are transparent and consistent with international norms.

Efficient Capital Markets and Portfolio Investment

Germany has a modern financial sector but is often considered "over-banked," as evidenced by on-going consolidation and low profit margins. The country’s so-called “three-pillar" banking system, made up of private commercial banks, state-owned and cooperative banks, and savings banks, survived the global financial crisis, but pressures to consolidate are increasing. To improve their international competitiveness, the larger, privately-owned banks in particular have launched massive cost-cutting programs. Germany’s eight regional state-owned banks ("Landesbanken") were among the hardest hit by the crisis. Passing grades on stress tests in summer 2010 have erased few doubts about the need for an overhaul of the sector. Chinese investors are negotiating partial stakes in several state-owned banks. The EU Competition Commissioner attached tough downsizing conditions in exchange for approving federal and state government bailout packages. The financial crisis also triggered the take-over of Dresdner Bank by Commerzbank and that of Postbank by Deutsche Bank. This has effectively reduced the number of top German privately owned banks to just two.

In the midst of the financial crisis, the German government created a Financial Market Stabilization Fund ("SoFFin") which had the ability to offer guarantees up to 400 billion euros and purchase assets for an additional 80 billion euros. The two most prominent recipients of rescue funds were Commerzbank (its take-over of Dresdner Bank brought it to the brink of bankruptcy) and Hypo Real Estate (HRE). In the case of HRE, the government departed from long-standing tradition and nationalized the bank in order to prevent a breakdown of the German (and European) covered-bond market – a backbone of German real estate financing. The law permitting the expropriation of HRE was designed for that institution only and expired in June 2009. There are several court cases pending in which the government’s action of “squeezing out” HRE’s previous owners is being challenged. One such high-profile case is that of U.S. private equity firm, J. C. Flowers, which led a consortium of investors that owned nearly 25 percent of the troubled bank prior to nationalization. The government argued that without its actions, HRE would have become insolvent, and owners would have lost their assets anyway. At 1.30 euros per share, the German Government paid an estimated 10 cents more than the market value of HRE stock, though JC Flowers believes this was too little. SoFFin also created two “bad banks” with toxic assets from West LB and HRE, respectively.

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, but in light of global financial turmoil, Germany is pushing for even more transparency in international financial markets. Germany has a universal banking system regulated by federal authorities. The German Bundesbank and the government have rebutted concerns that the economic crisis, in connection with tougher capital requirements for banks mandated in the G-20, could lead to a shortage of credit in the German economy. The government has taken action to further mitigate the situation by offering additional state financing options through its state lender KfW.

Given the prevailing overall economic conditions, mergers and acquisitions (M&A) have decreased in recent years in line with global trends. Prior to the global financial crisis, Germany had seen an upswing in M&A transactions due to improved economic conditions, the increased financial assets of the top 30 companies listed in the German stock exchange (DAX), and the high value of the euro. "Cross shareholding" exists among some large German companies, in particular among banks that hold shares in large industrial customers. However, Germany's major banks have been reducing their cross-shareholdings in recent years.

In response to a 2004 EU directive, the government has implemented legislation establishing new rules to ensure greater transparency in takeovers. The new law went into effect in 2006.

In recent years, Germany has implemented a series of laws to improve its securities trading system, including laws against insider trading and the Fourth Financial Market Promotion Law in 2003. In 2002, a corporate governance code was adopted, which, while voluntary, requires listed companies to "comply or explain" why the code or parts thereof have not been followed. The code is intended to increase transparency and improve management response to shareholder concerns. The Finance and Justice Ministries drew up a ten-point plan in 2003 to improve investor protection. As a part of that plan, the government tabled a bill in November 2004 that would (a) increase the liability of boards of directors for false or misleading statements; and (b) improve oversight of auditing operations. The EU's Financial Services Action Plan – an effort intended to create a more integrated European financial market by 2005 – has helped stimulate changes in the German regulatory framework, including adoption of International Accounting Standards for listed firms and use of company investment prospects on an EU-wide basis. In 2008, Germany passed legislation that makes private equity firms subject to greater transparency rules, including the publication of a business plan for the acquired company.

Competition from State-Owned Enterprises

State-owned or partially state-owned enterprises still exist in several sectors, most importantly in railroads, postal services, telecommunications and the banking sector.

Privatization of state-owned utilities has promoted competition and led to falling prices in some sectors. Following the deregulation of the telecommunications sector in 1998, scores of foreign and domestic companies invested vast sums in that sector. In the fixed-line telecommunications market, Deutsche Telekom (DT) competitors currently account for an overall market share of more than 21 percent, while in the broadband market, competitors providing DSL-broadband constitute around 41 percent. In June 2004, a new telecommunications law to implement EU directives entered into force. The law mandates less regulation in some areas while giving the regulator new powers to address abuse of market dominance and ensure competitors’ access to services. A second amendment to the telecommunications law became effective in early 2007. Aimed at strengthening consumer rights, it also includes a controversial component entitling Deutsche Telekom to a regulatory holiday in return for a sizeable investment in a VDSL network, providing the investment creates a "new market.” However, in 2009 the European Court of Justice ruled that the regulatory holiday granted to DT infringes on European law. The German government never applied the regulatory holiday and announced that it plans to abolish the provision with the upcoming reform of the telecommunications law, which will implement the December 2009 EU telecoms package. The German government continues to hold a 32% share in DT, although it has expressed its intention to sell these shares “eventually.”

The government partially privatized Deutsche Post (DP) in November 2000 and has stated its intentions eventually to divest its remaining shares. It currently holds a 30.5% share in DP. After successive rounds of liberalization, DP's monopoly on standard letter mail delivery expired on December 31, 2007, even though DP has remained the dominant player in that market. Two significant barriers to entry adversely affecting competition have recently been dismantled. 1) In January 2010, the German Federal Administrative Court ruled that the minimum wage in the postal sector, imposed by the government in 2007, is no longer valid; competitors commended the decision, as they regarded the minimum wage as favoring Deutsche Post. 2) Value-added Tax (VAT) exemption (of 19%), which DP received for offering universal service, was abolished by the German government in early 2010, following a verdict by the European Court of Justice. Since July 2010, prices for DP business and bulk mail include VAT. VAT exemption now only applies for services used by individual consumers, such as over-the-counter parcels. Competitors are also entitled to VAT exemption if they offer universal service. Germany's Cartel Office and Germany's other regulatory agencies seek to address problems and settle complaints brought forward by foreign market entrants and bidders. However, as noted above, German law and court decisions have limited these agencies' jurisdiction in some areas.

The planned sale to private investors of just under 25% of the 100% government-owned railway Deutsche Bahn (DB) did not take place and is unlikely to take place in the foreseeable future. A series of data privacy scandals forced the DB CEO to resign in 2009, when DB also started to have serious safety problems with high-speed, freight and Berlin light rail rolling stock, primarily due to lack of maintenance. DB was accused of attempting to cut costs to improve its attractiveness for privatization, at the expense of safety and reliability. These accusations and the financial crisis led the government to halt privatization efforts in early 2010. In 2010/11 the second consecutive severe winter again caused chaos in the Berlin light rail passenger system as well as service restrictions and delays to the regional and long-haul services. Technical problems, poor rolling stock and infrastructure maintenance remain concerns. In January 2011 the new DB CEO stated that it will take four to five years and heavy investment to return the German domestic rail service to reliability.

Three different types of banks exist in Germany: privately-owned banks, state-owned banks (Landesbanken) and cooperative banks. The Landesbanken used to have advantages over privately-owned banks in obtaining credit. Under the pressure of Germany’s privately-owned banks, the EU forced an end to these advantages in 2005. This means that the Landesbanken can no longer raise money cheaply with AAA ratings based on a government guarantee. At the moment, foreign banks need not fear unfair competition from state-owned or cooperative banks.

The greater part of the German energy sector is in private hands. Analysts say the government initially supported Germany’s oligopolistic energy providers’ opposition to the 1998 EU Liberalization Directive and the 2000 EU Gas Market Liberalization Directive. The electricity market nevertheless slowly opened to competition. The gas sector proved more resistant but is now opening. After EU pressure, the Federal Network Agency (BNA) started regulating power transmission prices and grid access in 2006 and pipeline access and transport prices in the gas sector in 2007. Rising prices and growing earnings in the energy sector have caused consumer anger and have increased political pressure on the industry to rein in prices and improve market transparency. The government has strengthened the operative rights of the Cartel Office in the energy sector and introduced legislation to enhance entry to the market. BNA continues to reduce administrative hurdles in the gas sector. After years of competitive stagnation, some new foreign competitors have entered the power market and have begun to move into the gas market.

Corporate Social Responsibility (CSR)

The Federal Ministry of Labor and Social Affairs is the leading ministry for CSR within the German government. In early October 2010, at the suggestion of the Ministry of Labor and Social Affairs, the Federal Cabinet approved an Action Plan for CSR aimed at anchoring CSR more firmly in enterprises and public bodies, winning over even more small and medium-sized enterprises (SMEs) for CSR and increasing the visibility and credibility of CSR. The Action Plan is based on recommendations of the National CSR Forum, which consists of 44 experts from business, unions, non-governmental organizations and academia. The forum has advised the Labor Ministry since early 2009 on the development of a National CSR Strategy.

On the business side, the American Chamber of Commerce in Germany (AmCham Germany) is active in upholding the standards of social responsibility within the realm of their members’ corporate business. AmCham Germany issues regular publications on companies’ CSR approaches. Its committee on corporate social responsibility serves as a platform to exchange best practices, identify trends and discuss regulatory initiatives.

Political Violence

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



Among industrialized countries, Germany ranks in the middle, according to Transparency International's corruption indices. The construction and health sectors and public contracting, in conjunction with undue political party influence and party donations, represent areas of continued concern. Nevertheless, U.S. firms have not identified corruption as an impediment to investment.

The German government has sought to reduce domestic and foreign corruption. Strict anti-corruption laws apply to domestic economic activity, and the laws are enforced.

Germany ratified the 1998 OECD Anti-Bribery Convention in February 1999, thereby criminalizing 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 March 1999. Germany has signed the UN Anti-Corruption Convention but has not yet ratified it. The country participates in the relevant EU anti-corruption measures. Germany has increased penalties for bribery of German officials, for corrupt practices between companies, and for price-fixing by companies competing for public contracts. It has also strengthened anti-corruption provisions on support extended by the official export credit agency and has tightened the rules for public tenders. Most state governments and local authorities have contact points for whistle-blowing and provisions for rotating personnel in areas prone to corruption. However, not all state governments have prosecutors specialized in corruption. Government officials are forbidden from accepting gifts linked to their jobs.

Transparency Deutschland, the German Chapter of Transparency International, considers its main goals in Germany to be a national corruption register and speedy ratification of the UN Anti-Corruption Convention, placing bribery of parliamentarians on the same level as bribery of public officials. Draft legislation to create a national corruption register failed to win the approval of the federal states in 2005, but some individual states maintain their own registers. Federal freedom of information legislation entered into force in January 2006, but many regard the government’s handling as restrictive. Several states have their own freedom of information laws. The German government has successfully prosecuted hundreds of domestic corruption cases over the years.

Few charges were filed for bribery of foreign government officials in the first years after the OECD Anti-Bribery Convention came into force in 1999. However, the U.S. Securities and Exchange Commission (SEC) investigations into Siemens and Daimler and the heavy fines imposed on the two companies focused public attention on foreign bribery from 2007 onwards. The issue is likely to remain in the headlines – German court proceedings against the first former Siemens Board members are due to start soon, and the SEC is reportedly also investigating former Siemens managers. In 2009 German prosecutors initiated seven new cases, while 20 were resolved.

Bilateral Investment Agreements

Germany has investment treaties in force with 131 countries and territories. Of these, eight are with “predecessor” states (including Czechoslovakia, the Soviet Union, and Yugoslavia) and are indicated with asterisks. Treaties are in force with the following states and territories: Afghanistan; Albania; Algeria; Angola; Antigua and Barbuda; Argentina; Armenia; Azerbaijan; Bahrain; Bangladesh; Barbados; Belarus; Benin; Bolivia; Bosnia and Herzegovina; Botswana; Burkina Faso; Brunei; Bulgaria; Burundi; Cambodia; Cameroon; Cape Verde; Central African Republic; Chad; Chile; China (People's Republic); Congo (Republic); Congo (Democratic Republic); Costa Rica; Croatia; Cuba; Czechoslovakia**; Czech Republic*; Dominica; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Gabon; Georgia; Ghana; Greece; Guatemala; Guinea; Guyana; Haiti; Honduras; Hong Kong; Hungary; India; Indonesia; Iran; Ivory Coast; Jamaica; Jordan; Kazakhstan; Kenya; Republic of Korea; Kuwait; Kyrgyzstan*; Laos; Latvia; Lebanon; Lesotho; Liberia; Libya; Lithuania; Macedonia; Madagascar; Malaysia; Mali; Malta; Mauritania; Mauritius; Mexico; Moldova*; Mongolia; Morocco; Mozambique; Namibia; Nepal; Nicaragua; Niger; Nigeria; Oman; Pakistan; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Sierra Leone; Singapore; Slovak Republic*; Slovenia; Somalia; South Africa; Soviet Union**; Sri Lanka; St. Lucia; St. Vincent and the Grenadines; Serbia; Sudan; Swaziland; Syria; Tajikistan*; Tanzania; Thailand; Togo; Trinidad & Tobago; Tunisia; Turkey; Turkmenistan; Uganda; Ukraine; United Arab Emirates; Uruguay; Uzbekistan; Venezuela; Vietnam; Yemen; Yugoslavia**; Zambia; and Zimbabwe.

(Note: * denotes treaty in force with predecessor state; ** denotes continued application of treaties with former entities, which has not been taken into account in regard to the total number of treaties.)

Germany has ratified treaties not yet in force with the following countries and terrotories:



Temporarily Applicable




Congo (Republic)


















Palestinian Territories






(*) Previous treaties apply

Germany does not have a bilateral investment treaty with the United States, but a Friendship, Commerce and Navigation (FCN) treaty dating from 1956 remains in force. Taxation of U.S. firms within Germany is governed by the "Convention for the Avoidance of Double Taxation with Respect to Taxes on Income." It has been in effect since 1989 (and, since January 1, 1991, for the area that comprised the former German Democratic Republic). With respect to income taxes, both countries agree to grant credit for their respective federal income taxes on taxes paid on profits by enterprises located in each other's territory. The German system is more complex, but there are more similarities than differences between the German and U.S. business tax systems. The U.S. and Germany ratified the Protocol of June 1, 2006, amending their 1989 income tax treaty and protocol. The new protocol updates the existing 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.

OPIC and Other Investment Insurance Programs

OPIC programs were available for the new states of eastern Germany following reunification for several years during the early 1990s but were suspended following progress in the economic and political transition.


The German labor force is generally highly skilled, well educated, disciplined, and very productive. The complex set of reforms of labor and social welfare institutions implemented under the former SPD/Green government contributed to overcoming structural weaknesses of the German welfare state and created an institutional structure more conducive to strong employment growth and lower unemployment. Additional reforms under Chancellor Merkel and a series of changes in collective bargaining in recent years have strengthened the forces driving economic growth.

On the negative side, the very sacrifices that have made German products more competitive and helped the country outpace many of its European partners – strict wage controls, a retirement age rising to 67 from 65, lower welfare payments and eased hiring and firing – have resulted in a growing low-wage sector, declining domestic consumption and a deep feeling of insecurity.

In 2010, the German economy rebounded strongly. Despite suffering an economic contraction of 4.7% in 2009 – during which time unemployment doubled in the United States to 10.1% and approached 20% in Spain and Greece – Germany saw its unemployment rate fall to 7.4%, its lowest level in 17 years. While long-term unemployment remains high, it has started to decline, and the outlook for 2011 is even more promising. The eight leading economic think tanks now predict a 3.5% increase in GDP for 2010 and an estimated 2.5% for 2011. They also project wages to increase by 2.8% in 2011 and unemployment to drop below the politically sensitive three-million mark during the next 12 months. As a result the jobless rate is expected to fall from 7.4% this year to an estimated 6.9% in 2011.

Among the reasons behind the surprising resiliency of the labor market – in addition to the widespread use of government-funded short-time work programs and company working-time accounts – is the fact that many companies entered the recession with a capital cushion and deliberately decided to keep highly skilled labor in hopes of riding out the crisis. In addition, parts of the services sector (e.g., health and welfare, education and training) were not adversely affected by the recession and are continuing to create jobs.

In July 2010, the Institute of Economic and Social Research presented its interim report on Germany’s 2010 round of collective bargaining, which was strongly affected by the economic crisis. The study evaluated collective bargaining agreements concluded in the first half of 2010, which affect about 37% of all employees covered by collective bargaining. The average annual increase in wages and salaries was around 1.7% in 2010, well below the average of 2.6% in 2009.

There is still a considerable gap in earnings between men and women in Germany. Collective agreements concluded in the first half of 2010 did not include provisions to tackle wage discrimination and promote equal opportunity.

Since the late 1990s, Germany’s system of wage determination through multi-company, industry-wide contracts has become considerably more decentralized. Although sector-wide labor agreements can set wages and working conditions at high levels in some industries, company-level agreements frequently deviate from them. Many industry-wide contracts have been revised in recent years, not only to include highly flexible working time arrangements but also to introduce escape clauses for ailing companies, and to lower entrance pay scales and performance-based annual bonuses. Moreover, the coverage of collective agreements has been declining. Multi-company, industry-wide contracts cover about 43.4% of all firms; 5.3% are covered by a company-level agreement; and 51.3% are not covered at all. Coverage in the eastern states is even lower than in the west: Collective bargaining agreements covered approximately 65 percent of the labor force in the western part of the country and approximately 51 percent in the East.

Germany does not have a statutory minimum wage. However, binding minimum wages have been established in 16 sectors so far (e.g., construction, electrical trades, painting, mail, or waste management) covering an estimated two million workers. In August 2010, new national minimum wages for caregivers came into force affecting about two-thirds of a total of 810,000 caregivers in Germany. The regulation will apply to all employees, regardless of the country of origin of their employer.

In general, the current German government remains opposed to the introduction of a national legal minimum wage. However, since Germany has to open up its labor market to all European Union nationals in May 2011, Labor Minister von der Leyen is calling for a minimum wage for temporary jobs in Germany to prevent eastern European workers in particular from undercutting salaries in certain service sectors.

Germany’s education system for skilled labor, combining on-the-job and in-school training for apprentices, produces many of the skills employers need. There are rigidities in the training system, however, such as restrictions on night work for apprentices, to which some employers object. Another criticism is that the system is inflexible with regard to occupational categories and training standards. Labor unions complain that employers do not establish enough training slots and do not hire enough of the trainees after their training is completed. While regulatory obstacles to workers’ mobility are expected to decrease by May 2011, the alarming demographic trend in Germany has already led to serious labor shortages in many high-skilled fields, above all engineering, technical professions and manufacturing trades. In addition, lathe operators, specialized metal workers, social workers, nurses and nursing home workers are in short supply.

While trade union membership has continued to decline, there has been a notable slowdown in this development in recent years. About 21% of the workforce is organized into unions. The overwhelming majority are in eight unions largely grouped by industry or service sector. These unions are affiliates of the German Trade Union Federation (DGB). Several smaller unions exist outside the DGB, principally for white-collar professions. Since peaking at more than 13 million members shortly after German re-unification, total DGB union membership has steadily declined to 6.3 million at the end of 2009.

Unions’ right to strike and employers’ right to lock out are protected in the German constitution. Court rulings over the years, however, have limited management recourse to lockouts.

At the company level, works councils represent the interests of workers vis-à-vis their employers. A works council may be elected in all private companies employing at least five people. The rights of the works council include the right to be informed, to be consulted, and to participate in company decisions. Works councils often help labor and management to settle problems before they become disputes and disrupt work.

“Codetermination” laws give the workforce in medium-sized or large companies (stock corporations, limited liability companies, partnerships limited by shares, co-operatives, and mutual insurance companies) significant voting representation on the firms’ supervisory boards. This codetermination in the supervisory board extends to all company activities.

Foreign-Trade Zones / Free Trade Zones

There are five free trade zones in Germany established and operated under EU law: Bremerhaven, Cuxhaven, Deggendorf, Duisburg and Hamburg. These duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements. All of them are open to both domestic and foreign entities. In recent years falling tariffs and the progressive enlargement of the EU have gradually eroded much of the utility and attractiveness of duty-free zones. Kiel and Emden lost free trade zone status in 2010.

Foreign Direct Investment Statistics

According to the U.S. Department of Commerce’s Bureau of Economic Analysis, in 2009 German direct investment in the United States was worth $218 billion, while U.S. direct investment in Germany was worth $117 billion. Foreign investment has been particularly strong in eastern Germany, where about one trillion euros have been invested since 1991, including investments by 300 U.S. firms.

Top 10 U.S. Companies in Germany by 2009 Sales


Est. Sales in 2009 (in million €)

Ford-Werke GmbH


Adam Opel * (General Motors)


ExxonMobil Central Europe Holding GmbH


ConocoPhillips Germany *


GE Deutschland *


IBM Gruppe Deutschland *


Philip Morris GmbH*


Procter & Gamble *


Hewlett-Packard GmbH


Dow Group Germany *


(Source: American Chamber of Commerce in Germany “Commerce Germany” September 2010)

*no corporate entity given; sales are generally combined from multiple sources, i.e., from various associated companies.

Foreign Direct Investments in Germany by key sectors (2008, in million €)

Holding companies




Credit and banking


Chemical industry


Machine Construction






Real estate


Medical, measuring equipment, optics


Automobiles and parts


(Source: Deutsche Bundesbank, Bestandserhebung über Direktinvestitionen, April 2010)