2012 Investment Climate Statement - Germany

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

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, a foreign-owned company registered in the Federal Republic of Germany (FRG) as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company. Germany also treats foreigners equally in privatizations. There are no special nationality requirements for directors or shareholders, nor do investors need to register investment intent with any government entity except when 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, in practice no such restrictions have been imposed. In such general cases, the federal government would first consult with the Bundesbank (central bank) and the governments of Germany’s federal states. In July 2004, legislation took effect requiring the government to screen foreign equity acquisitions of 25% or more in German armaments and encryption companies. 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 Ministry of Economics and Technology, which then has one month in which raise objections. The transaction is regarded as approved if the Economics and Technology Ministry does not react within 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 by non-EU investors of more than 25% of the shares of a German company of any size or sector in cases where a threat to national security or public order is perceived. According to the American Chamber of Commerce in Germany, no foreign company has reported difficulties under this amendment.

Germany ranks 14th in the Transparency International Corruption Perception Index (CPI) that compares 183 countries worldwide (rank 1 being the country with least corruption).




TI Corruption Perception Index


Rank 14 of 183, CPI 8.0 (7.9 in 2010)

Heritage Economic Freedom Index


Rank 12 of 179, freedom score 71.8 (+15.6 from 2011)

World Bank Doing Business Index


Rank 19 of 183


As a result of the 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 involving U.S. or other foreign investors in 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 to foreign investors in the event of an investment dispute. The government does not interfere in the court system and accepts binding arbitration.

Performance Requirements and Incentives

The 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 instrument available for improving the infrastructure of regional economies and the economy as a whole – a key objective for Germany’s 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 job creation or maintaining a certain level of employment for a prescribed length of time. There are no requirements for local sourcing, export percentage, or local or national ownership. Germany is in compliance with its WTO TRIMS obligations.

The government has promoted investment in 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 €26.3 billion. The German states located in the former East Germany received over half the EU subsidies allocated to Germany, €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 level of economic development of the region, with up to 30% of eligible expenditures channeled to large enterprises, 40% to medium-sized enterprises, and 50% 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: Loan guarantees for companies that do not have the collateral that private-sector banks ordinarily require.

Labor-related incentives: Support from 800 local job centers for programs that focus on recruitment support, pre-employment 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 the inward investment promotion agency of the Federal Republic of Germany:

Germany Trade and Invest
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 N. 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
c/o German-American Chamber of Commerce

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 to 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 no discrimination against foreign investment and foreign acquisition, ownership, control or disposal of property or equity interests except for airline ownership, an exception based on EU regulations that require EU majority ownership of shares in order to obtain an operating permit as an EU airline. In Germany, mortgages are given based on recognized and reliable collateral. Secured interests in property, both chattel and real, are recognized and enforced.

Intellectual property is well protected by German law. 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 to foreign copyright holders, including remuneration for private recordings. Under the TRIPS agreement, the federal government also grants legal protection for U.S. performing 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 because of 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, 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 regulations and with 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. 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. In December 2011, the government reported that measures implemented so far have reduced annual bureaucratic costs by €10.9 billion, or 22%, compared to 2006. At the same time, the administration published a set of new draft measures to reduce bureaucratic costs by a further €1.5 billion to reach its goal of 25% reduction.

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

Despite the ongoing eurozone sovereign debt crisis, global investors still see Germany as a safe place to invest, as the real economy continues to outperform other EU countries and German sovereign bonds retain their “safe haven” status.

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 as well as 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 regional state-owned banks (Landesbanken) were among the hardest hit by the crisis. In December 2011, the European Commission accepted the breakup plan for WestLB, once the biggest German Landesbank, into four pieces. WestLB is the first major German bank to fall as a result of the financial crisis. The consolidation process among the remaining seven Landesbanken is likely to continue. The financial crisis also triggered the takeover 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 2008, the German government created a Financial Market Stabilization Fund (SoFFin) which had the ability to offer guarantees up to €400 billion and purchase assets for an additional €80 billion. The two most prominent recipients of rescue funds were Germany’s second-largest bank Commerzbank (in which the German government still has a 25% stake) and Hypo Real Estate (HRE). In the case of HRE, the government departed from long-standing tradition and fully nationalized the bank in order to prevent a breakdown of the German (and European) covered-bond market – the bedrock of German real estate financing. Several investors in HRE challenged the takeover of the bank but lost the legal case with the Higher Regional Court in Munich, which ruled in September 2011 that the German government’s action was proportionate and necessary. One of the investors was U.S. private equity firm J. C. Flowers, which led a consortium of investors that owned nearly 25% of the troubled bank prior to nationalization. SoFFin also created two “bad banks” with toxic assets from West LB and HRE, respectively. SoFFin’s authority to offer services expired at the end of 2010, but it continues to manage existing guarantees. In November 2011, the German cabinet passed a draft law to reauthorize SOFFin until the end of 2012 solely to provide new services for systemically relevant banks. While Commerzbank denies needing further state aid to raise the €5.3 billion in capital required by the European Banking Authority (EBA), analysts and the media speculate that the bank will once again be forced to seek state aid via SoFFin.

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. In contrast to several other European countries, the eurozone crisis has not yet led to a shortage of credit in the German economy. However, German banks complain that tougher capital requirements for banks because of Basel III and the European Council decision of October 27, 2011, to increase the Tier 1 capital ratio to nine percent will limit their ability to provide credit to the real economy. The government has taken action to provide sufficient credit to the real economy by offering additional state financing options through state-controlled lender KfW. Since May 2010, Germany has banned some forms of speculative trading, most importantly naked short selling. There are also ongoing discussions on proposals to ban naked credit default swaps and to establish a public European-based credit rating agency. Germany supports a worldwide financial transaction tax but will accept the introduction of such a tax solely in the eurozone to stabilize financial markets and to increase the legitimacy of the financial sector among citizens.

Some German banks have recently restricted brokerage services for U.S. citizens because of reporting and compliance burdens created by recent U.S. legislation, such as the Foreign Account Tax Compliance Act (FATCA).

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 implemented legislation establishing new rules to ensure greater transparency in takeovers. The law went into effect in 2006.

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. In 2004, a law for the improvement of investor protection was adopted that increased the liability of boards of directors for false or misleading statements and improved oversight of auditing operations. The EU's Financial Services Action Plan to create a more integrated European financial market has helped stimulate changes in the German regulatory framework, including the adoption of International Accounting Standards for listed firms and use of company investment prospectuses 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.

Germany has implemented several new laws in response to the 2007-2008 global financial crisis. The Investor Protection and Capital Markets Improvement Act of 2011 sets stricter rules for financial advice in order to provide investors with better protection against misinformation. Financial advisers must now provide customers with concise and comprehensive information on financial products being offered. The law also seeks to prevent hidden ownership in companies in order to limit stealth takeovers. The Restructuring Act, which took effect in January 2011, provides a framework to restructure a troubled systemically important financial institution in a way that protects public finances and secures the stability of the financial system. To avoid having taxpayers fund future bank restructurings, Germany introduced a bank levy whose size is based on a bank’s risk profile, size and degree of integration into the financial market. The proceeds of the levy feed into a so-called “bail-in” fund for future financial crises.

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 39% (including traditional fixed-line, VoIP and TV broadband cable), while in the broadband market, competitors providing DSL-broadband constitute around 41%. 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 included a controversial component granting Deutsche Telekom a regulatory holiday in return for a sizeable investment in a VDSL network, providing the investment created a "new market.” The European Commission subsequently initiated infringement proceedings, and in 2009 the European Court of Justice ruled that the regulatory holiday granted to DT infringed 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 Bundestag passed draft reform legislation in October 2011, abolishing the DT regulatory holiday provision. 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 intention 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, although DP has remained the dominant player in that market. Two significant barriers to entry adversely affecting competition were dismantled in 2010. 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. Foreign banks and German banks generally face similar market conditions. The state-owned banks (Landesbanken) used to have advantages over privately-owned banks in obtaining credit but, under pressure from Germany’s privately-owned banks, the EU forced an end to many of these advantages in 2005. While many Landesbanken still rely on so-called “silent participation” investments from state governments, they can no longer raise money cheaply with AAA ratings that are based on a government guarantee. In May 2011, Moody’s noted that government support is much less likely today than it was pre-crisis, writing, “we envisage significant downward pressure on ratings from weakening support for Landesbanken in the long term.”

The greater part of the German energy sector is in private hands. The electricity and gas markets traditionally have been characterized by an oligopolistic structure, but EU pressure has led to increased competition since 1998. 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 jurisdiction of the Cartel Office in the energy sector and introduced legislation and reduced administrative hurdles to enhance entry to the market. As a result, some new foreign competitors have entered the energy sector.

Following the nuclear disaster in Fukushima in March 2011, the German conservative-liberal coalition government decided in May 2011 to permanently shut down eight of its 17 nuclear power plants and pledged to gradually close the remaining nine by 2022. By doing so, the government overturned its autumn 2010 decision to extend the lives of Germany’s nuclear reactors beyond the deadline for nuclear phase-out set by the center-left government of Chancellor Gerhard Schröder in 2000.

Germany’s largest utility E.ON on November 14, 2011 initiated a complaint against the federal government in the German Constitutional Court, arguing that the government’s closure of its four nuclear power plants constituted an expropriation without compensation in violation of the German constitution. Energy companies RWE and EnBW are considering similar action. Meanwhile, Swedish state-owned energy giant Vattenfall is taking Germany to arbitration in the Washington-based International Centre for Settlement of Investment Disputes (ICSID). As a foreign company in Germany, Vattenfall can invoke the Energy Charter Treaty (ECT), an international agreement that provides a multilateral framework for energy deals.

While energy-intensive industries are partly excluded from the Renewable Energy Law (EEG) levy (a tax for the promotion of renewables), to make up for rising energy costs, state-owned researcher Dena Energy Agency expects energy prices for German households to rise 20% by 2020.

Germany’s accelerated exit from nuclear energy has considerably increased the risk of power blackouts. The Federal Network Agency (Bundesnetzagentur) has identified several fossil-fuel power plants that can be operated as reserve capacity to bridge supply bottlenecks. However, in order to ensure stable energy supply, §13(2) of the German Energy Industry Act (EnWG) allows for taking large industrial users temporarily offline. This can happen in the absence of contractual agreements and without compensation, if it is the only way to prevent the grid from collapsing.

Corporate Social Responsibility

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 selected member companies’ approaches to CSR. 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 questionable political party influence and party donations, represent areas of continued concern. Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany.

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 financial 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. Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment. State prosecutors generally are responsible for investigating corruption cases.

Transparency Deutschland, the German Chapter of Transparency International, considers its main goals in Germany to be a national corruption register and an advocate for speedy ratification of the UN Anti-Corruption Convention, which places bribery of parliamentarians on the same level as bribery of other 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, Daimler and more recently Deutsche Telekom focused public attention on foreign bribery from 2007 onwards. The issue is likely to remain in the headlines. On March 18, 2011, prosecutors indicted two executives from Ferrostaal AG, accusing them of bribing foreign officials with €62 million ($87 million) in conjunction with the sale of submarines to Greece and Portugal. An OECD monitoring report released in October 2010 noted that the country’s enforcement efforts have increased steadily and resulted in a significant number of prosecutions and sanctions imposed in foreign bribery-related cases against individuals. However, the report highlighted that sentences for corruption were generally within the lower range of available sanctions and that most prison sentences were suspended, raising concerns that punishment was not always fully effective, proportionate, or dissuasive.

Bilateral Investment Agreements

Germany has investment treaties in force with 130 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 with the following countries and territories that have not yet entered into force:



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 was extended on January 1, 1991, to the territory of 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 for several years during the early 1990s following reunification but were later suspended because of 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 the 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 have helped the country outpace its European partners – strict wage controls, a retirement age rising from 65 to 67, 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.

The German economy has improved markedly in recent years. The economy took a serious hit during the economic crisis but recovered quickly. As in most other OECD countries, GDP declined significantly in 2009 (by 4.7%) but grew by 3.6% in 2010, the highest rate since unification. Following 3% growth in 2011, the pace of expansion is expected to slow in 2012. Most economic research institutes have lowered their 2012 GDP forecast to 0.6% from 1.0% predicted in October 2011.

The labor market remained resilient during the economic crisis and continued to be strong in 2011.

Many experts credit the government-funded short-time work program for limiting unemployment. Other factors, such as moderate wage increases, flexibility in bargaining agreements, numerous company-level alliances to retain jobs, and employers’ willingness to accept higher unit labor costs, have also contributed to the stability of the German labor market. Job cuts in logistics and manufacturing have been offset by job creation in other sectors, such as services and health care. Because of the declining workforce, average unemployment dropped to 2.976 million over the course of last year, with an average jobless rate of 7.1% – down from 7.7% in 2010. Unemployment remains higher in the East of the country than in the West. The number of employed persons in Germany reached an all-time high (about 41.6 million) in November 2011, an increase of 521,000 from a year ago.

Collective bargaining agreements concluded in 2011 provided higher nominal pay hikes than in 2010. In numerous sectors of the economy, negotiated wages increased between 2.5 and 4%, with contracts running longer than the usual 12 months. Hence, calculated on an annual basis, the average nominal increase in wages and salaries was around 2.2% in 2011, slightly above the average of 1.7% for 2010. This rise reflects the improvement in the economy. Many large enterprises also paid out higher bonuses to their employees, lifting actual earnings in some sectors (e.g., automobile, chemicals, electronics, manufacturing) by an estimated 2.8%. However, as inflation has risen to 2.3% in 2011, employees in other sectors of the economy have not enjoyed real wage increases.

There is still a considerable gap in earnings between men and women in Germany. Collective agreements concluded in 2011 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 directly about 32% of all firms; 4% are covered by a company-level agreement; 40% are guided by the regulations of the relevant industry agreement; and 24% are not covered at all. Coverage in the eastern states is even lower than in the West: collective bargaining agreements covered approximately 65% of the labor force in the western part of the country and approximately 51% in the East.

Germany does not have a statutory minimum wage. In general, the current German government remains opposed to the introduction of a national legal minimum wage, but binding minimum wages are in place in several industries and occupations. As of January 1, 2012, minimum wages were in place for four groups of construction occupations (construction industry proper, the painting and varnishing trade, erection of roof coverings and frames, and the electrician trade); waste management; industrial and commercial cleaning; security; long-term care; special mining activities in hard coal mines; and work performed for temporary employment agencies. These minimum wages vary from €6.53 per hour (security work in the former East German states and the states of Berlin, Rhineland-Palatinate, Saarland and Schleswig-Holstein) and €13.40 (for construction work in the former West Germany).

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.

A restriction on Eastern European workers instituted in 2004 was lifted in May 2011. While the measure may help ease skill shortages, the alarming demographic decline 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. Hence, the government has launched several programs geared toward retaining skilled workers and promoting greater labor market participation of immigrants, youth, women, and older workers.

While trade union membership has continued to decline, there has been a notable slowdown in the rate of decline in recent years. About 20% 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 6.2 million at the end of 2010.

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’s 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.

“Co-determination” 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 co-determination 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 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. Hamburg will lose its free-trade zone status in 2013.

Foreign Direct Investment Statistics

According to the U.S. Department of Commerce’s Bureau of Economic Analysis, in 2010 German direct investment in the United States was worth $213 billion, while U.S. direct investment in Germany was worth $106 billion.

Top 10 U.S. Companies in Germany by 2010 Sales


Est. Sales in 2010 (in million €)

Ford-Werke GmbH


Adam Opel * (General Motors)


ExxonMobil Central Europe Holding GmbH


ConocoPhillips Germany *


GE Deutschland *


IBM Gruppe Deutschland *


Philip Morris GmbH*


Hewlett-Packard GmbH**


Procter & Gamble *


Dow Germany *


(Source: American Chamber of Commerce in Germany “Commerce Germany” September 2011)

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

**data through Oct. 10, 2010

Foreign Direct Investments in Germany by key sectors (2009, 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 2011)