2013 Investment Climate Statement - Germany

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013

Openness to, and Restrictions Upon, Foreign Investment

For many decades Germany has consistently experienced significant inbound investment. It is widely recognized that foreign investment has been a considerable contributor to Germany’s growth and prosperity. The German government and industry actively encourage foreign investment. U.S. investment has been strong and continues to account for a large share of foreign investment. 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 United States and Germany. Germany subscribes to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations. German law, itself, 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. 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. 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. FRG has begun to address many of these problem areas through reform programs. German courts have a good record in upholding the sanctity of contracts.

Until 2004, Germany had no special legislation impacting foreign direct investment beyond general restrictions, such as the need for antitrust clearance or regulatory requirements for investments in financial institutions which equally apply to all investors, whether from Germany, the European Union or elsewhere. A national security screening mechanism was introduced in 2004, which requires that investors from countries other than the member states of the European Union (EU) and the European Free Trade Association (EFTA, i.e., Liechtenstein, Iceland, Norway and Switzerland) notify the acquisition of any business engaged in manufacturing or developing war weapons or armaments, or producing cryptographic equipment, in cases where the investor directly or indirectly owns 25 percent or more equity. In such cases investors must notify the Federal Ministry of Economics and Technology, which then has one month in which raise objections. If none are raised within that time, the transaction is regarded as approved. FRG expanded the scope of the law in 2005 to include tank and tracked-vehicle engines.

In the wake of broader discussions on the need for restrictions to foreign investment by sovereign wealth funds, the German Foreign Investment Act was amended in 2009 to apply to a German company of any size or sector in cases where a threat to national security or public order is perceived. The more generic character of this amendment has raised some uncertainty over which transactions should be notified. To date, the FRG has not made use of it to impose any restrictions.

Following a rapid and forceful recovery from the deep recession – pre-crisis real GDP was achieved in the second quarter of 2011 – economic growth in Germany has slowed and the outlook has weakened. Amidst a recession in the Eurozone, German GDP rose by 0.2 percent in the third quarter of 2012 compared with the previous quarter. Forecasts for GDP growth in 2013 range between 0.4 percent and 1.5 percent. In the third quarter 2012, positive contributions were made by foreign demand with exports of goods and services increasing 1.4 percent (qoq) as well as domestic demand, with increases in both private consumption (+0.3 percent) and government consumption (+0.4 percent). However, with the exception of gross fixed capital formation in construction (+1.5 percent), businesses significantly reduced investment spending.

Global Benchmarks




TI Corruption Perception Index


Rank 13 of 176, CPI 79 (8.0 in 2011)

Heritage Economic Freedom Index


Rank 19 of 177, freedom score 72.8 (+1.8 from 2012)

World Bank Doing Business


Rank 20 of 185

Currency Conversion and Capital Transfers

As a result of the European Economic and Monetary Union (EMU), the Deutsche Mark (DM) was phased out in 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. The European Central Bank (ECB) is based in Frankfurt. 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. (For specific examples, see SOEs, Power Plants, below).

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 (UNCITRAL). German courts are fully available to foreign investors in the event of an investment dispute. FRG does not interfere in the court system and accepts binding arbitration.

Performance Requirements and Incentives

U.S. companies can, with effort, generally obtain the resident visas and spousal 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 FRG to recognize one another’s driver's licenses. As a result, licenses from those states are not legal in Germany beyond six months, whereas licenses from states that have signed agreements can be converted to German licenses after six months.

The EU, 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 alike. 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 Trade-related Investment Measures (TRIMs) obligations.

FRG has promoted investment in the former East Germany and offers several programs only in these regions. The primary 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 (USD 34.4 B). German states located in the former East Germany have received over half the EU subsidies allocated to Germany, €15.1 billion (USD 20 B), for the budget period of 2007-2013.

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

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, FRG, and German state governments.

Foreign investors can obtain more information on investment conditions and incentives from the FRG inward investment promotion agency, “Germany Trade & Invest”: www.gtai.com

Germany Trade & Invest
1776 I Street, N.W.
Suite 1000
Washington, D.C. 20006
Telephone: (202) 629-5713
Telefax: (202) 347-7473

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

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

Germany Trade & 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

Right to Private Ownership and Establishment

With a few exceptions, all 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. In the case of airline ownership, an exception based on EU regulations requires EU majority ownership of shares in order to obtain an operating permit as an EU airline.

Until 2004, Germany had no special legislation impacting foreign direct investment beyond general restrictions applicable to all. A national security screening mechanism was introduced in 2004, however, which requires that investors from countries other than the member states of the European Union (EU) and the European Free Trade Association (EFTA, i.e., Liechtenstein, Iceland, Norway and Switzerland) notify the acquisition of any business engaged in manufacturing or developing war weapons or armaments, or producing cryptographic equipment, in cases where the investor directly or indirectly owns 25 percent or more equity. In such cases investors must notify the Federal Ministry of Economics and Technology, which then has one month in which raise objections. If none are raised within that period, the transaction is regarded as approved. FRG expanded the scope of the law in 2005 to include tank and tracked-vehicle engines. The German Foreign Investment Act was further amended in 2009 to apply to a German company of any size or sector in cases where a threat to national security or public order is perceived. The more generic nature of this amendment has raised some uncertainty over which transactions should be notified. To date, the FRG has not made use of it to impose any restrictions.

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. 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.

Copyright: National treatment is also granted to foreign copyright holders, including remuneration for private recordings. Under the TRIPS agreement, FRG 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 effective. 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 certain processes. 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, FRG continues to reduce bureaucracy. In 2006, the National Regulatory Control Council (NKR) was established, tasked with assessing the impact of regulations and with encouraging FRG to cut red tape. Since July 2011, the NKR additionally assesses all follow-up costs that new regulation generates for citizens, business and administration. The council reports annually and recommends further measures. 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 October 2012, the NKR reported that measures implemented so far have reduced bureaucratic costs by €11 billion (USD 14.4 B), or 22.5%, compared to 2006.

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.

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 ongoing 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 remain high. The private bank sector is dominated by Deutsche Bank and Commerzbank, both of which have launched cost-cutting programs in advance of new international regulatory requirements for increased capital levels. Germany’s regional state-owned banks (Landesbanken) were among the hardest hit by the crisis and continue to face major challenges to their business models. In 2012, WestLB, once the biggest Landesbank, was wound down and its assets transferred to a “bad bank.”

In 2008, FRG created a Financial Market Stabilization Fund (SoFFin) which has 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 FRG still holds a 25% stake) and Hypo Real Estate (HRE), which was fully nationalized to prevent a breakdown of the German (and European) covered-bond market – the bedrock of German real estate financing. In September 2011, the Higher Regional Court in Munich approved the government takeover, rejecting a challenge filed by several HRE investors, including the U.S. private equity firm J.C. Flowers. As with WestLB, HRE’s toxic assets were transferred to a bad bank. SoFFin announced in December 2012 that it has booked losses of €900 million for the year until the end of September, mainly due to write downs and refinancing costs.

SoFFin’s authority to offer services was renewed until the end of 2014 by the Third Financial Market Stabilization Law, which entered into force on January 1, 2013. The law also attempts to shield taxpayers from further losses by requiring a separate bank-financed restructuring fund to backstop SoFFin’s losses. SoFFin may not need to be further extended once the European Stability Mechanism (ESM) is authorized to directly recapitalize eurozone banks, something that is foreseen for 2014, once the European Central Bank’s Single Supervisory Mechanism for banking oversight is up and running.

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. Despite the eurozone crisis, there are no reports of a shortage of credit in the German economy. Since 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 more tightly regulate high-frequency trading and the shadow banking sector. Germany supports a worldwide financial transaction tax and is pursuing the introduction of such a tax along with several other eurozone countries.

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 that, 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 (SOEs) still exist in several sectors, notably 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 about 42% (including traditional fixed-line, VoIP and TV broadband cable), while in the growing broadband market, competitors constitute around 55%. FRG continues to hold a 32% share in DT, although it has expressed its intention to sell these shares eventually. 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. The Bundestag and the Bundesrat passed a reform of the Telecommunications Act in February 2012, which will implement the 2009 EU Telecoms Package. The reform aims to facilitate broadband expansion and to further strengthen consumer protection. However, the reform introduces the requirement of the Bundesrat’s approval of future frequency allocations and regulations issued by FRG. The providers of telecommunication services criticize this extension of the Bundesrat’s competences as considerable further red tape and a new handicap for investments that will delay decision making within the telecommunication sector.

FRG partially privatized Deutsche Post (DP) in November 2000 and has stated its intention eventually to divest its remaining shares. It currently holds a 25.5% 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. First, 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. Second, FRG abolished the Value-added Tax (VAT) exemption (of 19%), which DP had received for offering universal service. 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.

The greater part of the German energy sector is in private hands. EU pressure has led to increased competition in the electricity and gas markets since 1998. To 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 FRG 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. Germany’s second and third largest utilities RWE and Vattenfall followed E.ON’s example and filed constitutional complaints against the nuclear phase-out in April and July 2012 respectively. Swedish state-owned Vattenfall is also 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. E.ON, RWE, and Vattenfall claim over €15 billion (USD 19.6 B) in damage compensation. Meanwhile, the ownership structure of EnBW, the fourth largest utility in Germany, prohibits it from suing FRG in the Constitutional Court (the company is 98% publicly owned). Despite not participating, EnBW announced that it “explicitly shares the legal opinion” of E.ON, RWE and Vattenfall.

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 Dena Energy Agency expects energy prices for German households to rise 20% by 2020. In the past two years alone, German electricity prices for private households, already among the highest in Europe, have increased by another 8% to about 26 cents per kilowatt hour.

Germany’s accelerated exit from nuclear energy has considerably increased the risk of power blackouts. In record-cold February 2012, Germany’s power network came extremely close to a collapse. To prevent brownouts or 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, if it is the only way to prevent the grid from collapsing. In return, they receive compensation, the costs for which are passed on to electricity consumers. In November 2012, the Bundestag granted the Federal Network Agency (BNetzA) the power to order conventional power plant operators to postpone planned shutdowns of power plants to improve the security of supply in Germany. The power plant owners will be compensated. The Federal Association of the Energy and Water Industry (BDEW) criticizes these measures, arguing that they massively infringe on the property rights of power plant owners.

Corporate Social Responsibility

The Federal Ministry of Labor and Social Affairs is the leading ministry for corporate social responsibility (CSR) within FRG. 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 as well as small and medium-sized enterprises. 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 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 CSR Committee 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. However, additional revenues of parliamentarians through business connections have been a matter of public debate and were perceived as being a potential reason for non-ratification of the UN convention. The Bundestag is currently considering a revision of its financial disclosure rules.

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 2006, but many regard the government’s handling as restrictive. Several states have their own freedom of information laws. FRG 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. On March 18, 2011, prosecutors indicted two executives from Ferrostaal AG, accusing them of bribing foreign officials with €62 million (USD 87 M) 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 penalties and that most prison sentences were suspended, raising concerns that punishment was not always fully effective, proportionate, or dissuasive.

Bilateral Investment Agreements

Germany does not have a bilateral investment treaty with the United States, however, 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 in 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. A Protocol of 2006 updates the existing tax 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.

Germany has investment treaties in force with 131 countries and territories. Treaties with former sovereign entities (including Czechoslovakia, the Soviet Union, and Yugoslavia) continue to apply in an additional four cases. These are indicated with an asterisk (*) and have not been taken into account in regard to the total number of treaties. Treaties are in force with the following states, territories or former entities: 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; Palestinian Territories; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Serbia*; Sierra Leone; Singapore; Slovak Republic*; Slovenia; Somalia; South Africa; Soviet Union; Sri Lanka; St. Lucia; St. Vincent and the Grenadines; 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.

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



Temporarily Applicable




Congo (Republic)
























(*) Previous treaties apply

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 policies 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.

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, now considered to be the largest in Europe. 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.

The labor market remained resilient during the economic crisis and continued to be strong in 2012. However, an element of growing concern for German business is the demographic trend of a shrinking labor force – especially with respect to skilled labor. Forecasts predict a shortage of up to 1.7 million skilled work positions by the year 2020. This expectation has caused companies to retain their employees even through tougher economic times. This factor has contributed to an expansion of the workforce in 2012 even though the economy showed signs of weakening under the impact of the euro-crisis in several key European export markets.

A restriction on Eastern European workers instituted in 2004 was lifted in May 2011. While the measure may help ease skill shortages, there remain 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. The euro crisis and economic recession combined with a difficult labor market situation in EU countries Spain, Italy, Greece and Portugal caused an increased influx from workers from those countries of 7.6% to 465,000.


Because of the expanding economy and demographic factors, average unemployment dropped to 2.897 million over the course of last year, with an average jobless rate of 6.8% – down from 7.1% in 2011. Unemployment remains higher in the East of the country than in the West. The number of employed persons in Germany continued to rise and reached an all-time high of about 41.6 million in 2012, an increase of 416,000 from a year ago. 2012 marked the seventh consecutive year of an expanded German workforce.


Collective bargaining agreements concluded in 2012 provided higher nominal pay hikes than in 2011. In numerous sectors of the economy, negotiated wages increased between 2.9 and 4.3%, 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 3.0% in 2012, significantly above the average of 2.2% for 2011. This rise reflects the improvement in the economy. With an inflation rate of 2% in 2012, employees in many sectors of the economy have enjoyed the first real wage increases in many years. Many large enterprises also paid out higher bonuses to their employees, additionally lifting actual earnings in some sectors (e.g., automobile, chemicals, electronics, manufacturing).

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.

Minimum wage: Germany does not have a statutory minimum wage although the general election campaign in 2013 will likely see a renewed call for its introduction. 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 (main construction trade, painting and varnishing trade, erection of roof coverings and frames, and 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 €7.00 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).

Vocational Training

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 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.

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.

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.

Foreign Trade Zones / Free Trade Zones

There are four free-trade zones in Germany established and operated under EU law: Bremerhaven, Cuxhaven, Deggendorf and Duisburg. 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 lost free-trade zone status in January 2013.

Foreign Direct Investment Statistics

According to the U.S. Department of Commerce’s Bureau of Economic Analysis, in 2011 German direct investment in the United States was worth USD 216 billion, while U.S. direct investment in Germany was worth USD107 billion.

Top 10 U.S. Companies in Germany by 2011 Sales (2011, in million €)

Ford-Werke GmbH


ExxonMobil Central Europe Holding GmbH


Adam Opel * (General Motors)


Phillips 66 Continental Holding GmbH


GE Deutschland *


IBM Gruppe *


Hewlett-Packard GmbH**


Philip Morris GmbH*


Dow Gruppe Deutschland *


Procter & Gamble Germany *


(Source: American Chamber of Commerce in Germany, “Commerce Germany”, September 2012)

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

**data through Oct. 31, 2011

Foreign Direct Investments in Germany by key sectors (2010, in million €)

Holding companies




Credit institutes


Chemical industry


Company-related services


Real estate


Machine construction


Coking, mineral oil processing, production and processing of fissile material




Energy and water


(Source: Deutsche Bundesbank, Bestandserhebung über Direktinvestitionen, April 2012)