PKF FASSELT SCHLAGE 欢迎来到德国. Start-up in Germany. Law and Tax

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1 PKF FASSELT SCHLAGE 欢迎来到德国 Start-up in Germany Law and Tax Status: March 2015

2 Preliminary Remarks» The banking and financial market crisis are still having an effect on European countries. This economic situation provides a good opportunity for investing in Europe, e.g. Germany Start-up in or out of the crisis?» The Chinese word for crisis (wēijī) 危机 is composed of the two single characters (wēi) 危 for danger and (jī) 机 for chance crisis = danger + chance DAX development from June 2011 to February 2015 Interest = low Economic situation = stable Euro-crisis = solved? Future = you PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 2

3 FAQ regarding start-ups in Germany I. Which type of legal form is recommended? II. Which type of legal form has more tax advantages? 1. Partnership 2. Corporation III. How is the profit transfer taxed? 1. Dividends 2. Capital gains derived from shares exit strategy IV. Internationalisation of the Renminbi (CNY): Challenges and Advantages 1. Internationalisation of CNY 2. Advantages of direct trading PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 3

4 I. Which type of legal form is recommended? Civil Law Partnership (GbR) Partnership General Partnership (OHG) Limited Partnership (KG) GmbH & Co. KG (limited liability company & limited partnership ) Not recommended because of the unlimited liability of the shareholder Recommended because of the limited liability of a shareholder and tax advantages for the partnership PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 4

5 I. Which type of legal form is recommended? Corporation Limited Liability Company (GmbH) )Stock Corporation (going public!) (AG) PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 5

6 I. Which type of legal form is recommended? Generally, a limited liability company (GmbH) is the most flexible legal form for a corporation. The basic information about a GmbH are :» A GmbH itself is subject to rights and liabilities. Managing directors (Geschäftsführer) are empowered to represent the GmbH in all legal and business matters» The power to represent may not be limited with external effect» A GmbH is founded by one or more shareholders, who may be individuals, corporations or partnerships» A GmbH has one or more managing directors. Managing directors manage the corporate assets. Shareholders have the right to issue directives to the management and the control about significant transactions» The minimum share capital of a GmbH is EUR 25,000 (can also be physical assets) PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 6

7 I. Which type of legal form is recommended?» The whole establishment process of a GmbH, the change of articles of association (Gesellschaftsvertrag) and the transfer of shares need to be notarized and to be registered in the public commercial register (Handelsregister)» If the number of employees exceeds 500 a supervisory board is mandatory» An annual financial statement has to be published» For business companies with company with limited liability and insufficient share capital (haftungsbeschränkte Unternehmergesellschaft UG) the initial minimum share capital is EUR 1 Corporation Partnership PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 7

8 II. Which type of legal form has tax advantages? I now explain to you the German tax system PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 8

9 II. Which type of legal form has tax advantages? 1. Partnership» Transparency principle: not the partnership but the partners (so-called coentrepreneurs) are taxed» Exception: when the co-entrepreneur is not a natural person but a company, this company is subject to trade tax, but by means of the lump-sum trade tax credit» The income tax rate for 2014 rate from 14 % to 45 % (tax progression)» Tax advantages from loss utilization by multiple sources of income in Germany can be used» Tax advantages for low profits PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 9

10 II. Which type of legal form has tax advantages? 2. Corporation» In case of a retention of profits, the legal form "corporation" offers more advantages, apart from that the "partnership".» Tax charge on the corporation 15 % corporation tax (Körperschaftsteuer) 14 % trade tax (Gewerbesteuer) when multiplier (Hebesatz) is 400 % 29 %» Additional tax on dividend distributions (Ausschüttungsbelastung) when the dividens are paid, If the shareholder is a company, 60 % of the dividend is taxable If the shareholder is a private individual, the whole dividend is taxed at a rate of 25 % PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 10

11 III.How is the profit transfer taxed? 1. Dividends (1) profit distribution Parent company (Corporation) Subsidiary (Corporation) PRC China Germany Tax treatment of profit distribution in Germany:» Dividends paid by a German corporation to a corporation with limited tax liability in Germany are subject to withholding tax of 25% (capital gains tax)» According to 44a para. 9 of the German Income Tax Act (EStG) a refund of 2/5 of the retained investment income is possible» Application must be received by the Federal Central Tax Office, Bonn PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 11

12 III.How is the profit transfer taxed? 1. Dividends (2) profit distribution Parent company (Corporation) Subsidiary (Corporation) PRC China Germany Art. 10 DBA*:» Taxing rights arise in the state of residence of the recipient of dividends. Chinese taxation law applies» The state of source has a limited taxing right amounting to 10 % of the gross dividends. German taxation law applies Art. 24 para. 1b DBA:» The withholding tax is credited against the Chinese tax Condition: The Chinese company owns at least a share of 10 % of the German company *Agreement for the Avoidance of Double Taxation (DBA Deutschland-China) from The revised version was signed on 28. March 2014 and will come into force shortly. PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 12

13 III.How is the profit transfer taxed? 2. Capital gains derived from shares exit strategy (1) Tax treatment in Germany: capital gains disposal Parent company (Corporation) PRC China Germany Disposal of shares of a limited liability company (GmbH):» According to art. 17 para. 1 no. 2 e) aa) of German Income Tax Law (EStG) the income from shares is subject to taxation Subsidiary (Corporation)» Condition: The alienator directly or indirectly holds a share of at least 1 % of the German corporation within the last 5 years Corporate tax rate 15 % PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 13

14 III.How is the profit transfer taxed? 2. Capital gains derived from shares exit strategy (2) Art. 13 para. 2 DBA: capital gains disposal Parent company (Corporation) PRC China Germany» Taxation right lies with the situs state (state in which the permanent establishment is situated) German taxtation law applies Art. 24 para. 1a DBA: Subsidiary (Partnership)» The German tax is credited against the Chinese tax The German tax charged may not exceed the Chinese tax amount PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 14

15 IV. Internationalisation of the Renminbi (CNY): Challenges and Advantages 1. Internationalisation of CNY (1) CNY is becoming a global currency and is a testament to China s rising global economic power CNY has entered the top ten most traded currencies People s Bank concluded a three-year currency swap agreement with the European central bank in year 2013 Since September 2014 a clearing bank based in Frankfurt allows for direct trading in CNY, no detour via banks in Hongkong or other trading places has to be taken PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 15

16 IV. Internationalisation of the Renminbi (CNY): Challenges and Advantages 1. Internationalisation of CNY (2) since 2014, Euro becomes the 6 th currency which allows direct trading with the CNY December 2014: 1 EUR = 7,4922 CNY 1 CNY = 0,1331 EUR February 2015: 1 EUR = 6,97046 CNY 1 CNY = 0,14346 EUR PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 16

17 IV. Internationalisation of the Renminbi (CNY): Challenges and Advantages 2. Advantages of direct trading Offers advantages for both Chinese and German companies: in Europe, Germany is China s leading trading partner. Likewise, In Asia, China is Germany s most important economic partner. Enhances Chinese outbound trade because German companies frequently are granted price reductions if they pay in CNY encourages a decline in transaction costs because companies involved can deal with their bank (which in turn deals with the clearing bank) in their own language facilitates the access of Chinese companies to German market allows Chinese investors to diversify their assets internationally PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 17

18 Contact Prof. Dr. Frank Balmes Lawyer, focus on corporate and tax law Expert in consulting international (middle-sized) companies Focus areas are especially real estate and automotive Business valuation Specializations in the field of inheritance/legacy tax structuring and high-end consulting for fiscal procedural and litigation law Teaching activities at Rheinische Fachhochschule, Köln Tel: PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 18

19 PKF FASSELT SCHLAGE Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte Gereonstraße Köln Tel: Fax: PKF FASSELT SCHLAGE Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte is a member firm of the PKF International Limited network and in Germany a member of a network according to 319 b HGB. The network consists of legally independent member firms. PKF FASSELT SCHLAGE Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. PKF Fasselt Schlage Partnerschaft mbb Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rechtsanwälte 19