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Germany – Traditional High-Tech Hub

Germany is the largest economy in Europe and the fourth largest in the world. It is a highly industrialised country, with an efficient workforce and a mixture of large mature industries such as chemicals and automotive manufacturing and emerging sectors including artificial intelligence and e-commerce.

It’s population of 82 million people produced a gross domestic product (GDP) of USD3.7 trillion in 2017 according to figures from the United Nations Conference on Trade and Development (UNCTAD). Germany is an export-oriented economy, with a trade surplus of USD285 billion in 2017, according to UNCTAD. It’s main trading partner is the USA, worth USD126 billion in exports, followed by France, China, the United Kingdom and The Netherlands.

All these indicators emphasise the attractiveness of Germany as a gateway to Europe, as well as a significant market in its own right. It has well-developed transport and communications infrastructure and a decentralised economy, with several large centres of commerce including Hamburg, Berlin, Munich and Stuttgart.

Figures from a recent foreign direct investment (FDI) report carried out by Germany Trade & Invest (GTAI), show that 2,062 foreign companies opened a business in Germany to 2018. The USA was the top investor, with 345 projects, while Switzerland had 229, China 188 and the United Kingdom 168. The survey notes that British investment in Germany has increased by 34 per cent since the Brexit Referendum, as UK companies seek a stable base inside the European Union.

While many of these investments will be in traditional industries, there is a growing digital economy in Germany, which is thriving in the larger cities, driven by a young, well-educated and tech-savvy population. Analysis from the Boston Consulting Group suggests that Germany has some 27,000 experts in digital fields, such as artificial intelligence (AI), data mining and app development. This places them second globally to the USA. Career motivations have evolved across recent generations, and Germany was rated highly in the study for working relationships, work-life balance, and career development opportunities. Berlin was deemed the thirdbest city to work in, after London and New York, while Munich was also highly-rated.

The data suggests that the economic environment is very attractive for inward investment, and the country also has a well-developed network of funding options to help foreign businesses to grow and develop. The German government has recently announced an increased package of investment for artificial intelligence, up from EUR140 million to EUR500 million in 2019.

There is also a well-known seed fund called the High-Tech Gründerfond (HTGF). It focuses solely on technology driven startups, offering initial investments of EUR1 million, up to EUR3 million per enterprise. HTGF is funded by the Federal Ministry for Economic Affairs and Energy, plus the stateowned development bank KfW and other large German corporations.

The individual Federal states of Germany also have their own funding structures for small and medium-sized enterprises (SMEs). Mittelständische Beteiligungsgesellschaften (MBGs) operate silently via the provision of subordinated capital with an average investment of EUR3 million.

All this adds up to a healthy proposition for FDI and showcases the powerful draw that Germany exerts on foreign capital. Oncenew businesses are established and funded, they can also look forward to a competitive tax framework, designed to be pro-business rather than punitive.

The average tax burden on German companies is less than 30 per cent and, in some regions, can be as low as 23 per cent due to variations in regional taxes. The German tax authorities have tightened up regulations dealing with globally-generated income, but taxes paid elsewhere can be offset against German tax provided the correct double taxation treaties are in place.

The following report features ten German legal experts, who provide a unique take on innovative developments in their country’s economic and legal landscape. We hear about the legalisation of cannabis, the growth of the German life sciences sector and changes to German corporate tax law among other topics.