Which investment structures are typically used by international investors in Germany? How can you help to facilitate the process?

How can we help to facilitate the process?

One crucial factor determining investment structure is the expected tax burden. So much so, that a preferred tax structure often pre-defines the type of investment vehicle used in a transaction.

As a law firm we co-operate with tax advisors that are experts and have experience in the area of cross-border tax structuring and together with whom we can assist our clients in the optimisation of their investment structure.

Foreign companies seeking to set up a business in Ger- many can choose between different forms of establishment. A separate company held by the foreign investor is in practice often established for that purpose. In almost all cases clients wish to establish a structure in which their investment vehicle enjoys a limited liability, usually in the form of a limited liability company (GmbH) or a limited partnership (GmbH & Co. KG). Existing companies can also conduct business via a German branch office.

The basic structure of all company forms is stipulated by statutory law which provides for predictability and legal certainty. Certain aspects of German company law may differ materially from foreign law, for example, a managing director in a German limited liability company can only be a natural person, not another company. Also, the transparency and reliability of the German commercial register is not common in all countries.

Another important area in which potential foreign investors require legal guidance is the type and level of their involvement in the German business. As a corporate law advisor, we inform clients about the legal risks in scenarios such as insolvency which can occur during the course of the corporate decision making process.

If the foreign investor teams up with a local entrepreneur, then a joint venture may be the right solution. In this situation, special care must be taken in the negotiation and definition of the internal relationship among the partners.

Alternatively, investment in a German business may be purely financial. This can be done in a number of ways, including collateralised loans or venture capital, particularly into Germany’s booming start-up sector.

The above comments by Istvan are taken from the IR Global FDI Virtual Series, titled ‘The FDI Age: leveraging international investment opportunities in a global economy’. To view this full publication please click here.