Doing Business In... 2021 Comparisons

Last Updated July 13, 2021

Law and Practice


McDermott Will & Emery has 20-plus locations in five countries and works seamlessly across practices, industries and geographies to deliver highly effective – and often unexpected – solutions that propel success. With more than 1,200 lawyers, the firm brings its personal passion and legal prowess to bear in every matter for its clients and the people they serve. In Germany, McDermott Will & Emery has three offices in Düsseldorf/Köln, Frankfurt a.M. and Munich, with about 140 lawyers. Clients are regularly advised on the full spectrum of corporate and commercial matters, including cross-border M&A, joint ventures, the establishment of subsidiaries (and related personnel and visa matters), cross-border financings and securities issues. The firm’s lawyers are well-respected experts in the areas of antitrust and competition; capital markets; corporate law; health services and life sciences; IP; labour and employment; private equity and venture capital; restructuring and insolvency; real estate; taxation; and telecommunications, media and IT. Since February 2020, McDermott Will & Emery's global and multidisciplinary COVID-19 Task Force has been advising clients on a broad range of matters to navigate through the pandemic.

Germany is a federal, parliamentary, representative democratic republic with a multiparty system. The legislative power is exercised in the federal parliament and the federal council. The 16 federal states have their own legislative bodies with responsibility for certain areas set out in the German constitution (Grundgesetz – GG), which is the ultimate source of German law.

The legal system in Germany is a civil law system. Legislation is the primary source of German law. It can be issued at federal and state level in the form of statutes, ordinance, decrees, guidelines and other forms of legal code. Court judgments in Germany are based on legal codes, which are formulated in abstract terms and applied to the individual case. In principle, the lower courts are not bound by previous decisions of the higher courts (case law). In practice, however, the lower courts consider the case law developed by the supreme and the higher courts. This ensures uniform interpretation and application of the law in Germany.

The judiciary is independent from the legislative and executive power, decentralised and divided into five jurisdictions: ordinary (ie, civil and criminal), labour, administrative, social and fiscal. The German Federal Constitutional Court is the highest court in Germany to which final appeals can be made but only on the grounds of conflict with the constitution. Each jurisdiction has its own federal supreme court to which appeals can be made. The ordinary courts are organised in a four-tier system: the local courts, the regional courts, the higher regional courts and the Federal Court of Justice. Cases are held locally and appeals are made to a higher court responsible for a wider geographical area. In a normal case, a plaintiff or defendant is entitled to three instances.

Based on the German Foreign Trade and Payments Act (AWG) and its complementing ordinance (AWV), in certain circumstances the German Federal Ministry for Economic Affairs and Energy (BMWi) may review whether foreign investments are likely to affect public order or security (foreign investment control – FIC). In recent years, German FIC has become increasingly strict beyond the defence sector as well, notably in industries that are critical for the supply of the German population (eg, the health or energy sector) or that are otherwise of material public interest (such as key technologies that contribute or might be a threat to public safety).

FIC in Germany has been and continues to be subject to significant regulatory change. Several recent amendments to AWG and AWV in a rather short timeframe have substantially extended the number and types of foreign investments that fall within the scope of review, in particular by lowering the applicable participation thresholds and by implementing comprehensive notification obligations towards BMWi. Also, in light of recent geopolitical and protectionist developments, which have been intensified by the global COVID-19 pandemic, BMWi and the German government have considerably tightened their administrative practice with respect to both the monitoring of foreign investments on the German market and the approach towards review and intervention.

The German FIC framework distinguishes between two types of foreign investment review (covering all kinds of transaction structures, including share and asset deals).

A cross-sectoral investment review applies to investments directly or indirectly made by companies located outside the EU or the European Free Trade Association (EFTA). Depending on the business activities of the domestic target company, a transaction may fall within the scope of review if a foreign investor directly or indirectly acquires at least 10%, 20% or 25% of the voting rights in that target company. Under this regime, the regulator has recently introduced (and under the latest reforms substantially extended) a list of target business areas that are considered to be critical. Foreign investments that fall within the scope of that list must be notified to BMWi, and clearance of these investments by BMWi qualifies as a statutory closing condition.

Foreign investments into all other target companies (ie, outside of the list) do not trigger a notification obligation. In the absence of a notification, BMWi may initiate ex officio investigations within five years after signing and, in a worst case scenario, together with the government restrict or prohibit the transaction; it may even do so after the closing of the transaction. To mitigate such intervention risk, and in the interest of deal certainty, foreign investors may apply for a clearance certificate after the signing of the transaction on a voluntary basis.

A sector-specific investment review applies if a non-German investor acquires at least 10% of the voting rights in a domestic company operating in certain defence-related industry sectors. Such investments have to be notified and cleared by BMWi prior to their completion.

In the event of a notification obligation under the sector-specific or cross-sectoral investment review, the acquirer must notify BMWi immediately after the signing of the transaction (or, in the case of a public takeover, immediately after its decision to submit an offer has been published) in written or electronic form. In doing so, the acquirer triggers BMWi’s knowledge of the transaction, and BMWi would then have to initiate ex officio investigations within a two-month period; otherwise, clearance of the transaction would be deemed issued.

Independent of the notification obligation, the acquirer may formally apply for clearance of the transaction. BMWi would then have two months either to issue a clearance certificate (so-called certificate of non-objection) that provides full deal certainty or to initiate formal investigation proceedings in the event of remaining queries or concerns. In the case of formal investigation proceedings, BMWi would generally have another four months to review the transaction and make a decision, plus a further three months in particularly complex cases. In that timeframe, depending on whether all queries or concerns can be resolved, BMWi may issue a clearance decision or jointly with the government restrict or even prohibit (parts of) the transaction. The four- or seven-month investigation period only starts once BMWi has gathered all relevant information from the parties of the transaction. In contrast, the clock stops as long as BMWi has outstanding questions. As a consequence, in cases of several and/or ongoing information requests by BMWi, formal investigation proceedings may turn out to be lengthy.

Applying for clearance is the most efficient and reliable way for the parties of the transaction to obtain deal certainty. It bears the risk of comprehensive formal proceedings, but these can be reduced to a certain extent through a diligent application, a smart procedural strategy and a high degree of willingness to co-operate with BMWi.

Until a short time ago, apart from the transaction risks outlined above (in particular, the risk of subsequent ex officio investigations by BMWi and potential government intervention), non-compliance with the FIC provisions was not subject to a penalty or fine. On 17 July 2020, the legislator introduced a criminal offence for foreign investments that are subject to notification obligations, namely with respect to an infringement of the prohibition to close the deal prior to BMWi clearance. If clearance of a foreign investment is a statutory closing condition and the seller takes certain closing measures towards the acquirer without or prior to clearance, the acting individuals might receive a significant fine or imprisonment of up to five years.

In the absence of any public order or security concerns, BMWi grants clearance of a foreign investment without terms and conditions. If there are concerns that cannot be remedied by the parties, however, BMWi may jointly with the German government impose restrictions on or, as ultima ratio measure, even prohibit (certain elements of) the transaction. Restrictions can be imposed either by unilateral orders or, in specific circumstances, as part of a security agreement to be negotiated between the German government and the parties of the transaction.

If the German government restricts or prohibits a foreign investment, the parties may challenge such decision in court, typically by means of an action for annulment before the competent administrative court. However, such legal remedies are often impracticable because the duration of legal proceedings most likely undermines the transaction timetable of the parties.

The most common forms of corporate vehicles in Germany are limited liability companies (GmbHs), stock corporations (AGs), European stock corporations (SEs) and limited partnerships (KGs).

The GmbH is a private limited liability company governed by the German Limited Liability Company Act (GmbHG). It can be incorporated by one or more shareholder(s), with a minimum share capital of EUR25,000. The sale and transfer of shares in a GmbH requires notarisation. The GmbH is used for all kinds and sizes of business (including as a holding company and acquisition vehicle in M&A and financing transactions). In addition, the GmbH can be set up as an entrepreneurial company – UG (haftungsbeschränkt) – with a minimum share capital of just EUR1 and lower formation costs.

The AG is a public limited company governed by the German Stock Corporation Act (for listed AGs, the German Corporate Governance Code also applies). It can be incorporated by one or more shareholder(s), with a minimum share capital of EUR50,000. Due to higher share capital and governance requirements, and more formalised proceedings, the AG is generally recommended for medium-sized and larger companies, and if a listing for trading at a stock exchange is contemplated in the near future.

The SE is also a public limited company governed by EU law. The AG rules apply mutatis mutandis. The minimum share capital is EUR120,000. The SE rules require a company to have a business in at least two Member States of the European Economic Area (EEA). The German co-determination rights of the employees can be negotiated, which can provide additional flexibility.

The KG is a limited partnership and is governed by the German Commercial Code (HGB). It requires a general partner (eg, GmbH) and a limited partner, the latter of which is generally excluded from managing and representing the KG. There is no minimum capital requirement for the KG. The sale and transfer of interests in the KG requires the consent of all partners. Traditionally, small and medium-sized businesses as well as family businesses in Germany are often set up as limited partnerships.

The incorporation/formation of the GmbH, AG, SE and KG is standardised and can take between one and six weeks. A fully online process is not (yet) available. Alternatively, the shares and interests in each of them can be acquired from shelf company providers within 48 hours.

The GmbH incorporation requires a notarised resolution by the founding shareholder(s) and registration with the commercial register. Following the notarisation, the shareholders have to pay their capital contribution. Upon receipt of the contributions, the application for registration has to be signed by all managing directors and filed with the commercial register. Upon registration, the GmbH is incorporated.

For the incorporation of an AG, the founding shareholder(s) have to prepare a formation report, which has to be reviewed by the management board and the supervisory board. The application for registration has to be signed by all founding shareholder(s), and by members of the management board and the supervisory board, and filed with the commercial register.

The incorporation of the SE is more complex (ie, by way of cross-border merger, formation of a holding SE, or subsidiary SE or conversion), and requires stock corporations and/or companies from at least two EEA Member States.

The formation of the KG requires a limited partnership agreement between its general partner(s) and limited partner(s). The limitation of liability of the limited partners requires the registration of the KG in the commercial register.

Private companies are subject to certain filing, reporting, disclosure, audit and publication obligations in Germany. They need to keep books and records for all transactions and an accounting system that provides accurate, reliable and timely information on the property, financial and income situation.

The annual accounts (balance sheet, profit-and-loss statement, notes and management report; the latter for larger companies) have to be prepared within three months of the end of the business year (six months for small companies). Additional accounting, auditing and publication requirements apply for small, medium and large companies, based on certain thresholds.

The shareholders in a GmbH are registered in the list of shareholders and filed with the commercial register. Any share transfers or changes in the person of a shareholder in a GmbH have to be filed without undue delay and registered with the commercial register. Any shareholding of more than 25% of the shares in an unlisted AG, except by private individuals, has to be notified by the shareholder to the AG without undue delay. Any shareholding of an AG of more than 25% and/or 50% of the shares in another German company has to be notified by the AG without undue delay.

The management and the supervisory board of listed AGs and SEs must resolve annually on a declaration of compliance regarding the German Corporate Governance Code (DCGK), based on a comply-or-explain obligation. and make it public on the company website.

With the implementation of the Second Shareholders' Rights Directive, a disclosure of related party transactions was also introduced for listed companies in Germany.

Under German anti-money laundering laws and rules, beneficial owners have to be disclosed by notification to an electronic transparency register. This obligation also applies to foreign companies or trustees if they wish to acquire real estate in Germany.

A GmbH has a shareholder meeting and one or more managing directors, who are responsible for the day-to-day management and represent the GmbH vis-à-vis third parties. The shareholder meeting is the ultimate decision-making body of the GmbH. The shareholders exercise their rights in the shareholder meeting with a simple majority of 50% of the votes cast (eg, approval of annual accounts, appropriation of profits, appointment/dismissal of managing directors) or a qualified majority of 75% (eg, amendments to the articles of association, capital increase, liquidation) unless provided otherwise in the articles of association. The dismissal of a managing director is possible at any time. A supervisory or advisory board can be set up at the GmbH and is mandatory pursuant to German co-determination rules, subject to certain thresholds.

An AG has a general meeting and a mandatory two-tier board system, with a management board and a supervisory board. The management board is responsible for the management of the AG and its representation vis-à-vis third parties. The supervisory board supervises the management board and is responsible, among other things, for the appointment and dismissal of the members of the management board. The dismissal of a member of the management board is possible at any time for good cause. The shareholders exercise their rights in the shareholder meeting. The shareholder meeting appoints and withdraws the members of the supervisory board. It is responsible for certain general matters (eg, approval of annual accounts, with a simple majority of 50%) and material structural matters (eg, amendments to the articles of association, capital increase, with a qualified majority of 75%) as provided in the law.

The SE can be structured with a one-tier board system (monistic model) or a two-tier board system (dualistic model). Under the monistic model, the board manages the SE and its members are directly appointed by the shareholder meeting. The board members represent the SE and may delegate the day-to-day management to one or several of its members (executive directors). The dualistic model is similar to the governance in an AG with a management board and a supervisory board.

A KG is generally managed and represented by its general partner. The partners are free to determine the majority requirements in the limited partnership agreement except for matters concerning the core area of the interests of the partners (including right to profit, voting right), for which the consent of all partners is required. A supervisory or advisory board can also be set up at the KG and is mandatory pursuant to German co-determination rules, subject to certain thresholds.

The GmbH, AG and SE are limited liability companies. Accordingly, there is generally no shareholders’ liability except in certain cases, including a breach of capital maintenance rules or destruction of the economic basis of the company, which can result in a piercing of the corporate veil.

In a KG, the general partner and the limited partners are jointly and severally liable for all liabilities incurred by the KG. The general partner is personally liable without any limitation. The liability of the limited partner(s) is generally limited to the amount of their respective registered capital contribution.

Managing directors and members of the management and supervisory board have to conduct their duties with the due care of a prudent businessperson. In the event of a breach of their duties, they are severally and jointly liable to the company for damages caused, unless they have been acting in good faith, on the basis of adequate information and in the best interest of the company (business judgement rule). Generally, managing directors and members of the management and supervisory board are not personally liable towards third parties for the acts and obligations of the company. However, they can be personally liable towards third parties in some cases (eg, withholding of salaries, failure to pay social security contributions, violation of the obligation to file for insolvency, removal of assets in the event of illiquidity or over-indebtedness, breach of certain tax obligations).

In a KG, the general partner is liable vis-à-vis the KG and the limited partners for any violation of its duties in connection with the management of the KG.

With the implementation of the EU Directive on the “preventive restructuring framework” in Germany in 2021, the duties of managing directors and members of the management board in crisis situations have been extended. They are now obliged to recognise and manage crises at an early stage and must establish an early warning system.

The individual employment relationship in Germany is governed by the employment agreement, the German Civil Code (BGB) and numerous specific labour and employment laws – eg, the Protection against Unfair Dismissal Act (KSchG), the Law on Part-time Employment (TzBfG), the Continued Remuneration Act (EFZG), the Federal Paid Leave Act (BUrlG) and the Works Constitution Act (BetrVG). Case law plays an important role, as some questions – like industrial disputes – are not specifically regulated. Furthermore, collective rules such as collective bargaining agreements, work council agreements and custom/practice impact the employment relationship.

Due to the COVID-19 pandemic, there have been a number of (temporary) changes in labour law and other employment-related regulations. For instance, the requirements for obtaining short-time work allowances from the state to compensate reduced worktime schedules for employees have been lowered, the short-time work allowances have been increased and compensation for parents for loss of earnings due to the closure of childcare and schools has been established. By enacting a Corona Occupational Health and Safety Directive, employers were required to offer their employees the opportunity to work from home and to conduct regular COVID tests. A special occupational health and safety standard (eg, regarding distance and hygiene concepts) to protect the workforce has been established as well, and should be observed when employees return to their workplaces.

German employment agreements generally cover permanent employment for an indefinite period. An employment agreement may be concluded verbally, but a written clause on the fixed term is required if employers want to close a fixed-term employment agreement. Otherwise, the fixed term is invalid and the contract has been entered into for an indefinite period.

German employment law also recognises a situation where the parties enter into an employment agreement by treating each other like parties in an employment agreement typically would. Such cases, also referred to as "hidden employment" (and possibly resulting in severe consequences for the "employer", including fines and taxes), may occur when working with freelancers.

Regarding the duration of fixed-term employment contracts, the TzBfG provides for the permitted duration of a fixed-term employment contract. In principle, the employment contract can only be limited in time for an objective reason (eg, temporary representation or project work); otherwise, the employment contract may only be limited for up to two years if the employee was not previously employed by the same employer.

In principle, working time must not exceed eight hours per working day (Monday to Saturday). Longer working hours are possible – up to an absolute maximum of ten hours if, on average, eight hours per working day have not been exceeded in the last six calendar months or within a period of 24 weeks. These regulations also apply to overtime hours. The employee is only obliged to work overtime if this is stipulated in the employment contract, collective bargaining agreement or works agreement.

In principle, overtime hours are generally to be remunerated in the same way as regular working hours. Working and overtime hours are often covered by collective bargaining agreements. According to a decision of the ECJ in 2019, employers must establish a system to record objectively any working time of their employees. Germany is awaiting legislation covering such requirement. For the time being, only overtime has to be recorded, but recent German case law has affirmed an already existing direct obligation for the employer to establish a time recording system with far-reaching consequences.

In Germany, employment contracts can be terminated by observing a certain notice period or for cause, if there are proper grounds. Notice periods derive from the employees’ contracts or from the law (whatever is more beneficial). The length of the statutory notice period relates to the years of service. These notice periods are rather short (eg, only four weeks within the first two years). While shorter periods can also be agreed in collective bargaining agreements, only longer notice periods can be (and usually are) agreed in employment contracts.

In the case of a termination upon notice of an employee who has worked for more than six months in a company of a certain size (with regularly more than ten employees), a social justification is required for a valid termination. This means that the termination must be based on reasons related to the person or behaviour of the employee, or to urgent operational requirements. For example, long-lasting illness/incapacity for work, serious violations of the employment contract or partial or entire closure of the business can be examples for social justifications. In any case, the parties’ interests must be carefully weighed against each other before an employment contract is terminated.

In addition, the works council must be consulted before any termination. Any termination without the works council (if existent) being comprehensively informed is void, except for the termination of an executive employee.

Although a dismissal is generally possible, there are some limitations for terminations under special circumstances. In particular, works council members or pregnant or severely disabled employees can only be terminated in exceptional cases.

A dismissal for cause is an extraordinary termination of the employment contract with immediate effect. It has very strict requirements, which means it has to be fully unreasonable for the employer to accept a continuance of the employment relationship until the notice period has expired. The termination, including the works council hearing, has to be issued within two weeks following the employer having obtained knowledge of the circumstances justifying the dismissal for cause.

The employer must pay an appropriate indemnification to a dismissed employee if a court declares the termination void, but the employee cannot reasonably be expected to continue the employment relationship. However, German employment law does not generally provide for a severance payment regarding unfair dismissals. The affected employee may only seek reinstatement of the employment relationship in court, but it is common for unfair dismissal proceedings to end with an in-court settlement terminating the employment relationship against payment of severance.

Regarding mass lay-offs, the employer has to comply with multiple regulations of German employment laws. Firstly, the employer must notify the employment agency prior to the implementation of any lay-offs, under observance of certain formal rules. Those requirements apply to a company of a certain size (at least 21 employees) that dismisses a certain number of employees (at least six) within 30 days. Secondly, the employer must inform the works council in time and discuss options to avoid the lay-off.

In companies with a works council, mass lay-offs have to be negotiated with the works council and a social plan (mitigating the employees' disadvantages connected to the lay-offs) may have to be established. Works council agreements and collective bargaining agreements may also provide for additional limitations/requirements in connection with dismissals/mass lay-offs.

In Germany, employee representative bodies exist on a local level (works councils) and at company or group level (co-determined supervisory board).

The rules of co-determination only apply if the employer is a certain type of legal entity (eg, GmbH or AG) and employs more than 500 employees. In that case, the One-Third Participation Act (DrittelbG) applies and requires one third of the members of the company’s supervisory board to be elected employee representatives; if the company employs more than 2,000 employees, the rules of the German Co-determination Act (MitbestG) apply, which require half the members of the company’s supervisory board to be elected employee representatives.

The works council represents employees (except executive employees) on a local level and mainly in social matters. All employees of a company may elect the works council for a regular period of four years. The principle of co-operation in good faith determines the relationship between the employer and the works council. One of the works council's most important tasks is the mediation between employees and management. In addition to dismissals, the works council must also be involved, for instance, in relocations of employees, the introduction of IT systems and operational changes (eg, relocation and closure of operations).

There is no legal obligation for companies to have a works council. If more than one local works council exists, so-called joint works councils are formed, and group works councils may also come into existence.

A person qualifies as an employee for tax purposes if he or she performs "dependent" work for the benefit of another person or legal entity. This distinguishes the work of an employee from services performed by a freelancer or independent contractor. An employee is, inter alia, dependent on the employer if the employer has the right to issue directives on the place and time as well as the details of the work of the employee. Furthermore, the employee must be integrated in the organisation of the employer by being assigned a certain workplace and being integrated into workplace hierarchies.

Wage tax as well as social security contributions must be withheld by employers from salaries on a monthly basis. Tax rates depend on the amount of the annual salary and range from 0% to 45% (annual salary exceeding EUR274,613 in 2021) plus a solidarity surcharge of 5.5% thereon.

Social security contributions must be withheld from the monthly gross salary and are roughly equally shared by the employer and employee. This applies in 2021 to pension insurance (18.6%) and unemployment insurance (2.4%) on a monthly salary up to EUR7,100 (West Germany), and to health insurance (14.6%) and nursing care insurance (3.05%, increased by 0.25% for childless employees) on a monthly salary up to EUR4,837.50.

Corporations are subject to corporate income tax (15% plus a 5.5% solidarity surcharge thereon), and to trade tax if they have a permanent establishment in Germany provided (depending on the multiplier of the competent municipality, usually in the range of 7% to 17.5%). Distributions from a corporation to its shareholders are subject to withholding taxation at a rate of 25% plus a 5.5% solidarity surcharge thereon. Withholding tax may be reduced/refunded if the shareholder is eligible to a reduction under domestic law, the Parent Subsidiary Directive or a double tax treaty, and if the anti-treaty/directive-shopping provisions are not applicable (see 5.7 Anti-evasion Rules).

(Deemed) commercial partnerships are subject to trade tax at rates from 7% to 17.5%, whereas their partners are subject to corporate income tax (corporations) or income tax (individuals) under the transparent regime. Trade tax may be deducted fully or in part from the income tax on the level of individuals.

Interest payments are generally not subject to withholding taxation. However, a withholding taxation of 25% plus a 5.5% solidarity surcharge may apply on interest from convertible bonds, profit-sharing bonds, participation loans and income from silent partnerships.

Royalties are generally subject to withholding tax of 15% plus a 5.5% solidarity surcharge thereon. However, royalty payments to EU associated companies are exempt from withholding taxation due to the EU Interest and Royalties Directive. Furthermore, (partial) exemptions under a double tax treaty may apply.

Germany does not levy stamp duties. The transfer of real estate as well as the direct or indirect transfer of shares/interests in real estate holding companies may trigger real estate transfer tax if – as a general rule – at least 95% (a reduction to 90% applies to transfers from 1 July 2021) of share capital/interest is transferred. The tax rates vary by federal states, and range between 3.5% and 6.5%.

The German value-added tax (VAT) system is harmonised under the EU VAT Directive. For VAT purposes, entrepreneurs (which includes corporations, partnerships and individuals) are liable to VAT (19% regular rate, 7% reduced rate; exemptions may apply) and entitled to reclaim input VAT. VAT returns must be filed on a monthly, quarterly or annual basis, depending on the turnover amount.

As a reaction to the COVID-19 pandemic, the tax authorities have been instructed to defer taxes if the collection would be a considerable hardship because of COVID-19, to temporarily waive deferral interest and enforcement measures, and to reduce advance payments if the respective income is likely to be lower with respect to advance VAT payments.

A participation exemption is applicable for dividends distributed to corporations if the shareholding is at least 10% of the capital for corporate income tax purposes and 15% of the capital for trade tax purposes. The participation exemption effectively exempts 95% of the dividends from corporate income tax and trade tax. Furthermore, a participation exemption of effectively 95% on capital gains collected by corporations is applicable without the requirement of a minimum shareholding for corporate income tax and trade tax purposes.

Individuals are generally taxed on their received interest, dividends and capital gains with a reduced flat rate of 25% plus a 5.5% solidarity surcharge thereon, usually withheld by the company/the custodian/the depositary.

Tax losses may be carried forward indefinitely. However, a minimum taxation applies – ie, losses are to be set off against the first EUR1 million of net income in a given year without restriction. Any remaining loss may be set off against up to 60% of the net income exceeding this limit. A loss carry-back is applicable to losses of up to EUR1 million (increased to EUR5 million in 2020 and 2021) and limited to a carry-back to the previous year.

A controlling and a controlled legal entity may be treated as if they form one single unit – ie, profits and losses are pooled in the hands of the controlling company for corporate income tax and trade tax purposes. The losses of each company may be set off against profits realised within the group. However, the losses of the controlled company from financial years before the one in which the tax group becomes effective are not deductible. The controlling entity becomes liable to corporate income tax and trade tax on the pooled profits.

German group taxation is applicable for controlled companies in the legal form of a corporation, which are incorporated under the laws of an EU Member State/EEA country and have their place of effective management in Germany. In contrast, the controlling entity can be in the legal form of a corporation, a resident individual or a commercial partnership. The controlling entity must hold directly or indirectly the majority of voting rights in the controlled entity (financial integration) from the beginning of the financial year of the controlled company for which group taxation is sought to apply. Furthermore, a profit-and-loss pooling agreement must be concluded with a minimum term of five years, under which the controlled entity becomes obligated to transfer its total profit to the controlling entity and under which the controlling entity becomes obligated to balance any losses of the controlled entity. Transferred profits are fully tax exempt – ie, no dividend taxation applies and participation exemption is not required. However, a fixed minimum dividend must be paid to minority shareholders, if any.

The formation of a cross-border group is possible if the controlling entity maintains a permanent establishment in Germany and the participation in the controlled entity can be allocated to this permanent establishment. As a result, profits and losses are pooled on the level of the permanent establishment – ie, no cross-border profit-and-loss pooling is applicable.

German thin capitalisation rules are widely in accordance with the harmonised EU- standards under the Anti-Tax Avoidance Directive (ATAD), which means that interest expenses are fully deductible from the tax base only to the extent that the taxpayer earns positive interest income in the same financial year. Interest expenses in excess of interest income are deductible up to 30% of tax earnings before interest, tax, depreciation and amortisation (EBITDA). Unused tax EBITDA can be carried forward for a maximum period of five years. Furthermore, non-deductible interest expenses may be carried forward, thereby increasing the interest expenses in the following year.

The thin capitalisation rules do not apply if the interest expense exceeds positive interest income by less than EUR3 million, or if the business in question qualifies as a standalone business or has an equity ratio that is not more than two percentage points below that of the group. The standalone exception and the equity ratio test are not applicable to corporations where the "shareholder debt financing" test is not met.

Transactions between a company and its corporate or individual shareholder must be carried out in accordance with the arm’s-length principle, which applies in both domestic and cross-border cases, and does generally not depend on the degree of the shareholder’s participation or control in the company.

Transactions between a corporation and its shareholder/related persons being not at arm’s length may qualify as constructive dividends/hidden contributions, resulting in an adjustment of the tax base in the respective amount.

In addition, the German Foreign Tax Act (AStG) provides a general basis for transfer pricing adjustments in cross-border transactions between related persons.

Standard methods for transfer pricing are the comparable uncontrolled price method, the resale price method and the cost-plus method. Advance pricing agreements are possible as a matter of principle, but are not very common.

A general anti-abuse provision is applicable if an inappropriate legal structure is chosen that leads to a tax advantage for which the taxpayer cannot provide significant non-tax reasons. If there is an abuse of law, the structure is disregarded for tax purposes.

Special anti-evasion rules are applicable – eg, for controlled foreign companies (CFC rules) and anti-treaty/directive shopping.

CFC rules are widely harmonised in the EU under the ATAD. In general, resident companies or individuals are deemed to have received a dividend paid out of the profits of a non-resident company if more than 50% of the non-resident company’s capital or voting rights is owned by resident companies and/or resident individuals, the non-resident company is subject to foreign tax at a rate lower than 25% and the non-resident company generates passive income (passive income defined by a certain catalogue). The participation exemption is not applicable to this deemed dividend. However, if the controlled company distributes its profits or if the shares are sold, distributions and gains may be exempt under the participation exemption (effectively 95%) in the hands of resident corporate shareholders and may be fully exempt in the hands of resident individual shareholders if the period between the deemed dividend taxation and actual dividend distribution does not exceed seven years.

Stricter CFC rules apply to passive income with an investment character – ie, the relevant shareholding is reduced to 1%. Exemptions may apply if the passive gross income does not exceed 10% of the non-resident company’s total gross income and if income attributable to one shareholder from several controlled foreign companies does not exceed EUR80,000. In conformity with ECJ jurisprudence, the taxpayer may avoid CFC taxation by providing that the controlled foreign company carries out genuine economic activity.

The anti-treaty/directive shopping provisions provide that a non-resident company that receives a payment subject to German withholding tax may not be entitled to withholding tax relief, including withholding tax relief sought under the parent subsidiary directive, to the extent that certain requirements are not met – ie, if the shareholder of the receiving company would not be entitled to a respective reclaim in the case of a direct holding or if certain business-related/substance requirements are not met.

Further anti-evasion rules apply to exit taxation and royalty payments (royalty barrier).

The Federal Cartel Office (FCO) is the competent authority regarding the enforcement of the German merger control provisions stipulated in the Act against Restraints of Competition (GWB).

Relevant M&A transactions (concentrations) are subject to mandatory pre-closing notification/clearance where in the last business year preceding the concentration the combined aggregate worldwide turnover of all participating groups of companies (undertakings) exceeded EUR500 million and the domestic turnover of at least one participating undertaking amounted to more than EUR50 million (first domestic turnover threshold, previously EUR25 million) and that of another participating undertaking exceeded EUR17.5 million (second domestic turnover threshold, previously EUR5 million).

Alternatively, a concentration has to be notified if in the last business year preceding the concentration the combined aggregate worldwide turnover of all participating undertakings exceeded EUR500 million, the domestic turnover of one participating undertaking amounted to more than EUR50 million, the consideration for the acquisition exceeds EUR400 million and the target undertaking has significant operations in Germany. The consideration encompasses all assets and other monetary benefits that the seller receives from the buyer in connection with the merger or acquisition, in particular the acquisition price plus assumed liabilities. The significance of the operations in Germany may be established merely on the basis of the market share, even if the annual domestic turnover is below the second domestic turnover threshold.

Finally, following recent amendments to the GWB, the FCO now has the right to oblige a company to notify any merger (regardless of whether the above-mentioned thresholds are exceeded) if certain conditions are met. In particular, a so-called “sector enquiry” by the FCO must have previously shown that further mergers in the sector under investigation may significantly impede competition.

When checking whether the above-mentioned thresholds are exceeded, as under EU law, the target turnover (and also the considerations) associated with earlier transactions between the same groups of companies (on both the sell-side and the buy-side), within the last two years preceding the new transaction, have to be taken into account (in aggregate with the numbers of the new target). This applies regardless of whether or not the earlier transactions had to filed be for merger control.

The relevant concentration events include:

  • the acquisition of all or a substantial part of the assets of another undertaking (eg, production sites, even just trade marks, pharmaceutical licences, etc, if these are "substantial" for the generation of revenues on the market);
  • the acquisition of (direct or indirect, sole or joint) control over another undertaking or its parts by one or several undertakings;
  • the acquisition of another company’s shares, resulting in an overall shareholding of 25% (or more) or 50% (or more) of the capital or the voting rights (regardless of whether control is acquired); and
  • any other combination of undertakings enabling one or several undertakings to exercise a material competitive influence on another undertaking directly or indirectly. Compared to the rules of other EU Member States, this is a low threshold. It covers situations of less than 25% shareholdings where the rights or factual possibilities to exercise influence resemble or exceed those of a 25% shareholder (eg, through the right to appoint one out of three members of the supervisory board).

German merger control also applies to all joint venture situations where two or more parties acquire or continue to hold a shareholding of 25% or more (or can exercise joint control). Also, the creation and/or acquisition of a relevant shareholding in non-full-function joint ventures (eg, joint purchasing organisations and R&D joint ventures) is notifiable under German merger control rules.

Generally, all parties involved in the transaction are responsible for the filing of the (usually joint) notification. A transaction that is subject to merger control cannot be implemented before clearance or expiry of the relevant waiting periods in the absence of a decision by the FCO.

Within one month of the notification (Phase 1), the FCO has to inform the participating undertakings whether it has initiated the main examination proceedings (Phase 2). The main proceedings have to be completed within five months from the notification; an extension is only possible under certain circumstances. There is no quasi-mandatory pre-notification procedure, although informal discussions with the competent decision division at the FCO may be recommendable for certain transactions. In Phase 2, the FCO can prohibit a concentration or impose conditions or obligations on the participating undertakings based on their commitment offerings. Unlike under EU rules, no conditions or obligations can be agreed on or imposed in Phase 1, so any necessary amendments to the transaction parameter would lead to Phase 2 (or the need to withdraw and refile with amendments).

The majority of notified transactions are cleared in Phase 1, with Phase 2 proceedings only being initiated if further examinations are required. Besides judicial review, the Federal Minister for Economic Affairs and Energy has the power to overturn a prohibition decision of the FCO if the concentration is justified by an overriding public interest or if the competitive restraint is outweighed by advantages to the economy as a whole.

The applicable rules governing anti-competitive agreements, decisions and concerted practices essentially resemble the EU rules. Agreements between undertakings, decisions by associations of undertakings and concerted practices that have as their object or effect the restriction of competition are prohibited. This includes horizontal and vertical restrictions of competition. Some particularities (as compared to the EU rules) may apply in merely domestic situations where only small and/or medium-sized companies are involved.

Under certain conditions, anti-competitive agreements are exempt from prohibition. Exemptions can apply if an agreement serves to improve the production of goods or promotes technical progress while allowing consumers a fair share of the resulting benefit. This applies, in particular, to certain types of efficiency-enhancing co-operation agreements between competitors – eg, purchasing co-operations and specialised production co-operations.

While the law was not changed in response to the COVID-19 pandemic, certain types of co-operation may have appeared more economically necessary and more beneficial to customers in the crisis situation than otherwise. In practice, this could have opened doors for some types of co-operation that would be viewed more critically in "normal" times. However, COVID-19 can never be an excuse for so-called hardcore antitrust infringements like price and capacity-related cartels. The EC's block exemptions apply mutatis mutandis for the application of the exemption clause. Agreements or concerted practices in violation of the rules governing anti-competitive agreements and practices are null and void.

The FCO is required to apply EU rules (ie, Article 101 of the Treaty on the Functioning of the European Union) where an agreement or concerted practice may affect trade between Member States. Conduct allowed under EU rules must not be prohibited under German national law under such circumstances. The GWB applies to all competitive constraints that appreciably affect competition in Germany.

The abuse of a dominant position by one or several undertakings is prohibited. An undertaking is dominant if it has no competitors, is not exposed to any substantial competition or has a paramount market position in relation to its competitors. In order to determine whether a company holds a dominant position in a relevant market in relation to its competitors, it is necessary to assess all competition-relevant criteria, such as the market shares, the availability of relevant resources (eg, patents and distribution networks), barriers to entry and the buying power of the opposite side of the market. Under German law, an undertaking is presumed to be dominant if it has a market share of at least 40%. However, this presumption is rebuttable.

Abusive practices are actions that a dominant company enforces or tries to enforce in the context of its market power and that usually have an exploitative or exclusionary effect against other companies in a way that would not be possible if effective competition existed. The prohibition applies to the market in which the dominant position exists, to markets that are affected by the dominant position and to other markets where the dominant position is used as leverage.

German law prohibits abusive conduct by undertakings with so-called relative or superior market power (below the "threshold" of market dominance). This covers companies that hold no dominant position, but on whose supply or demand other enterprises depend. Hotly debated provisions are the so-called tapping prohibition (request to be granted advantages without objective justification), which also applies to undertakings with only relative market power, and the prohibition to offer or sell food below cost price. A recent draft law also provides for a tightening of rules concerning digital companies with "gatekeeper", "platform" and similar functions.

Furthermore, following recent amendments to the GWB, the FCO now has the right to establish that a company or group has so-called overarching market significance. As a consequence, the FCO can prohibit certain conduct of such undertaking to use its particular powers – eg, based on large amounts of data collected by and available to the undertaking – to create barriers for (potential) competitors entering a certain market or expanding their activities there.

Finally, these prohibitions apply to every abuse of market power that directly and appreciably affects competition in Germany.

German patents provide for protection in Germany and can be granted for inventions in all fields of technology if they are novel, involve an inventive step that is not obvious to a person skilled in the art and are capable of industrial application.

German patents can be applied for by filing a national application with the German Patent and Trade Mark Office (DPMA), by filing a European application with the European Patent Office designating Germany as the country of origin (from one of more than 30 possible countries in the EU) or by filing an application with the World Intellectual Property Organization (WIPO). A unitary patent (a European patent with unitary effect in all European Member States) is in the legislative process but does not exist yet.

German patents can be in force for a maximum of 20 years from the filing date. If certain requirements are met, the term of protection for medicinal and plant protection products can be extended upon application by a supplementary protection certificate by up to five years and six months.

The patent owner may prevent others from the unlicensed use (manufacture, offer, place on the market, use, possession or import of infringing goods) of the patented technology, and may claim information, the disclosure of records, the destruction of infringing products and damages from infringers. Damages can be calculated based on the lost profits of the patent owner, a licence analogy or the profits of the infringer. Punitive damages cannot be claimed in Germany.

Utility models are similar to patents and protect an innovative act that results in a technical product. They can be applied for with the DPMA. There is no international equivalent for utility models. The application process for utility models is faster and cheaper than for patents because for utility models the DPMA only checks the formalities of the application. Novelty, the existence of an inventive step and industrial applicability are assessed only if a third party initiates cancellation procedures. The chances of success for cancellation procedures against utility models are therefore relatively high. The maximum lifespan of a utility model is ten years.

Trade marks protect signs that are suitable to distinguish the goods or services of their owner from other enterprises’ goods or services. Words, letters, numbers, images, colours, holograms, multimedia signs and sounds may serve as trade marks if they are of sufficiently distinctive character.

German trade marks may be applied for with the DPMA. European trade marks that provide protection for all EU Member States have to be applied for with the European Union Intellectual Property Office. Registration for German and European trade marks is also possible through the WIPO.

German trade marks are initially protected for ten years. The protection may be prolonged for an indefinite number of times upon timely payment of the prolongation fees.

The unlicensed use of a trade mark is forbidden and the exploitation of its reputation – eg, by allegations – is regarded as an infringement. To enjoy the exclusivity right of a trade mark, the trade mark owner has to use the trade mark for the goods or services for which it is registered. In the event of a trade mark infringement, the trade mark owner may claim injunctive relief, rendering of accounts, damages, a product recall and even the destruction of the infringing goods.

Two-dimensional patterns and three-dimensional designs are aesthetic creations that can be protected under the German Design Act by registration with the DPMA if the design in question is new and has an individual character.

The registration gives the owner a property right over the design and he or she is entitled to use, license and prevent others from using the registered design without consent (even the use of a substantially similar design is prohibited).

In the case of a design right infringement, the owner may claim injunctive relief, rendering of accounts, damages, product recall and even the destruction of the infringing goods.

Protection for a German design right can be extended for a maximum of 25 years.

Under the German Copyright Act, creative work – regardless of its embodiment, including software and databases – can be protected as an immaterial asset if the work is an author’s personal and intellectual creation; such creation can be literary, scientific, artistic, etc.

In Germany, the author enjoys copyright protection without the need for formal application or registration; copyright protection arises automatically. The mere work creation gives authors a property right over their work; they are entitled to use, license and prevent others from distributing, reproducing or performing their copyright without their consent. In addition, authors have the right to the recognition of their authorship.

In the event of a copyright infringement, the author may claim injunctive relief, rendering of accounts, damages, a product recall and even the destruction of the infringing goods.

German copyright protection ends 70 years after the author’s death.

The new German Act on the Protection of Trade Secrets improves the legal protection of trade secrets.

A trade secret is any information that is not generally known or readily accessible to persons in the circles who normally deal with this type of information and is therefore of economic value, that is subject to appropriate confidentiality measures by its lawful holder and in whose confidentiality the holder has a legitimate interest. Hence, any owner of a trade secret must enforce "appropriate measures" and establish the confidentiality of the trade secrets to ensure protection.

The German Act on the Protection of Trade Secrets further stipulates the allowed actions for discovering a trade secret: so-called reverse engineering is now permissible in Germany in general, if it does not violate contractual obligations or other mandatory statutory law.

The General Data Protection Regulation (GDPR) forms a uniform and unitary data protection law throughout the EU and EEA, and is directly applicable in Germany. Additional provisions can be found in the German Federal Data Protection Act (BDSG).

The GDPR uses a broad definition of personal data. Any data that can be related to a specific individual (the data subject) directly or indirectly will be personal data. Examples of personal data include names, pseudonyms, key codes, email addresses, Internet Protocol (IP) addresses, vehicle number plates or session IDs stored in a cookie. Health data, genetic data, data about race or ethnicity and other special categories of personal data as well as personal data relating to criminal convictions and offences enjoy additional protections.

The processing of personal data (including disclosure to third parties) must be lawful, transparent and fair, and must be limited to specific purposes and to the data necessary for those purposes (data minimisation). Other principles include that data must be accurate, be kept secure and not be stored for longer than needed (storage limitation). The GDPR also requires businesses to inform the data subject how their data is used and to document compliance with the GDPR. Data subjects have the right to access their personal data, to request corrections and to have it deleted (or restricted) under certain conditions.

Businesses may be required to designate a data protection officer (DPO), who can be an employee or an external service provider. Germany requires a DPO for all businesses that employ 20 or more persons (raised from ten or more persons) using computers to handle personal data. Smaller organisations may need a DPO if they perform certain high-risk activities set out in the GDPR and BDSG.

Additional provisions regarding data protection and privacy in the context of telecommunications are set out in, inter alia, the Act Against Unfair Competition (UWG) and the Telemedia Act (TMG). Under these rules, websites, mobile apps and similar information society services must obtain informed consent before using cookies or accessing information (such as location data) stored on the user’s device, except where this is necessary to provide a service requested by the user. Prior consent is also required for direct marketing via email (opt-in), except where the recipient has previously purchased similar goods or services from the sender (also known as "soft" opt-in). Unlike some other EU Member States, Germany applies these strict rules for direct marketing to both consumers and businesses.

Businesses not established in the EEA will be subject to the GDPR if they offer goods and services to individuals in the EEA, or if they monitor the behaviour of data subjects who are in the EEA. Non-EEA businesses that do this on a regular basis or in conjunction with certain high-risk activities will have to designate a representative in the EEA. Under these rules, websites that are directed at an EEA audience or that use tracking devices for visitors from the EEA will need to comply with the GDPR. They will also need to comply with the requirements for cookies set out in the ePrivacy Directive and the TMG.

Data transfers from Germany to countries outside the EEA require – with some limited exceptions for specific situations – either a decision of the EC that the destination country ensures an adequate level of protection (this is the case, eg, for Switzerland, Canada and Japan; for the United Kingdom a decision is expected before the interim period ends on 30 June 2021) or appropriate safeguards to protect the data subjects’ rights (such as the EC's standard data protection clauses or binding corporate rules approved by a supervisory authority).

Data transfers to the United States require special considerations under the Schrems II decision of the Court of Justice of the European Union (16 July 2020, C-311/18). Not only did the court invalidate the EU-US Privacy Shield framework, but it also held that where transfers to the US are based on standard contractual clauses, additional measures will be required to prevent unfettered access by US intelligence agencies. Based on this, the German data protection authorities are taking a more and more restrictive position on data transfers to the United States.

Compliance with the GDPR and the BDSG is monitored in Germany by 18 data protection authorities (one federal data protection authority and 17 state data protection authorities – two in Bavaria and one in each of the other 15 federal states).

Fines of up to EUR20 million or 4% of the worldwide annual turnover, whichever is higher, can be imposed. As of May 2021, the highest fines imposed in Germany, both for illegal monitoring of employees, were EUR35.2 million against fashion retail chain H&M Hennes & Mauritz, and EUR10.4 million against electronics retailer On the other hand, the former EUR14.5 million fine against Deutsche Wohnen, a housing company, has been set aside by the courts of Berlin due to formal errors.

Legal System

Draft bill to strengthen the courts in commercial disputes

In March 2021, the federal states of Hamburg and North Rhine-Westphalia presented a draft bill to strengthen the courts in commercial disputes. According to this draft bill, the federal states shall establish senates at their higher regional courts for (international) commercial disputes with an amount in dispute of EUR2 million or more, particularly in an international context – so-called Commercial Courts. Proceedings before these Commercial Courts may be conducted in English. The draft bill provides for an exemption of the principle of the public nature of court proceedings, and would therefore enable litigation of commercial disputes on a confidential basis in front of German courts.

Corporate Law

Transparency Register and Financial Information Act

In June 2021, the German legislator passed the Transparency Register and Financial Information Act (TraFinG). The new law upgrades the existing transparency register in Germany to a full register, thereby obliging companies and partnerships in Germany to submit and disclose information on their ultimate beneficial owner(s) to the transparency register regardless of registrations with any other public register in Germany. Listed companies will now be fully subject to the reporting requirements as well. The new law will come into force in August 2021.

Digitalisation Directive

The German legislator implemented the Digitalisation Directive with regard to the use of digital tools and processes in company law in June 2021. In order to enable a simpler, faster and more efficient online incorporation, a legal framework for video communication between the founding shareholder(s) and the acting notary is being introduced. The scope of the implementation of the Digitisation Directive is limited to cash incorporations of limited liability companies (including UGs). The new law will come into force on 1 August 2022.

Act on the Introduction of Electronic Securities

In May 2021, the German legislator passed the Act on the Introduction of Electronic Securities (eWpG), which was promulgated on 9 June 2021 and came into force on the following day. Based on the new law, bearer bonds, covered bonds and shares in investment funds (unit certificates) can now be issued purely electronically. The eWpG provides for the following two types of electronic securities:

  • central register securities, for which the physical global certificate will be replaced by an entry in a database (so-called central register); and
  • crypto securities registers, for which the eWpG provides a legal framework but does not commit to a specific (crypto) technology in order to enable market innovations and cater for further development of existing blockchain or distributed ledger technologies used in the fintech industry to issue securities without any intermediaries.

Commercial Law

Supply Chain Due Diligence Act

A new law on corporate due diligence in supply chains was enacted by the German legislator in June 2021: the so-called Supply Chain Due Diligence Act. The new law implements the UN Guiding Principles on Business and Human Rights dated June 2011 (like the Modern Slavery Act 2015 in the UK).

The Supply Chain Due Diligence Act is intended to protect human rights and to ensure a sustainable production. Under the Act, companies are obliged to identify and assess human rights and environmental risks, and to establish an adequate and effective risk management system. Based on such an analysis, the respective companies have to take adequate measures to prevent or minimise the risk of human rights and environmental violations in these areas.

The new law applies to companies whose head office, principal place of business, administrative headquarters or registered office is in Germany and which employ more than 3,000 employees. Companies with a branch office and a corresponding number of employees in Germany are also subject to the new law. From 2024 onwards, this threshold will be reduced to 1,000 employees.

The scope of the due diligence obligation under the new law covers direct and also indirect suppliers. However, the extension of the due diligence obligation to indirect suppliers requires substantial knowledge that presupposes the actual indications of a (potential) violation of its indirect supplier. The risk analysis regarding direct suppliers is to be carried out at least once a year, as well as on an as-needed basis if the company expects a significant change or significant expansion of the risk situation in its supply chain.

Companies within the scope of the Supply Chain Due Diligence Act have to issue a policy statement on their human rights strategy and introduce appropriate preventative measures in their own business, and must procure the same from their direct suppliers. In the event of any (actual or imminent) human rights or environmental duties violation within its own business or at a direct supplier, the company must immediately take appropriate remedial action (including prevention, reduction, remediation, suspension of the business relationship, or termination in case of material violations). If the company obtains substantial knowledge of a potential violation by an indirect supplier, a risk analysis must be conducted on such indirect supplier and appropriate preventative measures taken.

The new law requires companies to implement a whistle-blower system.

The company must publish an annual report regarding its due diligence obligations on the company website.

An additional legal basis for civil law damage liabilities of companies resulting from any human rights or environmental duties violations in their supply chain is not introduced. Instead, under the new law, companies face fines of up to EUR800,000 for failure to comply with their due diligence obligations; for companies with an average worldwide annual turnover of more than EUR400 million, fines of up to 2% of their total worldwide annual group turnover can be imposed. If a potential fine exceeds EUR175,000, companies can also be barred from public tender offers in Germany for a period of up to three years.

The new law will enter into force at the beginning of 2023.

Employment Law

Second Leadership Positions Act

Although the Leadership Positions Act I came into force five years ago, women are still heavily under-represented in leadership positions in Germany. Accordingly, the Second Leadership Positions Act (FüPoG II), which was passed by the German legislator in June 2021, intends to realign the legal framework and take further action.

The new law provides for at least one woman (and one man) being a member in management boards of listed companies and companies with equal codetermination with more than three members. Extended reporting and comply-or-explain justification obligations now apply to the so-called target figures, particularly if a company intends to appoint zero women to the management board. Companies that do not submit a target figure or do not state reasons for setting it to “zero” may be sanctioned with fines. The Act will enter into force on the day following its promulgation.

Tax Law

Act regarding the implementation of the Anti-Tax Avoidance Directive

In June 2021, the German legislator passed a new law to implement the ATAD. In particular, the act implements provisions on exit taxation, CFC rules and hybrid mismatches.

Real Estate Transfer Tax reform

The German legislator has enacted a new law amending the German Real Estate Transfer Tax Act (RETT), which tightens the taxation of share deals involving real property located in Germany. The changes came into force on 1 July 2021.

Among other amendments, the participation threshold above which RETT is triggered was lowered from 95% to 90%, and the minimum holding period during which shares may not be transferred to new shareholders was extended from five to ten years. An exemption applies to listed companies.

Act to modernise withholding tax relief and capital gains tax certification

In May 2021, the German legislator passed a new law amending, inter alia, the anti-abuse rules for treaty/directive shopping, to comply with EU law following recent decisions of the ECJ.

According to EU law requirements, the requirements for abuse are tightened and allow for an escape if the main reason for the interposition is not to obtain a tax benefit.

Act regarding the Modernisation of Corporate Income Tax Law

The German legislator has passed a new act on the Modernisation of Corporate Income Tax Law (KoeMoG), which was promulgated on 30 June 2021.

In the future, commercial partnerships may opt to be taxed as corporations, in which case the partners will be taxed as if they were shareholders of a corporation. A later opt-out back to being taxed as a partnership shall be possible.

The act will come into force on 1 January 2022.

Intellectual Property

Act regarding the adaptation of copyright law to the requirements of the digital single market

In May 2021, the German legislator passed a bill for a comprehensive reform of copyright law. The act implements two EU directives into national law and serves to adapt copyright law to the requirements of the digital single market. In addition to amendments to the Copyright Act itself (including the introduction of a press publishers' ancillary copyright), a new Copyright Services Act (UrhDaG) is being established to regulate the copyright responsibility of upload platforms. Most of the law came into force on 7 June 2021, but the UrhDaG will not come into force until 1 August 2021.

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McDermott Will & Emery has 20-plus locations in five countries and works seamlessly across practices, industries and geographies to deliver highly effective – and often unexpected – solutions that propel success. With more than 1,200 lawyers, the firm brings its personal passion and legal prowess to bear in every matter for its clients and the people they serve. In Germany, McDermott Will & Emery has three offices in Düsseldorf/Köln, Frankfurt a.M. and Munich, with about 140 lawyers. Clients are regularly advised on the full spectrum of corporate and commercial matters, including cross-border M&A, joint ventures, the establishment of subsidiaries (and related personnel and visa matters), cross-border financings and securities issues. The firm’s lawyers are well-respected experts in the areas of antitrust and competition; capital markets; corporate law; health services and life sciences; IP; labour and employment; private equity and venture capital; restructuring and insolvency; real estate; taxation; and telecommunications, media and IT. Since February 2020, McDermott Will & Emery's global and multidisciplinary COVID-19 Task Force has been advising clients on a broad range of matters to navigate through the pandemic.