Doing Retail in Germany

Written on 10 Sep 2018

Setting up shop in a new region can offer significant commercial opportunity for your brand. It also requires knowledge and understanding to navigate specific cultural and legal requirements. Our retail team brings expertise across all areas of retail business – from business structures and taxation, to sales channels, real estate, employment law, brand protection, and more. We also bring experience of working with global retail brands, across multiple territories. We understand that setting up shop is more than just a shop. Talk to us to find out how we can help you.

Contents

Shape up

When you plan to enter the German market you should spend a little time to consider the question of the look and feel of your business in Germany. Do you want to run your business as a foreign entity and from abroad? Do you want to establish a German branch or even a German subsidiary? There are a lot of issues to consider, be it employment, tax and liability, that are connected to the legal form of the entity operating in Germany. Thus it is essential to consider very diligently which corporate structure you want to chose to do business in Germany.

Make sure you think about:

  • Limitation of liability
  • Representation
  • Capitalisation
  • Taxation
  • Employee participation

Your choice of a specific legal form largely depends on which of these items above you focus on. Since you never know how your business will develop in Germany, you should always choose a legal form that gives you the highest possible amount of flexibility with regard to expansion, but also reduction of your business engagement.

Do you want to create only one German company or a system of specialized entities for each part of your business, for example one company that holds all of your lease agreements and one company that runs your day-to-day business and employs your staff?

The question of the structure of your German entities and how they relate to each other has a fundamental impact on taxes, the transfer of profit and the liability for losses.

Contact our corporate specialists for an analysis of your position and advice for the best “shape up” to enter the German market.

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Money Matters

From the very beginning, every new market participant should pay attention to the taxation of its business. After all, you may have to last a while before you make the first profit. A robust corporate structuring may therefore be vital to your success.

  • Have you considered optimizing your Supply Chain Management and thereby save money?
  • Do you think a compliance due diligence would be a good idea?
  • Do you want to grow?

With effective financing tools and optimized organizational structures, you might be able to improve your economic and financial performance and increase your net profit whilst expanding your business in Germany, Europe and the world.

Start

  • Minimize your costs. Make the most of your start-up expenses – use tax efficient corporate and financial structure.
  • An optimized Supply Chain Management is key to any successful retail business. You should take advantage of the tax potential in intercompany transfer pricing structure.

Work

  • At the outset you may want to outsource your bookkeeping, e. g. to the accountants in our tax department.
  • An enterprise – whether small, medium or large – has to provide annual statements.
  • Please take care of the publication of annual statements and other relevant documents.
  • Transfer Pricing compliance and documentation should never be underestimated.
  • Proper invoicing for VAT purposes is essential: It may lead to a denial of input VAT deductions, if your invoices are not accepted by the authorities.
  • Take care of VAT, Corporate Tax and payroll tax filings.
  • Tax audits should be accompanied by someone with experience in supporting tax audits and well-established connections to the authorities.

Expand

Once you have been in the German market for a while, you may come to a point where you face the question of either growing or exiting the market: in this case, you should make sure to get the best results from tax effective financing, restructuring, internal reorganization of functions between group companies as well as sales and liquidation of single enterprises.

Our experts can give you support with all tax-related matters. We can take care of your annual statements, of your tax filing and provide you with our wide experience in all stages of your expansion to Germany.

Take advantage of the international environment in which we operate and benefit from our experience in defending tax structures nationally and internationally.

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Faces

Your employees are a huge part of your company’s capital. When you enter the German market it will be crucial to build up this capital very diligently. You will face various questions such as do you prefer to work with freelancers or with employees.

The retail business is marked by a need of flexibility, but you will also face the necessity to find and keep qualified employees. Your company’s success starts with the implementation of legally correct and innovative recruitment measures and employer branding.

To meet your company’s needs with regard to flexibility you might decide on a structure of flexible staff deployment, e.g. part-time workers, temporary workers and/or mini-jobs (small-scale employment with maximum monthly income of EUR 450.00 or rather maximum annual income of EUR 5.400). Up to this earnings limit, the employment relationship is not subject to social insurance contributions. However, you might prefer store managers or other sales representatives to be permanently employed and may even provide them with incentives associated with the company’s growth.

At a certain point in time, collective bargaining agreements may become relevant regarding the relationships with your employees. You will face the decision whether your company should enter an employer’s association, with the effect that collective bargaining agreements can be binding or if it is preferable to include references to collective bargaining agreements in your employment contracts. In the retail trade, it frequently happens that the employment contract regulations are determined by collective bargaining, because the entire retail trade sector is subject to different collective bargaining agreements. Usually, these regulations are concluded regionally at the level of the federal states. In addition, it is common for some large retailers to conclude certain company collective agreements. A collective agreement is an agreement agreed between the so-called collective bargaining parties. These parties include the trade un-ions on the one hand and employers’ associations or an individual employer on the other. A trade union can regulate virtually all aspects of an employment relationship through such an agreement. The main areas covered by a collective agreement are wage issues, working hours and holidays. Issues relating to the conclusion and termination of the employment relationship as well as company and works constitution matters may also be dealt with.

An agreed collective agreement may also lay down the rules and obligations of the individual parties to the collective agreement (employers/employers’ associations and trade unions). In Germany, the legal framework for collective agreements in the retail sector is governed by the German Collective Agreement Act (Tarifvertragsgesetz – TVG). In order for the agreements to be effective, they must be set out in writing (§ 1 Para. 2 TVG). Whether the employment relationship is governed by a collective agreement depends on whether the job falls within the scope of the collective agreement. In concrete terms, this means that either the employer must belong to an employers’ association which has negotiated an agreement with the trade unions or that the employer himself has concluded a collective agreement with the trade unions. The employee must also be a member of a trade union.

In some of your stores works councils might be elected. In this case you have to involve the works council e.g. in matters of hiring and termination, reorganisations and redundancy measures as well as in day-to-day business.

Contact our employment law specialists who will help you to find and retain the right “faces” for your German business.

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Hot Spot

The question for the perfect “Hot Spot” is one of the main topics which you will have to focus on when you enter a new market. A big part of the secret whether your business will be successful in the German market is linked to a well-considered choice of the perfect location and – to the very same extent – to the conclusion of a favourable lease agreement.

Make sure you are on the safe side and check your lease agreement:

  • Does it provide sufficient financial, structural and legal flexibility to implement your name in the new market, realize your ideas and thus run your business in a successful and profitable way?
  • Do you receive competition protection and the right to develop and run your store quite freely from the influence of your landlord?
  • What about restrictions regarding your furniture and decoration or the duty to open and close the shop on certain days?
  • Watch out for formal risks and defaults of your lease agreement as well as hidden costs such as administration fees and contractual penalties!
  • Keep in mind that you do not know if you might want to extend your lease agreement or terminate it before the fixed term is over!

Always keep the worst case in mind – rent is high and you might have a contractual duty to run your shop every day over a period of 10 years or more. If economic circumstances are changing you may want to have an option to discontinue your store very quickly. Most of the standard lease agreements will not allow an extraordinary termination or a sublease of your store.

Due to our wide expertise in the retail market, we can offer you all the support you need to solve any issues you might face in the course of your entry to the German market. And we can do even more: We can bring you in touch with the best real estate agents, location planners, furnishers and recruitment agencies. Thus contact our lease experts to ensure that your German business will become a “Hot Spot”!

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e-ZY Commerce

When you plan your entry in the German market, it might be your first choice to board Germany via the internet.

To make this first step on solid ground, it is not sufficient to simply translate your website into German.

Rather, you should think about the following:

  • Since German customers are targeted, your website needs to comply with certain legal information requirements.
  • German data protection laws will apply when you collect and process personal data of German customers. You will have to comply with them and communicate this to your (prospective) customers
  • As regards online payments, certain German law rules must be complied with; this is particularly important if you operate an online platform which collects monies for third parties
  • You have to grant German customers a right of withdrawal and inform them accordingly about such right

Our IT Specialists will help you to circumvent all statutory blocks that might appear in front of you when you set up your online store.

On your (trade)marks

Before you enter the German market, it is important to ensure that your intellectual property is well-protected and that your company is free to offer its products using the brand of your choice without the risk of infringing third parties’ rights.

Regarding your brand and company name, it is particularly important to secure relevant trade marks and domain names, which may require registration in Germany or at EU level. Also, with regard to your products, you should assess whether they are covered by designs or patents that also extend to Germany/the EU, or whether registration may be necessary in order to secure such rights. Furthermore, competitors’ products must be examined in order to establish whether they might hold conflicting IP rights.

You want to make the most of marketing and retail opportunities. However, German laws may impose a number of restrictions on certain advertising methods and messages. You must know where branding, marketing and sales processes interact with the law which is therefore central to successfully launch products on a new market.

Therefore, a good start for your brand in Germany requires a forward-thinking strategy that will safeguard your intellectual property rights not just at present, but also in the future.

Getting started:

  • Is your brand protected in Germany? Do competitors or third parties hold potentially conflicting rights?
  • Does your company have intellectual property, e. g. designs or inventions that need to be protected before you enter the German market?
  • Are your marketing materials compliant with German laws, esp. the Act against Unfair Competition (UWG)?

Once you’re started:

  • Your registered trade marks, designs and patents need to be managed and monitored.
  • Your IP rights need to be protected in Germany and the EU.
  • Handle with care your agreements on IP rights with third parties, e. g. licensing, advice regarding employees’ inventions.
  • Always be aware of advertising and marketing law provisions.

Contact our IP specialists for an analysis of your intellectual property rights and strategic advice on how to launch your brand on the German market – “On your (trade)marks, get set, go!”

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Salesfaction

In the end it all boils down to sales and customer satisfaction. Excelling in both is the key to economic success.

To choose the suitable system of sales and distribution right from the start plays a vital role in reaching those goals. While you might want to maintain full control over all sales channels and product presentation by opening up your own stores all across Germany, the investments and capital commitment scare you off? So maybe just a flagship store combined with authorized dealers or even a franchise system would also satisfy your needs and raise your cash flow.

Perhaps you simply want to sound out the German market first before you consider investing in a full roll out of your business. In this case a classic sales or comissionary agent could be the right choice for a new presence in a key market.

“Salesfaction guaranteed” – Whatever your needs and ambitions are, you can count on our legal expertise and market insight to find just the right solution for your international growth plans in Germany. With our experience and expertise in commercial and distribution matters we take pride in promising you creative thinking combined with practical and sound legal advice.

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Do it right

Being compliant is a matter of being safe and being safe is a matter of saving money.

The importance of compliance has increased rapidly during the last years. The observance and adherence of information and reporting duties, the increased awareness regarding payoffs and the acceptance of benefits, the sensible area of pricing and the compliance with employment law requirements (for only a few things) are important for the representatives, the compliance officers and all persons in charge of your Company. It is essential to avoid their personal liability.

Further, the costs of compliance may be high; but the costs for the consequences of being non- compliant are nearly three times as high.*
The information duties data base of the German Federal Statistical Office includes 15,879 duties (as of March 2012).

We help you to select the rules and duties applicable to your business, to comply with these rules and duties, to train your employees and to avoid adverse consequences of being non-compliant.

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Corporate Compliance

Examples of corporate compliance requirements for a German GmbH business include:

  • Your business letter must include the necessary information according to sec. 35 a German Limited Liability Company Act (“GmbHG”).
  • You may not repay your share capital to the shareholders (sec. 30 para. 1 GmbHG).
  • Take care of a proper bookkeeping in your company.
  • Keep in mind that all requirements in connection with shareholders’ meetings must be kept.
  • Mandatory resolutions must be passed annually.
  • Make sure that the filing duties towards the commercial register are observed.
  • Announcements in the electronic Federal Gazette must be made in time (e.g. the publication of the annual statements).
  • Is there a compliance officer in your group and what are his/her duties?
  • What are the documentation rules in your Company?

Tax Compliance

Once you entered the market, tax compliance is an on-going issue. Your business must comply with all national tax and finance requirements. Also, the company’s executive personnel can be held liable for damages arising from non-compliance. You should focus especially on the following issues:

  • Tax efficient corporate and financial structuring
  • Effective Transfer Pricing structuring and documentation
  • Proper bookkeeping
  • Timely provision of annual statements
  • Proper invoicing for VAT purposes
  • VAT, Corporate Tax and payroll tax filing

Employment

  • You should always ensure that the contracts of your company with the management, the staff, external contracting partners or works council (if applicable) comply with all provisions of German employment law.
  • You should always pay attention to anti-corruption rules, the contractual regulatory framework as well as the co-determination duty of the works council, e.g.
    • Adaption of the salary of your shop assistants
    • Meet minimum wage requirements
    • Reference to collective bargaining agreements in the retail sector
  • Ensure sufficient compliance training of your management and staff.
  • It might be recommendable to appoint a compliance officer who supervises the rules and regulations.

e-Commerce

E-commerce rules in German and European law are changing rapidly. Consumer protection watch dogs vividly follow-up on any violations of e-commerce rules. Any violation thereof may be considered an act of unfair competition. Therefore, please make sure that

  • your general terms and conditions on your website comply with applicable consumer protection law;
  • your information on consumer rights with regard to online purchases are complete and in line with fast changing jurisdiction;
  • your website fully states your business details;
  • your warranty conditions are transparent and compliant;
  • you received a valid permission of your customers before sending out newsletters and e-mails.

Competition Law

The distribution of brand products and services is heavily governed by complex European and national competition law. It is essential for the smooth establishment and growth of your business and therefore for your success to be aware of the do’s and don’ts of competition law.

  • You may not fix resale prices or link rebates, supplies and other conditions to the observance of minimum resale price levels.
  • You must not prevent your distribution partners from internet sales.
  • Allocating territories and customer groups is permitted but complex. Be aware of the pitfalls!
  • Always have your market share in mind. A market share of beyond 30% speaks for your business success but limits your contracting abilities.

*Study “The True Costs of Compliance”.

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