In an ever-increasing globalized world, businesses are no longer simply competing against their fellow countrymen. Everyone has been forced into the big leagues to compete with businesses across the world.
Businesses are now obligated to extend their global footprint in order to achieve success in their industry. Creating a global expansion strategy is no longer an option, but a requirement to stay at the top of the food chain.
So where should you start?
If you haven’t tapped into the German market yet, you’re missing out on a big piece of the pie. According to The Balance, Germany is the 4th largest economy in the world behind the US, China, and Japan.
Not only that, but Bloomberg reports that “German Unemployment Extends” and “Economic Growth Picks Up”. Europe’s strongest economy doesn’t appear to be slowing down. In fact, there are already thousands of companies from the U.S., Canada, Australia, and New Zealand that are already doing business in Germany.
So how can you expand globally by tapping into Germany’s dominant market? Keep reading to learn how you can extend your business into Germany and discover what strategy you should use to claim your piece of the pie.
Should You Set up an Entity?
There’s a goldmine awaiting those who are willing to expand their business into Germany. However, the process of setting up a business entity in Germany is no easy task.
Difficulties of Setting up a Germany Business
The process of incorporating a business entity in Germany is surprisingly complex. The World Bank and International Finance Corporation rank Germany 125th in the world for ease of starting a business. This is mainly due to complex loopholes and steps to work in conjunction with local business associations and chambers of commerce.
The Tax Demands
Paying taxes in Germany’s fiscal system is especially challenging. Businesses have to make nine tax payments each year (which takes 200+ hours to do). Plus, social security contributions can take upwards of 130+ hours each year. In total, there are 14 different taxes companies are required to pay every year.
Costs to Launch an Entity
There are several costs to form a business entity in Germany:
- Company formation fee: 1,800 EUR
- Virtual office costs: 2,400 EUR / year
- Accounting fees: 1,200 EUR / year
- Registration fee: Approximately 400 EUR
- Minimum share capital for a limited liability company: 25,000 EUR
For most business owners, this is a sizeable investment of time, money, and energy which can bring on substantial risk for any business.
You might be thinking that doing business in Germany sounds lucrative, but it’s not worth the risk. Thankfully, there’s a seamless solution you can take advantage of to reap the rewards of the German economy without the hassle of setting up an entity.
Work with an Employer of Record in Germany
An Employer of Record (EoR) is a service that supports companies to hire talent internationally without having to set up a legal entity in each country where employees are located.
In other words, you can reap the rewards without taking on the risky investment of time and money that setting up an entity will bring.
An Employer of Record, otherwise known as a Professional Employer Organization (PEO), is the simplest solution to run your business overseas without the added risk that comes with setting up a business.
Why You Should Use an Employer of Record in Germany
Expanding your business into Germany doesn’t have to be difficult. By hiring a company as a middleman, you can offset your risk and keep more money in your pockets.
Here are a few reasons why you should use an employer of record in Germany:
- Low-Cost Market Entry. You don’t have to set up an entity in Germany to employ a team onsite. The Employer of Record will do it for you, which means you can save tens of thousands in startup costs.
- Low-Risk Liability Absorption: All employer liabilities are absorbed, minimizing your risk
- Hire Staff Quickly. By hiring an Employer of Record in Germany, you can hire staff in days, rather than weeks or even months.
- German Employees Grow German Business. Learning cultural business customs and navigating a foreign language can take years to master. Doing business in Germany by hiring local German employees will make it much easier to promote your brand and network with local clients.
- Expansion Flexibility. Add additional employees with ease – employee growth doesn’t require you to halt your current operations.
- All Employee Requirements Are Covered: Payroll, HR Liabilities, Worker’s Compensation, Tax Declaration, etc. are all covered by the EoR.
Establishing yourself overseas by incorporating a business entity can be extremely daunting. From the major financial investment required, to the time it takes to jump through all the loopholes, it’s no easy undertaking.
On the other hand, by hiring an Employer of Record in Germany, they can have a local team ready to go in days, rather than weeks or months. The Employer of Record is essentially the registered employer of your staff, while your expanding company continues to maintain all operational decisions.
If you’re wanting to take full advantage of Germany’s booming economy, and expand your business into the German market, it’s the easiest solution.
Lisa Meier is a Business Development Manager at Universal Hires. Universal Hires is a Germany-based employment specialist. By providing talent search, headhunting, executive search and employer of record services, the company supports international corporations with their strategic expansion projects in Germany. @UniversalHires