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Some pract...
 
 
 
 

Some practical aspects of doing business with Germany

By Rechtsanwalt Dr. Götz-Sebastian Hök


Germany has created an attractive business environment. Situated in the middle of Europe and in the centre of the EURO-zone. The implementation of the euro forged a currency area large enough to rival the US Dollar. Germany is therefore a platform for doing business in Germany and in Europe as well. Thus foreign businesses have a wide range of opportunities for investing in the Federal Republic of Germany and in European Union. They include intensifying trade in goods and services, expanding cooperation by establishing subcontracting relationships or awarding contracts for production under license and job processing, the acquisition of companies and even "green field" investment.

Germany is characterized by a broad based, mixed economy divided fairly evenly between State holdings, major corporations and medium to small businesses. Large corporations are confined principally to the manufacturing, automotive, banking and insurance sectors. Generally the German economy is characterized above all by its approximately 3.3 million small/medium size enterprises (SMEs) in the crafts, industry, trade, tourism, service sector, construction and liberal professions. Defined as businesses with under 500 employees or less than 50 million euros turnover, SMEs contribute 57 % of corporate value added, create nearly 70 % of jobs, about 80 % of training slots, and account for 46 % of gross investment in Germany.

The Office of the Commissioner for Foreign Investment in Germany is one of the first places foreign companies can turn to when interested in investing in Germany. Foreign businesses contemplating an investment and requiring information, receive quick and reliable assistance from this office. Staff members provide details on the economic situation in Germany, as well as the legal framework for investing, tax regulations, visa requirements, regional and federal financial support, etc., but the Office is not allowed to give special advice on your individual case.

Office of the Commissioner for Foreign Investment in Germany

Markgrafenstraße 34
10117 Berlin
Germany
Phone: +49/30-20657-0
Fax: +49/30-20657-111
Internet: http://www.foreign-direct-investment.de as well as
http://www.invest-in-germany.com E-Mail: office@fdin.de
In order to help foreign businesses, our law firm offers the following practical information on rules and regulations to be followed by potential foreign businesses and investors when

  setting up and managing a company and
  using the subsidies available in Germany
  selling their products
  employing an employee
  financing their business
  buying real estate
  erecting buildings
  developping land



I. European Community

Germany, being one of the founder members of the European Community, has a long connection with EC legislation. Nearly 80 % of German Business Law comes from the European Community, which indicates that German law is either based on EC-Law or that EC law is directly applicable in Germany. The European Commission has a wide range of competences for setting law in nearly every field of business. Within Europe there is freedom of capital transfer, business location, service and trade transfer, meaning that all European States are bound not to discriminate against citizens or businesses from other European Countries. Therore a non-European company, once established in Germany will be free to conduct its business all over Europe.

II. Germany

Germany is a federal state composed of 16 Bundesländer (Federal States). The German Constitution (Grundgesetz) determines whether legislation is within the competence of a Bundesland or the Federal Republic. Civil Law is within the competence of the Federal State; so is Jurisdiction. Only one jurisdiction exists.

Germany has a well-established and proven legal system. Legal structures have been developed since the 19th century and have their sources in Roman and German Law tradition. German civil law is essentially based on legislation. Courts are not the primarly source of law but sometimes they create new ideas and they are very important for the interpretation of statutes. German judges look at the intentions of the parliament and the purpose of the relevant statute. The main Codes concerning business transactions are:

  Civil Code (Bürgerliches Gesetzbuch)
  Commercial Code (Handelsgesetzbuch)
  Companies Act (GmbHG)
  Stock Companies Act (Aktiengesetz)
  Unfair Competition Act


§§ 133, 157 BGB contain rules for inpretation of declarations of will and contracts, but the remaining rules are contained in case law and doctrine. The remaining rules particular require consideration of prior negotiations, purpose and context.

Planning law is ruled by the Baugesetzbuch and so called Bauordnungen (construction regulations within the competence of the 16 Federal States).

Employment Law is largely part of the civil law but oftenly special statutes contain special restrictions. Taxation is mainly ruled by the Income Tax Act (Einkommensteuergesetz) and the Corporation Tax Act (Körperschaftsteuergesetz). Value Added Taxes (Mehrwertsteuer/Umsatzsteuer) have to be paid also.

Administration is mostly organized by the ”Bundesländer” (states of the Federal Republic). Thus sometimes administrative practice and legislation from one ”Bundesland” is different from that in another ”Bundesland”.

III. Finance


The structure of the German banking system is built on the concept of universal banking. Most banks offer a full range of banking services.

Credit is a central feature of business. A loan or credit agreement from a lending institution is one of the most common form of credit. In international competition, obtaining a contract often depends on the ability to offer attractive financing to the customer. In Germany a wide range of banks exists. Investors and exporting companies may choose among big financing institutions like Deutsche Bank, Commerzbank and Dresdner Bank and small entities like local Sparkassen and local cooperative banks.

However the imperfections encountered on capital markets can present obstacles that are hard to overcome for start-up entrepreneurs and for SMEs. The German government is therefore supporting start-ups and SMEs with a set of financing-assistance instruments tailored to their needs. The establishment of companies in the more traditional fields such as handicrafts is assisted in this way by the ERP (European Recovery Program). In 2001, a total of some 5.6 billion euros were made available for ERP loans at favorable interest rates. In addition, start-ups and existing companies are being assisted by programs of both assistance banks (Deutsche Ausgleichsbank and Kreditanstalt für Wiederaufbau), which in 2001 gave more than 10 billion euros to fund loans granted to SMEs. The introduction of the so-called start-up funding program, which was established for the special purpose of covering the capital needs of smaller start-ups (up to 50,000 euros) and gives borrowers' banks an 80 % release from liability, has proved to be particularly helpful for start-up entrepreneurs. Women are taking advantages of this possibility to a greater-than-proportional extent. Since its launching in May 1999, more than 17,000 start-ups have been assisted with a loan volume of nearly 550 million euros. To help start-up entrepreneurs and SMEs gain access to bank loans, loan guarantees have also been made available as the security normally required by banks.

In any case credit is allied to security. Depending on the amout of the loan, security may be asked for by the lender. The business community has developed different forms of security to suit the needs of the occasion. Thus the seller of goods may use a simple retention of title clause to protect his property rights. In return for a loan to purchase land the land may be mortgaged in favour of the lender. However it is not very common to charge the assests of a company. In practise German banks prefer to accept the transfer of property by means of a fiduciary agreement (Sicherungsabrede).

IV. Setting up a presence

1. Organizational Forms

Several organizational forms are available. Business can be conducted through

  a sole proprietorship
  a partnership (Gesellschaft bürgerlichen Rechts)
  a corporation (limited liablity corporation, stock corporation)
  a branch (Niederlassung)


All types of companies are ruled by law. Registration of branches of foreign companies falls under the registration rules of the Commercial Code.

2. Registration

Foreign investors who are planning to start their business in Germany will have to respect a great number of formal requirements.

Irrespective of what kind of legal form their business is organised as, the investor is required to register with the local municipality (Gewerbeaufsichtsamt) and must obtain a general trade permit.

Every sole proprietorship, partnership, corporation (limited liablity corporation, stock corporation) or branch in Germany must be registered with the local commercial registry (see §§ 13 to 13 h Commercial Code), administered by the local District Court (Amtsgericht). All documents that are submitted by the applicant to the court for registration must be certified by a notary public. Notaries public are in fact civil servants. For historical reasons notaries in some part of Germany (in ex: Berlin, Niedersachsen) are lawyers as well and can practise as notary and lawyer at the same time. Notaries charge on the basis of their own statutory fee scale based on the value of the transaction. Some transactions can be carried out abroad before a foreign notary public; some acts can only be effected before a German notary (for example the purchase of a real estate).

In addition to registering with the local municipality and the commercial registry every business must register with the local tax authorities. They will issue a tax registration number. The German Federal Finance Office will issue on request a VAT identification number.

If that the foreign investor wishes to hire employees he will have to inform the local health department and the industry´s fellowship association.

A peculiarity of the German business system is the existence of quasi-governmental institutions, as to say the local Chambers of Commerce and the local Chambers of Crafts. (Handwerkskammer). Membership is mandatory under the statutes of these Chambers. Some kinds of business are strictly reserved for special qualified persons (dentists, bakery, butchers, construction of buildings etc.) organized in the Chambers of Crafts.

3. Gesellschaft mit beschränkter Haftung

The most common form is a corporation limited by shares, called a company limited by shares (Gesellschaft mit beschränkter Haftung), which is the German equivalent of the English private limited company. This corporation has a distinct legal personality seperate from that of their members (associates). The statutory minimum capital of a company limited by shares is EUR 25.000. If contributed in cash only a quarter of the minimum capital must be paid in the time of registration. Establishing such a company is not very complicated and will cost about 500 EUR (notary fees) and supplementary advice costs of about further 500,-- EUR (in standard cases). Generally there are no shelf companies available for purchase. Usually foreign investors incorporate their own tailor-made subsidiaries.

Since November 2002 and due to decisions of the European Court of Justice foreign companies have to be recognized in Germany even if they have their main office in Germany. Therefore it is not really necessary any more to establish a German GmbH. Recently the German Supreme Court also decided that US corporations also have to be recognized because of the German-US friendship treaty.

To establish a German ”GmbH” the following main aspects have to be checked up:

  Company name
  Names and Adresses of shareholders
  Main objects of the company
  Seat of the company
  Share Capital
  Contributions


Internal life of the company (transfer of shares, number of directors, power of directors, shareholder meetings etc.)

  Financial Year
  Public Notes
  Costs for Formation


4. Branch

Any foreign investor may establish a branch in Germany. Such a branch will be considered as the German (legal) representation of the foreign corporation and usually has to registered with the commercial register. To register the branch the District court will request:

  Evidence of the legal existence of the head office
  Copies of the articles and memorandum of association
  Names of all directors
  Amount of the share capital
  Location of the principal place of business of the corporation
  Its organization
  Names of the persons acting in Germany


Depending on the trade in question it may be necessary to obtain a licence and/or become member of the local chamber of commerce.

V. Business Taxation

German accounting was historically noted for ist uniformity and was based on the historical accounting rules founded in their Commercial Code. But since 1998 things have changed. Listed companies are allowed to prepare consolidated financial statements according to International Accounting Standards or US Generally Accepted Accounting principles. The German Government established the German Accounting Standard Committee. Several new laws have come into force since 1998 (for ex: German Corporate Government Codex). But there are still some considerable differences in the presentation of individual accounts and consolidated accounts. All companies are required to prepare a balance sheet, profit and loss account and note to the accounts. However no cash flow statement is required. Profit distributions are assessed and taxed on the basis of the companies´ individual accounts.

German taxation was subject to a reform in 2000, which became generally effective from 1st January 2001. The next phase of the reform should have come into force from 1st January 2003. Due to the flooding of the river Elbe in Augst 2002 this next phase will not now come into force until 1st January 2004.

Under the German tax system individuals are subject to income tax with regard to seven types of income (agricultural and foresty income, trade and business income, independent professional services income, employment income, capital investment income, specified other income). The determination of business income is based on the results shown in the annual accounts. The corporation tax rate is 25 %. Individuals have to pay up to 51 %.

Various conventions for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion exist, for example with the United States, China, France, Belgium.

VI. Labour Law in Germany

Germany is well known for a considerable degree of protection of employees. The extent of this protection may sometimes be astonishing but it is noticeable that the protection is clear and therefore relatively easy to respect. German employment law consists of statute law, contract law and collective agreements between employer´s associations and trade unions. Additionally social security law and health care law have to be taken into consideration.

1. Selection of employees

Article 3 sec. 3 of the German Constitution states that nobody may be discriminated against because of his sex, his descent, his handicap, his race, his language, his home and background, his belief and religious concepts or ideology.

There are various laws specifying Article 3 sec. 3. § 611a BGB, for instance, states that the employee may not be discriminated against because of his sex. However, there is an exception concerning jobs where the employee’s sex is indispensable (e.g. the job of a male model or the job of a soprano). Since the work of a computer salesperson does not require a certain sex, there will be no exception for this person.

Furthermore, the laws relating to the protection of pregnant women and severely handicapped persons have to be mentioned, as well as the law regarding the protection of mothers during the first two years after delivery. Each of these laws establish strict anti-discrimination rules. They also prohibit the dismissal of pregnant women and mothers within two years after delivery. Further, a severely handicapped person can only be dismissed if the competent authority has granted permission.

Before concluding a contract of employment the employer has the right to inform himself about the employee. Therefore, he generally has the right to ask any question he wants to. This right, however, is limited by the employee’s right to privacy and by the anti-discrimination laws. Therefore, the employer may only ask questions that are connected to the job. Usually, the employee does not have a duty to reveal matters that may cause him disadvantages.

The employer may require the future employee to fill out a questionnaire.

A question about a female employee’s pregnancy is not allowed anymore according to the latest decision of the European Court of Justice because it violates European anti-discrimination laws. However, it has been discussed lately whether questions about pregnancy can be permitted if the contract of employment is limited in time. The question may be justified by a very strong interest in immediate employment.

The question about the employee’s state of health is allowed (a) if there is doubt about his qualification, (b) if he suffers from an infectious disease, or (c) if he will not be able to work for a longer period of time. Hence, the employer has the right to ask about an AIDS-disease, but not about an HIV-infection. He may only ask about an HIV-infection if a third party will run the risk of infecting himself (however, this cannot be assumed here).

The question about a severe disability is allowed, as well as the question about an application for recognition of disability or equalization.

The employer may also ask about previous convictions as far as they relate to the job. The same applies to current investigations and criminal actions against the employee.

Questions about membership of political parties and trade unions are not permitted as well as questions about religious affiliations. The employer may ask the employee about the affiliation to certain sects, though.

The employee is not obliged to tell the truth if the employer asks a question he is not allowed to ask. If the employee, however, lies on a question the employer is permitted to ask, the employer may challenge the contract of employment in accordance with § 119 sec. 2 BGB (= German Civil Code).

2. Applicable Law

Individual employment agreements are governed by the law ruled by the contract. But due to the Rome (Contracts Applicable Law) Convention freedom of choice of law is restricted. Therefore in practise German law will be applicable to employment contracts if the employee is living and working in Germany.

3. Form

Employment contracts do not require a particular form. They can be made orally or in written form. Exceptionally agreements for a fixed term mus be done in writing otherwise the employment is deemed to be for an indefinite period.

4. Duration

Commonly an employment contract will be for an indefinite term. Fixed term agreements are only allowed under some circumstances, which are:

  a fixed term agreement is permitted when there is an objective reason for the fixed term
  a fixed term up to two years is permitted if the employee is newly hired

a| | fixed term is permitted when the person who is hired is aged 58 years or more.

If a fixed term is invalid the employment contract continues for an indefinite term.

5. Remuneration

In the contract there also has to be an agreement as to the exact amount of salary. There are several possibilities, such as fixed salary, fixed salary and commission, etc.

In principle the parties are fully free to agree the remuneration they wish. Only in the construction industriy are minimum wages prescribed. However, there often exist relevant trade union agreements prescribing specific wage levels. Addionally wage dumping is prohibited. No strict rules exist as to wage dumping. But in practise wage dumping has been held to exist in some cases where the wage was less than the existing minimum (currently about 600 EUR).

6. Holiday

Every employee has a right to paid vacation . This is laid down by the Law of Vacation (Holiday Act) which states that every employee has a right to vacation of at least 24 days per year. Working days are from Monday to Saturday, although the vast majority of employees does not have to work on Saturday. Vacation can only be denied in exceptional cases, e.g. if company interests prevail. Whether they prevail is a matter of fact. If they do not, the employee’s right can be enforced in the courts. Usually, employer and employee reach an agreement, though. The entire right to vacation is due after six months of employment. If holiday cannot be taken because of termination of the employment, he employee must be paid for the unused holiday.

7. Sickness

Furthermore the Law of Continued Pay to Sick Workers (Sick Pay Act) have to be considered. According to the Law of Continued Pay the employer is obliged to pay the employee even during periods of sickness and public holidays. If an employee becomes ill, the employer has to continue payment for six weeks. After that, the employee receives benefits from his health insurance.

8. Working time

According to the Law on Working Time the daily working time may not exceed 8 hours, in general. In exceptional cases, it can extend to 10 hours, but not more. As a result, employees are not allowed to work longer than 48 hours per week. Usually, employees in full-time positions work from 37.5 to 40 hours a week. Breaks do not count. The Law on Working Time is of little importance, though, especially in smaller companies. However, the employer has to ensure that the working time is set down in the written contract of employment.

9. Condidentiality

During the employment the employee is under the implicit obligation not to harm the employer´s business which includes the duty not to compete with it or to pass confidential information to competitors.

10. Health insurance and Taxation

Foreign businesses have the same duties as German employers, which will say, that even if under certain tax treaties the establishment of a taxable presence by a foreign investor is not to be recognized for direct tax purposes the foreign business can still be required to register for pay-roll tax and social security contributions and to submit a monthly declaration and to pay the corresponding amounts for its employees.

The employer is obliged to pay contributions to four compulsory social security insurance schemes: health, old age care (Pflegeversicherung), pension (Rentenversicherung) and unemployment (Arbeitslosenversicherung). The employer will have to pay half of the total contributions himself and is under an obligation to deduct the other half from the employee´s wages and pay it to the administration authorities.

There is PAYE system in Germany and the employer is under an obligation to deduct tax from the gross wages and pay it to the tax authorities. Accordingly the employer must notify the tax authorities of any employment commenced or terminated.

Anyone earning a salary in Germany will be liable to German income tax on the salary. If the salary is not paid in Germany the tax liability will still arise if the employee is domiciled or usually resident in Germany.

11. Termination

Generally it is possible to terminate an employment contract by an agreement, thus avoiding any dismissal protection. The agreement must be in writing to be valid. In practice the employee will accept that only if he will have some benefits from it. Normally reasonable compensation will have to be paid in order to secure the employee´s agreement.

Termination by giving notice is possible but depending on several conditions:

As long as the number of employees will not exceed 5 (part-time jobs will be counted proportionately), the general rules of the German Civil Code are applicable. The periods of notice are determined by § 622 BGB. They depend on how long the employee has been working in the particular job. If he has worked for less than 2 years the period of notice will be 4 weeks. It will either end at the end of the month or on the fifteenth day of a month. If the employee has been working for more than 2 years the period of notice increases (for example, if he has been working for 20 years the period of notice rises up to 7 months).

Dismissals always have to be based on reasonable grounds. In small companies where the Law of Protection against Unlawful Dismissal is not applicable, dismissals must not be immoral or disloyal to the employee. If the number of employees exceeds 5, dismissals have to meet further requirements. They must not be ”socially unjustified”, i.e. they have to be based on grounds that lie in the employee’s person or in his behaviour. They can also be justified by company policy. Whether the actual grounds justify dismissal or not depends on many conditions which have been established by decisions of the courts. Since you intend to employ not more than one executive, we have refrained from going into further detail.

Legal disputes as to the contract of employment are brought before the industrial tribunals. The same applies to disputes involving the question of self-employment (commercial representative) or employment (employee). The main hearing is preceded by an extra hearing in which the court tries to encourage the parties to settle the dispute, as mentioned above. If the parties fail to reach an agreement the main hearing will be held before the tribunal which consists of a professional judge and to honorary judges. If the parties do not reach an agreement in the main hearing either (an agreement is always possible and will be supported by the tribunal), the court will pass a judgement. From this judgement the parties may file an appeal if the value in dispute exceeds 600,00 € or if there is uncertainty about the duration of the contract. They may do so, too, if the tribunal of first instance has specifically granted permission to appeal.

At first instance, each party pays its own out-of-court-costs. These costs depend on the value in dispute and on the rules laid down by the Law of Fees. Usually, the value in dispute regarding a dismissal is made up of three month’salary (gross). The courts have established different methods of calculation concerning all other lawsuits. At second instance, the costs of each party depend on the degree to which they are unsuccessful in the case.

In order to terminate a contract of employment one of the parties has to give notice. If one of the parties does not accept the notice or still regards the contract is valid, he has to bring an action before the industrial tribunal.

Apart from that, contracts of employment can also be cancelled out of court. Most of the time the parties will agree on severance payments in order to compensate for the risk to the employee of losing his unemployment benefit.

VII. Selling in Germany

There are no specific regulations in the Federal Republic of Germany which commit foreign suppliers to a specific distribution channel. Suppliers can sell their goods as they choose, that is, through direct or indirect distribution. Which distribution channel is most suitable depends on the nature of the goods or services to be sold or offered. Foreign businesses can choose between various forms of sales and distribution strategies on the one hand and establishment of their own German corporation on the other hand, depending on such factors as capital available for investment, marketing objectives and tax considerations.

1. Distribution channels

In the case of direct distribution, manufacturers supply the goods directly to the end user without the intervention of wholesalers or retailers. During the past few years marketing by company-owned branches, either as pure distribution companies or as production departments with attached sales teams, has gained considerably in importance. A sales department of one's own enables one to work the market more intensively, but it is often more costly than an independent agency.

Owing to the relatively high cost of market entry, indirect selling methods are mostly used to sell industrial goods in the Federal Republic of Germany. Foreign suppliers can sell their goods through independent traders (importers, wholesalers, retailers) or through sales agents such as commercial agents (Handelsvertreter), commission agents and exclusive representatives (independent dealers). There are special trading companies for importing goods from abroad and selling them to domestic producers and dealers. Further information on these companies can be obtained from:

  Bundesverband des Deutschen Groß- und Außenhandels e. V. (BGA)
  (National Association of German Wholesale and Foreign Trade)
  formerly: P.O. Box 13 49, D-53003 Bonn Bonner Talweg 57, D-53113 Bonn, now Am Weidendamm 1 A, 10117 Berlin
  Phone: -49-30/ 59 00 99 5-0 
Fax: -49-30/ 59 00 99 5 19 .

  Homepage: www.bga.de; E-Mail: info(at)bga.de  


The import companies involved in import trading mostly specialize in goods; more rarely they specialize in specific countries or economic regions. They normally have intimate knowledge of the market and can therefore make access to the German market easier for those auppliers who are not so familiar with sales opportunities and sales conditions in the Federal Republic of Germany.

Up to now it has been mostly commercial agents that have played an important role in building up an efficient distribution system. They have developed into an economic sales option and can make it easier for small and medium-sized companies in particular to gain access to the market.

Generally speaking, the commercial agent works on a commission basis as a self-employed businessman on behalf of and for the account of others. He is authorized to obtain business for or transact business on behalf of another entrepreneur. It is customary in the Federal Republic of Germany for a commercial agent to represent several companies, often ones supplying mutually complementary product lines. As a result, he generally has a good perception of the market situation, trends in demand, potential customers and the market position and market acceptance of the products he represents. On the other hand, the regional distribution of business locations may make it advisable for a foreign supplier to work with several commercial agents at the same time.

The rights and duties of principal and agent are set forth in the commercial agency contract. The law of the country in which the representative conducts business is usually applicable. German law treats the commercial agent as an independent businessman. However, it takes account of the fact that the position of the commercial agent merits protection owing to the special service obligations laid down in the commercial agency contract. To the extent that German legislation relating to commercial agents specifically prescribes such protection it may not be waived by contract. This is particularly the case for the so-called claim for adjustment, that is, the claim the commercial agent has, when a contract is terminated, to indemnity for lost commissions and compensation for future gains accruing to the principal from the activity of the agent. These protective provisions of the German commercial code apply equally to foreign principals who avail themselves of the services of a German commercial agent.

The differentiation between a (self-employed) commercial agent and an employee is defined by § 84 HGB (= legal code of German Commercial Law): ”self-employed is someone who, in general, is able to organize his job independently and who can determine his own working hours”. Thus, self-employment does not depend on the determination the parties used in the contract but on the way the job is actually carried out. The commercial agent decides all by himself what he does and when. He has the contractual right to determine the scope, time and place of his work. Anyway, the employer still has the right to provide certain outline rules regarding the conduct of the business. He may, in particular, stipulate terms of business, payment and contract. If the employer wished to reserve the right to give detailed instructions, though, a contract of employment would be more suitable.

However, the contract between employer and commercial agent still involves matters of labour law. According to § 5 section 1 sentence 2 ArbGG (= legal code of procedure before the German industrial tribunals) individuals are treated as employees when they depend economically on their employer. Thus, a commercial agent may be treated as an employee before the German industrial tribunals.

a) term

The term ”commercial agent” refers to a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called the ”principal”, or to negotiate and conclude such transactions on behalf of and in the name of that principal according to § 84 sec. 1 HGB (= Code of Commerce). Self-employed is someone who, in general, has the capacity to organize his job independently and who can determine his own working hours. Thus, self-employment does not depend on the determination the parties used in the contract but on the way the job is actually carried out. The commercial agent decides all by himself what he does and when. He has the contractual right to determine the scope, time and place of his work. Anyway, the principal still has the right to provide certain outline rules regarding the conduct of the business. He may especially stipulate terms of business, payment and contract. (If the principal, though, wanted to reserve the right to give detailed instructions, a contract of employment would be more suitable).

b) rights and obligations

In performing his activities a commercial agent must in particular make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of, working in the principal’s interest (§ 86 sec. 1 HGB), communicate to his principal all the necessary information on the negotiation or conclusion of transactions available to him without delay (§ 86 sec. 2 HGB), always act dutifully and in good faith (§ 86 sec. 3 HGB).

On the other hand, a principal must in particular provide his commercial agent with the necessary documentation relating to the goods concerned (§ 86a sec. 1 HGB), and inform the commercial agent without delay of the acceptance, refusal, and of any non-execution of a commercial transaction which the commercial agent has procured for the principal (§ 86a sec. 2 sub.sec. 2 HGB), and notify the commercial agent without delay once he anticipates that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected (§ 86a sec. 2, sub.sec. 3 HGB).

c) remuneration

A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract where the transaction has been concluded as a result of his action, or where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind (§ 87 sec. 1 HGB). A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract where he is entrusted with a specific geographical area or group of customers, and where the transaction has been entered into with a customer belonging to that area or group, regardless of the actual participation of the commercial agent (§ 87 sec. 2 HGB).

The commission shall become due as soon as and to the extent that the principal has executed the transaction (§ 87a sec. 1 HGB).

d) termination

Where an agency contract is concluded for an indefinite period either party may terminate it by notice. The period of notice shall be one month for the first year of the contract, two months after commencement of the second year, and three months after commencement of the third year through to the fifth year. After the fifth year the period of notice shall be six months (§ 89 sec. 1 HGB). If the parties agree on longer periods, the period of notice to be observed by the principal must not be shorter than that to be observed by the commercial agent (§ 89 sec. 2 sub.sec. 1 HGB).

e) indemnity

According to § 89 b HGB a commercial agent is entitled to indemnity after the termination of the contract if he has brought the principal new customers and the principal continues to derive substantial benefits from the business with such customers. The commercial agent may also claim indemnity if he is deprived of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent’s activities, and the payment of this indemnity is equitable having regard to all the circumstances. The amount of the indemnity may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent's average annual remuneration over the preceding five years; if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question.

However, the indemnity shall not be payable where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities. It is not payable, either, where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination, or where, with the agreement of the principal, the commercial agent assigns his rights and duties under the agency contract to another person (the agreement may not be reached before the termination of the contract).

The parties may not exclude the entitlement to indemnity in advance. The commercial agent shall lose the entitlement if within one year following termination of the contract he has not pursued it.

The
Centralvereinigung Deutscher Wirtschaftsverbände für Handelsvermittlung und Vertrieb (CDH) e. V.
(Central Federation of German Commercial Agents'
and Commercial Brokers' Associations)
formerly: Geleniusstr. 1 (CDH-Haus), D-50931 Cologne
Currently: Am Weidendamm 1 A, 10117 Berlin
Phone: -49-30 / 7 26 25 600 Fax: -49-30 / 7 26 25 699
centralvereingung@cdh.de
www.cdh.de

arranges contacts with suitable commercial agents. Sample copies of a commercial agency contract can also be requested there. In contrast to the commercial agent, the commission agent conducts business in his own name for the account of others. Like the commercial agent, he works for a commission, but he can claim it only when the deal he has made with the third party has actually been performed. The sole distributor (often called an exclusive dealer) does business on a commission basis or on his own account. When buying and selling imported goods on his own account and on his own behalf he is an independent importer and not an agent under German law.

2. Legal aspects of distribution

From the legal point of view business transactions in Germany are ruled by civil and commercial law. The general civil law provisions of the Civil and Commercial Codes are applicable to contracts with foreigners in the Federal Republic of Germany to the extent that German legislation is applicable. German conflicts of laws rules as to contracts are mostly similar to those in UK.

No special code for contracts with foreigners exists. The special provisions of the Commercial Code apply only to the business transactions by a merchant as part of the operation of a commercial enterprise to the extent that there are no special formal requirements for individual types of contract, e.g. for real estate transactions.

The defining characteristics of the BGB are scolarly logic, abstraction and systematization. The BGB consits of five books: I. General Part, II. Obligations, III. Property, IV. Familiy, V. Succession. The BGB expresses the ideas of liberty and equality of all citizens, freedom of property, contract, wills, trade and competion. It provides for a broad scope of private autonomy to regulate one´s life through legal transactions, reducing state influence to the absolute minimum. After the adoption of the BGB, criticism fell silent. In 1920 this period of silence came to an end. Today, German private law consists of the amended BGB and a lot of addional laws as the AGBG, the Haustürwiderrufsgesetz etc. to provide for more consumer protection (these special laws recently have been incorporated into the BGB). The general civil law provisions of the Civil and Commercial Codes are used in contracts with foreigners in the Federal Republic of Germany to the extent that German legislation is applicable. There is no special code for contracts with foreigners (but see the CSIG). The special provisions of the Commercial Code apply only to the business transacted by a merchant as part of the operation of a commercial enterprise to the extent that there are no special formal requirements for individual types of contract, e.g. for real estate transactions.

The Deutsche Bundestag, the lower house of German Parliament, recently enacted the modernization of the German law of Obligations on 11.10.2001. It became effective on 01.01.2002. Under this legislation, in the legal sphere of consumer goods, some innovations must be taken into account. The objective was to follow the reform to the EC-”Verbrauchsgüter-Richtlinie”, the implementation of the ”consumer goods purchase directive 44/1999/EC”. The implementation is aiming at the standardization of the rights of purchasers in the European Union. However the German reform is not only confined to the Verbrauchsgüterkauf-Richtlinie, the implementation of the consumer- goods – purchase- directive, but also goes beyond it. Rather, the central ”warranty” regulations of the directive become necessary for all kind of sales contracts and not only for consumer goods. A strong desire of the reformers of the German law of obligations is the combination of the law of warranty and guarantee with the legal sphere of purchase and the general field of the law of obligations, especially with the impairment of performance. Traditionally the German Civil Code (abbre. BGB for Bürgerliches Gesetzbuch) draws a clear cut distinction between ”Allgemeines Schuldrecht”, the general field of the law of obligations such as default and impossibilityk, and the specific sphere of the law of obligations with special types of contracts like sale, service, lease and manufacture. The subject covered by this summary is the change of the law on sale with the specific legal consequences.

2.1 The regulation of import contracts

There is no prescribed form for import contracts either in German or in foreign law. Written contracts are preferred, however, because they make it easier to establish what has been agreed upon in the event of a dispute. Orders placed by telephone are also legally binding. They can be put into writing in a commercial letter of confirmation from, for example, the German importer specifying the terms of delivery (price, date, etc.) and warranty obligations agreed on and stipulating that German law applies. Under the terms of the applicable private international law, if there is no agreement to the contrary, the law of the country where the seller has his place of business applies. The details of the import transaction are negotiated between the partners. Should the business be transacted under the same circumstances repeatedly it may be practical to use tried and tested standard form contracts. Standard form contracts can often be adapted to a specific transaction through minor modifications without changing the basic agreement. Care should be taken, however, to ensure that any additions to a particular contract do not contradict the basic clauses in the contract or the mandatory law in the country of the other party to the contract. In the case of long-term business relations and repeated similar deliveries, it is a good idea to draw up a basic contract. In this kind of contract, unlike the standard form contract, only the essential points agreed on are set forth. The specific terms and conditions (delivery date, quantity, quality, price etc.) have to be stipulated each time the basic contract is used.

2.1.1. Germany is member of the CSIG

Germany is however member of the United Nations Convention on the International Sale of Goods (also known as the UNCITRAL convention on the sale of goods or CSIG). This Convention applies to contracts for the sale of goods between parties whose places of business are in different States:

a. when the States are Contracting States; or

b. when the rules of private international law lead to the application of the law of a Contracting State.

Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.

It is therefore not necessary to agree on the on the use of the United Nations Convention on the International Sale of Goods, when either both partners are resident in a member state of the convention or German law will be applicable under German private international law. Unless its applicability is specifically excluded by the contracting parties, in those cases the Convention will be applicable without any agreement on it. The CSIG provides a legal framework conceived specifically to meet the requirements of the international sale of goods. In force in the Federal Republic of Germany since 1 January 1991, the International Sale of Goods Convention now applies in more than 30 countries.

2.1.2. German ”common law”

German ”common law” is mostly ruled by the German Civil Code. The German Civil Code (Bürgerliches Gesetzbuch) contains the law relating to obligation relationships, general and special. The special ones include particular obligations by virtue of a contract or other act of party, such as sale, exchange, loan etc and obligations arising by virtue of statutory provisions such as unjust enrichment and tort. By virtue of the obligation relationship, the obligee is entiteld to demand performance form the obligor (§ 241 BGB). Performance has to be effected as required by good faith with regard to business custom (§ 242 BGB).

 

Under common German law we start from the position that in principle the law of contract is not the same for all contracts.

Sale of goods law therefore is only one branch of the general law of contract;

Locatio conductio operis contracts (Werkverträge) is only one branch of the geenral law of contracts. 

 

Under Art. 3 of the Directive 1999/44/EC the consumer may require the seller to repair the goods or he may require to the seller to replace them, in either case free of charge, unless this is impossible or disproportionate.


Under German law the following legal remedies, among others, are available in the event of breach of a sales contract (§ 437 BGB = German Civil Code):

In case of a lack of conformity the buyer will have a fundamental right to contractual fulfilment according to § 439 BGB. This innovation is very important in legal practice. Up to now a legal repeat delivery claim (replacement claim) was only partially regulated in case of the purchase of movable goods under the former § 480 BGB. Under the new law, the buyer is entitled to elect whether to ask for subsequent delivery in the form of new goods (replacement), or for repairing the goods. This special performance duty of the seller only ceases at the point where it becomes impossible: to be precise, where special contractual performance would be disproportionate (which has to be differentiated from frustration). However, the seller’s right to a second attempt at performance or tender contrasts with the buyer's special fulfilment claim. This law is not a deliberate attempt at standardisation, but this has occurred as one of the effects of the new law. The additional guaranty and warranty rights like resignation (§§ 440, 323, 326 BGB), reduction (§ 441 BGB) and compensation (§§ 440, 280, 281, 283 BGB) for the buyer are valid only if he has given the seller a period of time to carry out the special contractual performance and this period has expired unsuccessfully. Thus as a principle the priority of the special contractual performance claim prevails. Without prejudice to this principle or at the final refusal of the seller to carry out special contractual performance, the buyer may, under § 437 n° 2 BGB, repudiate the contract or reduce the purchasing price. The right of rescission of the sales contract becomes, by way of the general part under the new § 323 BGB, more closely aligned, and it satisfies the current claim to rescission of the sale contract. The most important consequence of this is that the right of rescission is not a claim as such, but rather a right to create a legal relationship. That means, therefore, that it does not belong to the prescription instructions under § 438 BGB, inasmuch as only fundamental claims become statute-barred according to § 194 BGB. Since the resignation- and the reduction law are tied to postfulfilment, they are excluded as soon as the post fulfilment claim has expired. After the period of limitation has expired, there remains to the buyer merely the right of defence, against a claim for the unpaid purchase price, based on breach of warranty for defects (Mängeleinrede). What is new is that one does not need a previous notice of defect according to the new version of §§ 438 IV 1, V, 218 BGB. That, however, is a deviation from § 478 BGB.

The third and last category of warranty rights is set out in § 437 n° 3 and pertains to the claims for compensation for expenses. Because of non-performance, there is a standardised damage replacement claim instead of the performance. This is a substantial innovation. Inasmuch as the seller has to procure an alternative method of performance, a defective delivery amounts to a breach of duty (§ 433 1 S. 1 BGB). It is, however, necessary after § 280 Abs. 1 S. 2 BGB that the damage replacement claim is excluded if him of the seller has not made representations under §§ 276-278 BGB. For that purpose, though, the seller carries the burden of proof.

2.1.3. CSIG remedies

Under the CSIG however the buyer can demand repair and replacement without explicit agreement in the case of defects, whereas limitation of liability to repair and replacement requires explicit agreement. A uniform catalogue of claims applies to all types of defective delivery. The buyer always has a claim to compensation, even if he insists on the avoidance of the contract or reduction of the purchase price. Avoidance can be claimed only in cases of fundamental breaches of a contract or when the seller has still not delivered the goods after an extension of the original term has expired. The limitation of warranties to warranted characteristics, to specified defects (defective type, poor material and faulty design) and to wilful intent and gross negligence also remains permissible. Liability for damages, however, extends only to foreseeable damages. The compensation claim always includes indirect consequential damages unless this is specifically excluded. Under no circumstances may product liability be excluded, as it is now regulated by law throughout the European Union.

The purchaser must inspect the seller's goods within a short time after receiving them for product or packaging defects, over- or undersupply etc. and notify the seller of any breaches of contract within a reasonable time (four to seven days). Notification must also be given if there are any defects of legal title to the goods delivered. Reference should be made to the so-called incoterms in foreign trade contracts for the purpose of uniform interpretation of certain delivery clauses used in foreign trade. The incoterms regulate the exact delivery and acceptance obligations of the parties, the transfer of risks, distribution of costs, transport and insurance matters as well as the procurement of documents and certificates of origin. The clauses can be divided into four groups depending on whether it is the exporter or the importer who is responsible for transport.

2.1.4. Trade Terms (Standard Contract Terms)

Since 2002 in germany the incorporation of standard contract terms and their validity are governed by the BGB. It mus be taken care to ensure that the trade terms are properly incorporated into the contract. Surprising clauses (unexpected terms) will not become part of a contract even if the parties of the contract are merchants. Whether a clause is unexpected or not will be decided in the context of the circumstances of every single case and in the light of the written law. Generally spoken German Standard Contract Terms cover the following fields:

  Offer
  Prices
  Time of Delivery
  Passage of Risk
  Warranty
  Retention of Title
  Jurisdiction and Applicable Law


Retention of title clauses are quite common and very useful. Under German law such clauses are permitted without any registration of the delivered goods in a registry. Through a retention-clause the seller reserves the property in the purchased item until all payments from the transaction with the customer have been received. The customer can be entitled to resell the purchased item by the way of ordinary business. But in this case the seller will ask for a assignment clause as well, will say that the customer have to accept to assign all claims to the amount of the final invoice sum incurring to him for the resale against its clients. Retention of title clauses therefore have a great importance in the insolvency of the customer. The seller will be intitled either to ask the administrator to give him back the purchased items or the full price.

2.2 Protection of industrial property

In Germany and the EC intellectual property in its various forms is protected by a number of different acts. Under the German Patents Act patents are issued by decision of the German Patent Office in Munich, entered in the patent register and announced in the Patent Office Journal. The procedure for issuing a patent is started only on application and is subject to a fee. Only new inventions that permit commercial use can be patented. Only the original applicant is entitled to be granted a patent. Foreigners may apply for a patent on the same terms as German citizens. Persons who have neither a residence nor a place of business in the Federal Republic of Germany, however, are required to have recourse to a domestic patent attorney or general lawyer. Protection is provided for a period of 20 years from the day of application for registration.

The holder of a patent may apply to an ordinary court for an injunction against any unlawful use of a patented invention by third parties. This inhibitory right becomes effective as interim protection as soon as the application for patent registration is announced by the Patent Office.

International patents can also be applied for with the German Patent Office in Munich under the Patent Cooperation Treaty. In addition, under the Community Patent Convention, European patents valid in several EU countries may be registered at the European Patent Office, also based in Munich.

Registered design protection is regulated in the Registered Design Act. The protection, unlike that for patents and utility models, applies to the outer form, the design. For a fee, the German Patent Office undertakes to enter the application for registration in the register of designs and publish an illustration of the design in the design gazette. The period of protection is five years and can be extended for additional five-year periods up to a maxium of 20 years. A registered design entitles the owner to inscribe a copyright sign (c in a circle) on the protected article.

On 1 January 1995 the German Trade Mark Act came into force. A registered trade mark is a distinguishing mark for goods and services of different companies. A mark cannot be registered as a trade mark if it has insufficient distinguishing charcateristics. A trade mark is connected with a specific manufacturer/supplier and can be a distinctive sign, word, picture, sound, colour scheme, package etc. Under the Trade Mark Act, an owner who has registered his trademark with the German Patent Office can mark it with an R in a circle (registered trademark). The period of protection is ten years. It can be extended by a further ten years. The procedure for registration is ruled by the Trade Mark Act. Anyone desiring to register a trade mark has to submit an application to the Patent Office. The application must contain a representation of the trade mark and a list of goods or services to which the trade mark is to be applied.

Since 1996, applicants can register a community trademark centrally with the European Union Intellectual Property Office, Avenida de Europa, 4, E-03008 Alicante, Spain
Information centre: Phone: +34 965 139 100

and thereby obtain an uniform trademark protection in all EU countries. Here too the period of protection is ten years and can be extended.

2.3 Competition law

In Germany the term competition law covers two fields, firstly the area of cartel law and secondly the area of unfair behaviour of business people, trying to attract customers by methods that are recognised as being unfair.

The Unfair Competition Act forbids competitive business practices which offend against common principles of reasonable behaviour. These include false, in some extent comparative or exaggerated advertising, obstruction, price discrimination and market disturbance. The Unfair Competition Act is supplemented by additional competition laws which limit or prohibit certain competitive practices in order to prevent aberrations in competition.

The Restraints of Competition Act (anti-trust law) is directed against the distortion of competition through various kinds of restrictive trading practices. Trusts or cartels are legally forbidden in the Federal Republic of Germany. In addition to that EC cartel law has to be respected anyway.

3. Foreign trade regulations

The Foreign Trade and Payments Act (AWG) serves as the legal basis for the foreign commercial relations of the Federal Republic of Germany. It embodies the principle of freedom of foreign trade and the main restrictions on that freedom. Although the Armaments Control Act (KWKG) is not part of foreign trade and payments legislation, it too is of importance in the case of the export and delivery within the European Community of weapons, munitions and war materials. Over and above the national regulations and prescriptions, foreign trade can also be restricted through acts of law of the United Nations (embargoes, export bans, special regulations for certain goods and countries) and the European Union. The import and export of goods that can be used both for civilian and military purposes, for example (the so-called dual use goods) is for the most part subject to European law, which has been uniformly applied in all EU member states since 1994. The most important implementing order relating to the Foreign Trade and Payments Act is the foreign trade and payments ordinance (AWV). It contains most of the foreign trade rules that direcfly influence import and export practice and incorporate the relevant EU regulations. The foreign trade and payments ordinance also contains supplementary rules concerning foreign trade, such as procedure and registration rules and procedural reliefs, and the appropriate licensing bodies.

Appended to the foreign trade and payments ordinance is the export list, enumerating the restrictions on the export of goods under foreign trade law. Generally speaking, no permits are required to export goods from the Federal Republic of Germany. Some exceptions apply under the terms of the Foreign Trade and Payments Act in conjunction with the foreign trade and payments ordinance for strategic military goods, certain raw materials and steel products and some agricultural produce. The import list, showing the extent and limitations of import freedom, is an integral part of the Foreign Trade and Payments Act itself, owing to the special importance of this sphere of foreign trade legislation. Goods can be imported without a licence within the framework of the import list, which is divided into country and product schedules. The import of goods into the Federal Republic of Germany has been almost totally liberalized, at least as far as industrial products are concerned. The importer requires neither an import licence nor an import declaration. This applies to residents, that is, natural persons having their residence or usual abode in the area, and to legal entities or partnerships with head office or place of business in the economic area of the Federal Republic of Germany. This rule also applies to community residents outside the area, that is, natural persons or legal entities from EU countries. The obligation to obtain a licence for the import of goods is generally limited to precisely defined items and to individually listed countries or goods the country of purchase and/or origin of which is not included on country list A/B and which are specifically identified on the import list. Mostly the goods subject to licence are those to which import volume restrictions (quotas) apply, such as textiles or steel products. The office in charge of issuing export and import licences for commercial goods (including raw tobacco, flax and hemp from the area of the EEC market organizations) is the

Bundesamt für Wirtschaft und Ausfuhrkontrolle (BAFA) (Federal Office for Economic Affairs and Export Control)
P.O. Box 51 71, D-65726 Eschborn
Frankfurter Str. 29-31, D-65760 Eschborn:
Phone: -49-61 96/4040
Fax: -49-61 96/94 22 60.

is a superior federal authority subordinated to the Federal Ministry for Economic Affairs and Energy (BMWi).

It is entrusted with important administrative tasks of the federal government in the following sectors

  • Foreign Trade
  • Promotion of Economic Development
  • Energy.

BAFA is also acting as central licensing authority and responsible for the administrative implementation of the Federal Government's export control policy. Together with the monitoring and investigating authorities, especially the different customs offices, it is involved in a complex export control system

Import licences may be required for goods covered by certain market regimes of the European Union. This is the case for agricultural goods and for certain products manufactured from farm produce. Permits and licences for the export and import of food and agricultural products are issued by the

the Federal Office for Agriculture and Food (Bundesanstalt für Landwirtschaft und Ernährung, BLE)
Deichmanns Aue 29
53179 Bonn
Telephone: ++ 49 (0)228 / 99 68 45-0
Fax: ++ 49 (0)228 / 68 45-3101
E-mail: info@ble.de

The Federal Office for Agriculture and Food (Bundesanstalt für Landwirtschaft und Ernährung, BLE) operates within the scope of business of the Federal Ministry of Food and Agriculture (BMEL).


For imports requiring permits (and for those not requiring permits) a certificate of origin or declaration of origin must be presented if the import list or the import permit so requires. Whereas the certificate of origin is issued by an official body in the country of origin (and in some cases the country of dispatch), the declaration of origin must be provided on the invoice by the exporter or supplier.

It is essential for foreign manufacturers and suppliers of goods for the German market to comply with the legal provisions, technical rules and quality seals that apply to their products. The main publisher of technical rules in the Federal Republic of Germany is the German Institute for Standardization (Deutsches Institut für Normung - DIN). Other guidelines and standards are drawn up for their respective areas of competence by, among others, the Association of German Engineers (Verein Deutscher Ingenieure e. V. - VDI) and the Association of German Electrical Engineers (Verband Deutscher Elektrotechniker e. V. - VDE). In connection with safety inspections, the technical inspectorates (Technische Überwachungsvereine - TÜV) are very important. Compliance with quality regulations and standards is generally indicated on the product or in the product description. The purpose of this is to ensure that the manufacturer has used due diligence and manufactured his product with state of the art technology. In certain areas this can also be certified by quality seals and test seals. Such seals are verified and registered by the German Quality Assurance and Labelling Institute (Deutsches Institut für Gütesicherung und Kennzeichnung e. V.).

4. Import duties and procedures

The legal requirements of the European Union (EU) and the Federal Republic of Germany are binding for the customs clearance of goods in Germany. The new federal states have been part of the single customs territory of the EU since Germany was unified. The external borders of the former German Democratic Republic thus legally constitute external borders of the EU.

EU customs legislation is completely harmonized, apart from a few minor procedural rules, and has been legally binding since 1993 for exports and since 1994 for imports for all EU member states in the form of a customs code. Thus there is uniform customs legislation in all EU countries. Amendments and additions to the customs code are only permissible at the EU level. No import duties are levied on intra-Community trade. However, this only applies to goods which are demonstrably in free circulation from the point of view of customs law in one of the EU member states as so-called Community Goods; that is, to goods that are not being conveyed under customs supervision (Community transit procedure, for example) or with an international waybill (TIR carnet, for example). The internal transit procedure of the Community (T2) must also be used whenever Community goods are to be transported via a non-Community country into an EU country. Since the completion of the Single European Market on 1 January 1993, goods in free circulation in the Community (Community goods) have been transported within the European Community without any clearance by the customs authorities of the member states.

VIII. Development and Construction Law

The German Baugesetzbuch establish local municipalities as planning authorities. The planning authority has broad authorities. It prepares and revises serveral kinds of development plans. Decisions on individual applications for planning permission fall into the competence of the building control authorities. Building control legislation competence is within the competence of the federal states (Bundesländer).

Traditionally manufacture contracts in German law include all contracts for the provision of goods or the making of a product. This is a wide definition. It can include certain types of work by a professional person where the object of the contract is to provide the customer with a specific result. Such as a building designed by an architect or a piece of music which a composer is commissioned to write. It can also include the production of standard or mass produced goods (such as shoes) and the provision of bespoke or tailor made products such as houses or machinery which are constructed to a design agreed by the customer.

In practise German contractors usually work based on standard forms of contract referred to formerly as Verdingungsordnung für Bauleistungen (VOB) and currently as Vergabe- und Vertragsordnung für Bauleistungen (English: Construction Tendering and Contract Regulations). The Construction Tendering and Contract Regulations exist in three parts: VOB/A (bidding procedure), VOB/B (conditions of contract for works) and VOB/C (technical standards). The VOB conditions have been published by a commission for the public sector. Today the VOB conditions are generally accepted Standard conditions for both, private and public contracts. They are considered to be impartial and balanced. Thus in the past German courts usually and traditionally accepted VOB/B without any Review. However since 2002 this case law was criticized. FIDIC conditions are not commonly known and used in Germany.

Currently VOB/B and FIDIC conditions are to be trated as Standard terms falling under the scope of Sections 305 et seq. German Civil Code. However, unlike FIDIC conditions pursuant to Sections 308 number 5, 309 Number 8b (ff) its German homologue is partially exempted from review by the courts if and when These conditions have been incorporated without any modification in the contract.

Contracts with engineers and architects are ruled by the official scale of fees for services by architects and engineers (HOAI). The provisions of this order apply to the charging of fees for services provided by achitects and engineers as covered by the specific performance profiles or other clauses of this order. This order has to cibles: First the order should damp the increasement of costs for the erection of housing buildings and second the order should avoid crushing competition among architects and engineers. Under the order fees are determined by the written agreement concluded by the contracting parties within the framework of the minimum and maximum rates specified by the order. Only in exceptional cases fees may fall below the minimum rates. The maximum rates may not be exceeded except in the case of exceptional services or service extending over an unusually long period. Written agreement is required. Unless otherwise agreed in writing at the time of contract awarded, the relevant minimum price shall count as agreed.

Recently the German Supreme Court (Bundesgerichtshof) held that the official scale of fees for services by architects and engineers has to be applied even if the proper law of the contract is a foreign law supposed that the site is situated in Germany. This is open to criticism and certainly not conform to EC law. The European Commission has launched infringement procedures against Austria, Cyprus, Germany, Malta, Poland and Spain on the grounds that their domestic legal provisions include excessive and unjustified obstacles in the area of professional services.  The Commission considers that requirements imposed on certain service providers in these Member States run counter to the Services Directive (Directive 2006/123/EC). In particular the Commission considers that minimum and maximum tariffs for architects and engineers in Germany contradict European law.  

IX. Immigration

Foreign nationals wishing to take domicile in Germany must apply for a residence permit. In principle Germany is not very open for immigration. The relevant rules make a difference between citizens of the EC and EEA member states and those of other states.

Recently German Government set into force the Law ”zur Steuerung und Begrenzung der Zuwanderung und zur Regelung des Aufenthalts von Unionsbürgern und Ausländern” (Law ruling the control and the limitation of migration and the residence of citizens of the European Union and Foreigners). This law has been cancelled by the German Constitution Court because of a failure to comply with formal legislation procedure rules. The German Government has now once again started the procedure to bring the above mentioned law into force. In early 2016 the German Government started activities to establish an Integration Act.

At present, non EU citizens have to apply for a residence permit and a work permit. Usually application for those permits must be made before entering the country and will only be granted if the applicant alreday has a fixed job offer. Citizens of the United States, of Canada, Australia and Switzerland can enter the country without a visa and apply for residence and work permit after arrival. Under some circumstances citizens from states having made a special convention with the EU (like Turkey) may claim a visa.

Currently, the local adminstration is willing to help foreign investors to grant visa, residence permits and work permits. But they decide case by case and under the reserve of public interests.

X. German Lawyers

In Germany there is no difference between legal advice and court hearings. The legal profession of barristers does not exist in Germany. German lawyers are allowed to give advice and to attend court hearings throughout the Federal Republic. No local restrictions exist. German lawyers are allowed to advise their clients as lawyers, accountants and tax advisers. They may also act as adjudicators and arbitrators or mediators. 

Traditionally German lawyers charge Clients pursunat to the statutory fee scale for attorneys which take in account the value of the particular matter.

The German Federal Law on lawyers´ remuneration  (Rechtsanwaltsvergütungsgesetz, abbreviated RVG, formerly Bundesrechtsanwaltsgebührenordnung) sets out the fees in Appendix 2 to Section 13 RVG as follows (in examples):

Value in litigation Fee in EUR (10/10) Value in litigation FEE in EUR (10/10)
500 45 65.000 1.248
1.000 80 95.000 1.418
5.000 303 125.000 1.588
10.000 558 155.000 1.758
22.000 742 200.000 2.013
50.000 1.163 500.000 3.213


In litigation cases German lawyers earn legal fees in accordance with RVG as follows:

  when he has been instructed to start legal proceedings. This fee covers: obtaining information by the lawyer, discussing legal aspects with the client, presenting the claim or presenting the request for registration under the regulation n° 44/2001
  when he attends the court at the hearings
  when a settlement Agreement (Vergleich) was achieved
 


If the German lawyer gives advice he will normally earn a little less. However this system is today frequently replaced by individual agreements providing for fees by reference to the time spent on the case.

WARNING: the material contained in these notes is a simplified guide to some of the major topics in German law. It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own. Whilst the contents are believed to be correct, the author cannot accept any responsibility for errors or omissions.

For further information please contact either

LAW OFFICE Dr. Hök, Stieglmeier & Kollegen
Contact: Advocate Dr.Götz-Sebastian Hök
Otto-Suhr-Allee 115,
10585 Berlin
Tel.: 00 49 (0) 30 3000 760-0
Fax: 00 49 (0) 30 513 03 819
e-mail: kanzlei@dr-hoek.de

Contribution online since Wednesday, June 19th, 2002     
Last updated Tuesday, April 19th, 2016     
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