The pace of globalization has increased over the decades and poses new challenges for businesses. Germany remains as one of the strongest economies on this planet. Hence, companies are continuously looking to enter the German market by setting up local offices. The following article explains in details how doing business in Germany with a PEO can be of advantage.
The bar for success is also higher. A business is going to need a global presence to really get a grip on their industry. The new reality can be ruthless, since it demands to think about an expansion strategy early on to surf the wave of competition instead of being swept off the board. There is always a competitor waiting to take someone’s place, so waiting can not be an option.
Location: Doing Business in Germany
A business without presence in Germany might be missing out on a great market opportunity. After all, the German market is just trailing the USA, China, and Japan in terms of size and offers a chance to generate revenue in a stable economic environment.
Secondly, the growth trajectory for Germany’s economy is still strong according to recent economic data and has only suffered mildly from the financial crisis compared to its peers. The unemployment rate has long been the lowest in Europe now, filling the consumer’s pockets with disposable income.
In summary, Europe’s economic powerhouse shows resilience and appears to withstand stagnation of other European markets. In fact, this explains why Germany is often chosen as a base for many firms from the United States, Japan, China, and Australia seeking to do business in the EU or Germany in particular.
However, there is one topic that usually arises when discussing doing business in Germany. The country has a certain reputation of a high level of regulation and bureaucracy. In this context, many companies see the challenge of how to implement the expansion strategy into the German market. The following summary will cover the key points of how to properly set up your business in Germany with a PEO and avoid risk and financial commitment.
— Looking to hire staff in Germany? Get in touch with Universal Hires. —
Should You Set up an Entity?
It depends on your goals. Germany’s economy is an attractive place when doing business in the EU. Still, the process of setting up an entity for your business is needs preparation and paperwork.
The Challenges of Setting up a Business in Germany
The process of incorporation for a legal entity in Germany is not easy, which can be frustrating for a business. Therefore, it may not be surprising that Germany ranks poorly, as the 125th in the world for ease of starting a business. This can be explained by complex loopholes and necessary steps to take in collaboration with chambers of commerce and sometimes local associations.
The Question of Tax
Even Germans don’t enjoy navigating the payment of taxes Germany’s fiscal system which can actually be a major pain point. A business can easily spend 200 or more hours to properly prepare nine tax payments each year. All this is time keeping a company from conducting its core business.
In addition, mandatory contributions to social security can suck up upwards of 130 hours of manpower each year. Altogether, there are 14 different types of taxes a business in Germany is required to pay year after year.
Costs of Launching an Entity
There are several costs to incorporate a business entity in Germany:
- Fee for Company formation: 1,800 €
- Virtual office costs: 2,400 € / year
- Fees for Accounting: 1,200 € / year
- Fees for Registration: Approx. 400 €
- Minimum stock of capital for a GmbH (equal to a limited liability company): 25,000 €
Compared to other countries, this a major investment of time, money, and energy. Firstly, this puts up a high barrier for small business owners and secondly, this actually brings on a significant risk for any business.
From a financial perspective, you might be convinced by now that operating in Germany is beneficial, but you might still be discouraged by the administrative side to it. Luckily, there’s a convenient option for you to leverage the attractive market for your business growth, and earn money without the troublesome experience of setting up an entity.
Work with a PEO in Germany
A Professional Employer Organization (PEO) is a service provider that helps companies to hire employees abroad without setting up a legal entity in every market the company has operations in.
Consequently, you do not have to take big investments and wait for incorporation in order to set foot into the German market and reap the rewards.
A PEO, also known as an Employer of Record (EoR), is a straightforward solution to do business abroad without administrative or legal complications.
Why You Should Use an PEO in Germany
Expansion into Germany doesn’t need to be a headache. Delegating major admin work to a PEO in Germany which can serve as a middleman helps to reduce your risk and frees funds to invest in your core activities.
We have listed some convincing arguments why it pays off to hire a PEO in Germany:
● Reduced Cost to Enter the Market: You won’t need to think about incorporation in Germany to get a team up and running. The PEO is on the job, which helps to save money in the very beginning and helps allocating capital where it makes a difference.
● Low-Risk Liability Absorption: All liabilities related to employment are absorbed by the PEO in Germany, minimizing your risk
● Speedy Hiring Process: By working with an PEO, your company can start hiring staff in days, considerably faster than the usual weeks or even months.
● German Employees Grow German Businesses: Mastering business customs as well as conducting business in a non-English speaking country can be a challenge in itself. That’s why hiring local German employees can make a difference on the way to promote your brand and network with local clients.
● Stay Flexible: Add additional employees with ease — employee growth doesn’t require you to halt your current operations.
● One-Stop-Shop for Employment: A PEO in Germany can cover anything from taxes and tax Declaration, payroll, advisory services, worker’s compensation, HR liabilities, etc. to make your journey of expansion as smooth as possible.
PEO, the Optimal Solution to Setup in Germany
In summary, every beginning is difficult and establishing a presence abroad and setting up the legal entity can be a painful job.
On the one hand, it is a major investment financially with all associated risks. On the other hand, the time to market can be long with many challenges to overcome.
Luckily there is another way. As described in this article, hiring a PEO in Germany enables you to have a local team ready to work in as little as a couple days, rather than often long weeks of waiting. This model basically serves as the registered employer of your staff. Meanwhile, your company continues to have executive power in all operational decisions and can focus on executing the expansion strategy.
Whether you look into surfing on the wave of Germany’s booming economy or simply expanding your business into a key market in Europe, this is the most convenient solution.
Universal Hires Can Help
As Germany’s leading PEO, Universal Hires has been working with clients from various industries and geographies to offer tailor-made solutions to guarantee success. The Berlin and Munich based company is offering tailor-made employment solutions to foreign companies hiring staff in Germany.