The Best Investment in Germany in 2023
Investment in Germany attracts over $800 billion in private revenue annually. It is not surprising that local businessmen actively invest in this country.
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| The Best Investment in Germany in 2023. |
The Best Investment in Germany in 2023
Prices in the German market seem to be stable or experiencing an upward trend in 2023. This is particularly noticeable in major cities. Once again, investment in Germany has proven its reliability even during times of crisis.
In Germany, if you are interested in opening a business, purchasing an established company, or investing in commercial real estate, you are in the right place, and this article is specifically tailored to help you.
How effective is an investment in Germany?
The effectiveness of any national economy can be measured through macroeconomic indicators. Over the past two decades, the German gross domestic product (GDP) has doubled in terms of GDP and industrial development, placing Germany at nearly the fourth position globally. The per capita GDP exceeds $50,000, which is a positive indicator.
However, since the 1980s, services have accounted for the largest share of the GDP (48% in 2020), followed by industry (25%).
Speaking of investment in Germany, it has grown approximately twelvefold over the past fifty years. In 2019, it reached over $860 billion. The average annual growth in private investment is around $16.5 billion. Their share in the global volume is 3.8%.
Advantages of Germany in the global investment ranking:
Recently, experts from Ernst & Young released their ranking of the attractiveness of countries for investment. In that ranking, Germany took the fifth position, following China, India, the United States, and Brazil, reaffirming its leadership in Europe.
The key advantages of Germany include the following:
- Enormous domestic consumption market.
- high purchasing power of the population.
- A large pool of highly qualified specialists.
- High quality of life.
- Attractive working conditions.
However, some factors can deter investors from the German economy:
- High labor costs.
- Limited flexibility in labor legislation.
- High tax burden on businesses.
- Lack of tax incentives for research investment.
How is investment controlled in Germany?
In recent times in 2023, the German government has tightened its controls on foreign direct investment. There was a concern that strategically important German companies might be acquired by investors from non-European Union countries.
However, these decisions should not be alarming, as they are the third set of regulations since 2017. Almost every year, the government authorities tighten their control over foreign investment in Germany to some extent.
Here are the key points related to the latest tightening of regulations:
- The German government has gained broader rights to intervene in transactions on the territory of the federal states of Germany. Experts expect increased uncertainty when planning new international deals.
- The list of transaction categories subject to the obligation to stop and notify the transaction will be expanded. It will become customary for foreign investors conducting mergers and acquisitions within German territory to notify the regulatory authority of upcoming deals to obtain permission to close the transaction.
- All inspection procedures will be prolonged and take more time.
This situation only requires market participants to make a more accurate assessment of the risks of foreign direct investment in the German economy and better plan their transactions.
Investment Law in Germany:
Investment activities in Germany are subject to the Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance. Based on these regulations, control over foreign investments is implemented.
It is now necessary to inform the Federal Ministry for Economic Affairs and Energy (BMWi) of any plans for investment from third countries (non-European Union members) in important economic sectors and all types of technologies related to national security and companies if the investor intends to acquire at least 10% of the shares. BMWi is obligated to initiate a review of such transactions. If it is found that it threatens the public order or security of the Federal Republic of Germany, the ministry has the right to impose a ban on such investments and impose necessary sanctions.
BMWi must obtain approval from the Federal Government to prevent any foreign investor from acquiring a business in Germany. Additionally, the German government does not have the authority to ban foreign investment if the Federal Ministry for Economic Affairs and Energy has given it a positive evaluation.
Investment Opportunities in Germany:
The rights of regulators apply to all acquisitions of German companies where the foreign investor acquires at least 25% of the shares. Investors are required to notify BMWi when intending to acquire a German company in the following cases:
- Investments are subject to evaluation by experts in a specific sector of the economy.
- Investments must undergo a comprehensive review in multiple sectors falling under the category of "security threat and public order.
Even if the transaction is not subject to the obligation of notifying the Federal Ministry for Economic Affairs and Energy, it is advisable to apply for a certificate of non-objection.
Investment Conditions in Germany for Private Companies in 2023:
If you intend to register a private company in an investment form in Germany, you need to know the details of private company activities, including:
- Traditional private companies, which are organized investment companies with open membership, often involve financial companies and institutions.
- The Capital Investment Act has expanded the scope of investment in Germany to include foreign professionals and semi-professionals.
- Professional investors can be attributed to specific entities under general law or investors with investments amounting to 10 million euros or more in alternative investment companies.
- In Germany, only private equity funds can be considered as alternative investment companies.
What are the requirements for starting a project in Germany?
Private Equity Funds (PEFs) and Alternative Investment Funds (AIFs) are subject to the Investment Act in Germany (KAGB), which incorporates the European directive on the managers of alternative investment funds into German law.
It should be noted that the investment laws in the Federal Republic of Germany are much stricter than the legal regulations in other European Union countries, and with the help of this directive, they have been implemented in local texts and legislation.
In most cases, a Private Equity Fund is structured as a German Limited Partnership (KG) under the Investment Act in Germany. This form can be expanded with the help of a general partner, usually a Limited Liability Company (GmbH). The shares of these companies may be owned by professional investors.
The fund needs to obtain approval for its investment policy from BaFin, the federal financial regulator.
The other common legal form for establishing a Private Equity Fund is the German Limited Liability Partnership (KGaA). In this form, the founders are shareholders in the company, receive stock profits, and have limited liability. However, the KGaA model is not tax-efficient for foreign investors due to increased taxes.
Alternative Investment Companies for Investment Regulation in Germany:
All managers of alternative investment funds in the European Union operate according to the European directive on the managers of alternative investment funds. The Investment Act contains legal provisions that describe the rules and powers of management companies. It also specifies the requirements for the distribution of AIFs in Germany.
According to the blog, all fund managers obtain a manager license from the regulatory authority BaFin. To do this, it is necessary to provide the specifications with most of the authorities related to the following functions:
- Portfolio and risk management.
- Custody function.
- Internal auditing.
- Delegation.
- Liquidity management.
- Remuneration policy.
The law provides rules for the evaluation of alternative investment fund assets in Germany. They must be entrusted to external experts. To protect investors reliably, every German retail fund must undergo external evaluation before being acquired.
Some investment sectors in Germany:
Germany is considered a country for the most conservative investors who prefer a high level of reliability and legal protection for their investments. The following are some of the prominent investment sectors in Germany:
Real estate investment:
Commercial and residential real estate sectors in Germany will be highly attractive for real estate investment in Germany and foreign investors. The cost per square meter of living and office space in 50 major German cities does not differ significantly and is higher than the European average. The most expensive properties in the German states are located in Berlin, Munich, and Frankfurt am Main.
Prices for properties and rental payments are growing from year to year. The demand for real estate has not been affected even by the economic crisis associated with the COVID-19 pandemic. That is why the real estate sector is highly attractive to investors.
Investment returns in German commercial real estate are about 5-8%. Volatility in this sector of the economy is low, as are financial risks. Residential buildings can provide a return of around 12%.
Investment in the German securities market:
The securities market in Germany is open to investment in Germany by private sector investors and foreign investors. You can start investing in it with a minimum of several thousand euros. Additionally, all transactions with brokers in the securities market can be conducted remotely online.
As of now, such investment activities require significant market knowledge. You can minimize financial risks by starting to invest in shares of giant industrial companies in Germany, which have large capital.
Investment in healthcare:
The German healthcare sector provides an annual income of 300 billion euros to the national economy. The level of medicine in this country is considered the best in Europe. People come to German hospitals for cosmetic treatments, hair transplantation, and non-cosmetic treatments from many countries around the world.
Therefore, what interests investors the most is investing in Germany in terms of producing medical equipment and pharmaceuticals. Giants of these German industries are well-known worldwide.
Investment in the automotive industry:
German automotive brands such as Mercedes, BMW, and Audi are also known worldwide. In addition to that, there are factories and many other car brands here. They require a lot of suppliers and contractors. Therefore, there is great interest in investing in Germany in the automotive market by foreigners.
Investment in information technology:
Germany takes pride in being the fourth-largest information technology market in the world. It is also the largest in Europe. One-fifth of the income in this sector is generated through simply impossible innovations without capital investment.
Investment in tourism in Germany:
In recent decades, Germans have effectively and actively worked on developing investment in German tourism and developing tourism in their country. Thanks to this, Germany has taken the third place in the popularity ranking of tourist destinations in Europe. Only Spain and France are ahead. New hotels are being built with enthusiasm and activity in Germany, the hotel fund is growing, and new cafes, restaurants, and entertainment centers are emerging in the areas of tourist attractions.
Investor Visa in Germany:
The German government offers several visa options for foreign investors who wish to invest in the country. The most common visa options for investors in Germany include the following:
- Entrepreneur Visa: This visa is for individuals planning to start a business or invest in an existing business in Germany. To qualify for this visa, you must have a viable business plan, and sufficient funds to support yourself and your business and meet other eligibility criteria.
- Investor Visa: This visa is for individuals planning to make a significant investment in a German company or a startup. To qualify for this visa, you must have a minimum investment of one million euros, provide evidence of the source of funds, and meet other eligibility criteria.
- Freelancer Visa: This visa is for individuals planning to work for themselves as a freelancer or consultant in Germany. To qualify for this visa, you must demonstrate a viable business plan, sufficient funds to support yourself and meet other eligibility criteria.
- Job Seeker Visa: This visa is for individuals planning to come to Germany to search for job opportunities. If you find a job, you can apply for a work residence permit in Germany to continue your work.
To apply for an investor visa in Germany, you will need to submit various documents, including your business plan, financial records, proof of funds, and other relevant documents. It is advisable to consult with a German immigration lawyer or visa specialist to assist you with the visa application process.
What are the determinants of investing in Germany?
There are several reasons to invest in Germany:
Leading economic power: Germany is the driving force behind Europe. It is the fourth-largest industrial nation globally, with an excellent domestic market and primary access to growing markets in the European Union.
- Export-oriented country: Germany is the third-largest exporter directly behind China and the United States. Its high productivity, performance, and quality, coupled with low labor costs, contribute to its competitive advantage.
- High educational standards: Germany boasts a very high level of education and renowned scientific expertise. Additionally, 81% of the population holds a high school diploma or vocational training, significantly higher than the average of the Organization for Economic Cooperation and Development (OECD).
- Stable wages and fair social partners: Germany has stable wages and fair social partnerships. Cooperative unions collaborate rather than engage in constant conflict. Committed employees form the foundation for successful investments and entrepreneurship in Germany.
- World champion in exports for six consecutive years: With €469 billion in foreign investment, Germany is a globally recognized business hub.
- Land of poets and thinkers: Germany has a long-standing tradition of poets and thinkers. It is a land of inventors, science, and engineering, as well as the number one research location in Europe. The government invests billions each year in research and development, making Germany a leader in international high-tech industries.
- Attractive investment support: Germany offers attractive models and programs to support various types of investments and investors. Offers range from direct grants and research funds to free training for specialists.
- Competitive tax rates: Germany has competitive tax rates, which can be advantageous for investors.
- Positive living environment: Germany provides a positive living environment. It is a modern, globalized country with a high quality of life and excellent healthcare.
Germany's investment environment is safe and secure. As a constitutional state, Germany ensures democratic development, personal freedom, and an independent/non-partisan judiciary. Contracts are legally binding, and intellectual property is strictly protected. Private property is also highly valued and protected.
Why is investing in Germany beneficial for Germans?
Investing in Germany is beneficial for Germans because the German economy has achieved stable growth over the past thirty years. The German GDP today is approximately close to 4 trillion US dollars. Over 20 years, it has doubled in terms of GDP and industrial development, placing Germany fourth in the world. Indicators of per capita GDP exceed 50,000, which is a remarkably high indicator.
Investment in Germany has increased and grown nearly 12 times over the past fifty years. In 2019, it reached over 860 billion. The average annual growth is 16.5 billion dollars, and its share in the global economy is 3.8%.
Best Investments in Germany:
The best investment in Germany for you depends on your investment goals, risk tolerance, and financial situation. Generally, some common investment options in Germany include:
- Stocks: Investing in German stocks can potentially provide higher returns but comes with higher risks. There are many large German companies listed on the Frankfurt Stock Exchange, including BMW, Deutsche Bank, and Siemens.
- Bonds: Investing in German bonds is considered a low-risk investment as they are issued by the government. However, the yield may be lower compared to stocks.
- Real Estate: Investing in German real estate is a popular long-term option for investors. Germany has a stable and growing real estate market, providing opportunities for capital appreciation and rental income.
- Mutual Funds: Investing in mutual funds can provide a diversified portfolio of stocks and bonds. There are many mutual funds available in Germany, both domestically and internationally.
Before making any investment decisions regarding the best investment in Germany, it is important to consult with a financial advisor who can assist you in evaluating your options and creating a customized investment strategy that aligns with your financial goals and risk tolerance.
The Best Investment in Germany with Inflation:
Now that you know that investing money in Germany is a way to combat inflation in the country, what is the type of investment in Germany that is good? Is it investing in the German stock market, trading stocks in Germany, or buying stocks in Germany?
Some forms of investment are better than others when inflation occurs. In this section, we will take a look at how to buy stocks in Germany and the different forms of the best investment in Germany and evaluate their suitability in an inflationary environment.
Investing in the German Stock Market:
The best investment in Germany is considered to be buying stocks, and here you need to take into account that investing in stocks depends on your choice of a reliable platform, market analysis, and keeping track of trading venues. Therefore, you need to analyze the market and learn before you invest your money in buying stocks in Germany for investment.
Investing in German Real Estate:
Interest rates have been extremely low for several years until now. In a low-interest rate environment, real estate investment becomes more attractive. Getting a loan to purchase a property in Germany is relatively inexpensive. For example, you can get a bank loan in Germany at a 1% interest rate.
The inflation rate is rising in Germany, and the interest rate is increasing. Therefore, if you are looking for a real estate loan in Germany, you may need to act quickly to take advantage of the current low-interest rate.
The easiest way is to use the free online mortgage calculator. Simply enter the home price, down payment amount, and some other basic information. You can then see different mortgage options within minutes and consult with a financial advisor about each option.
Investment in Germany through Private Retirement Plans:
In Germany, everyone is required to contribute to public retirement insurance. A portion of your salary is deducted from your paycheck. You will receive your public pension when you reach the age of 67. However, it is somewhat risky to rely solely on the public pension in Germany. The public retirement system is funded by the younger generation now and paid to the elderly.
Due to an aging population, the retirement age has been raised from 65 to 67. You never know what will happen by the time you retire and whether you will have sufficient retirement income to live on.
Agricultural Investment in Germany:
German law allows any foreigner to invest in Germany as long as the capital exceeds 120,000 euros. The investor can apply to the German embassy in their home country, for example, submitting a proposal for an investment project in Germany. Additionally, a bank statement and a certificate of good conduct free from any issues or anything that poses a national security threat are required. Regarding agricultural investment, the encouragement continues due to the affordability of agricultural land markets in Germany.
Most provinces in Germany consist mainly of agricultural land, with prices varying slightly based on location. They tend to be slightly higher in major cities or tourist areas, especially in southern Germany, while they are cheaper in most cities in eastern Germany. Therefore, the central region of Germany is recommended. As for residency, the investor is first granted a one-year renewable business residency if the project is successful.
In conclusion, dear reader, the purchasing process should be fully aware. You need to make a significant decision. Of course, you cannot expect everything to be perfect in the field of investment in Germany. However, strategic vision is important, based on understanding the development of the German economy and the state, and perhaps the world as a whole.