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FOCUS Interview

Look west! Economic ties with Germany and the UAE have witnessed steady progress, with Germany being UAE’s 3rd largest trade partner. We caught up with Dr. Peter Goepfrich, CEO, The German Emirati Joint Council for Industry & Commerce, to get this viewpoint on where the relations are headed.


lease give us a brief background on the trade relations between the UAE and Germany

Since a strategic partnership between the German and the UAE government was established in the year 2004, the UAE have become the top market for German exports and investment within the MENA-Region, with German exports to the UAE reaching a yearly amount of more than AED 25 million. Vice versa the UAE have become an important investor in Germany, with the highlights of a share in the famous car brand MERCEDES as well as having established a solar panel production plant in East of Germany by Mubadala, technical investment arm of ADIA.

What are the main products exported and imported between the two countries?

The main export products of Germany to the UAE are cars and trucks, machinery as well as electrical and chemical products and pre-products. Germany, albeit on a far smaller scale, imports from the UAE petrochemical products, ceramic tiles, recently also some kind of processed foodstuff. Germany is investing in the Downstream – and petrochemical industry as well as into the construction- and building materials sector.

How has the trade relation evolved over the decades? The trade relations have been continuously improving with about 1000 subsidiaries of German parent companies having set up in the UAE. Many of these are in the freezones in the several Emirates using the 36


secondly to get a grip on the technological innovation, prevailing in these companies.

Are there any issues that foreign companies need to be aware of when they decide to set shop in Germany?

Dr. Peter Goepfrich, CEO, The German Emirati Joint Council for Industry & Commerce

UAE as a trade – and distribution hub for serving the surrounding regional markets in the GCC, Asia or in Africa. Nevertheless there are an increasing number of Emirati companies and natural persons, using Germany as the gateway to Europe, many of them are also buying property there, especially in Munich and around.

For Middle Eastern companies, keen on investing in Germany- what advice would you like to give them? Germany is the largest and strongest market within the European Union and it has a very sophisticated and robust, innovative and varied industrial sector. The backbone of the German economy is small- and medium-sized companies (SME’s), many of them still family – owned and most of them world market leaders (hidden champions) in the special field. It is advisable to try to invest in such companies, firstly to get a solid partnership and a solid return, but also

Germany is a rather liberal country with a comparatively attractive package for foreign investors. Germany is a federal state, the incentive packages offered to potential investors vary from state to state, so it might be useful to study, in which federal state should you go.

Which sectors offer potential for German companies in the UAE and for Middle Eastern business in Germany?

There is a lot of potential in the energy sector, especially with regard to renewable energy technologies as well as in other sectors such as environmental technology, waste treatment, food processing and so forth. As for Middle Eastern business in Germany, there are opportunities in various fields, be it investments in large brands as well as SME’s in various industrial sectors.

How do you see the bilateral economic relation evolving in the coming years?

The UAE will be at the forefront of German business interests in the Middle East as Germany will be in the core of the UAE business interests in Europe, though competition for both sides from business opportunities in Asia will put a test for the sustainability and the good will of the strategic partnership.

FOCUS Bilateral trade

A steady partner UAE is one of the most significant trade partners for Germany in the Middle East, and the robust trade growth is visible with the German exports to the UAE being close to 8 billion Euros in 2011. We take a look at some numbers to understand the trade relations between the two countries. 38



n 2010 the UAE was the largest buyer of German products in the Arab world, thus making Germany its fourth largest trading partner. A testimony of the growing bilateral ties, is the increase in the number of German companies established in the UAE. Statistics indicate there are over 1,000 German companies and close to 9,000 German nationals in the UAE, with Dubai accounting for around three-fourth of these.

Bilateral trade between the UAE and Germany 2000-2011

German imports from the UAE

As we can see from the table above, the German imports from the UAE have gone up. The top five products were: • Aluminum and aluminum alloyed waste and scrap • Petroleum and natural gas • Return material • Synthetic goods • Finished products

On the other hand, exports to the UAE have been quite high but dropped a bit in 2011.

German exports to the UAE

The top five products exported to the UAE from Germany were: • Aircraft • Automotive • Equipment for electricity generation and distribution • Telecommunication devices • Machines

In terms of overall bilateral economic relations, the UAE is Germany’s most important trading partner in the Arab world. In terms of the volume of trade, the UAE’s importance as a market for German exports is comparable with that of India, Hong Kong or Singapore. Even in post-crisis year 2011, bilateral trade was substantial. German exports to the UAE still stood at EUR 7.5 billion, 1% less than in 2010, while German imports from the UAE were worth approximately EUR 1 billion. Germany thus remained the UAE’s fourth largest trading partner, after India, China and the USA and ahead of Japan. Its principal exports to the UAE are aircraft, cars, machinery, electrical equipment, pharmaceuticals and energy technology. In 2009, the Emirate of Abu Dhabi in particular made significant investments in Germany (in companies like Daimler, Global Foundries in Dresden and in Thuringia’s photovoltaics industry). Conversely, the UAE is, for its part, hoping to see an increase in German investment in the country. All the instruments for promoting German foreign trade are available in the UAE. The

German Embassy in Abu Dhabi and the German Consulate General in Dubai provide advice and political support; correspondents of Germany Trade & Invest (GTAI) in Dubai draw up sectoral analyses and evaluate calls for tenders. In addition, the German-Emirati Joint Council for Industry and Commerce (AHK) was set up in 2009, making Germany the first country to open a bilateral chamber of industry and commerce in the UAE. Its job is to further intensify bilateral trade and improve German companies’ access to markets in the UAE. There are as many as 1,000 German companies operating in the UAE, most of them in Dubai and Abu Dhabi and a far smaller number in the five Northern Emirates. There are some 10,000 German nationals living in the UAE, most of them in Dubai. Agreements between Germany and the UAE include an air transport agreement, an investment promotion and protection agreement and a new double taxation agreement that took retrospective effect as of 1 January 2009 after being ratified in mid-2011.

Even in post-crisis year 2011, bilateral trade was substantial: German exports to the UAE still stood at EUR 7.5 billion, 1% less than in 2010, while German imports from the VAE were worth approximately EUR 1 billion.




Investing in Germany made easy As part of the country focus, we bring you details about how to set up business in Germany and the rules and regulations you need to be aware of.


he United Kingdom, France and Germany did not have to control foreign investment until the Second World War, as they were capital-exporting countries before that. However, when they were faced with the challenge of upsurge in American investment after the Second World War, they used a number of formal and informal mechanisms to ensure that their national interests are not hurt. Formal mechanisms included foreign exchange control and regulations against foreign investment in sensitive sectors like defense or cultural industries. At the informal



level, they used mechanisms like the SOEs (small-order execution system, which was implemented to provide automatic order execution for individual traders with orders less than or equals to 1000 shares), restrictions on take-over and “undertakings” or “voluntary restrictions” by MNCs in order to restrict foreign investment and impose performance requirements. Recent changes to foreign investment laws and policies have in some cases subjected foreign investment to greater scrutiny. Specifically Western countries,

as Germany, have changed or considered changing their foreign investment laws – policies or processes in the last years; many of the changes demonstrate an increased emphasis on national security concerns. Foreign Investment Regulation Foreign direct investment is defined as the purchase of real assets abroad for the purpose of acquiring a lasting interest in an enterprise and exerting a degree of influence on that enterprise’s operations. There are several different kinds of

foreign direct investment, including the following:

1. Greenfield investments: A Greenfield investment is the investment in a physical structure in an area where no corporate facilities previously existed. It normally entails complete ownership and therefore full control over management. 2. Strategic partnerships: A strategic partnership is a formal alliance (joint venture, licensing agreement, distributorship, or agency contract) between two commercial enterprises, usually formalized by one or more business contracts, where they mutually participate in certain activities (advertising, branding, product development, and so forth).

3. Mergers and acquisitions: A merger is a business event wherein two or more companies decide to pool their assets to form a single new company. In the course of this transaction, one of the previously existing companies ceases to exist. An acquisition does not necessarily constitute a merger if the pre-existing companies continue to exist. Both of these business transactions can result in a foreign entity gaining a portion of a domestic entity. Customs and tariffs Single Customs Tariff in the EU Import duty is stipulated by the Common Customs Tariff (CCT) and import duty tariffs are the same for all member states. The applicable tariff rate can be researched at the EU’s TARIC (Integrated Tariff of the European Union) database. The nomenclature of the EU customs tariff is based on the Harmonised Commodity Description and Coding System (HS) of the World Customs Organisation (WCO). Through the regulations defined in the system, every single commodity can be classified according to the nomenclature and allocated a commodity number (the “goods code”). The vast majority of tariff rates are

Import duty is stipulated by the Common Customs Tariff (CCT) and import duty tariffs are the same for all member states. The applicable tariff rate can be researched at the EU’s TARIC (Integrated Tariff of the European Union) database.

stated as ad valorem values. The basis for their calculation is the customs value of the goods. This is defined in accordance with the GATT (General Agreement on Tariffs and Trade) customs valuation code - the basis for assessment of customs values valid worldwide. According to this code, the customs value of imported goods is usually the so-called “transaction value,” in other words, the value of the consignment according to the commercial invoice not including any adjustments such as transport and insurance costs up to the EU border. The European Customs Union All member states of the European Union (EU), including Germany, form a customs territory (the European Customs Union) where unified customs arrangements apply. Goods imported into the EU are subject to EU-wide import regulations, customs tariffs and customs procedures. This means that customs duties are only levied when the goods are imported into the EU. Once goods have been imported into the EU, no further customs duties must be paid within the customs territory - even if the goods cross internal borders of member states. Customs procedures Goods in the customs territory of the EU either have the status of Community goods (goods manufactured or obtained in the EU or “goods released for free circulation”) or of non-Community goods (all goods which do not comply with the criteria of Community goods). Importers may only be in possession of a limited amount of noncommunity goods, or in some cases none at all, according to the amounts permitted by the customs administration.

Overview of different customs procedures Different customs procedures apply, subject to the reasons why goods are imported. Goods may be imported to be sold, repaired, temporarily stored or used in the production of other products for re-exportation. In total, the Community Customs Code stipulates eight different customs procedures (including export procedures which are not detailed here). The intended use of the goods determines which customs procedure is applied.

Customs declaration The presented goods are then declared for a customs procedure. In order for this to happen, a customs declaration must be submitted. This can either be submitted in writing as a customs declaration form (single administrative document) or electronically via the ATLAS procedure. Information about the procedure can be found at the website of the German Customs Administration. Declaration formalities must be carried out by a company registered in the EU. Submission of the customs declaration by a representative, such as a forwarding agent, is permitted. In the case of regular imports, there is also a possibility of simplified customs declarations where certain details can be skipped. These details must then be submitted in the form of a supplementary declaration within a period of 20 days (45 days in the case of maritime transport). Customs number All companies which submit customs declarations more than three times a OCTOBER 2012



year must include a customs number in the respective customs declarations. This number is issued by the customs administration on request and serves as an identification and reference number under which all addressees of consignments and all authorisations issued by the customs administration are gathered. All companies registered in the EU can apply for certification as an Authorised Economic Operator (AEO) from the respective Head Customs Office.

Customs declaration documentation As well as the customs declaration, a number of other documents usually have to be presented when releasing goods for free circulation: • Declaration of customs value (with value of goods greater than EUR10,000) (or: with goods valued more than EUR 10,000) • Commercial invoice or proof of value • Transport documents (such as CMR form, air waybill or bill of lading)

Depending on the goods, other documents may also be required, including: • Certificate of origin/declarations of origin/movement certificates (such as in the case of the utilisation of benefits from free trade agreements, preferential agreements, cooperation agreements and association agreements) • Import permits/import licences and surveillance documents • International import permit/delivery verification certificate (such as in the case of goods and technology with strategic importance)

Double Tax Agreement There is a new Double Tax Agreement between Germany and the UAE, which was signed on 1st July 2010 and came into effect on 14th July 2011. It applies retroactively from 1st January 2009. The most important change is the changeover from the exemption method (Freistellungs methode) to the credit method (Anrechnungs methode), i.e.



• A German company’s subsidiary (branch or representative office)in the UAE is not subject to income tax unless the company belongs to one of the following branches: banks, petroleum and natural gas engineering, petrochemical industry for which a tax rate of up to 55% applies. • In Germany according to §8b I, 5 KStG, up to 95% of the distribution of profits between a mother company and a daughter company is not subject to taxation. • Only the distribution of profits to the shareholders of the German parent company is subject to taxation – either within the scope of the partial income method (Teileinkünfteverfahren) or within the scope of the flat rate

Government would not interfere with. The new agreement however, introduces a system where any paid taxes in the UAE are to be set off against the otherwise payable taxes in Germany. Given the fact the UAE does not collect neither income nor corporate tax at all, it means that a German company operating in the UAE is now liable for paying taxes in Germany on the full amount of the income or profit they make in the UAE. This regulation apply for non-independent companies such as branch or representative office of German companies but does not apply however for German owned LLC’s set up in Dubai since they are considered UAE companies.

In short it means that, the previous agreement allowed for an exemption from German tax duties if a German company was operating in the UAE. Practically that insured a German subsidiary a tax free status under UAE law that the German Government would not interfere with. The new agreement however, introduces a system where any paid taxes in the UAE are to be set off against the otherwise payable taxes in Germany. withholding tax (Abgeltungssteuer). • In the UAE, the business premises of a German company (joint-stock company) are not subject to the corporate income tax (Körperschaftssteuer). Contrary to the usual practice, the Double Tax Agreement does not provide for an exemption of the profits out of the foreign business premises. These profits belong to the assessment basis of the German corporate income tax but do not belong to the assessment basis of the trade tax (Gewerbesteuer) (§ 9 Nr. 3 in conjunction with § 21 GEWStG). In short it means that, the previous agreement allowed for an exemption from German tax duties if a German company was operating in the UAE. Practically that insured a German subsidiary a tax free status under UAE law that the German

The new regulations have an impact also on German individuals working in the UAE. If a natural person maintains his or her place of residence in Germany, s/he is subject to the German tax law and thus pays in Germany the due taxation amount on his or her worldwide income. Since there is no tax liability in the UAE, the allowance of foreign taxes is omitted. Mergers and acquisitions law in Germany Until 2004, Germany had no special legislation restricting foreign direct investment beyond general restrictions such as the need for antitrust clearance or regulatory requirements for investments in financial institutions which equally apply to investors from Germany, the European Union and elsewhere. In 2004, it was introduced that investors from

issuance of such clearance certificate, and it must issue it if the proposed transaction would not threaten the public order or security. Such instrument provides some compensation for the level of uncertainty that the flexibility of the term “public order and security” involves.

countries other than the member states of the European Union (EU) and the European Free Trade Association (EFTA, i.e., Liechtenstein, Iceland, Norway and Switzerland) would need to notify the acquisition of a business manufacturing or developing war weapons or armaments or producing crypto systems admitted for the transfer of state secrets, unless the investor directly or indirectly acquires less than 25 per cent of the voting rights. The German government is authorised to restrict or prohibit the acquisition if it would affect significant security interests of the Federal Republic of Germany. The German Foreign Investment Act was amended in 2009. Since, the government may also restrict or prohibit acquisitions by investors from outside the European Union and the EFTA if the acquisition “jeopardises the public order or security” which shall require an “actual and sufficiently serious threat that affects a fundamental interest of the society”. At the same time, the ECJ has pointed out that purely economic objectives or industrial policy would not qualify to pose a serious threat to the public order and security, and it would therefore not be sufficient to justify any restrictions with • the restructuring of certain sectors; • the enhancement of competitiveness of businesses or sectors; • monetary interests of the government including the reduction of public debt; 44


• the support and development of capital markets and the desire to enhance individual ownership in stock of listed companies; or • the general modernisation of the economy and the increase of productivity. Apart from these guidelines, relevant factors are the person of the acquirer, its home country, its current business and future intentions. It may, for example, be a criterion if the investor’s home country is subject to an embargo or if the investor in its home country is engaged in the defence industry even if the proposed investment is in an unrelated sector. Another item to be considered is the competitive situation on the market in which the target business operates. The less competitive, the more likely it is that an investor could influence the supply with the relevant products or services. In principle, the government has three months from the signing of a binding agreement on the acquisition to inform the acquirer that it wishes to commence investigations, and may within two months from receipt of all relevant information requested from the acquirer prohibit or restrict the transaction. In parallel, the Foreign Investment Act expressly enables an investor to apply for a clearance certificate by filing a description of the proposed investment, the acquirer and its business. Upon filing, the government has one month to decide on the

Competition Law and Intellectual Property Rights Laws Intellectual Property Rights Laws • Intellectual property rights enjoy a high level of protection in Germany. For technical and commercial innovations, property rights can be registered in the form of patents, utility models, trademarks, and designs. The same conditions apply to foreigners and German nationals when registering property rights. In fact, Germany occupied the top spot in the “intellectual property” category of the study mentioned above • Trademarks and patents are well protected in Germany. When establishing a company, you should remember to protect your company’s intellectual property by means of registration. Conversely, you should ensure that your company and products do not infringe on existing intellectual property rights that have already been established in the German market. A mark can be protected as a trademark by recording it in the register kept at the German Patent and Trade Mark Office (DPMA). As with patents, an application must be filed at the DPMA. For more information, please refer to the “Information for Trade Mark Applicants” fact sheet available at the DPMA website. • Foreigners may register patents subject to exactly the same terms as German nationals (this is also the case with trademarks). However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application. • At present, the fee for trademark registration application and entry in the


trademark register is around EUR 300. • Once trademark protection has been obtained, the owner of a trademark has an exclusive right to use the respective trademark. If the trademark has been registered, the owner can indicate this by placing ® (registered trademark) after the trademark. Protection is valid for a period of ten years and can then be extended for another ten years • License: The right to use a patent or a trademark may be subject to either an exclusive or a general license. By granting a third party a license, the owner of a patent or trademark entitles a third party to use or exploit the right in question without ceding ownership • An exclusive license entitles only the licensee (i.e. the person that has been granted the right of usage) to exploit the right, usually within a certain territory. General licensing or non-exclusive licensing enables various licensees to use a right in the same territory at the same time

Competition Law Unfair Commercial Practices instead of competing activity The term “competing activity” is replaced by the term “Commercial Practices” in the new Competition Law, which is valid in Germany since December 2008. This renaming was necessary because competition should no longer be the only purpose, but also consumer protection an issue. The new term covers every activity, default, mode of behavior or statement, commercial note including advertising and marketing of tradesmen, who are directly responsible for merchandising, sales or delivery of products to consumers. The German Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG) prohibits certain trade practices, which are considered unfair, excluding cartel law and merger control, which are governed by a separate Act (Gesetz gegen Wettbewerbsbeschränkungen, GWB). The Act against Unfair Competition has been thoroughly revised with the aim of modernizing German law against unfair 46


competition and bringing it into line with developments in EU law. The stated aims of the revision are to increase consumer protection, to provide greater transparency of the rules relating to unfair competition, particularly for non-lawyers, and to provide more freedom to businesses.

Advertisements with implicitness on the Internet On the Internet, indicating that a legal right is something special of a particular offer will be considered as unfair. That means, that a trader can still indicate the warranty rights for example within the context of the general terms and conditions, however, it is forbidden to have a prominent advertisement on the homepage for warranty. If the general terms and conditions mention warranty rights for consumers, it must be correct. If the general terms and conditions are wrong with regard to warranty rights, this is unfair within the meaning of § 5 par. 1 No. 7 UWG (Unfair Competition Act).

Information Referring to the German Remote-Purchase Law (Fernabsatzrecht), the enhanced UWG (Unfair Competition Act) demands further information obligation. Thus, always necessary information for specific offers is the identity and address of the businessman on behalf of whom he is acting. This obligation to disclosure of the persons behind the business goes far beyond the so far demanded indication to agents.

The new black list An important component of the new UWG is the “black list”. The black list refers to activities that are uniformly prohibited across the entire European Union without any room for interpretation. It encompasses in total 30 statements of facts which are to be sanctioned. § 3 par. 3 UWG defines all these illegitimate business activities including for example advertisement for children. It also regulates chances of winning in lotteries, which may not increase by purchase of goods or statements claiming that the employment or livelihood

of the businessman is endangered if the consumer does not purchase the goods.

Employment Law – visa requirements • Citizens of non-EU countries generally require a visa to enter and stay in Germany • For short-term stays in Germany (stays not exceeding 90 days per six-month period starting from the inital date of arrival) a Schengen visa is needed which is generally sufficient for most steps required to establish a business in Germany • Is the duration of the stay exceeding 90 days (per six-month period) or is a (self-employed or gainful) occupation taken up, all non-EU citizens require a residence permit (Aufenthaltserlaubnis) or settlement permit (Niederlassungserlaubnis). The respective German embassy initially issues a national visa for entry into Germany. The national visa is converted into a residence or settlement permit by the local immigration office (Ausländerbehörde) in Germany

Visa for Employee • Employees who are from non-EU countries and who are employed in a new subsidiary company in Germany require a residence permit for the purpose of taking up employment (Aufenthaltserlaubnis für abhängige Beschäftigung) in Germany • The residence permit for the purpose of taking up employment contains both – the permit to stay and the permit to work in Germany. Foreign nationals do not have to apply separately for a work permit. The residence permit for the purpose of taking up employment contains a statement as to whether and to what extent work will be permitted • As with a residence permit for selfemployment, a residence permit is issued to employees for up to three years. As a rule, the residence permit can be extended without any problems. After five years a permanent settlement permit is issued in most cases.

Trade & Export Middle East - Country Focus - Germany  

Trade & Export Middle East - Country Focus - Germany

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