Explore the market:
We can observe an instant growth of the eCommerce market over the world, with pandemia accelerating this situation. Speaking about the German market, it’s the one that gives merchants huge opportunities, but the competition here is strong. The country has one of the biggest per-capita purchasing powers, so it’s definitely worth taking a closer look at how to enter this area and compete successfully.
German e-commerce market
Size of the market
Germany has a relatively mature and well-developed e-commerce market. As many as 92 percent of Germans in the survey state that they have shopped online.
Average basket value
Pre-COVID-19 the average annual basket spend was EUR1,338.95, a figure that was rising year on year. However, as the economic impact of the pandemic set in, Germany entered into a recession in May 2020. Bundesbank, its central bank, expects the nation’s economy to shrink by 7.1 percent in 2020 and that it will require at least two years to recover the losses, although we expect e-commerce to rebound in 2021.
The most popular marketplaces
Amazon launched a domain in Germany early on (just like in the UK). One estimate shows that the company currently has about 28 percent of the country’s total e-commerce, making Germany Amazon’s largest market in Europe. Other established market participants include eBay and domestic Otto. The leader in fashion is Zalando.
Returns / complaints – legal regulations
Consumers have a right to a minimum warranty of two years on products. In case of the purchase of used goods the guarantee term can be reduced to one year. This legal guarantee only applies to material defects that already existed when the consumer received the product. Within the first six months, any lack of conformity shall be presumed to have existed at the time of delivery, unless proved otherwise. Within this period the consumer is entitled to have the goods brought back into conformity. The consumer is entitled to ask for the goods to be repaired or replaced free of charge. Also important for consumers is that after this period of six months they are still protected against faulty products. However, it is then up to the consumer to prove that the lack of conformity existed at the time of delivery. Voluntary guarantees given by a producer do not restrict the statutory rights of consumers.
Consumers can return their purchases within 14 days with no need for explanation.
Most popular industries and product categories
The most popular product categories in Germany include clothing and footwear, books, pharmacy products, home electronics, and furnishings.
Permits, licenses, certificates by industry
There are businesses that, depending on the types of undertaken activities, require special permits or licenses in Germany. Some German companies require special permits or licenses in order to conduct business activities. These licenses are issued by the relevant authority in the country or by the local authorities. Licenses of craftsmanship are required for self-employed people. The German craftsmanship permit can be obtained with the local Trades Office (Gewerbeamt) in Germany under the form of a registration certificate (Gewerbeschein) depending on the activity to be undertaken.
The banking license in Germany
The first step towards obtaining a banking license in Germany is to meet the start-up capital requirements to set up a bank. For each type of financial institution, there are specific provisions depending on the services they will provide according to the German Banking Law. The banking license can be obtained with the federal financial authority in Germany, BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht). According to the Banking Law in Germany, all financial institutions engaged in investment and contract broking services, portfolio management services, own account trading, money transmission services, foreign currency dealings, and credit card services are required to apply for a special license in order to be allowed to function. Also, in case you want to open any other business you will need a bank account in Germany.
There is also a special license for cross-border financial institutions and a gambling license.
Preferred payment methods, trusted payment providers
Although PayPal is a favorite among German customers, this doesn’t mean online retailers in Germany should only focus on this payment method, because customer needs and preferences are very heterogeneous.
72 percent of German online shoppers have a payment method they prefer over others, 11 percent even want to use their favorite method only. Among consumers with a preferred payment method, 57 percent would choose PayPal, followed by invoice (22 percent), credit card (11 percent), and direct debit (5 percent).
Online retailers who offer only one payment method reach a maximum of six out of ten customers, the study finds. And that’s because no payment method is liked by all customers. By offering a wide range of payment methods, online retailers can reduce the number of purchase cancellations.
Expected delivery time
Most packages can be delivered within a 400-kilometer radius in one day and nationwide within two days. Usual delivery times can vary depending on the product /service and origin/destination relation, from 2-3 days for neighboring countries and up to 20 days for countries with long distances. The merchant or online shop usually indicates the expected delivery time on its website.
The most popular courier company
DHL is the most popular in Germany. Other strong market players in Germany include myHermes (Otto Group) and DPD.
The most popular delivery method
Home delivery in the daytime, delivery in the mailbox, or home delivery in the evening.
Most packages can be delivered within a 400-kilometer radius in one day and nationwide within two days.
Shipping package regulations
What cannot be shipped: all meat products — smoked, cured, vacuum-packed, canned, dried, or otherwise —are strictly prohibited by German Customs. This also includes pet food and temperature-sensitive dairy products, such as soft cheeses and eggs, and untreated animal products, including game figurines, furs, and bone or wood ornaments.
Running a business in Germany
The legal form of business
Germany offers a broad range of business entity types from which investors can choose when setting up a business. Once they have chosen the preferred form they have to register with the local Trade Office (Gewerbeamt) and also with the Commercial Register. Freelancers, individual trade persons, and private partnerships don’t have to register with the Commercial Register. It is also required to register with the local tax office in the first month of the start-up and the company will be given a tax identification number. Banks, insurance companies, and hospitals need to obtain special licenses to carry out their activities.
The most common business types in Germany are:
- the limited liability company (GmbH): the most widely used business form, it is suited to small and medium-sized businesses.
- the joint-stock company (AG): similar to the GmbH in terms of shareholder liability only that it can trade its shares and it is thus most suited to large corporations.
- the limited partnership (KG): a collaboration between two partners where at least one of them is subject to unlimited liability.
- the general partnership (OHG): the partners are liable for the debts and obligations of this business form and will share the profits.
- the civil law partnership (GBR): functions following the same principles as for the limited partnership where the two partners have unlimited liability, but it does not have to pursue a commercial purpose.
- the sole trader: the simplest business form where one individual sets up the business and has unlimited liability for the debts and obligations that arise.
- the German branch office: an extension of the parent company abroad, it is used by foreign corporations that wish to enter the market.
Bank account, banking regulations
Foreigners can also open a bank account. Identity verification is possible at a local bank or a lawyer abroad. The lawyer or bank must complete the registration form and send it directly to the bank. The costs incurred for this are not covered by the DKB (Deutsche Kreditbank AG).
Tax rules: Corporation tax
Corporate income tax is charged at 15% plus 5.5% of solidarity surcharge thereon, resulting in a combined rate of 15.825%. On top of that, the business tax will apply at local rates, which range from 7% up to currently 32%. Most commonly, business tax rates will be somewhere between 14% and 17.5%. Germany has doubled tax treaties for taxes on income with 96 countries.
The German tax system is generally considered to be quite complex. Taxes are levied by the federal government, states, and municipalities. Corporations having their registered seat or actual place of management in Germany are subject to corporate income tax (CIT) on their worldwide income (unlimited tax liability). Non-residents are only taxed on German-source income (limited tax liability).
As a member of the European Union, Germany abides by the regulations and policies agreed to by all Community members. There are several limitations to the EU’s (generally) liberal foreign trade policy, especially related to agricultural products. While the Common Agricultural Policy (CAP) exists to favor the development of agriculture within the EU, the intervention mechanisms, subsidies, and quotas have been criticized for their cost to the EU and consumers. Moreover, agricultural products containing Genetically Modified Organisms (GMOs) must be labeled as such on their packaging, and the importation of beef that contains artificial beef hormones is prohibited. Other goods- medicines for human use, waste, plants, or live animals- may be prohibited or subject to specific regulation.
Customs Duties and Taxes on Imports
Import duty and taxes are due for goods imported to Germany from outside of the European Union- whether by a private individual or a corporate entity. Germany is a party to the European Union’s Common Customs Tariff, therefore preferential rates apply to imports from countries with which the EU has signed agreements. Duties range from 0-17%, with the general tariff averaging 4.2%. However, foodstuffs, textiles, and clothing still experience some protection measures (quotas, higher tariffs, etc.). Some imports are subject to anti-dumping duties.
Customs threshold (from which tariffs are required): EUR 150
VAT registration thresholds
The VAT registration threshold is €22,000.
Value-added tax (VAT) is payable on most services rendered and supplies effected within Germany at a general rate of 19% and at a reduced rate of 7% for certain goods and services.
Willing to buy from foreign sellers
Germany is one of the leading European markets for cross-border trade - Germans are keen on shopping from international websites.
Most popular countries for import of gods
Asian trade partners satisfied 23.3% of import purchases by Germany while 7.9% worth of goods originated from North America. Smaller percentages came from customers in Africa (1.8%), Latin America (1.2%) excluding Mexico but including the Caribbean, then Oceania (0.4%) led by Australia.
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