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South of Scotland Enterprise – Members

Members – South of Scotland Enterprise Reference: 2733 Remuneration: £261 per day Location: South of Scotland Closing date: 10 January 2020 at midnight Appointment of Members of the Board of South of Scotland Enterprise Would you like to make a difference in the south of Scotland and contribute to the work of a new enterprise […]

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Want to do business in Germany? Make sure you know the rules

Doing business in Germany

As uncertainty over Brexit continues, it’s no surprise to learn that British companies are looking to set up shop abroad. One popular destination is Germany.

Indeed, Christian Krumb, head of legal at international administrative support services provider TMF Group, says the firm has fielded a barrage of calls in the past year from British businesses seeking to set up a properly constituted subsidiary in Germany to ensure they have a foothold on the continent.

“There’s a big drive under way to establish real German subsidiaries, especially from companies that currently only have a branch here,” says Krumb.

“Germany remains an attractive place to operate, the fundamentals are good. But setting up a business is demanding. There are a lot of statutory regulations to comply with and to the outside world this can seem both complex and arcane.

“But company formation is highly structured. The pathway to setting up has a clearly defined process.”

TMF Group’s Global Business Complexity Index 2019 places Germany in the top ten most complex jurisdictions in which to do business. The report observes that it is often easier for local firms to incorporate than foreign-owned businesses.

Globally the main reasons for complexity can come from hard-to-navigate rules and regulations, frequently changing legislation and employment processes. In Germany the drivers of complexity stem from the tricky process of setting up a business, accounting rules and the country’s notoriously difficult tax code. But companies must also confront the rigour applied by banks when vetting new customers.

It can all add up to a challenging exercise. With the right guidance however, it can be navigated with confidence.

A slow process

The basic process does not appear intimidating: businesses must choose a company type, a company name, execute a deed of formation, deposit share capital and then register the company on the commercial register.

But all of these stages may come with quirks that newcomers to Germany may find challenging, especially if they come from jurisdictions that have moved to accelerate and automate company formation as much as possible.

Perhaps the first issue to note is that company creation may take longer in Germany than in many other countries. Indeed, establishing a new limited company from start to finish can take from four to eight weeks, a period that may leave those used to speedier time frames somewhat frustrated.

Large parts of the registration process have to be undertaken physically and in hard copy

What makes it so slow? Though it may seem unlikely in the digital age, large parts of the registration process have to be undertaken physically and in hard copy. Paper forms have to be delivered to offices, and checked by real people. In the age of the internet and transactional websites, this may come as a surprise.

Firstly, establishing a GmbH (Gesellschaft mit beschränkter Haftung, or limited liability company) has to be completed in front of a notary who has to read aloud the deed of formation. This can seem quaint, but the issue of whether the deeds have been read out or not has proved the centre of legal contention in the past. Company founders must also prepare the articles of association. A representative of the founder must sign both deeds and the articles in front of a notary before company formation can move to the next stage.

New companies must be registered with the commercial register (Handelsregister). It’s worth pausing here to consider the unique nature of the commercial register. In contrast to territories where companies can be created in hours online, trained officials and lawyers check through the paperwork to ensure it has been completed correctly. And they take their time.

“The commercial register is not just somewhere you send a form electronically and then the company is registered,” warns Krumb.

“Judges and clerks review the integrity of the paperwork. It’s rather a difficult process to go through. When we are dealing with clients from the US, for example, this can come as something of a surprise. It can be difficult to explain how long the process takes.”

Banking

Perhaps the step that looms largest is the paying in of share capital. This can usually not be done without a bank account and dealing with German banks presents its own challenges.

To begin with, banks strictly enforce the Know Your Customer practices imposed by the European Anti Money Laundering Directive, updated in 2018.

“It is becoming increasingly difficult for foreign investors to open an account”

—Christian Krumb, TMF Group

But Christian Krumb says once the right information is in place, the regulation is relatively easy to manage. He says a trickier issue for companies seeking to do business in Germany is the general selectiveness local banks practice around accepting new clients. It is not unheard of for otherwise unblemished businesses and directors to struggle to be accepted as a banking customer.

“It is very important to have a business relationship with a bank,” says Krumb. “If you go to a bank and it doesn’t know you, it is almost impossible to open a bank account. We’ve seen this trend developing over recent years and it is becoming increasingly difficult for foreign investors to open an account.”

This is critical. Without a bank account it is impossible to deposit the share capital, a minimum of €25,000. And without that, impossible to register the company.

Luckily, advisers can help with building the necessary documentation and relationships that can expedite a warm welcome from a bank.

Accounting and tax

These are not the only thresholds to cross. Accounts must be completed in German GAAP and compiled on German soil. Dispensations are available for completing accounts abroad, but they are rare.

The German tax code makes its own demands. Tax law is “voluminous” says Krumb, and requires expert advice. Finding the right tax office can take time and officials require exhaustive documentation on the tax structure of the German entity and its parent company.

Dispensations are available for completing accounts abroad, but they are rare

Tax treatments can differ too depending on the location of the company’s named director. This places a premium on having someone local. That either means finding someone early to take on some of the heavy administrative lifting, or using a service that provides a director for the purpose of formation and until a company is ready to recruit a full-time director.

“You should appoint a resident legal director in Germany in order to facilitate the registration process,” says Krumb. “If not, your file could be handed over from one tax authority to another. And that delays the process substantially.”

Setting up a business in Germany may be slow, and the banks sensitive to who they take on, but with the right advisers the process can be negotiated and the inconvenience minimised.

“Germany remains one of Europe’s leading economies,” says Krumb, “and businesses want to be here, we have seen that.

“The formation process can look intimidating but it has its own logic and can be managed successfully.”

This article has been prepared in collaboration with TMF Group, a supporter of Board Agenda.

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Anti-bribery and corruption efforts ‘compromised’ by poor procedures

bribery and corruption

Last week the Swedish telecoms giant Ericsson was fined an eye-watering $1bn by US enforcers to settle bribery and corruption charges.

A statement from the US Department of Justice (DoJ) said the arrangement resolved an investigation into a company scheme to “make and improperly record tens of millions of dollars in improper payments around the world”.

“Ericsson’s corrupt conduct involved high-level executives and spanned 17 years and at least five countries, all in a misguided effort to increase profits,” said assistant attorney general Brian Benczkowski of the DoJ’s criminal division.

This week came another reminder that bribery and corruption involving big companies remains an ever-present issue. Research from specialist consultancy GoodCorporation revealed that of the anti-bribery and corruption (ABC) due diligence procedures it has examined, a hefty 53% were graded “inadequate”. Likewise, 40% of the anti-bribery and corruption risk assessments were also inadequate, with no improvement over a five-year period from 2014–2019.

The report said the findings suggest that many companies are leaving themselves open to bribery allegations and, as a result, prosecution.

Critical issues

The UK Bribery Act came into force in 2011. That improvements to risk assessment procedures should stall just four years later would suggest critical issues with how the problem is viewed by corporates. Companies accept they face risks, then take little action to confront them, according to Gareth Thomas, a director at GoodCorporation.

With little effort to identify where or how bribery and corruption risks might occur, steps to prevent corruption are “effectively compromised from the start,” said Thomas. Companies don’t appear to know what they are doing, he added.

“Over three-quarters of the companies in the bottom quartile of our data have failed to conduct appropriate anti-bribery risk assessments, suggesting a lack of understanding of how to conduct bribery risk assessments in many organisations.”

Due diligence hits the buffers when it comes to third parties. It’s not as if companies lacked case studies to use. Headlines in recent years have been filled with accounts of how companies such as Rolls-Royce have fallen foul of the law. After a four-year investigation, Rolls-Royce paid £497.25m to settle its corruption case with the UK’s Serious Fraud Office (SFO), as well as authorities in the US and Brazil.

The key to due diligence of third parties, according to Thomas, is to avoid targeting too many.

“The best strategy is to start by identifying the entities that pose the greatest threat, taking a risk-based approach which will ensure that anti-corruption due diligence is proportionate and manageable,” he said.

Corruption pays

GoodCorporation’s conclusions are in tune with research conducted by the University of Manchester and the law firm White & Case at the end of last year. The global survey found nearly a third—29%—of employees said their companies either had no bribery and corruption policy or they didn’t know if it did. A total of 48% of respondents believed that people who paid bribes on behalf of their companies would be rewarded internally, with promotion one of the likely benefits.

If employees generally believe that bribery and corruption pays, that presents rule-makers and business leaders with a difficult challenge.

The report argues more needs to be done to convince employees that the consequences of bribery and corruption can be severe and that powers for investigators and prosecutors have been beefed up in many jurisdictions around the world.

Dr Nicholas Lord, a professor of criminology at the University of Manchester, said: “With a raft of new legislation designed to tackle white-collar crime and extended powers awarded to regulators and law enforcement agencies globally over recent years, companies need to pay more attention than ever to ensuring internal compliance and systems are robust.”

When Ericsson reached its settlement, the company’s president and chief executive, Börje Ekholm, said: “This episode shows the importance of fact-based decision-making and a culture that supports speaking up and confronting issues.”

Culture is critical, but if GoodCorporation’s research is correct, too few companies have put it to use. Ericsson’s experience should serve as a warning.

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Totally Local Company Limited – Non-Executive Director

Non-Executive Director – Totally Local Company Limited Location: Stockport Date Posted: 02/12/2019 Closing Date: 20/12/2019 £15,656 a year Totally Local Company Limited is owned by Stockport Metropolitan Council and has an income of £35 million, employing some 800 staff. It has one subsidiary – Waste Solutions. The Company provides a broad range of specialised facilities […]

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NHS Lincolnshire CCG – Chair

Chair – NHS Lincolnshire CCG NHS Lincolnshire CCG has a vacancy for a chair. This is an unique opportunity to help shape the future of local services by sharing your talents and expertise and make a positive difference to your community. In Lincolnshire our four NHS clinical commissioning groups (CCGs – East, South, South-West and […]

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European agreement on sustainable business taxonomy divides opinion

European institutions have taken a step closer to agreeing definitions of what constitutes green business activity.

The end of last week saw the commission president and the European Parliament reach agreement on a “taxonomy” of sustainable economic activity, following a year of negotiations. The taxonomy still needs to be ratified by the Commission and the Parliament, but it looks like European regulators have settled a way of defining sustainable business activity for investors and lenders.

Commission president Valdis Dombrovskis tweeted: “A major success ahead of COP25 and for our sustainable finance strategy.”

The sustainable business taxonomy forms the core of the EU’s strategy to green financial activity across Europe to ensure it supports the fight against climate change.

However, not everyone is happy with the outcome. EuropeanIssuers, a body representing quoted companies across Europe, believes the final agreement includes regulatory measures that place new, unjustified burdens on companies. These include extension of the regulation to include an obligation for companies to report details of their turnover, CapEx and OpEx associated with environmentally friendly economic activity.

EuropeanIssuers disagrees that these new reporting demands will help investors. It believes there is little evidence that reporting these figures is relevant to investors’ need to comply with their own disclosure requirements on ESG (environmental, social and governance) factors.

“These reporting requirements were put forward by the Commission at a very late stage of the trialogue negotiations without any impact assessment,” said a statement from EuropeanIssuers.

“They will impose unjustified additional burdens for companies without guarantee that they will be useful and will put European corporates in competitive disadvantage vis-à-vis non-European competitors.”

Indeed EuropeanIssuers has called for a new dialogue to define new reporting requirements.

Defining products

The taxonomy is designed to be used by investors and forms a central plank of the EU’s sustainable finance strategy.
When offering green funds investors must report on how they’ve used the taxonomy to define their products.

The taxonomy has been a much anticipated part of the financial landscape given given widespread disparities on how fund managers define what is and isn’t sustainable or ESG-friendly.

The taxonomy has, in the past, provoked a mixed reaction. Will Martindale, director of policy and research at campaign group Principles for Responsible Investment, told investors at a Paris conference in October that it formed a welcome addition to the investment landscape even though it was “complex, but designed to deal with complexity”.

However, others have expressed clear doubts. The sceptics say the taxonomy could be too “strict”, its definitions too narrow, and therefore inhibit green investment.

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Transport & Distribution – Non-Executive Director

Non-Executive Director – Transport & Distribution Location: Cumbria Date Posted: 04/12/2019 Closing Date: £10,000/£1000 per day The client is a distribution business serving in both B to B and B to C markets on a national basis. The business has an enviable track record of growth and is financially sound. They would like to add […]

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Hft – Trustee

Trustee – Hft Recruiter: Hft Location: Bristol Salary: Reasonable expenses incurred in the role will be reimbursed Posted: 06 Dec 2019 Closes: 06 Jan 2020 Job Function: Trustees Industry: Charities Hft is one of the largest and longest-established charities in England and Wales supporting people with learning disabilities. We are passionate about what we do […]

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Shepherds Bush Housing Association London – Chair of Audit and Risk Committee

Chair of Audit and Risk Committee – Shepherds Bush Housing Association London Location: London Date Posted: 05/12/2019 Closing Date: 07/01/2020 Shepherds Bush Housing Association London Chair of Audit and Risk Committee and Board Member (£5,500 plus reasonable expenses) We are looking to appoint two new Board Members to support the governance of the association. We […]

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Service Sector Business – Non-Executive Director

Non-Executive Director – Service Sector Business Job Reference: 11424 Date Posted :6 December 2019 Recruiter: Paul Mitchell Associates Location: London Salary: £600 to £700 Bonus/Benefits: 1-2 days per month Sector: Administration & Business Operations Job Type: Permanent Work Hours: Part Time Job Description Non-Exec Director. Devon. £600-£700 per day 1-2 days per month. Do you […]

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