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The Gateway to Europe

By Adv. Amos Hacmun

An interview published on Globes magazine 
July 2005

Despite the fact that the German market is considered to be the third biggest economy in the world, with an annul turnover of (if you mention turnover an exact figure is expected) Billions of Euros, Israeli business presence in Germany is still relatively poor. How should business be done in Germany? Which Israeli businesses succeed in Germany and in interacting with Germans, and how can the Israeli “Chuzpa” be more helpful? These are things one ought to consider.

It has been ten years since the Isreali-German Chamber of Commerce has come into existence, an anniversary which has been marked by several conventions and other events in line with the events relating to the 40th anniversary of diplomatic relations between Germany and Israel. Talking to us about the German-Israeli business relations today is Amos Hacmun, advocate from Heskia-Hacmun Law Firm, which the Legal 500 lists as one of the leading Law Firms in Israel and which represents many German clients in Israel.

Why is it that only a relatively small number Israeli firms (rather than investors) succeed in breaking German barriers and invest in the German economy? Which companies are successful and which have failed?
Hacmun: There are several reasons for why Israeli companies may find it difficult in taking this step. There are cultural and linguistic obstacles to overcome but more problematic perhaps are the fundamental differences in character between the Israeli business man and his German counterpart. In addition there are obvious yet underlying psychological barriers, bearing residual tensions.The companies are those who are ‘real’, meaning those made long-term plans and commitments and who were ready to invest at a very early stage so as to establish deeply rooted and reliable business relations. This is also something small and mid-sized firms should look at when seeking for investment or cooperation with German firms since it is their limited resources which make them vulnereable to budget deficits in relatively short periods. Investing in Germany or any foreign country for that matter is something which requires a well thought out business plan.

Which sectors in the economy are most ‘easy’ for foreign investors to enter into, especially when taking account of the regulative and legislative aspects?
Hacmun: Nothing is easy. In the aspect of regulation and legislation in Germany, it could be said that there are less difficulties for investors since they are seldom caught up by nasty surprises due to a sudden change of policy, which all in all is a rather gradual process in Germany. Areas of high regulation include the statutory protection of tenants in residential real estate sector, which might be of interest to housing real estate investors. In the Hi-Tech and communication sector the German market is relatively open and international companies have succeeded to integrate and compete quite easily. Consumer safety, health and environment is another highly regulated area which deserves careful consideration before any action is taken.

Assuming I made my way into the German market, will I get any statutory relief from other nations of the European Union?
The union has created a “Common European Market”’ parts of which are regulated by EU law. From a foreign investor’s perspective setting up business in Germany will certainly provide somewhat of a gateway to the rest of the European Union to him. A company which succeeds in establishing itself in Germany will undoubtly be able to expand its commercial activities to the rest of Europe.

Tips in the civilized level - do and don’ts when negotiating investment opportunities in Germany.
Depending on the facts at hand as well as the person one deals with, there are great behavioural differences between buyers and sellers. Whilst buyers are naturally in a stronger bargaining position, they are strongly recommended not to come across as patronizing or even insult their counterparts, as this is unacceptable in the German business context. When dealing with the head of a big corporation, the Israeli “Chuzpa” (impertinence) may prove helpful, but only if big words are backed up by a strong company file. People who make great promises but fail to deliver will not receive further offers in Germany, so it is wise not to overly exaggerate or round corners. Respect will be afforded to those who are concise in their work, true to their word and deliver on their promises.

Are their common working habits in the German business world? Would it for instance be normal to invite a German collegue visiting Isreal to a bar, restaurant or strip club? And what sort of social interaction can a foreign businessmen expext when visiting Germany?
Hacmun: This is one of the main areas where basic cultural differences between German and Israel become most evident. Whilst the Israelis are relatively easy going in their interaction, which is sometimes even reflected by showing a lack of manners, Europeans are more reserved and will perhaps find it more difficult to let down their guard. In general, however, the German businessmen will try to ‘flow’ with domestic habits and will definetely appreciate a warm host and a chat with him over a good meal and a beer.

Which laws will apply when Israeli investors deal with their German counterparts?
Hacmun: this question always arises where relations between residents of different countries are concerned. In written agreements it is possible to insert clauses determining which laws are to govern the contract. In this respect, it is imperative to agree on an exclusive jurisdiction clause specifiying the relevant country and jurisdiction.

What tax duties are Israeli investors liable to pay for having an income abroad?
Hacmun: Since the tax reform, the Israeli fiscal system is based on individual taxation, Israeli residents will thus have to pay tax on foreign income. In addition, income received together with that when income is received within a German corporation then the Israeli tax authorities shall only tax the Israeli investor when a dividend or other payment is made. It is clear, that the Israeli resident or the German corporation will pay tax in Germany for income generated in Germany, therefore it is recommended to get advice from tax professionals.

Before we conclude, the issue which overshadows all interaction between Israelis and Germans, the Holocaust, should be addressed. What is the effect of the Holocaust on business between Israel and Germany today? And how does influence business relationships between Israeli and Germans?
Hacmun: The Holocaust is a topic, which is not ignored by German businessmen, and usually they will not evade from dealing with it. The declared policy is confession and regret and of course we have to remember that the people we are dealing with today are 2-3 generations away from that time. Germans carry an inherent expectation that when coming to Israel to do business they will face some kind or degree of hostility from Israelis. Apart from this concern Germans have great respect for the Israeli legal system, especially the Demanjuk case as an example of an impartial and sovereign legal system.. On a commercial level there is some concern that the Israeli legal system will favor the Israeli side, a reason why Germans prefer to litigate in Europe. We were once asked by one of our German clients whom we represented in Israel, whether an Israeli judge would ever rule in favor of a German company. The question was carefully put and asked because the crux of the case dealt with the enforceability of an oral contract. Our reply was that the Israeli legal system like its Western counterparts is based on principles of impartiability, fairness and the upholding of the rule of law, and that a judge would consequently uphold the rights of a German company to the same extent as it would an Israelis’. Referring back to the tentative German business man, litigation went his way and today he is a happy man.

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This article and the information above may not be taken as a legal advice whatorever. The writer disclaims responsibility towards the reader and users of this website.

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