Germany: Lending & Secured Finance

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This country-specific Q&A provides an overview to lending and secured finance laws and regulations that may occur in Germany.

This Q&A is part of the global guide to Lending & Secured Finance. For a full list of jurisdictional Q&As visit

  1. Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?

    Originating loans to German borrowers requires a licence under German law, a European passport or an exemption from German licence rules. No licence is required if a lender acquires fully drawn term loans (while certain changes to an existing loan may give rise to licence requirements, such as the extension of the maturity of a loan). Under particular circumstances foreign lenders may not require a licence when lending to German borrowers; this includes, amongst others, that lenders do not actively approach the German market.

  2. Are there any laws or regulations limiting the amount of interest that can be charged by lenders?

    There is no general rule limiting the amount of interest. However, interest may be regarded as excessive if it exceeds the interest rate charged in the market for that type of loan by more than 100 per cent. This restriction applies in exceptional cases only and there are very few cases known where this provision has been successfully invoked by a borrower party. Also, borrowers may not agree in advance to pay interest on interest; there are, however, a number of drafting technics available which have – commercially – a comparable effect.

  3. Are there any laws or regulations relating to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, your jurisdiction?

    There are certain notification requirements for certain payments to foreign parties for statistical purposes. Additional restrictions may arise under EU/UN sanction rules. Other than that there are no such restrictions.

  4. Can security be taken over the following types of asset: i. real property (land), plant and machinery; ii. equipment; iii. inventory; iv. receivables; and v. shares in companies incorporated in your jurisdiction. If so, what is the procedure – and can such security be created under a foreign law governed document?

    Security over assets located in Germany may only be granted under German law governed documents. While under certain circumstances German law governed receivables may be assigned under a foreign law governed security agreement this is an option which is rarely made use of.

    Real property (land), plant and machinery;

    Security over real property is in practice granted through immediately enforceable land charges. While in theory non-immediately enforceable land charges as well mortgages are available those are in practice not being used as they are less advantageous from a lender's perspective.

    Immediately enforceable land charges are granted (in a German language document) by the security grantor in front of a notary public and subsequently filed with the land register.

    Plant and machinery are either forming part of the real property (and will, thus, captured by the land charge) or are considered moveable assets (and security will be granted through a security transfer agreement which requires those moveable assets to be thoroughly identified, through asset lists, buildings and site maps or otherwise). Whether plant and machinery are captured by a land charge or require a separate transfer under a security transfer agreement depends on the prevailing circumstances of a particular site and the assets located on that site.


    Security over equipment is being taken through a written security transfer agreement which requires to identify the transferred assets either by way of reference to detailed building and site maps or lists setting out the items of inventory in an identifiable manner, e.g. through its stock number. The agreement may be made in the English language.


    Security over inventory is being taken through a security transfer agreement, as set out for taking security over equipment.

    Receivables; and

    Receivables are either assigned or (in less frequent cases) pledged, usually in written form, unless exceptional circumstances require notarisation. While an assignment is valid without notice to the third party debtor, it enhances the position of the secured parties if the assignment is being notified to the third party debtor. Third party debtors of trade receivables are, for practical purposes, usually not notified. Unlike an assignment, the pledge over receivables (including bank accounts) requires the notification of each of the third party debtors for the pledge to be valid. The agreement may be made in the English language.

    shares in companies incorporated in your jurisdiction.

    Shares are usually pledged under a share or stock pledge agreement. Shares in limited liability companies (and, in certain circumstances, partnership interests) are pledged under a pledge agreement which requires notarisation. Pledging stock in a stock corporation may be made in written form. Each of these agreements may be made in the English language.

  5. Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?

    Yes, provided that the relevant security agreements provide for the relevant provisions and the future assets and future obligations are sufficiently identifiable.

  6. Can a single security agreement be used to take security over all of a company’s assets or are separate agreements required in relation to each type of asset?

    Separate security agreements are usually used for taking security over individual types of assets. In particular cases it can, however, be desirable to integrate different types of security in one single agreement.

  7. Are there any notarisation or legalisation requirements in your jurisdiction? If so, what is the process for execution?

    Share pledge agreements for shares in limited liability companies and, in certain cases, interests in partnerships, require notarisation. The entirety of the agreement must be read by a notary public in front of each of the parties to the agreement (which may be present through attorneys in fact).

    Immediately enforceable land charges (and mortgages) require to be notarised in front of a notary public (i.e. read out in front of the security grantor by a notary) and registered with the land register.

  8. Are there any security registration requirements in your jurisdiction?

    There is no general registration requirement under German law.

    However, land charges require registration in the land register.

    Certain IP rights may be registered in the relevant IP registers, however this registration is sometimes only being made prior to enforcement.

  9. Are there any material costs that lenders should be aware of when structuring deals (for example, stamp duty on security, notarial fees, registration costs or any other charges or duties), either at the outset or upon enforcement? If so, what are the costs and what are the approaches lenders typically take in respect of such costs (e.g. upstamping)?

    The notarisation of share pledges and land charges and the registration of land charges with the land register incur considerable cost the amount of which depend, in case of the share pledges, on the higher of the (i) secured obligations and (ii) the value of the company the shares of which are being pledged. In case of the land charge, notarial fees and registration cost depend on the face value of the land charge. While notarial fees follow mandatory laws there are certain (legally permissible) technics available to keep notary’s as low as possible.

  10. Can a company guarantee or secure the obligations of another group company; are there limitations in this regard?

    Yes, provided that for up- and sidestream security (to (grand-)mother and sister companies) certain restrictions apply (which are set out in the two following paragraphs below). Those restrictions do not have the effect to invalidate security but, if not adhered to, might cause the officers of the security grantor to be held personally liable.

    Stock corporations may only grant up-/side-stream security within strict boundaries and in any event not exceeding the free assets of the relevant stock corporation. In addition, stock corporations may not provide financial assistance (directly or indirectly) for the purchase of their own stock.

    The rules applicable for providing up-/side-stream security (collateral and guarantees) by limited liability companies require that payments to be made under a guarantee (or enforcement proceeds from the enforcement of collateral) do not exceed the security grantor's free assets (i.e. the security grantor's assets minus debt minus statutory share capital). To achieve that, agreements providing for the granting of up-/side-stream security/guarantees usually contain a so-called limitation language which restricts the enforcement (in case of guarantees) or the distribution of enforcement proceeds (in case of asset security) to avoid officers being held personally liable. The details of the limitation language depend on a number of factors, such as the type of financing and management's access to information.

  11. Are there any issues that lenders should be aware of when requesting guarantees (for example, financial assistance or lack of corporate benefit)?

    German law provides for a more general corporate benefit test, i.e. when granting security this must be in the interest of the relevant company. However, this is not a strict corporate benefit test (as known in other jurisdictions) which follows certain formal requirements on resolution and documentation of certain measures and their benefit for the company.

  12. Are there any restrictions against providing guarantees and/or security to support borrowings incurred for the purposes of acquiring directly or indirectly: (i) shares of the company; (ii) shares of any company which directly or indirectly owns shares in the company; or (iii) shares in a related company?

    A stock corporation may not provide financial assistance with respect to the purchase of its own stock. No such restriction, however, applies to limited liability companies (GmbHs) or partnerships, subject to the above mentioned restrictions on the granting of up-stream/side-stream security.

  13. Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?

    (i) An agent or trustee can hold security on the syndicate's behalf provided that in order to hold security which has been created by way of a pledge the agent or trustee would also need to have a corresponding payment claim against the security grantor or an obligor. In order to achieve that the relevant finance documents provide for customary parallel debt language. (ii) An agent or trustee may enforce security on the syndicate's behalf which may requires the agent/trustee to be furnished with a particular power of attorney for certain court proceedings. (iii) An agent or trustee may generally apply enforcement proceeds to the claims of all lenders in the syndicate.

  14. If your jurisdiction does not recognise the role of an agent or trustee, are there any other ways to achieve the same effect and avoid individual lenders having to enforce their security separately?

    German law does recognise agent and trustee roles.

  15. Does withholding tax arise on (i) payments of interest to domestic or foreign lenders, or (ii) the proceeds of enforcing security or claiming under a guarantee?

    In general, German domestic tax law does not require the borrower to withhold taxes, provided (i) the borrower is not a domestic financial institution, (ii) the loan is not profit-participating and (iii) the loan is not securitized.

    However, interest payments to foreign lenders on loans which are directly or indirectly secured by German real estate (or heritable building rights or ships) are generally subject to tax under German domestic laws (regardless of whether the borrower is resident in Germany or not). In such cases, lenders are generally required to file a German tax return. Moreover, German tax authorities may require the borrower to withhold German income taxes owed by foreign lenders (usually at a rate of 15.825% for corporate taxpayers).

    However, it should be noted that many tax treaties exclude Germany’s taxing right. If a foreign lender is protected by a treaty, it can apply for a refund of German withholding tax (should such tax have been deducted).

  16. If payments of interest to foreign lenders are generally subject to withholding tax, what is the standard rate and what is the minimum rate possible under double taxation treaties?

    Please see above.

  17. Are there any other tax issues that foreign lenders should be aware of when lending into your jurisdiction (for example, will any income become taxable in your jurisdiction solely because of a loan to or guarantee and/or grant of security from a company in your jurisdiction)?

    In general, income of a foreign lender will not become taxable in Germany solely because of a loan to or guarantee and/or grant of security from a German company.

    An exception may apply to interest payments to foreign lenders on loans which are secured by German real estate (or heritable building rights or ships). Such payments are subject to tax under German domestic laws (please see above), but Germany’s taxing right is frequently excluded under applicable tax treaties.

    Moreover, the income of a foreign lender can become taxable in Germany if it is allocable to a German permanent establishment (including a permanent representative) of that lender.

  18. Are there any tax incentives available for foreign lenders lending into your jurisdiction?

    No (but in most cases, the interest payments received by foreign lenders are not subject to German tax, as set out above).

  19. Is there a history in your jurisdiction of financing structures being challenged by tax authorities, and if so, can you give examples.

    If Germany has the right to tax interest income (e.g. in case of profit-participating interest paid to foreign lenders) it cannot be ruled out that the German tax authorities will try to challenge financing structures that, for example, are designed to generate “white income” or a “double-dip” and are based on qualification conflicts or questionable beneficial ownership situations.

  20. Do the courts in your jurisdiction generally give effect to the choice of other laws (in particular, English law) to govern the terms of any agreement entered into by a company incorporated in your jurisdiction?

    Yes, with certain customary exceptions, e.g. in the case of consumers.

  21. Do the courts in your jurisdiction generally enforce the judgments of courts in other jurisdictions (in particular, English and US courts) and is your country a member of The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (i.e. the New York Arbitration Convention)?

    Yes, with certain customary exceptions, e.g. in the case of consumers.

  22. What (briefly) is the insolvency process in your jurisdiction?

    Proceedings commence with preliminary insolvency proceedings (which may be started on the application of creditors or the borrower’s management). A preliminary insolvency administrator is being appointed to administrate this process and also, in most cases, to take over the management of the insolvent company. Preliminary insolvency proceedings serve the purpose to assess whether a company is actually insolvent and whether there are sufficient assets available to cover the cost of insolvency proceedings.

    Once this has been established, insolvency proceedings will commence and an insolvency administrator will be appointed by the insolvency court. Under the supervision of the court and under the control of the creditors (which may form a committee) the administrator will either sell the company as a going concern or liquidate individual assets. Goal of the insolvency proceedings is to fully satisfy the obligations of the insolvent company's creditors.

    Insolvency proceedings will end once all assets have been liquidated and all proceeds from the liquidation have been distributed amongst creditors.

  23. What impact does the insolvency process have on the ability of a lender to enforce its rights as a secured party over the security?

    Land charges may generally be enforced also in insolvency proceedings (with few exceptions). The same applies to claims and shares which have been pledged to creditors.

    Inventory, other moveable assets and receivables may be enforced by the administrator. The enforcement proceeds (minus an amount representing app. 11 per cent. of such proceedings to cover the administrator’s cost) will be turned over to the secured creditors.

  24. Please comment on transactions voidable upon insolvency.

    Whether a transaction is voidable upon insolvency depends on a set of complex rules which look at the details of the transaction. While transactions which have been completed during the period of three months prior to the filing for insolvency are, as a general rule, more easily voidable, transactions which have been completed outside this three months period require either some element of knowledge on the side of the creditor (about circumstances which might give rise to an insolvency) or which involve an element of preferential treatment, e.g. the granting of additional security after a loan has been fully drawn. To address voidability risk it is important that (i) lenders establish the financial situation of the borrower when extending a loan, (ii) have security being put in place no later than within a two weeks period from funding and, (iii) where there are particular circumstances, choose a risk adverse transaction structure.

  25. Is set off recognised on insolvency?

    If a particular right of set off existed prior to the opening of insolvency proceedings than this right of set off will continue to exist in the insolvent company's insolvency. In case a right of set off arises after the opening of insolvency proceedings, set off may be restricted.

  26. Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?

    Germany has a very stable enforcement regime and will not pay regard to a creditor's origin (i.e. whether it is a national or international creditor). There are multiple examples where foreign lenders have successfully enforced security, in and outside insolvency.

    Enforcement of collateral in Germany requires a bit of planning as the right strategy will have a considerable impact on timing and recovery.

  27. Are there any impending reforms in your jurisdiction which will make lending into your jurisdiction easier or harder for foreign lenders?

    No such reform plans are known.

  28. What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?

    The role of alternative credit (e.g. credit funds, insurance companies) has increased considerably in recent years. In particular in the acquisition finance, real estate finance and asset based lending space there are a growing number of alternative credit available and the number of actual transactions where funding has been provided through alternative sources of credit has increased.