Increasing the resilience of family businesses

Germany has suffered a major reform backlog over the past decade. Although there have been some attempts to improve the situation, the country has fallen behind in terms of competitiveness. From 2006 onwards, the Foundation for Family Businesses and Politics has regularly analysed the local conditions in industrialised countries in its Country Index. Since the first analysis in 2006, Germany has fallen back five places, currently ranking 17th among the 21 industrialised countries surveyed. No other location examined has performed worse. Germany must therefore focus all its efforts on gaining ground in a sustainable manner. 

Making companies less vulnerable to crises

The pandemic has presented an unprecedented challenge for family businesses. Many companies have only survived because the owners liquidated committed reserves or even injected private capital to keep the business going. An important policy objective following the crisis should be to increase the level of resilience. Government agencies and businesses need structures that ensure greater readiness to deal with future crises. The transformation to a climate-friendly economy will likewise only succeed with robust and resilient companies. Two steps are urgently needed to increase resilience: The most important task, in the opinion of 90 per cent of family businesses, is to expand the digital infrastructure. That is the result of a survey of 2,500 companies conducted by the Ifo Institute for the Annual Monitor of the Foundation for Family Businesses and Politics. Fiscal measures to promote the formation of reserves and equity capital were named as the second most important priority. This is because a high equity ratio and low debt ratio reduce a company’s dependence on external investors and make it less susceptible to crises.

Making way for jobs by strengthening family businesses

Family businesses account for 90 per cent of all companies and employ 60 per cent of the workforce in the private sector. The dynamic employment trend of the past decade can be attributed primarily to family businesses. Their role as an important employer becomes clear when we compare them with DAX companies with widely spread shareholdings: Over the past ten years, the 500 largest family businesses have increased the number of jobs in Germany by almost one quarter to around 2.54 million. In contrast, DAX companies that are not family businesses were only able to increase employment in Germany by 4 per cent – to 1.55 million jobs. Family businesses stabilise the domestic economy, especially in rural areas. Many family businesses in Germany are located in smaller towns rather than in the country’s metro-politan centres, making them a decisive factor in establishing equality in living conditions between urban and rural areas. But family businesses can only accomplish this if they are provided with competitive business conditions. To this end, the Foundation for Family Businesses and Politics proposes further measures.   

Cutting red tape: no general suspicion of companies

Government investment is important, but 90 per cent of all investments are made by private companies. In recent years, distrust of entrepreneurial activity has increased. This is appropriate where undesirable developments appear to be increasing. However, it is not reasonable to conclude from individual violations that the economy as a whole has a tendency to break the rules. Subjecting all companies in Germany to general suspicion is wrong – yet this is what is happening through the continual stream of new regulations, accountability obligations and requirements. It is primarily family businesses that suffer from excessive bureaucracy. According to the Country Index for Family Businesses , Germany has also slipped into the midfield in terms of regulation. This is particularly disadvantageous for family businesses because they tend to have faster decision-making processes. The more they are restricted by red tape, the less they can make use of their advantages.

Avoiding and reducing bureaucracy should become core tasks for the next federal government. But it is not enough to reconsider individual regulations. Instead, we need a reduction of complexity. A key to reducing bureaucracy is to prevent new and superfluous regulations from being created in the first place. A genuine moratorium on unnecessary burdens is necessary. That also means abandoning unreasonable and superfluous proposals. The following undertakings that are currently being discussed ought to be carefully scrutinised:

  • Due Diligence Act: It is not expedient for Germany to rush ahead and introduce individual regulations. For example, the act creates obligations for German trading companies, while online giants like Amazon are not affected because they are based abroad. A similar imbalance is to be expected from an EU regulation. Globalisation must be guided by global standards. 
  • Corporate Liability Act: The current legislation and its application against corporate misconduct suffice completely. Adding more and more levels of control does not lead to greater security, but above all to more bureaucracy. 
  • Transparency register: In practice, companies will have to file data in several places – a practice that will result in excessive bureaucracy. Registering company data in one place, e.g. in the commercial register, is sufficient. The introduction of new registers should be repealed. 
  • Disclosure obligations for sensitive business data: Tax authorities already exchange business and profit data for large companies in line with OECD rules. They are thus familiar with companies’ profit and tax payments. If large family businesses were to publish confidential business data on the Internet, as envisaged by public country-by-country reporting, this would have a negative impact on European competitiveness by allowing competitors to gain deep insights into internal business strategies. The EU should stop this initiative.  

Family businesses are not only suffering from the multitude of new bureaucratic burdens. Above all, they suffer because legislators are only rarely aware that it is the very structure of family businesses that causes them to be particularly affected. One example is the waiting period that listed family businesses have to observe when a member of the management board moves to the supervisory board (section 100 (2) sentence 1 no. 4 of the German Stock Corporation Act (AktG)) – a rule that is incompatible with the needs of family businesses. Another is the large number of disclosure obligations, whether in connection with the publicly accessible transparency register or the obligation to disclose individual and consolidated financial statements. The combination of the last two points even makes it possible to determine the income situation and residences of the shareholders – a fact that is unacceptable from a security point of view. 

These extra burdens would have been apparent if the ministries had applied a family business test, similar to the SME test, when drafting new laws. Prof. Mathias Habersack from the Ludwig Maximilian University of Munich has outlined such a test. It should be applied to new legislative proposals at both the national and EU levels.

Focusing on growth-friendly fiscal policy

After the financial crisis of 2008, Germany managed to restructure the national budget without major tax increases (with the exception of the air transport levy), thanks to a reliable fiscal policy that was conducive to growth. The country’s total tax revenue thus rose from 524 billion euros in 2009 to 799 billion euros in 2019. The best way to comply with the debt brake in the foreseeable future is to pursue a growth-friendly fiscal and economic policy for several years after the pandemic.  

Creating a competitive tax system

Germany lags behind in terms of tax policy. Taxation is where Germany scores worst, ranking second to last on the Country Index for Family Businesses – in 20th place. While many important industrialised countries have lowered their corporate taxes, Germany has enacted tax tightening measures in many areas since the 2008 corporate tax reform. Corporate taxes should be reduced to 25 per cent in order to become more competitive. Announcements by the British and US governments that they intend to raise their corporate taxes do not change this; even after the planned increases, tax rates in these countries would still be below the level of those in Germany. The UK, for example, has announced that it will raise its corporate profit tax from 19 to 25 percent, which shows that there is still a need for action in Germany.

Tax increases would discourage new investments and jobs. Family businesses already contribute a great deal to society. The importance of corporate taxes has increased significantly in recent years: almost 91 billion euros in corporate taxes were paid in 2009, and thanks to strong economic growth, the figure grew to around 170 billion euros by 2017. Family businesses accounted for just under half of the total corporate tax revenue in Germany. Overall, the share of corporate taxes in total tax revenue rose from 16 to 23 percent. This shows that family businesses are fulfilling their responsibility to society.

No brake on investment – no wealth tax

Some political parties are calling for the reintroduction of wealth tax, which would put Germany on a path that other countries have long since abandoned. Wealth tax is becoming obsolete on an international level. Over the past three decades, numerous countries that once levied a wealth tax have abolished it (e.g. Austria, Denmark, Italy, the Netherlands and Sweden). And with the exception of Spain, no major industrialised country has reintroduced wealth tax in the past decade. 

In France, the socialist President Hollande imposed stricter wealth taxation in 2012, which led to many wealthy people relocating to other countries. In 2017, President Macron largely revoked this regulation and converted the wealth tax into a real estate tax with much lower revenue in an effort to make the country more attractive to high earners again.

According to an overview in the Country Index for Family Businesses (2021), legal entities are subject to a wealth tax in the Swiss Canton of Zurich, in France, Japan and the US state of California. The index examined a total of 21 industrialised countries. To this we must add Spain, where a wealth tax has been levied on natural persons since the financial crisis. In the countries that have abolished wealth tax, the tax revenue generated from it played a relatively minor role. The last time it was levied in Germany and Austria (1996 and 1993 respectively), it accounted for about one per cent of the total tax revenue. As the tax would likely be levied on business assets in particular, family businesses would be the most affected.

Introducing a wealth tax would lead to a drastic tax increase. In 2014, Germany’s Social Democratic Party presented a bill aimed at introducing a wealth tax of one per cent with a tax-free amount of two million euros. The bill also contained statements about the expected burdens: “Imposing a permanent wealth tax of 1 per cent on actual market values equates to an additional 33 per cent burden on income at a three per cent rate of return.”  

This goes to show that the introduction of wealth tax would constitute a massive tax increase. Although a tax exemption for business assets is repeatedly put forward as a way of reducing the harmful effects, there are no plausible concepts for this so far.

Moreover, wealth tax should not be considered in isolation, as it is closely related to existing taxes on income from assets in the form of income tax (final withholding tax) as well as inheritance tax. The Federal Constitutional Court has declared it inadmissible to impose a tax on total assets that exceeds the income from assets. Any tax payment which cannot be raised through income from assets alone and requires tapping into the company’s total assets must be regarded as a confiscatory burden.

The Federal Constitutional Court demands that all types of assets be valued at market value. The survey effort associated with this would be enormous – a fact that plays far too small a role in the regularly recurring debate.

If the wealth tax is introduced, family businesses will have to react. Such a drastic deterioration in tax conditions is likely to have the following effects from the point of view of family businesses:

  • Companies would have to reduce their costs and investments in order to bear the increasing tax burden.
  • Companies could raise their dividend payments, which would reduce the amount of profit reinvested in the company. However, family businesses retain large parts of their profits, or even all of their profits, within the company to finance future growth, and this growth would then be more difficult.
  • Companies could move abroad to reduce their tax burdens. Foreign companies that are not subject to wealth taxation at their locations could take over business segments from German companies and move to their locations.

All these options, however, would come at the expense of investment power, jobs and locations. The introduction of wealth tax would place almost insurmountable hurdles in the way of new investments.

Reducing locational burdens

According to the Country Index for Family Businesses, the situation for medium-sized industrial companies is as follows: Family businesses pay the lowest electricity prices in Sweden, the USA, Denmark and Finland. In the USA, the price is less than seven cents per kilowatt hour. Germany ranks fourth to last with an electricity price that is more than twice as high as in the countries with the lowest electricity costs. This is problematic for an economy that is largely dominated by industry. The German government used an economic stimulus package to prevent a further increase in the EEG levy until 2022, but as soon as the cap no longer applies, another increase in costs threatens. We need a fundamental reform of EEG subsidies.

According to the Country Index for Family Businesses, Germany ranks fourth from last in terms of labour costs (out of 21 industrialised countries surveyed). The next federal government should therefore avoid measures that would lead to a further increase in labour costs. Non-wage labour costs, in particular, are at risk of rising. As a result of the pandemic, social security expenditure has risen sharply. It is therefore important that social insurance contributions be capped in the long term – thus the limit of 40 per cent in place until 2021 should be made permanent.

Promoting trade by not overloading agreements

The success of major family businesses is based on their international orientation. As an exporting country, Germany benefits significantly from free world trade. However, the unhindered exchange of goods and services is being hampered by increasing protectionism. There is a trend in Germany and the EU to overload free trade agreements with environmental, social policy and other objectives. In the past, the EU has been a pioneer in concluding new free trade agreements; entering into such agreements and strengthening existing ones is the best way to counter uncertainties over trade policy. Research shows that modern free trade agreements, such as the one in place with South Korea since 2011, not only stimulate trade but also bring environmental and social benefits. It is important not to overload free trade agreements with objectives that have nothing to do with trade. Indeed, it would be counterproductive if future free trade agreements interfered too much with the social policy, wage policy or local environmental policy of the trading partners as this would diminish the economic benefits that the partners gain from the agreement. It would also reduce incentives for other countries to join such agreements. Moreover, the EU’s credibility would be at stake if it failed to ratify negotiated agreements such as the agreement with the Mercosur countries or the CETA trade agreement with Canada. 

Further informations


Country Index for Family Businesses

Competitiveness ranking, 8th edition summary


Assessing Regulatory Impact on Family Businesses

A Family Business Test for Germany and the EU



Roland Franke

Roland Franke

Head of Tax and Finance Policy

The House of Family Businesses

Phone: +49 (0) 30 / 22 60 529 12
Fax: +49 (0) 30 / 22 60 529 29

E-Mail: franke(at)

Klaus-Dieter Sohn

Klaus-Dieter Sohn

Head of Economic Policy

The House of Family Businesses

Phone: +49 (0) 30 / 22 60 529 10
Fax: +49 (0) 30 / 22 60 529 29

E-Mail: sohn(at)