EXECUTIVE SUMMARY – INVESTORS’ RESIDENCE SCHEMES IN GERMANY

General background

The German general legislation concerning residence for foreigners, the Residence Act1 provides the
legal basis for foreigners who want to pursue an economic activity as a self-employed to obtain
German residency. The German residence scheme is designed as an entrepreneurial residence
programme, aimed at attracting entrepreneurs with innovative and successful business plans, who
could therefore contribute to the German economy. The residence scheme is not designed to attract
money by itself or to exchange citizenship or residence rights for an investment. Rather, the scheme’s
main purpose is attracting the (skilled) foreigner himself.

It is noted that the Residence Act was amended in 2012. Before the amendment, it was explicitly set
out that, when assessing the economic interest of granting a temporary residence permit, the
competent authority had to assume that an economic interest generally exists when EUR 250,000 is
invested and five employment places are created. This threshold assumption was removed by the 2012
amendment.

The main implementation instrument in relation to the Residence Act is the General Residence Act
Implementation Instruction2 adopted in 2009 and unamended since then. Due to amendments to the
primary legislation, several provisions in this Implementation Instruction have no binding effect.

Under the Residence Act, the most important competent authorities in the general context of
residence permits and affairs with foreigners, are the foreigners offices (FOs). The FOs are organised
locally: an FO is established in each county (Landkreis and Kreisfreie Stadt). As a consequence of
Germany's federal organisation, the FOs fall under the administrative competence of the Länder. This
affects certain administrative aspects of the procedure, such as its course, the documents needed, the
appeal and supervision. The FOs have an obligation to consult one of the trade and business bodies
when assessing applications but their opinion is not binding.

Conditions and procedure

The Residence Act distinguishes between the different types of residence titles. For the purpose of the
residence scheme for foreigners who want to pursue an economic activity as a self-employed, the
temporary residence permit and the settlement permit are the relevant titles.

The temporary residence permit for the purpose of the pursuit of an economic activity as a self-
employed is open to all third country nationals (on the basis of certain conditions) who are eligible
for a residence title and who want to start a business as a self-employed or who already run a foreign
business and want to establish a German branch. The temporary residence permit is valid for
maximum three years and cannot be renewed. However, after three years and if the economic
activity as a self-employed is successfully carried out, the foreigner can be granted a permanent
settlement permit. Which is valid for an indefinite time and, thus, does not need to be renewed.

Neither for the temporary permit nor for the settlement permit does the German scheme include
investment thresholds (since the 2012 amendment to the Residence Act). The level of investment
provided by the foreigner is only an element in the assessment of the business plans and of the
probability of business success. The extent to which this is assessed falls under the FO’s discretion.
1
Residence Act, Aufenthaltsgesetz (Residence Act), in the version of the publication of 25 February 2008 (BGBl. I p. 162),
most recently amended by Act of 8 March 2018 (BGBl. I p. 342), available at: https://www.gesetze-im-
internet.de/aufenthg_2004/BJNR195010004.html#BJNR195010004BJNG000101310.
2
General Residence Act Implementation Instruction, Allgemeine Verwaltungsvorschrift zum Aufenthaltsgesetz
(AufenthGAVwV), adopted on 26 October 2009 (GMBL p 878), available at: http://www.verwaltungsvorschriften-im-
internet.de/bsvwvbund_26102009_MI31284060.htm.

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Furthermore, the physical presence of the foreigner is not strictly required neither for the temporary
residence permit nor for the settlement permit. The temporary residence permit and the settlement
permit will expire when the foreigner is not present on the territory for a full period longer than six
months or if the foreigner has left the territory for a reason which is not of a temporary nature.
Nevertheless, the FO may grant the foreigner the right to leave the territory for a period longer than
the six months without losing the settlement permit.

Finally, as common condition in both the procedure for a temporary residence permit and a settlement
permit, the applicant must pay the corresponding fees: EUR 100 (temporary residence) and EUR 124
(settlement permit).

Conditions and procedure for the temporary residence permit

To obtain a temporary residence permit for the purpose of self-employment the following conditions
have to be met:
 the candidate’s subsistence must be secure;
 the candidate’s identity and nationality have to be established;
 there must be no public interest in expelling the candidate;
 the foreigner’s residence does not compromise or jeopardise the interests of the Federal
Republic of Germany for any kind of reason;
 the candidate has entered the country with the necessary visa;
 the candidate has provided the key information required for granting the title in the visa
application;
 there is an economic reason for granting the temporary residence permit or there is a regional
need for granting the temporary residence permit;
 the economic activity is expected to have positive effects on the economy;
 the candidate has the personal capital or an approved loan to realise the business idea, which
s/he wants to pursue with her/his economic activities as a self-employed;
 if the candidate is older than 45 years, s/he has to possess the necessary means for securing
subsistence when the person is of old-age, such as a pension.

The application for the temporary residence permit for the pursuit of an economic activity as a self-
employed has to be done at one of the FOs or abroad, at one of the German diplomatic missions. In
any case, it is the FO, that is the competent authority in making the decision on granting the residence
rights. When making the application, the foreigner must provide the necessary proof that the
business idea will be successful and is expected to have positive effects on the German economy.
Therefore, the candidate must provide a business plan, a financing plan and a capital
requirements plan.

On the basis of the information provided by the foreigner, the FO will make an assessment as to
whether the conditions for residence rights for the pursuit of an economic activity as a self-employed
are fulfilled. In its assessment, the FO has to consider the binding assessment guidelines, which are
provided in the Residence Act and in the General Residence Act Implementation Instruction. 3 These
binding guidelines include the following elements, which are to be considered: the viability of the
business idea; the entrepreneurial experience of the applicant; the level of capital investment; effect
on employment; contribution to training and research.

The Residence Act includes the obligation for the FO to seek the advice of one of the trade and
business bodies, such as the chamber of commerce or the professional chambers. The involvement of
the trade and business bodies provides the necessary expertise and assistance to the FO on the
technical or specialised aspects concerning the conditions required. In particular, on the assessment of
the business and financial plans. However, this advice is not binding on the FO.
3
Section 21(1) sentence 2 Residence Act and Point 21 AufenthGAVwV.

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The final decision as to whether the conditions are fulfilled and whether the foreigner will be
granted residence rights lies with the FO. The decision is based on the fulfilment of the
aforementioned conditions. It should be noted that the way in which these conditions are assessed
differs widely between the different locally organised FOs. Therefore, no global overview is
available. The reason for this is that the Residence Act provides the FO with a wide discretion to
interpret the conditions for granting the residence rights. This wide interpretational range is, however,
limited by the General Residence Act Implementation Instruction, which includes detailed and
binding guidelines with regard to the grounds and the reasons that are to be taken into consideration in
the assessment.

Conditions and procedure for a settlement permit

If the foreigner has been holding a temporary residence permit for the purpose of an economic activity
as a self-employed for at least three years, s/he is entitled to be granted a settlement permit, which is
for an indefinite time. In addition, the foreigner has to prove that the economic activity has been
successfully carried out, as well that the activity provides her/him and her/his family an adequate
income, which ensures their subsistence. In order to prove the success of the economic activity, the
foreigner has to provide documents concerning her/his average income on the basis of the economic
activity and proof of the business results of the activity. The application for the settlement permit also
takes place with the FO as competent authority to make the decision to grant the residence right. In
order to assess the proof, the FO may seek the (non-binding) advice of the trade and business bodies.
The duration of the procedure for granting a settlement permit is around three months.

For both temporary residence permits and settlement permits, the normal administrative law
remedies are open to applicants wishing to contest the FO’s decision. The foreigner can appeal
against the decision before the administrative court. The decision can also be contested by a
hierarchical supervising authority. The hierarchical supervising authority can annul or withdraw
unlawful administrative acts, such as the FO's decision (not) to grant residence rights. In addition, the
hierarchical supervising authority is also entitled to revoke the FO's decision if it considers that, on
the basis of changed circumstances, the act’s effects are contrary to the public interest or if the
decision could cause serious harm to the public welfare.

Security and ex-post checks

In order to carry out checks in relation to whether the candidate poses a threat to the public security
interests, the FO has access to the central foreigners’ registry, which includes information relating to
whether a foreigner could be suspected of planning or having committed terrorist crimes or serious
violent offences endangering the state. This information is provided by the police services and
includes also information based on the EUROPOL database and on the Schengen Information System.
Furthermore, the FO also has access to the central criminal register (which also includes information
on convictions that are issued abroad). If the FO finds that the candidate poses a threat to the security
interests, the FO is competent to decide that the conditions for residence are not fulfilled and thus it
may refuse to grant residence rights.

Family members
The Residence Act grants family members of a foreigner an accessory residence title. Third country
national family members, who are eligible for the accessory residence title are the spouses, the minor
unmarried children and family members who are dependent on the foreigner (in cases of hardship).

Monitoring of the proceedings and the authorities involved

There is no limit or cap for the number of applicants under the residence scheme. There is no
mechanism for monitoring the ongoing proceedings of the residence scheme. Due to the fact that the
process takes place before the authorities of the Länder, there is no overview by the federal
government. However, since FOs are executive bodies falling under the supervisory competence of

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the Länder, their decisions are monitored by the immediate hierarchical higher authorities (the
Länder Governments or the Government Districts). The Administrative Procedure Act provides two
lex generalis scrutiny mechanisms, which also apply to the decision of the FOs and enable
scrutinising how FOs apply the conditions to grant a temporary residence/settlement permit: (1) the
annulment or withdrawal of an unlawful administrative act (Rücknahme eines rechtswidrigen
Verwaltungsaktes) (e.g. the granting of a temporary residence/settlement permit where the conditions
are not met, even after the time-limits for legal remedies have expired) 4;5 and through (2) the
revocation of a legal administrative act (Widerruf eines rechtmäßigen Verwaltungsaktes) when, due to
changed circumstances, the act’s effects are contrary to the public interest 6 or could cause serious
harm to the public welfare.7 In both cases, the competent authority withdrawing or revoking the act is
obliged to compensate the affected person for financial losses suffered by the withdrawal/revocation,
if the affected person had legitimate expectations arising from the existence of the administrative act. 8

Rights
Foreigners who have a temporary residence permit or a settlement permit on the basis of the residence
scheme, only have the right to pursue an economic activity as a self-employed. On the basis of
these economic activities, the foreigners are eligible to receive social security. However, they do not
have a right to social assistance, since a secure subsistence is one of the conditions for receiving the
residence rights. The residence scheme does not entail a right to special tax treatment. Family
members are granted similar rights as the main beneficiary. In this light, it is noted that according to
one of the requirements for the residence scheme, the foreigner must guarantee necessary means for
securing subsistence when the person is of old-age (i.e. old-age pension).

Other matters

Link to citizenship
The residence scheme in itself does not give a special direct right to naturalisation. Therefore, all
third-country nationals (including foreign investors who benefit from the self-employed scheme) can
obtain the German nationality if they fulfil the general rules of the Nationality Act: 9 legal and ordinary
residence of eight years on the German territory. to ensure their own subsistence and that of their
dependant family members, have a sufficient command of the German language and must - as a
principle - renounce their previous nationalities.

Statistics and economic impact

As aforementioned, the 2012 amendment to the Residence Act removed the investment level
requirement threshold of EUR 250,000 and since 2012 there was an increase in the number of
self-employed persons who entered Germany on the basis of the residence scheme. However, it is
impossible to draw a causal relationship between these facts.

The only statistical information available is the number of successful applications for residence
rights under the residence scheme (see table). No data on the number of applications generally are
available. Furthermore, no data on the successful applications for residence rights by family members
are available.

With the exception of the income from administrative fees for the granting of a temporary residence
permit, no quantitative information on the financial effects of the scheme is available. Based on the
fact that an administrative fee of EUR 110 was to be paid 10 to the FO for the issuing of a temporary
4
Section 48(1) VwVfG.
5
Section 48(3) VwVfG.
6
Section 49(2) no 3 VwVfG.
7
Section 49(2) no 5 VwVfG.
8
Section 49(6) VwVfG.
9
Nationality Act, Staatsangehörigkeitsgesetz, most recently amended by act of 11 October 2011 (BGBl. I p. 2218), 8 March
2018 (BGBl. I p. 342), available at: https://www.gesetze-im-internet.de/rustag/BJNR005830913.html.

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residence permit, it is possible to calculate a part of the income of all Länder (under whose
administrative competence the FOs fall) earned in the context of the German residence scheme. The
income for all Länder for granting of a temporary residence permit can be calculated by multiplying
the fee of EUR 110 by the number of granted temporary residence permits (see table). Since there are
no numbers available for the settlement permits granted under the residence scheme, it is not possible
to measure the income received for the applicable administrative fee of EUR 124.

Year No. of successful grants of a Administrative fee for issuing Total income received on the
temporary residence permit temporary residence permit basis of EUR 110 fee
2012 1.358 EUR 110 149.380
2013 1.690 EUR 110 185.900
2014 1.781 EUR 110 195.910
2015 1.782 EUR 110 196.020
2016 1.733 EUR 110 190.630

Since the competent authorities are the 500 FOs, which fall under the supervision of the Länder, there
is no federal monitoring of the economic effects of the residence scheme and there is almost no
information on the economic or financial impact of the scheme in practice. The main reason for
the German scheme is to attract entrepreneurs who will contribute to the German economy and
presumably it therefore has a positive impact on the German economy in terms of investment in the
country and job creation.

10
It should be noted that pursuant to Article 2 of the Act of 13 July 2017 (BGBl.I p. 2350), the administrative fee was
lowered to EUR 100 on 1 September 2017.

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