KfW Survey: SMEs in Germany Spend 32 Hours per Month on Legal Compliance, Costing EUR 61 Billion Annually

KfW Survey: SMEs in Germany Spend 32 Hours per Month on Legal Compliance, Costing EUR 61 Billion Annually

(IN BRIEF) A recent KfW survey reveals that SMEs in Germany spend, on average, 32 hours per month complying with legal requirements, costing the economy EUR 61 billion annually. This significant time investment is particularly challenging for sole traders and businesses in the construction industry. The survey highlights that tax-related tasks are the most time-consuming for SMEs, with administrative burdens seen as a major obstacle to competitiveness. KfW experts call for streamlined bureaucratic processes to reduce costs for SMEs and improve Germany’s business environment.

(PRESS RELEASE) FRANKFURT, 25-Apr-2025 — /EuropaWire/ — Small and medium-sized enterprises (SMEs) in Germany dedicate, on average, 32 hours per month to meet legal requirements, according to the latest findings from the KfW SME Panel. This represents a total of 1.5 billion working hours annually across the 3.8 million SMEs in Germany. When factoring in the costs of time spent on administrative processes, SMEs incur a combined expense of approximately EUR 61 billion per year.

The KfW SME Panel, a representative survey conducted annually by KfW Research since 2002, collects responses from around 10,000 businesses of all sizes and sectors. The specific question regarding bureaucracy in the most recent survey asked SMEs to estimate the amount of time spent per month to comply with legal obligations, including documentation for tax, social security, data protection, employee rights, environmental regulations, and technical standards.

This estimate does not account for “psychological costs” such as the frustrations caused by lengthy approval procedures, unclear regulations, or the poor accessibility of government agencies. These intangible burdens are seen by many SMEs as significant barriers to competitiveness. “While these psychological costs are not easily measurable, they undeniably play a crucial role in the challenges faced by businesses,” said Dr. Michael Schwartz, SME expert at KfW. “From the perspective of SMEs, bureaucracy poses the greatest risk to competitiveness and the attractiveness of Germany as a business location.”

The survey also found that sole traders face the heaviest administrative burdens, dedicating an average of 8.7% of their working time to compliance. In contrast, larger businesses generally face a lower relative burden. Notably, businesses in the construction industry report spending 8.1% of their working time on administrative tasks.

On average, SMEs report spending about 3% of their working time, or up to 15 hours per month, on bureaucratic tasks. Managing tax matters is the most time-consuming, with 70% of SMEs indicating this as the area requiring the most effort. Record-keeping and documentation obligations follow closely behind.

Based on the average cost of a working hour in Germany in 2023 (EUR 41.30), the total cost of compliance for SMEs in Germany amounts to EUR 61 billion annually, accounting for approximately 3.9% of SMEs’ total personnel costs.

Dr. Schwartz noted, “While bureaucracy is a foundational part of the economic system, increasing red tape may lead to costs that outweigh the benefits. From the perspective of SMEs, reducing bureaucracy is a critical issue for economic policy today.”

The KfW analysis highlights the need to streamline bureaucratic processes to ensure that the benefits of regulation do not become burdensome for small businesses.  The paper is available for download at Papers and Proceedings on Economics | KfW

Media Contact:

Ms. Nina Luttmer
+49 69 7431 41336
nina.luttmer@kfw.de

SOURCE: KfW Development Bank