Germany Market
Starting a Business in Germany
Starting a business in Germany is relatively straightforward. While there are formalities to follow, the basic procedures and regulations of starting a business in Germany do not significantly differ from those in English-speaking countries. German law makes no distinction between German nationals and foreigners when it comes to establishing companies in Germany. There are also no restrictions on the repatriation of profits. Much like in English-speaking countries, German law distinguishes between limited companies, joint stock companies (similar to a public limited company), and other forms of partnerships.
Types of Business Structure
- GmbH (Gessellschaft mit beschrankter Haftung), or a limited liability company, is the most common form of company in Germany. This is the equivalent to a Limited Company, or Ltd. The minimum share capital (Stammkapital/Grundkapital) is €25,000
- AG (Aktiengesellschaft) is a joint stock company. This is the equivalent of a Public Limited Company or PLC. Five members and a minimum starting capital of €50,000 are required
- GbR (Gesellschaft bürgerlichen Rechts) is a flexible company model which can be either a one-person business or based on a contract agreed upon by two or more persons
- Zweigniederlassung (or subsidiary) is a German branch of a company which is registered in a foreign country. The Zweigniederlassung must be commercially registered in Germany as a subsidiary. The parent company assumes liability for this subsidiary, therefore there is no minimum equity
- OHG (Offene Handelsgesellschaft) is a simple company model in which the partners involved have unlimited liability and are obligated to operate the business depending on the terms of the contract
Who May Set up a Business in Germany
The German law of residency (AufenthG) determines the conditions for running a private business as a form of self-employment in Germany.
According to this law, European Union citizens may start up companies in any of the EU member states. All that is required is to inform the local registration office (Einwohnermeldeamt) and provide the necessary funds. With a German settlement permit (Niederlassungserlaubnis), it is possible for non-EU citizens to open a business in Germany at any time. With possession of only a residence permit (Aufenthaltserlaubnis – for non-EU member state residents), a separate application process must be undertaken.
In order to obtain permission to live and start a business in Germany, the applicant must show that:
- There is a significant economic interest or special need for the proposed business
- The business will have positive results for the economy
- The venture is secured by either equity or credit guarantees
The application may be made in Germany or from outside the country at the nearest German Consulate or Embassy. The following documents are needed:
- Application for a residence permit
- Business plan
- Curriculum Vitae
- Proof of professional qualifications and experience
The application for a residence permit will be considered by the German Foreigners Authority (Ausländeramt). The business plan will be considered by the Commerce Department (IHK) of the state that the applicant plans to enter.
Entrepreneurs who invest at least one million Euros and create at least ten jobs will, as a rule, receive a residence permit.
The Legal Process of Setting up a Company
In order to start a business in Germany, it is necessary to:
- Organise two sets of tax registration:
- for commercial tax at the Gewerbesteueram
- for the local tax office at the Finanzamt
- Hire a notary and register the business at the local court (Amtsgericht)
The most important decision in starting a business is the form the business will take. The entrepreneur has a choice between sole proprietorships, non-incorporated and incorporated firms.
One-person businesses
If the business is to be formed by one person alone, the following options are available:
- Sole proprietorship
- One-man GmbH
When a trade is registered with the Trade Office and the company is managed by a single person, a sole proprietorship is automatically created. This also applies to freelancers if they apply for a tax number at the local tax office.
When conducting a trade (as opposed to a freelancer), it is necessary to register the company in the commercial register as a "business established as a commercial operation".
A one-man GmbH must be entered in the commercial register by a public notary . Although there are exceptions to the rule, a GmbH may only be founded by those conducting a trade and not by freelancers.
Partnerships
If the company is to be set up with partners, the following options are available:
Non-incorporated firms
Incorporated firms
Both types must be entered in the commercial registry and registered by a public notary.
Documents Required
For setting up a company in Germany, the following is required:
By an individual:
- Proof of German settlement permit (Niederlassungserlaubnis), if required
- Passport
- Nominal capital for a GmbH (€25,000 plus fees)
By a legal entity:
- Certified translation of the parent company's registration
- The nominal capital for a GmbH (€25,000 plus fees)
Authorities involved in setting up a business
Trade Office (Gewerbeamt)
A business must be registered with the Trade Office (Gewerbeamt) of the municipality where the business is to be opened. In order to do so, it is necessary to have:
- A valid ID (Personalausweis) or passport
- A residence permit
- Depending on the sector (for example catering), a permit or authorisation
- A craft card (Handwerkskarte), if the business is to operate in the craft sector
- A trade card (Gewerbekarte) for activities similar to the craft sector
- The registration fee
The Trade Office automatically contacts the other authorities involved with starting a business. These authorities include the tax office, accident insurance fund, chamber of commerce or chamber of crafts, local court (trade register), and the appropriate trade supervisory offices. It is recommended to check with each of theses offices to make sure the proper information has been received.
Tax Office (Finanzamt)
If the applicant is intending only to offer professional services as a freelancer, it is only necessary to apply for a tax number from the tax office.
Health Office (Gesundheitsamt)
Certificates from the Health Office may be necessary depending on the chosen business sector. For example, businesses in catering, the sale of foodstuffs, and childcare require certificates of good conduct and the observation of standards set by the Health Office and the trade supervisory office (this varies from region to region).
Construction Office (Bauamt)
The converting or building of new buildings for commercial purposes must have the approval of the Construction Office.
Occupational Accident Insurance Fund (Berufgenossenschaft)
If a business is to employ staff, occupational accident insurance is required for all employees. Self-insurance may also be required.
Commercial Register (Handelsregister)
Except for small businesses organised as a GbR (Gesellschaft bürgerlichen Rechts) a company must be entered in the commercial register at the local court (Amtsgericht).
Chamber of Crafts (Handwerkskammer)
Setting up a German business in a craft sector is based on EU law. EU citizens will find few barriers when starting a business in this sector. Between three and six years of self-employment, as well as proper certification, are required. For non-EU citizens to acquire a certificate of registration (Gewerbeanmeldeschein), the German authorities must recognise foreign examinations as equivalent to German standards or grant permission on a case by case basis.
Taxes on Businesses
It is important to understand the taxes involved in starting a business in Germany. The assistance of a tax consultant (Steuerberater) is recommended.
The most important taxes are:
- Turnover or input tax (Umsatz- bzw. Vorsteuer)
- Income tax (Einkommensteuer)
- Trade tax (Gewerbesteuer)
- Corporation tax (Körperschaftsteuer)
Taxes will depend on:
- The company's size
- The legal form of the company
- The sector
Government Assistance in Setting up a Business in Germany
The German Ministry for Economy and Technology (Bundesministerium für Wirtschaft und Technologie) offers an English language online service for foreigners wishing to start a business in Germany. This step-by-step portal lists start-up procedures, business planning strategies and management techniques to ensure the company is successful.
State aid can also be applied for, although previous employment in the country is required for at least a year to be eligible for assistance.