Do you want to start a business in Germany? Are you an expat or entrepreneur? Starting a business in Germany requires thorough research, planning and preparation. This Ultimate Guide For Expats And Entrepreneurs is written with one purpose: to help you start a business in Germany.
The right visa
The very first step is to make sure you are allowed to form a company or be self-employed in Germany. Not every visa entitles you to start a business in Germany. At the bare minimum, you should have a “National Visa”. These are the visa class D. This means you need a long-term visa. You cannot work on a visit visa.
However, there are long term visas with which you cannot start a business. For example student visas and some employment visas. Whether or not you can be self-employed is specified on the complimentary document(Zusatzblatz) for your visa. If you have ‘Selbständigetatigkeiten nicht gestattet‘ on your visa, you cannot start a business. When in doubt ask your local foreign office.
The type of business you want to register
The second question is – What kind of business do you want to set up? There are different types of company or self-employment. The kind of business you start will mean different responsibilities when it comes to taxes. Here are the most common self-employment types you can start.
- Freelancer (Freiberufler)
- Sole Proprietor (Einzelunternehmen or GbR)
- Corporation (Kapitalgeselschaft)
Open a Business account
Every business should have a bank account. For freelancers and sole proprietors, you can get away with not having a business account but it is important that you separate business finances from personal.
You can start a business account at your bank. Otherwise, there are several business-account-only banks. Here are a few.
Registering your business
Everyone who wants to run a business in Germany has to register with the trade office (Gewerbeamt) in your district. When you register with the trade office, you receive your trade license with which you can start your business. After the registration, you will receive the tax number for your company. If you require VAT, you will also receive a VAT number – especially important for e-commerce.
This is the most common type of company formation in Germany. Small businesses have fewer tax responsibilities. You are liable for this type of company, with all your private assets. You can set up a small business alone as a sole proprietor (Einzelunternehmen). If you are a group of people, the equivalent would be to set up A GbR(Gesellschaft bürgerlichen Rechts).
What is Kleinunternehmen (Small Business Regulation)
The small business regulation(Kleinunternehmerregelung) is a simpler form of company formation. It is meant to reduce the bureaucracy involved around taxes for small businesses so that they can concentrate on getting their business off the ground.
Applying for a trade license does not automatically mean you can take advantage of the Kleinunternehmer regulation. You will need to specify this during your registration.
- Not more than 22,000 Euros in revenue in the previous year or first year of business
- Not more than 50,000 Euros in revenue in the current year
- No VAT Tax (Umsatzsteuer)
- No filing of monthly tax return
- Tax returns are filed annually with a simple income statement (EüR – Einnahmenüberschussrechnung)
The Founding Process
Time needed: 7 days
How to register a business in Germany
- Register with your Gewerbeamt
Fill out a registration form at your local Gewerbeamt – In some regions, you can do this online. In Berlin, you can register online here.
- Wait for confirmation
The finanzamt will send you a confirmation typically within a day or two
- Fill the Fragebogen zur steuerlichen Erfassung
In a few days, you will get a form called the Fragebogen zur steuerlichen Erfassung. Fill this and send it back to your tax office. You can find a guide to filling this on our important documents page
- Wait for your new Steueridentifikationsnummer (Tax Number)
You will receive your new tax number
- Wait for your Umsatzsteuerid (VAT Number)
If you applied for a VAT number, you will receive a VAT number in a separate letter
You can opt-out of the small business regulation during your registration(in the Fragebogen zur steuerlichen Erfassung). However, when you do, you are tied to this decision for 5 years.
Do Freelancers have to register a company?
The short answer to this is no. Freelancers are not required to register for a trade license. These apply to the so-called Liberal Professions (Freie Berufe). The responsibilities when it comes to taxes for people who belong to this group are fairly simpler than starting a company.
What jobs are considered Freelance in Germany
- Alternative Medical Practitioners
- Tax Consultants
To stay within the boundaries of the tax laws, ask a tax advisor if you are not sure. Especially if you plan on offering additional services outside your core profession. In some cases, you may need to “doch” register a business.
Founding a UG or GmbH in Germany
What is a GmbH?
The GmBH is a limited liability legal form. The GmBH exists as an entity of its own. For this reason, the founder is not privately liable. In effect, if the GmbH goes bankrupt, the founders’ assets are protected. There are of course limitations to this. For example, if you ignore your tax duties, you may be personally liable for negligence and lose that protection.
What is a UG?
The UG is a mini GmBH. It has the same structure and privileges as the GmBH. However, the starting capital for a GmBH is 25,000 Euros(though you can start with 12,500 Euros). The UG on the other hand is called the 1 Euro GmBH. You can effectively start one with just a Euro. In practice, you will need more than that for legal fees and finalizing the whole process.
Though the law allows you to start a UG, like the small business this is a form to help start-ups with less capital get off the ground. For this reason, some of the income generated in the UG will be locked up until the start capital for a GmbH is accrued, then it will be converted into a GmbH.
The Founding Process
It is highly advisable to talk to a tax advisor since there are many moving parts. Due to the tax responsibilities you have in a UG or GmbH, you will need accounting services anyway. I would not recommend you do this on your own. This is a summary of the steps involved.
- Plan your startup – Define the structure of your team: are you alone? Who owns what percentage, what are the business plans, and what the starting capital?
- Find a name for your startup – research into trademarks, domain availability, etc
- Create a contract (with a Notary)- There is a template that every founding team can use. It saves costs. Decide if this works for your team or if you need a custom contract.
- Notarial Certification
- Fill out and submit the relevant forms and register with the appropriate offices
- Register at the trade office
- Fill out the Tax Questionnaire (Fragebogen zur steuerlichen Erfassung)
- Register with the IHK or the HWK
- Apply for a company number at the employment agency
- In some cases, you will have to register at the appropriate trade association
All in one company formation services
I stumbled upon this one-stop-shop solution for founding a company in Germany. For Sole proprietors and freelancers, talking to a tax advisor should suffice.
If the process is overwhelming you can save some time by making use of such services. Did you try one of these services? I am happy to add it to the list.
Here are a few other helpful resources