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Intelligible legislative norms and requirements for obtaining residence permits and permanent residence in Germany;
Private business in Germany
Organizing a private business correctly with reliable investments and stable income is real! Germany is Europe’s leading economy, the jurisdiction with the most transparent enforcement system and stable compliance.
Table of Contents
Attractive aspects of Germany for doing private business
Today, Germany is one of the most reliable and attractive countries for investors and those wishing to move and obtain a residence permit or permanent residence. The country occupies a leading position in the European economy.
For Germany, it is typical:
Transparent basis of the economic system for entrepreneurial activity;
The economic principles of Germany contribute to the possibility of drawing up long-term plans for building and developing business activities with a high level of reliability and profit;
German law generally does not differentiate between its citizens and foreigners regarding investment or company formation. Intellectual property is well protected by patent laws, which extend the same conditions enjoyed by Germans to foreign entrepreneurs;
If necessary, the rights of investors can be ensured by the effective German judicial system;
Robust laws enable companies to plan their investments and conduct business effectively;
The country has an Apostille option on documents;
Renting a real office before starting a business in Germany registration is proof of substance. There are no nominal or mass registration addresses;
When conducting trade operations in Germany, a mandatory condition is the presence of a tax consultant for accounting and VAT payment. This requirement arises not only when registering a company in Germany but also when registering a company in another country (within or outside the EU). For example, we can import goods to Germany or store goods in German warehouses (the principle of operation of the Amazon trading platform).
Taxation in Germany
Subject of taxation
A company is considered a resident of Germany if it has a registered address or control center in Germany. Tax registration is required immediately after registration. A German resident company’s worldwide income is subject to taxation. All company income is considered business income.
Income tax
| Enterprise profit tax is charged on | the company’s global profit at: |
|---|---|
| a federal rate of | 15% + |
| municipal rate of | 14-17% + |
| an additional duty of | 5.5% of the tax amount on the enterprise’s profit |
Other tax rules
According to thin capitalization rules, a German company can indicate 30% of interest payments as eligible expenses of the current period. The limitation only applies when the annual interest burden exceeds EUR 3 million, in which case the interest expense must be carried forward to subsequent periods.
There is no capital tax in Germany.
The VAT rate in Germany is 19% – added to each invoice.
Which legal form to choose
First, you need to choose the legal form of the future company.
Self-employed. In case of non-payment of taxes under this organizational and legal form, the founder is liable to the state with all his assets.
Freelancer (in German Freiberufler): A person who sells exclusively services. Doctors, notaries, lawyers, IT specialists, designers, and others can work using this form. They must have a special education, and they confirm their qualifications with a diploma. You can learn more about how to become a freelancer in Germany here.
Merchant (in German Gewerbe): A person who sells goods. This form can be used by bakers, confectioners, various craftsmen—any person who sells goods through a website or in a store. Traders need to obtain a permit to trade. This can be done online using this link. Its price ranges from 15 to 31 euros.
The most popular form of organizing a small private business in Germany is a limited liability company—in German GmbH. You can choose any field: real estate, tourism, information technology, and so on. With this organizational and legal form, the founder is responsible to the state only for the company’s assets, and his remains inviolable.
- mini limited liability company;
- ordinary limited liability company.
The difference between mini-GmbH and GmbH is the size of the authorized capital. For a mini-GmbH, the authorized capital starts from 1 euro, which is as much as the founder needs to start a business in Germany. And for an ordinary GmbH, the authorized capital is at least 25 thousand euros. However, the founders of mini-GmbH do not have the right to distribute all dividends until the authorized capital reaches 25 thousand euros. Also, it is impossible to contribute authorized capital to a mini-GmbH in kind – for example, with tools or transport.
In addition, if it is necessary to draw up a separate charter for a regular GmbH, then the founders of a mini-GmbH can use the so-called standard charter or protocol. This will allow you to save on legal services and charter preparation. However, changing the standard protocol after registering a company is impossible.
The most popular form of organizing a small private business in Germany is a limited liability company—in German GmbH. You can choose any field: real estate, tourism, information technology, and so on. With this organizational and legal form, the founder is responsible to the state only for the company’s assets, and his remains inviolable.
- mini limited liability company;
- ordinary limited liability company.
The difference between mini-GmbH and GmbH is the size of the authorized capital. For a mini-GmbH, the authorized capital starts from 1 euro, which is as much as the founder needs to start a business in Germany. And for an ordinary GmbH, the authorized capital is at least 25 thousand euros. However, the founders of mini-GmbH do not have the right to distribute all dividends until the authorized capital reaches 25 thousand euros. Also, it is impossible to contribute authorized capital to a mini-GmbH in kind – for example, with tools or transport.
In addition, if it is necessary to draw up a separate charter for a regular GmbH, then the founders of a mini-GmbH can use the so-called standard charter or protocol. This allows you to save on legal services and charter preparation. However, changing the standard protocol after registering a company is impossible.
For example, the number of founders in a company may change from two to four. By the way, the founder of a company can be not only an individual but also a legal entity. Or if the company director has changed or his functions have expanded.
5% of dividends received are subject to taxation only if they are not justified payments (education, medicine, etc.) in the country of payment and the German company’s ownership share is at least 10%.
How to open a business in Germany: documents
To register a private company or startup, you need to have the following set of papers with you:
Personal data of organizers and managers: the form must be filled out in Latin.
Materials about a legal entity. A receipt for payment of the state fee will be sent to the appropriate address; this is necessary for approbation.
The constituent agreement must be drawn up in the state language.
A separate list of founders indicates each share in the authorized capital.
Notarized registration certificate.
Registration notices from the municipality, certificates of no criminal record.
If one of the creators is married, their spouse must be present when signing. However, this opportunity is not always available, unlike the prospect of using a service that provides trusted persons who can legally take part in the process.
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The time frame for opening a company in Germany
The entire procedure for registering a private company, taking into account the procedures at the notary, entry into the judicial register, opening a bank account, payment of the authorized capital, registration with the tax office, registration as a VAT payer, and obtaining a permit to carry out industrial activities, will take two months upon provision of all necessary documents on time.
Some features of doing business in Germany
After registering a GmbH, the founders have the opportunity to obtain business visas for a period of one month to one year. After registering an enterprise, the founder appointed by the director, subject to the functioning of the company, has the right to apply for granting him and his family members a residence permit in Germany, which, in the future, immigration of the business to Germany gives the right to obtain citizenship and free movement within the EU.
A director can manage a company in Germany from another country. Moreover, if the director is a founder, there are no obligations to pay wages and make tax deductions. To save money, companies often outsource certain sales and logistics processes to their divisions in CIS countries or third-party organizations in the EU.
An important issue is the organization of accounting. Limit tariffs for accounting services for legal entities in Germany are established at the legislative level. As a rule, services are provided at an hourly rate based on the company’s actual monthly and annual turnover. Considering the high automation and organization of accounting services, on average, accounting costs 70 euros per month, and an additional annual fee of 700 euros is paid to a tax consultant to prepare a yearly report.
Thus, proper work organization with relatively small budgets allows business people to gain significant advantages in working in the European market through a German company.
In general, opening a private company in Germany is quite simple and provides many advantages for the development of the business as a whole and for the personal freedom and development of its founder.
Faq
Germany is renowned for its transparent legal system, stable economy, and favorable business environment, making it an attractive destination for private business ventures. With intelligible legislative norms, transparent economic principles, and robust legal protections for intellectual property, Germany offers stability and profitability for entrepreneurs. Additionally, the country’s efficient judicial system ensures investor rights, while its apostille option on documents facilitates business operations.
Companies in Germany are subject to taxation based on their residency status and global income. A resident company, with a registered address or control center in Germany, is taxed on its worldwide income. The enterprise profit tax is calculated based on federal and municipal rates, along with an additional duty. VAT, set at 19%, is added to each invoice. However, Germany does not impose capital tax, and companies can deduct interest payments within specified limits.
Private businesses in Germany can take various legal forms, including self-employment, freelancing, and merchant status. The most popular form for small businesses is the limited liability company (GmbH), offering protection to the founder’s personal assets. Within the GmbH structure, founders can opt for a mini-GmbH with minimal capital requirements or an ordinary GmbH with higher initial investments. Each legal form has distinct advantages and requirements tailored to different business needs.
To register a private company or startup in Germany, specific documents are necessary, including personal data of organizers and managers, materials about the legal entity, the constituent agreement, and registration notices from the municipality. Notarized registration certificates and certificates of no criminal record may also be required. Additionally, if one of the creators is married, their spouse may need to be present during the signing process.
The timeframe for opening a private business in Germany typically spans two months, provided all necessary documents are submitted on time. This process includes procedures such as notary appointments, entry into the judicial register, opening a bank account, payment of authorized capital, registration with the tax office, and obtaining permits for industrial activities. Efficient completion of these steps facilitates a smooth business registration process.
Private businesses in Germany can take the form of self-employment, freelancing (Freiberufler), or merchant status (Gewerbe). Each legal form has specific requirements and implications for taxation, liability, and regulatory compliance. Entrepreneurs can choose the legal form that best suits their business model, industry, and growth objectives.
Companies in Germany are subject to corporate income tax (Körperschaftsteuer) on their global profits, with federal and municipal rates applied. Additionally, a solidarity surcharge is levied on the corporate income tax. Value-added tax (VAT) is charged on goods and services at a standard rate of 19%. Germany does not impose a capital tax, but interest payments are subject to thin capitalization rules.
GmbH, or limited liability company, is a popular legal form for private businesses in Germany. It provides protection for the founder’s personal assets and offers flexibility in terms of capital requirements. With options for mini-GmbH and ordinary GmbH, entrepreneurs can choose the structure that aligns with their investment capacity and business goals while enjoying the benefits of limited liability protection.
Foreign entrepreneurs can benefit from starting a private business in Germany due to the country’s stable economy, transparent legal system, and favorable business environment. By registering a GmbH, foreign investors gain access to business visas, residence permits, and potential citizenship, enabling free movement within the EU. Additionally, Germany’s efficient judicial system and robust legal protections provide assurance for foreign investors seeking to establish and grow their businesses in the European market.
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Michael Schmidt, Entrepreneur
Working with germancompanyformation.com has been an exceptional experience. Their team provides comprehensive support for all legal aspects of company formation in Germany, ensuring a smooth and efficient process.
