Choosing the Right Legal Structure
Selecting the correct legal vehicle is the most consequential decision when entering Germany. The choice affects personal liability, minimum capital, credibility with banks, and ongoing compliance complexity.
| Feature | GmbH | UG | AG | Branch Office |
|---|---|---|---|---|
| Legal personality | Separate | Separate | Separate | None (parent liable) |
| Minimum capital | €25,000 | €1 | €50,000 | None |
| Shareholder liability | Limited | Limited | Limited | Unlimited (parent) |
| Notarisation required | Yes | Yes | Yes | Yes (registration) |
| Governance complexity | Moderate | Moderate | High | Low |
| Typical use case | Most foreign investors | Early-stage startups | Large/listed ventures | Market-entry pilot |
German Taxes at a Glance
Germany imposes three main taxes on corporate profits. The combined effective rate is typically 28–33% depending on the municipality. Many foreign founders are surprised by the gap between the "15% corporate tax" headline and the actual 30%+ effective burden once trade tax is included.
| Tax | Rate | Notes |
|---|---|---|
| Corporate income tax (Körperschaftsteuer) | 15% | Plus 5.5% solidarity surcharge on the tax itself (not abolished for companies) |
| Trade tax (Gewerbesteuer) | 14%–17% avg. | Municipal rate; varies by Hebesatz (Berlin 410%, Munich 490%) |
| Combined corporate burden | 28%–33% | Effective rate including KSt + Soli + GewSt |
| VAT (Umsatzsteuer) | 19% / 7% | Standard / reduced rate; registration threshold €22,000 turnover |
Regulatory and Licensing Framework
Most general commercial activities require only a trade registration (Gewerbeanmeldung). However, regulated sectors require prior authorisation from the relevant authority:
- Financial services: BaFin licence (banking, investment, payment institutions, crypto)
- Healthcare: Approbation (medical practitioners), Apothekenzulassung (pharmacies)
- Financial advisors: Gewerbeamt §34f/§34d permit
- Construction trades: Handwerkskammer registration
- Employment agencies: Bundesagentur für Arbeit licence
Labour Law Essentials for Foreign Employers
German employment law is strongly employee-protective. The Kündigungsschutzgesetz (KSchG) applies to businesses with 10+ employees and limits dismissal to specific legal grounds after 6 months of employment.
- Minimum wage: €12.82/hour from January 2025 (Mindestlohnkommission reviews annually)
- Social security contributions: approx. 21% employer overhead on gross salary
- Works council (Betriebsrat): can be established by employees in companies with 5+ permanent staff
- Notice periods: statutory minimum 4 weeks; increases with seniority under BGB §622
IHK membership is not optional. It arises automatically upon trade registration under IHK-Gesetz and cannot be waived. Annual fees are income-based and assessed by the chamber — budget accordingly from day one.
Doing Business in Germany — Why It Works
4th
Largest economy by GDP (nominal)
EUR 4.1 trillion GDP — largest in the European Union
0M
Domestic consumers
Affluent market with high purchasing power (GDP/cap ~€43,000)
0
EU member state access
Single entity covers 450M consumers across the EU single market
AAA
Sovereign credit rating
Highest Moody's / S&P rating — maximum investor confidence
Frequently Asked Questions
Do I need to be a German resident to start a company in Germany?
No. Foreign nationals and non-residents can form and own a German GmbH. The company must have a registered address in Germany, and at least one managing director must be reachable in Germany for legal service. Nominee solutions are available where permitted.
What taxes does a German GmbH pay?
A GmbH pays corporate income tax at 15%, a solidarity surcharge of 5.5% on that tax, and trade tax (Gewerbesteuer) averaging 14–17% depending on the municipality. The combined effective rate is typically 28–33%. VAT at 19% or 7% applies to most transactions.
How long does it take to register a company in Germany?
The full process typically takes 4–8 weeks from notary appointment to receipt of the tax number. The Handelsregister entry normally takes 2–4 weeks after submission. Delays occur when documents are incomplete or translations are required.
What is the Gewerbesteuer and how is it calculated?
Gewerbesteuer is Germany's municipal trade tax on business profits. It is calculated by applying a federal base rate of 3.5% to adjusted trade income, then multiplying by the municipality's Hebesatz. Berlin has the lowest major-city rate (~14.4%); Munich has the highest (~17.2%).
Is it mandatory to join the IHK in Germany?
Yes. Membership of the local Industrie- und Handelskammer (IHK) is compulsory for all commercial businesses under IHK-Gesetz. It is not optional; membership fees are assessed annually based on taxable income. Craft businesses join the Handwerkskammer instead.
What is a branch office and when should I use one instead of a GmbH?
A Zweigniederlassung (branch office) is an extension of the parent company registered under HGB §13d. The parent bears unlimited liability for the branch. Use a branch for a fast, low-cost German presence without €25,000 GmbH capital. A GmbH is preferable for liability ring-fencing, VC investment, and regulated activities.
What is the BaFin and which businesses require its authorisation?
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) is Germany's federal financial regulator supervising banks, investment firms, insurance companies, payment institutions, and crypto asset service providers. Any business in these sectors must obtain BaFin authorisation before commencing operations — operating without a licence is a criminal offence.
Do I need a German bank account to run a German company?
A German bank account is practically necessary. The GmbH capital deposit before Handelsregister entry must go to a Gründungskonto, for which the bank issues an Einzahlungsbestätigung required by the notary. Fintech banks (Wise, Qonto) work for operations after registration; some regulated activities require a traditional German-licensed bank.
How does Germany's VAT Kleinunternehmer exemption work?
German-resident businesses may use the Kleinunternehmer exemption under §19 UStG and avoid charging VAT if prior-year turnover did not exceed €25,000 (raised from €22,000 in 2025). Non-resident businesses face a nil threshold — VAT registration is required from the first taxable supply in Germany. The USt-IdNr (DE + 9 digits) is obtained from BZSt after the Steuernummer is issued.
What is permanent establishment (Betriebsstätte) risk for foreign companies?
Under AO §12 and §13, a foreign company creates a German permanent establishment (Betriebsstätte) if it has a fixed place of business in Germany — including a home office of a German-resident employee. This triggers German corporate tax and Gewerbesteuer on attributed profits. Foreign companies hiring German remote workers should obtain a PE risk assessment before signing the first employment contract.
Need professional help?
Goldblum und Partner AG — licensed German Rechtsanwälte in Düsseldorf since 2007.
Free ConsultationWork with the firm that knows Germany.
Licensed Rechtsanwälte and Steuerberater in Düsseldorf. Free 30-minute consultation, no commitment.
Book Free Consultation