Foundation in Germany – Setting up a business in Germany
Special requirements for foreign founders
Formation by a foreign company
Preparation of the formation
Formation process step by step
Digression: Trade licence and registration requirements
Digression: Types of taxes in Germany
Foreign founders should get advice from a tax advisor in advance in order to clarify which tax obligations exist and what must be observed.
In the case of partnerships (e.g. GbR), the partners are taxed personally. Sole traders are also personally taxable. In contrast, corporations (e.g. GmbH) pay taxes themselves.
The following taxes are particularly relevant:
– Corporation tax (15 percent of your profit)
– Capital gains tax on profit distributions (25 percent plus 5.5 percent solidarity surcharge)
– Trade tax (depending on the location of the enterprise)
– Solidarity surcharge (5.5 percent of corporate income tax, capital gains tax and wage tax)
– Value added tax (19 percent or 7 percent of the invoice total)
Taxes depending on legal form
If the legal form of your business is a sole proprietorship and you are a business- and tradesperson, you have to pay trade tax. As a natural person you are also subject to income tax.
Unless you are a small business owner (Kleinunternehmer) and benefit from tax concessions, you also pay value added tax (VAT). Solidarity tax must be paid at the same time as income tax. Since 2021, however, some entrepreneurs benefit from the partial abolition of the solidarity surcharge depending on their income. If they are members of a church, church tax must also be paid and, if employees are employed, payroll tax is raised.
If the legal form of your business is an OHG, KG or GbR (partnership, German “Personengesellschaft”) as a shareholder you pay tax on the profits at your personal income tax rate. If a commercial business model is pursued, trade taxes must be paid. You are usually also subject to value added tax (VAT). If applicable, solidarity tax must be paid, church tax and payroll taxes for employees.
If the legal form of your business is a corporation as the GmbH, UG, AG (German “Kapitalgesellschaft”) it is subject to Corporation tax, solidarity tax, trade tax and VAT if applicable, also to payroll taxes for employees. In the case of profit distributions you also have to pay capital gains tax (25 %). Due to the enormously high taxation of profit distribution, it may sometimes not be worthwhile for an individual entrepreneur to set up a corporation.
Companies are obliged to keep books and accounts and, in particular, to prepare and file annual accounts, with balance sheet and profit and loss account. as well as a tax return annually. Advance turnover tax returns must be submitted regularly, initially on a monthly basis.
If you need to declare exports/ imports to customs or require an exports permit from the competent authority (BAFA) you have to apply for an EORI number, an EU registration and identification number for businesses related to the import or export of goods into or out of the European Union.
It is necessary to obtain the EORI number from the national customs authority as soon as you start your first export or import transactions.
The EORI number is assigned on request and free of charge by the General Directorate of Customs’ Master Data Management office in Dresden (GZD – DO Dresden). The application procedure can be a bit tricky and you have to fill out an application form. We can also help you with this.
Employer identification number
If you if you employ members of staff you need an employer identification number. It is necessary to apply for it before you conclude employment contracts.
The number is required to be able to pay social security contributions (esp. health insurance, pension insurance, unemployment insurance).
The competent authority is the Federal Employment Agency (Bundesagentur für Arbeit).
We advise you about the application prosess and explain to you how to fill in the application form.
Insurance and pension
In Germany there is a statutory pension insurance system. Contribution is mandatory for employees and also for many self-employed people as for instance
- midwives and obstetric nurses
- teachers and educators, if they work without an employee subject to compulsory insurance
- physiotherapists dependent on instructions
- nurses without employees subject to compulsory insurance
- artists and publicists or
- self-employed persons without employees subject to compulsory insurance who work permanently mainly for one client.
If this does not apply to you, you are free to make voluntary contributions. You have to pay a minimum of 18.6 percent of your income. Artists and publicists can apply to have half of their contributions paid by the Artists’ Social Insurance Fund (Künstlersozialkasse), if they become a member.
An alternative to the the statutory pension insurance are private pension plans offered by banks and insurance companies.
Health insurance is mandatory in Germany. However, self employed people can choose between contributing to the German statutory health insurance or taking out private health insurance.
Unlike employees, self-employed entrepreneurs have to pay for everything on their own, i.e, 14,6 percent of their income in case of statutory health insurance. Especially for young and healthy people, private health insurance can be much more cost-effective.
There are other ways to cover any risks, such as:
- Business interruption insurance
- Insurance against burglary and theft, fire, water
- Electronics insurance
- Commercial legal protection insurance
- Liability insurance, product liability insurance and environmental liability insurance
German Contract Law
Entrepreneurs who set up and do business in Germany are subject to German contract law in many respects. For example, they conclude
- contracts with landlords (commercial tenancy agreements),
- with customers (e.g. purchase contracts, service contracts)
- and suppliers as well as
- employment contracts with employees.
Many entrepreneurs also require general terms and conditions (GTC). We can help you with the drafting of contracts and the formulation of GTC.
Other German legal regulations
There are several other laws and regulations in Germany that you may have to take into account as well.
- If you have your own website, you must comply with the regulations on data protection and the mandatory information in the imprint. Especially for online shops, there are also special duties of disclosure. There is for instance an obligatory price indication within the meaning of the Price Indication Ordinance.
- In the case of an existing employment relationship or a shareholding in a company, non-competition or secondary employment prohibitions may have to be observed.
- There are statutory opening hours for shops in Germany and
- there is also an obligation to provide parking spaces for cars on the company premises.
It is important to know these and other regulations so as not to inadvertently violate laws. We will be happy to advise you.
|DESCRIPTION||COSTS (NET AMOUNTS)|
|Formation costs||Advice on legal form, advice on forming a company and advice on financial statements, drawing up of the articles of association and forming documents, organisation of the formation, representation during the entire formation process, company audit by the IHK, managing director contract, opening balance sheet and preparation of the trade and tax registration, VAT ID application and contract documents.||Fixed price: 209,– € (“formation package START-UP”), 599,– € (“Rechtssicher”) or 799,– € (“Rechtssicher PLUS”)|
|Notarisation costs||Notarisation of the articles of association and other forming documents. By providing prior advice on formation and drawing up the articles of association and the formation documents for a fixed price, we may save you the significantly higher costs of a contract drawn up by the lawyer notary on the basis of the RVG (German Law on Lawyer’s Fees), or when invoicing on an hourly basis.||Between 280,- (Standard Record) and 835,- € (individual Statutes) on average|
|Check of company name with IHK||If the responsible IHK / HWK conducts a preliminary statement procedure, we will conduct an examination procedure at your IHK /HWK for your company. This is to show whether there are any objections to your company name. In some cities or municipalities (e.g. in Berlin) the preliminary statement procedure is subject to a fee.||In some cities or municipalities about 45,- €|
|Entry into the commercial register||Often 170,- €|
|Commercial registration||Depending on the city or municipality, €10.00 to €60.00|
|Tax registration||Free of charge|
|IHK contribution||From 115,- €|
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