All you need to know if you want to open a business in Germany. Costs and fiscal taxes

Germany has one of the strongest business environments in the world, and there are plenty of foreign citizens who have opened up a new firm in the country. Around 99 percent of companies in Germany are SMEs, and they employ around 80 percent of workers.

Citizens from EU countries will have the same rights as a German citizen and will not require a visa or residence permit in order to set up a business. There are more than 500,000 Romanian citizens living in Germany.

Like in most other countries, the types of businesses you can choose from in Germany are:

Sole trader (Gewerbe)
Limited liability company (GmbH)
Unternehmensgesellschaft (or UG, a mini-GmbH, with only EUR 1 required for social capital)
Corporation (AG)
Partnership
Subsidiary/branch of existing company registered elsewhere

Sole traders, GmbHs and UGs are the most common types of businesses. You’ll want to choose a sole trader structure if you intend to work alone and not employ other people, and you’ll have full personal liability for your business activity and pay both personal and business tax together as a single entity.

GmbH vs. mini-GmbH (UG)

Limited liability companies are considered separate from the individuals who form them, and liabilities are kept separate to the personal affairs of the founders. However, the minimum initial capital of a GmbH (limited company) in Germany is quite high – EUR 25,000, but in fact you only need to put in EUR 12,500 in the beginning and put up the rest later.

If you don’t have the required initial capital for a GmbH, you can open a UG company, which only requires a capital of EUR 1 (or any other sum up to EUR 25,000), with an obligation to increase it later. One quarter of an UG’s annual profit has to be contributed to its capital reserves until they reach EUR 25,000, at which point it will become a regular GmbH. The law requires that the firm’s name include the term UG, which may cause potential clients to refuse collaboration due to the impression that the firm is not strong enough to become a full GmbH.

For a UG you only need to provide the name of shareholders and management board members and the purpose of the company. A notary has to confirm the signatures. For a GmbH, however, the notary has to complete a more complex and expensive procedure.

Another important difference between the two is that a UG may not accumulate capital in anything but cash, while a GmbH may also have in kind investments of goods or services. Tax-wise, there is no difference between a UG and a GmbH.

If you do everything right or you hire expert help, your company could be ready in about three weeks, but since the procedure can become complicated in some cases, it might take longer. You should seek professional advice to help you with the legal and fiscal procedures, because there are a lot of different rules in Germany that may or may not apply to you, and it can be hard to keep track on your own.

Full procedure for a GmbH (limited company)

According to the World Bank’s Doing Business report, the following steps are generally valid for a mid-sized limited company:

1. Check company name availability with Chamber of Industry & Commerce – less than one day

2. Notarize Articles of Association and Memorandum of Association – EUR 250, one day

3. Deposit minimum capital into a bank

4. File Articles of Association with Commercial Register, through notary – EUR 150 + EUR 250, 3 days

5. Notify local Office of Business and Standards of company’s establishment – less than EUR 100, 1 day

6. Register with Professional Association of relevant trade, notify local Labour Office, register employees for health/social insurance, mail out documentation to Tax Office – all done simultaneously, at no charge, in one day.

Taxes

A company needs to pay corporate tax of 15 percent, and a “solidarity surcharge” of 5.5 percent, which covers the costs of integrating the states of the former East Germany, both calculated out of taxable income.

Also, the Gewerbesteuer is levied on business profits by the local authorities, and varies somewhat from community to community. It’s usually around 18 percent.

VAT is either 19% or 7%, depending on the item. Medical, bank and insurance services are generally exempt.

The church tax, of 8% or 9%, need be paid only if the taxpayer opts to remain officially affiliated with one of Germany’s established churches. You will be expected to deduct the income, solidarity and church taxes from the employees’ pay and send it to the tax office, according to HowtoGermany.com.

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