Germany attracts serious entrepreneurs. Those who are not looking for immediate profit, but who appreciate the opportunity to develop their company progressively, step by step, without sudden ups and downs. Yes, modern Germany cannot even jokingly be called a tax paradise. But there are advantages that compensate for this nuance.
5 advantages of incorporating a German company
Germany has an impeccable business reputation. Germans are extremely scrupulous about business registration, corporate reporting and taxation. Germany has never provided its entrepreneurs with such tax benefits and such a level of confidentiality as in a classic offshore zone. Therefore, the German “home port” of a company arouses involuntary respect among customers and suppliers.
Despite the political and economic storms of recent years, Germany is still one of the top five strongest economies in the world. By registering a company in this country, you get the opportunity to develop your business for years without worrying about markets, the banking system or the exchange rate.
The German market itself has sufficient capacity. And for those entrepreneurs who find their products or services cramped inside the country, they can always enter the enormous pan-European market with their products or services. Germany has all the tools for this — from its extremely favourable location on the European map, to a well-developed transport infrastructure and an efficient system of international settlements.
Since there has been a shortage of foreign investment in the FRG in recent years, the government has been developing state support programmes for entrepreneurs, with the ultimate goal of eliminating this shortage.
To seriously qualify for state support, foreign entrepreneurs must fulfil 3 mandatory conditions:
The administrative district where the firm will be registered must be economically interested in its commercial activities;
Moreover, the company’s activities should reflect positively on the national economy as a whole;
It is necessary to present a well-composed business plan and proof that the foreign businessman has sufficient resources for its successful implementation.
Starting a business in Germany can significantly accelerate the acquisition of a residence permit, and after a long residence in the country — citizenship.
As in other modern jurisdictions, in Germany an entrepreneur can choose from a variety of options the legal form that best suits his business.
Statistically, the GmbH is one of the most popular corporate forms of business organisation. In 2019, there were more than 55,000 such companies operating in the Federal Republic of Germany.
To register a German limited liability company, one founder and one director are sufficient, and it is allowed for the owner of the company to be its director. There are no citizenship and tax requirements for shareholders and directors of a GmbH, but while the former can be both individuals and organisations, directors can only be people.
The liability for the debts of such a company is limited to the amount of its authorised capital. The minimum authorised capital of a GmbH is €25,000, of which €12,500 must be deposited in a deposit account opened specifically for this purpose with a German bank.
The remaining amount is either reported later, when the company starts operating, or is contributed by the founders in material form (e.g. by transferring property rights) or is not contributed at all. However, in the latter case, if the GmbH goes bankrupt, the founders will have to pay the missing part of the authorised capital from their own pockets.
If you and your business partners do not have €12,500 to spare, you can apply to open another type of company, as like a GmbH as possible.
This type of German limited liability company is well suited to start-up businesses that do not have enough money to pay for the share capital of a GmbH.
To register a UG it is enough to deposit €1 into a bank account. In practice, almost no one does this — usually about €100 is deposited. The peculiarity of an entrepreneurial company is that it cannot fully dispose of its profits. It transfers at least 25 per cent of its income to the deposit account until the amount of the authorised capital reaches the statutory minimum.
Once the deposit is €25,000, the company is registered as a GmbH with the help of a notary and continues to operate as an ordinary limited liability company.
The obvious advantage of UG is that a businessman does not need to save up money to start a business in Germany. The disadvantages of this corporate form derive from its advantages. Seeing the abbreviation UG at the end of your company name, German contractors may conclude that you have serious money problems. And when you have accumulated enough money in a deposit account, you will face a second round of red tape and notary fees.
As a rule, experienced and wealthy businessmen decide to register a joint-stock company in Germany, or limited liability companies switch to this corporate form when they achieve significant results in their field and want to attract additional investments for their further development.
Starting such a company in Germany is accompanied by high start-up and administrative costs. The shareholders of an AG are liable for its debts only to the extent of the actual value of the shares they own.
The minimum nominal capital of a shareholding company must be at least €50,000, of which 25 per cent is paid by depositing it in a deposit account in a German bank. AGs can be founded by individuals and legal entities, including organisations such as partnerships.
The management of a German stock company is carried out by:
Management Board or Board of Directors. The Management Board of an AG whose share capital is valued at more than €3000000 must have at least 2 directors;
Supervisory Board, whose function is to supervise the work of the Management Board and appoint its Chairman. This supervisory body must have a minimum of 3 members;
General Meeting of Shareholders. There are ordinary General Shareholders’ Meetings, held once a year, and extraordinary General Shareholders’ Meetings. The annual meeting approves the composition of the Supervisory Board and the Board of Directors, distributes profits, etc.
Due to their relatively large share capital, AGs enjoy a good reputation on the German market. AG relieves its shareholders from personal liability and gives them the opportunity to receive substantial dividends. At the same time, the complicated and expensive registration process and high administrative burden negatively affect the popularity of this organisational-legal form in Germany.
If the founder has a residence permit, permanent residence status or European citizenship in Germany, he or she can carry out business activities as a sole trader or through various types of partnerships and hybrid company forms.
A general partnership must consist of at least two partners. The liability of each partner is unlimited. Legal entities can also be members of the OHG, regardless of whether they were established in Germany or abroad.
Each founder has the right to individually represent the entire general partnership. However, the memorandum of association may specify the joint representation of OHG by several partners or, conversely, the exclusion of individual partners from the representation of the entire partnership.
If all partners in an OHG are themselves legal entities and therefore their liability will be limited, this should be indicated at the end of the company name. In addition, all business correspondence of such partnerships must contain the names of the partner companies as well as additional information such as their registration numbers in the Commercial Register.
A limited liability partnership requires at least two partners, one of whom (Komplementär) must have unlimited liability, while the liability of the other (Kommanditist) does not exceed the value of his share in the company. As a rule, only general partners with unlimited liability are authorised to represent the company.
Commercial organisations, both German and foreign, can also become partners of KG. If a company will be the sole general partner in a Kommanditgesellschaft, this should be indicated at the end of the official name of the limited partnership by the abbreviations “GmbH & Co. KG-“.
A partnership limited by shares is a hybrid of a stock corporation and a limited liability partnership. However, unlike a stock corporation, a Kommanditgesellschaft auf Aktien has at least one general partner who is personally liable for the firm’s debts.
This type of commercial organisation in Germany is mainly used in private or family businesses.
A minimum authorised capital of €50,000 is required to open such a partnership. KGaA shares can be freely traded and listed on the stock exchange. A limited liability partnership is therefore suitable for entrepreneurs who rely on external financing but do not want to lose the ability to manage their company.
The simplest and most common form of business in Germany. It is ideal for freelancing, small businesses and small commercial operations. It is relatively easy to register as a German sole trader. Your operating costs will be quite low, as this form of business does not require registration with the commercial register or the German Chamber of Commerce and Industry or the Chamber of Crafts.
If you are a foreign entrepreneur and you do not have a German residence card, the most suitable corporate forms of business registration for you are limited liability company, joint stock company.
Another advantage of German business is the simplicity of starting a company, or rather, the fully comprehensible, decades-old procedure for registering a new company. As an example, we will look at the GmbH, a limited liability company, with an emphasis on some important details.
You should first choose the right type of business activity for your future company. If your company will be operating in your place of incorporation, you should choose a region in Germany where your products or services will be in steady demand. Some business activities are controlled by the state and can only be carried out after obtaining a licence.
The next step is to find an office that you will use as your registered office. A German GmbH can be registered at the address of a rented or purchased office space or even at the home address of one of the founders in Germany. Foreign entrepreneurs prefer to rent a virtual office — a legal address, which is provided by an intermediary company for a small fee. The cost of renting a virtual office varies greatly depending on the package of services that are provided together with the legal address. With the minimum set of options, it is usually €30 per month.
A name must be thought of for the future company. The requirements for German company names do not differ much from those in other European countries. The name is checked at the Chamber of Commerce and Industry to see if it matches the names of other companies registered in your region. At the end there must be a mandatory indication of the legal form of organisation (OPF). In our case it is GmbH.
At the preparatory stage it is necessary to determine in advance the size of the authorised capital, the number of founders in the company, the size of their shares in the authorised capital, the identity of the director, etc.
All the above organisational and administrative nuances are recorded in the memorandum of association of the future company. It is highly likely that you will need the assistance of a qualified German corporate law specialist at this stage, as the articles of association must objectively reflect the rules for the formation of your business. If the GmbH has only one founder, the standard form of the German Memorandum of Association is suitable.
The speed of registering your company in Germany will largely depend on the German notary. The notary is a key figure for German businessmen, because it is he who sends your documents for registration, enters information about your company in the Land Register, registers all changes that take place in your company afterwards, and records the debt obligations of your organisation when you take out a loan from a bank.
You need a good notary who will work quickly and responsibly. In Germany, all notaries cost about the same, and you cannot determine which is the best. Therefore, it is better to trust your corporate lawyer when it comes to choosing a notary.
Our specialists are ready to take care of all these issues and thus save you time, effort and money. Please contact us for consultation and we will provide you with a full range of services related to company registration.
The company director or the official representative of the company owner must open a deposit account in one of the German financial institutions and deposit the authorised capital. As a reminder, the minimum paid-up capital for a GmbH is €12,500.
It will be disproportionately easier for you to pay the share capital if the managing director of your company is registered at a German address. German banks send notices and plastic payment cards to the home address of the company representative who contacts them, so they often refuse to cooperate with foreign directors.
Once the authorised capital has been placed, you will need to take a bank statement and give this document to your notary. The notary, in turn, submits your company’s documents to the commercial register for official registration.
Knowledgeable entrepreneurs usually hire experienced corporate attorneys to provide legal support at all stages of starting a company, so registering with the registry is usually free of any complications if you have a responsible notary.
In total it takes between 4 and 8 weeks to register a limited liability company in Germany from the first to the last stage, depending on the federal state.
Germany has a 15% corporate income tax rate. A so-called solidarity tax of 5.5 percent is added to the amount of corporate tax levied. Thus, together with the solidarity surcharge, German companies pay 15.825% tax on their declared profits.
Trade tax or business tax is levied at the municipality level on all companies registered in the country whose revenue in the reporting period exceeds €24,500. The rate of this tax, depending on the municipality, varies between 8.75-20.3%, which is formed of 2 parts: a flat tax rate of 3.5% and a municipal tax.
Thus, including the trade tax, the total tax payments of the German company could reach 33% of the profits earned.
VAT in Germany is 19 per cent, but there are activities and goods for which preferential or even zero rates apply.
Dividend (25%) and capital gains (>26%) tax in this country can vary significantly depending on circumstances and federal state.
Property purchase tax or so-called stamp duty is charged at a rate of between 3.5 and 6.5 per cent, depending on the value and location of the property.
In addition, all corporate bodies in Germany must be members of the IHK (IHK) and/or HWK (HWK), to which a contribution of €80-250 is paid each year.
All companies registered in the Federal Republic of Germany pay another levy with an unpronounceable name, from which the public media are financed. The levy is based on the number of your company’s branches in the country, the number of your company’s vehicles and the number of your employees at a rate of €5.83 per month per unit of measurement.
Germany’s rather complex tax system nevertheless has hidden opportunities for optimisation, which you can realise if you hire a tax advisor instead of an accountant. As a rule, the services of such a specialist are somewhat more expensive than those of an ordinary accounting firm, because unlike an accountant, a tax advisor is responsible for his mistakes with his business reputation and professional insurance.
If you are not familiar with the intricacies of German corporate law, the best solution for you is to seek qualified support from Imperial & Legal. Using the extensive experience of our specialist’s, you will successfully register your company, register for tax purposes, participate in one of the state support programmes and reduce the tax burden of your business in Germany.
As already mentioned, a UG can place €1 in a deposit account in a German bank instead of the minimum €12,500 for a GmbH. Unlike a GmbH, an entrepreneurial company is obliged to allocate part of its profits to the payment of the authorised capital until it has reached €25,000.
The founders of a German limited liability company can pay part of the authorised share capital with their property rather than with money. Or they may not pay the remaining €12,500 at all, leaving it as a financial obligation distributed among the founders in the event of the company’s bankruptcy.
A GmbH is a self-sufficient legal entity rather than a transitional form for non-wealthy entrepreneurs. Whereas a UG will have to be re-registered as a GmbH when the minimum amount of authorised capital has been accumulated in the deposit account.
According to the laws in force in the country, founders are not liable with all their assets for the debts of their limited liability company. However, if the sole proprietor of the GmbH acts as a director, there is a possibility that he, as a managing director, will be fully liable for his decisions if:
These decisions led to the bankruptcy of the company;
His guilt as a bankruptcy trustee will be proven at trial.
Another unpleasant moment concerns those founders who have decided to settle in Germany. The owner and at the same time the director of a German GmbH in the first 3 years of existence of his company will not be able to take a loan from a local bank as a private person, for example, to buy a house. According to the strange logic of German financial institutions, such a person, unlike a salaried employee, runs the risk of not being able to repay the loan, even if the business under his management succeeds.
According to the rules in force in the European Union, all information on German corporate structures is made available to the public on the website of the commercial register. Moreover, all changes regarding the company’s founders, director, registered office, and name must be promptly entered into the company’s documents with the help of a local notary and then updated in the commercial register.
In addition, German GmbHs and AGs are required to publish their annual balance sheets and founding documents in open or semi-open access (access is available for a nominal fee of 5-7 euros).
The costs for the registration of a GmbH can be roughly divided into two large groups:
Notary fees are the cost of a German notary office. In the case of the registration of a GmbH with one executive director, the cost of a notary will be €700-800;
Corporate Counsel Services. You should not skimp on this item because quality legal advice will save you much more money than you will spend. Typically, your incorporation agent will include in their bill:
You must also have at least €12,500 at your disposal to pay for the authorised capital of the firm.
It is not uncommon for novice businessmen to go along with unscrupulous consultants who claim that a limited liability company begins to exist after the statutory documents are signed in the presence of a German notary.
However, according to the laws in force in Germany, the liability of the founders and directors of a GmbH extends solely to their contribution to the share capital only after the company has been officially registered in the commercial register.Until then, you should refrain from any business operations, because then you will be liable for their results with all your assets.
We will work with you to find a customised solution for your immigration, second citizenship, business, tax and other needs.
European passport
Open a bank account
Financial & Wealth management