This is how to set up a company in Germany! Step by step instructions

Germany is one of the largest economies in the world. Germany’s gross domestic product, which amounted to $3,393 billion in 2018, is the highest in all of Europe and places our western neighbors in fourth place in the world. A positive economy and a relatively wealthy society are therefore conducive to starting a business in Germany. If you live in Germany and are planning to open your own hairdressing salon, start an e-commerce business, work as a freelance carer for the elderly or start any other kind of self-employment, you won’t be able to do without registering your own business. The whole thing seems a bit complicated at first glance, but if you approach the subject properly, it should not cause you any major problems. As a German would say “Aller Anfang ist schwer”, that is the beginnings are always difficult, but the satisfaction is so much greater if you manage to realize your professional dream.

When are you obliged to declare an activity in Germany?

If you are self-employed in Germany you are obliged to declare your business and settle the account with the tax office (das Finanzamt). An exception to this is if you are a freelancer. The exception to this is people who work as freelancers, which is explained below. In Germany, self-employment is regulated by the Income Tax Act. Section 15(2) of the Act defines the concept of economic activity. This one states that an economic activity takes place when:

  • The activity is carried out independently and on one’s own responsibility
  • The activity is of a long-term nature (for example, if you sell something on the internet on a one-off basis, this activity is not subject to income tax)
  • There is an intention to make a profit
  • In carrying out the activity, we take an active part in shaping the market economy, e.g. by selling goods or offering services

In some cases, economic activity may also be established if all of the above-mentioned points are not fulfilled. However, this is rarely the case.

Where and how to set up a company in Germany? Step by step instructions!

In order to register as a self-employed person in Germany (Gewerbe):

  1. First, you have to go to the Trade Licensing Office (Gewerbeamt), which is usually located at the town hall or town hall. You can find information on the internet, for example by using Google.
  2. You will then have to fill out a form at the office. In most cases the clerk will ask you questions about yourself (name, address, date of birth, etc.) and your business (what kind of business you want to be in, what you want to do). After saving them, you will get a printout which you should check (is all the information correct?) and then sign.
  3. Finally, you have to pay a small registration fee (about 20-30 euros depending on the city). This can be done on the spot or by bank transfer to the bank account of the Landesamt (the Landesamt will tell you which bank account to pay if you choose this method of payment).

When registering a company in Germany it is necessary to show a valid identity card and, if applicable, a registered address. Some professions, mainly crafts (Handwerk), require a master craftsman’s diploma (Meistertitel). Here you can find a list of all professions where the master craftsman’s diploma is required: www.handwerk-magazin.de.

Which German authorities do I have to notify about my company registration?

Certain German authorities are automatically informed of the business registration. These include the Chamber of Industry and Commerce (IHK), the Chamber of Crafts (die Handwerkskammer), and the Tax Office (Finanzamt). Depending on your occupation, membership of the Chamber of Commerce and Industry or Chamber of Crafts is mandatory and involves membership dues. However, you will be informed about this in separate letters from the respective institutions. However, companies whose annual income does not exceed €5,200 and companies in their first and second year of business are exempt from paying membership dues if their annual income does not exceed the limit of €25,000 (in the case of the Chamber of Crafts and Trades, half of the dues are paid in the second year of business). After declaring your business, the tax office will send you a form that you must fill out and return. In some cases, you will receive this form immediately upon registering your business. The tax office will send you the tax identification number you need for your tax return.

How to put business documents in order in case of Finanzamt inspection?

According to German regulations, business persons are obliged to record business events in such a way that they allow an appropriate third party to assess the facts of the business. Business events and the relationships between them should remain legible. Data about the company should be kept up to 10 years back.
The commercial document should include:
– counterparty data
– Information about the product and the tax rate
– tax number.
Invoice numbering is intended to enable the identification of the commercial document. Invoices should be recorded in such a way that all subsequent modifications are registered in the system. Inaccurate invoices that have already been approved must be canceled (Storno).

Which industries and professions require a special permit in Germany?

For certain business activities, special permits are required in Germany. These include:

  • Labour brokering: according to the German Posting of Workers Act, approval from the National Labour Office is required if the broker sends temporary workers to perform gainful employment.
  • Retail trade: the exercise of gainful activity in the retail trade related to minced meat, medicines, vertebrates, firearms and ammunition requires a permit.
  • Carriage of goods: according to the Law on Carriage of Goods, the carriage of goods by vehicles whose total weight exceeds 3.5 tons requires the approval of the relevant transport authority. For transportation of goods abroad, but within the EU and in countries belonging to the European Economic Community (Norway, Iceland and Liechtenstein), a so-called Community license (EG-Lizenz) is required. Permits in the freight transport industry are only granted if specific requirements are met. The applicant must demonstrate appropriate professional qualifications related to his business or present certificates of passing specialized examinations. In addition, the credibility and financial standing of the business is also checked.
  • Crafts: According to § 1 of the German Crafts Act, registration in the craftsmen’s register is required for running a selfemployed craft business. In order to obtain registration in the craftsmen’s register, a master’s examination or an exceptional permit is required. The registration in the skilled trades register is not necessary for an “industrial” company. Characteristics of such a company are e.g. a high degree of automation, production with stocks, a supra-regional market and a serial production process.
  • Carriage of persons: In accordance with the Carriage of Persons Act, the carriage of persons for remuneration in vehicles such as buses or cars requires a permit. Permits for passenger transport (regular or occasional transport) are granted by the competent authority depending on the extent of the transport (e.g. mayor or city president). The authorities which grant permits for transport by rental cars and cabs are lower-level transport departments. A company or person engaged in passenger transport (cab, car rental) must prove the use of cars for this purpose. This can be done by means of
    – an examination by the competent Chamber of Industry and Commerce (IHK)
    – Proof of at least three years of activity in a road passenger transport company
    – A special final examination in a valued profession requiring specific training (e.g. road haulier) or further education in this field

What costs are involved when setting up a business in Germany?

Anyone who runs a company in Germany as the main occupation has been obliged to pay health insurance since 1st January 2009. This can be private or public health insurance. The amount of private health insurance is calculated by the health insurance company based on your current state of health and the selected tariff. In the case of public health insurance, the prices of the premiums are set almost entirely by law.

In addition, the costs of pension insurance must be taken into account, which in the case of state insurance is a minimum of 79.60 euros and a maximum of 1,054.70 euros. Additionally, it is possible to pay for unemployment insurance, which currently amounts to 17.64 euros in the west of Germany and 14.95 euros in the east of the country.

Other expenses that need to be taken into account when setting up a business in Germany are costs incurred for life, advertising or additional insurances, such as incapacity insurance (more here) or legal expenses insurance (Rechtsschutzverischerung) – more here.

Setting up a business in Germany – which legal form?

When registering your business in Germany you have to decide on a specific legal form. Below are the most common legal forms and their characteristics.

Sole proprietorship (Einzelunternehmer)

The sole proprietorship is one of the most popular legal forms of self-employment in Germany. This form of business offers you a lot of freedom in decision making and has the additional advantage that in most cases you only need to submit an account of your surplus income to begin with (with profits of less than €50,000 and a turnover of no more than €500,000) as part of your tax declaration. When using this legal form, you must always state your name in business relations (the company name is not sufficient). If your total turnover is less than 22,000 euros in the previous calendar year and 50,000 euros in the current year, you can take advantage of the regulations for small businesses (Kleinunternehmerregelung). In this case you do not have to pay value added tax (VAT) and at the same time you cannot deduct it. In order to take advantage of this regulation you have to inform the tax office during the registration of your business (form from the tax office – see above).
Liability: Private assets
Accounting: Excess income account
Trade register: optional

Trader (Kaufmann)

According to the law, a registered merchant is one who runs a “commercially established enterprise”. This includes stores, restaurants, etc. As a registered trade person you are theoretically more trusted by potential business partners, especially since you can use your company name in business correspondence.
Liability: Private property
Accounting: double entry rule
Commercial register: compulsory

Freelancers (Freiberufler)

Freelancers (if recognized as such by the tax authorities) are treated similarly to sole proprietorships
Liability: private assets
Accounting: double entry rule
Commercial register: optional

Civil partnership (Gesellschaft bürgerlichen Rechts)

This legal form is an option for “freelancers” or self-employed people who want to set up a business with a partner.
Liability: personal assets (liability also for the partner)
Accounting: double entry rule
Commercial register: optional

Partnership (Partnerschaftsgesellschaft)

This form was created for “freelancers” but is used relatively rarely.
Liability: personal assets (liability also for the partner, but if one of them makes a mistake, the other is relieved of responsibility for him/her)
Accounting: double entry rule
Commercial register: compulsory

General partnership (Offene Handelsgesellschaft)

General partnership is a partnership for traders.
Liability: private assets
Accounting: double entry rule
Commercial register: compulsory

Limited liability company (Gesellschaft mit beschränkter Haftung)

This legal form can be used by both self-employed and “freelancers”. A share capital of at least 25,000 Euro is required. 25,000 Euros are required.
Liability: company assets
Accounting: double entry rule
Commercial register: compulsory

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