Accountants and company formation in Germany

Setting up a company in Germany

To set up a company in Germany from abroad, the usual route is a GmbH: the articles are signed before a German notary, at least half of the minimum capital goes into a bank account, and the notary files the company with the commercial register (Handelsregister) at the local court. A foreign company can instead register a branch. Either way you need a German business address, a trade notification and a tax registration before you start trading.

The route for a GmbH, in short:

1. Settle the basics: legal form, German address, managing director and, if you plan to move, your residence permit.
2. Prepare the documents: passports, and for a corporate shareholder its register extract and articles, legalised and translated as the notary asks.
3. Sign the articles before a notary, in person, through a notarised power of attorney or by video with an eID.
4. Pay in the share capital to a bank account in the company’s name.
5. Let the notary file the company with the Handelsregister; the GmbH exists once it is entered.
6. Register with the trade office and the tax office, ask for the VAT number and report the beneficial owners to the Transparency Register.

Who may own and run a German company

Nationality and home address do not stop you. Germany Trade & Invest (GTAI), the federal economic development agency, states that the nationality and residence of the shareholders and managing directors of a GmbH are irrelevant. A single shareholder is enough, and that shareholder can be a person or a company.

Two conditions apply in every case. The company needs a German business address, which the GmbH Act requires in the register filing, and GTAI adds that it needs a local representative. The managing director must be a natural person with full legal capacity; a company cannot hold that role.

Owning or managing a German company from abroad is one thing. Working in Germany yourself is another, and for citizens of countries outside the EU it needs a residence permit that allows self-employment. That question is covered further down.

Choose the legal form: GmbH, UG or branch

Foreign founders and groups usually weigh three structures.

The GmbH Act sets the minimum share capital at €25,000. Capital can also be contributed in kind, such as equipment or patents, but the articles must name the asset and the founders must write a report on its value.

The UG is a GmbH with less capital. Its name must carry the suffix “UG (haftungsbeschränkt)”, the capital must be paid in full before filing, contributions in kind are not allowed, and a quarter of each year’s surplus goes into a reserve until the company reaches the GmbH minimum. It suits a founder who wants limited liability with little cash, as long as the name and the reserve rule are acceptable.

A branch is the simpler choice for an existing foreign company. GTAI notes that the foreign head office stays liable for the branch’s transactions. An autonomous branch, with its own management and accounts, goes into the commercial register and is usually a permanent establishment for tax. A dependent branch only notifies the trade office.

Larger projects sometimes use the stock corporation (AG), whose minimum share capital is €50,000. Partnerships such as the KG and the GmbH & Co. KG also exist; they bring different liability and tax rules, so take advice before choosing one.

Step 1: Prepare the documents and the German address

Start with the paperwork, because foreign documents set the pace. For each shareholder and director, have a valid passport. When a company is the shareholder, GTAI says the notary usually asks for an excerpt from the foreign commercial register and the parent’s articles, plus proof of who may act for it. Depending on the country, these need an apostille or legalisation and a certified German translation.

Settle the business address at the same time. It goes into the register entry and onto every official letter, and banks will ask for it. Decide also who will be managing director and whether that person lives in Germany, since many later steps, from the bank to the tax office, run through that person.

Step 2: Sign the articles before a German notary

The articles of association (Gesellschaftsvertrag) are only valid in notarial form, signed by all shareholders. You have three ways to do it:

• In person at a notary’s office in Germany.
• Through a representative, using a power of attorney that is itself notarised or certified, for example by a notary in your home country with an apostille.
• By video, through the system of the Federal Chamber of Notaries. GTAI lists the eIDs accepted for online formation: German ID cards and eID cards, the German electronic residence permit, and eIDAS schemes of other EU and EEA states with a high assurance level.

A company with up to three shareholders and one managing director can use the statutory model protocol (Musterprotokoll). It replaces tailored articles, also serves as the shareholder list and costs less at the notary. The trade-off is flexibility: you cannot add your own clauses.

Step 3: Pay in the share capital

Before the notary files the company, money must be in place. The rule in the GmbH Act is that a quarter of each share must be paid, and at least half of the minimum capital in total. GTAI puts it in figures: at least €12,500 must be contributed on a bank account by the time of registration. A UG pays its full capital up front.

The capital is not a deposit that sits untouched: GTAI notes that it can, to a certain extent, be used for the company’s business. Open the account early, because banks check the founders, the directors and the source of the funds before they accept a company still in formation.

Step 4: Registration in the Handelsregister

The notary files the company electronically with the register court in the district of its seat. Filings are made in publicly certified form, so you do not file anything yourself. The filing includes the articles, the list of shareholders, the German business address and the director’s confirmation that the capital has been paid and that nothing bars them from office.

Until the entry, the GmbH does not exist as such. The Act says that anyone who acts in its name before registration is personally liable, so hold off on contracts until the entry appears. Once registered, the company and its register number can be found on the register portal of the federal states.

Two duties follow straight away. The company must report its beneficial owners to the Transparency Register without delay, and the managing directors file a new shareholder list whenever ownership changes.

Step 5: Register with the trade office and the tax office

Commercial activity in Germany has to be notified. The Trade Regulation Code says that whoever starts a business, a branch or a dependent office must notify the competent authority when it starts. In practice this is the Gewerbeanzeige at the local trade office. Some activities also need a permit, so ask before you start.

The company then registers with its local tax office, which issues a tax number. The Federal Central Tax Office (BZSt) issues the separate VAT identification number, which you need for cross-border supplies inside the EU. You can request it on the tax registration itself, and it arrives by post only.

Plan for frequent VAT filings at first. A business that starts its activity files VAT pre-returns every month in its first calendar year and the next, by the tenth day after each month.

How a German company is taxed

A GmbH pays corporation tax, a solidarity surcharge on that tax, and trade tax to the municipality.

Corporation tax. The rate in the Corporation Tax Act is set to fall step by step:

Solidarity surcharge. A surcharge of 5.5% is charged on the corporation tax, not on the profit.

Trade tax (Gewerbesteuer). A GmbH is always treated as a trading business for trade tax. The trade income is multiplied by a base rate of 3.5% and then by the municipality’s multiplier (Hebesatz), which each municipality sets and which is at least 280%. The total therefore depends on where the company has its premises, which is worth checking before you sign a lease.

VAT. The standard rate is 19%, with a reduced rate of 7% for listed goods and services.

Working in Germany yourself: the self-employment permit

EU and EEA citizens follow the free-movement rules. Founders from other countries need a residence permit that allows self-employment before they run the business in person. Under the Residence Act, it can be granted when there is an economic interest or regional need, the business is expected to have a positive effect on the economy, and the financing is secured by own capital or a loan commitment. Founders over 45 must show adequate pension provision. The permit is granted for at most three years, and a settlement permit can follow after three years if the business is working.

The Federal Foreign Office explains that citizens of the UK, Australia, Canada, Israel, Japan, New Zealand, South Korea and the United States can apply after arrival, but may only work once a permit authorises it. Everyone else applies for a visa first, with a business plan, financial and liquidity plans and a revenue forecast. Local chambers are consulted on the plan.

Running a GmbH: the yearly duties

Once trading, a GmbH runs on a fixed calendar.

• Annual accounts. Disclose them in German to the company register (Unternehmensregister) within one year of the balance sheet date.
• Tax returns. Corporation tax, trade tax and annual VAT returns each year, plus the VAT pre-returns during the year.
• Records. Keep books and annual accounts for ten years and accounting vouchers for eight.
• Register changes. New directors, a new address or new shareholders go to the Handelsregister through a notary, and changes in beneficial owners go to the Transparency Register.

Tax work is a regulated field. Only authorised people, such as a Steuerberater, a lawyer or a Wirtschaftsprüfer, may give tax advice as a business in Germany.

Pitfalls in a German formation

• Signing contracts before registration. The people acting are personally liable until the entry.
• Underestimating foreign paperwork. Apostilles and certified translations often take longer than the German steps.
• Treating the UG as a small GmbH without rules. The name suffix and the reserve stay until the capital reaches €25,000.
• Ignoring the trade tax multiplier. Two addresses can mean different trade tax bills.
• Expecting the GmbH to settle your residence. A permit to work in Germany is a separate application, decided under the Residence Act.
• Paying unexpected invoices. The register portal warns about payment notices relating to its online services; its own billing runs through the central payment agency of the justice authorities. Check the sender before you pay.

Finding help to set up a company in Germany

Accountanty lists 156 accounting firms, law firms and corporate service providers in Germany, 131 of them focused on foreign clients, and 71 offer company formation. Most are in Berlin, Frankfurt and Munich, with more in Hamburg. English is offered by 124 firms.

Choosing between a Steuerberater, a law firm and a corporate services provider, and reading their quotes, is covered on company formation in Germany. After registration, the firms listed for accounting, VAT, payroll and residency and visas take on the recurring work. With one free quote request, reviewed by Accountanty and passed to firms that match it, you can set up a company in Germany with several offers in hand.