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The Ultimate Guide To
Employment in Germany

Employing in Germany: What You Need to Know

German employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Other factors that complicate matters include the differences between regions and an inconsistent approach to adherence to laws in different districts.   For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Germany.

Key Factors to Consider When Employing in Germany

There are several key areas to be aware of within Germany’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the German laws and rules for both German employees as well as foreign nationals.

  1. Contracts

    Germany requires that workers have employment contracts that meet local standards, and companies must have a professional who can draft local employment contracts.

Employee Entitlements

Information Explanation
Working on Sundays ?

Under a five-day week, the average working time is between 35 and 40 hours. The daily productive working time generally may not exceed eight hours. A daily working time of up to ten hours productive working time is possible if, over a period of six months, the average daily working time does not exceed eight hours.

Working on Sundays and public holidays is generally prohibited. However, there are some exceptions

Medical Leave ?

Sick leave is available after 4 weeks of employment, and may be claimed for up to 6 weeks.

Annual Leave Accrual Entitlement ?

There are laws that regulate leave periods based on years of service and the type of leave requested.

Employees are entitled to 24 working days of annual leave, plus holidays.

Maternity Leave in Germany ?

Female employees are entitled to maternity leave throughout the entire pregnancy, as well as 4 months after the birth.

Male and female employees entitled to a maximum of three years’ unpaid parental leave per child. The employer may not terminate the employee, and employees have legal right to work part-time (up to 30 hours per week) during parental leave. After expiry of the parental leave, the employer has to offer an adequate working position to the employee.

Employment Termination in Germany

Information Explanation
Termination of Employment ?

For Employees who have been employed longer than six months, unfair dissmisal protections apply. Employees can only be fired for particular reasons such as misconduct or redundancy. Employees who are on parental leave, handicapped or pregnant can not be fired without government approval.

A minimum of 4 weeks notice is required prior to termination. The notice period increases according to length of service, and after 5 years the notice period increases by one month in the 5, 8, 10, 12, and 15 years of employment.

Termination that adheres to the notice periods is Ordinary Termination.

Extraordinary Termination, which ends the employment contract immediately, may be used for serious misconduct.

Probation

Information Explanation
Probation Period ?

Probation periods are permitted up to 6 months in length. During the probation period the employee is entitled to 2 weeks notice of termination.

Pension

Information Explanation
Pension Requirements ?

The system of welfare and benefits is complex in Germany, and cover sickness, unemployment, disability and retirement. There are requirements for both employee and employer contribution rates based on a percentage of salary.

The categories of Welfare Contributions include:

  • Pensions: Employer and employee each contribute one-half of the rate of 18.7% of salary
  • Medical Insurance: Employer contributes one-half the premium.
  • Unemployment Insurance: Employer contributes 1.5% of salary and employee also contributes 1.5%

Using Shield GEO EOR Services: How We Can Help You

Companies entering Germany can make a decision whether to use their own resources or to use a Global Employment Organization to handle employment and payroll responsibilities. A GEO solution is particularly beneficial when a company is looking to setup an office quickly with a manageable cost. The complexity of employment regulations in Germany makes the use of a GEO advisable to ensure full compliance with employment laws, including the drafting of local employment contracts for workers.

The company that is expanding into Germany contracts with the GEO to employ and payroll their staff on their behalf. The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits if necessary, complying with local employment law and running their monthly payroll. This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.

A GEO EOR Solution vs DIY Employment in Germany

Companies entering Germany must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities.  A GEO or German Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a German entity established that can run payroll.

A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and may be a costly option.  Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Using Shield GEO Employer of Record Services in Germany

Payroll

Payroll Germany
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please get in touch with us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

Currency ?

Euro

Tax Amount
Grossed income Tax Rate (%)
$0-$8,354 0
$8355-$52,881 14%
$52,882-$250,730 42%
$250,731+ 45%
Tax Returns Supplied

Yes

Corporate Tax Requirements

15%

Employers Social Security and statutory contributions

Employers social security in Germany is extensive and made up of 4 elements.

Pension insurance (Rentenversicherung): 9.45% (charged on earnings up until EU 71400)

Unemployment insurance (Arbeitslosenversicherung): 1.5% (charged on earnings up until EU 71400)

Health insurance (Krankenversicherung): 7.3% (charged on earnings up until EU 48600)

Invalidity/Long-term care insurance(Pflegeversicherung): 1.175% (charged on earnings up until EU 48600)

Employees Social Security and statutory contributions

Total Estimate is 12.5% (there are caps) and is made up of; 18.9% Old Age Pension and 3% Unemployment Insurance (capped at earnings up to Euro 71,400). Split equally between the employee and employer.

Health Insurance is compulsory if the employees wage is less than Euro 53,550. Employee/Employer split 14.6%. Contributions are paid up to earnings of Euro 48,600. Employee also has to pay 0.9% surcharge to a max of Euro 36.45 a month.

If the employee earns more than Euro 4,462.50 a month then they must contribute to a Private Health Insurance plan, pay the full premium and their employer reimburses them for half the premium up to the max they would receive through the compulsory scheme.

Nursing care/invalidity insurance is compulsory and is levied at 2.35% split equally between employer and employee. Childless employees pay an addition 0.25%.

Insurance requirements

Our local entity covers Professional Indemnity Insurance.

Can supply private health care

Yes

Can assist opening bank accounts

Yes

Work Permits

Work Permits
Can Sponsor Work Permit

Yes for both Blue Card/Resident Permits and Skilled Worker Visas/Resident Permits

Work Permit cost

Euro 2500

Work Permit processing time

8-12 weeks depending on the type of work permit and nationality of the applicant

Work Permit process

The process depends on the type of permit / visa and the nationality of the applicant.

For a standard work permit or Arbeitserlaubnis the process is as follows:

Non-EU citizens (except nationals of Australia, Canada, Israel, Japan, New Zealand, South Korea and USA) must apply in person for a German National Residence Permit (Aufenthaltserlaubnis) at the German Embassy (Deutsche Botschaft) / Consulate in their  country of residence before they can enter Germany. To obtain an appointment can take up to 6 weeks. Once the application is lodged in the appointment it takes 6-12 weeks as the application is sent to the local Foreigners Authority (Ausländerbehörde) where the employee will reside in Germany.

The Aufenthaltserlaubnis is normally issued in conjunction with an entry visa and valid for 3 months. This typically allows the employee to enter Germany and start work – this right will be explicitly stated on the Aufenthaltserlaubnis.

The German local Foreigners Authority (Ausländerbehörde) and Federal Employment Agency (Bundesagentur für Arbeit) must still confirm that the work concerned is suitable and that the employee will not disadvantage the employment of local German or EU employees. This may also involve the local Chamber of  Industry and Commerce (Deutscher Industrie- unde Handelskammertag). After these checks are completed the work permit is granted.

The following documents are required

Passport copy
Copy of Diplomas
CV
Health insurance certificate ( Has to be recognized by German)
Job description in German
Local Employment contract with dates and annual salary (Original German version)
Residence address (in home country)
Place of work (in Germany)
Address of intended residence in Germany
Further documents may be required by different embassies.
Letter from End client may be requested

Can Work Permit be processed in country

Yes but depends on the nationality.

Switch Business Visa to Work Permit?

No. However for some nationalities, you can switch from an Entry Visa to Work Permit.

Can Spouse work on dependent visa?

Yes.

Business Visas

Business Visas
Can do Business Visa

Yes.

Business Visa Cost

Euro 500.

Business Visa processing time

Depends on the Consulate but generally 5-10 days.

Payroll and Tax in Germany

There are specific rules for payroll and taxation in Germany, depending upon whether your company employs foreign nationals or local German employees. The primary concerns for a foreign company that needs to comply with tax laws in Germany are: individual income tax (IIT) for employees in Germany, social and health insurance costs, payroll tax, sales tax, accident insurance, withholding tax, business tax and permanent establishment concerns.

Your Payroll Options in Germany

Information Explanation
Remote Payroll ?

A remote payroll in Germany is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Germany. One option for a non-resident company to payroll its employees (local and foreign) in Germany is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration ?

In some cases, a company will register their business in Germany under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll ?

Larger companies with a commitment to Germany may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a German payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with German employment laws.

Fully Outsourced Payroll & Employment ?

Companies can outsource the employment and payroll of their staff in Germany to a GEO, like Shield GEO. This is possible for both foreign workers and German nationals. This is the easiest, fastest and safest way to payroll staff in Germany.

Shield GEO manages all aspects of payroll for workers in Germany, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Germany

Information Explanation
National Currency ?

Euro

Documentation Required for New Employees ?
  • ID / Passport
  • Residence Permit / Visa if applicable
  • Tax ID Number & Tax bracket
  • Social security number
  • Where applicable, proof of service in the German military or alternative civilian service
  • Where applicable, certificate of leave from the previous employer
  • Where applicable, residence permit/visa
  • Where applicable, certificate of leave from the previous employer
  • Certification of membership of a statutory health insurance fund /substitute fund
  • Marriage certificate, birth certificates of children, divorce ruling where applicable
  • Bank details (IBAN & BIC code)

Germany has very strong data protection regulations. Employers should be aware that whilst an employees personal data can be collected for employment related purposes the information sought and in particular methods used for background checks are very limited.

Tax Figures

Information Explanation
Corporate Income Tax ?

29.65%

Income Tax Rate ?
Grossed income Tax Rate (%)
$0-$8,354 0
$8355-$52,881 14%
$52,882-$250,730 42%
$250,731+ 45%
Payroll Tax ?

n/a

Sales Tax ?

19%

Withholding Tax ?

Divident Withholding Tax 25%

Interest Withholding Tax 25%

Royalty Withholding Tax 15%

Can be reduced based on relevant tax treaties

Payments

Information Explanation
Payment Mode ?

Not clear if there is a legal rule but payments are usually transferred electronically via the country’s standardized File Transfer and Access Management (FTAM) protocol.

Frequency of Salary Payment ?

Does not seem to be set at law, but the standard appears to be monthly payments (12)

Invoice / Payslips required ?

Yes – if you have an employment contract then a written salary advice showing gross payments and detailed deductions is a legal requirement 

Minimum Wage ?

EUR 1,473.00 per month
Introduced in Jan, 2015. 

Germany Immigration and Work Permits

Foreign workers are required to have the proper visas and work permits in Germany, as established by immigration laws. Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the German market. If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits.

Whether establishing a company in Germany or relocating as a self-employed expat, visas are an important step to consider. It is recommended to check with the consulate or a local embassy whether your trip will require a visa, and which of the following types are most suitable.

  • Visit: If just visiting for three months or less, holders of a US passport or residency will generally not need a visa to visit for up to 90 days within any 6-month period. This may be sufficient for short and simple business trips, e.g. to set up a business.
  • Schengen visas: If one is not eligible to go without a visa, a Schengen Visa would be required for the same length of short term trip, but a residence permit is not likely to be required
  • Longer-term trips: If one is spending more than three months or more actively working (e.g. ‘employed’ by the company) a national visa and residence permit will be required.
  • Residency: If one is going for a long-term trip as above or to relocate as a self-employed freelancer, a residency permit will be required.

Your Options

Use Your Own Company?

For a standard work permit or Arbeitserlaubnis the process is as follows:

Non-EU citizens (except nationals of Australia, Canada, Israel, Japan, New Zealand, South Korea and USA) must apply in person for a German National Residence Permit (Aufenthaltserlaubnis) at the German Embassy (Deutsche Botschaft) / Consulate General (Generalkonsulat) in their  country of residence before they can enter Germany. They will need the documents listed below as well as a completed application form. To obtain an appointment can take up to 6 weeks. Once the application is lodged in the appointment it takes 8-26 weeks as the application is sent to the local Foreigners Authority (Ausländerbehörde) where the employee will reside in Germany. The approval of the Federal Labor Agency and Foreigners Authority can take a long time if they have difficulty going through the “Labor market check” and it coincides with a slow time e.g. European summer holidays.

The Aufenthaltserlaubnis is normally issued in conjunction with an entry visa and valid for 3 months. This typically allows the employee to enter Germany and start work – this right will be explicitly stated on the Aufenthaltserlaubnis.

The German local Foreigners Authority (Ausländerbehörde) and Federal Labor Agency (Bundesagentur für Arbeit) must still confirm that the work concerned is suitable and that the employee will not disadvantage the employment of local German or EU employees. This may also involve the local Chamber of  Industry and Commerce (Deutscher Industrie- unde Handelskammertag). After these checks are completed the work permit is granted.

The following documents are required

Employer

  • Original signed contract of employment in German showing the occupation, salary level, dates of employment and other relevant terms.
  • Original letter from employer (Arbeitgeber) to take responsibility for the employees health insurance and other costs whilst they are in Germany
  • Original letter  from employer explaining why a foreign national is required for the position.
  • Additional documents may be required by the German authorities

Employee

  • Passport copy
  • Copy of Diplomas
  • CV
  • Health insurance certificate ( Has to be recognized by German)
  • Job description in German
  • Local Employment contract with dates and annual salary (Original German version)
  • Residence address (in home country)
  • Place of work (in Germany)
  • Address of intended residence in Germany
  • Further documents may be required by different embassies.

Cost : varies depending on local embassy

Processing time : 12 weeks+ depending on if Labor Market Check is required

Use the Shield GEO Employer of Record Solution?

Depending on the Visa type (Blue Card/Resident Permits or Skilled Worker Visas/Resident Permit) and the nationality of the applicant the visa process can take 2 – 8 weeks.

Documentation required (Employee): Two completed application forms, Passport copy, CV, Employment Contract or a Letter of Intent, educational degree certificates (these need to be notarized) and 2 passport copies.

The process for obtaining the Skilled Worker/Resident Permit (National Visa) is as follows:

  • Shield GEO’s local entity and the employee sign a local employment contract.
  • If the applicant is from a Non-Visa Dependent country (Australia, Canada, Israel, Japan, New Zealand, South Korea and USA) they can travel into Germany and the visa application can take place in country.
  • If the applicant is from a visa-dependent country the national visa application must first be lodged at the German Consulate in the applicants country of residency.
  • If the role is ‘whitelisted’ (skill shortage) and has pre-approval from the labour authority the approval process will be around 2 weeks.
  • If the role is not ‘whitelisted’ and there is no pre-approval the German Consulate we will forward a request for approval to the local labour authority. This can take anywhere from 2-6 months.
  • For pre-approval Shield’s local entity will need to have advertised the role for a period of time with the labour authority before they labour authority will approve the application.
  • Once the application has been approved by the Aliens Office and by the Work Office, the Embassy/Consulate will issue the applicant with a Residence Permit which authorizes the applicant to work in Germany.
  • Note that those from non-visa Dependent Countries can apply for their Residence Permit after entering Germany.

Types of visas in Germany

Category Description of Visa
Visits ('tourist' visas)

Depending on the activity you will be doing in Germany a tourist visa is generally the easiest option, requiring no special preparation or documents aside from the usual passport. Please note you cannot perform work activities on a tourist visa. While US citizens generally won’t require a visa for trips up to three months long, it is recommended to check with the consulate or embassy before going.

Cost: None
Time: None

Schengen Visas

Although US citizens generally don’t need visas for short-term (up to 3 month) stays, if a visa is required Schengen visas can be issued for short-term visiting or business purposes.

Schengen visas allow free movement between ‘Schengen’ states: Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland.

These visas are generally authorized for short periods of time, usually for a 3-month period once in six months. For a longer period of time, national-visas are required. Schengen visas cannot be extended or re-written for any other purpose.
How to Apply for A Schengen Visa

1. Submitting the Application at a Local German Embassy
Applications for a visa can also be found on most German embassy sites. For those based in the US, the German Missions in the United States offers more information at www.germany.info.

2. Generally, the original and 2 photocopies of the following documents will be required in English or German:

● Application form,
● A valid travel document (e.g. passport) valid for at least 3 months after end of your trip,
● Two recent passport photographs,
● Round-trip airline ticket or proof of confirmed flight reservations,
● Evidence of place to stay and purpose of visit (such as a invitation from a business partner in Germany),
● Proof of travel medical insurance with a minimum coverage of 30,000 Euros (US $50,000) that is valid for all Schengen countries,
● Evidence of travel insurance,
● Evidence of sufficient resources (e.g. money) to pay for living costs and return to home country, or Company guarantee letter with bank endorsement
● Declaration of genuineness of documents.

Time: Up to 15 days
Cost: $92.00 (USD)

Work Permits and National Visas

For trips that will take longer than three months, a national visa will be required. The process is mostly similar to the Schengen Visa process, however there is a significantly longer wait of up to several months. It will also require a residence permit and additional steps registering after arriving in Germany.

Note: foreigners from Australia, Canada, Israel, Japan, New Zealand, the Republic of Korea, Switzerland and the United States are able to freely enter Germany as a non-visa “tourist” but can apply to acquire/change their residence permit even after entering Germany. Citizens of all other countries must apply for visas and residence permits before arriving in the country. For those based in the US, the German Missions in the United States offers more information on their website.

How to Apply for a National Visa:

1. Submit Application at Local German Embassy
Applications for a visa can be found on most German embassy sites. In addition to the documents mentioned in the Schengen Visa application above, the following are required:

● Two completed application forms and three recent passport photographs
● If intending to stay in Germany more than 12 months, a Certificate of No Criminal Conviction (Polizeiliches Fuehrungszeugnis fuer berufliche Zwecke) may also be required, see below for details.

Time: Up to several months
Cost: $92.00 (USD)

2. Apply for a Residence Permit
This can also be done at the nearest German embassy. Whether a permit is granted depends on the following criteria:

● The business plan
● Qualifications and experience
● Level of financial investment*
● Company’s impact on employment
● Your contribution to the national or regional economy, innovation, and research
● Competition with established businesses

*Note that for level of financial investment, immigrants planning to invest at least €250,000 in Germany are highly likely to obtain a residence permit almost automatically. The residence permit will be valid for a limited period of time, and will afterwards need to be renewed at the local immigration office in Germany.

3. Apply for Certificate of Health for Residence Permit (Gesundheitszeugnis für Aufenthaltserlaubnis)

If already in Germany, these can be obtained from a German doctor or local health office (Gesundheitsamt). There are no clear guidelines on acquiring one before entering Germany, though it is expected that any doctor can provide suitable certification. A local German embassy would need to provide advice.

Cost: Around €150 from a doctor, or around €75 from the Gesundheitsamt.
Time: 1 day

4. Apply for Certificate of Good Conduct (Führungszeugnis)
The German Police Certificate of Good Conduct (Führungszeugnis) is a certificate issued by the Federal Office of Justice, which indicates whether or not the applicant has a criminal record in Germany.

These can be applied for through assistance from your home country’s embassy or consulate.

Cost: €13
Time: Up to 2 weeks (estimated)

No source of information could be found that indicates the timeframe for this certificate; anticipate several weeks as it must go through international post and processing within Germany and then be sent back.

5. Register at Local Residence Registration Office (Einwohnermeldeamt)

Within a week of arriving in Germany you must register at your local residence registration office (Einwohnermeldeamt, also known as Bürgeramt), usually located in the town or city hall. They issue an Anmeldebestätigung which will be required in conjunction with a passport for identification.

The following documents are needed:
● Passport and visa,
● Two passport photographs
● Birth certificate (and marriage certificate if applicable)
● Proof of travel health insurance
● Your residence registration (Anmeldebestätigung)
● Proof of residence (e.g. rental contract)
● Certificate of good conduct (Führungszeugnis)
● Certificate of Health for Residence Permit (Gesundheitszeugnis für Aufenthaltserlaubnis)

In addition, depending on your circumstances:
● Unemployed (e.g. business visit but not actively ‘employed’): proof of means of support, such as letter from the company or proof of adequate financial resources (Finanzierungsnachweis) of around €700/month
● Employed (e.g. for your employees being sent to Germany): proof of employment or letter from employing company
● Self-employed: proof of your status, such as membership of a professional or trade body, a VAT number or registration on a trade register

Cost: None.
Time: One to two weeks (while waiting you will receive a certificate stating you are awaiting a residence permit).

Summary

Visas in Germany can be complex to negotiate because of the number of steps involved and the required involvement from German sponsors. Following the process outlined in this guide should give you a good start, but if you would like more information about visas in Germany or need help getting sponsored please contact us.

Setting up a company in Germany

When setting up a company you may want to consider these factors:

  1. Business factors

    • The industry and type of business
    • Nationality of the headquarters/individual(s) and
    • Presence of existing trade agreements or relationships

Your Options

Companies entering Germany must make a decision whether to use their own resources for or to use a Global Employment Organization to handle payroll and employment responsibilities. Usually, a GEO solution would be used where a company is looking to setup an office quickly with a manageable cost.   The complexity of employment regulations in Germany makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, including the drafting of local contracts for workers.

The company that is expanding into Germany contracts with the GEO to employ and payroll their staff on their behalf in that country. The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.

Companies

There are two options which include a Sole Proprietor and a Private Company.

A. Sole Proprietor (Einzelunternehmen)

A sole proprietorship does not require any formal incorporation and is ‘automatically’ formed when a person begins conducting commercial business activity under their name. However it can also be formally registered with the local trade office, and this step is sometimes mandatory depending on the type of business.

No minimum capital is necessary. Sole proprietors have unlimited liability and the trading name must include the proprietor’s family name as a main component.

Register at the local citizen office (Bürgerbüro)

To do this you will need the following documents:

  • A rental contract
  • A valid photo ID (e.g. passport)
  • A completed Anmeldung form

Time: 1 day (can be processed within minutes depending on the office and how busy it is)

Cost: Free

Register with the Tax Office (Finanzamt)

You will need to register at the tax office to get a Tax File Number (Steuernummer). The usual term for the application form is Fragebogen zur steuerlichen Erfassung, and it is generally not available in English.

Your Finanzamt can be found online by searching for “Finanzamt” plus the local district name. Registration can be done by mail or in person.

Mail

  • Write a letter stating that you want to work as a freelancer in your profession and are requesting a tax number.
  • Include your (office/home-office) address in the letter
  • Sign the letter

 

In Person

  • Either download the application form online or arrive in person and ask for a Tax File Number application form.

Going in person is recommended as you can get the form checked before submitting it.

After the application is processed and accepted, the tax authority will send a questionnaire asking for personal details, estimated income in the current tax year and whether you want to opt in for the VAT.

Based on the estimated income the tax authorities will assess income tax instalment payments.

Cost: None.

Time: Up to three weeks.

Register with trade office and acquire a trade certificate (Gewerbeschein)

New companies must notify the local trade office (Gewerbeamt). However, whether a specific business license (Gewerbeerlaubnis) or craftsmen’s card (Handwerkskarte) is required depends on the specific kind of business.

Entry in the Register of Craftsmen (Handwerksrolle) is also required for independent, non-industrial operation trades (e.g. bakers, carpenters or precision makers). The trades that are affected are listed in the Crafts and Trades Regulation Code (Handwerksordnung). The German Chambers of Industry and Commerce can also help identify any qualifications or certificates you might need for your business (Gewerbeamt).

Cost: General registration costs €20-40.

Additional costs apply if requiring specific business licenses, and depending on the sector the business is operating in.

Note: having a trade certificate (Gewerbeschein) obligates you to pay local trade tax (Gewerbesteuer).

Time: 1 day

Chambers of Industry and Commerce Membership (Industrie und Handelskammer)

Acquiring a trade certificate will legally obligate you to belong to a chamber of commerce, as regulated by the Chambers of Industry and Commerce (Industrie und Handelskammer).

Generally the trade office will automatically notify the Chamber of Industry and Commerce. Otherwise, you can go to the nearest Chamber of Industry and Commerce branch to find out which chamber you should register with.

Time: Automatic

Cost: A yearly membership fee, usually depending on turnover of the respective company.

B. Private Company: GmbH (Gesellschaft mit beschränkter Haftung)

The GmbH, also known as “Gesellschaft mit beschränkter Haftung” is the typical private company structure and the most common in Germany.

Like in most countries, opening a GmbH company requires the most bureaucratic hurdles, and is subject to the heaviest reporting requirements, and thus has the highest time and cost investment. Plan for around two weeks to register a GmbH.

Obtain Company Name

Obtain the company name at the chamber of commerce.

Cost: Free

Time: Instant (online)

Notarize the articles of association and memorandum of association

A Notary public must notarize the articles of association and memorandum of association. Note that some lawyers (lawyer-notary) can provide this service as well.

Cost: Notary fees generally depend on value of the share capital, with a basic fee calculated as:

Share capital value Fee
Up to €1,000 €10
€1,000 to €5,000 €8 for each €1,000 share capital
€5,000 to €50,000 €6 for each €3,000 share capital
€50,000 to €5,000,000 €15 for each €10,000 share capital
Total €10 up to €7,500

 

Time: 1 day

Open a bank account

The initial capital (minimum of €25,000) must be paid in full.

Cost: None

Time: 1 day

Entry to Public Commercial Register

A corporation must be entered into the Commercial Register (also known as the Register of Commerce). For companies (GmbH), entry falls under Section B. Application is in writing at a local court (Amtsgericht). The signature and the signing of the corporate name must be certified by a Notary Public.

The following must be enclosed with the application:

  • Corporate name
  • Company headquarters
  • The object of the enterprise
  • Amount of the share capital
  • The Shareholders’ Agreement concluded in a notarial form
  • The date of conclusion of the Shareholders’ Agreement
  • Who are the managing director(s) and his/their representation powers
  • A list of shareholders, signed by the managing director(s)
  • If applicable, powers of attorney for the persons acting
  • In the event of provision of contributions in kind, the report on the foundation by contribution in kind and documents on the valence of the contributions in kind.
  • An assurance that the necessary minimum payments of the share contributions have been made and are at the free disposal of the managing director(s)

Note: The minimum share capital required is €25,000.00.

Cost: The local court will charge a fee, as will the Notary Public. Despite being controlled by law, notary public fees can vary.

However notarising articles of association can be combined with filing this application and save on fees.

Court fees:  
Application for registration €250-280
Registration fee €100-150
Notary Public fees  
(attesting documents fee). €75-250
   
Total €425 to 680

Time: 7 days

Notify local trade office of business and standards (Gewerbeamt)

New companies must notify the local trade office (Gewerbeamt) to get a trading license (Gewerbeschein). Certain businesses (e.g. restaurants, brokers) must apply for a specialised trading permit (Gewerbeerlaubnis).

For some independent, non-industrial trades (e.g. bakers, carpenters or precision makers) entry in the Register of Craftsmen (Handwerksrolle) is also required. The trades that are affected are listed in the Crafts and Trades Regulation Code (Handwerksordnung).

This application procedure also covers registration formalities with the central statistical office, the relevant chamber of industry and commerce, the local labor office, the social security and federal health insurance office.

Cost: General registration costs €20-40.

However, additional costs will apply for companies requiring specific business licenses, and depending on the sector the business is operating in.

Time:  1 day

Register with the professional association of the relevant trade

If covered by a relevant trade association, this may be required, but membership will also cover required occupational accident insurance.

Registration must be done within a week of notarization of the articles of association.

Cost: Free

Time: 1 day

Notify the local labor office

The notification can be in writing and/or by phone. The Labor Office assigns an eight-digit operating number, which is needed to report social security.

Cost: Free

Time: 1 day

Register employees for health and social insurance

The social security and federal health insurance office notifies the local labor office and the annuity insurance carrier (Deutsche Rentenversicherung Bund). The competent social security and federal health insurance office collects payment for mandatory health, unemployment, and annuity insurance.

Cost: Free

Time: 1 day

Mail documentation to Tax Office (Finanzamt)

After the tax office is notified of the company’s business activity by the trade office (step 5), the tax office will send the company a questionnaire requesting the company’s business data.

Cost: Free

Time: Up to 3 weeks

Register with Chambers of Industry and Commerce

Membership of the Chambers of Industry and Commerce (or Chamber of Crafts) is obligatory and should happen automatically on registration with the trade office (Gewerbeamt).

Cost: The costs of membership of the chamber depend on turnover of the respective company.

Time: Automatic

Self-Employed

In Germany, you will count as “self-employed” if you are:

A managing partner or managing director of a company

An executive of a joint-stock company (Aktiengesellschaft)

An authorized signatory (Prokurist)

A majority shareholder of a limited liability company (GmbH)

A businessperson who wants to run a trade (Gewerbe), for example, as an artisan, caterer, or producer of goods

A member of a “liberal profession”, also called “activity professions” (Tätigkeitsberufe)

A member of a profession on the “catalogue” list (Katalogberufe), such as:

  • healing professions (doctors, dentists, midwives, etc.)
  • scientific professions (engineers, architects, etc.)
  • linguistic professions (journalists, translators, etc.)
  • legal, tax and business consultants (lawyers, tax advisors, accountants, etc.)

 

Self-employed people are divided into freelancers and business people.

The key factor of self-employment in Germany is the distinction between business people (“trade professions” or Gewerbetreibende) and freelancers (“liberal professions” or Freiberufler) professions. Liberal professions include jobs such as lawyers and psychologists, freelancing artists and writers. Trade professions are for businesses that produce goods, artisans, etc. The distinction makes a big difference for registering a business, membership in professional associations, and taxes.

Freelancers

According to German income tax law (Einkommensteuergesetz), a freelancer is described as a self-employed person whose business is either artificial (i.e. painter, musician), scientific, authorial (professional writing), teaching or educational, or if their work is “determined by his or her personal knowledge of particular profession”.

Examples of freelance work include physicians, dentists, journalists, translators, lawyers, business consultants, as well as IT-consultants, masseurs, nurses and more. In general most professional services are likely to fall under the freelancer category.

A few benefits for freelancers:

  • Do not have to be registered at the Commercial Registry.
  • Do not have to become a member of a local Chamber of Commerce.
  • Do not have to prepare annual financial statements for taxation purposes (simple profit-and-loss statements are sufficient)
  • Do not have to pay trade tax (aka local business tax)
  • Generally not liable to the German social security system, governmental health care, unemployment or pension insurance

Apply for a Visa

Before moving to Germany from a non-EU country for self-employed work, a visa and residence permit will be required, which can be applied for at the local German embassy.

Basically, a Schengen visa is suitable for short-term stays of up to three months, while a national visa is required for a longer stay.

The section on Visas outlines the steps and time required to apply for visas and residence permits for both companies and freelancers.

Time: 2 weeks for Schengen visa. Up to 10 weeks for National visa

Cost: €60

Apply for Residence Permit

After arriving in Germany with the appropriate visa, apply to get a residence permit at the Einwohnermeldeamt (Residence Registration Office) within one week of arrival.

See the section below on Visas for details on applying for a residence permit.

Register with local tax authority (Finanzamt)

Register at the local tax authority for a tax file number (Steuernummer) where the district of your office or where you are living (if working from home).

The usual term for the application form is Fragebogen zur steuerlichen Erfassung. This form is generally not available in English.

Most tax offices can be found online by searching for “Finanzamt” plus the district name. Registration can be done by mail or in person.

Mail

  • Write a letter stating that you want to work as a freelancer in your profession and are requesting a tax number.
  • Include your (office/home-office) address in the letter
  • Sign the letter

 

In Person

  • Either download the application form online or arrive in person and ask for a Tax File Number application form.
  • Going in person is useful as you can get the form checked before submitting it.

After the application is processed and accepted, the tax authority will send a questionnaire asking for personal details, estimated income in the current tax year and whether you want to opt in for the VAT.

Based on the estimated income the tax authorities will assess income tax installment payments.

Cost: None

Time: Up to three weeks

Register with relevant professional association

The association will depend upon the particular profession.

The website of the Federal Association of Liberal Professions (Bundesverband der Freien Berufe), has further information at: http://www.freie-berufe.de/ueber-uns/mitgliedsorganisationen.html (German only)

Time: 1 day

Cost: None

Get Health Insurance

While employees will be covered by their employers, self-employed people will be required to get their own health insurance if earning more than €395 income per month, less expenses (as of 2013).

You must either arrange private insurance or report to the state-insurance authority (Krankenkasse) to organise a health insurance policy. Private insurance is generally cheaper for individuals while state-insurance usually covers family so it is better for families.

Note: travel insurance does not count for this purpose.

Time: Up to 1 week

Cost: None

Get Accident Insurance (if employing people)

If your work will involve employing people it will be mandatory to have the appropriate accident insurance coverage.

Time: Up to 1 week

Cost: None

Business people

If not falling under any ‘liberal profession’ of a freelancer, business people must follow a process basically the same as setting up a sole proprietor business.

Apply for a Visa

Before moving to Germany from a non-EU country for self-employed work, a visa will be required, which can be applied for at the local German embassy.

Basically, a schengen visa is suitable for short-term stays of up to three months, while a national visa is required for a longer stay.

The section on Visas outlines the steps and time required to apply for visas and residence permits for both companies and freelancers.

Cost: €60

Time: 2 weeks for schengen visa. Up to 10 weeks for national visa

Apply for Residence Permit

After arriving in Germany with the appropriate visa, apply to get a residence permit at the Einwohnermeldeamt (Residence Registration Office) within one week of arrival.

See the section on Visas for details on applying for a residence permit.

Register at the local citizen office (Bürgerbüro)

To do this you will need the following documents:

  • A rental contract
  • A valid photo ID (e.g. passport)
  • A completed Anmeldung form

Cost: Free

Time: 1 day (can be processed within minutes depending on the office and how busy it is)

Apply for a Tax File Number (Finanzamt)

You will need to register at the tax office to get a Tax File Number (Steuernummer). The usual term for the application form is Fragebogen zur steuerlichen Erfassung, and it is generally not available in English.

Your Finanzamt can be found online by searching for “Finanzamt” plus the local district name. Registration can be done by mail or in person.

Mail

  • Write a letter stating that you want to work as a freelancer in your profession and are requesting a tax number.
  • Include your (office/home-office) address in the letter
  • Sign the letter

In Person

  • Either download the application form online or arrive in person and ask for a Tax File Number application form.

Going in person is recommended as you can get the form checked before submitting it.

After the application is processed and accepted, the tax authority will send a questionnaire asking for personal details, such as estimated income and you will also be required to inform the tax office of profits and loss accounts and a statement of assets and liabilities.

Cost: None

Time: Up to three weeks

Register with trade office and acquire a trade certificate (Gewerbeschein)

Self-employed business people must notify the local trade office (Gewerbeamt). Depending on the specific kind of business registration may also require a specific business license (Gewerbeerlaubnis) or a craftsmen’s card (Handwerkskarte).

For independent, non-industrial operation of certain trades (e.g. bakers, carpenters or precision makers) entry in the Register of Craftsmen (Handwerksrolle) is also required.

The trades that are affected are listed in the Crafts and Trades Regulation Code (Handwerksordnung) where they can be consulted. The German Chambers of Industry and Commerce (IHK) can also help identify qualifications or certificates you might need for your business (Gewerbeamt).

Cost: General registration costs €20-40.

Additional costs apply if requiring specific business licenses, and depending on the sector the business is operating in.

Note: having a trade certificate (Gewerbeschein) obligates you to pay local trade tax (Gewerbesteuer).

Time: 1 day

Chambers of Industry and Commerce membership (Industrie und Handelskammer)

Self employed business people are required to be a member of one of the Chambers of Industry and Commerce.

If your profession is in the crafts sector or similar, you will need to register either on the Roll of Craftspeople (Handwerksrolle), or the register of activities similar to crafts (Verzeichnis der handwerksähnlichen Gewerbe) at the local Chamber of Crafts (Handwerkskammer).

Generally the trade office will automatically notify the Chamber of Industry and Commerce.

Cost: A yearly membership fee, usually depending on turnover of the business.

Time: Automatic

Outsourcing Employment Through a GEO Employer of Record Service

Germany has a reputation for having a positive and open attitude towards foreign business and entrepreneurship. German law makes no distinction between Germans and foreigners in the establishment of companies and has no restrictions on the repatriation of profits.

The legal framework for FDI in Germany favors the principle of freedom of foreign trade. According to the Federal Ministry of Economics and Energy, companies set up by migrants are an important addition to Germany’s services sector, providing around 600,000 jobs.

However the German process is high in bureaucratic processes and rules, further compounded by a plethora of authorities operating down to the district level. Each new business must figure out who they must register with from a range of possible bodies, and this process will repeat each and every time the business expands or moves to a new territory.

Many of the steps and requirements are also determined on the basis of the particular type of work and often on a case-by-case basis, meaning there is no universal approach to establishing a business in Germany. Finally, most or all steps will be strictly German-only and require negotiating a large number of long and complex forms in the language.

Due to these complexities, Germany ranks very low on the ‘Ease of Doing Business’ world rankings, despite the government’s friendly view towards foreign business. Setting up a business in Germany is far from simple and will require preparation and patience.

Summary of Setup Steps

Incorporation / Registration

Business Type Cost Time
Einzelunternehmen (sole proprietor)
* Main costs will be in necessary licenses, memberships and insurance, which vary depending on the business, the sector and which provide (for insurance, etc) is chosen
€20-40 1 day
Gesellschaft (GmbH) €466 to €8211 11 days
Freelancer
* May face additional costs for insurance, employees, etc.
€0 7 days

Visas

Visa Type Cost Time
Short-stay, no visa (“tourist”) €0
Short-stay, Schengen visa $92 ~15 days
National visa $92 ~several months
Residency permit (Anmeldebestätigung) €0 1-2 weeks
Certificate of Health for Residence Permit
(Gesundheitszeugnis für Aufenthaltserlaubnis)
€75-150 1 day
Certificate of good conduct (Führungszeugnis) €60 ~2 weeks

Summary of Actions Required

E = Einzelunternehmen (sole proprietor); O = One-man GmbH (sole director); UG = Unternehmergesellschaft haftungsbeschränkt (Mini-GmbH); G = (Gesellschaft mit beschränkter Haftung (GmbH); F = Self-Employed (Freelancer of Business person)

= Not required

  • = Required

■ = Required depending on type of business, case-by-case basis

  Cost E O UG G F Time
Obtain company name €0     ~1 hour
Open bank account €0     1 day
Register at local citizen office (Bürgerbüro) €0     1 day
Register with Tax Office (Finanzamt) €0     3 weeks
Articles of association and memorandum €10 to €7500     1 day
Entry into Commercial Register €425 to €680     7 days
Trade office registrationTrade office licenses (Gewerbeschein, etc) €20-40
varies

   

1 day
Professional Association Registration
(see: Bundesverband der Freien Berufe)
Varies     1 day
Chamber of Commerce membership
(Industrie und Handelskammer)
Varies     1 day
Health insurance (e.g. Krankenversicherung)
*if income minus expenses > €395
Varies     1 day
Accident Insurance for Employees Varies      
Labor office Registration €0     1 day
               

 

  • Tax Compliance : What is FATCA and who is affected?

Tax Compliance : What is FATCA and who is affected?

  • Tax Compliance : What is FATCA and who is affected?

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