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Incorporation

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
               

 

Germany

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