Germany has a highly developed and diverse economy, with falling unemployment and a growth rate (by GDP) of 1.9% in 2016. Those factors, combined with access to the lucrative Eurozone market, has created a fertile, dynamic business environment – already home to numerous enterprise organizations, including Volkswagen, Allianz, BMW, and Siemens. The prospect of exciting business opportunities in Germany attracts entrepreneurs from across Europe and the world – but, like any international destination, establishing a successful company means first understanding how to set up your company.
As an entrepreneur thinking about setting up a business in Germany, it’s crucial that you lay suitable preparatory groundwork. Practically, this means exploring your proposed professional environment. You’ll need to research market opportunities, develop a business plan, raise sufficient starting capital, and get to grips with a new set of laws and regulations.
Beyond those administrative considerations, it’s also important to understand business customs and best practice in your target market: do you or your employees need to learn the language? How much does it cost to register a company in Germany? Do you need to acquire special premises or equipment? Finding the answers to those questions means doing your homework ahead of time.
It may be possible to gain government advice or even financial aid for your business in Germany and it is worth exploring the options available prior to, or during, your set-up. Foreigners especially can turn to the Ministry for Economy and Technology for a range of advice and resources, while other organizations, including the German Chamber of Commerce, exist to provide entrepreneurs with support. For advice on financial support, consult the Federal Funding Advisory Service for details of relevant programs.
Before you can begin the formal process of company formation in Germany, you’ll need to decide what legal structure your business will take. In Germany, the options for company structure are:
- Gesellschaft mit beschränkter Haftung (GmbH): The equivalent of a limited liability company, the GmbH is the most common legal structure in Germany for small-to-medium size businesses. Minimum starting capital for a GmbH is €25,000.
- Aktiengesellschaft (AG): A joint stock company or PLC, the AG requires at least five members and starting capital of at €50,000.
- Offene Handelsgesellschaft (OHG) or Kommanditgesellschaft (KG): An unlimited partnership or limited partnership respectively. In an OHG, all partners have liability and must operate the business within the terms of their contractual agreement – while in a KG, liability is limited.
- Einzelunternehmen: Sole-proprietorship – a structure suitable for very small companies, or those run by a freelancer.
Other types of legal structure include the ‘Töchtergesellschaft’ (a subsidiary run independently from its parent company) and the ‘Zweigniederlassung’ (a branch which remains administratively dependent on its parent).
After your business’ legal structure is decided, the formal process of company registration can begin. Before you register, you’ll need to assemble certain materials, and go through an administrative checklist, including:
- Drafting articles of association – including details such as business name, shareholders and registered office.
- Notarizing articles of association – by a legally-qualified German notary. All shareholders must sign the articles of association before notarization.
- Payment of share capital – into a company bank account.
With those tasks complete, the final part of the set-up process may begin – that is, entry into the Commercial Register. Notaries submit applications electronically, including all relevant documentation. Once filed, the Commercial Register board must make a decision without ‘undue delay’ (although, in reality, the process can take several days). The fees associated with Commercial Registration vary depending on business structure but can range from around €250 to over €500. After successful registration, a business immediately becomes a legal entity.
Depending on the regulations in the location you’re setting-up, further registrations may need to be made with federal and regional authorities, including:
- Tax authorities
- Chamber of Commerce
- Local Office of Business and Standards (Gewerbeamt)
- Relevant Professional Association (Berufsgenossenschaft)
- Local Labour Office
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Permits & Licenses
Some businesses in Germany require permits or licenses before they can begin operations. Licensing regulations apply to a variety of professional fields – such as those dealing with cross-border trade, construction or gambling. Examples of businesses which might require permits and licenses include:
- Financial Services
Licenses and permits may need to be presented during registration – so make sure your business has the relevant documents in place before the process begins.
With registration and licensing out of the way, your path to trading in Germany should be clear – but depending on the type of business you’re operating, you may need to carry out a final step: hiring employees.
Fortunately, Germany businesses can draw from a pool of highly-skilled employees – and there are plenty of agencies available to help with recruitment. When you hire employees in Germany, you’ll obviously take on certain obligations, including inducting them into the company payroll, and registering them for tax and social security.
The set-up process in Germany isn’t restricted to administrative tasks alone: to give your company the best possible start, you’ll need to understand the professional landscape around you. Germany is made up of 16 constituent states, each with its own distinct regional character, culture and customs relating to issues like punctuality, status, politeness, and, corporate and social responsibility. To ensure your business attracts the right employees, clients and customers, it’s worth taking the time to become familiar with the business community you’re planning to join.
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About the Author: Regional Director Annette Weinel heads activpayroll’s German office, providing tax consulting expertise to national and international clients. With over 20 years’ experience, Annette’s professional background includes international assignment policy, tax equalization policy, and foreign country and stock option planning.