Company in Germany

General information

15%*

Tax rate

4 - 5 weeks

Time of establishment of the company

25 000 Euro

Minimum capital

Germany offers a strategic position due to its central geographical location and also because it represents the largest European population. It is the leading European power with the highest GDP in the world, while offering advanced technology infrastructure.

Types of companies

  • Limited liability company (GmbH)

The minimum share capital in a GmbH-type company and in a one-man limited liability company (Ein-Mann-GmbH) is EUR 25,000, however, half of the capital, i.e. EUR 12500, must be paid in for registration of the company. Since 2008, a special variant of the UG (Unternehmergesellschaft) can also be established in Germany. It is a form of company GmbH, which is to be an alternative to the English company Limited. It is a limited liability company with a very low share capital of even EUR 1, therefore it is referred to as Mini- GmbH or 1Euro- GmbH. The governing bodies of the GmbH are the manager, the shareholders’ meeting and the supervisory board. The limited liability company is liable for its liabilities with its own assets, the liability of the shareholders is limited to the amount of contributions.

  • Joint stock company (AG)

It is a capital company which has a separate legal personality. The minimum share capital is EUR 50,000.00 and the minimum share value is EUR 1. AG has legal personality and is liable only for the company’s assets and share capital split in shares. A joint-stock company is established when it is entered in the commercial register. As in the case of Polish joint-stock companies, shareholders are not liable for the company’s obligations, they bear the risk only up to the amount of the contributed capital and make profits (e.g. in the form of dividends).

  • KGaA (limited joint-stock partnership)

The minimum share capital is EUR 50,000.00. The shareholders of the company are the general partners, who are responsible for the company’s obligations personally and unlimitedly, as well as the stockholders, who are responsible for their contributions. The advantage of KGaA is that the stockholders can trade their shares in the company more easily than in a limited partnership. The civil liability is borne by the stockholders on the basis of a joint-stock company and the general partners as in the case of a limited partnership.

  • Limited partnership (KG)

It is a partnership formed by two or more natural or legal persons. One person must be a general partner and the other a limited partner. No minimum capital is required. The limited liability of the limited partner is limited to the amount of the contribution, while the general partner is liable for all of its assets.

  • Civil partnership (GbR)

A civil law partnership in Germany consists of at least two persons. The form of the company is arbitrary. All partners are entitled to manage the affairs of the company. GbR therefore has the advantage of being able to accept larger orders. Weak points are the formal and settlement problems in the case of changes in the composition of the company’s staff and the increased burden of German business tax (Gewerbesteuer) due to the fact that for the whole company there is only one tax-free amount the same as in the case of a passenger company. In a civil partnership there is no obligation to keep proper books of accounts. It is sufficient for the company to keep records of its operations in a transparent manner. The obligation to balance the accounts only arises when the annual turnover exceeds 500,000 euros or when the annual profit exceeds 50,000 euros. Unless otherwise stated in the articles of association of the civil partnership, the distribution of profit (or loss) is considered to be made in equally between the partners, without taking into account the size of the individual shares.

  • General partnership (OHG)

It is a partnership created by two or more people. Initial capital is not required, it is specified in the articles of association, to which both money and goods or services can be contributed. As a rule, all shareholders are entitled to conduct business on behalf of the company, unless the articles of association provide otherwise. The partners are responsible for the obligations of the company with all their assets. The partner is responsible for the company’s obligations even if he withdrew from it, but only for those undertaken until that time and only for 5 years. It is worth noting that a new partner, who is only joining the company, from the very beginning is liable for already existing obligations.

  • Partnership (Partnerschaft)

It is a company without a minimum share capital, which serves partners to exercise their profession (applies to liberal professions). The articles of association must be in writing. All partners may represent the company. The company is personally liable for its obligations, but it is possible to limit the civil liability of the partners.

  • One-man business (Gewerbe)

It takes the form of Gewerbe or GbR (Gesellschaft bürgerlichen Rechts). GbR can be registered with more people. GbR has a joint bank account and the founders share liability. In order to register a one-man business ID and several other documents are required. The basis for this is an entry in the business register. The owner of a one-man business in Germany can decide on his own without the participation of others. In a German one-man business, the principle of the personal liability of the entrepreneur – even with one’s own assets – applies.

 

Company registration procedure

  • Preparation of a notarized articles of association.
  • Payment to the share capital account.
  • Registration of the company on a form (Gewerbeanzeige – Verordnung) at the competent authority for the company’s registered office (Gewerbeamt) or the Order Authority (Ordnungsamt). In the case of partnerships and companies with share capital, the activity must be entered in the Handels Register of the Amtsgericht.
  • The Trade Licensing Office is obliged to inform the Tax Office (Finanzamt), the Professional Insurance Company (Berufsgenossenschaft), the Office of the Inspection of Industry and the Chamber of Commerce and Industry or the Chamber of Crafts and Trades about the registration of the company.
  • Every company in Germany is obliged to belong to one of the above mentioned chambers and pay membership fees.
  • Acceptance of a business declaration by the Trade Licensing Office does not entitle the company to start a business activity. In order to do so, it is necessary to obtain a permit, i.e. to obtain a Handwerkskarte (Handwerkskarte) or an entry in the trade register.
  • Licences or permits of any kind must be obtained before registration with the Trade Licensing Office.

Seat:

The company must have a registration address, telephone and mail redirection. It is also possible to have a stationary office (prices vary depending on demand).

Share capital:

The minimum amount of capital is EUR 25,000, of which at least 50% must be paid into the company account during the registration process. However, this does not apply to the simplified GmbH, where the share capital is EUR 1 (but this results in the need to allocate ¼ of the annual profits to the capital until it reaches a minimum of EUR 25,000).

Shareholders:

There are no restrictions on the number of shareholders, but the company must have at least one shareholder. Foreign shareholders are also allowed, however, they are subject to notification if they hold more than 25% of the share capital.

Time to set up a company:

The time taken to set up the company is approximately 4-5 weeks after the submission of the documents.

Directors:

The supervisory board of directors is only mandatory if the company has more than 500 employees. In other cases, shareholders are free to appoint the board of supervisory directors and to specify in the company’s articles of association its functions, the number and qualifications of its members and the length of its term of office.

Management Board:

The company may have one or more managers. Board members do not have to be shareholders. Managers are elected by resolution of the shareholders, unless the articles of association or the law provides otherwise.  Board members are entitled to represent the company externally.

Taxes and finances

Tax residence of the company

A company is resident in Germany if it is registered in Germany or is managed and controlled from Germany. Companies pay income taxes from both domestic and non-German activities. Non-residents only pay tax on income earned in Germany. It is levied on the company’s income from its activities, passive income and capital gains.

CIT rate

The basic national rate is 15%. In addition, there is a regional rate of 14% to 17% and a solidarity levy on the tax of 5.5%. The final rate is therefore between 30% and 33%. Operating expenses are tax deductible expenses. Depreciation of movable fixed assets and intangible assets is carried out on a straight-line basis. Losses may be deducted at any time in the future and a maximum of one year back. They can be compensated without limitation up to one million Euros of profit, above this amount they can only be deducted by 60% of profits (in the case of retroactive deduction the maximum is one million Euros).

Double taxation

Germany is a party to a number of treaties that provide businesses with an exemption from double taxation.

Counteracting tax avoidance

Germany has implemented a transfer pricing system and the regulation largely reproduces the recommendations issued by the OECD. There are no thin capitalisation, but there are rules to limit the deduction of interest. Passive income from companies resident in countries with or without low income tax (rate less than 25%) is attributed to a German parent company if the latter holds directly or indirectly at least 50% of the shares in a subsidiary company. Multinational companies must prepare a report on their activities in each country in accordance with the OECD guidelines.

Accounting

The tax year lasts 12 months. It may be shorter if it coincides with the calendar year. Tax returns must be submitted electronically by 31 May of the following year. Advances for income taxes are paid in arrears on a quarterly basis. It is permissible to file consolidated financial statements, but each company must also file its own separate financial statements. In order to be eligible, the parent company must have at least 50% of the votes in its subsidiary. Entities must draw up a profit-sharing and take-off agreement, which must be in force for a minimum of five years in a row (unless there are important reasons for early termination). The period of limitation is 4 years. This period may be extended to 5 years in case of negligence or fraud and to 10 years in case of tax evasion. The period starts at the end of the year in which the tax liability arose.

Withholding taxes

  • Dividends – the rate is 25% (26.375% after including the solidarity fee), unless the tax agreement reduces it. Non-residents have the right to apply for a 40% refund.
  • Interest is usually not taxed except in special cases. Then the rate is 25% (26.375% after the solidarity fee), unless EU regulations or tax agreements reduce it.
  • Royalties paid to non-residents are taxed at 15% (15.825% after the solidarity fee) unless EU regulations or tax treaties reduce it.

VAT

The standard rate is 19% (7% and 0% respectively). All businesses are obliged to register for VAT. However, if the turnover of the previous year did not exceed € 17500 and is not expected to exceed € 50000 this year, the entrepreneur may be exempted from this obligation. Declarations and payments are made electronically on a quarterly basis by the 10th day of the first month after the quarter in question. If in the previous tax year the monthly tax exceeded EUR 7,500, the entrepreneur is obliged to submit monthly raports.

Other taxes

  • The property tax is levied by the local administration and is 0.35% of the value of the property multiplied by the municipal coefficient. The rate depends on the federal state and municipality in which the property is located and ranges from 3.5% to 6.5% of the sale price/value of the property.
  • Customs duty is levied on products originating outside the EU. Excise duty is levied on tobacco, alcohol and alcoholic beverages (except wine), coffee, mineral oils, gas, coal, nuclear fuel and electricity.
  • Tax on motor vehicles – its amount depends on the type of vehicle, weight, exhaust emissions, fuel that is being driven, engine capacity.

Local labor law

Other information