Germany is seen by many as Europe’s powerhouse. The small and medium sized enterprises (SMEs) of the country make up a huge proportion of the economy. These SMEs range from sole proprietorships and family businesses, up to larger operations employing dozens. Operating across all industries, they're the true backbone of the nation.
If you're thinking of starting your own new business venture in Germany, then there’s a few things to know to get started. Here you’ll find a helpful guide.
There are several different options for your business in Germany:
- Sole trader
- Limited liability company (GmbH)
- Corporation (AG)
- Subsidiary or branch of an existing company already registered elsewhere
The sole trader business structure is mainly intended for individuals working alone. If you employ others, a different type of corporate entity might be better for you. As a sole trader you have full personal liability for your business activities, and you pay both personal and business tax together as a single entity.
A limited liability company means that the business is considered a separate entity to the individuals who form it. The liabilities (such as tax) of the business are therefore kept separate to the personal affairs of the founders.
A corporation is also limited liability, but requires at least five people to form it together. The rules surrounding this business structure are more demanding with a higher initial investment amount required.
The partnership model can be a general partnership in which the partners are responsible for all the liabilities of the company or a limited liability model. It's also possible to have a partnership in which one partner is a ‘general partner’, and another limits their liabilities to the amount they initially invest into the company. The partners can be individuals or companies already established in their own right. As with other areas of company law, this is fairly complex, and it's a good idea to seek local legal advice if you're considering this model.
You can compare the administration needed to start a business in Germany, with that in other countries, on the website of the World Bank's 'Doing Business' report. This helpful site summarises some of the main legal and bureaucratic steps you'll need to take when starting your new venture.
Some forms of corporate entity in Germany require a minimum investment from founders. A GmbH company has a minimum initial stock amount of €25,000, while a AG company needs €50,000. To found a GmbH company you need only one person, but to set up an AG business you need at least five people.
Company naming conventions in Germany mean that the name of your GmbH or AG company must be derived from the work you intend to do (or in some cases the names of the founders). Before you get too attached to your business name make sure you check out the rules for the type of business you intend to start.
Some parts of the company registration process are handled at a local level, and some may vary depending on where you wish to register. There are several agencies with which you must register your business, such as the local offices of Business and Standards and the local Labour Office.
The details for each region are available on the EUGO single point of contact website. Here you can upload documents online, and track your registration as it passes through the various stages of administration.
To set up as a sole trader you must register with the trade office in the municipality in which you want to do business. The Federal Ministry for Economic Affairs and Energy website provides a beneficial guide regarding the formalities of launching a sole proprietorship in Germany. You need to present the following documents:
- Valid photo ID or passport
- Any relevant permit or approval (depending on the type of business)
- Proof of residence
You may need to pay a fee, which is typically around 40 EUR. Processing your application will take a few days, but the trade office will then contact the other relevant associations and authorities (such as the tax authority) on your behalf.
Most partnerships, companies and corporations need to be entered into Bundesanzeiger’s Company Register. This attracts a fee depending on the type and size of the company. Registering a partnership will cost in the region of EUR 250. To register a GmbH, expect to pay at least EUR 400, and for an AG at least EUR 500. You might also incur legal fees, for example, if you have documents certified by a notary. Fees vary according to the particular company details, but you may not have to register if you run a very small business or are a sole trader. Seek local legal advice to be sure.
In Germany, some trades and professions are covered by permits and licenses. This means you need to have set qualifications in order to work in this field. The type of businesses requiring permits tend to fall into the following categories:
- Bookkeeping and financial services
- Travel, hotels and restaurants
- Employment agencies
- Real estate agents
If your business is in one of these sectors, check out which permits you'll be required to present before starting to register your business.
If you employ others in your business you must calculate and pay contributions for things such as unemployment insurance for them. Before you start to recruit team members you should make sure you're clear on the responsibilities you have as an employer.
The German government offers some support and financing for new SMEs organised at both a federal and a regional level. Details of the federal programs are available from the Federal Funding Advisory Service.
Depending on the type of business you're setting up, you might be able to find help and advice (as well as useful connections) through the German Startups Association. They have regional offices as well as their Berlin headquarters, and support new businesses in setting up and finding finance.
Trade associations and chambers of commerce are another useful resource for your new German business. If you’re not a German national, you might also find a business association which helps to build bridges between your home country and Germany. Here you'll find friendly faces and useful advice from others who’ve already started businesses in Germany.
Once you’re in Germany and ready to get going, look for local networking events on sites such as Meetup, Eventful and Eventbrite. Here you can meet like minded people and build your customer and business contact book.
With some planning, and a little help from your new network and friends, your business will get off to a flying start.
When starting your business, if you find the need to send or receive money from abroad at the least possible cost, consider using TransferWise. Not only does their real mid-market exchange rates generally beat the banks, but since your money is received and sent locally in both the sending and recipient currency, all those nasty international fees magically disappear. Give it a try.
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