How to start a business in Germany | Opening Requirements

If you're thinking of starting your own new business venture in Germany, then there are a few things to know to get started. In this article, we will go through the requirements to start a company, types of businesses, and other helpful tips to get your business started in Germany.

We’ll also talk about the Wise Business account, and how business leaders can rely on it for their international business needs.

Opening a company in Germany - will you be doing business internationally?

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Requirements to start a company in Germany

Here are the basic requirements to start a company in Germany:¹

• You must be 18 years old.
• You need the correct residence title or work permit.
• You must not be banned from practicing the profession in which you want to set up a business.

If you meet these requirements, you can then start your company in Germany:

1. Identify your type of business: You can work in Germany as a self-employed individual (gewerblich) or freelancer (freiberuflich), or open a legal business structure that is separate from you as a person.
2. Register your business: You will need to register according to your type of business. Freelancers must register with the Tax Office (Finanzamt), while self-employed people will need to contact their local trade office. Any other type of company needs to be registered in the commercial registry.
3. Pay taxes: All businesses will have to pay taxes to the local tax office or authority of Germany’s fiscal administration. The type of taxes you need to pay will depend on your revenue, business size and structure. Businesses will also need to file an annual tax return.
4. Get required licenses or permits: Depending on your business type, you may be required to have a special permit or license to operate in Germany.
5. Put insurance plans in place: Ensure that you have the correct insurance in place, even as a self-employed individual or freelancer, and for your employees if applicable.
6. Review contracts and laws: While bigger companies have staff to ensure compliance and enact contracts, small businesses, self-employed people, and freelancers will generally have to do the work themselves.

If you’re unsure about your finances, contact the Ministry of Economic Affairs for help to understand available resources when starting a company in Germany.

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Use Wise for your International Business

Wise Business allows you to make and receive international payments across currencies easy and transparent. Doing things like paying your employees overseas can be cheaper and faster compared to traditional banks.

Why? Because Wise Business offers the mid-market exchange rate without any mark-ups. Transfers are typically processed in 0–2 working days.

Additional benefits are:

• 1000 transfers in one go through the batch payment tool
• Receive payments with local account details in global currencies (GBP, USD, EUR, JPY, AUD, CAD, and more)
• Borderless account - hold, send, and receive funds in one account in 40+ currencies
• Linkable to accounting software such as Xero
• Track your transfers in real time on your account.

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What types of corporate entities are there in Germany?

There are several options for your business in Germany:²

• Sole trader
• Limited liability company (GmbH)
• Corporation (AG)
• Partnership
• Subsidiary or branch of an existing company already registered elsewhere

Sole trader/Freelancer

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.

Difference between Self-employed vs. Freelance businesses

In Germany, certain professions are considered trade versus freelance professions. This means that you cannot simply choose whether you are a self-employed person or a freelancer.

Put simply: all freelancers are self-employed, but not all self-employed people are freelancers. There are even different legal classifications in Germany between being a freelancer (Freiberufler) or a self-employed business owner (Selbstständiger).

Why does this matter? If you’re self-employed, you have to register your business or trade with your local government, and may need to acquire health or regulatory permits. Freelancers and self-employed persons also have different tax obligations. ³

Self-employed Tradespeople 3	Freelancers3
Register with the trade office Required to be member of their local trade organization Pays the trade tax Doesn’t register as self-employed at the tax office Typical trade professions: commercial and industrial enterprises, as well as operating as an intermediary or having a restaurant business	Doesn’t pay the trade tax Doesn’t register to the official business register Typical freelance professions: tax consultants, doctors, lawyers, engineers

How to begin freelancing after coming to Germany

1. Register your place of residence ⁴
2. Get a German bank account
3. Get health insurance ³
4. Apply for a residence permit for freelancing or self-employment ³

Limited liability company (GmbH)

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.

Corporation (AG)

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.

Partnership

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.

Financial Investment for AGs and Partnerships

Some forms of corporate entities in Germany require a minimum investment from founders. A GmbH company has a minimum initial stock amount of €25,000, while an 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.^{5 6}

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.

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Legal obligations and responsibilities

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
• Security
• 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.

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Sources:

1. https://www.make-it-in-germany.com/en/working-in-germany/setting-up-business/steps
2. http://www.existenzgruender.de/EN/Die-ersten-Schritte/Rechtsformen/inhalt.html
3. https://gruenderplattform.de/geschaeftsideen/freiberuflerin-werden
4. https://www.bmi.bund.de/EN/topics/administrative-reform/registration/registration-node.html
5. https://www.firma.de/en/company-formation/the-gmbh-the-pros-and-cons-of-the-german-limited-liability-company-llc/
6. https://www.eurocompanyformations.com/register-a-company-in-europe/germany-company-formation/