Germany Summary Guide

Business Forms in Germany

All business entities in Germany are governed by the Civil Code (Bürgerliches Gesetzbuch, or BGB). As in all civil law jurisdictions (as distinct from common law jurisdictions, where laws are primarily developed via court decisions and rulings), formation and administration of companies tends to be fairly bureaucratic.

An individual starting up a business in Germany may well choose the Sole Proprietorship, one man GmbH (Gesellschaft mit beschränkter Haftung, or limited liability company), or UG (Unternehmergesellschaft (haftungsbeschränkt)); another type of limited liability company which is suitable for enterprises requiring very little equity.

The Partnership (Offene Handelsgesellschaft) form, or GbR (Gesellschaft Bürgerlichen Rechts) (a slightly more flexible business form which can comprise a single individual, or two or more people bound by a partnership agreement)may also be of interest to small businesses.

A larger or more complex business will probably choose a straightforward Limited Liability Company (Gesellschaft mit beschränkter Haftung (GmbH)).

The procedures required to establish a business in Germany vary according to the individual’s residence status. Residents of EU member states, and certain non-EU citizens with permission to reside in Germany must just register their business and provide the necessary funds; non-EU residents must secure a residence permit in order to undertake self-employed activity (or have the terms of their existing permit altered to permit it), and can additionally be asked to prove that the venture is necessary, economically beneficial to the German economy, and funded adequately, either via credit or equity.

Generally speaking, when forming a business in Germany (if not an EU-resident), the enterprise must be registered on the Commercial Register, with the Trade Office (which will inform the Tax Office and the social insurance authorities, and the various other agencies involved), and with the relevant professional association, although the exact administrative requirements will vary according to the type, size and situation of the business in question.

Self-employed people are divided into two categories under German law; business people (Gewerbetreibender, roughly defined as those undertaking a trade or craft, producing goods, or other self-employed income generating activity) or members of the liberal professions (Freie Berufe, which include medical professionals such as doctors and dentists, lawyers, accountants, engineers, chemists, some types of self-employed teacher, and other such professions – the final say on whether a profession qualifies in this regard, or is deemed to be a ‘commercial’ activity falls to the tax office.

‘Liberal’ professionals are not obliged to register with the Trade Office, just with the Tax Office, and will not have to pay the municipal trade tax.

Taxes impacting on small businesses in Germany (depending on the size, sector, and constitution of the business) can include: Income tax, turnover tax, trade tax, corporation tax, value added tax, and social insurance.

With regard to value-added tax, businesses selling taxable supplies in Germany exceeding EUR17,500 in the previous tax year and which expect to sell taxable supplies greater than EUR50,000 must register for VAT.

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Germany Summary Guide Contents

 Germany Summary

 Germany Summary Chart

 Germany Residence

 Taxation of Business People in Germany

 Living and Doing Business in Germany

 Business Forms in Germany

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