By What are the steps you need to take to register your Gewerbe in Germany, regardless of whether it is a physical or an online business? Do you have plans of setting up a business in Germany, but do not know where to start? Then this article is for you.
Germany is an economically viable nation with a high level of skilled and educated workforce. When you understand the benefits of starting a new company in Germany, you won’t look back.
The German economy is ranked the largest in Europe and the fourth in the World. According to Worldometer, the German population as of 2020 was 84 million.
Germany offers a huge economic advantage, and running a business in it would really be a very profitable undertaking. A quick look at the most profitable small businesses in Germany will confirm this. But it can be really challenging to set up a business in Germany. This is due to its complex bureaucratic requirements.
To run a business successfully in Germany without having to face a lot of legal sanctions, it is better you register your business from the onset.
Registering too late or even failing to register at all can attract a legal fine of €1000, as it is a violation of the Trade Regulation Act as recorded in a section of the Gewerbeordnung.
The only people exempted from this rule are freelancers. Though, it is the tax office (Finanzamt) that determines if a business qualifies as a freelance business.
So it’s advisable you go to the closest Finanzamt to determine the class of your business, as that will determine whether you’ll pay the trade tax (Gewerbesteuer).
Business registration in Germany can be really complicated and time-consuming. So in this article, we’ll go through the complexities and provide a detailed step-by-step process on how you can get your business registered, starting from the legal structures for businesses.
Legal Structures for Businesses in Germany
Table of Contents
Just like in every other country, there are different legally accepted structures in which businesses can be formed in Germany. But they all can fit into these three groups:
Sole Proprietorship
This form of business is known as Einzelunternehmen in Germany, and it is owned and run by an individual. In this business, the owner is not treated as a separate legal entity from the business. His business and personal income are not treated separately when addressing his finances.
Einzelunternehmen is further divided into two subcategories, and they are:
Gewerbetreibender
This includes producers, skilled traders and retailers. Generally, it encompasses every self-employed trader or business person.
These sets of people need to have their business activities registered in the German Commercial Register.
Freiberufler
This includes mainly freelancers. Professionals like doctors, legal practitioners, architects, economists, photographers, translators, journalists, etc. are seen as freelancers in Germany.
They are tagged liberal professionals and are registered under the Institute of Liberal Professions. Freelancers are not required to be registered under the German Commercial Register and as such are not expected to pay a trade tax.
Rather, they’re expected to register only with the tax office, where they pay the normal Income and Value Added Taxes. The income tax has a base rate of 14% while VAT is 19%.
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Partnerships
This form of business cannot be operated by an individual. It requires two or more owners who are known as partners.
These partners, just like in a sole proprietorship, are liable for their share of any debt incurred by the business. This though is not the same for partners in a Limited Partnership.
There are two categories of partnership in Germany. They are:
General Partnership
This is known as Gesellschaft burgerlichen Recht (GbR). It is a common form of partnership where each partner is expected to pay income tax on their share of the profit.
GbR businesses only enter the German Commercial Register when their annual turnover exceeds €250,000.
Limited Partnership
This form of partnership is known as Kommanditgesellschaft (KG). In this form of partnership, there must be at least one General Partner and at least one Limited Partner.
The limited partner is a passive investor who is only liable up to their amount of investment. While the general partner has unlimited liability. The limited partnership must enter the German Commercial Register from the onset of the business.
Corporations
These forms of businesses exist as separate legal entities from their founders. The owners in this business are shareholders. These shareholders elect a board of directors who run the business on their behalf.
The liabilities of these shareholders are limited to the value of the assets they invested in the business.
To set up a corporation in Germany, notarized articles of association, a board of directors, entry into the German Commercial Register and a minimum share capital (Stammkapital) are required.
Here are the three different forms of corporations you can choose from when you want to register your business in Germany:
Limited Company
This is a form of a corporation where a minimum share capital of 25,000 euros is needed to operate.
Here, only one founder is required, and he can be a shareholder. It is expected that half of this minimum share capital is already made available in a corporate bank account at the time of the registration of the business. This form of corporation is known as Gesellschaft mit beschrankter Haftung (GmbH) in Germany.
Provisional Limited Company
This form of a corporation which is known as Unternehmergesellschaft (UG) is more like a GmbH, but in this case, the minimum share capital of €1 is accepted.
But there’s a condition that the business profits will be kept in a reserve until it sums up to €25,000, after which the corporation will be converted to a GmbH.
Joint Stock Corporation
These are the largest forms of business corporations in Germany. Here, the shares of the company are traded publicly on the stock market. They are known as Aktiengesellschafts (AG) in Germany, and their minimum share capital is €50,000.
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Documents Required for Business Registration in Germany
Once you’ve figured out the structure of the business you want to set up in Germany, the next thing to do is to get the documents required for registration ready. Here are the required documents based on the different structures available:
Documents for a Sole Proprietorship
- Gewerbe application form
- Passport and the Aufenthaltstitel (resident permit)
- Anmeldebestätigung (address registration certificate)
Documents for a Partnership
- Gewerbe application form
- Passport and Aufenthaltstitel of partners
- Articles of association
- A document showing the share capital deposit
- Registered business address
Documents for a Corporation
- Gewerbe application form
- Passport and Aufenthaltstitel of directors
- Articles of association
- A document showing the share capital deposit
- Registered office address
- Detailed information on shareholders and directors
- Any other document requested by the notary
Step-by-Step Guide on How to Register Your Business in Germany
Choose a Business Name
The applicant has to decide on a name to give the company. This name must be unique, to confirm that no other business has registered under the name, the applicant has to go through the commercial business register (Handelsregister).
This register contains the names and information of every registered business in Germany. The next steps before the license is issued are not required by the sole trader.
Draft the Incorporation Deed
After the business name has been chosen, the next step is to draft out and execute the incorporation deed. It is advisable that this is done in the presence of a notary.
It is the notary’s duty to verify the documents provided and ensure they are authentic. He also ensures the parties involved in the business agreement understand their obligations before notarizing their signatures.
Open a Business Bank Account When You Want to Register a Business in Germany
Because you’ll be doing this business in German territory, it is mandatory that a business bank account is opened at the point of business registration. This is to ensure a good record of payroll and tax-related transactions is properly documented.
It is important to note that most German banks do not provide banking services to Non-German business founders. So it is advisable you open an account from the list of accepted banks as recommended by the notary.
After the bank account has been opened, the next step is to deposit the share capital into the account. This can be done via cash or wire transfer. A deposit slip will be issued to you, which you will present to the notary.
It is also advisable you make payment to the notary for its services and for the Handelsregister invoice at this point. That is if the notary has not taken care of this in the beginning.
Business Registration Proper
After the above steps have been officially carried out, the notary will now file all articles of association of the business at the commercial register. He also informs the local trade office (Gewerbeamt) about the business and its standards of the establishment.
Once the registration is completed, the company will then be entered into the commercial register and the applicant is notified by the notary.
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Hire a Tax Adviser
After your business has been registered, it is advisable you hire a reputable tax adviser. The tax adviser helps you complete the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung). He also gives you advice on the different tax implications for your business.
Once your tax registration questionnaire is completed, Finanzamt will issue your company a tax ID number. This ID number (Steueridentifikationsnummer) will be of utmost importance for all your tax transactions in the country. Check out the tax laws applicable in the United States.
Obtain Trade License
Once all the above steps have been taken care of, your trade license will be issued. At this point, your business is fully ready to start operations in Germany.
It is advisable you read through the business compliance policies issued by the German government for those doing business in Germany. This will help you avoid a lot of legal sanctions that could harm your business in ways you may not understand. Not interested in starting a business in Germany? Consider checking out our next article on how to set up a business in Austria.
